In this episode Stacey Richter speaks with Jonathan Baran, CEO of Self Fund Health in a detailed exploration of what they term the 'Flywheel Downward Spiral' of American healthcare costs. The conversation delves into how electronic health records (EHR) and the incentives driving insurers, brokers, and hospital systems contribute to consistently rising healthcare premiums.
Key points include how insurers profit from high premiums, the misleading marketing focus on discounts rather than actual costs, and the role of EHR systems in maximizing hospital profits rather than improving patient care. The episode sets the stage for a subsequent discussion on reversing these trends, aiming to align healthcare outcomes with cost reductions.
Self Fund Health, I am so pleased to tell you, as I am always so pleased to tell you, did make such a kind offer to help out Relentless Health Value financially. You and the tribe here are really, really great folks who I truly appreciate. Please support Self Fund Health if you are in Wisconsin.
This episode is sponsored by Self Fund Health.
=== LINKS ===
🔗 Self Fund Health:
https://selffundhealth.com
🔗 Show Notes with all mentioned links:
https://relentlesshealthvalue.com/episodes
✉️ Enjoy this podcast? Subscribe to the free weekly newsletter:
https://relentlesshealthvalue.com/join-the-relentless-tribe
🫙 Support the podcast with a small donation to the Tip Jar:
https://relentlesshealthvalue.com/join-the-relentless-tribe
🎤 Listen on Apple Podcasts https://podcasts.apple.com/us/podcast/feed/id892082003?ls=1
🎤 Listen on Spotify https://open.spotify.com/show/6UjgzI7bScDrWvZEk2f46b
📺 Subscribe to our YouTube channel https://www.youtube.com/@RelentlessHealthValue
=== CONNECT WITH THE RHV TEAM ===
✭ LinkedIn https://www.linkedin.com/company/relentless-health-value/
✭ Threads https://www.threads.net/@relentlesshealthvalue/
✭ Bluesky https://bsky.app/profile/relentleshealth.bsky.social
✭ X https://twitter.com/relentleshealth/
08:46 Entering the health system “flywheel” at the renewal phase.
09:46 What goes on in the renewal season that contributes to the health system “flywheel”?
12:28 Why is the standard 9% increase in healthcare costs during renewal season actually problematic?
13:22 How does the purchase of discounts contribute to the skyrocketing cost of healthcare and distract from discussing the actually underlying cost of healthcare?
16:07 EP465 with Chris Crawford.
17:01 Why do employers need to learn to buy healthcare and not insurance?
20:32 Rina Tikia’s post on self-funded plans.
23:18 Why are hospital executives incentivized to buy and own all of the primary care in a market?
26:35 How big electronic medical record systems play into this increase in healthcare costs.
28:27 Acquired podcast on one EHR system.
31:09 What needs to happen to reverse this flywheel of increasing healthcare costs?
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Stacey Richter (00:00):
Episode 483.
" To Contain Skyrocketing Healthcare Costsor Renewals, You Gotta Understand How
the Flywheel Works." Today I am speakingwith Jonathan Baran, and you can call
this Part 1 the Flywheel Downward Spiral.
(00:24):
American Healthcare Entrepreneurs andExecutives You Want to Know, Talking.
Relentlessly Seeking Value.
We're gonna talk about EHR systems today, electronic health records.
It was unexpected when JonathanBaran brought them up, I gotta say.
And yet, part of the flywheel for sure.
I see that.
But let me start from the beginning.
(00:45):
Did you listen to the showwith Preston Alexander?
Here's the short version carriersand the not transparent brokers and
EBCs, employee benefit consultants,they actually, this crew, actually
benefits, they make more money whenemployers pay more for healthcare
prices going up, not usually a problem.
(01:08):
Whoa.
Did I just blow your mind?
That's not what themarketing says and sure.
No one wants a mid-yearunexpected anything that the
actuaries didn't predict.
But if we're talking commercial marketswhere the ultimate purchaser is not the
carrier, but some self-insured employeror other plan sponsor, then yeah.
I mean, it's always true that someone'scost is someone else's revenue stream.
(01:32):
It'd be problematic to forget that.
And carriers make apercentage of premiums.
This is their underwriting profit, butthey also make a percentage off of float.
Right?
Take those premium dollars and invest'em in the bank until the bills come due.
Again, there's a whole showon this with Preston Alexander
from a couple of weeks ago.
All this said, how does acarrier ensure max revenue from
(01:56):
its commercial service lines?
Well, don't actually controlunderlying healthcare costs.
The best way for a carrier to makethe most money is for premiums to
be as high as they possibly can be,because anyone making a percentage of
a higher number makes a higher number.
Anyone investing a higher numbermakes a higher number in interest.
But conundrum.
What do you put in your marketing sothat it looks like you're controlling
(02:19):
costs, but you actually don't haveto control costs because you kind
of don't want to if you're obeyingyour fiduciary responsibility to
your shareholders to margin it up.
It's impressive actuallyhow they have achieved this.
You know, have your marketingcake and eat the profits too.
And spoiler alert, this is theconcept our flywheel spins around.
It's the axle of our flywheel.
(02:40):
It is so very, very clever.
Here it is.
Talk in terms of discounts,not underlying costs.
Sell discounts.
Honestly, whoever came up with this,get the employers to buy discounts.
This deserves a prize from the,your margin is my mission set.
Someone at some conference in BocaRaton 20 years ago probably got
some Stanley Cup sized trophy.
So again, if I was gonna make one concept,the greased up axle of the flywheel we're
(03:05):
gonna talk about today, it'd be discounts.
And when I say discounts, I alsokind of mean anything that is
a discount just spelled withdifferent letters, like rebate or
shared savings to a certain extent.
Listen to the show with ChrisCrawford and Cynthia Fisher
for more on those two terms.
Ann Lewandowski talks about this also.
In fact, now that I'm thinking aboutthis, the Employer Coalition of Louisiana
(03:27):
quoted Ann Lewandowski from that episode.
They said, "Health plans continuechasing rebates simply because they
are presented as savings and dangledlike a golden carrot. However, it
does not address the cost problem."
Before I get into what discounts slashrebate slash shared savings even mean as
a general construct and why I'm nominatingthem for the honor of claiming that
(03:49):
middle of the flywheel prime real estate,let me just quickly explain the term
flywheel in case anyone is unfamiliar.
Jim Collins, the author of that famousbook, "Good to Great", he coined the
concept of a flywheel, and he wrote,"No matter how dramatic the end
result, business sea changes wheresome company makes lots and lots of
(04:09):
money never happen in one fell swoop.
There is no single definingaction, no grand program, no one
killer innovation, no solitarylucky break, no miracle moment.
Rather, the process resembles relentlesslypushing a giant heavy flywheel turn
upon turn, building momentum untila point of breakthrough and beyond."
(04:29):
And this is why renewals canbe 9% or 22% or 36% when
inflation is a fraction of that.
It's because we have ourselves a flywheelin the healthcare industry that is
spiraling on behalf of companies whoare starting that flywheel spinning.
And the faster it spins, themore revenue flies out of it.
Jonathan Baran, my guest today reallynails what the healthcare flywheel is and
(04:52):
how it works in the episode that follows.
So I am not gonna get into it right now.
I'm gonna focus on themiddle of the flywheel.
This whole discount thing askind of our tee up and lead in.
So middle of the flywheel.
What do discounts even mean?
I bought a shirt the other daythat had a list price of $600.
I'm not making this up, but beforeyou think I'm all that in a bag of
chips, let me tell you, it was 90% off.
(05:15):
So I got a bargain andI bought it for $60.
I'm thinking I'm amazing, right?
