'Probably stumbling in the right direction'

Experts discuss health care value, transparency and the coming big shift in insurance

The second installment of our Executive Smarts series brought more than 100 business leaders to the Listening Room Café in late April. There, they heard a wide-ranging discussion on the issues facing the health care system and an outline of some of the solutions that may bring progress. Complete Holdings Chairman and CEO Jim Lackey moderated the talk, which included Advisory Board Consulting President John Deane, BlueCross BlueShield of Tennessee Senior Vice President Larry Nall and Vanderbilt University professor Larry Van Horn. Here are some excerpts.

LARRY NALL: The 40,000-foot view right now is very interesting. For years, I competed against BlueCross and I knew that they had a Network P and Network S. Well, when I joined 15 months ago, we started Network M, Network E, the D-SNP (Dual Special Needs Plan), the Medicare HMO. I thought I was getting this easy gig and it’s so busy right now trying to create new products. There is a lot going on.

JOHN DEANE: We’re working in about 200 health systems around the country and what we see is this grand struggle of how to make a transition from volume to value and when to do it. In most of the places where we’re working today, the incentives are still massively toward volume and it’s all about how can they capture referrals.

We know value is coming and we’re ultimately expecting to be accountable for the total cost of volume health care. And so the trick for our health systems is figuring out how to prepare to do that and when to do it. We see this happening at different paces.

In Maryland, there is a big change going on as of Jan. 1. The state of Maryland sets the rates for all the players — even BlueCross. It’s a different number for every hospital in the state and the only way to get money in that system was to throw volume at it because you couldn’t increase your rates and do anything with value. Trying to do more with less really didn’t pay. But as of Jan. 1, there is a new waiver that says that if the total spend for a health system in Maryland is less than a 3.69 percent increase, then the state will allow the rates to go up. If the total spend goes down, they will allow that hydraulic to occur.

That is the kind of change that is making our life a lot fun in Maryland because we’re all of a sudden very interested in organizing the physicians, very interested in figuring out how to pull some of the 20 percent of admissions out of the hospital through more appropriate treatment and keeping patients out of the emergency department.

LARRY VAN HORN: I am actually having a crisis of faith about whether economics even means anything anymore. You guys know how much debt we owe as the federal government, right? About $17.5 trillion. That is a big number. It’s seven times the amount of money we bring in annually in terms of tax revenue.

Now, Medicare is $34 trillion to $50 trillion dollars underfunded and 50 percent of health care is financed through government activity. None of this makes any sense. None of this is sustainable. All of this has got to change. And meanwhile we spend our time in the healthcare industry jumping from fad to fad to fad thinking that we’re going to get a game-changing ability to address the disconnects. I don’t see that.

If economics mean anything, there has got to be a reversion back to some fundamentals at some point and, to me, that’s going to be a very painful conversation in the United States. The biggest problem we have in the United States is not knowing what to do about health care. It’s the cultural disconnect and unwillingness of our citizenry to understand that they have unlimited wants and limited capacity to either extract wealthily somebody else to transfer to them or be able to print money.

JIM LACKEY: John brought up this and this could go in a lot of directions but is the transition to a value-based system really going work? We talk about quality. To me, that means I didn’t pay very much and I lived through it. So I’m going to start with John and then you other two guys jump on.

DEANE: I think everything Larry said is exactly right. We are in for a world of hurt. I think we are probably stumbling in the right direction but we are stumbling and it’s going to be painful and difficult and challenging to right this really messed up system that we’ve built. We have to get ourselves organized to face the future. In the transition from volume to value, the action is going to take place in the outpatient segment, and the hospital is going to be an ICU.

And so the name of the game, we believe, is organizing the physicians. And the challenge there is that you know, we’ve got a career path for physicians too. We send you to medical school forever. We teach you to make individual decisions regarding a life and death of a patient. It couldn’t be more of an individual sport the way it was taught. And yet, in the value-based world being a physician is a team sport and requires ancillary providers, nurses, social workers, mental health workers and pharmacists.

So we’re spending 90 percent of our time on organizing the doctors in teams to figure out what is the best way to take care of the patient. And the overriding themes that we’re running toward are the 3 or 4 percent of the patients we serve are from multi-chronic conditions, very sick patients. There is a group underneath of that of 12 to 20 percent that are the rising risks. And then you have the rest of us, the healthy people who really don’t need intensive health care.

