February 6, 2025 • 35 mins
In this episode, Stacey Richter explores how the demands of shareholders influence the actions of publicly traded health insurance companies with guest Wendell Potter. Drawing from Milton Friedman’s assertion that a business’s primary responsibility is to its shareholders, we examine the implications of this philosophy in the healthcare sector. The discussion highlights concerns about fraud allegations among major insurers and the lack of open competition due to market consolidation.
We delve into the concept of the “medical loss ratio,” a key metric for investors, and how it pressures insurers to prioritize profits, often at the expense of patient care. Our guest, Wendell Potter, a former health insurance executive turned advocate for healthcare reform, provides insider insights into these dynamics. He discusses the challenges insurers face in controlling costs, the impact of rising premiums, and the broader consequences for patients and the healthcare system. This episode offers a critical look at the intersection of corporate interests and patient care, shedding light on the systemic issues that arise when profit motives drive healthcare decisions.
All mentioned links can be found in the show notes.
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08:31 What is the medical loss metric?
11:33 “The reality is, insurers have been jacking up premiums … for a long time.”
12:48 “It’s a short-term game.”
15:39 “You’re seeing that these companies are not doing a very good job … of controlling costs because they don’t have the incentive.”
20:19 EP366 with Kevin Schulman, MD.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Stacey Richter (00:00):
Encore episode.
"How Shareholders Impact Carrier BehaviorExactly and Specifically." Today,
I am speaking with Wendell Potter.
American Healthcare Entrepreneurs andExecutives You Want to Know, Talking.
(00:25):
Relentlessly Seeking Value.
I am drowning in all things Q1 right now.
So this week we're going with an encore.
But this is a great show to goback and reflect upon as it's
about carriers and how shareholdersimpact the actions of said carriers.
I want to bring up an interesting caveatto this whole discussion and actually
one reason I decided to encore theshow with Wendell Potter from 2022.
(00:49):
I'm going to read a very well put postin LinkedIn by Richard Staynings and
he wrote this in mid January 2025.
I'll link to it in the show notes.
Here's the post.
"UnitedHealth Group in thecrosshairs, not by patients and
regulators, but by shareholders.
On Wednesday, UHG shareholders requestedthe company prepare a report on the
costs and public health impact relatedto UnitedHealth's practices that
(01:12):
limit or delay access to health care.
A group representing faith basedshareholders, said it has filed a
shareholder petition requesting thecompany to review how often prior
authorization requirements and denials ofcoverage lead to patients postponing or
forsaking medical treatment, as well asserious adverse events for individuals."
Wendell Potter, by the way, my guesttoday commented on that press release.
(01:35):
As interesting as the post itself, Ifound the comments on the post and kind
of, you know, curbing enthusiasm witha dose of realism on those comments.
George Matthews, Dr. George Matthews,who also was on the podcast a couple of
years ago, he commented, "Many of thelarge shareholders at these carriers
may work at UHC, and they may voteagainst this type of transparency."
(01:57):
That is very thought provokingto see, actually, if the C-suite
at these companies is more orless committed to patients slash
members than their shareholders.
Now, I do want to say this next part,and I'm going to mention, coming up
is a show with Dr. Vivian Ho aboutthe sky high hospital prices being a
big culprit for the high premiums thatmany American workers are saddled with.
(02:17):
And that matters because, here's thesentence that absolutely must be said.
The problems with healthcare inthis country, and why some people
call it the healthcare industrialcomplex, It's a problem with the
whole healthcare marketplace.
It's whole lot of folks in concert takingadvantage of a whole lot of perverse
incentives, egged on by shareholdersand professional capital and boards of
(02:38):
directors, not one villain in a blackhat tying someone to train tracks,
like in some kind of talkie, right?
So, with that, this is areally interesting encore.
As I said again, please do listen to it.
My name is Stacey Richter.
This podcast is sponsoredby Aventria Health Group.
Here's a Milton Friedman quote.
"There is one and only socialresponsibility of business to use its
(03:01):
resources and engage in activitiesdesigned to increase profits. So long
as it, that entity, stays within therules of the game, which is to say,
engages in open and free competitionwithout deception or fraud."
Okay, so this is Friedman, MiltonFriedman, pretty much the most influential
(03:22):
advocate of free market capitalism,stating quite clearly that an entity's
greatest responsibility lies in thesatisfaction of its shareholders.
His nod to social responsibility orethics of any kind comes at the end
there, where he says that for free marketcapitalism to function, there must be
open and free competition and no fraud.
(03:43):
So let's compare this to what'sgoing on in the payer space
in the healthcare industry.
First off, there was just a chart in theNew York Times the other day where pretty
much every major payer except one got acheck in a box for being accused of fraud.
Interestingly, if you look in the commentssection of that article, people posted
links where that one outlier was beingaccused of fraud, so not sure what's up
(04:08):
with that, but yeah, let's just concludethat there's fraud in the payer space.
On to Friedman's requirementfor open and free competition.
As we all know, there are a few verypowerful, very big, consolidated
entities who control the vast majorityof the market, with both regulatory
capture as well as the capital tocontinue to buy more and more adjacent
(04:31):
businesses as well as any threateningupstarts and just close them down.
I want to shift gears now todiscuss the rules of the game.
And this is really thetopic of today's podcast.
Friedman said in that quote Ijust read that there are rules of
the game that entities abide by.
Therefore, these rules of thegame are inarguably consequential.
And today we're talking about how theserules of the game echo when it comes
(04:54):
to payers, companies that are publiclytraded on Wall Street with shareholders
So that's your spoiler forwhere this episode is headed.
But before we go there, let me just sayone or two things to the many listeners
who I would consider certainly part of ourRelentless Tribe who also work for payers.
If you work for a payer,you have a few options.
(05:16):
One of them is to do asmuch social good as you can.
The other is to see theproblems with clear eyes.
I mean, we're in a place in this countrywhere the majority, 67 percent of adults
who reported medical bill or debt problemswas insured when that care was provided.
That's from Kaiser Family Foundation.
There's a hundred millionAmericans with medical debt.
(05:37):
These numbers are staggering.
What's the why with all of this?
It's our dysfunctionalhealthcare benefits market.
Listen to the show with Dr. Kevin Schulmanfor more on this at the systemic level.
But today, we're talking about one entityin this dysfunction, which are payers,
I invited Wendell Potter on the showto ask him to explain how for profit
(05:59):
payers contribute to our dysfunction.
Again, being blunt here, the realityis private payers have not been
able to bring cost of care down.
What they have done instead is settlemore and more out of pocket with patients
or with taxpayers or with employers.
Speaking of more and more out of pocketcosts, although this is not the focus of
the show, I am not giving consolidatedhealth systems a pass here, obviously.
(06:23):
But in this episode, we're focusing onwhy payers behave as they do, contributing
to the dysfunctional healthcarebenefits system in this country.
I could not have been morethrilled to have an opportunity
to speak with Wendell Potter.
His name most likely precedeshim, but in brief, for much of
his early career, Wendell Potterwas a health insurance executive.
(06:44):
After 20 years, he left his jobafter a crisis of conscience.
Wendell testified before thenSenator Rockefeller's Commerce
Committee at a hearing about howhealthcare companies actually operate.
From there, he went on to writebooks and ultimately to start the
Center for Health and Democracy.
Wendell Potter, welcome toRelentless Health Value.
Wendel Potter (07:03):
Thank you, Stacey.
Good to be here.
Stacey Richter (07:05):
Today we are talking about publicly traded
payers and how the expectations ofshareholders impacts their behavior.
Besides earnings per share, which isa pretty ubiquitous metric, You have
pointed out a second metric that impactspayers with shareholders, which is their
medical loss ratio or medical trend.
Do you want to explain thismetric that payers, CEOs,
(07:27):
C-suite have so much riding on?
Wendel Potter (07:30):
Investors and Wall Street financial analysts want to see
whether or not the company over thepast three months or the past six months
or past year was bringing down thecost of medical care or more precisely
bringing down the amount of money thatthe insurers are paying out in claims.