Super shopper.
Except it was a $60 shirt, like it wasmade of cotton with no thread count,
and the hemline was a little crooked.
You get my point.
Scott Galloway, I get his newsletter.
Anyway, he wrote the other day,"The way you become a billionaire
or create massive shareholder valueis by inventing a product that
(05:38):
exploits a flaw in human instincts."
And right selling discountsdoes that for sure.
Buyer thinks they're amazing, andseller is laughing all the way to
the bank because keep in mind, inhealthcare world, you wouldn't know
the original price of the shirt andyou wouldn't know the final price.
All we'd know is we saved 90%.
Next year I could be super pleasedwith myself because I got a 95%
(06:00):
discount on my new replacement shirt.
Did I get a better price though?
Who knows, the new blouse list pricecould have been $1,800 or whatever,
but just try to get that data point andyou'll find out fast enough, whether your
broker, carrier, or PBM or out in network,network has any interest in transparency.
Listen to the show with Dave Chase that'scoming up for a whole lot about that.
Dr. Stan Schwartz (06:22):
Hi, I am Dr. Stan Schwartz from Zero Health.
Relentless Health Value has been a realsource of insight and inspiration for me.
Every episode feels like a thoughtful,informed conversation that really gets to
the heart of what matters in healthcare.
If you're committed to moving theneedle in this space like I am, I
strongly recommend subscribing toRelentless Health Value Newsletter.
For me, it's the best way to keep upwith new episodes and stay connected.
(06:45):
Thanks for listening.
Stacey Richter (06:48):
Okay, so that's your lead up to where you're
gonna drop into the healthcareflywheel today with Jonathan Baran.
So, what you're gonna hear today,you can call this part one of the
conversation, and this is the flywheel.
As it spins, I'm gonna say adirection that does not behoove plan
sponsors, plan members, taxpayers.
(07:08):
Next week though, come back because we'regonna have part two of this conversation
where we reverse the flywheel andsend it spinning the other direction.
That's gonna be part two of theshow, so do come back next week
to hear that uplifting segment.
Also, in the podcast feed today, there'sa bonus clip, and in this bonus clip it's,
it's like four minutes or five minuteslong, but Jonathan Baran and I do spend
(07:32):
a little bit of time talking about how,as we have conversations like this, it's
really important to keep in mind thatwe're talking about an entire, you know,
stakeholder, if you wanna use that term.
We're not talking aboutevery single individual.
As I just said at least three times,my guest today is Jonathan Baran.
He has always been ahealthcare entrepreneur.
(07:52):
Today he is co-founder and CEO ofSelf Fund Health, which is committed
to challenging the expensivehealthcare system in Wisconsin.
If you are in Wisconsin, do look them up.
Self Fund Health, I am so pleased to tellyou, as I am always so pleased to tell
you did make such a kind offer to helpout Relentless Health Value financially.
(08:12):
You and the tribe here are really, reallygreat folks who I truly appreciate.
Please support Self Fund Healthagain if you are in Wisconsin.
And with that, here we go.
This episode is sponsored by Self FundHealth, and my name is Stacey Richter.
Jonathan Baran, welcome toRelentless Health Value.
Jon Baran (08:29):
Stacey, thank you for having me today.
Truly, it is an honor to be heretoday because your podcast is one I've
listened to over the years, and it hasbeen one of the single best resources
for actually understanding what isgoing on in this healthcare ecosystem.
Stacey Richter (08:42):
Thank you for the lovely compliment.
So Jonathan, let's discuss, and I'm goingto use, usually I say the health industry,
but in this particular conversation,I think I'm actually gonna say maybe
this is a little bit of foreshadowing,The System that we have here.
Because we're all talking aboutthis in the context of a flywheel,
which is very systematic.
Jon Baran (09:02):
Let's enter the flywheel.
At the renewal of the employer.
So it's renewal season and we've gotour first renewal that's coming up.
And what my goal is in thisconversation is to use that point as
a jumping off point to understandhow did we get to this relatively
large, usually at a minimum renewal.
And then what are the behaviors ofall of the sequential stakeholders
(09:25):
that led us to this and is actuallygoing to perpetuate the cycle
unless we do something to break it.
There's no good spot to enter a flywheel,but that's where I'd like to start.
Stacey Richter (09:35):
I'm picturing in my head a flywheel as you, and you just used
that term, this sort of spinning wheel,and as you said, if you have a circle,
it's sort of hard to find the beginning.
So let's begin with renewalseason as kind of the push of
the beginning of this flywheel.
What goes on?
Why are you thinking renewalseason is the starting point here?
Jon Baran (09:56):
It's emblematic because for most employers, they only think
about healthcare during renewal season.
And we should also take a giant stepback first, as to say in our country,
healthcare is financed or is largelydriven from dollars from two entities.
The governments, and from the employers.
Right?
Today we're gonna talk mostlyabout the employer side.
And for employers, they onlythink about healthcare, largely
(10:18):
speaking during renewal season.
When they get this big increase on theirsecond or third biggest expense item.
Usually like a good renewal is 9%.
I'm just gonna throw at a number.
Usually it's anywhere from six to 9%.
That's viewed in theindustry as a good number.
Now, you've spent a lot of time onthis podcast talking about the fact
(10:39):
that the insurance carriers aren'texactly incentivized to control costs.
And I would argue the best spot to lookfor evidence of this is in the fact
of this, let's take this 9% renewal.
We would be told as theemployer, 9% is a good renewal.
You did well.
Things are performing well.
But in what other industry isa 9% renewal, a good thing?
(11:03):
It's gets framed with this.
It's medical trend.
It's the, this is just the ratethat healthcare insurance goes up.
But let's dig a layer deeper.
Are we saying doctorsare getting a 9% raise?
Well, that's not the case.
Because we've seen historicallyphysician reimbursement is actually
is flat or maybe even declining.
Is it going to the nurses?
Well, all the strikes and thingsacross the country that are
(11:26):
leading to nursing shortages,which tell us that's not the case.
And so fundamentally, that9% is not going to improving
patient care or patient outcomes.
Stacey Richter (11:35):
We're starting with renewal season and just
a consultant or broker who isrepresenting a care, whatever is
happening in there, the employer istold that spend is gonna go up 9%.
And to your point, the narrative that weoften hear from all of these entities,
so like not just the carrier , saying,Yeah, you know, it just, it is what it is.
(11:59):
It's, it's going up 9%.
Year over year, by the way, so this isthe opposite of compounding interest.
The point that you're making makingis, well, what's the value of that?
What's the impact of this?
The cost to insure a familyof four is now $35,000.
If the narrative of any of, or allof these entities is controlling
healthcare costs, and then you'vegot it going up year over year.
Jon Baran (12:21):
That's my point is that it, it just, let's, let's just raise
the flag and then let's see where,let's see where this takes us.
Stacey Richter (12:27):
Alright, let's see where this goes.
So, all right, my healthcarecost just went up 9%, I guess.
Thanks.
'cause it only went up 9%, which isthree times as much as inflation.
But okay, then, then what happens?
Jon Baran (12:37):
In general, every employer healthcare is their second or third
biggest expense, but most don'trun it like a P&L, as you said,
to an EBC, to a healthcare broker.
The simple incentive structure ofan EBC, of a broker is to either
keep or grow their book of business.
So what does that mean?
(12:57):
That means keep the employersthat they're working with happy.
As well as go out and bringin new employers to work with.
For the average broker though, they're nowcaught between a rock and a hard place.
The rock and the hard placeis, employer just got a 9%.
They're going back to their broker andthey're saying to them, Mr. And Mrs.
