Tim Coan, ALN’s CEO, writes an insightful and witty blog once a week about a variety of topics relevant to independent physician practices.

Barometer Myopia

It was a classic physics exam question:

‘Show how it is possible to determine the height of a tall building using the aid of a barometer.’

The obvious answer, for the examiner anyway, was to use the barometer to determine the differences in air pressure at the top and bottom of the building and thus calculate the height.  That is what barometers are for, that is how physicists are supposed to think.

The student, who legend says might have been future Nobel Prize winner Niels Bohr, wrote, ‘Take the barometer to the top of the building. Attach a long rope to it, lower the barometer to the street, then bring it up, measuring the length of the rope. The length of the rope is the height of the building.’

When challenged by the professor to give the ‘right’ answer, the student promptly offered up several other alternatives.

  • Drop the barometer off the roof and measure the time it takes to hit the ground and calculate it that way.
  • Stand the barometer in the sun and measure the shadows of both barometer and building and calculate using the height of the triangles of each.
  • Tie it on a string and swing it like a pendulum, both on the ground and on the roof. Determine the radial altitude on both the ground and the roof and calculate it that way.
  • Mark off the number of barometer lengths as you go up the staircase and add those up.

And my personal favorite: Trade the barometer to the janitor in exchange for him telling you the height of the building.

Oh, the arrogance of falling in love with our presumed answer to the problem.

And that is exactly what we’ve done with value-based care.  Giving the ‘right’ answers to the pricing mechanism question – ACOs, capitation, maybe bundled payments – has become more important than actually solving the problem – reduce the cost of healthcare, give us more value for our money.

Healthcare is complex beyond comprehension.  There are so many places where the big collective ‘we’ are not getting good value for our money.  Just off the top of my head…

  • Over-utilization due to financial self-interest (I led with that to please the ‘examiners’ who want me to say ‘fee for service is evil’)
  • Flawed work that does not come with a ‘make good’ guarantee
  • Ridiculously high unit prices that bear no resemble to value
  • Care that has no proven efficacy
  • Inflated prices that reflect waste and unnecessary friction in the entire process
  • Monopolistic prices that reflect an incumbent’s power more than value delivered

We could go on.

The point is we need more innovation in how we leverage pricing mechanisms as we drive for value, not less. Pricing models both reflect and drive innovation.

Sometimes, the fastest way to better value is to just lower the price.

That is a message independent physician practices should be trumpeting.  ‘Hey, we just cost less than the other folks.’

Like talking to the janitor, sometimes the easy answer is the best answer.

The Pile of Discarded Name Badges

Today officially ends my long fall conference season and leaves me with a big question: For Christmas, should my kids each get a couple of lanyards with plastic nametag holders, logo-emblazoned cell phone charges, a water bottle, or a basket full of those tiny hotel shampoos?  Sometimes they read along, so I hope this does not ruin the surprise.

My conferences covered diverse perspectives, so I got to peer at healthcare from several angles.  Stepping back and squinting at the past several weeks as the big blur it has become (what city is this again?), a couple of big things emerge.

Four observations, in no particular order…

First, the industry is ever more bifurcated on the subject of ‘value-based care.’  For many, this is the new reality and the game is over.  For another swath, particularly surgical and procedural-oriented physicians, this all seems like a bunch of self-important wonky hype because it has not come to their world at all.

The first group has no idea the second group exists, or if they do, they presume they are Neanderthals that will either get it soon or go extinct.

The second group – many of our readers – need a new script for talking to the first group and here it is, free of charge: ‘We ARE fully into value-based care, and in fact, we are leading the way and are ahead of you all.  When you move FFS business out of the hospital, HOPD, and health system-employed physician settings and to our lower cost ambulatory model, you save a ton of money and isn’t that the essence of value?’

Second, no one talks about changing their EMR anymore. It just seems too hard and too expensive.  But there are about a gazillion new tech companies that have some bolt-on solution to make all the pain go away.

Unfortunately, most of those companies won’t make it and will also go away, but right now you can’t pick the survivors.

Third, if there are any real issues that matter in the election (that is not a rhetorical comment…it seems everyone has picked sides and are only talking to their own team), healthcare will be at the top of the list and the philosophical differences between the Shirts vs. Skins are wider than ever.

Here’s a free piece of advice for President Trump…if you ever get asked a question about healthcare, just point to CMS Director Seema Verma, sit down and give her the floor.  She is beyond impressive and delivers the most articulate and compelling defense of market-based healthcare ever.  That advice implied ‘sit down and shut up,’ so it’s not going anywhere, is it?

