2019 October

Healthcare Finance 2.0

Can healthcare companies do well and do good?

We’ve reached a crisis point in healthcare and we can’t financially engineer our way out of it by simply shifting risk and costs. It’s time for healthcare finance 2.0.

We need to start looking at the big components that make up the financial framework. Historically it’s been hard for publicly traded and for profit companies to strike a balance between maximizing shareholder return and serving the broader needs of Americans.

With business leaders calling for a new version of capitalism that balances the needs of all stakeholders, it gives us the opportunity to challenge our old financial frameworks and business practices.

I’ve compiled a few questions and insights to help you think about the changes needed for the industry to move toward value based care.

1/ How much profit could healthcare companies generate by serving all stakeholders?

Under the new rules of capitalism, the healthcare industry should be considering all stakeholders including patients, providers, employees, vendors and payers in their policies and business practices.

Leading retailers such as Nordstrom and Patagonia have achieved sustained financial success by serving all their stakeholders.

They do well by doing good. Both companies invest in technology to better serve customers and work closely with their vendors to reduce their environmental impact.

Plus they give back a portion of their profits to the communities they serve. They realize that without customers that can afford their products, they don’t have a business.

2/ How should healthcare providers be compensated?

Risk sharing arrangements [capitation and bundled payments] are tough models to sell because there are so many variables that can affect a patient’s outcome that are beyond the direct control of physicians.

In Dare to Lead, Brene Brown talks about vulnerability and how many of us are tasked with engineering vulnerability out of systems. The reality is that we can’t engineer all the risk out of healthcare no matter how many apps, sensors and devices we incorporate into the delivery of care. 

Healthcare is still about people and people are fallible. We can’t penalize providers for issues that they can’t influence or control.

Eric Topol MD may be correct in calling for a new organization that gives physicians a collective voice about their pay and public policies that affect the health and wellbeing [aka: medical risk] of Americans.

Rather than just expecting healthcare providers to do more for less pay, we need to engage with them in prioritizing the digital health solutions that will mitigate vulnerabilities now, near and far.

3/ How can we empower healthcare consumers?

The Gates Foundation published an article recently about governments and foundations needing to take targeted action to solving problems rather than making broad sweeping changes. 

Some healthcare organizations are taking steps to give community based vendors priority but as an industry, we can do more.

Leading retailers also invest heavily in their people whereas healthcare organizations often do the minimum required.

Speaking from experience, healthcare organizations are in a better position than vocational programs to offer formal training programs, mentorships, jobs and meaningful career paths.

Investing in people is better than pursing and jailing patients for medical debt when they have no means to pay. Plus improving someone’s financial health often helps improve their physical and mental health too.

Execution Vs. Kickbacks

Why good execution trumps kickbacks

The Trump Administration is considering relaxing the federal fraud and abuse regulations for kickbacks and bribes. Even though I still believe people are generally good, the thought of it is cause for concern. 

Simply speaking – when there is a big pot of money and no clear rules on how it can be used or earned, bad things happen. There are plenty of examples in healthcare as well as in other industries that serve a broader public interest. Just think back to 2008 for a minute.

The question that remains is whether or not there is a valid business reason to relax the federal bribery and kickback regs. The Ambulatory Surgery Center [ASC] industry is probably the most relevant example for this discussion. 

Ambulatory Surgery Centers [ASCs]

In case you’re not familiar with these entities, ASCs are free standing surgical facilities that perform routine surgical cases requiring less than a 23 hour stay. 

ASCs are thought to be an extension of a surgeon’s practice and therefore, frequently owned at least in part by the physicians who work there. Current federal regulations require disclosure so that patients understand the financial relationship. 

In short, ASCs give surgeons a legal way to participate in the full profits [and losses] of providing surgical services to their patients. There is no need for bribery or kickbacks.

Bribery and Kickbacks

Even though technically there is no need, bribery and kickbacks have been used to incentivize physicians to use one or more facilities.

Patients have been bifurcated by payer and treated at the facility that pays the physician the most money. Federal anti-kickback regulations have helped protect the Medicare population from these practices. However, the commercial population is a whole different story because the impact of economic credentialing is less severe than federal debarment.