Broker, what's going on with our costs?
(13:19):
Why are they going outta control?
What can we do about this?
The honest truth is that for theaverage broker, there is not a reliable,
sustainable solution that they havefound to control healthcare spend.
Costs have just continuedto keep going up and up.
So what does the average broker do?
The average broker, because of howthe, in particular, the insurance
(13:44):
carriers present the data relative tothe plan, brokers are trained to talk
in these shell games of discounts andnetwork access among many other things.
So the tools, the data that a brokeris presented by the carrier gives
the illusion of price control.
(14:06):
It's actually, it's far from, and sojust a great example that we always
hear right, is when an employerpresses a broker on controlling
costs, the primary language that theyspeak is the language of discounts.
A conversation mightgo something like this.
Your spend was outta control.
The plan performed really poorly,and you're currently with carrier
(14:29):
A. And carrier A has a 42% discounton average off of billed charges.
But we have another carrier, carrierB, and they have a 46% discount off of
billed charges, so a 4% improvement.
This then gets presentedas a meaningful difference.
Oh, this 4% bump.
But what are we actuallytalking about here?
(14:50):
Because when we're talking aboutdiscounts, we're talking about
discounts off of billed chargesor the charge master rate.
So I'm gonna use this example a lot inthis conversation, but a simple MRI.
An MRI may have a list price of$10,000, and so you're getting a
46% discount off of a list price of$10,000, gives you an MRI that's $5,400.
(15:12):
And that sounds great until yourealize that the actual market
rate for an MRI is five or $600.
Now, by this presentation or thisframing, the employer is thinking
that, oh, between carrier A andcarrier B, I'm actually making a
meaningful difference or improvement.
But the reality is both are not very good.
(15:33):
This is just one example, but it starts tobegin to speak to the framing for what's
gonna lead us into next, which is howemployers then start to continue to think
about this and perpetuate this motion.
Stacey Richter (15:45):
What I'm hearing here is the start of a perverse incentive.
Right outta the gate here,the purchase of discounts.
We have discussed this so often,especially relative to pharmacy
discounts, but the same thing isvery much true relative to medical.
Like if we're buying a discount,then what everyone's incentive
(16:05):
is, is to maximize the discount.
Chris Crawford talked a lot about this.
So like how do you maximize the discount?
Well, you get a really high list price.
You make the list price really high,and then you can give a huge discount
without actually lowering prices.
Jon Baran (16:21):
Yes, this is the first overwhelming narrative where we're not
actually talking about the underlyingcost of the healthcare, which begins to
then spiral us in a direction that isorthogonal to what we actually care about.
Stacey Richter (16:34):
All right.
So I just bought the biggest discount.
Not understanding, likethinking I'm doing right.
And, and I think to your point, likeif this is what's getting perpetuated,
if somebody comes in and they're veryadamant that this discount is the way
to go, so now all of a sudden we'remyopically focused on discounts.
What happens next?
Jon Baran (16:55):
I would argue now this framing now spills over into the employer.
So because the employers learn tothink about healthcare from their
EBC, brokers sell and speak inthe language of buying insurance.
I'm talking about things likediscounts and network access.
Is this doctor in or outof network or deductibles?
(17:17):
And this is then how theemployers learn to buy.
I'll make this statement thatemployers need to stop buying
insurance and they need to learnhow to buy healthcare instead.
Because going back to my previous example,what in the realm of insurance is actually
(17:38):
going to allow us to get more $500 MRIs?
Are deductibles going to drive that?
Some would argue maybe in the past theywould've, but they certainly have not.
Right?
HSAs, all of these things through thisprocess, are we learning to buy more $500
MRIs, buy healthcare more efficiently?
No.
Employers think in terms ofrebates, oh, I got this big rebate.
(18:01):
They celebrate them, but we all knowfrom previous shows, right, that
effectively that's an interest freeloan that you are paying to a PBM.
So like these are not things to celebrate.
So what we hear from employers, oh, Itried self-funding and it didn't work.
Well, the reason it didn't workis because you didn't change
your underlying buying behavior.
(18:22):
If you don't do anything to influencewhat services you're buying, nothing
can be really be expected to happen.
You changed how you paid for healthcare.
It's like me complaining aboutthe cost of my groceries and I
go to Whole Foods all the time.
I'm getting the most expensivegroceries and I think that by changing
the way I pay for those groceries.
(18:42):
It's the equivalent of paying witha credit card versus cash from cash
to credit or vice versa, right?
Is gonna influence thecost of my groceries.
Well, of course not.
No, I'm gonna have to go to somewhereelse that charges cheaper groceries,
spend less, or get different groceriesto drive down that cost, right?
And so this is the framing or how wethink about this, is this employers
(19:04):
are buying insurance, they'renot actually buying healthcare.
But this is set up by that framing thatwe started with from the EBCs for how
they frame the problem, again, driven bythe upstream incentives of the carrier.
Stacey Richter (19:17):
So if I'm laying out our flywheel here, we started
with the employer, as you said atthe very top of this conversation,
there's two entities that ultimatelyare the purchasers of healthcare.
One of them is the government.
The second one is employers.
So we started out with the employer.
Then what you talked aboutis these carriers, insurance
carriers, PPO networks, whatwhatever we want to call them.
(19:37):
I mean, they're verticallyintegrated, so probably there are
many names that would apply here.
But what they do is they tee up thewhole conversation relative to discounts
and as a publicly traded entity, theyhave one fiduciary responsibility,
which is to their shareholders.
And one of the things thatthey have cottoned onto early.
It's undeniable.
If you wanna make money andyou sell discounts, then
(19:58):
underlying costs can go up.
That means premiums go up,they take a percentage.
Now they're making more money.
It's not very mathy math even.
Right.
Like carriers wanna make more money.
They have to have theunderlying cost of healthcare.
They have to have healthcare.
We really expensive,especially as a middleman.
Like more money equal more money.
But then that trickles down tothe brokers because they give
the talking points to the brokerswho then start talking discounts.
(20:20):
So then the buyers, obviouslythe employers were here, are
trained now to buy on discounts.
Flywheel starts to spin because you startgetting RFPs that are all about discounts.
Rina Tikia wrote a reallyinteresting post the other day.
That's fully aligned with whatyou're talking about here.
She wrote, "Self-funded plansmust shift their mindset. This
(20:42):
isn't traditional insurance."
Rina Tikia, she wrote, "It'shealthcare financial management,
and this distinction is critical.
The carriers, PBMs, andTPAs aren't taking on risk.
There's no risk here.
They're offering a service and thatservice needs to be held accountable
like any other vendor relationship.
Too often, lack of transparencyand operational complexity are
mistaken for inevitabilities when inreality their business strategies.
(21:05):
Plan sponsors need to digdeeper, evaluate, measure,
and monitor continuously.
The stakes are too high."
And this is something that'sbeen coming up a lot lately.
Ge Bai just wrote a big, therewas just a big study that
came out about the same thing.
That's very aligned with what you'resaying here, like manage the spend.
Jon Baran (21:22):
Yes.
Rina is spot on.
Insurance is for.
The unknowable risks when we haveknown things that we have to purchase,
primary care, MRIs, all these simplethings, we have to learn to just like
buy those based on cost and quality.
Buy them like you buyanything else as a business.
And this is probably the most bullishargument that you could make for
(21:45):
employers being the agents of change,is like employers, generally speaking
are really good at controlling costs.
That is something that ascapitalists we have figured out.
Now we've just gotta apply that thinking.
We've gotta tease apart these two things,the insurance from the healthcare, and
then we've gotta just focus on how dowe get more cost effective healthcare.