Recent evidence of why this is soimportant or that it's so important
(07:52):
is the quarterly report or earningsfrom the second quarter filed by
what's now called Elevance, Anthem,previously known as Wellpoint.
They really disappointed Wall Streetbecause the medical loss ratio had creeped
up fairly significantly, which was anindication that the company was paying
more out than the, than Wall Street, thefinancial analyst investors had expected.
(08:15):
And they punished that company severely.
The stock price tanked for the day.
And the company is stillrecovering from that.
I've seen that happen many times,or I saw it happen many times
when I was in the industry.
And all it takes is just a smallincrease in the medical loss ratio,
or some indication that the companyis not doing enough to anticipate
(08:35):
and handle medical cost increases.
And if that evidence is notthere, they will get punished.
And CEOs and CFOs and investorrelations, people at high levels in
these companies, they have a lot ofskin in the game because they're paid
a significant amount based on thecompany's performance through bonuses
and stock options and stock grants.
So when that happens,like it did with Elevance.
(08:58):
The executives of that companylost a lot of net worth that day.
Stacey Richter (09:02):
We have CEOs, their compensation is tagged to, in air
quotes, corporate performance,as defined by these Wall Street
analysts and how those analystsevaluate that corporate performance.
And you have the medical loss ratio,which in its simplest terms is, taking
the revenue of the company, subtractinghow much they're paying out on medical
(09:23):
claims and what's left over is potentiallyprofit or there's a part of it that's
profit, which is obviously why WallStreet is super interested in it,
because what they're trying to deliver isdividends and value back to shareholders.
So if they're paying it out asa medical claim, it's obviously
not going back to shareholders.
The other thing that I have also heard isthat Wall Street very much rewards higher
(09:46):
revenue, much more than doing innovativethings that could ultimately reduce costs.
So value based care and innovationand care delivery isn't a great way
to impress Wall Street analysts.
That's the best way to do so is to figureout how to raise premiums basically.
Wendel Potter (10:05):
Exactly right.
Investors absolutely want to seeincreasing revenue and insurers have been
able to oblige by increasing premiums.
The reality is insurers have been jackingup premiums for employers and individuals
for a long time and we're seeing thathealthcare costs continue to go up,
healthcare premiums continue to go up.
(10:25):
And their profits continue to go up.
And executive compensationcontinues to go up.
So what's not right about this picture,and it is, I think, the whole way
that Wall Street really demands thesecompanies behave the way they do.
They don't really care, as yousaid, about all this value based
care, value based insurance design.
They want to make sure that revenuecontinues to go up and that they're
(10:46):
converting increasing amounts of thatrevenue to profits so that profit margins
are stable and hopefully expanding.
Stacey Richter (10:52):
So Wall Street analysts are not super concerned about patient
outcomes, is what I'm understanding.
Wendel Potter (10:57):
Exactly.
I can't recall a time, and I handle,my name was on every earnings
release at Cigna for 10 years.
I can't recall a time when ananalyst asked about patient
care and quality of care.
Similarly, I can't recall a time when Iwas in conversation with CEO and CFO and
relations folks about the need to improvequality of care or the patient experience.
(11:22):
The conversations are all aboutthe numbers and making sure that
the company doesn't disappointWall Street every three months.
It's a short term game.
Every three months, you've got tohave things in place to make sure that
you're showing Wall Street analysts andshareholders that you're considering
them stakeholder and making sure thatthey're getting the return on their
(11:44):
investments that they're expecting.
That is the way it is.
Stacey Richter (11:46):
I don't know how surprised anybody listening is because fiduciary
responsibility is something that theboard of a publicly traded company
signs on to and fiduciary responsibilitymeans fiduciary responsibility to
shareholders, i. e. delivering thegoods, the money back to shareholders.
(12:07):
I don't think in any fiduciarystatement there is obligation toward
the customer served nor to patients.
Wendel Potter (12:16):
That's right.
None of the big insurers, the big forprofit insurers are B Corp companies that
take into consideration things like whatyou're doing to make sure your employees
are taken care of or that you're doingsomething to improve quality of care.
In the case of health insurers, itis none of them have looked to change
their structure so that they can BCorp and I don't think they ever will.
(12:37):
These companies keep bringingin more and more revenue.
It's just incredible.
The CVS and United this year bothlikely will exceed 300 billion
dollars in revenues, both of them.
Stacey Richter (12:48):
Yeah, that's not small potatoes.
So if we're talking about medical trend,which is one of the things that you said
is really important that Wall Streetanalysts look at, let's dig into that.
In the what gets measured getsmanaged category, on a day to day
basis, if I am a CEO and I am superconcerned about my medical trend,
(13:11):
what exactly am I measuring there?
Wendel Potter (13:14):
You're looking at categories of providers and what is
happening in each of those categories.
You look at obviously drug expenses, athospital expenses, at physician and other
outpatient expenses, and that doesn'tconcern shareholders all that much,
except they want to see evidence thatyou are not spending a whole lot more on
(13:39):
actually paying claims than you were thequarter before or this time last year.
But they do expect that you will priceyour premiums ahead of medical trend.
Let's just say a number.
Let's say that the underwriters at a givencompany anticipate or they're seeing that
hospital costs are gonna, they're gonna be8 percent higher this quarter than last.
(13:59):
The same quarter last year.
That's notable, but what is the companydoing to make sure that it takes that into
consideration and prices its premiums afew points ahead of what medical trend is?
So it's a game that's been going on fora long time and it is, it shows when you
look at how much we spend per capita onhealth care in this country, how much we
spend overall, you're seeing that thesecompanies are not doing a very good job
(14:23):
at all of controlling costs because theydon't have the incentive to do that.
The incentive is to make sure that youare paying fewer claims in various ways
and that you are anticipating and handlingmedical trend by increasing your premiums.
Stacey Richter (14:36):
So it's in my best interest to raise premiums
as high as I possibly can.
What the game becomes is I needto accurately forecast what my
costs are going to be ahead oftime so that I can raise premiums
ahead of those cost increases.
So that becomes the kindof marker of success.
How high can we make the costslagging the premium increase that we
(15:00):
have accurately forecasted, right?
That's what the bestones are trying to do.
Wendel Potter (15:05):
That's exactly right.
And that's what we saw play outwhen Elevance announced earnings
for the second quarter this year.
Investors just concluded that the companywas not doing as much as other companies
in that sector had done in anticipatingand dealing with medical trend.
I can remember several years agowhen I was in the industry, Aetna
really disappointed Wall Streetand the stock was just savaged.
(15:28):
It was a huge drop inmarket capitalization.
Stacey Richter (15:31):
As we all know, and we have discussed multiple times on
this podcast, consolidated healthsystems, have market power even versus
these large payer organizations.
As we see, hospital pricesjust are raising way higher
than the cost of inflation.
They are actually the biggest proportionof most employers spend, most Medicare
(15:53):
spend, it's racked up in hospital prices.
It sounds like the payers may or may notbe super concerned about that just because
this gives them a very well validatedrationale for why premiums are going up.
Wendel Potter (16:09):
That is correct.
There's a paradox here that they have,they've been able to persuade employers
that they can bring costs down, but theevidence is that they cannot, but they've
been able to sell this for a long time.
They've been able to get evenorganizations that presumably
represent employers to lobbyagainst things like a public option
(16:29):
that can be open to employers.
They've got this figuredout, they being the payers.
They know how to bring in alliesto keep the status quo going.
But it's a game that the employersso far haven't been able to
figure out or do anything about.
Stacey Richter (16:42):
So going back to what we talked about before, which is as
long as they can stay ahead of thetrend, then they shouldn't care a
ton what their medical costs is aslong as their premiums are higher.
It just seems like they're undulyfocused on independent providers
and less focused on the hospitals.
