Are the Hospitals Really Losing Money?

For the past few shows and in a few coming up, we are circling our wagons around a theme: In healthcare in this country, there are two teams. One team is employers, taxpayers, patients … those trying to keep healthcare prices down. Then on the other team, we have those looking for healthcare prices to continue to go up, meaning, as just one example, some health systems and some hospitals.

There was a New York Times article recently, and Peter Hayes wrote an interesting comment about it on LinkedIn. He wrote:

“This article is troubling on so many levels and clearly demonstrates that patient health and well-being are not the top priority of many in healthcare leadership in our hospitals. Unfortunately, it is much more about patient revenue than patient health. … The non-profit status of our health facilities is a huge hidden tax and wealth transference from every taxpayer that is estimated to be about $39 billion annually.”

Look, for sure, not talking about everybody in healthcare leadership here, and increasingly I’m kinda thinking we need to maybe have more than one word for hospitals and their leadership because lumping them all together into a homogenous blob is really unfair to those rural and safety net organizations contending with all kinds of adversities—which is very, very different in circumstance to those so-called “well-resourced” hospital chains in suburban markets really raking in the cash and virtue signaling in very well-resourced press campaigns.

And the irony of this whole thing is that a reason hospitals (that want to) get away with doubling down on profit-centric business models is actually their nonprofit status.

This is a major loophole. If you are a nonprofit, you get to be excluded from some of the powers of the FTC (Federal Trade Commission), for example. But then there’s also the lack of financial discipline, as Mike Thompson puts it in the show today.

These nonprofit organizations have never had to run efficiently. They have never been asked to justify the new building or the other adds to their infrastructure that ultimately increase their costs of doing business in ways that, on the whole, might not benefit patient care.

And I say “might not benefit patient care” fairly confidently because there is absolutely no correlation between high prices and high quality in healthcare. In fact, it can just as easily be the opposite.

But if you overbuild and you buy too many MRI machines or whatever, then you gotta feed the beast. And then the downward spiral starts, and the anticompetitive, financially toxic behavior really kicks into high gear—which, again, is tough to regulate because our laws and legislation expect nonprofits to, you know, behave like nonprofits.

In this healthcare podcast, I am thrilled to speak with Mike Thompson, who is the CEO and president of the National Alliance of Healthcare Purchasers. Interestingly, Mike is an actuary by background; and I am sure that that has come in handy as more and more data is becoming available for purchasers and also regulators.

The National Alliance has created a playbook to help employers get a fair price from hospitals.

In short, the playbook’s five strategies to do so include (1) looking up what the fair commercial price is for your local hospital, which is really easy to see if you go to dashboard.sagetransparency.com. This Sage Transparency dashboard was created by the Employers’ Forum of Indiana. Not to drown you in acronyms, but the Sage Transparency dashboard very elegantly combines RAND data showing what hospitals are actually charging employer plans and compares that to what’s called the NASHP commercial break-even price. NASHP is the National Academy for State Health Policy, who crunched a lot of numbers to figure out this commercial break-even price.

Once you know the fair commercial price for hospitals in your area, then one way to go could be (2) using an RBP (reference-based pricing) strategy and paying based on the fair commercial price plus a markup.

Another strategy is to (3) start monitoring your ASO/TPA (administrative services organization/third-party administrator) carefully and see that they are paying this fair price and getting performance guarantees to hold them accountable to do so.

Yet another strategy is to (4) gang up with other employers in coalitions, which is often necessary, given how much market power some of these hospitals have consolidated and all the anticompetitive practices they’ve managed to tuck into their FTC-exempt quiver.

And last is to (5) regulate through legislation.

One point that Mike makes very clear is that if nonprofit hospitals cannot remain true to their mission and if they are also not subject to market dynamics, that’s a lose-lose for their communities. At that point, a very viable option is to regulate them like utilities. This is also what I talk about next week with Chris Skisak and Gloria Sachdev.