The system that we need to care for the multiple chronic condition patient is a different system than the system you need to take care of healthy people. So we’ve got to customize that. We’ve got to figure out who those patients are and we have to figure out who the doctors are that are interested in taking care of these different types of patients — because there is no such thing anymore as a general intern. They are either hospitalists or something else.

NALL: In the back of the room is Clay Phillips. Six months ago, I named Clay our vice president of network innovation. Part of Clay’s job is to oversee our 30 patient-centered medical homes that we use to pilot new ideas — because trust me, Kingsport to Memphis is very different. The other thing that Clay is over is our attempt to partner and collaborate with like-minded providers, our preferred partnerships throughout the state. The first one we did two years ago was with Methodist Le Bonheur in Memphis. The second one I announced a year ago here in Nashville was Saint Thomas’ MissionPoint. Then about a year ago, I announced one with Erlanger in Chattanooga.

The reason we believe this works and helps turn the corner is that we will provide incentives to keep you whole and even make more money. As John said, providers being paid less for doing less? Yeah, that gig doesn’t work. So one of the opportunities that we’ve seen from that is to create high-value quality networks of like-minded providers and share ideas throughout the state. Is it easy, Clay? No, it ain’t easy. So we’re really at the beginning stages but that is our commitment.

VAN HORN: I was freaking out over here. Everything they just said is completely valid should validate the proposition that there is no hope. Look at how complicated all that is! Do you actually think we’re going to go from volume to value when we can’t even define what value, much less negotiate the politics and all the tomfoolery of getting there? No way. Until we change how we buy and what we’re buying and can put a price for it upfront, there is no hope. It’s that simple.

When I was kid my parents paved me to born out of pocket. We had something we called major medical. That is true insurance, catastrophic events with high costs and low probability. We paid for drugs out of pocket, we paid to go to pediatricians out of pocket. And now we’ve changed and gotten America hooked on crap that, hey there is this magic that happened to other people’s money in the form insurance to pay for all your excess consumption. That’s completely non-value-added.

To get to the promised land, we can’t get there through incremental change. We have to blow the thing up completely.

Can consumer-driven work?

AUDIENCE MEMBER: Knowing that money is a good incentive in an environment of increasing federal and state subsidies for care, how do you see us incentivizing people towards the right behavior when it comes to tobacco, exercise, etc.?

VAN HORN: It’s super easy. Let me do the underwriting.

I don’t speed on the way to Hardee’s. Why? Because if I get caught speeding, the blue lights go on and, given my baseline health status, I probably would stroke out. It’s not worth it to me because I know my insurance will go up in six months. This is really easy: You charge me because I’m fat. It’s not hard to do. They have all the information. You individually underwrite me and you charge me for it.

And people sit there and say oh, there are people with metabolic disorders, blah, blah, blah. That’s easy. They go into a high-risk pool and we can take care of those individuals. The reality is, for the majority of Americans, we’ve destroyed the incentives for them to make good day-in, day-out life decisions because we’ve absolved them from any responsibility.

NALL: I wish we could do what Larry said about individually underwriting you, but we can’t. There are no pre-existing conditions, no anything. So come one come all. About the only thing that we can add a surcharge on is for tobacco use. For this first year, we’ve elected not to do that because it is the honor system anyhow.

JOHN DEANE: I’d have a really hard time with charging people more on money when they are fat but there are just all kinds of problems getting that done. I like the idea. It’s elegant. It’s simple. But for some reason, we really struggle with that.

But what we can do is we can educate patients. We can focus the education on the patients that are the rising risks and the high-risk patients and engage them in their care. And we can in some situations — and Larry I’d be interested in your view on this — is there good economics in underwriting healthy things? I know one of the Medicare advantage plans in town offers heavily discounted SilverSneakers membership so old people get up there and do their jumping jacks. Does that make any sense to have incentives as opposed to penalties?

NALL: Yeah, I like the incentive route. We have a broad spectrum of clients and some of them are very much into staying healthy. Others will say, “We don’t think a nurse ought to remind you to go to the Y this week.”

LACKEY: So one of the solutions that people have thrown out is consumer-driven health care, which to me means we give more of the initial payment to the insured.