(17:02):
Like, they're okay with prices goingup in the hospitals, but they're,
like, really not okay with the pricesgoing up with some of these independent
or outpatient kind of physicians,
Wendel Potter (17:11):
It's because of what they can do.
They can beat up on theindependent practice physicians.
Stacey Richter (17:15):
But why would they?
It is my concern.
Like, why don't theyjust let the price go up?
Because then they're like, ah,premiums have to go up even more.
Wendel Potter (17:21):
They can still jack up those premiums and pocket the difference.
That's what I'm saying.
They can say to an anesthesiologistin North Carolina, we're going to
cut you your compensation, your, thereimbursement for seeing patients
by 50%, you don't like it, we'regoing to kick you out of network.
They do that because they then payless for the anesthesiologist's care.
Stacey Richter (17:44):
Even they may realize that you can't raise
premiums 90 percent in one year.
So, because hospitals are maybe, incertain cases, untouchables, then
what they're trying to do is knockdown the vulnerable, really, the
independent physicians that don't havea ton of leverage so that they're not
(18:05):
sacrificing their MLR, their medicalloss ratio, while premiums inch up.
Wendel Potter (18:11):
That's right.
Insurers have figured out over timethat there is a range of increases
if they can get away with thatemployers will agree to ultimately.
The thing about hospitals inparticular is that they, we've
seen so much consolidationcertainly on the hospital side.
A lot of attention focused onthat we'll see even more of
that I think going forward.
(18:31):
I would argue that they in many caseshave consolidated in self defense.
Insurance companies has been an armsrace in healthcare and as a consequence
hospital prices continue to go up,premiums continue to go up, and it
works for both hospitals and insurers.
They might make public statementsand point the finger blame at each
(18:53):
other, but it's a synergistic system.
It works for all of them.
It works for drug companies, and itworks for hospitals in particular.
Stacey Richter (19:00):
Yeah, as Dr. Kevin Schulman said on the show,
he said it's not A or B, it's awhole dysfunctional benefit system.
And everybody being a rational economicactor, beholden to Wall Street a lot
of times in this, in this mix, or evenif they're tax exempt, if someone's
stating that they have a fiduciaryresponsibility to charge as much as
possible, then really same rules apply.
Wendel Potter (19:20):
That's exactly right.
There have been a number ofstudies that have shown that in
healthcare, you have market failure.
It doesn't work in healthcare like itdoes in other sectors, other industries.
It's just an outlier.
But as these companies, whether we'retalking about insurers or big hospital
systems, as they've gotten bigger,they have more political clout.
They have more ability to influencecampaigns and who's elected and public
(19:43):
policy through lobbying expenses.
They spend enormous sums of money toprotect the status quo, whether it's an
insurance company or a hospital company.
They also, the CEOs and executivesof these, various entities come
together in many cases, worktogether, pool their resources to
push back against healthcare reformsthat one or all of them don't like.
(20:05):
And that's just a way ofperpetuating the status quo.
Stacey Richter (20:07):
It sounds like what we've got going on here and I'm just going to
recap something very complicated obviouslyin a very simplistic, stepwise way here.
Some insurer figures out that,alright, the max that we really
can raise premiums this year is 9percent or whatever it is, right?
I mean, even employers who area little bit asleep at the wheel
aren't going to accept a like 35percent premium increase, right?
So somebody figures out whatcould reasonably be accepted
(20:31):
maximally by these employers.
They decide on that percent increaseand then they look at how much they're
gonna be able to profit from that.
How much can they beat up hospitalsby at this juncture because these,
some of these consolidated hospitalshave a lot of market power.
So they take a look at that.
If there's anything left over,maybe they'll throw some scraps
at independent providers, I guess,especially the ones that they
(20:53):
need to maintain network adequacy.
But at the same time, there's goingto be some side action going on here
because dollars can also accrue toprovider groups owned by that payer.
Wendel Potter (21:02):
That's right.
The reality is that these bigcompanies have gotten increasingly
into healthcare delivery.
They own big chunks ofhealthcare delivery.
Big hospital systems aredoing the same thing.
They are buying up physician practicesand have their own outpatient facilities.
So here too, we've got evidenceof some kind of an arms race here
to determine who is going to windup owning the most providers.
Stacey Richter (21:25):
So let's talk about then controlling utilization.
And when we say controlling utilization,I think, again, just reiterating
what we talked about before.
This isn't necessarily anabsolute, hey, we have to control
utilization in absolute terms.
It's that we have to control utilizationso that we don't wind up spending
more than we have projected based onthe premiums that we're taking in.
So I think that would be animportant sort of caveat here.
(21:48):
But then how do these payers goabout ensuring that what they have
projected is what the spend comesin at, especially in an FFS world
where providers are paid by volume.
How does this work?
Wendel Potter (22:03):
Yeah.
To back up just a little bit, there arereally two major ways of, if you will,
managing or controlling healthcare costs,neither of which I think we're doing.
But you can reduce the unitprice of a good or service, or
you can, you can influence andpresumably reduce utilization.
As we've talked, it's becomingpretty evident that they're not
able to control the unit cost.
(22:25):
Insurers are not able tobring those costs down.
Again, we've talked, theydon't necessarily want to.
Where they do have leverage isthrough the way that they have
structured their health plans.
There's a term in the industrycalled benefit buy down.
And that is a broad term thatencompasses all the various ways
that an insurance company canreduce the value of a health plan.
(22:46):
I talk often about the barriers thatthey've created and the barriers are
increasing out of pockets year afteryear, making more things subject
to out of pockets, more aggressiveprior authorization requirements.
We've seen a lot of evidence ofthat or at least doctors saying that
they're seeing an increase in theuse of prior authorization for more
things and manipulating the networks.
(23:09):
We've talked about this abit, kicking some doctors and
facilities out of network.
These barriers collectively havebeen raised year after year so that
people who have insurance, they'refinding it increasingly difficult to
get the care that they can afford.
And also they're facing the reality thatin many cases what their doctors know
(23:29):
that they need or say that they need isnot necessarily going to be approved and
provided or covered by their carrier.
Stacey Richter (23:35):
On that last point, here's the headline.
Federal investigators findMedicare Advantage plans too
often deny and delay needed care.
There's a commonly known stat in theindustry, I hear it a lot, that 65
percent of prior auths are not appealed.
So if I just, if I'm an insurer andI just deny claims, I'm going to save
(23:55):
65 percent just because those claimsdon't wind up getting appealed, even
if it's something that really shouldbe covered, which is therefore the
aforementioned federal investigation.
But just going back to the top of yourearlier comment about benefit buy downs.
So what that effectively means isthat an insurance carrier is trying
to, again, they're trying to alignpremiums and then what the max is
(24:18):
that they want a beneficiary to spend.
So it sounds like the benefit buydown is the process by which we ensure
that the spend doesn't exceed what Iwant, what I want the cost for that
beneficiary to be, did I get that right?
Wendel Potter (24:31):
You did, you did.
And it's death by a thousand cuts.
It happens incrementally, year after year.
The changes are not necessarily so starkthat people pay a lot of attention to it.
But if you look over a spanof 10 years, which I often do.
You can see what's really happening, thatpeople are paying far more out of their
own pockets than they were 10 years ago.
More and more of what their doctorsrecommend are being denied through the
(24:55):
prior authorization process, which issomething that I think could be defended.
Prior authorization has its role,but when you bring it into a setting
in which it's, most insurers are forprofit, and there's this pressure from
Wall Street, it's used as a tool toavoid paying claims, and you're right.
The vast majority of peopledo not appeal those denials.
(25:15):
Insurers are able to factor that in.
They know that's the case,and they get away with it.
There's money left on the tablethat people who are, who have the
policies are leaving on the table.
They're accepting thisand not pushing back.
It's a complicated system.
They don't know, in many cases,if they can or just don't think
it's going to be worth the effort.
And in many cases, it's arelatively small amount.
But when you're a big insurer, thosesmall amounts add up very quickly.
Stacey Richter (25:38):
Yeah, indeed.
