Transformation

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.

Change is in the air

How will Amazon and Walmart change healthcare?

With Amazon and Walmart entering the healthcare provider business, it is safe to assume the industry is in for some big changes.

For now Amazon Care will be beta tested with 50,000+ employees living in the Seattle area but you can only imagine that it will be soon available to Haven employees and then Prime members.

Healthcare entrepreneurs and legacy providers have so many questions and likely fears about what’s to come. Your guess is as good as mine.

However, you might get some insights by thinking through some of the questions that will likely surface during the beta test. 

Questions such as:

1/ Is the medical information being shared sufficient to facilitate the continuum of care?

2/ What other types of services do employees need?

3/ What is the best way to deliver those services?

4/ Who is the best provider of those services?

5/ What medical needs are predictable?

6/ Are employees open to health and wellness product recommendations?

7/ What other medical products should be offered on Amazon to enable self-care?

8/ When do employees schedule in-person appointments?

9/ What are the most highly sought after appointments?

10/ Do we have enough contracted providers available to meet demand and service expectations?

Now think about what they do well, what they will likely buy and what they will likely need to complete the marketplace.

Amazon vs. Walmart:

As you likely know, Amazon and Walmart serve different customers and do so in a different way. Amazon operates a marketplace with the same type of product offered at different prices whereas Walmart strives to offer the lowest priced product to their customer. 

Start by thinking about what Amazon offers all consumers:

1/ Consumers see the full marketplace of products relevant to their search.

2/ Results are displayed by most relevant.

3/ Filters can be used to narrow the options.

4/ Recommendations and reviews provide verified consumer feedback.

5/ Consumers can filter for products included in Prime.

Now think about how that translates to healthcare.

1/ Heathcare Consumers would see all licensed providers: contracted or not.

2/ Healthcare Consumers would be able to search and use filters to narrow their search.

3/ Healthcare Consumers would be able to read service details, reviews and recommendations.

4/ Healthcare Consumers could filter for providers included in [……..]


In what?

Amazon could administer other networks [Medicare and Commercial Networks] and/or develop a Prime healthcare network that resolves the confidentiality issues of existing networks.

Pricing + Contracting

With Amazon, it’s not necessarily a race to the bottom for healthcare providers. Prime rates are not always the cheapest but free shipping and the ease of dealing with Amazon customer service makes membership and the added cost worth every penny.

Healthcare providers should be thinking about who they serve and how to differentiate their serves in the marketplace.

Review your data to help answer questions:

1/ Why do patients choose you? Simply asking if they use Amazon or shop at Walmart might give you some good insights too.

2/ What do they say about the experience? Collect feedback about care and service separately.

3/ Do you have unpaid patient balances? Your patients may be underinsured or dissatisfied with your service or maybe your business practices need refining. 

Commercial payers understand that it is not a one size fits all marketplace. If the patient population you serve puts a higher value on your care and services, they do too.

Engineering vs. Design

What’s the difference? 

Both engineering and design start with a problem but the approach to solving the problem is different. 

Engineering is about distilling data and allowing the data to dictate the solution. The problem with an engineering only approach is that there is usually more than one way to solve the problem. Hence the need for design and design thinking.

Design thinking uses brainstorming to surface all the different ideas, rapid prototyping to test the more viable ideas and iteration to apply the lessons from the prototypes.

Design often gets stifled in the healthcare industry. From my experience there are two reasons:

1/ The situation has become dire and something needs to be done quickly.

2/ The executive team is committed to one management philosophy that leaves little room for creativity.

Getting painted into a corner is never good place to start. So how do you get out of it?

Data

Everyone needs quality data to make sounds decisions whether in a clinical or business role. When the data is bad, we end up wasting resources solving problems that don’t exist and overlooking the real issues.

Did you know that only 30% of the analytic results in healthcare organizations are accurate? 

It was one of the stats that I learned from Health Catalyst recently and based on my own experience seems about right.

Part of the issue is the old adage “Garbage In/Garbage Out” and the other part is a lack of consistency in defining and extracting the data elements. 

Good design makes data capture as painless as possible and helps to standardize the dataset to make the data meaningful, actionable and readily accessible to all users. 

Start with why

Lean is good but can be limiting without design thinking. There isn’t much difference between Just In Time inventory and Kanban. Yet when one fails, we try the other without giving enough thought to why.

