The Challenge of Changing Incentives in Health Care

In this healthcare podcast, we’re gonna zoom out and look at the entire healthcare industry. I am very confident that you know a lot about the healthcare industry and its basic stats. It’s huge. The healthcare industry is approaching the $4 trillion mark, and it employs more people than any other industry in 47 states. Think about that momentarily. More people work in healthcare than in any other industry in every state except for Wisconsin, Indiana, and Nevada.

We could get into (but we won’t) how many of the gigantic, consolidated incumbents in the healthcare industry are either for-profits sporting very happy shareholders or investors. Then, of course, we have our “nonprofits”—especially mega-nonprofit health systems—who enjoy some pretty healthy margins while, at the same time, these health systems in general offer up some fairly embarrassing levels of charity care considering the amount of taxes they deprive their communities of.

You also are probably eminently familiar with various ways that have been cited to transform the industry. So, the usual suspects here are, of course, changing incentives—offering true value-based care contracts, for example—and then the whole creative destruction angle, wherein upstarts come in with far superior products and services, à la the whole Kodak case study or what happened to Sears and Kmart. Maybe this will happen in healthcare. Other ideas to transform the healthcare industry include employers harnessing the latent power that they have in some markets and then, of course, getting rid of middle people, for sure. Or we could go single payer, of course. That’s another suggestion/solution.

Today’s conversation is a rather holistic look at all of this. I dig into this with David Muhlestein, who is chief research and innovation officer at Health Management Association (HMA). And when I say dig in, I mean dig in. David made some very intriguing points that I had not heard before, actually—and I’ve heard a lot in my time, so that’s saying something. I’m gonna tick off a couple of them, but I don’t do them justice. So, you’ll need to listen to David explain them and give context.

First off, what’s the problem with healthcare being a $4 trillion industry in this country—I mean, almost 20% of GDP—and employing more people than any other industry in 47 of our 50 states? There are other big sectors in our economy, after all, that get lots of love. Why is big healthcare “bad” and these other sectors “good” in economic terms when we talk about employment?

That’s one thing I wanted to know. And David made a point that may be self-evident for some but is worth reiterating in all cases. The government pays for roughly half of healthcare, and from a consumer or just American standpoint, it kind of sucks. I mean, I don’t see many Insta selfies of someone rocking their brand-new insurance premium. Dollars going to healthcare or health insurance are not going to consumer goods. And that matters economically as well as retail therapy. For all you econ geeks out there, this industry offers no marginal utility.

Here’s a second interesting point: Just changing incentives might not be enough. Organizations downstream and upstream need to be on board with the spirit and objective of the incentive change. If they are not, then it’s game on for every CFO and their revenue cycle managers to finagle how to find the loophole that enables revenue maximization. Revenue maximization. Period. Revenue. The end.

Which brings me to another interesting point: Boards of directors, CEOs, people with fiduciary responsibility … they need to know thyself and consider their actual customer.

Spoiler alert: 99% of the time, that actual customer is not patients, no matter what is printed in big letters on the front door.

No change can really happen unless those who serve in the upper echelons of these businesses get really real about where their bread is buttered. Organizations are built to serve their customer, after all. So, if a patient isn’t identified as a customer, the organization at its very core is gonna have a lot of difficulty serving the patient.

So, now what? If I want my organization to move forward in a way that is more patient-centric and less financially toxic, say, what to do? Here’s thoughts after chatting with David Muhlestein. Four main steps:

1. As I just said, you gotta get your current state unemotionally understood. For reals, who is the organization built to serve? So, first step is being introspective in the harsh light of day.
2. Consider the timeline of your existential demise. Ha ha, this show is so uplifting. But unless organizations really think out 5 years, 10 years, 25 years and really internalize the existential threat, it’s going to be hard to motivate change. I see this all the time. So do you. Inertia is real. Nobody does anything until they absolutely have to.
   • Sidebar: But if you need an eventual demise to bring up at your next strategy meeting, I just saw a paper come out saying that by 2030, cost-related nonadherence could become a leading cause of death in the United States, surpassing diabetes, influenza, pneumonia, and kidney disease. This is as per a study by the nonprofit West Health Policy Center and Xcenda. Nonadherence … what does that mean? It means the patient is not doing their treatment. They are not going to the doctor or getting medical care or not taking their drugs. Meaning no one is making money off of all of those patients, especially when they’re dead. This is where the rubber meets all of those excess profits everybody is reaping in the short term. I hope that was helpful for anybody trying to motivate change today.  
3. Consider what legacy we want to leave behind. Do we all want to wait until we’re forced to change to do so? Is this the healthcare system we want to leave behind to children and grandchildren? I mean, anybody who’s got a loved one in the hospital with anything complex, fighting for their own patient records, on the phone for hours a day with insurance carriers while care is delayed with possibly devastating consequences, the family having to coordinate care and cross their fingers and pray they don’t get a ridiculous bill for services that may or may not have been rendered and then use retirement savings to pay for them … if anyone is not looking to be a party to all of this, then let’s think about our strategy moving forward and how it will change to meet the future we want to see.
4. On to the evolve and change approaches: How exactly do you think about doing that? According to David Muhlestein, you can repair your current organization or remodel or rebuild.