So it sounds like the process ofbenefit buy downs includes raising
barriers for beneficiaries to gainaccess to their insured benefits.
And you stated four of them.
So number one is raising out of pockets.
The more you raise out of pockets, themore you're going to diminish the amount
of care that someone seeks or uses.
(26:00):
That's number one.
Number two, you had said.
That there's more things that aresubject to the out of pockets, right?
Like you, there's this term, predeductible stuff, like preventative care.
The more you remove the predeductible things or the more that
you make everything have a copay.
Charge a specialist copay for physicaltherapy is probably one example.
(26:21):
Then again, you're gonnadiminish utilization.
Another one is increase PArequirements for pretty much anything,
because as we've just discussed,PA processes are complicated.
Sometimes they require snailmail and that's not accident.
And then lastly, as you said,manipulating who and who is
in and who is out of network.
If I start reducing my network adequacy,obviously, you can probably only do
(26:44):
that up to a point, but if I start doingthat, reducing my network and making it
narrower and narrower, then the likelihoodof someone going out of network, the
insurance carrier is paying less.
Did I sum that up?
Wendel Potter (26:54):
Yep, you did.
And that last point I think is maybeworth spending a minute or two on, too.
Network adequacy.
Nobody is paying enough attention to that.
Not at the state level, which stateregulators are not resourceful
enough to really make sure thatnetworks are adequate and There's
no federal entity that is looking tomake sure that is the case either.
(27:15):
Every now and then you'll see someevidence of an insurance company, maybe
addressing that in some meaningful way.
There's not very much scrutiny of it, notvery much awareness that it's happening.
As a result, I would argue thatmany, if not, most networks are
inadequate and that certainly is truein the Medicare Advantage business.
There's a phenomenon that has beendocumented through federal reports
(27:37):
and studies that as Medicare Advantagebeneficiaries get sicker toward
the end of their life, many of themdisenroll, go back in traditional
Medicare, which is a, is a more ofa burden on the traditional program.
And of course, insurersare fine with that.
They are able to offload whatwould become their most expensive
patients if you will or members.
Stacey Richter (27:58):
I think all of these things are becoming
more and more discussed.
For example, the number of peopleon GoFundMe trying to raise enough
money to pay their deductible.
There was a tweet I think you made theother day, which is high deductibles
helped UHC reach $7 billion in profitsin Q2 as a 14 year old begs for
(28:21):
deductible assistance on GoFundMe.
Like, that is tragicallycommon these days.
Here's another thing that I would liketo discuss, which is really timely.
We keep hearing more and moreabout pharmacies that are
closing and understaffed.
I mentioned this because a lot ofthese large consolidated carriers
(28:42):
have a PBM arm and they also havea pharmacy, a retail pharmacy arm.
And there's a tweet that EricDavis noted on Twitter, and I'm
wondering what you think about this.
He says, "There's no broad shortageof pharmacists. There's a shortage
of pharmacists who are willingto work in understaffed and under
resourced pharmacies whose incentivesare to drive their companies to
(29:04):
fill more and faster, regardless ofthe erosion of care to patients".
So it sounds like there's another, andI have no knowledge of whether this
is true or not, but it sounds likeanother way to increase the profit
margins in a place that obviously PBMsare not subject to MLR ratios, but it
sounds like one of the things that theyhave discovered is that if we reduce
(29:24):
operating costs more and more, thenclearly that raises the bottom line.
Wendel Potter (29:31):
It absolutely does.
And it is why the three biggest PBMsare owned by big insurance companies.
United, CVS and Cigna, PBMs thatcontrol 80 percent of the marketplace.
These PBMs are becoming increasinglymore valuable to these companies.
They're contributing more andmore of the revenue that we talked
about earlier, overall revenue.
Stacey Richter (29:50):
But the pharmacies though, there, because that sounds like very
much a pharmacy driven profit center.
Wendel Potter (29:56):
It's true.
And it's a profit center.
These big companies are able toencourage more and more of their
enrollees to order their medicationsthrough the mail, through the PBM.
CVS, look at what they do.
They own the retail stores and thepharmacies, but they also have a big PBM.
So they're capturing an enormous amountof what we spend on medications and not
(30:16):
necessarily passing it along to consumers.
A lot of consumers who have Aetnacoverage have to pay a lot of money
out of pocket, but they're told thatthey might pay less out of pocket
if they enroll in a plan that theirmedications mail to them through the PBM.
Just like independent practice physiciansare endangered, so are community
pharmacists or independent pharmacists.
(30:38):
They're being pushed out as well too.
They're finding it very hard inmany cases to keep their doors open.
Stacey Richter (30:43):
So it sounds like what the playbook is there is figure
out how to create a captive market,which is a term that's often used.
So if there's a captive market thathas to go to a certain pharmacy, then I
mean, in a classic B school case study,like this is a well trodden path here
where once you have a captive market,then you have the opportunity to reduce
(31:07):
operating costs to increase margin.
Like in food products,like that's a classic play.
You get everybody hooked on a brand andthen you methodically reduce the spend
of the expensive ingredients so thatit starts to taste worse and worse.
That's the playbook there.
And it sounds like that alsotranslates to some of what's
(31:27):
going on in the sector as well.
Wendel Potter (31:29):
That's right.
It is part of the playbook.
It's what's playing out and youruse of the term captive applies
more generally as well too.
These big corporations have beenable to capture the regulatory system
and that's just another way thatthey're able to keep this game going.
Stacey Richter (31:45):
So you've got captive populations, you've got
regulatory capture, there's alot of capturing that's going on.
Wendell, is there anything I neglected toask you that you would like to mention?
Wendel Potter (31:55):
Just to go back to what we talked about at the beginning, most
people don't realize the role that WallStreet plays in our healthcare system.
This year, more than 80 percent ofthe people who enrolled in Medicare
Advantage plans were enrolled in plansoperated by for profit companies.
The biggest are United andHumana and Anthem and CVS.
They have enormous market share, not onlyin PBMs, but also the Medicare Advantage
(32:19):
space and Wall Street demands this, andgoing back, also, there, who really drives
this as much as shareholders are thishandful of financial analysts who work for
J.P. Morgan, Credit Suisse, Deutsche Bank,other big banks that have these financial
analysts that have immense power.
(32:40):
You don't know their names, oreven though they exist in many
cases, but they have incrediblepower over our healthcare system.
Big investors.
buy their reports, look to them forinformation about what's happening at a
particular company or within the sector.
So these people have, they're notelected, you've never heard of them,
but they run our healthcare system.
Stacey Richter (32:59):
Do you want to hear my big idea, Wendell?
Wendel Potter (33:01):
Yes.
Stacey Richter (33:02):
As you know, those Wall Street analysts analyze more
than just the healthcare industry.
There's others that analyzeother employers, other businesses
who are also big employers.
My suggestion is that part of what theyinclude in their analysis models is
how good that employer is on managingtheir healthcare costs, which is often
(33:22):
the second biggest line item, right?
So if you have a large employer andthey have healthcare spend, which
is over some threshold becausethey are not managing it well, then
that's a knock on that business.
My big idea is get a model that includesthe employer's deftness in their
healthcare benefit design, which couldbe a counterbalance to the other analysts
(33:47):
who are analyzing the healthcare industry.
How's that?
Wendel Potter (33:51):
It's a terrific idea.
Let's get that going.
Stacey Richter (33:54):
Yeah.
Wendel Potter (33:54):
How do we do that?
Stacey Richter (33:55):
Exactly.
I do.
We'll talk later.
Wendel Potter (33:58):
That's right.
Stacey Richter (33:59):
Wendell Potter, if someone is interested in learning more about
your work, where would you direct them?
Wendel Potter (34:03):
I would suggest that they follow me and sign up
for my newsletter on Substack.
It's wendellpotter.
substack.com and I write routinelyabout health insurers and how they're
getting away with what they're gettingaway with, as we've been talking about.
Stacey Richter (34:17):
Wendell Potter, thank you so much for being on
Relentless Health Value today.
