Why Managing Clinical and Financial Risk Is Primary Care’s Future

By Brian Klepper, PhD

Brian_Klepper_Health_CarHow will primary care practices change as the health benefits market increasingly favors value? Risk bearers (like health plans, health systems, stop loss carriers, and captive insurance arrangements) often rely upon primary care physicians to do the basics: managing common ailments and coordinating care and cost in ways that deliver consistently better health outcomes and/or lower costs. But there also are management approaches available that can drive appropriateness and efficiencies throughout the continuum, facilitating still stronger performance, if primary care will only access them.

Today, primary care is in high flux, but nervous about getting ahead of market trends. Most practices are still dominated by the delivery model that evolved in response to fee-for-service reimbursement, rewarding high volumes of staccato, 10-minute office visits, referring complexity on to specialists, and managing common ailments. But most don’t actively manage the excesses that plague American health care, nor do they see it as part of their role.

Dissatisfaction with the impersonal nature of the fee-for-service model has fostered the growing Direct Primary Care (DPC) sector, which offers concierge-level personalized attention to patients who pay a monthly subscription fee. While this niche holds promise and does appear to have satisfied patients, so far, little evidence has been presented suggesting better clinical or financial results. It also is doubtful that many DPC providers have invested in the infrastructure required to more effectively manage clinical or financial risk.

A large percentage of primary care physicians (PCPs) are now employed by health systems that, in exchange for a healthy paycheck and minimal administrative burden, expect them to refer patients early and often into the system’s lucrative outpatient specialty and inpatient services.

Some primary care practices have become much more focused on optimizing their roles through Medicare Advantage (MA) contracts that offer them full risk arrangements. Organizations like ChenMed in Miami and Iora Health in Boston accept 85% of the premium – the MA plans keep the other 15% – and are accountable for managing everything that’s required within the population, including specialty services, outpatient and inpatient services, imaging, drugs, and so on. These groups have become highly adept at managing this risk and are profitable. It is not much of a stretch to imagine that similar risk arrangements can be struck between primary care organizations and employer or union health plans.

In many cases, physicians’ relationships with health systems have worn thin, and some new groups are eager to pursue risk arrangements.  In Charlotte, NC, about 100 physicians at Atrium and about 50 physicians at Novant, the two dominant regional health systems – have recently left to establish new primary care practices. One of the new groups signed a management agreement with Holston Medical Group in Kingsport, TN, which over the past few years has developed advanced risk management arrangements, including an Accountable Care Organization, and the infrastructure required to aggressively manage that risk.

The next step in this evolution is to pair primary care practices that are positioned to take on risk with highly capable risk management “modules.” There are now hundreds of specialized health care management organizations, some of them proven high performers, focused on nearly every conceivable type of high-value clinical and financial risk. Companies are specialized for management of musculoskeletal conditions, cardio-metabolic conditions, cancer care, allergies, sleep dysfunction, dialysis, fertility, low-risk maternity, and so on. On the financial risk side, there are companies that specialize in claims review, large claims resolution, imaging cost management, drug spend management, reference-based pricing, bundled pricing, and more. Typically, the companies that have developed these risk management approaches have very high subject matter expertise in their niches, so generalists are not likely to be able to obtain comparable results. It’s probably worth contracting with the folks who have built a demonstrably better mousetrap.

The list detailed above goes far beyond the risk management activities most primary care practices have in their wheelhouse and think of as their responsibility. But they each represent significant areas of cost or health outcomes whose management can be overseen by primary care physicians. The primary care practice of the future will likely develop risk management capabilities in as many identifiable areas as possible, in order to drive maximum benefit, because it will be in its interests to do so.

Almost certainly, a future market will increasingly demand that providers consistently demonstrate better health outcomes and/or lower cost than conventional care. Care and cost management will be mission-critical organizational capabilities. Going at risk by guaranteeing results in some form based on the population-level outcomes and costs that an organization knows it can achieve, should be a priority.

Also, our understanding of the elements that comprise full continuum risk becomes more detailed as our experience deepens, informing the risk management tools we deploy and how we measure impact. Primary care will become more thorough and competent risk managers.

It is important to remember that many purchasers are eager to seek better deals than they’ve had access to from the conventional health plans recently. It shouldn’t be difficult to shine by outperforming our current health care system. In other words, acting from the front end of the health system, primary care physicians can cobble together multi-vectored risk management platforms favoring high-performance providers that are focused on driving optimal care and costs not only within primary care, but downstream, throughout the continuum.

Going at risk for care and cost will encourage primary care physicians to drive patients only to high performing specialty services, and to erode the delivery of inappropriate and unnecessary care. The reduction in over-treatment will create an oversupply in many specialties, re-empowering primary care and could flip the relatively disadvantaged relationship with specialists that has dominated for the past 30 years.

By organizing around highly capable of management of full continuum risk, primary care can become re-empowered, reasserting its role in health care as a manager of complexity, driving out unnecessary care and excessive cost, and bringing health care back to rights.

Brian Klepper is a health care analyst and Executive Vice President of Validation Institute

Re-Establishing Health Care Trust

Brian Klepper

First published 4/26/19 on Valid Points.

brian-9.jpgA couple weeks ago a Journal of the American Medical Association article reported the results of a large (33,000 employees) rigorous study of worksite wellness programs. As explained in The New York Times, the research “found no significant differences in outcomes like lower blood pressure or sugar levels and other health measures. And it found no significant reduction in workers’ health care costs.”

The study’s findings are important because they fly in the face of conventional employee health benefits doctrine over the past couple decades, which has steadfastly maintained, based on spotty evidence, that corporate wellness programs improve health outcomes and reduce cost. The study’s release vindicates health outcomes expert Al Lewis, who has relentlessly waged a single-handed campaign against the slipshod analytical methods the $8 billion wellness industry has marshaled to produce its evidence.