It sounds daunting, but as Dr. Eric Bricker said on our recent interview together (EP351) and as others have said as well, this is already happening in some regions across the country. There are pockets with real transformation. These changes are on the edges right now, but they’re showing that this can and is possible.  

David Muhlestein, PhD, JD, is chief research and innovation officer for Health Management Associates (HMA). He is responsible for the firm’s self-directed research and supports strategic planning and innovation.

David’s research and expertise center on healthcare payment and delivery transformation, understanding healthcare markets, and evaluating how the broader healthcare system is changing. He is a self-identified data nerd and regularly speaks and writes about healthcare system evolution.

David joined HMA via its acquisition of Leavitt Partners in 2021, where he was the chief strategy and chief research officer.

Additionally, David is a visiting policy fellow at the Margolis Center for Health Policy at Duke University, adjunct assistant professor at The Ohio State University College of Public Health, and a visiting fellow at the Accountable Care Learning Collaborative. He previously served as adjunct assistant professor of The Dartmouth Institute (TDI) at the Geisel School of Medicine at Dartmouth College.

David earned his PhD in health services management and policy, JD, MHA, and MS from The Ohio State University and a BA from Brigham Young University.

07:38 Is it an issue for the healthcare industry that it is one of the largest employers in the country? 08:42 “I think that we need to figure out what is an appropriate amount to spend on healthcare and get to that level.” 09:01 How do we not decrease the amount of healthcare we’re receiving while paying less for that healthcare? 10:11 What are the two ways we can look at decreasing healthcare spend? 15:39 “I think that a regional approach may happen.” 16:56 “When somebody takes less, others are going to follow them.” 17:33 Who is really paying in our current healthcare system? 19:47 “Any sort of a model that you start with influences everything else that you do.” 20:09 What’s the common challenge David Muhlestein sees in value-based care systems? 23:21 “There are countless things that you can do to improve the current system today.” 27:25 What are the three options for building up better healthcare? 28:19 David’s advice for healthcare executives. 33:22 “To really lower the total cost of … healthcare, it’s a 30-year process.”

@DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

Is it an issue for the healthcare industry that it is one of the largest employers in the country? @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

“I think that we need to figure out what is an appropriate amount to spend on healthcare and get to that level.” @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

How do we not decrease the amount of healthcare we’re receiving while paying less for that healthcare? @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

What are the two ways we can look at decreasing healthcare spend? @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

“I think that a regional approach may happen.” @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

“When somebody takes less, others are going to follow them.” @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

Who is really paying in our current healthcare system? @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

“Any sort of a model that you start with influences everything else that you do.” @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

What’s the common challenge David Muhlestein sees in value-based care systems? @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

“There are countless things that you can do to improve the current system today.” @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

“To really lower the total cost of … healthcare, it’s a 30-year process.” @DavidMuhlestein discusses #healthcaretransformation on our #healthcarepodcast. #healthcare #podcast #digitalhealth

Recent past interviews:

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David Scheinker, Ali Ucar, Dr Carly Eckert, Jeb Dunkelberger (EP360), Dan O’Neill, Dr Wayne Jenkins, Liliana Petrova, Ge Bai, Nikhil Krishnan, Shawn Rhodes, Pramod John (EP353), Pramod John (EP352), Dr Eric Bricker, Katy Talento, Stacey Richter (INBW33), Stacey Richter (INBW32), Dr Steve Schutzer (Encore! EP294), Lisa Trumble, Jeb Dunkelberger, Dr Ian Tong, Mike Schneider, Peter Hayes, Paul Simms, Dr Steven Quimby, Dr David Carmouche (EP343), Christin Deacon, Gary Campbell, Kristin Begley