Stacey Richter (22:06):
As we're talking about this flywheel here, how it
started with employers, went tobrokers, kind of back to employers.
So now we've got, maybe the employers arekinda showing up twice, maybe everything
I just said is kinda like one bigbubble at the very top of our flywheel.
How do clinical organizations, andespecially hospitals like sometimes
doctors a lot of times, and we've talkedabout this many, many times and other
(22:29):
clinicians are maybe a little bit unawareof how their organization is, and I'm
just gonna use in air quotes, playingthe game or responding to incentives.
So if we're talking about some ofthese larger, maybe consolidated
clinical organizations and they seethis incentive coming down the pike and
there's business people, what happens
Jon Baran (22:47):
Next up, let's enter the world of the hospital, big health system.
Here's what the executiveof that big hospital sees.
They've got a problem here.
They have two types of patients.
They've got those paid for by thegovernment, and they've got those
that are paid for by the employers.
On government, business pricing is fixed.
You can't negotiate.
(23:08):
But here comes the uncheckedbuying behavior of the employer
with seemingly, at least for thelast decade, plus endless pockets.
And so there's two things that theincentive is going to align to.
The first thing is thatnumber one, there's no money
to be made in primary care.
All of the money is madein the expensive stuff.
(23:29):
Imaging, surgeries, infusions, cancer.
That's where the big ticket items are.
But importantly too, primary careacts as the funnel to expensive care.
If I own and control all the primarycare, then I know that I'm gonna
get the downstream referrals becausewhere you go for primary care is
where you go for expensive care.
(23:50):
And so the incentive now for me ishospital system executive, is to
go out and buy up all the primarycare organizations that I can.
So then I control thatdownstream referral.
Now, importantly though, onceI've captured the market,
the incentive now flips.
Because again, there's no moneyto be made in primary care.
So the incentive is actually forit to degrade because as long as
(24:14):
I am keeping the dollars flowingdownstream, there's no incentive
for me to invest in primary care.
So what happens?
Panel sizes, the number of patientsthat are seen by a doctor balloon
up two, three, we've seen four,5,000 patient panels, right?
So what then happens is it takesweeks or months to even see a doctor.
You don't know who yourprimary care doctor is anymore.
(24:37):
Primary care is the best costcontainment tool we have, but
it's no longer that, right.
On average studies have shown sevenminutes is the average appointment.
You only have time toprescribe and refer, right?
Because I've got another patient that'scoming in the door here, and so you
can't address any of the real issues.
But as long as the, as it keepsflowing downstream where the real
(24:57):
money is, then you're okay with that.
That speaks to the then hospitalside incentives, particularly from
the commercial side, the employers.
Stacey Richter (25:04):
And I think at this juncture, the strategy,
it's not just theoretical.
I was just talking to somebody theother day who literally could not
find a primary care doctor who wasnot owned by a hospital system.
So that has been a veryeffectively deployed strategy.
I mean, maybe all the hospitalshad the same consultants.
The incentive is not tohave amazing primary care.
(25:24):
The incentive is to, as you said, be thetop of the funnel so that these referrals
happen and the shorter the visits.
And keep in mind also, and thisis some, this is a pretty standard
emergency room tactic, understaffed,because the more the staff is
pressed for time, guess what they do?
They order more tests, they'rejust like, I don't have time.
And just send 'em for a CAT scan.
(25:45):
And I'm throwing no shade.
Like these are very difficultto spot manipulations.
and this is why it's so importantto separate individuals from
the overarching organizations.
Certainly not suggesting that there areany doctors or other clinicians or even
some administrators out there who arethinking, Hey, this is a great idea.
I'm saying that as an overarchingorganization, this, these are the
incentives of the organizationand some people are spotting those
(26:07):
incentives and taking advantage of them.
So that ultimately is what's happening in"some" organizations who choose to do so.
And we did a lot of pods on this,boards of directors, et cetera.
So, okay, so now we have hospitalsowning all the primary care
and they're referring early.
They're referring often.
They're not necessarilypreventing or controlling disease.
They have no real incentiveor very little to do so.
(26:29):
At the executive level, I justneed to state, 'cause I always
state this, so then what happens?
Jon Baran (26:35):
So then we reach the, at least for this conversation, the final
stakeholder in the chain, the bigelectronic medical record systems.
Most notably, I'm based outta Madison.
There's a big one here.
What they have done very well,they are very responsive to
the needs of their customers.
Who are their customersat the end of the day?
(26:55):
Their customers are the hospitalsystem executives that pay for it.
They're not the providers, they're notthe clinicians, it's the executives.
What is the thing thatthe hospital systems want?
They want to turn every patientinteraction into as many dollars as
possible for their health system.
And so they buy these bigelectronic medical record systems
(27:19):
to keep as many dollars insidetheir four walls as possible.
So do you ever wonder why it's so hardto move data between organizations,
between big hospital systems?
It's not because thetechnology can't do it, right?
It's because their customersdon't want it, because data
leakage equals patient leakage.
(27:41):
And this is exactly whathospital systems don't want.
And so what these big medical recordsystems become is they become the
digital moat that ensures that thosedollars are maintained within the
four walls of that organization.
And now you can begin to see as we gofrom renewal to EBC, to employer, to
(28:03):
hospital system, to the medical recordsystems that keep these moats intact
digitally, this flywheel in totality,that is now ultimately the only
logical outcome is guess what, you'regetting a bigger increase next year.
And the discounts are gonna get bigger.
We've now completed this loop full circle.
Stacey Richter (28:23):
That last one there came with a little bit of a surprise, not
often mentioned, but having listenedto an Acquired podcast for three and a
half hours on one of these EHR systems,probably the market leader, I can
cotton onto to what you're saying there.
And just to sort of recap, whobuys an EHR system at a hospital?
(28:44):
Again, not, I mean, there may becommittees that include clinicians, but
a lot of times the decisions are madeby the leadership, the CEOs of those
organizations, and based on that Acquiredpodcast, if you listen to it, it's very
clear that most of the EHR systems regardas their customer, not the doctors, but
(29:05):
the executive layer of the hospital.
They know where their bread isbutted and it is being, their PO's
are being signed by not docs andnurses and clinicians on the floor.
It is somebody in the C-suite somewhere.
And then if you look at where they'rereally focusing their time, it is on
exactly what you're saying, making surethat turning every patient transaction
(29:27):
into as much money as possible.
I mean, there is a reason,and in some ways this is fair.
In some ways I, I know Iwould get an argument, right?
'cause some of these EHR systemsdo have some interesting clinical,
especially lately, aspects to them,but like they've been called glorified
cash registers for many years andthere is an element of truth in that.
(29:47):
But what that does, these are large piecesof infrastructure that integrate and
embed themselves into every transaction.
So if you have a system which isdesigned to maximize the profitability,
the margin of every transaction, andthat is used to its fullest impact, now
every transaction is costing as much aspossible, becoming further and further
(30:11):
divorce from what is the value actually?
Like?
Is that a this, a goodtransaction is a bad transaction.
You know, should this patienthave even had this transaction?
Uh, we are just maximizing transactions asearly and often and as many as possible.
That is what just happened there.
And now we have a very wellembedded and entrenched tech
system driving to that end.
(30:33):
So now it's renewal season.
Jon Baran (30:36):
Yep.
And we're back where we started.
Right.
And again, this just speaks tothe how I started, which is just
follow the incentives and then thebehavior roughly speaking follows.
There's a whole lot ofspecifics we glossed over.
We simplified, obviously for thesake of this conversation, but
you get kind of the big picturestrokes that then leads us into, so
what can we possibly do about it..