Time and again, Mr. Lewis has poked holes in rosy results, typically by showing the errors in their assumptions and arithmetic. Along with wit and humor, his most formidable weapons, his black and white, cold facts approach to dismantling their claims has been both disarming and effective. He has famously offered a $1 million prize to anyone who could show that his analyses are flawed. Continue reading “Re-Establishing Health Care Trust”

When Health Care Organizations Are Fundamentally Dishonest

By BRIAN KLEPPER

Initially published 3/19/2019 on The Health Care Blog

BKlepper 102018A class action legal ruling this month, on a case originally filed in 2014, found that UnitedHealthCare’s (UHC) mental health subsidiary, United Behaviora

Health (UBH), established internal policies that discriminated against patients with behavioral health or substance abuse conditions. While an appeal is expected, patients with legitimate claims were systematically denied coverage, and employer/union purchasers who had paid for coverage for their employees and their family members received diminished or no value for their investments.

Central to the plaintiff’s argument was the fact that UBH developed its own clinical guidelines and ignored generally accepted standards of care. In the 106 page ruling, Judge Joseph C. Spero of the US District Court in Northern California wrote, “In every version of the Guidelines in the class period, and at every level of care that is at issue in this case, there is an excessive emphasis on addressing acute symptoms and stabilizing crises while ignoring the effective treatment of members’ underlying conditions.” He concluded that the emphasis was “pervasive and result[ed] in a significantly narrower scope of coverage than is consistent with generally accepted standards of care.” Judge Spero found that UBH’s cost-cutting focus “tainted the process, causing UBH to make decisions about Guidelines based as much or more on its own bottom line as on the interests of the plan members, to whom it owes a fiduciary duty.” Continue reading “When Health Care Organizations Are Fundamentally Dishonest”

To Understand Value’s Market Progress, Watch Primary Care

Brian Klepper

BKlepperA year ago, 92 primary care physicians (PCPs) in Charlotte, NC broke away from the region’s largest health system, Atrium Health, forming Tryon Medical Partners, an independent, physician-owned group. Then, a couple weeks ago, another 41 PCPs left the area’s second largest health system, Novant, to join Holston Medical Group, a large multispecialty physician practice with more than 80 PCPs headquartered in nearby Kingsport, TN.

In these and most primary care breakaways from large health systems, the complaints are generally the same. Within a fee-for-service, volume-driven environment, primary care’s role, at least in part, is to capture patients and feed the machine. Health systems pressure PCPs to refer patients internally as often as possible for lucrative diagnostics and procedures. Continue reading “To Understand Value’s Market Progress, Watch Primary Care”

Health Care’s Most Needed Next Step

Brian Klepper

First posted on 1/14/19 on the Validation Institute Blog.

BKlepper 102018It seems inevitable that, in the near future, an innovative health care organization is going to seize the market opportunity, gradually cobble all the pieces together, and demonstrate to organizational purchasers that it consistently delivers better health outcomes at significantly lower cost than has previously been available.

To manage risk and drive performance, it will embrace the best health care management lessons of the past decades: risk identification through data monitoring and analytics, how to drive the right care, quality management, care coordination, patient engagement, shared decision-making, and other mission-critical health care management approaches. It will practice conservative care and be outcomes-accountable.

It will appreciate that, in health care’s complex world, some specialized vendors have developed high subject matter expertise in managing certain kinds of clinical or financial risk. In the interests of optimal performance, they’ll understand that it often makes sense to partner with those experts rather than try to learn to manage that niche equally well. Furthermore, they’ll get that simplicity is a virtue, and that bundling specialized services under one umbrella is far easier for patients to negotiate and health plan sponsors to manage than an array of individual arrangements. Continue reading “Health Care’s Most Needed Next Step”

North Carolina’s Battle for Health Care Value

Brian Klepper

First posted 12/10/18 in The Valid Points Newsletter

 

Lobbying? We’ve got 9 million taxpayers and 720,000 participants in this plan who understand that they aren’t consuming health care, it’s consuming them.”

 

North Carolina State Treasurer Dale Folwell

 

In North Carolina, a storm is brewing that highlights the health care industry’s influence and stranglehold over public dollars. An experienced civic-minded reformer with clout has emerged. Dale Folwell is a Certified Public Accountant who served four terms as a Republican in the NC House of Representatives and was elected Speaker Pro Tempore. Now State Treasurer, he has responsibility for the State Employees’ Health Plan and its 727,000 employees, dependents and retirees (including my wife, a sign language interpreter in the Charlotte-Mecklenburg  school system). The plan spends $3.3 billion annually, making it the largest health care purchaser in the state. “Right now, the State Health Plan and members spend more on health care to employees and retirees than is appropriated for the entire university system or for public safety,” says Folwell. He has made it his mission to bring reason and stability to that program.

Beginning January 1, 2020, Folwell proposes to switch the health plan’s reimbursement method to reference-based pricing. The approach, around a decade and now gaining momentum with employers around the country, would in this case pay 177% of (or nearly double) Medicare reimbursement. The health plan’s program, called the Provider Reimbursement Initiative, would allow providers a reasonable margin, but would cut an estimated $300 million annually from the plan costs and another $60 million from enrollees’ costs in the program’s first year. The health plan’s Board of Trustees unanimously supported the proposal.

In promoting his plan, Folwell has described some of the issues he’s faced. The most important is that, under longstanding arrangements with the state’s providers and the plan’s administrator, Blue Cross of North Carolina, the health plan can’t access pricing information on the services its purchasing. “I know what I’m being charged, but I don’t know what I’m paying,” Folwell explained. “For years, the plan has paid medical claims after the fact without knowing the contracted fee. It is unacceptable, unsustainable and indefensible. We aim to change that.”