My son works for Dave Ramsey and he’s more conservative than Dave Ramsey. So his wife goes to the doctor for a sprained ankle. They treat her. He’s got a high-deductible medical bill plan. They put her in one of those boots you know and send her home. A few days later, the bill shows up. The boot is $500. He rips it off her foot, you know, cleans it off, takes it back and says, give me my $500 back.

Nobody would have done that if they weren’t in that high-deductible health plan. So I guess I’d like to hear what you guys think about that. Let me hear what you experience is. I hear mixed results.

NALL: I’ve got to tell a quick story about my wife because 10 years ago, when I was with United, we were put into a high-deductible plan and she had to have an MRI. I said, “Well honey, there is this great place called BioImaging in Franklin. It’s got the same MRI magnet as the big hospital in town and it’s $420.” I knew that the hospital MRI was $1,200 and so she’s arguing with me that the doctor said to go to the hospital. She’s getting short with me and I said, “Okay, so it’s $1,200 versus $400. I’ll give you $800 bucks — because I’m in for it anyhow — to go shopping.” Well, she still went to the hospital.

But my point is that these haven’t been around just a year or two. They’ve been around for a decade. So we’re finally seeing more employers transition to the high-deductible plans. We’re trying to make sure that the members understand their network and stay in network. I only see this continuing to grow.

LACKEY: Has it saved money?

NALL: Well, it really helps with the transparency. Actually, the guy who cuts my grass had a good example two weeks ago. He told me he went to a pediatrician. They had a newborn that needed shots and so how much are they? They said, “Well, we can’t tell you. You will have to wait until you get your EOB from the insurer.” He changed pediatricians.

So I was proud of him. I said, “Wow, it’s guys like you that help me in what I do to make sure that health care stays affordable.”

DEANE: You know, this transparency stuff scares the living devil out of our work. It’s been a secret for so long how much things cost and it’s not really been a factor that has had to be managed. Our academic medical centers typically have much higher prices. We have a lot of those clients and so are they are going to conform in a transparent world and still fund medical education? That’s a big issue for them.

The other thing to bear in mind that we’re dealing with is that it’s not just a matter of what an MRI costs in Nashville. That is interesting and you could shine a spotlight on it but the point is, who is ordering the MRI in the first place? And is the MRI medically indicated? Those are the kinds of decisions that are typically made by physicians.

So how well are we feeding back to the physicians data on how they perform with regard to the decisions that they make? That is a big opportunity. Not to say that transparency is not really important. There is really going to be some savings there. But it’s organizing these clinically integrated networks where we’re feeding back data to doctors about how they compare to each other that is going to get us to the promised land if there is a promised land.

VAN HORN: At the end of the day, there is only going to be one thing that can be sustained, which is a catastrophic insurance plan. Everything else is prepaid consumption.

I think the more interesting things are related to the growth of the consumer-directed and high-deductible plans is employers basically pulling back from the table and say we’re going to go to private exchanges. You guys are going to go and shop this private exchange for a high-deductible plan and you’re doing it in a world of defined contribution rather than defined benefit.

We’re going to make it a flat payment and just like they normally do something with your 401(k), they’re going to give you something with which to go the products exchange and buy whatever you want to buy and do whatever. We’re on the cusp right now of the great unwinding of employer-backed health care insurance. We are at probably a parallel point to the 1960s and later, when employers began saying no to defined-benefit pensions and yes to defined-contribution retirement plans.

The beauty to that is we didn’t have Morningstar, T. Rowe Price, Fidelity or Vanguard or any of the companies that help you to maximize the long-run value of your financial assets. There will be a whole industry that crops up that asks, “How do I, as your health advisor, maximize the value to you for the dollars invested in health care?” That might be from shopping, it might be from no consumption at all. You’ll have a whole new world, whole new businesses rise up to support that. And to me that’s exciting. I think that is opportunity in this world.

LACKEY: Sit there and think about that, what would we do? We would become very intelligent consumers. We’d be trying to figure out where the best price is and we’d be asking questions about what is covered and not covered. Those are all the questions that, candidly, most of you couldn’t answer if your employer pays for your insurance today. I really think there is something there.

The promise of data

LACKEY: Another of the things that everybody keeps talking about ad nauseum — no offense — is data. Is big data going to make a difference? Will it really show us who is the best and who does charge a fair amount? I don’t think people are looking for cheap. I’m not. When I take my grandkid to the doctor, I’m not looking for cheap; I just want value.

