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.

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.

Brian Klepper

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

Even 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.

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.

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.

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.