“I said [to Blue Cross], I know what you are charging but what am I supposed to pay? There is no transparency,” Folwell said. “Blue Cross would not tell me, and there are laws on the books that say they need to tell us. The health care system has worked long and hard to develop this broken system, and they’ve been completely successful.”

Not surprisingly, the state’s health care lobby is gearing up to protect its turf.  State Rep. Josh Dobson, a McDowell County Republican, is expected to file a bill that would block Folwell from instituting the plan. Steve Lawler, President of the North Carolina Healthcare Association, one of a half dozen health industry associations with powerful lobbies, has claimed that Folwell has resisted discussion. But Lawler does not appear to have publicly addressed the transparency or excessive cost issues that are central to Folwell’s complaint.

While the battle is shaping up to be a high stakes, all-out fight, the health care lobby may not simply get its way this time. Robert Broome, Executive Director of the formidable State Employees Association of North Carolina, favors Folwell’s plan and said, “The state health plan board made a very sound financial and public policy decision that will save money for taxpayers and will save money for plan members, while bringing some common sense to how we pay for health care. It boggles my mind that folks could actually line up and be opposed to this.”

The beauty of Folwell’s strategy is that it is grounded in doing the right thing, and he has made it very visible to the Carolina rank-and-file. When challenged, there is every reason to believe that most politicians and business leaders will openly support the public interest over the health care industry’s interest, especially an industry that has become wealthy by taking advantage whenever possible for decades.

Folwell’s bold initiative takes its cue from a groundbreaking reference-based pricing initiative by the  Montana State Employees Health Plan, with about 30,000 enrollees. That program’s success has since led the Montana Association of Counties to implement a similar program. Here’s an introductory video on how that program works, and another one here explaining how the payment is calculated.

As health care costs have relentlessly risen, much of it due to opaquely excessive care and unjustifiable unit pricing, federal, state and local government workers around the country have seen their benefits slashed and their contributions dramatically increase. The initiatives in North Carolina and Montana may be the leading edge of a drive by purchasers exercising their new found market leverage. There’s every reason to believe they can be replicated throughout the country by governmental and non-governmental purchasers, fundamentally moving our broken health care system in the right direction.

It’s also important to remember that reference-based pricing is just one of several dozen powerful quality- and cost-management arrows in a larger health care performance management quiver. Smart employers and unions around the country are finally beginning to go around their health plans and deploy high performance solutions in drug management, musculoskeletal care, cardiometabolic care, imaging, allergies, claims review and many other opportunity areas for quality improvement and cost containment.

Mr. Folwell may well be the champion we need at the moment, and it’s possible he could achieve something meaningful. If governmental and business leaders follow his lead in North Carolina and around the country, it would be a key first step to dramatically changing our health system for the better.

Brian Klepper is a Charlotte-based health care analyst and EVP of The Validation Institute.

Saying No To The Drug Crisis

By BRIAN KLEPPER

First published 11/27/18 on The Health Care Blog

BKlepper 102018In a recent essay, VIVIO Health’s CEO Pramod John guides us through four sensible drug policy changes and supporting rationales that could make drug pricing much fairer. Reading through it, one is struck by the magnitude of the drug manufacturing industry’s influence over policy, profoundly benefiting that sector at the deep expense of American purchasers. As Mr. John points out, the U.S. has the world’s only unregulated market for drug pricing. We have created a safe harbor provision that allows and protects unnecessary intermediaries like pharmacy benefit managers. We have created mechanisms that use taxpayer dollars to fund drug discovery, but then funnel the financial benefit exclusively to commercial interests. And we have tolerated distorted definitions of value – defined in terms that most benefit the drug manufacturers – that now dominate our pricing discussions.

The power of this maneuvering is clear in statistics on health industry revenues and earningsAn Axios analysis of financial documents from 112 publicly traded health care companies during the 3rd quarter of 2018 showed global profits of $50 billion on revenues of $636 billion. Half of that profit was controlled by 10 companies, 9 of which were pharmaceutical firms. Drug companies collected 23% of the total revenues during that quarter, but retained an astounding 63% of the profits, meaning that the drug sector accounts for nearly two-thirds of the entire health care industry’s profitability. Said another way, the drug industry reaps twice the profits of the rest of the industry combined.

Pfizer, the top performing publicly traded company in Q3, generated $4.1 billion in profits on $13.3 billion in revenue, for a 31% quarterly margin and a 45% increase in profitability over Q3 2017. (By comparison, the 2nd and 3rd top performers, Johnson & Johnson and United Health Group, seemed meek, with Q3 2018 margins of 19.3% and 5.6%, respectively.) Convinced that significantly more can be extracted from the market, last week the organization thumbed its nose at the American people and announced another price increase, this time 5-9% on 41 drugs or 10% of its product portfolio, starting January 15, 2019. This action, of course, gave cover to other manufacturers wanting to do the same thing.

The drug industry has, in the main, been too smart to perpetrate this kind of price gouging over the short term. Instead, they’ve preferred to slowly ‘boil the frog,’ with relentless and predictable increases two to three times per year. While complaints abound, nobody has yet refused to pay. These increases have been reliably absorbed by U.S. taxpayers, employers and unions, conveying that there’s probably room for higher pricing still.

These bold business and profit-taking behaviors have been lubricated by a steady stream of pharma lobbying dollars to both parties of Congress – $280 million in 2017 alone, as reported by Open Secrets – which has been directly complicit in creating this economic albatross hung around the necks of the American people. Worse, we’ve come to consider this situation as acceptable and business as usual.