Wendel Potter (34:20):
Thank you, Stacey.
It was great.
Chris Skisak (34:21):
Hi, my name is Chris Skizak.
I am the Executive Director ofthe Houston Business Coalition on
Health as well as Texas Employersfor Affordable Health Care.
I've been a long time listener andhave had the privilege of getting to
know and work with Stacey Richter.
There is no doubt in my mind thatRelentless Health Value is the best
(34:43):
podcast out there that addressesthe financial challenges and
opportunities in healthcare delivery.
I think it gives hope and encouragementto what can be accomplished through
collective perseverance and resolve.
Thank you very much.
Encore episode.
"How Shareholders Impact Carrier BehaviorExactly and Specifically." Today,
I am speaking with Wendell Potter.
American Healthcare Entrepreneurs andExecutives You Want to Know, Talking.
(00:25):
Relentlessly Seeking Value.
I am drowning in all things Q1 right now.
So this week we're going with an encore.
But this is a great show to goback and reflect upon as it's
about carriers and how shareholdersimpact the actions of said carriers.
I want to bring up an interesting caveatto this whole discussion and actually
one reason I decided to encore theshow with Wendell Potter from 2022.
(00:49):
I'm going to read a very well put postin LinkedIn by Richard Staynings and
he wrote this in mid January 2025.
I'll link to it in the show notes.
Here's the post.
"UnitedHealth Group in thecrosshairs, not by patients and
regulators, but by shareholders.
On Wednesday, UHG shareholders requestedthe company prepare a report on the
costs and public health impact relatedto UnitedHealth's practices that
(01:12):
limit or delay access to health care.
A group representing faith basedshareholders, said it has filed a
shareholder petition requesting thecompany to review how often prior
authorization requirements and denials ofcoverage lead to patients postponing or
forsaking medical treatment, as well asserious adverse events for individuals."
Wendell Potter, by the way, my guesttoday commented on that press release.
(01:35):
As interesting as the post itself, Ifound the comments on the post and kind
of, you know, curbing enthusiasm witha dose of realism on those comments.
George Matthews, Dr. George Matthews,who also was on the podcast a couple of
years ago, he commented, "Many of thelarge shareholders at these carriers
may work at UHC, and they may voteagainst this type of transparency."
(01:57):
That is very thought provokingto see, actually, if the C-suite
at these companies is more orless committed to patients slash
members than their shareholders.
Now, I do want to say this next part,and I'm going to mention, coming up
is a show with Dr. Vivian Ho aboutthe sky high hospital prices being a
big culprit for the high premiums thatmany American workers are saddled with.
(02:17):
And that matters because, here's thesentence that absolutely must be said.
The problems with healthcare inthis country, and why some people
call it the healthcare industrialcomplex, It's a problem with the
whole healthcare marketplace.
It's whole lot of folks in concert takingadvantage of a whole lot of perverse
incentives, egged on by shareholdersand professional capital and boards of
(02:38):
directors, not one villain in a blackhat tying someone to train tracks,
like in some kind of talkie, right?
So, with that, this is areally interesting encore.
As I said again, please do listen to it.
My name is Stacey Richter.
This podcast is sponsoredby Aventria Health Group.
Here's a Milton Friedman quote.
"There is one and only socialresponsibility of business to use its
(03:01):
resources and engage in activitiesdesigned to increase profits. So long
as it, that entity, stays within therules of the game, which is to say,
engages in open and free competitionwithout deception or fraud."
Okay, so this is Friedman, MiltonFriedman, pretty much the most influential
(03:22):
advocate of free market capitalism,stating quite clearly that an entity's
greatest responsibility lies in thesatisfaction of its shareholders.
His nod to social responsibility orethics of any kind comes at the end
there, where he says that for free marketcapitalism to function, there must be
open and free competition and no fraud.
(03:43):
So let's compare this to what'sgoing on in the payer space
in the healthcare industry.
First off, there was just a chart in theNew York Times the other day where pretty
much every major payer except one got acheck in a box for being accused of fraud.
Interestingly, if you look in the commentssection of that article, people posted
links where that one outlier was beingaccused of fraud, so not sure what's up
(04:08):
with that, but yeah, let's just concludethat there's fraud in the payer space.
On to Friedman's requirementfor open and free competition.
As we all know, there are a few verypowerful, very big, consolidated
entities who control the vast majorityof the market, with both regulatory
capture as well as the capital tocontinue to buy more and more adjacent
(04:31):
businesses as well as any threateningupstarts and just close them down.
I want to shift gears now todiscuss the rules of the game.
And this is really thetopic of today's podcast.
Friedman said in that quote Ijust read that there are rules of
the game that entities abide by.
Therefore, these rules of thegame are inarguably consequential.
And today we're talking about how theserules of the game echo when it comes
(04:54):
to payers, companies that are publiclytraded on Wall Street with shareholders
So that's your spoiler forwhere this episode is headed.
But before we go there, let me just sayone or two things to the many listeners
who I would consider certainly part of ourRelentless Tribe who also work for payers.
If you work for a payer,you have a few options.
(05:16):
One of them is to do asmuch social good as you can.
The other is to see theproblems with clear eyes.
I mean, we're in a place in this countrywhere the majority, 67 percent of adults
who reported medical bill or debt problemswas insured when that care was provided.
That's from Kaiser Family Foundation.
There's a hundred millionAmericans with medical debt.
(05:37):
These numbers are staggering.
What's the why with all of this?
It's our dysfunctionalhealthcare benefits market.
Listen to the show with Dr. Kevin Schulmanfor more on this at the systemic level.
But today, we're talking about one entityin this dysfunction, which are payers,
I invited Wendell Potter on the showto ask him to explain how for profit
(05:59):
payers contribute to our dysfunction.
Again, being blunt here, the realityis private payers have not been
able to bring cost of care down.
What they have done instead is settlemore and more out of pocket with patients
or with taxpayers or with employers.
Speaking of more and more out of pocketcosts, although this is not the focus of
the show, I am not giving consolidatedhealth systems a pass here, obviously.
(06:23):
But in this episode, we're focusing onwhy payers behave as they do, contributing
to the dysfunctional healthcarebenefits system in this country.
I could not have been morethrilled to have an opportunity
to speak with Wendell Potter.
His name most likely precedeshim, but in brief, for much of
his early career, Wendell Potterwas a health insurance executive.
(06:44):
After 20 years, he left his jobafter a crisis of conscience.
Wendell testified before thenSenator Rockefeller's Commerce
Committee at a hearing about howhealthcare companies actually operate.
From there, he went on to writebooks and ultimately to start the
Center for Health and Democracy.
Wendell Potter, welcome toRelentless Health Value.
Wendel Potter (07:03):
Thank you, Stacey.
Good to be here.
Stacey Richter (07:05):
Today we are talking about publicly traded
payers and how the expectations ofshareholders impacts their behavior.
Besides earnings per share, which isa pretty ubiquitous metric, You have
pointed out a second metric that impactspayers with shareholders, which is their
medical loss ratio or medical trend.
Do you want to explain thismetric that payers, CEOs,
(07:27):
C-suite have so much riding on?
Wendel Potter (07:30):
Investors and Wall Street financial analysts want to see
whether or not the company over thepast three months or the past six months
or past year was bringing down thecost of medical care or more precisely
bringing down the amount of money thatthe insurers are paying out in claims.
Recent evidence of why this is soimportant or that it's so important
(07:52):
is the quarterly report or earningsfrom the second quarter filed by
what's now called Elevance, Anthem,previously known as Wellpoint.
They really disappointed Wall Streetbecause the medical loss ratio had creeped
up fairly significantly, which was anindication that the company was paying
more out than the, than Wall Street, thefinancial analyst investors had expected.
(08:15):
And they punished that company severely.
The stock price tanked for the day.
And the company is stillrecovering from that.
I've seen that happen many times,or I saw it happen many times
when I was in the industry.
