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


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


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.