One question now is whether Congress can rise above simply being bought off and take actions for the common good rather than the industry’s financial interests. There’s some reason for optimism, with drug price management proposals from both sides of the aisle. In a Washington Post piece this month, Zeke Emanuel, one of the Obama Administration’s key architects of the Affordable Care Act, wrote:

… the Republican plan demonstrates that even conservatives are feeling pressure to regulate drug prices. The ideological challenge is how to regulate them. It is going to be difficult for Republicans to repudiate their president and stonewall on the issue over the next few years. Perhaps, with more than 90 percent of Democratic and Republican voters supporting regulation, a bipartisan compromise might emerge.

 Let’s hope he’s right, but until our lawmakers stop taking money from pharma, let’s not hold our breath.

One thing is clear. The actions of Pfizer and other powerful drug industry players have repeatedly demonstrated a willingness to test the limits of what captured regulation and a dominated market will bear, as well as a blatant disregard for the larger societal implications of those actions. This is also true for other health industry sectors, but because the numbers are so much higher within pharma, the ramifications are much more serious. Congress’ continued avoidance of meaningful remedies effectively abets an open threat to our national economic security.

While we hope that Congress comes through, so far that’s been a pipe dream. The drug industry is playing a game of chicken with America’s taxpayers, but also with its employers and unions, daring them to take the heat that would come from saying no. What we need is for America’s largest firms to collectively come together, refuse to pay exorbitant drug prices, and demand changes to the drug companies’ business models.

Our paralysis, our refusal to respond to the predatory forces within our borders, is the irony. If and when the reckoning comes, pharma can retort that its actions were transparent, and that we did it to ourselves by not saying no.

Brian Klepper is a health care analyst and the EVP of the Validation Institute.

Getting Noticed As A High Performance Vendor

Brian Klepper

Originally published in the Valid Points newsletter on 11/07/18.

All growing health care organizations struggle for visibility. Within the vast health care universe, thousands of companies strive to be noticed as better and different than others competing in the same spaces. Organizational health care buyers face an overwhelming signal-to-noise challenge, trying to discern whether programs improve quality and cost and, if so, by how much. It’s a market beleaguered by untrustworthy information, and it’s an arrangement that favors vendors’ interests, at purchasers’ expense.

Those delivering higher value – consistently better health outcomes and/or reduced costs – may be surprised to find lukewarm reception from the health plans they thought would be eager to learn of new ways to deliver better results. The cold reality is that most health plans make more if health care costs more. Only organizations that are at financial risk for management of quality and cost – e.g., fully insured health plans, managed Medicaid plans, Medicare Advantage plans – are likely to be eager for approaches that can streamline processes and improve outcomes.

More promising clients are organizations that can directly benefit from higher value health care. Organizational purchasers – employers and unions – fit this profile. So do firms, like clinic and medical management companies, that sell themselves as full continuum risk managers for purchasers. And health plans that see the potential to undercut the market by offering a richer benefit design for less money than is available through conventional approaches.

There are questions that can help purchasers discern whether a vendor is a high performer. For example, can the vendor provide credible enterprise-wide, rather than anecdotal, data showing better health outcomes and/or lower costs than conventional approaches? Can it provide client testimonials (along with contact information, so you can talk independently with its clients) showing that its experience aligns with the vendor’s performance claims? Is it scalable, meaning that it can easily set up operations in new locations that get the same results? Are its impacts enduring (or sticky), meaning that its clinical and financial management processes continue to yield results over time? And is it confident enough in its capabilities that it is willing to put some or all of its fees at risk, against the performance targets it claims it can achieve?

Fastidious purchasers can certainly take responsibility for a vendor due diligence process, which has been the norm in health care purchasing for decades. But as most employer and union benefits managers know, that can be a strenuously onerous and inefficient undertaking, especially when multiple vendors are involved.

An alternative is for vendors to make it as easy as possible for purchasers to have confidence in their performance claims, by subjecting their processes to credible independent, third party assessments. Validation Institute validation does this by systematically reviewing the analytical elements – the data sources, data and calculations – of a vendor’s performance claims, to see whether they align with promised results. Alignment and the vendor receiving validation can, to a reasonable degree, supplant or bolster the purchaser’s due diligence, giving purchaser confidence that actual outcomes will be close to those that were promised.

While the validation process tests the accuracy of performance claims, the evaluation process associated with the Health Value Awards seeks to identify superior performance. It assumes that the vendor has been validated, and then, using independent, third party judges again, asks both objective and subjective questions that give insight into the market viability, importance and elegance of the solution at hand.

In a complex and chaotic market, the goal is to provide an evaluation process that is unconflicted and above reproach, that can project credibility so that purchasers can comfortably turn to it for guidance. Organizations like Good Housekeeping and Consumer Reports have achieved this kind of authority over decades, but have primarily focused on evaluating consumer goods and being a resource to individual, not organizational, purchasers. Health care is a more intricate, involved and emotional buy in a sense, but it is also one that comes down to determinations of quality and cost.

Health care organizations that believe that they deliver better value and that have the data to support that can, for little cost, obtain credible independent third party assurance that their performance claims are true. Organizational purchasers will and should scrutinize the third party’s processes, but once satisfied, will, for the most part, turn over due diligence.

Which makes third party validation and demonstration of superior results the fastest route for a health care vendors to stand out in a sea of competitors.

Brian Klepper is a health care analyst and the Executive Vice President of The Validation Institute.

Could We Be at the Edge of Health Care’s Tipping Point?