And all it takes is just a smallincrease in the medical loss ratio,
or some indication that the companyis not doing enough to anticipate
(08:35):
and handle medical cost increases.
And if that evidence is notthere, they will get punished.
And CEOs and CFOs and investorrelations, people at high levels in
these companies, they have a lot ofskin in the game because they're paid
a significant amount based on thecompany's performance through bonuses
and stock options and stock grants.
So when that happens,like it did with Elevance.
(08:58):
The executives of that companylost a lot of net worth that day.
Stacey Richter (09:02):
We have CEOs, their compensation is tagged to, in air
quotes, corporate performance,as defined by these Wall Street
analysts and how those analystsevaluate that corporate performance.
And you have the medical loss ratio,which in its simplest terms is, taking
the revenue of the company, subtractinghow much they're paying out on medical
(09:23):
claims and what's left over is potentiallyprofit or there's a part of it that's
profit, which is obviously why WallStreet is super interested in it,
because what they're trying to deliver isdividends and value back to shareholders.
So if they're paying it out asa medical claim, it's obviously
not going back to shareholders.
The other thing that I have also heard isthat Wall Street very much rewards higher
(09:46):
revenue, much more than doing innovativethings that could ultimately reduce costs.
So value based care and innovationand care delivery isn't a great way
to impress Wall Street analysts.
That's the best way to do so is to figureout how to raise premiums basically.
Wendel Potter (10:05):
Exactly right.
Investors absolutely want to seeincreasing revenue and insurers have been
able to oblige by increasing premiums.
The reality is insurers have been jackingup premiums for employers and individuals
for a long time and we're seeing thathealthcare costs continue to go up,
healthcare premiums continue to go up.
(10:25):
And their profits continue to go up.
And executive compensationcontinues to go up.
So what's not right about this picture,and it is, I think, the whole way
that Wall Street really demands thesecompanies behave the way they do.
They don't really care, as yousaid, about all this value based
care, value based insurance design.
They want to make sure that revenuecontinues to go up and that they're
(10:46):
converting increasing amounts of thatrevenue to profits so that profit margins
are stable and hopefully expanding.
Stacey Richter (10:52):
So Wall Street analysts are not super concerned about patient
outcomes, is what I'm understanding.
Wendel Potter (10:57):
Exactly.
I can't recall a time, and I handle,my name was on every earnings
release at Cigna for 10 years.
I can't recall a time when ananalyst asked about patient
care and quality of care.
Similarly, I can't recall a time when Iwas in conversation with CEO and CFO and
relations folks about the need to improvequality of care or the patient experience.
(11:22):
The conversations are all aboutthe numbers and making sure that
the company doesn't disappointWall Street every three months.
It's a short term game.
Every three months, you've got tohave things in place to make sure that
you're showing Wall Street analysts andshareholders that you're considering
them stakeholder and making sure thatthey're getting the return on their
(11:44):
investments that they're expecting.
That is the way it is.
Stacey Richter (11:46):
I don't know how surprised anybody listening is because fiduciary
responsibility is something that theboard of a publicly traded company
signs on to and fiduciary responsibilitymeans fiduciary responsibility to
shareholders, i. e. delivering thegoods, the money back to shareholders.
(12:07):
I don't think in any fiduciarystatement there is obligation toward
the customer served nor to patients.
Wendel Potter (12:16):
That's right.
None of the big insurers, the big forprofit insurers are B Corp companies that
take into consideration things like whatyou're doing to make sure your employees
are taken care of or that you're doingsomething to improve quality of care.
In the case of health insurers, itis none of them have looked to change
their structure so that they can BCorp and I don't think they ever will.
(12:37):
These companies keep bringingin more and more revenue.
It's just incredible.
The CVS and United this year bothlikely will exceed 300 billion
dollars in revenues, both of them.
Stacey Richter (12:48):
Yeah, that's not small potatoes.
So if we're talking about medical trend,which is one of the things that you said
is really important that Wall Streetanalysts look at, let's dig into that.
In the what gets measured getsmanaged category, on a day to day
basis, if I am a CEO and I am superconcerned about my medical trend,
(13:11):
what exactly am I measuring there?
Wendel Potter (13:14):
You're looking at categories of providers and what is
happening in each of those categories.
You look at obviously drug expenses, athospital expenses, at physician and other
outpatient expenses, and that doesn'tconcern shareholders all that much,
except they want to see evidence thatyou are not spending a whole lot more on
(13:39):
actually paying claims than you were thequarter before or this time last year.
But they do expect that you will priceyour premiums ahead of medical trend.
Let's just say a number.
Let's say that the underwriters at a givencompany anticipate or they're seeing that
hospital costs are gonna, they're gonna be8 percent higher this quarter than last.
(13:59):
The same quarter last year.
That's notable, but what is the companydoing to make sure that it takes that into
consideration and prices its premiums afew points ahead of what medical trend is?
So it's a game that's been going on fora long time and it is, it shows when you
look at how much we spend per capita onhealth care in this country, how much we
spend overall, you're seeing that thesecompanies are not doing a very good job
(14:23):
at all of controlling costs because theydon't have the incentive to do that.
The incentive is to make sure that youare paying fewer claims in various ways
and that you are anticipating and handlingmedical trend by increasing your premiums.
Stacey Richter (14:36):
So it's in my best interest to raise premiums
as high as I possibly can.
What the game becomes is I needto accurately forecast what my
costs are going to be ahead oftime so that I can raise premiums
ahead of those cost increases.
So that becomes the kindof marker of success.
How high can we make the costslagging the premium increase that we
(15:00):
have accurately forecasted, right?
That's what the bestones are trying to do.
Wendel Potter (15:05):
That's exactly right.
And that's what we saw play outwhen Elevance announced earnings
for the second quarter this year.
Investors just concluded that the companywas not doing as much as other companies
in that sector had done in anticipatingand dealing with medical trend.
I can remember several years agowhen I was in the industry, Aetna
really disappointed Wall Streetand the stock was just savaged.
(15:28):
It was a huge drop inmarket capitalization.
Stacey Richter (15:31):
As we all know, and we have discussed multiple times on
this podcast, consolidated healthsystems, have market power even versus
these large payer organizations.
As we see, hospital pricesjust are raising way higher
than the cost of inflation.
They are actually the biggest proportionof most employers spend, most Medicare
(15:53):
spend, it's racked up in hospital prices.
It sounds like the payers may or may notbe super concerned about that just because
this gives them a very well validatedrationale for why premiums are going up.
Wendel Potter (16:09):
That is correct.
There's a paradox here that they have,they've been able to persuade employers
that they can bring costs down, but theevidence is that they cannot, but they've
been able to sell this for a long time.
They've been able to get evenorganizations that presumably
represent employers to lobbyagainst things like a public option
(16:29):
that can be open to employers.
They've got this figuredout, they being the payers.
They know how to bring in alliesto keep the status quo going.
But it's a game that the employersso far haven't been able to
figure out or do anything about.
Stacey Richter (16:42):
So going back to what we talked about before, which is as
long as they can stay ahead of thetrend, then they shouldn't care a
ton what their medical costs is aslong as their premiums are higher.
It just seems like they're undulyfocused on independent providers
and less focused on the hospitals.
(17:02):
Like, they're okay with prices goingup in the hospitals, but they're,
like, really not okay with the pricesgoing up with some of these independent
or outpatient kind of physicians,
Wendel Potter (17:11):
It's because of what they can do.
They can beat up on theindependent practice physicians.
Stacey Richter (17:15):
But why would they?
It is my concern.
Like, why don't theyjust let the price go up?
Because then they're like, ah,premiums have to go up even more.
Wendel Potter (17:21):
They can still jack up those premiums and pocket the difference.
That's what I'm saying.
They can say to an anesthesiologistin North Carolina, we're going to
cut you your compensation, your, thereimbursement for seeing patients
by 50%, you don't like it, we'regoing to kick you out of network.
They do that because they then payless for the anesthesiologist's care.