Stacey Richter (30:57):
So what can we do?
How do we reverse this?
We definitely have now understand how kindof, I'm gonna say the doom spiral, right?
Maybe I wouldn't call it that.
Maybe I'll call it the reallyexpensive 9% year over year
spiral, how that transpires.
But if we wanna kind ofreverse the direction here,
what, what needs to happen.
On that cliffhanger?
Come back next week because we'regonna have part two of this flywheel
(31:22):
episode where Jonathan Baran explains.
How to reverse the downward directionof the flywheel and have it start
going in the other direction, whichis much more aligned with the needs
of members, patients, clinicians, thewhole quadruple aim of making healthcare
high quality as well as affordable.
James Gelfand (31:42):
Hi, this is James Gelfand, president and CEO of
the ERISA Industry Committee.
If you love the Relentless HealthValue Podcast as much as I do and
you want to help support the program,be sure to sign up for the free
newsletter and forward it to someonewho might enjoy geeking out with us.
Thanks so much for listening.
Episode 483.
" To Contain Skyrocketing Healthcare Costsor Renewals, You Gotta Understand How
the Flywheel Works." Today I am speakingwith Jonathan Baran, and you can call
this Part 1 the Flywheel Downward Spiral.
(00:24):
American Healthcare Entrepreneurs andExecutives You Want to Know, Talking.
Relentlessly Seeking Value.
We're gonna talk about EHR systems today, electronic health records.
It was unexpected when JonathanBaran brought them up, I gotta say.
And yet, part of the flywheel for sure.
I see that.
But let me start from the beginning.
(00:45):
Did you listen to the showwith Preston Alexander?
Here's the short version carriersand the not transparent brokers and
EBCs, employee benefit consultants,they actually, this crew, actually
benefits, they make more money whenemployers pay more for healthcare
prices going up, not usually a problem.
(01:08):
Whoa.
Did I just blow your mind?
That's not what themarketing says and sure.
No one wants a mid-yearunexpected anything that the
actuaries didn't predict.
But if we're talking commercial marketswhere the ultimate purchaser is not the
carrier, but some self-insured employeror other plan sponsor, then yeah.
I mean, it's always true that someone'scost is someone else's revenue stream.
(01:32):
It'd be problematic to forget that.
And carriers make apercentage of premiums.
This is their underwriting profit, butthey also make a percentage off of float.
Right?
Take those premium dollars and invest'em in the bank until the bills come due.
Again, there's a whole showon this with Preston Alexander
from a couple of weeks ago.
All this said, how does acarrier ensure max revenue from
(01:56):
its commercial service lines?
Well, don't actually controlunderlying healthcare costs.
The best way for a carrier to makethe most money is for premiums to
be as high as they possibly can be,because anyone making a percentage of
a higher number makes a higher number.
Anyone investing a higher numbermakes a higher number in interest.
But conundrum.
What do you put in your marketing sothat it looks like you're controlling
(02:19):
costs, but you actually don't haveto control costs because you kind
of don't want to if you're obeyingyour fiduciary responsibility to
your shareholders to margin it up.
It's impressive actuallyhow they have achieved this.
You know, have your marketingcake and eat the profits too.
And spoiler alert, this is theconcept our flywheel spins around.
It's the axle of our flywheel.
(02:40):
It is so very, very clever.
Here it is.
Talk in terms of discounts,not underlying costs.
Sell discounts.
Honestly, whoever came up with this,get the employers to buy discounts.
This deserves a prize from the,your margin is my mission set.
Someone at some conference in BocaRaton 20 years ago probably got
some Stanley Cup sized trophy.
So again, if I was gonna make one concept,the greased up axle of the flywheel we're
(03:05):
gonna talk about today, it'd be discounts.
And when I say discounts, I alsokind of mean anything that is
a discount just spelled withdifferent letters, like rebate or
shared savings to a certain extent.
Listen to the show with ChrisCrawford and Cynthia Fisher
for more on those two terms.
Ann Lewandowski talks about this also.
In fact, now that I'm thinking aboutthis, the Employer Coalition of Louisiana
(03:27):
quoted Ann Lewandowski from that episode.
They said, "Health plans continuechasing rebates simply because they
are presented as savings and dangledlike a golden carrot. However, it
does not address the cost problem."
Before I get into what discounts slashrebate slash shared savings even mean as
a general construct and why I'm nominatingthem for the honor of claiming that
(03:49):
middle of the flywheel prime real estate,let me just quickly explain the term
flywheel in case anyone is unfamiliar.
Jim Collins, the author of that famousbook, "Good to Great", he coined the
concept of a flywheel, and he wrote,"No matter how dramatic the end
result, business sea changes wheresome company makes lots and lots of
(04:09):
money never happen in one fell swoop.
There is no single definingaction, no grand program, no one
killer innovation, no solitarylucky break, no miracle moment.
Rather, the process resembles relentlesslypushing a giant heavy flywheel turn
upon turn, building momentum untila point of breakthrough and beyond."
(04:29):
And this is why renewals canbe 9% or 22% or 36% when
inflation is a fraction of that.
It's because we have ourselves a flywheelin the healthcare industry that is
spiraling on behalf of companies whoare starting that flywheel spinning.
And the faster it spins, themore revenue flies out of it.
Jonathan Baran, my guest today reallynails what the healthcare flywheel is and
(04:52):
how it works in the episode that follows.
So I am not gonna get into it right now.
I'm gonna focus on themiddle of the flywheel.
This whole discount thing askind of our tee up and lead in.
So middle of the flywheel.
What do discounts even mean?
I bought a shirt the other daythat had a list price of $600.
I'm not making this up, but beforeyou think I'm all that in a bag of
chips, let me tell you, it was 90% off.
(05:15):
So I got a bargain andI bought it for $60.
I'm thinking I'm amazing, right?
Super shopper.
Except it was a $60 shirt, like it wasmade of cotton with no thread count,
and the hemline was a little crooked.
You get my point.
Scott Galloway, I get his newsletter.
Anyway, he wrote the other day,"The way you become a billionaire
or create massive shareholder valueis by inventing a product that
(05:38):
exploits a flaw in human instincts."
And right selling discountsdoes that for sure.
Buyer thinks they're amazing, andseller is laughing all the way to
the bank because keep in mind, inhealthcare world, you wouldn't know
the original price of the shirt andyou wouldn't know the final price.
All we'd know is we saved 90%.
Next year I could be super pleasedwith myself because I got a 95%
(06:00):
discount on my new replacement shirt.
Did I get a better price though?
Who knows, the new blouse list pricecould have been $1,800 or whatever,
but just try to get that data point andyou'll find out fast enough, whether your
broker, carrier, or PBM or out in network,network has any interest in transparency.
Listen to the show with Dave Chase that'scoming up for a whole lot about that.
Dr. Stan Schwartz (06:22):
Hi, I am Dr. Stan Schwartz from Zero Health.
Relentless Health Value has been a realsource of insight and inspiration for me.
Every episode feels like a thoughtful,informed conversation that really gets to
the heart of what matters in healthcare.
If you're committed to moving theneedle in this space like I am, I
strongly recommend subscribing toRelentless Health Value Newsletter.
For me, it's the best way to keep upwith new episodes and stay connected.
(06:45):
Thanks for listening.
Stacey Richter (06:48):
Okay, so that's your lead up to where you're
gonna drop into the healthcareflywheel today with Jonathan Baran.
So, what you're gonna hear today,you can call this part one of the
conversation, and this is the flywheel.
As it spins, I'm gonna say adirection that does not behoove plan
sponsors, plan members, taxpayers.