Brian Klepper

Originally published 10/25/2018 in the Valid Points Newsletter

Health care wonks play a game where they wonder whether health care really is changing in ways that are palpably better for everyone. Everyone, that is, except for the senior executives of the drug and device firms, electronic health record companies, major health plans and health systems that have become so adept at relentlessly squeezing more money out of us and everyone we know. There’s a sort of desperate hopefulness afoot here, the idea that our activities are undermining the stranglehold on policy and the marketplace that keep the current regimes in place and thriving. Then reality kicks in and we remember that, so far, not much has changed. Health care continues, as Dave Chase points out, to steal the American dream.

That said, it is impossible to not notice positive progress in health care market dynamics. While I’ve alluded to many of these observations in previous comments, its worth recounting a few trends.

  • The table above shows that health plans have been spectacularly successful over the past decade, but they’re in an increasingly difficult spot now. Major health plan average stock price growth over a 37 quarter period ranges from almost 16% per quarter for Anthem to 29%/quarter for Humana. Effectively, these health plans’ earn more as health care costs more, which gives them every incentive to tolerate and encourage poor and inappropriate care, as well as egregious unit pricing.
  • The health plans’ breathtaking stock price performance is a mixed blessing. On the down side, US health care costs continue to spiral upward and more businesses and individuals are being priced out of the market, which means that a decreasing pool of insurables is available. Worse, while it may be counter-intuitive, these health plans can’t buy into tactics that would make health care more efficient. Doing so would reduce total spend, in turn reducing health plan earnings, stock price and market capitalization. Relative health care upstarts like Walmart and Amazon, with health care businesses that are a sideline rather than core to their operations, do not have these constraints.
  • There is anecdotal evidence on many fronts that organizational health care purchasers – employers and unions – are losing patience with a health system that is obviously intent on taking every advantage possible. Colleagues in the health care stop loss captive community say that interest in their structures has never been higher and that they’re flooded with interest from self-insured companies of all sizes. This could be understood as an effort by employers and their advisors to access new mechanisms of benefits management efficiency.
  • Purchasers’ and other risk-bearers’ are increasingly receptive to approaches that go around health plans’ standard offerings in high value niches. Many jumbo and large employers have long track records of being willing to try alternative solutions. But many more now appear to be interested in out-of-the-box programs for high value niches – e.g., musculoskeletal, drug management, cardiometabolic, reference-based pricing/bundled payments – as well as innovations in health system arrangements. (See, for example, the direct contracting arrangements between organizations like Intel and Memorialcare in Irvine, CA.) We’re also seeing focused interest by non-conventional purchasing collaboratives – e.g. industry associations – that bring together relatively small employers – <100-2,500 employees – into aggregations of >100,000 lives that have much more substantial purchasing leverage. And we’ve also noticed heightened interest in aggressive health care risk management by third party administration firms, second tier insurers and worksite clinic firms that believe they can rapidly win more market share by significantly reducing health plan cost and/or delivering a substantial return-on-investment in their programming.
  • Decades of fee-for-service reimbursement and policy dominated by industry lobbies have created a health system bloated and dependent on excess. Care and cost patterns for common conditions and procedures are remarkably different than in the health systems of every other industrialized country, and most pronounced in the relative roles of primary vs. specialty care services. Each inefficiency that has become taken for granted throughout US health care is an opportunity for improvement, and every health care niche is brimming over with innovations that exploit these opportunities.
  • The potential impacts are profound. In addition to very significant available improvements in health outcomes, the math associated with high performance health care clinical, financial and administrative risk management modules suggests that more than half of current spending – about $1.75 trillion annually – could, in theory, be recovered. But let’s assume that that number is only for riders on the crazy bus, and that the real number is only half that. We’re still north of potential savings of $850 billion annually.

There’s no doubt that, with its control over policy and much of the marketplace, the most powerful companies in the health care industry have a vice grip on virtually every aspect of how it works. That said, purchasers are hitting a wall and are more willing than at any time in the last several decades to try solutions that are unconventional. Built on deep subject matter expertise in high value niches and lubricated by ubiquitous technologies like analytics, artificial intelligence and blockchain, innovations are mushrooming in every part of health care, offering unprecedented care and management opportunities for a fraction of previous cost and pricing. And health care’s current value proposition is so upside down that investors see massive opportunity in many niches.

Assume that several massive, extremely capable players – Walmart, Amazon and Google are the companies that come to mind most immediately and prominently, but the potential for well-funded startups is also there – can harness these vectors. In addition, these organizations could create new administrative efficiencies, identifying, harnessing and scaling high performing organizations within specific high value health care sectors. Assume their approaches allow them to make purchasers offers they can’t refuse – say, 20%-25% lower than current health care spend within specific care niches or across an enterprise. It’s difficult to see how this couldn’t achieve very significant, positive and rapid structural change in the industry, and relief from the terrible circumstances that have evolved in health care over decades.

So there’s reason for optimism, but with a big dose of caution. This kind of scenario might save us from the devils we’ve come to know all too well. What we don’t and can’t know at this point is who the devils we don’t know are.

Brian Klepper is Executive Vice President of The Validation Institute.

Getting High Performance Health Care Services Into the Market as Quickly as Possible

Brian Klepper

Originally published 10/18/2018 in The Valid Points Newsletter.

BKlepper 102018Even though high performing health care services may offer strong value propositions, being unconventional makes them still a hard sell. The fixes of legacy health care organizations are in, and their service networks and methods are solidly entrenched. Innovation capable of displacement is never warmly received by incumbents.

Accordingly, approaches that negatively impact the benefits advisor’s revenue stream or that can be seen as chipping away at a health plan’s control of the case, probably will be opposed as threats. Powerful savings may be weighed against even minor disruptions. And then there’s the issue of whether the new service will require the benefits manager to manage a new, separate contract.