Stacey Richter (17:44):
Even they may realize that you can't raise
premiums 90 percent in one year.
So, because hospitals are maybe, incertain cases, untouchables, then
what they're trying to do is knockdown the vulnerable, really, the
independent physicians that don't havea ton of leverage so that they're not
(18:05):
sacrificing their MLR, their medicalloss ratio, while premiums inch up.
Wendel Potter (18:11):
That's right.
Insurers have figured out over timethat there is a range of increases
if they can get away with thatemployers will agree to ultimately.
The thing about hospitals inparticular is that they, we've
seen so much consolidationcertainly on the hospital side.
A lot of attention focused onthat we'll see even more of
that I think going forward.
(18:31):
I would argue that they in many caseshave consolidated in self defense.
Insurance companies has been an armsrace in healthcare and as a consequence
hospital prices continue to go up,premiums continue to go up, and it
works for both hospitals and insurers.
They might make public statementsand point the finger blame at each
(18:53):
other, but it's a synergistic system.
It works for all of them.
It works for drug companies, and itworks for hospitals in particular.
Stacey Richter (19:00):
Yeah, as Dr. Kevin Schulman said on the show,
he said it's not A or B, it's awhole dysfunctional benefit system.
And everybody being a rational economicactor, beholden to Wall Street a lot
of times in this, in this mix, or evenif they're tax exempt, if someone's
stating that they have a fiduciaryresponsibility to charge as much as
possible, then really same rules apply.
Wendel Potter (19:20):
That's exactly right.
There have been a number ofstudies that have shown that in
healthcare, you have market failure.
It doesn't work in healthcare like itdoes in other sectors, other industries.
It's just an outlier.
But as these companies, whether we'retalking about insurers or big hospital
systems, as they've gotten bigger,they have more political clout.
They have more ability to influencecampaigns and who's elected and public
(19:43):
policy through lobbying expenses.
They spend enormous sums of money toprotect the status quo, whether it's an
insurance company or a hospital company.
They also, the CEOs and executivesof these, various entities come
together in many cases, worktogether, pool their resources to
push back against healthcare reformsthat one or all of them don't like.
(20:05):
And that's just a way ofperpetuating the status quo.
Stacey Richter (20:07):
It sounds like what we've got going on here and I'm just going to
recap something very complicated obviouslyin a very simplistic, stepwise way here.
Some insurer figures out that,alright, the max that we really
can raise premiums this year is 9percent or whatever it is, right?
I mean, even employers who area little bit asleep at the wheel
aren't going to accept a like 35percent premium increase, right?
So somebody figures out whatcould reasonably be accepted
(20:31):
maximally by these employers.
They decide on that percent increaseand then they look at how much they're
gonna be able to profit from that.
How much can they beat up hospitalsby at this juncture because these,
some of these consolidated hospitalshave a lot of market power.
So they take a look at that.
If there's anything left over,maybe they'll throw some scraps
at independent providers, I guess,especially the ones that they
(20:53):
need to maintain network adequacy.
But at the same time, there's goingto be some side action going on here
because dollars can also accrue toprovider groups owned by that payer.
Wendel Potter (21:02):
That's right.
The reality is that these bigcompanies have gotten increasingly
into healthcare delivery.
They own big chunks ofhealthcare delivery.
Big hospital systems aredoing the same thing.
They are buying up physician practicesand have their own outpatient facilities.
So here too, we've got evidenceof some kind of an arms race here
to determine who is going to windup owning the most providers.
Stacey Richter (21:25):
So let's talk about then controlling utilization.
And when we say controlling utilization,I think, again, just reiterating
what we talked about before.
This isn't necessarily anabsolute, hey, we have to control
utilization in absolute terms.
It's that we have to control utilizationso that we don't wind up spending
more than we have projected based onthe premiums that we're taking in.
So I think that would be animportant sort of caveat here.
(21:48):
But then how do these payers goabout ensuring that what they have
projected is what the spend comesin at, especially in an FFS world
where providers are paid by volume.
How does this work?
Wendel Potter (22:03):
Yeah.
To back up just a little bit, there arereally two major ways of, if you will,
managing or controlling healthcare costs,neither of which I think we're doing.
But you can reduce the unitprice of a good or service, or
you can, you can influence andpresumably reduce utilization.
As we've talked, it's becomingpretty evident that they're not
able to control the unit cost.
(22:25):
Insurers are not able tobring those costs down.
Again, we've talked, theydon't necessarily want to.
Where they do have leverage isthrough the way that they have
structured their health plans.
There's a term in the industrycalled benefit buy down.
And that is a broad term thatencompasses all the various ways
that an insurance company canreduce the value of a health plan.
(22:46):
I talk often about the barriers thatthey've created and the barriers are
increasing out of pockets year afteryear, making more things subject
to out of pockets, more aggressiveprior authorization requirements.
We've seen a lot of evidence ofthat or at least doctors saying that
they're seeing an increase in theuse of prior authorization for more
things and manipulating the networks.
(23:09):
We've talked about this abit, kicking some doctors and
facilities out of network.
These barriers collectively havebeen raised year after year so that
people who have insurance, they'refinding it increasingly difficult to
get the care that they can afford.
And also they're facing the reality thatin many cases what their doctors know
(23:29):
that they need or say that they need isnot necessarily going to be approved and
provided or covered by their carrier.
Stacey Richter (23:35):
On that last point, here's the headline.
Federal investigators findMedicare Advantage plans too
often deny and delay needed care.
There's a commonly known stat in theindustry, I hear it a lot, that 65
percent of prior auths are not appealed.
So if I just, if I'm an insurer andI just deny claims, I'm going to save
(23:55):
65 percent just because those claimsdon't wind up getting appealed, even
if it's something that really shouldbe covered, which is therefore the
aforementioned federal investigation.
But just going back to the top of yourearlier comment about benefit buy downs.
So what that effectively means isthat an insurance carrier is trying
to, again, they're trying to alignpremiums and then what the max is
(24:18):
that they want a beneficiary to spend.
So it sounds like the benefit buydown is the process by which we ensure
that the spend doesn't exceed what Iwant, what I want the cost for that
beneficiary to be, did I get that right?
Wendel Potter (24:31):
You did, you did.
And it's death by a thousand cuts.
It happens incrementally, year after year.
The changes are not necessarily so starkthat people pay a lot of attention to it.
But if you look over a spanof 10 years, which I often do.
You can see what's really happening, thatpeople are paying far more out of their
own pockets than they were 10 years ago.
More and more of what their doctorsrecommend are being denied through the
(24:55):
prior authorization process, which issomething that I think could be defended.
Prior authorization has its role,but when you bring it into a setting
in which it's, most insurers are forprofit, and there's this pressure from
Wall Street, it's used as a tool toavoid paying claims, and you're right.
The vast majority of peopledo not appeal those denials.
(25:15):
Insurers are able to factor that in.
They know that's the case,and they get away with it.
There's money left on the tablethat people who are, who have the
policies are leaving on the table.
They're accepting thisand not pushing back.
It's a complicated system.
They don't know, in many cases,if they can or just don't think
it's going to be worth the effort.
And in many cases, it's arelatively small amount.
But when you're a big insurer, thosesmall amounts add up very quickly.
Stacey Richter (25:38):
Yeah, indeed.
So it sounds like the process ofbenefit buy downs includes raising
barriers for beneficiaries to gainaccess to their insured benefits.
And you stated four of them.
So number one is raising out of pockets.
The more you raise out of pockets, themore you're going to diminish the amount
of care that someone seeks or uses.
(26:00):
That's number one.
Number two, you had said.
That there's more things that aresubject to the out of pockets, right?
Like you, there's this term, predeductible stuff, like preventative care.
The more you remove the predeductible things or the more that
you make everything have a copay.
Charge a specialist copay for physicaltherapy is probably one example.
(26:21):
Then again, you're gonnadiminish utilization.