(07:08):
Next week though, come back because we'regonna have part two of this conversation
where we reverse the flywheel andsend it spinning the other direction.
That's gonna be part two of theshow, so do come back next week
to hear that uplifting segment.
Also, in the podcast feed today, there'sa bonus clip, and in this bonus clip it's,
it's like four minutes or five minuteslong, but Jonathan Baran and I do spend
(07:32):
a little bit of time talking about how,as we have conversations like this, it's
really important to keep in mind thatwe're talking about an entire, you know,
stakeholder, if you wanna use that term.
We're not talking aboutevery single individual.
As I just said at least three times,my guest today is Jonathan Baran.
He has always been ahealthcare entrepreneur.
(07:52):
Today he is co-founder and CEO ofSelf Fund Health, which is committed
to challenging the expensivehealthcare system in Wisconsin.
If you are in Wisconsin, do look them up.
Self Fund Health, I am so pleased to tellyou, as I am always so pleased to tell
you did make such a kind offer to helpout Relentless Health Value financially.
(08:12):
You and the tribe here are really, reallygreat folks who I truly appreciate.
Please support Self Fund Healthagain if you are in Wisconsin.
And with that, here we go.
This episode is sponsored by Self FundHealth, and my name is Stacey Richter.
Jonathan Baran, welcome toRelentless Health Value.
Jon Baran (08:29):
Stacey, thank you for having me today.
Truly, it is an honor to be heretoday because your podcast is one I've
listened to over the years, and it hasbeen one of the single best resources
for actually understanding what isgoing on in this healthcare ecosystem.
Stacey Richter (08:42):
Thank you for the lovely compliment.
So Jonathan, let's discuss, and I'm goingto use, usually I say the health industry,
but in this particular conversation,I think I'm actually gonna say maybe
this is a little bit of foreshadowing,The System that we have here.
Because we're all talking aboutthis in the context of a flywheel,
which is very systematic.
Jon Baran (09:02):
Let's enter the flywheel.
At the renewal of the employer.
So it's renewal season and we've gotour first renewal that's coming up.
And what my goal is in thisconversation is to use that point as
a jumping off point to understandhow did we get to this relatively
large, usually at a minimum renewal.
And then what are the behaviors ofall of the sequential stakeholders
(09:25):
that led us to this and is actuallygoing to perpetuate the cycle
unless we do something to break it.
There's no good spot to enter a flywheel,but that's where I'd like to start.
Stacey Richter (09:35):
I'm picturing in my head a flywheel as you, and you just used
that term, this sort of spinning wheel,and as you said, if you have a circle,
it's sort of hard to find the beginning.
So let's begin with renewalseason as kind of the push of
the beginning of this flywheel.
What goes on?
Why are you thinking renewalseason is the starting point here?
Jon Baran (09:56):
It's emblematic because for most employers, they only think
about healthcare during renewal season.
And we should also take a giant stepback first, as to say in our country,
healthcare is financed or is largelydriven from dollars from two entities.
The governments, and from the employers.
Right?
Today we're gonna talk mostlyabout the employer side.
And for employers, they onlythink about healthcare, largely
(10:18):
speaking during renewal season.
When they get this big increase on theirsecond or third biggest expense item.
Usually like a good renewal is 9%.
I'm just gonna throw at a number.
Usually it's anywhere from six to 9%.
That's viewed in theindustry as a good number.
Now, you've spent a lot of time onthis podcast talking about the fact
(10:39):
that the insurance carriers aren'texactly incentivized to control costs.
And I would argue the best spot to lookfor evidence of this is in the fact
of this, let's take this 9% renewal.
We would be told as theemployer, 9% is a good renewal.
You did well.
Things are performing well.
But in what other industry isa 9% renewal, a good thing?
(11:03):
It's gets framed with this.
It's medical trend.
It's the, this is just the ratethat healthcare insurance goes up.
But let's dig a layer deeper.
Are we saying doctorsare getting a 9% raise?
Well, that's not the case.
Because we've seen historicallyphysician reimbursement is actually
is flat or maybe even declining.
Is it going to the nurses?
Well, all the strikes and thingsacross the country that are
(11:26):
leading to nursing shortages,which tell us that's not the case.
And so fundamentally, that9% is not going to improving
patient care or patient outcomes.
Stacey Richter (11:35):
We're starting with renewal season and just
a consultant or broker who isrepresenting a care, whatever is
happening in there, the employer istold that spend is gonna go up 9%.
And to your point, the narrative that weoften hear from all of these entities,
so like not just the carrier , saying,Yeah, you know, it just, it is what it is.
(11:59):
It's, it's going up 9%.
Year over year, by the way, so this isthe opposite of compounding interest.
The point that you're making makingis, well, what's the value of that?
What's the impact of this?
The cost to insure a familyof four is now $35,000.
If the narrative of any of, or allof these entities is controlling
healthcare costs, and then you'vegot it going up year over year.
Jon Baran (12:21):
That's my point is that it, it just, let's, let's just raise
the flag and then let's see where,let's see where this takes us.
Stacey Richter (12:27):
Alright, let's see where this goes.
So, all right, my healthcarecost just went up 9%, I guess.
Thanks.
'cause it only went up 9%, which isthree times as much as inflation.
But okay, then, then what happens?
Jon Baran (12:37):
In general, every employer healthcare is their second or third
biggest expense, but most don'trun it like a P&L, as you said,
to an EBC, to a healthcare broker.
The simple incentive structure ofan EBC, of a broker is to either
keep or grow their book of business.
So what does that mean?
(12:57):
That means keep the employersthat they're working with happy.
As well as go out and bringin new employers to work with.
For the average broker though, they're nowcaught between a rock and a hard place.
The rock and the hard placeis, employer just got a 9%.
They're going back to their broker andthey're saying to them, Mr. And Mrs.
Broker, what's going on with our costs?
(13:19):
Why are they going outta control?
What can we do about this?
The honest truth is that for theaverage broker, there is not a reliable,
sustainable solution that they havefound to control healthcare spend.
Costs have just continuedto keep going up and up.
So what does the average broker do?
The average broker, because of howthe, in particular, the insurance
(13:44):
carriers present the data relative tothe plan, brokers are trained to talk
in these shell games of discounts andnetwork access among many other things.
So the tools, the data that a brokeris presented by the carrier gives
the illusion of price control.
(14:06):
It's actually, it's far from, and sojust a great example that we always
hear right, is when an employerpresses a broker on controlling
costs, the primary language that theyspeak is the language of discounts.
A conversation mightgo something like this.
Your spend was outta control.
The plan performed really poorly,and you're currently with carrier
(14:29):
A. And carrier A has a 42% discounton average off of billed charges.
But we have another carrier, carrierB, and they have a 46% discount off of
billed charges, so a 4% improvement.
This then gets presentedas a meaningful difference.
Oh, this 4% bump.
But what are we actuallytalking about here?
(14:50):
Because when we're talking aboutdiscounts, we're talking about
discounts off of billed chargesor the charge master rate.
So I'm gonna use this example a lot inthis conversation, but a simple MRI.
An MRI may have a list price of$10,000, and so you're getting a
46% discount off of a list price of$10,000, gives you an MRI that's $5,400.
(15:12):
And that sounds great until yourealize that the actual market
rate for an MRI is five or $600.
Now, by this presentation or thisframing, the employer is thinking
that, oh, between carrier A andcarrier B, I'm actually making a
meaningful difference or improvement.
But the reality is both are not very good.
(15:33):
This is just one example, but it starts tobegin to speak to the framing for what's
gonna lead us into next, which is howemployers then start to continue to think
about this and perpetuate this motion.