Finally, the big outsiders who are coming into healthcare…holy cow, are they going to blow things up.  Understanding what Walmart is doing with their clinic in Dallas, Georgia; seeing some things Google is doing that only Google can do; hearing healthcare plans from companies as diverse as Mastercard to Lyft to Bose (yes, the speaker people)…well, Dorothy, this ain’t Kansas, is it?

The Vizzini Debate

You can determine the age of a tree by cutting it down and counting the rings, though that seems to be a bit of a harsh method for answering an irrelevant question.

You can determine the age of a woman…no, you can’t.  That is a state secret.

You can determine the age of a man by the set of movie quotes he uses out of context way too often as substitutes for original dialogue.  His cited movies were playing when he was in his 20s because he was waiting for the final stages of his cerebral cortex to firm up and these movie lines got cemented in at a critical juncture.

Recently, I was with a group of guys about my age and the subject of ‘most quoted movies’ came up.  We all quickly agreed…’The Princess Bride’ was on our Mt. Rushmore.

There are few scenes more central to the history of humanity than the battle of wits between Vizzini and the Man in Black.  Here is the transcript of the scene if you are depraved of all cultural education.

I recently found myself having a Vizzini-like circular argument with myself, not over iocane poison, but Certificate of Need (CON) laws.  I blame my friend Doug for starting this, but in reality, it was due to an internal struggle between two conflicting personal beliefs.

Philosophically, I generally like vesting autonomy with the states as much as possible, one reason being that it gives us 50 laboratories in order to figure out what works.  Currently, 35 states and the District of Columbia have CON laws that impose government control on several aspects of healthcare service expansion, most notably the construction of new facilities.

Surely, I must choose the state’s rights option in front of me.

Not remotely because I am equally strong, if not stronger, in my conviction that hospital monopoly power is being used to drive up the cost of healthcare. There is no clearer evidence than their use of the archaic CON laws to restrict facilities competition, particularly from physician practices.

Should CON laws continue to be state level decision or should there be a federal action to sweep them all away in the name of increased competition that will help lower costs?

Well, Doug prompted this internal argument, but then he resolved it for me as well.

Since CMS, through both Medicare and Medicaid, pays the bills everywhere why would it allow the 35 states and the district to retain CON laws that have the effect of increasing the price tag CMS pays?  More specifically, why would taxpayers in non-CON states agree to subsidize higher costs in CON states just to appease the entrenched hospital power brokers?

The battle of wits solved by a ‘truly a dizzying intellect.’

Read the scene…the obtuse references will make sense and this whole post will be funnier.

Chinese Trade

Given the NBA’s recent imbroglio regarding all things China you would think a smart person would stay far away from this subject, but then again, this blog does not have a few billion dollars of revenue from the Chinese market at stake.

And since when have we stayed away from topics because it would be ‘smart’ to do so?  Plus, we are pretty sure our humble post is not on the radar of Chinese state-run media or Twitter trolls, so here we go.

Actually, our thought for the day is not about US companies accessing the vast Chinese market, but just the opposite – might China be coming after yours?

Telemedicine is widely considered to be one of the key pillars of the industry restructuring that is required.  It is an avenue to lower costs and improve access, particularly in rural areas.  The US telemedicine market is currently estimated at $12.5 billion and projected to triple in size by 2025.  Globally, the 2025 forecast is a whopping $130 billion.

We summon our inner Captain Obvious to point out that a central tenant of telemedicine is that it renders geography meaningless.  Throw in the speed of the coming 5G infrastructure and more circumstances are less constrained by the patient being over here and the provider being over there.

You can guess where this is going, can’t you?

China has a severely stretched national healthcare system.  Hospitals are overcrowded and getting in to see a physician can seem impossible.  Enter telemedicine to address the problem.

Good Doctor, a company owned by a large Chinese insurance company, has quickly ramped to over 100 physicians in its call center.  Signs hanging above the rows of cubicles housing headset-wearing providers read: ‘Internal Medicine,’ ‘Pediatrics,’ ‘Gynecology,’ and ‘Obstetric.’  Sounds like a typical multi-specialty practice.

As in the US, tech companies also want in on the game.  Both Alibaba (the Amazon of China) and Tencent Holdings (social media, gaming, venture capital, general technology) have launched their own telemedicine companies – Alibaba Health and WeDoctor, respectively.

If you think the US telemedicine market is growing fast, it pales in comparison to China where the 2026 market is expected to be 20 times larger than it was 2016.  That is some serious scale.

Yes, yes, yes.  There are about a thousand barriers between a Chinese call center and US patients.  And of course, when you have 1.4 billion people at home, why bother with the hassles of reaching into the United States?

But Good Doctor recently set up joint ventures that allow it to expand to South Korea and Japan.  That is, we believe, a small step closer to California.


Well, well, well.  Isn’t this an interesting turn of events?