Two principles are relevant here. The first is The Godfather Principle, which advises that to increase the probability of being considered, vendors need to make offers that purchasers can’t refuse. A proposal might go something like, “If you agree to work with us, we’ll financially guarantee that your population’s health outcomes will improve and/or your total health care spend will drop by – pick a big number that you’re sure you can achieve – 20-25 percent.” This figure exudes experience with and confidence in your approach, and is so large that if the benefits manager turns it down out of hand and the company’s CFO hears about it, the benefits manager’s job could be in peril.

Which bring us to the second principle: Administrative Simplicity.Promised savings as large as I’m suggesting also imply that more than one risk management approach (or “module”) is necessary to achieve them. Coordinated collaboration between several high performance risk management companies, can work together on a “platform” that, over time, integrates each module’s key functions – e.g. training, communications, analytics, outreach – into a seamless set of capabilities that can be easily accessed by patients and purchasers.

In other words, organizational health care purchasers are already administratively overwhelmed and don’t want additional administrative management responsibilities. They most certainly don’t want oversight of a slew of narrowly focused services – e.g., diabetes management, large case management, care navigation, allergy services – which may, together, deliver better results at the end of the day but that would create a labor intensive hardship to monitor. So the smart money is for high performing vendors to find each other and come together under a set of unified contractual or organizational terms, making it as easy and productive as possible for purchasers to work with them.

Within the spheres that my colleagues and I inhabit, it’s clear that that organizational purchasers are becoming sufficiently fed up with the legacy health care industry’s predatory practices that they’re increasingly willing to consider exciting, high performing new solutions. Even under the most favorable circumstances, the high performers would be well-served to appreciate the magnitude of the challenge, and to begin to optimize their processes to facilitate as rapid penetration of the market as possible.

Brian Klepper is Executive Vice President of The Validation Institute.

The Box and the Opportunity for Health Care Change

Brian Klepper

Originally published 10/09/2018 in the Valid Points Newsletter

Below are calculations of major health plan stock price growth over a 37 quarter period between May 15, 2009 and September 28, 2018. Note that, during this time, the big plans’ stock price value skyrocketed between 585% and 1,072%, about 2.75x the growth of the Dow Jones Index and 2.25x the growth of the S&P. Humana and United have sustained a breathtaking average per quarter growth of 29.0% and 26.1% respectively.

While stock price is driven by many factors, including historical and expected profitability, these data clearly reflect the truth that health plans earn more if health care costs more. The plans have no reason to remove important element that inflate cost – e.g., low value network providers or unnecessary/inappropriate care. The overarching incentive within the current model is to facilitate more care and more expensive care.

A corollary of these dynamics is that the major plans’ financial performance is undermined by approaches that drive down cost. Restructuring to identify and scale high value services is not an option because total spend would surely drop, dragging earnings, stock price and market capitalization down with it.

The plans can make hay while the sun shines and use that largess to buy into other more currently vibrant lines of business. Even so, they know they’re in a box, stuck trying to maintain a volume-based, low value system in a market that is increasingly adamant about searching for and buying high value.

Major health care newcomers, especially those with heavily diversified interests like Walmart and Amazon, are not saddled with the legacy firms’ perverse constraints, which lends them a strong advantage in a market susceptible to alternatives. Unlike incumbents, they don’t depend on doing the wrong things in health care to prop up market value. They can win by driving better value.

All this suggests there’s a way out of our excruciating health care dilemma. The old guard will be hard pressed to maintain in a market that seeks value, especially when powerful new aggregators appear capable of stepping into the breach and an army of capable risk managers delivers superior results in an array of high value niches.

But that approach depends on high performing vendors convincing self-funded health care benefits managers and their advisers to go around the conventional health care management approaches that have led to ever increasing costs over decades. To succeed, vendors will need to make offers that purchasers can’t refuse. We’ll focus on what that might look like in a future column.

Brian Klepper is The Validation Institute’s Executive Analyst and Editor.

Guaranteeing Health Care Performance

Brian Klepper Originally posted 9/28/18 on Valid Points BKlepper In hunting for high performance health care organizations – those that consistently deliver better health outcomes and/or lower costs in high value niches – we can assume that, at a minimum, really excellent vendors have credible long term (>24 months) data that demonstrate their superior performance. Their clients enthusiastically shower them with testimonials. They can scale their operations to generate the same excellent results in new locations or with new populations. Their impacts endure over time, continuously driving improved performance. Perhaps most importantly, though, the leaders of these companies typically have become so comfortable with the dynamics of their management processes that they’re willing to put their fees at risk against the performance targets they claim they can achieve. Continue reading “Guaranteeing Health Care Performance”

Focusing on Health Care Quality

Brian Klepper

Originally posted on 9/20/18 on The Doctor Weighs In

BKlepperAt its core, America’s health care value crisis is really rooted in our system-wide failure to focus on managing quality. Health outcomes for specific conditions and procedures vary wildly across providers, health plans and markets. A highly regarded 2008 PricewaterhouseCoopers study estimated that more than half of US health care spending provides no value.

Our health system optimizes revenues, in part, through excessive care, meaning that many clinicians largely disregard quality, ignoring whether treatment pathways are right or founded in evidence. Compare US care patterns to those in other developed countries or to top performing domestic programs, and over-treatment is obvious. Putting medical errors aside, vast quantities of care are intentionally unnecessary, a problem so pervasive that, compared to other developed nations, we’ve come to consider our inflated procedural statistics normal. Half or more of all orthopedic surgeries are inappropriate. We administer cancer patients chemotherapy regimens that often lack proven efficacy. (Here’s a relevant quote from the linked article in JAMA Internal Medicine: “Our results show that most cancer drug approvals [by the FDA] have not been shown to, or do not, improve clinically relevant end points.”) Even after an abundance of evidence showing that coronary stents provide no significant benefit in stable heart patients, we implant thousands every day. And on and on.