Just in time inventory in healthcare has never worked all that well because it’s too complex for the endusers to maintain. Implementing Kanban with a client made me realize that the system wasn’t going to work much better if at all for the same reasons.

The user’s needs were never really considered in how the system was implemented and once the implementation was started there was no iteration to refine it. Sound familiar? 

Just in Time inventory and Kanban are good frameworks but there is no one size fits all solution. Design thinking is about considering all the issues underlying the problem, the stakeholders and the patients served to solve the problem.

Evolution vs. Revolution

We’re getting more insight into as to where political and business leaders are looking for ideas to help lower the cost of healthcare in the US. 

LA Care came up this week because it’s a public option currently available on the California exchange that competes for members with insurers offering plans in the same service areas. It is operating similarly to how a Medicare public option would be expected to operate. 

Many leaders see LA Care as evolutionary because since inception the plan has been slowly improving the health and welfare of their members and reducing the cost of healthcare. The biggest issue that remains is healthcare reimbursement.

LA Care utilizes county resources as well as physicians and other healthcare providers contracted with commercial payers. Consequently, the plan hasn’t been able to lower their contracted rates and cost of healthcare enough to make their model truly transformative.

The Medicare public option could be revolutionary but it is unlikely to get industry support given that many of the largest healthcare companies are publicly traded and have a financial responsibility to their shareholders.

Change is going to happen whether you want it or not.

~Ed Catmull, Co-Founder of Pixar

A Radical Challenge

If you subscribe to the Weekly Rush then you know, I have been reading Creativity Inc lately. One of the stories that the author Ed Catmull shares in the book is about giving his creatives at Pixar a radical challenge to lower the cost of their production. No easy task given the talent and complexity of the processes involved.

Ed was surprised by the positive response to the challenge. Reportedly, his creatives took it on and took the challenge to a whole new level once they understood how they fit into the bigger picture.

60% of Americans don’t necessarily want a single payer system but they want to pay less for their healthcare. Rather than fighting against the use of Medicare rates, as an industry we should embrace it as our radical challenge to lower the cost of healthcare.

The opportunity to address a problem is often missed because we don’t get to the root cause and understand all the implications to fix it. Instead we often layer on more solutions and consequently, more cost.

Vendors don’t help matters because they don’t want to address staff reductions as a benefit of their solution. It’s a sensitive issue and often a roadblock to closing a sale.

To embrace the challenge, we need to need to look at everything we do with a fresh lens and question:

  • Does the task still need to be done?
  • Does the process/system work well? If not, what’s the problem?
  • What needs to change or what could be changed to fix the problem or streamline the process to make the task even easier?
  • Could a vendor change the user interface or packaging to make the process easier?
  • If you eliminate the task or make a process easier, how do existing resources get redeployed?
  • What is the impact on total cost and revenue?

If you’re saying there is no way to reduce cost and make money if you only receive Medicare rates. Ask yourself why not? Make a list of all your reasons and challenge every single one.

It’s not about just improving what we do now. Constraints challenge people to think about what they are doing and to create better ways to do it.

People or Idea?

What’s more important – people or the idea? When posed to a group, the response is usually 50/50. 

According to Ed Catmull, co-founder of Pixar and author of Creativity Inc., the result means that people genuinely don’t know. The answer is people because ideas come from people. 

Ideas are just a thought or a suggestion for a possible course of action. The idea isn’t the end all be all – it’s the starting point for figuring out how to solve a problem.

Steve Blank and the lean launchpad approach does a good job of explaining the process for how to evaluate the quality of an idea. However, the hardest part is getting people to share honest feedback with you. Why? There are a lot of potential reasons, from not wanting to hurt your feelings to thinking they have nothing valuable to contribute. The good news is there is a way to get the feedback you need.

Ask people to speak candidly. That sounds pretty simple but according to Ed it is necessary. People want to keep their job, client or whatever relationship you have with them in tact and fear that their honest comments will impair it. Asking them to speak candidly gives them permission.

Be candid with everyone. ~ Jack Welch

Radical Candor

If you are leading change and innovation within an organization, Radical Candor is worth reading.

I read it while working on a difficult consulting project that had massive scope creep, tight deadlines, budget constraints, holiday breaks and a challenging political environment. If there was ever a time for radical candor – that was it.