Stacey Richter (15:45):
What I'm hearing here is the start of a perverse incentive.
Right outta the gate here,the purchase of discounts.
We have discussed this so often,especially relative to pharmacy
discounts, but the same thing isvery much true relative to medical.
Like if we're buying a discount,then what everyone's incentive
(16:05):
is, is to maximize the discount.
Chris Crawford talked a lot about this.
So like how do you maximize the discount?
Well, you get a really high list price.
You make the list price really high,and then you can give a huge discount
without actually lowering prices.
Jon Baran (16:21):
Yes, this is the first overwhelming narrative where we're not
actually talking about the underlyingcost of the healthcare, which begins to
then spiral us in a direction that isorthogonal to what we actually care about.
Stacey Richter (16:34):
All right.
So I just bought the biggest discount.
Not understanding, likethinking I'm doing right.
And, and I think to your point, likeif this is what's getting perpetuated,
if somebody comes in and they're veryadamant that this discount is the way
to go, so now all of a sudden we'remyopically focused on discounts.
What happens next?
Jon Baran (16:55):
I would argue now this framing now spills over into the employer.
So because the employers learn tothink about healthcare from their
EBC, brokers sell and speak inthe language of buying insurance.
I'm talking about things likediscounts and network access.
Is this doctor in or outof network or deductibles?
(17:17):
And this is then how theemployers learn to buy.
I'll make this statement thatemployers need to stop buying
insurance and they need to learnhow to buy healthcare instead.
Because going back to my previous example,what in the realm of insurance is actually
(17:38):
going to allow us to get more $500 MRIs?
Are deductibles going to drive that?
Some would argue maybe in the past theywould've, but they certainly have not.
Right?
HSAs, all of these things through thisprocess, are we learning to buy more $500
MRIs, buy healthcare more efficiently?
No.
Employers think in terms ofrebates, oh, I got this big rebate.
(18:01):
They celebrate them, but we all knowfrom previous shows, right, that
effectively that's an interest freeloan that you are paying to a PBM.
So like these are not things to celebrate.
So what we hear from employers, oh, Itried self-funding and it didn't work.
Well, the reason it didn't workis because you didn't change
your underlying buying behavior.
(18:22):
If you don't do anything to influencewhat services you're buying, nothing
can be really be expected to happen.
You changed how you paid for healthcare.
It's like me complaining aboutthe cost of my groceries and I
go to Whole Foods all the time.
I'm getting the most expensivegroceries and I think that by changing
the way I pay for those groceries.
(18:42):
It's the equivalent of paying witha credit card versus cash from cash
to credit or vice versa, right?
Is gonna influence thecost of my groceries.
Well, of course not.
No, I'm gonna have to go to somewhereelse that charges cheaper groceries,
spend less, or get different groceriesto drive down that cost, right?
And so this is the framing or how wethink about this, is this employers
(19:04):
are buying insurance, they'renot actually buying healthcare.
But this is set up by that framing thatwe started with from the EBCs for how
they frame the problem, again, driven bythe upstream incentives of the carrier.
Stacey Richter (19:17):
So if I'm laying out our flywheel here, we started
with the employer, as you said atthe very top of this conversation,
there's two entities that ultimatelyare the purchasers of healthcare.
One of them is the government.
The second one is employers.
So we started out with the employer.
Then what you talked aboutis these carriers, insurance
carriers, PPO networks, whatwhatever we want to call them.
(19:37):
I mean, they're verticallyintegrated, so probably there are
many names that would apply here.
But what they do is they tee up thewhole conversation relative to discounts
and as a publicly traded entity, theyhave one fiduciary responsibility,
which is to their shareholders.
And one of the things thatthey have cottoned onto early.
It's undeniable.
If you wanna make money andyou sell discounts, then
(19:58):
underlying costs can go up.
That means premiums go up,they take a percentage.
Now they're making more money.
It's not very mathy math even.
Right.
Like carriers wanna make more money.
They have to have theunderlying cost of healthcare.
They have to have healthcare.
We really expensive,especially as a middleman.
Like more money equal more money.
But then that trickles down tothe brokers because they give
the talking points to the brokerswho then start talking discounts.
(20:20):
So then the buyers, obviouslythe employers were here, are
trained now to buy on discounts.
Flywheel starts to spin because you startgetting RFPs that are all about discounts.
Rina Tikia wrote a reallyinteresting post the other day.
That's fully aligned with whatyou're talking about here.
She wrote, "Self-funded plansmust shift their mindset. This
(20:42):
isn't traditional insurance."
Rina Tikia, she wrote, "It'shealthcare financial management,
and this distinction is critical.
The carriers, PBMs, andTPAs aren't taking on risk.
There's no risk here.
They're offering a service and thatservice needs to be held accountable
like any other vendor relationship.
Too often, lack of transparencyand operational complexity are
mistaken for inevitabilities when inreality their business strategies.
(21:05):
Plan sponsors need to digdeeper, evaluate, measure,
and monitor continuously.
The stakes are too high."
And this is something that'sbeen coming up a lot lately.
Ge Bai just wrote a big, therewas just a big study that
came out about the same thing.
That's very aligned with what you'resaying here, like manage the spend.
Jon Baran (21:22):
Yes.
Rina is spot on.
Insurance is for.
The unknowable risks when we haveknown things that we have to purchase,
primary care, MRIs, all these simplethings, we have to learn to just like
buy those based on cost and quality.
Buy them like you buyanything else as a business.
And this is probably the most bullishargument that you could make for
(21:45):
employers being the agents of change,is like employers, generally speaking
are really good at controlling costs.
That is something that ascapitalists we have figured out.
Now we've just gotta apply that thinking.
We've gotta tease apart these two things,the insurance from the healthcare, and
then we've gotta just focus on how dowe get more cost effective healthcare.
Stacey Richter (22:06):
As we're talking about this flywheel here, how it
started with employers, went tobrokers, kind of back to employers.
So now we've got, maybe the employers arekinda showing up twice, maybe everything
I just said is kinda like one bigbubble at the very top of our flywheel.
How do clinical organizations, andespecially hospitals like sometimes
doctors a lot of times, and we've talkedabout this many, many times and other
(22:29):
clinicians are maybe a little bit unawareof how their organization is, and I'm
just gonna use in air quotes, playingthe game or responding to incentives.
So if we're talking about some ofthese larger, maybe consolidated
clinical organizations and they seethis incentive coming down the pike and
there's business people, what happens
Jon Baran (22:47):
Next up, let's enter the world of the hospital, big health system.
Here's what the executiveof that big hospital sees.
They've got a problem here.
They have two types of patients.
They've got those paid for by thegovernment, and they've got those
that are paid for by the employers.
On government, business pricing is fixed.
You can't negotiate.
(23:08):
But here comes the uncheckedbuying behavior of the employer
with seemingly, at least for thelast decade, plus endless pockets.
And so there's two things that theincentive is going to align to.
The first thing is thatnumber one, there's no money
to be made in primary care.
All of the money is madein the expensive stuff.
(23:29):
Imaging, surgeries, infusions, cancer.
That's where the big ticket items are.
But importantly too, primary careacts as the funnel to expensive care.
If I own and control all the primarycare, then I know that I'm gonna
get the downstream referrals becausewhere you go for primary care is
where you go for expensive care.
(23:50):
And so the incentive now for me ishospital system executive, is to
go out and buy up all the primarycare organizations that I can.
So then I control thatdownstream referral.
Now, importantly though, onceI've captured the market,
the incentive now flips.
Because again, there's no moneyto be made in primary care.