When care does follow evidence, health outcomes and cost improvements can be dramatic. This is clear in the emerging crop of “high performance” health care organizations that consistently deliver better health outcomes and/or lower costs than conventional approaches. Typically, these firms’ founders are data- and evidence-driven, passionate and mission-driven, and they have high subject matter expertise in whatever niche they work. They have deconstructed some problem in that space and devised, then refined, solutions that are, in most cases, different than the conventional approach. They’re typically so confident about their ability to perform that they’re willing to guarantee their results, putting their fees at risk against the performance targets they claim they can achieve.

A striking example is Integrated Musculoskeletal Care (IMC), a Florida company that has generated breathtaking results. Led by two senior clinicians, they began as practitioners of Mechanical Diagnosis and Therapy (MDT), a credible medical  discipline that is especially valued for the precision of its diagnostic approach. MDT has a reliable assessment model that allows clinicians to accurately isolate and identify the source of pain and, in most cases, classify or select the most  appropriate care for musculoskeletal patients.

Academic studies have demonstrated MDT’s efficacy, but like nearly all of modern medicine, little or no quality management infrastructure has been in place to reveal in real time whether each intervention benefited, harmed or had no material impact on the patient.

So the IMC team built one. They adopted validated indices capable of measuring patient’s perceived pain, function and disability as a gold standard metric to measure clinical effectiveness. Every time they intervened with a patient, they recorded and watched the numbers. In most cases, patients responded positively. But when a patterns emerged that showed a less-than-desirable result, they rethought their model, course-corrected the treatment pathway and updated their protocols. And they did this over and over and over again. Over time, with repeated adjustments, their clinical model organically evolved. It was no longer MDT, but a different, fully fleshed out musculoskeletal disorder treatment methodology.

The results, developed over several hundred thousand patient encounters, have been compelling. Clinicians using IMC’s approach can appropriately intervene in 90 percent of musculoskeletal disorder cases. Compared with conventional treatment, pain drops dramatically, function with daily activities improves, and duration of suffering is reduced by half. Surgeries are reduced by two-thirds, images by half and injections by two-thirds. Recurrent events – the likelihood that a patient will have recurring, intensifying problems every year or so – drop by 60 percent. Cost typically is reduced by half, a result so strong that the company will financially guarantee a 25 percent reduction in musculoskeletal spending on the patients they touch.

Now consider this. This performance occurs in an area that consumes about 20-25 percent of all group health spending, and 60 percent of occupational health. It’s typically the most prevalent problem and the top spending category in any health system. IMC’s approach is essentially a better mousetrap, consistently delivering better health outcomes in about half the time and half the cost.

The fact that IMC has found a better way is overwhelmingly impressive. But the fact that they’ve gotten there, in large measure, by developing an approach that lets them, in real time, watch their own results and course correct as appropriate, is an achievement of staggering proportions.

IMC’s success begs an even bigger question about this perfectly logical but exceedingly rare effort. Why aren’t clinicians within every medical domain – cardiology, ophthalmology, gynecology, endocrinology, urology, neurology – following the same path? Isn’t there every reason to replicate their approach, clinical monitoring and improvement, a combination of Deming and the scientific method. Shouldn’t that accelerate clinical effectiveness? Shouldn’t that make quality the most important vector in medicine? And isn’t it likely that that would make care far more efficient as well?

The quality we all claim to seek in American health care is sitting in pockets right in front of us. We only have to plant it in every medical domain, and watch health care’s beautiful flower bloom.

Brian Klepper is Executive Analyst and Editor at The Validation Institute.

The 20:1-40:5 Campaign

Brian Klepper

Originally published 9/12/2018 in The Valid Points Newsletter.

Several critical value-based programs have come together through the Health Value Institute’s acquisition and revitalization of The Validation Institute (VI).

First is the VI’s original validation process, which evaluates the credibility of a vendor’s performance claims through examination of external literature, data sources, data and performance calculation methods. In that sense, the validation credential should convey to purchasers that actual performance will approximate the vendor’s performance claims, and that validation can shortcut the purchaser’s additional due diligence efforts, saving time and money.

Second is the Health Value Awards (HVA) program, which was developed through the World Congress but has now been reassigned to the VI. The Health Value Awards go a step beyond the validation process by asking whether a vendor’s results (or an employer’s in-house benefits program) is superior when compared to other offerings in the same space.

While VI validation reviews the credibility of the performance calculation methodology, the HVAs ask whether the program is viable in the market. Are clients experienced with it willing to provide testimonials? Is it scalable? Are its impacts enduring or, said another way, does it continue to deliver consistent results over time? Is the vendor confident enough in its capabilities that it will financially guarantee results?

And then, a couple of measures of art. How important is the problem being addressed, in the sense that, say, curing cancer outweighs managing allergies? And how creative or elegant is the solution, as gauged by deeply experienced health care experts?

Obviously, the goals here are to identify, vet and showcase organizations that are truly high performing managers of clinical, financial and administrative health care risk, so that purchasers have an alternative to the typically far lower value services that are offered through the conventional health system.

A community comprised primarily of purchasers (employers and unions), benefits advisers and high performance vendors has developed around the principles of high performance. This newsletter, Valid Points, tries to serve as a unifying principle and source of high quality information in this space, and is aimed at this rapidly growing, increasingly coalesced group.

The larger aspiration supported by this multi-pronged effort is embodied in our belief that self-insured employers and unions, who, over time, shift their health plans to use of validated high performance vendors in high value niches, who incentivize provider transparency and employee value-seeking, can realize profound health outcomes and cost savings. Meaningfully scaling these approaches could precipitate powerfully positive changes in how US health care works. We believe employers and unions that seriously pursue this path can save up to 20 percent in Year 1 and 40 percent by Year 5. We’ve termed this The 20:1-40:5 Campaign,shorthand for our organizations’ missions and the programming that supports them.