The sad part about this whole thing is that hospitals and communities really should be sitting on the same side of the table working together to improve the health and well-being of their communities. And that should include—according to me, at least—keeping financial toxicity in check, especially just given everything we know for sure about how financial toxicity negatively impacts patient health.

Oh, hey, here’s a thing: Turns out I had a fever when I recorded this show, so yeah, Mike deserves a little extra kudos for very eloquently just going with it when occasionally my questions sort of ended without, you know, actually asking a question.

You can learn more at nationalalliancehealth.org.

Michael Thompson is the president and CEO of the National Alliance of Healthcare Purchaser Coalitions (National Alliance), the only nonprofit, purchaser-led organization with a national and regional structure dedicated to driving health and healthcare value across the country.

Prior to joining the National Alliance, Mike was a Principal at PricewaterhouseCoopers (PwC) for 20 years. He is a nationally recognized thought leader for business health strategies and health system reform. Mike has worked with major employers and other stakeholders on sustainable cost reduction, integrated health, wellness and consumerism, retiree health, private health exchanges, and health reform. Known for developing and promoting collaborative cross-sector health industry initiatives, Mike participated on the steering board of the World Economic Forum’s “Working toward Wellness” initiative and co-founded the Private Exchange Evaluation Collaborative. Prior to PwC, Mike served as an executive with diverse roles with Prudential Healthcare for over 17 years.

Mike is a Fellow of the Society of Actuaries, serving on the Health Practice Council, and chairs the Medicare Sub-Committee of the American Academy of Actuaries. He is board president of the Innovation and Value Initiative. He is also widely recognized as a leading national advocate for mental health and well-being and was past president of the New York City chapter of the National Alliance for Mental Illness.

05:37 Check EP372 with Cora Opsahl; EP358 with Wayne Jenkins, MD; EP388 with Merrill Goozner; and EP346 with Peter Hayes for a deep dive.

05:48 Why should an employer health plan be concerned about how much area hospitals are spending?

07:01 How are hospitals quantifying their prices?

08:10 “I think we’re not paying a fair price is the end game.”

10:45 How do we bring rigor back into the market?

11:12 What is NASHP?

15:10 What does the NASHP commercial breakeven take into account?

18:24 Why are hospitals conflicted when it comes to building a health system based on value and health?

20:17 Why is the onus on hospitals to defend the way they’ve spent the money they have?

21:58 “Where there are market dynamics, we typically see prices in that fair price range.”

25:06 What can employers do from a market standpoint, a program design point, and a policy standpoint?

27:11 What is the National Alliance of Healthcare Purchaser Coalitions playbook?

30:15 Why is changing the dynamics in the press important to changing hospital pricing?

33:02 How fundamental is the employer’s role in making sure that they’re paying a fair price for the healthcare services their employees are receiving?

You can learn more at nationalalliancehealth.org.

@IWLMikeT of @ntlalliancehlth discusses #hospitalpricing on our #healthcarepodcast. #healthcare #podcast #hospitals #healthcarepricing

Recent past interviews:

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Dr Rishi Wadhera (Encore! EP326), Ge Bai (Encore! EP356), Dave Dierk and Stacey Richter (INBW37), Merrill Goozner, Betsy Seals (EP387), Stacey Richter (INBW36), Dr Eric Bricker (Encore! EP351), Al Lewis, Dan Mendelson, Wendell Potter, Nick Stefanizzi, Brian Klepper (Encore! EP335), Dr Aaron Mitchell (EP382), Karen Root, Mark Miller, AJ Loiacono, Josh LaRosa, Stacey Richter (INBW35), Rebecca Etz (Encore! EP295), Olivia Webb (Encore! EP337), Mike Baldzicki, Lisa Bari, Betsy Seals (EP375), Dave Chase, Cora Opsahl (EP373), Cora Opsahl (EP372), Dr Mark Fendrick (Encore! EP308), Erik Davis and Autumn Yongchu (EP371)