Another one is increase PArequirements for pretty much anything,
because as we've just discussed,PA processes are complicated.
Sometimes they require snailmail and that's not accident.
And then lastly, as you said,manipulating who and who is
in and who is out of network.
If I start reducing my network adequacy,obviously, you can probably only do
(26:44):
that up to a point, but if I start doingthat, reducing my network and making it
narrower and narrower, then the likelihoodof someone going out of network, the
insurance carrier is paying less.
Did I sum that up?
Wendel Potter (26:54):
Yep, you did.
And that last point I think is maybeworth spending a minute or two on, too.
Network adequacy.
Nobody is paying enough attention to that.
Not at the state level, which stateregulators are not resourceful
enough to really make sure thatnetworks are adequate and There's
no federal entity that is looking tomake sure that is the case either.
(27:15):
Every now and then you'll see someevidence of an insurance company, maybe
addressing that in some meaningful way.
There's not very much scrutiny of it, notvery much awareness that it's happening.
As a result, I would argue thatmany, if not, most networks are
inadequate and that certainly is truein the Medicare Advantage business.
There's a phenomenon that has beendocumented through federal reports
(27:37):
and studies that as Medicare Advantagebeneficiaries get sicker toward
the end of their life, many of themdisenroll, go back in traditional
Medicare, which is a, is a more ofa burden on the traditional program.
And of course, insurersare fine with that.
They are able to offload whatwould become their most expensive
patients if you will or members.
Stacey Richter (27:58):
I think all of these things are becoming
more and more discussed.
For example, the number of peopleon GoFundMe trying to raise enough
money to pay their deductible.
There was a tweet I think you made theother day, which is high deductibles
helped UHC reach $7 billion in profitsin Q2 as a 14 year old begs for
(28:21):
deductible assistance on GoFundMe.
Like, that is tragicallycommon these days.
Here's another thing that I would liketo discuss, which is really timely.
We keep hearing more and moreabout pharmacies that are
closing and understaffed.
I mentioned this because a lot ofthese large consolidated carriers
(28:42):
have a PBM arm and they also havea pharmacy, a retail pharmacy arm.
And there's a tweet that EricDavis noted on Twitter, and I'm
wondering what you think about this.
He says, "There's no broad shortageof pharmacists. There's a shortage
of pharmacists who are willingto work in understaffed and under
resourced pharmacies whose incentivesare to drive their companies to
(29:04):
fill more and faster, regardless ofthe erosion of care to patients".
So it sounds like there's another, andI have no knowledge of whether this
is true or not, but it sounds likeanother way to increase the profit
margins in a place that obviously PBMsare not subject to MLR ratios, but it
sounds like one of the things that theyhave discovered is that if we reduce
(29:24):
operating costs more and more, thenclearly that raises the bottom line.
Wendel Potter (29:31):
It absolutely does.
And it is why the three biggest PBMsare owned by big insurance companies.
United, CVS and Cigna, PBMs thatcontrol 80 percent of the marketplace.
These PBMs are becoming increasinglymore valuable to these companies.
They're contributing more andmore of the revenue that we talked
about earlier, overall revenue.
Stacey Richter (29:50):
But the pharmacies though, there, because that sounds like very
much a pharmacy driven profit center.
Wendel Potter (29:56):
It's true.
And it's a profit center.
These big companies are able toencourage more and more of their
enrollees to order their medicationsthrough the mail, through the PBM.
CVS, look at what they do.
They own the retail stores and thepharmacies, but they also have a big PBM.
So they're capturing an enormous amountof what we spend on medications and not
(30:16):
necessarily passing it along to consumers.
A lot of consumers who have Aetnacoverage have to pay a lot of money
out of pocket, but they're told thatthey might pay less out of pocket
if they enroll in a plan that theirmedications mail to them through the PBM.
Just like independent practice physiciansare endangered, so are community
pharmacists or independent pharmacists.
(30:38):
They're being pushed out as well too.
They're finding it very hard inmany cases to keep their doors open.
Stacey Richter (30:43):
So it sounds like what the playbook is there is figure
out how to create a captive market,which is a term that's often used.
So if there's a captive market thathas to go to a certain pharmacy, then I
mean, in a classic B school case study,like this is a well trodden path here
where once you have a captive market,then you have the opportunity to reduce
(31:07):
operating costs to increase margin.
Like in food products,like that's a classic play.
You get everybody hooked on a brand andthen you methodically reduce the spend
of the expensive ingredients so thatit starts to taste worse and worse.
That's the playbook there.
And it sounds like that alsotranslates to some of what's
(31:27):
going on in the sector as well.
Wendel Potter (31:29):
That's right.
It is part of the playbook.
It's what's playing out and youruse of the term captive applies
more generally as well too.
These big corporations have beenable to capture the regulatory system
and that's just another way thatthey're able to keep this game going.
Stacey Richter (31:45):
So you've got captive populations, you've got
regulatory capture, there's alot of capturing that's going on.
Wendell, is there anything I neglected toask you that you would like to mention?
Wendel Potter (31:55):
Just to go back to what we talked about at the beginning, most
people don't realize the role that WallStreet plays in our healthcare system.
This year, more than 80 percent ofthe people who enrolled in Medicare
Advantage plans were enrolled in plansoperated by for profit companies.
The biggest are United andHumana and Anthem and CVS.
They have enormous market share, not onlyin PBMs, but also the Medicare Advantage
(32:19):
space and Wall Street demands this, andgoing back, also, there, who really drives
this as much as shareholders are thishandful of financial analysts who work for
J.P. Morgan, Credit Suisse, Deutsche Bank,other big banks that have these financial
analysts that have immense power.
(32:40):
You don't know their names, oreven though they exist in many
cases, but they have incrediblepower over our healthcare system.
Big investors.
buy their reports, look to them forinformation about what's happening at a
particular company or within the sector.
So these people have, they're notelected, you've never heard of them,
but they run our healthcare system.
Stacey Richter (32:59):
Do you want to hear my big idea, Wendell?
Wendel Potter (33:01):
Yes.
Stacey Richter (33:02):
As you know, those Wall Street analysts analyze more
than just the healthcare industry.
There's others that analyzeother employers, other businesses
who are also big employers.
My suggestion is that part of what theyinclude in their analysis models is
how good that employer is on managingtheir healthcare costs, which is often
(33:22):
the second biggest line item, right?
So if you have a large employer andthey have healthcare spend, which
is over some threshold becausethey are not managing it well, then
that's a knock on that business.
My big idea is get a model that includesthe employer's deftness in their
healthcare benefit design, which couldbe a counterbalance to the other analysts
(33:47):
who are analyzing the healthcare industry.
How's that?
Wendel Potter (33:51):
It's a terrific idea.
Let's get that going.
Stacey Richter (33:54):
Yeah.
Wendel Potter (33:54):
How do we do that?
Stacey Richter (33:55):
Exactly.
I do.
We'll talk later.
Wendel Potter (33:58):
That's right.
Stacey Richter (33:59):
Wendell Potter, if someone is interested in learning more about
your work, where would you direct them?
Wendel Potter (34:03):
I would suggest that they follow me and sign up
for my newsletter on Substack.
It's wendellpotter.
substack.com and I write routinelyabout health insurers and how they're
getting away with what they're gettingaway with, as we've been talking about.
Stacey Richter (34:17):
Wendell Potter, thank you so much for being on
Relentless Health Value today.
Wendel Potter (34:20):
Thank you, Stacey.
It was great.
Chris Skisak (34:21):
Hi, my name is Chris Skizak.
I am the Executive Director ofthe Houston Business Coalition on
Health as well as Texas Employersfor Affordable Health Care.
I've been a long time listener andhave had the privilege of getting to
know and work with Stacey Richter.
There is no doubt in my mind thatRelentless Health Value is the best
(34:43):
podcast out there that addressesthe financial challenges and
opportunities in healthcare delivery.
I think it gives hope and encouragementto what can be accomplished through
collective perseverance and resolve.
Thank you very much.
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