Is Value Bas Care Going to Work?

First of all, this is a 400-level discussion. If you think you already know all about our dysfunctional healthcare benefits market, then this show is for you.

Before we begin, I just want to say something. I’m gonna refer back to David Muhlestein’s episode (EP364), where he talks about the first step toward healthcare transformation. It is, let’s just say, for incumbent health systems and payers, people who work there, to step back and in the harsh light of day really contemplate their business model—see it clearly. If you’re listening to this show, then know that I love you; so this is not a condemnation of you or the great things that you are likely doing in your department. I see you as a changemaker. But contemplating your organization as a whole is like the first step of a 10-step program … to admit what friends and family were saying at the intervention.

If you’re not yet at the—what’s it called?—contemplative stage in your journey toward transformation, you could skip ahead to the 23:00 mark approximately for some advice on what people who work at incumbent payers and/or providers can do right now.

My one and only intent here is to see change happen. What I see currently are certainly efforts to improve quality at some level. But those responsible for finance, premiums, and the employer sales team are in a different part of the building. I mean, maybe a first step here is, Can you invite those guys and gals to your meetings?

OK … so, there was a paper that came out in JAMA entitled “The Dysfunctional Health Benefits Market and Implications for US Employers and Employees.” It was by David Scheinker, PhD; Arnold Milstein, MD; and Kevin Schulman, MD, who is my guest in this healthcare podcast. David Scheinker, by the way, was on the show earlier (EP363), so certainly go back and listen to that.  

This paper (the “Dysfunctional Health Benefits Market” paper) showed that commercial insurance costs have gone up 4x the rate of other benchmark goods or services in price. So, bottom line, “It is assumed that insurers compete intensely to improve the value received by employers and employees by negotiating to keep prices down and advocating for employers and employees.” It turns out, though … not so much with that.

My guest in this healthcare podcast, as mentioned, is Kevin Schulman, MD, an author on that paper. And he says this much more eloquently than I will, but the skinny is this: Because insurer profits are capped at 15%, that means that the more healthcare costs go up, the more possible profit in absolute terms that a health insurance carrier can make. After all, 15% of a bigger number is … a bigger number.

If you look at how Wall Street responds to these bigger numbers all the way around—higher costs translating to higher profits, that whole thing—you will find that Wall Street likes this profit-generating formula … very much. Share prices go up when that 15% goes up.

What does Wall Street like less? It likes less restructuring and pushing providers to deliver better care for less cost and then passing those savings on to employers and employees. Even if you increase quality and decrease costs really well and/or profitably as an insurer, share prices do not rise nearly as much as they rise if you phone it in with the “negotiations” with providers.

Nonprofits, by the way, get no pass here either. Some of the most expensive hospitals in the country, which are nonprofit, are doing their thing in areas where nonprofit carriers are the big kahunas. Call it margins. Call it profits. Whatever … same thing. Listen to the show with David Muhlestein, PhD, JD (EP364) from two weeks ago. It’s all about the business models. And that business model is revenue maximization. Period. End of the sentence. 

So, who loses in this equation? Oh, right … patients. And employers. Read anything by Dave Chase for more on how crushing this loss is that patients and employers suffer: middle-class wage stagnation, bankruptcies, financial toxicity that is actually clinical toxicity, skyrocketing premiums way over the cost of inflation, that healthcare costs borne by employers are a driver for offshoring because they make American labor so expensive. A study the other day said that nonadherence due to a patient’s inability to pay for treatment will be a leading cause of death in 2030. That’s what this all is adding up to.  

Because of business models, insurers have become the piggy banks for health systems, as my guest Dr. Kevin Schulman says. This piggy bank is funded with the pennies, nickels, and dimes from you and me, the insured lives, our employers, and taxpayers. So, unless you’re a shareholder in one of these carriers and their vertically integrated PBMs, of course, then, I guess, good for you. Or getting political donations from them might also be a net plus for you personally. Where are the activist investors in all of this?

Something that Dr. Schulman said in this episode I had never heard before, and—wow!—it explains so much. It’s this whole idea of some, not all, but some health systems clamoring about how they have to charge commercial patients more because they are losing so much on their Medicare patients. They have to cost shift to commercial lives.

Here’s what Dr. Kevin Schulman said about that in my own words: Cost is a construct. Cost is a dynamic fiction. I mean, say I buy a mansion. I put in a Jacuzzi and a tropical flower bed that needs to be misted with water on the half-hour. Then I tell you that my fixed costs are really high and, therefore, my tuna sandwiches are really expensive. I just made them expensive. I made the decision to increase my costs.

The interesting backdrop for that is that in competitive marketplaces, or in Maryland, hospitals do just fine (thank you very much) getting paid Medicare rates. They don’t have to price shift. But in markets with no competition, where the hospitals decided to build, baby, build, they created these giant brick-and-mortar money pits that, yeah, cost a boatload. And then they complain that they have to price shift to employers and their own patients to pay for it all.

One thing that we don’t talk about in this episode are non–fee-based brokers and the role that they play in all of this. One recent lawsuit is a pretty perfect example of what I’m saying here.  

You can learn more by visiting Dr. Schulman’s profile page and connect with him on LinkedIn.

Kevin Schulman, MD, is a professor of medicine for the Clinical Excellence Research Center (CERC) at the Stanford University School of Medicine and, by courtesy, professor of operations, information, and technology at Stanford’s Graduate School of Business. He is the faculty director of Stanford’s new applied master degree program, the master of science in clinical informatics management program. His research focuses on broad, system challenges in the healthcare market, looking for ways to better understand hidden costs throughout the system. He then works to develop innovative solutions to deliver great care at lower cost.

07:13 Why have commercial insurers become price-takers? 10:04 How does a health plan get bigger profits? 10:40 “At the core at this, Wall Street rewards predictable performance; and the predictable performance … is great if healthcare costs go up.” 11:00 What does it mean to have a “dysfunctional equilibrium” in healthcare? 12:05 What’s really changed in healthcare in the last 20 years that’s caused this increase in healthcare pricing? 12:47 Commercial price versus Medicare: Do hospitals really need to cost shift? 15:51 How is value-based care really going to work? 17:43 “It’s not A or B; it’s a dysfunctional market.” 17:57 “Little changes in volume or incentives is not going to change the underlying dynamics.” 24:32 “I think it’s an open question whether this model is really serving the American public.” 29:25 “It’s a really important time for us to think about, how do we create a different trajectory?”

You can learn more by visiting Dr. Schulman’s profile page and connect with him on LinkedIn.

@kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

Why have commercial insurers become price-takers? @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

How does a health plan get bigger profits? @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

“At the core at this, Wall Street rewards predictable performance; and predictable performance … is great if healthcare costs go up.” @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

What does it mean to have a “dysfunctional equilibrium” in healthcare? @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

What’s really changed in healthcare in the last 20 years that’s caused this increase in healthcare pricing? @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

Commercial price versus Medicare: Do hospitals really need to cost shift? @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

How is value-based care really going to work? @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

“It’s not A or B; it’s a dysfunctional market.” @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

“Little changes in volume or incentives is not going to change the underlying dynamics.” @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

“I think it’s an open question whether this model is really serving the American public.” @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

“It’s a really important time for us to think about, how do we create a different trajectory?” @kevin_schulman discusses #healthcarebenefits on our #healthcarepodcast. #healthcare #podcast #benefitsmarket

 

Recent past interviews:

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Scott Haas, David Muhlestein, 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