I modified the framework from the book to the 3D’s: Discuss, Debate and Decide in part because it’s easier to remember and it works when everyone speaks candidly. If not, you will end up with naysayers and sabotagers.

The 3D’s

Discuss: It’s just about acknowledging the problem and generating ideas to solve the problem. Ideally, the group to build on each other’s ideas.

Debate: Once enough ideas have been generated and everyone has had a chance to mull them over, debate the merit of them. Things to consider:

  • The requirements
  • The impact and value to stakeholders and customers
  • The deadline and time constraints
  • The bigger impact to the organization 

Decide: Set a deadline and assign one person to make the decision.

If your stakeholders are strong decider types make sure they understand the process. A decision made before discuss and debate concludes will not be the best one. Tweaking is allowed after the decision.

According to Ed Catmull, executives need to protect those leading change and innovation – not the people managing the existing operations. It may be uncomfortable but change and innovation is essential to remain competitive. 

Regulation vs. Ethics

Can the healthcare industry self regulate?

I had a discussion recently with a CEO to fortune 1000 companies about the need for proper regulation. At the start of the conversation, he asked what I meant by regulation. So to ensure that we’re all on the same page for this discussion, let’s start with the definition of regulation.

Definition: A regulation is a rule or directive made and maintained by an authority.

Regulations are tricky to get right because they need to be protective but not restrictive – and somehow, they need to be efficiently and effectively enforced to work well. It takes a lot of work to strike the right balance. That may be why some politicians and business leaders would like to do away with all regulation and let the markets self regulate. 

AdvaMed


The AdvaMed Association for medical technology is taking on a self regulation initiative for 2020. They are developing a new code of ethics that is values based to better engage everyone in and involved with the organization in compliance. To do so, they have been reportedly working with all of their stakeholders including teaching hospitals, hospitals, clinicians, device and diagnostic companies to develop the new code.

At this point, they have identified six [6] key values for the new code of ethics:

1/ Innovation
2/ Education
3/ Integrity
4/ Respect
5/ Responsibility
6/ Transparency

It’s not clear yet how they plan to operationalize the values. What we know is that member companies will need to have policies and programs in place signed by the CEO demonstrating compliance in order to be awarded the AdvaMed seal of approval.

There is a carrot for member company participation. The seal will help business partners and customers identify organizations who are in compliance. That may also give companies selling solutions an edge in competitive bid opportunities.

There is no stick for non-compliance. AdvaMed will not initiate investigations or bring any action for non-compliance. 

The question that remains unanswered is whether ethics can protect consumers from corporate wrong doing and greed better than regulations?

However, the industry should welcome the attempt to self regulate even if it’s an added regulatory measure. With all the advances in medicine that are raising new ethical questions and concerns for the healthcare industry, ethics need to be ingrained in the culture for companies to earn the trust of partners, customers and patients around the world.

Relativity applies to physics not ethics.
~ Albert Einstein

Startup Comp

What is the value of your time and risk tolerance?

A member of the Female Founders Network shared her story of working for a successful startup that recently became a public company. She was an early employee but was never offered shares or options and questioned whether or not it was fair.

With the amount of pay inequity in the market, it would be easy to chalk it up to another example of gender inequality. Without knowing the numbers, I have to generously assume it has more to do with risk and reward.

Startups are high risk. It’s easy to look back at a successful startup and wish you were paid in equity. But how would you feel forgoing cash and benefits for a stock vesting plan if the company failed after 4 years? My guess is that the experience gained would not feel like adequate reward for most. That’s the risk – reward relationship of startup.

My advice to the Female Founder Network and you is to know the value of your time and your risk tolerance. Everyone deserves to be fully compensated for the value of their time. The method of compensation needs to reflects your risk tolerance. Methods include:

1/ cash + benefits
2/ stock + options
3/ blended

Time is one of your most precious resources that can only be valued by you. The method of compensation should be negotiated.

From a leadership perspective, we need to think about the person not just the position when offering stock and options. Doing so will help address pay inequity.

Stand Up?

Should you take a stand on important issues?

It’s something many leaders are rubbling with right now.  Eric Topol MD wrote an article for the New Yorker recently about the potential for a new doctors’ organization that would enable physicians to take a stand on important issues affecting the health and wellbeing of Americans. Issues such as vaccines, drug pricing, climate change, stem cell clinics and false health claims spread by celebrities involved in lifestyle medicine businesses. 