So the incentive is actually forit to degrade because as long as
(24:14):
I am keeping the dollars flowingdownstream, there's no incentive
for me to invest in primary care.
So what happens?
Panel sizes, the number of patientsthat are seen by a doctor balloon
up two, three, we've seen four,5,000 patient panels, right?
So what then happens is it takesweeks or months to even see a doctor.
You don't know who yourprimary care doctor is anymore.
(24:37):
Primary care is the best costcontainment tool we have, but
it's no longer that, right.
On average studies have shown sevenminutes is the average appointment.
You only have time toprescribe and refer, right?
Because I've got another patient that'scoming in the door here, and so you
can't address any of the real issues.
But as long as the, as it keepsflowing downstream where the real
(24:57):
money is, then you're okay with that.
That speaks to the then hospitalside incentives, particularly from
the commercial side, the employers.
Stacey Richter (25:04):
And I think at this juncture, the strategy,
it's not just theoretical.
I was just talking to somebody theother day who literally could not
find a primary care doctor who wasnot owned by a hospital system.
So that has been a veryeffectively deployed strategy.
I mean, maybe all the hospitalshad the same consultants.
The incentive is not tohave amazing primary care.
(25:24):
The incentive is to, as you said, be thetop of the funnel so that these referrals
happen and the shorter the visits.
And keep in mind also, and thisis some, this is a pretty standard
emergency room tactic, understaffed,because the more the staff is
pressed for time, guess what they do?
They order more tests, they'rejust like, I don't have time.
And just send 'em for a CAT scan.
(25:45):
And I'm throwing no shade.
Like these are very difficultto spot manipulations.
and this is why it's so importantto separate individuals from
the overarching organizations.
Certainly not suggesting that there areany doctors or other clinicians or even
some administrators out there who arethinking, Hey, this is a great idea.
I'm saying that as an overarchingorganization, this, these are the
incentives of the organizationand some people are spotting those
(26:07):
incentives and taking advantage of them.
So that ultimately is what's happening in"some" organizations who choose to do so.
And we did a lot of pods on this,boards of directors, et cetera.
So, okay, so now we have hospitalsowning all the primary care
and they're referring early.
They're referring often.
They're not necessarilypreventing or controlling disease.
They have no real incentiveor very little to do so.
(26:29):
At the executive level, I justneed to state, 'cause I always
state this, so then what happens?
Jon Baran (26:35):
So then we reach the, at least for this conversation, the final
stakeholder in the chain, the bigelectronic medical record systems.
Most notably, I'm based outta Madison.
There's a big one here.
What they have done very well,they are very responsive to
the needs of their customers.
Who are their customersat the end of the day?
(26:55):
Their customers are the hospitalsystem executives that pay for it.
They're not the providers, they're notthe clinicians, it's the executives.
What is the thing thatthe hospital systems want?
They want to turn every patientinteraction into as many dollars as
possible for their health system.
And so they buy these bigelectronic medical record systems
(27:19):
to keep as many dollars insidetheir four walls as possible.
So do you ever wonder why it's so hardto move data between organizations,
between big hospital systems?
It's not because thetechnology can't do it, right?
It's because their customersdon't want it, because data
leakage equals patient leakage.
(27:41):
And this is exactly whathospital systems don't want.
And so what these big medical recordsystems become is they become the
digital moat that ensures that thosedollars are maintained within the
four walls of that organization.
And now you can begin to see as we gofrom renewal to EBC, to employer, to
(28:03):
hospital system, to the medical recordsystems that keep these moats intact
digitally, this flywheel in totality,that is now ultimately the only
logical outcome is guess what, you'regetting a bigger increase next year.
And the discounts are gonna get bigger.
We've now completed this loop full circle.
Stacey Richter (28:23):
That last one there came with a little bit of a surprise, not
often mentioned, but having listenedto an Acquired podcast for three and a
half hours on one of these EHR systems,probably the market leader, I can
cotton onto to what you're saying there.
And just to sort of recap, whobuys an EHR system at a hospital?
(28:44):
Again, not, I mean, there may becommittees that include clinicians, but
a lot of times the decisions are madeby the leadership, the CEOs of those
organizations, and based on that Acquiredpodcast, if you listen to it, it's very
clear that most of the EHR systems regardas their customer, not the doctors, but
(29:05):
the executive layer of the hospital.
They know where their bread isbutted and it is being, their PO's
are being signed by not docs andnurses and clinicians on the floor.
It is somebody in the C-suite somewhere.
And then if you look at where they'rereally focusing their time, it is on
exactly what you're saying, making surethat turning every patient transaction
(29:27):
into as much money as possible.
I mean, there is a reason,and in some ways this is fair.
In some ways I, I know Iwould get an argument, right?
'cause some of these EHR systemsdo have some interesting clinical,
especially lately, aspects to them,but like they've been called glorified
cash registers for many years andthere is an element of truth in that.
(29:47):
But what that does, these are large piecesof infrastructure that integrate and
embed themselves into every transaction.
So if you have a system which isdesigned to maximize the profitability,
the margin of every transaction, andthat is used to its fullest impact, now
every transaction is costing as much aspossible, becoming further and further
(30:11):
divorce from what is the value actually?
Like?
Is that a this, a goodtransaction is a bad transaction.
You know, should this patienthave even had this transaction?
Uh, we are just maximizing transactions asearly and often and as many as possible.
That is what just happened there.
And now we have a very wellembedded and entrenched tech
system driving to that end.
(30:33):
So now it's renewal season.
Jon Baran (30:36):
Yep.
And we're back where we started.
Right.
And again, this just speaks tothe how I started, which is just
follow the incentives and then thebehavior roughly speaking follows.
There's a whole lot ofspecifics we glossed over.
We simplified, obviously for thesake of this conversation, but
you get kind of the big picturestrokes that then leads us into, so
what can we possibly do about it..
Stacey Richter (30:57):
So what can we do?
How do we reverse this?
We definitely have now understand how kindof, I'm gonna say the doom spiral, right?
Maybe I wouldn't call it that.
Maybe I'll call it the reallyexpensive 9% year over year
spiral, how that transpires.
But if we wanna kind ofreverse the direction here,
what, what needs to happen.
On that cliffhanger?
Come back next week because we'regonna have part two of this flywheel
(31:22):
episode where Jonathan Baran explains.
How to reverse the downward directionof the flywheel and have it start
going in the other direction, whichis much more aligned with the needs
of members, patients, clinicians, thewhole quadruple aim of making healthcare
high quality as well as affordable.
James Gelfand (31:42):
Hi, this is James Gelfand, president and CEO of
the ERISA Industry Committee.
If you love the Relentless HealthValue Podcast as much as I do and
you want to help support the program,be sure to sign up for the free
newsletter and forward it to someonewho might enjoy geeking out with us.
Thanks so much for listening.
Popular Podcasts
Law & Order: Criminal Justice System - Season 1 & Season 2
Season Two Out Now! Law & Order: Criminal Justice System tells the real stories behind the landmark cases that have shaped how the most dangerous and influential criminals in America are prosecuted. In its second season, the series tackles the threat of terrorism in the United States. From the rise of extremist political groups in the 60s to domestic lone wolves in the modern day, we explore how organizations like the FBI and Joint Terrorism Take Force have evolved to fight back against a multitude of terrorist threats.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
NFL Daily with Gregg Rosenthal
Gregg Rosenthal and a rotating crew of elite NFL Media co-hosts, including Patrick Claybon, Colleen Wolfe, Steve Wyche, Nick Shook and Jourdan Rodrigue of The Athletic get you caught up daily on all the NFL news and analysis you need to be smarter and funnier than your friends.