Our pledge is to work to facilitate these kinds of health care changes, and to support your efforts to do so as well.

Brian Klepper is Executive Analyst and Editor at The Validation Institute.

High Performance Health Care and the Shift to Higher Value

Brian Klepper

Posted 9/04/18 in Valid Points, and on The Validation Institute’s blog.

“How many businesses do you know that want to cut their revenue in half? That’s why the health care system won’t change the health care system.”

Current Florida Governor and Former Columbia/HCA CEO Rick Scott at a 2012 Investor conference

Health care management expert Fred Goldstein recently related an encounter with health system executives who acknowledged that their interest in improving two of the three Triple Aims – patient experience and health outcomes – did not extend to reducing the cost that drives their earnings. Similarly, several health system colleagues have recently disclosed to me their organizations’ lack of support for their Accountable Care Organizations and value-based contracting programs because, if managed properly, they reduce per patient revenues.

The worry that right-sizing US health care will yield less money for the health care industry is an obvious, powerful barrier to meaningful health care change. We’ve made relatively little policy progress toward that goal, and for all their protests about being on the side of better value, the industry has been absolutely clear that unnecessary care and irrational pricing are acceptable tools if they help them achieve their current financial goals.

The health care industry, Congress’ and legislatures’ most powerful lobby, has captured the regulatory process, so policy change that can force the issue is unlikely. And for all the talk about moving to paying for results and value-based care, fee-for-service still constitutes all but a tiny fraction of reimbursement arrangements.

Within the legacy system, decades of fee-for-service reimbursement have bloated virtually every procedure, rendering our care and cost patterns dramatically different than those in other countries. They, for example, have far lower percentages of specialists and a greater reliance on primary care. Per capita rates of expensive, common procedures, like imaging and coronary stenting, are a fraction of ours. The net results are generally better health outcomes at a per capita cost that is half of what we pay.

We know that in a system that pays for more activity, overtreatment is one of our biggest problems. But estimates of unnecessary and inappropriate care and cost are plagued by methodological challenges, including definitions of what constitutes waste, and have been all over the map. In a 2017 national survey, physicians reported that about 20 percent of all care, including about a quarter of tests, more than a fifth of prescriptions, and more than a 10th of procedures, is all waste. In domains like orthopedics, cardiology and oncology, there’s broad acknowledgment that significant percentages of care provide little or no value.  A 2012 estimate by Berwick and Hackbarth suggested that 18-37 percent of all 2011 US health care spending was waste. A 2008 PwC study, The Price of Excess, came in at a breathtaking 54.5 percent, which is close to the aggregated real world results (and performance guarantees) of high performance health care companies.

The health care industry has shown little interest in approaches that consistently deliver better health outcomes and/or lower cost. The awful subtext here is that egregious unit pricing and unnecessary/inappropriate care are not merely accidental byproducts of the US health system. Instead, health care companies’ business models have come to depend on those excesses. Their stockholders have become accustomed to extraordinary returns and, accordingly, their business strategies and tactics revolve around maintaining current and growing revenue streams. Delivering value around the right care is a dispensable nicety.

This is clear in the stock price growth of the major health plans. Humana and United have each grown about 1,000 percent over the past 37 quarters, which works out to a staggering average quarterly stock price increase of 28.4 percent and 26.0 percent, respectively.

So the US health care industry literally has a financial stranglehold on the American people that can capsize our social safety nets and our global competitiveness, destroying, as Dave Chase has so clearly described, the American dream. Large health care companies have aggressively lobbied Congress and the legislatures for years and own the policy environment. Their stock pricing prohibits intentionally rightsizing utilization and unit pricing.  The prevailing model is toxic and can only lead to cataclysmic disruption, but the fix is in and they’re devoted to keeping it in place as long as possible.

Because, as a rule, health plans make more if health care costs more, they have little stake in approaches that would result in fewer services or lower costs. In that sense, they’re in a box that makes it difficult for them to drive higher value services, especially if that approach translates to reduced revenues and earnings. Upstart organizations and those relatively new to health care, like Amazon and Walmart, are not constrained by past financial performance or the imperative to maintain exorbitant stock prices.

Under these circumstances, coaxing health care organizations to do the right thing isn’t a promising scenario. A better path would be finding the rare scalable health care organization that has figured out how to consistently deliver superior results in high value niches, and that is willing to put its fees at risk with performance guarantees. Driving all the business within a domain – e.g., musculoskeletal care, cardiometabolic care, drug management, imaging management, claims review – to high value performers will erode the business to low- and mid-value performers and they’ll either hold out in hopes of saving the old paradigm or be co-opted. If it’s the latter, they’ll learn how to become practitioners of newer, more accountable, high performance approaches to clinical, financial or administrative health care management.

Our experience over the past several months, and discussions with a variety of progressive employers, unions and benefits managers, strongly suggests that we’re at the leading edge of a tipping point. I’m personally aware of groups representing more than 6 million covered lives that are actively engaged in going around their conventional health plan arrangements to implement high performance programs. A subset of that larger population will actually make the leap, of course, but the value proposition – better health outcomes at much lower cost now and into the future – is very compelling. The prospects are bright.

The message is that we’re not simply stuck with the status quo. There are solutions. Granted, during this early phase, the answers are more easily accessible to larger, self-insured employers than to smaller, fully insured groups, but as they gain traction, the better approaches will be available to everyone. And the possibility is very real that, by using the market, we can bring health care back to rights.

Brian Klepper is a health care analyst.