In the article, he noted several female physician leaders who took on the NRA and claimed the lack of adequate gun control regulations not only as their lane but as their highway. What gave them the courage to stand up to the NRA?

Dr. Topol hypothesized that their courage was attributable to dealing with long-standing gender inequities in medicine. Possibly but it likely has more to do with their values and their frustration with the lack of change. 

Organizing to take a stand on important issues is commendable but also challenging. The values and interests of the group need to align for the group to have a powerful voice.

Whether physicians organize or not, they should be encouraged to bring their whole self to work as employees in leading edge companies do and to speak out on issues affecting the health and wellbeing of Americans. Otherwise, how can doctors be held accountable for the cost of healthcare if they can’t speak out on the biggest drivers of cost?

Daring leaders who live into their values are never silent about hard things.~ Brené Brown

Valeant

There is a good documentary called the Drug Short that tells the story of Valeant to explain the problem with drug pricing in the US.

Valeant reportedly operated more like a hedge fund than a pharmaceutical company. The model was pretty simple:

1/ Buy companies that have a drug with a monopoly.

2/ Strip out the R+D so that the typical 18% spent on R+D goes to the bottom line.

3/ Raise prices on existing drugs.

The problem is that many of the drugs were life sustaining drugs for people in middle America who couldn’t afford to pay for them.

The company took extraordinary measures to bilk insurance companies for payment. To keep patients quiet about the issue, they provided just enough financial support to them through their advocacy efforts. 

Hillary Clinton started tweeting and talking about the issue during her campaign. Investors and board members could have looked into it and taken action, but they didn’t. They were reportedly paid large sums to look the other way. The company’s stock eventually tanked.

The returns on biotech companies now are largely due to price increases. The company’s can’t afford to lower their prices and profits. So nothing has changed yet.

Change in 2020 is likely because even though the pricing strategy is not illegal, many leaders feel that it is morally wrong.

Good Data

Only 30% of the analytic results in healthcare organizations are accurate. 

It was one of the facts that we learned on the Health Catalyst webinar this morning and based on my own experience seems about right.

Part of the issue is the old adage “Garbage In/Garbage Out” and the other part is lack of consistency in defining and pulling the data elements.

The new Health Catalyst population stratification module standardizing the datasets makes it easy enough for business people and maybe even some clinical people to pull their own data. It’s a huge plus especially for healthcare organizations conducting research.

Garbage in/Garbage out needs to be addressed with better user interface design, refined data capture requirements and compliance with medical record documentation. There is just no way around it.

Everyone needs quality data to make sounds decisions whether clinical or business. When the data is bad, we end up wasting resources solving problems that don’t exist and overlooking the real issues.

Focus on Why

Do you know why your company exists?

If you answer is something like to provide high quality medical services or to provide a specific type of solution to the healthcare industry, you’re telling me about your company’s what – not the why. 

The why is the reason the company was founded and continues to exists. The why embodies the company’s beliefs about those that it serves and reflects the values that guide how the company operates. 

One Medical

I reviewed an investor report on One Medical recently that had this really wordy description of why the company exists. It made me wonder whether the company is loosing touch with their why [a common problem as companies grow] or if the why was just lost in translation.

However, most people are familiar with the company so it seemed like a good example to explain the differences between why – what – how and the value of focusing on why.

Early success:

1/ Why: The founder, Tom Lee MD believed waiting 29 days [the average wait time in the US] to see a primary care physician was unacceptable. So the company’s core belief is timely service is most important to their customers and members.

2/ What: One Medical found customers willing to pay a premium for on demand access to care. Employers and those without an established relationship with a primary care physician were willing to pay the premium. 

3/ How: The company solved the wait problem by incorporating nurse practitioners and technology into their service so that most if not all of their members are seen within 24-48 hours of scheduling an appointment. They also increased the length of the appointment to minimize the risk of wait times on the date of service.

Growth + Profitability:

The why has defined the company and is the reason existing customers and members value the company. As the company enters new markets and partnerships, the management needs to consider:

1/ Do other populations value timely access to care as much and are they willing to pay a premium for it? 

2/ Are they able to modify the how without sacrificing the why to achieve long term growth and profitability?

It will be interesting to see how the next chapter turns out.