As you know, Congress is pretty bent on passing some form of serious legislation this term regarding surprise medical bills.  While the issue has thorny complications for physicians, hospitals and payers on the ground, both sides of the aisle like the ‘easy-to-tell’ story for the voting public…

Ms. Jones needs to go to the ER, the hospital is in-network for her health insurance but the myriad of physicians who see her are not and she receives exorbitant bills from each of them.  Patients are put in the middle of this fight and that is wrong (serious look straight at the TV camera here) and something must be done about it!  We have pitchforks and torches and are coming to save the day.

Unsurprisingly, there has been strong lobbying campaign on behalf of providers to defeat these bills.  One of the most visible PR efforts to date is from an organization called Doctor Patient Unity, which has reportedly spent $30M to date on attack ads.

So far, so normal, right?

Well, last week the NY Times reported that the dark money behind Doctor Patient Unity came from a couple of large private-equity firms: Blackstone and KKR.

Are the PE firms just investing their capital to help educate the American people on the virtues of allowing the market to solve these problems?

Really? A public service announcement?

You see, Blackstone (Team Health) and KKR (Envision Health) happen to own two of the largest physician staffing companies in the country.  And a lot of their physicians provide services to ER patients, either directly as ER physicians or indirectly as radiologists, anesthesiologists or the like.

Which means their investments have a large stake in this surprise billing issue.

Which means it is worth passing the hat among the gang to fund a lobbying effort.

Now, the counterpunch.

Congress just opened an investigation into whether these PE-backed staffing companies are driving up costs to pad their bottom lines, first through using their leverage to negotiate higher in-network rates with the payers, and then by staying out-of-network where they can and charging even more.  Letters went to the CEOs of these two firms, as well as Welsh, Carson, Anderson & Stowe, another major player in this arena, asking lots of questions.

Besides wanting to know about revenue breakdowns and all that (PE firms are notoriously guarded on all things financial), they want to know what role the PE firms are playing in negotiating with payers.  This is sneaky angle because the equity funds generally don’t own the practice, but the management service organization that operates the practice (and were all the profits end up).  Here’s betting that the real squeeze comes if Congress can open some doubt that the investors inappropriately crossed over the ‘corporate practice of medicine’ laws (if you don’t know these, it is complex and a big deal).

This could get very interesting.

In Defense of Saying ‘No’

Reading a free-market economist extol the virtues of commercial health insurers is a bit like listening to a trusted old football coach explain why Tom Brady is the best QB ever.  Talk about your cognitive dissonance – I argue with the author, then I argue with myself, then I concede his point, but with a caveat.

Chris Pope, a senior fellow at The Manhattan Institute, a think tank that pushes for idea built on markets and personal choice, had an editorial in the Wall Street Journal yesterday making the case that the very thing that makes insurers unpopular with both their members and their providers – when they say ‘no’ – is a key feature that makes them valuable.

Here is a link to the piece on the MI website, but you hit the WSJ paywall if you want to read the whole thing.  Can we really can’t be disappointed when the leading bastion for capitalism charges for their content?

Pope argues that payers do a lot of things of value – they vet and organize provider networks, they experiment with new benefit plan designs to figure out a better system – but one of the most valuable things they do is say ‘no,’ as in, ‘No, we are not paying for that.’ They deny authorization, they deny claims.

Now, let’s point out the obvious source of my inner turmoil:  ALN is a physician revenue cycle management company…we fight the payers on behalf of our physician clients when this happens!  Sure, we do a lot of other things to get their claims processed and paid, but a huge part of our work is what we call ‘denials management.’  More important, for most of our clients this is the single most critical thing we do for them to earn our keep.

So, a free-market thinker (if you are new here, I am decidedly free-market and working on the ‘thinker’ part) is making the case that payers denying coverage is a good thing?

Directly, his case is that in the denial process payers reduce fraud, ferret out dubious or overly expensive care, thus allowing resources to instead flow to higher efficacy utilization.  Set aside for a moment your opinion of his thesis (or do as I did and have you own argument with him) and let’s get to his bigger point, which is why I ended up liking his piece.

He is making a case against the single-payer ideas percolating from the Democratic candidates.  He dispels the myth that there is a ton of savings to be had by taking the profits of health insurers.  He shows that commercial payers better perform the fraud and abuse function than does Medicare, and that all without the power of guns and badges.  He points to Medicare Advantage vs. traditional Medicare is a classic test/control group experiment that obliterates the fantasy assumptions of the crowd that believes the government can run one-fifth of the economy better than those greedy capitalists at UnitedHealth.

If you can get to the piece, you should.  Even if you disagree with him, it is thought provoking as we continue to ramp up this debate.