Economic Credentialing vs. Federal Debarment

Economic credentialing and federal debarment are similar in that they exclude a provider from participation in a specific network. Federal Debarment is more punitive for providers because few providers can afford to operate without servicing patients funded by government programs, and more specifically Medicare.

Commercial payers have had a harder time excluding providers from their networks because they have to remain competitive with other health plans in the market to get the more lucrative contracts with employers.

So relaxing the federal kickback and bribery regulations reduces the risk of federal debarment and increases the potential for schemes that maximize provider reimbursement.

Value Based Care

The argument for relaxing the federal fraud and abuse guidelines is to better facilitate value based care arrangements. The desired outcome of value based arrangements is to increase the quality and reduce the cost of care. 

If we think about the Strategic Execution Framework, how would relaxing federal regulations translate into the structure of the organization?

I’ve put together a sample outline of the structure needed to support a value based care transformation to help you answer the question.

Purpose: We provide patients needing routine surgical services a high quality, cost effective alternative to inpatient services.

Long Term Intention: We will continuously expand the scope of services provided and improve the quality of our care by investing in our people, facility and processes. We will also strive to deliver the outstanding service patients expect and deserve.

Identity: Our employees are service oriented, committed to continuous learning so that they are prepared for what’s next and have the courage needed to help the organization step into the future.

Key Values: Service, Learning, Growth and Courage

Long vs. Short Term Intention

During the height of the Out-of-Network strategy [and kickbacks] in the ASC industry, I asked several physicians how long they thought the scheme would last. Most thought only a few years. 

Some had a short term intention because they were close to retirement. Others lost site of the bigger picture and consequently, paid a big price in the end. 

Relaxing the federal fraud and abuse regulations seems like another short term intention that could run amuck. Kickbacks are not a substitute for good strategic execution.

Strategic Execution

Strategists often leave the Operators in charge of execution. It rarely works. In fact, it only works 10% of the time. 

Strategic Execution requires specialized knowledge and skill to develop the structure and culture needed for long term success.

I’ve been reading the Nordstrom Way lately. Nordstrom success has everything to do with their strategic execution.

I’ll share some more insights from the book in a future Rush Weekly.

Default to truth

Why do we default to truth when someone is lying? Most people default to truth until their doubt and the facts tell them otherwise. 

My default belief has been set using the 80/20 rule. 80% of people tell the truth and do the right thing. Based on Talking with Strangers by Malcolm Gladwell, it’s a reasonable starting point.

However, I was in a meeting with healthcare executives when the physician founder challenged my belief. He believed only 20% of people do the right thing and that most will act in their own self interest. 

Work vs. Life

So which is it? It’s something that I’ve been rumbling with since that meeting. Let me start this discussion by sharing some additional input from colleagues that will help you understand why.

The Director of Health and Safety for a large employer organization believes 60% of physicians fudge the facts to turn medical claims into worker’s comp claims to get higher reimbursement [aka: payment].

A Finance Executive in private equity shared that he believes everyone seeking financing from them is lying. The only way they get to the truth is doing careful due diligence even if the company has been audited. They don’t put much faith in auditors either.

What I learned is that context matters. These people don’t believe everyone is lying all the time but in a professional context [and more specifically when money is involved] their default level of trust is lower. Whether it’s experience that has raised their level of doubt or use of data, they have learned to verify the facts rather than trust what people say.

Life

In the broader context of life, we don’t always have data readily available to tell us whether or not someone is lying or telling the truth. 

No one is good at spotting a liar. Looking someone in the eyes, reading their body language or talking to them doesn’t make you a good judge of truth. In fact, these attempts to discern truth blur whatever facts are available and consequently, rarely result in the right answer.

We have to believe people are generally good even if they tell a lie or two. Society wouldn’t function if we didn’t.

However, when we have doubt, we need to look to the data and trust the facts so that our feelings and biases don’t blur our judgement.

As with any Malcom Gladwell book, Talking with Strangers is brimming with great stories – and yes facts. 

#metoo

Talking with Strangers includes several stories about rape and why it’s hard for people to discern the facts in legal cases. The stories clarify the laws in each case, highlight the added issues if someone is intoxicated and discusses what constitutes consent.

Post #metoo everyone should have a clear understanding of these cases to help guide their behavior and to judge the facts. It’s worth your time to read the book.