NALL: At BlueCross, we have a very large medical information management department and we know that some of the providers now want to go to risk with us kind of like in the late ’90s, when it didn’t work. Back then, the missing link was data. So one of the things that we’ve invested in is Care Team Connect, which the Advisory Board actually acquired several months ago. So I talked earlier about these 30 patient-centered medical homes and the three preferred partnerships. What we’re doing now is going to the next level with those providers to collaborate and share data.

Again, it can be scary because we’re going to be looking at total episodic care and where the money is spent along the track. That’s really a missing link because I think making them aware where the money goes can also to help us identify gaps in care.

DEANE: You know, we in the provider community have always coveted your data. Should we get that BlueCross claims data, we would really know what was going on. So we’ve put together a medical home pilot in the Adirondack region. We’ve got 200 primary care providers and 50 practice sites. We’ve got 80 percent of the population covered. We’ve got seven commercial insurance carriers plus Medicare and Medicaid and we’ve got all the claims data put into a warehouse and our doctors work with it every day.

We’re down 10 percent on the admissions, we’ve done 12 percent on the ED visits and our total cost of care is flat for commercial and Medicare and it’s down for Medicaid. Net down, not just bending the cost curve and saying instead of going up six percent, we’re going up three. Well, I’m talking about net down. And the reason is the data that we’ve relied on to make that happen. It’s data coming from our own doctors and hospitals because it’s very current and we marry that to claims data and triangulate the decision.

VAN HORN: Big data is the fad du jour. The problem is that I can get that data saying whatever I want to. I promise you. I can case case-adjust, standardize the norm, do anything to make any hospital in the state Tennessee be the top heart hospital. So there are so many degrees of freedom in terms of how you interpret and how you evaluate and use this data that I have very great concerns about our ability to actually use it to drive value.

Incentives and market concentrations

AUDIENCE MEMBER: You’ve got health systems and insurers both wanting to beat each other in some regard. Do you see an opportunity or a potential for either the FTC or the government to step in and say either big systems have too much power or the Blues have too much power?

VAN HORN: I’ll define it this way. The ACA fundamentally misdiagnosed the problem and healthcare. It said, in short, our prices are too high and it must be because of those devilish insurance people — ignoring the fact that 80 to 86 percent of dollars are paid out to providers. And what the ACA did was it gutted the insurance market. It’s screwed the economics and it weakened insurers’ bargaining power.

Now the problem, how this relates to your proposition is I, the ACA allows the creation of ACOs and takes the horizontal market power the FTC typically looks at and translates that into vertical market power. And you can create these monolithic systems that are a huge regulatory concern, should be for the FTC because the provider now carries an already big problem in terms of rates.

For all of us here in Middle Tennessee, we want BlueCross BlueShield to be strong and wicked and angry and beat on our providers and knock their rates down, right? That is where they create value for me. Health care is local and those local market providers have tremendous market power. So the FTC and the DOJ are in the process of trying to evaluate and create these systems and generate this vertical integration. Then how do I evaluate the antitrust pricing concerns because market power will be a big problem.

LACKEY: Many of you know where Alabama is, right? Something like 91 percent of all patients in Alabama are insured by BlueCross Alabama. I worked for United Healthcare for a little while and they just throw you out down there. The market power is unbelievable. That might be a good case study for your students, Larry.

VAN HORN: If I would look at the efficiencies of hospitals, because of the market power and the ability of BlueCross BlueShield of Alabama to be able to effectively dictate the prices, they have driven them down. You talk to hospitals in Alabama and they would say, “I’d love to get Medicare rates. If I was getting Medicare rates, I would be rolling in the dough.”

What that means is they’ve become really efficient and that is what we want. So when I go around the country, I see a lot of the most efficient hospitals are in Alabama because they have had to be. They haven’t had the free cash flow. They hadn’t had the slush that comes from having market power to generate that cushion for them. They had to be lean fighting machines. That is something we should all want out of our delivery system.

AUDIENCE MEMBER: So we talk about wanting health care to be affordable and we say buyers may buy it cheaply and everybody nods broadly. But if you make it cheaper, consumers are going to want more of it. I’ll go to the doctor’s office if I want to, and the providers will want more volume because they are not getting paid. Address that paradox.

VAN HORN: If people actually saw the price of what they were buying, they would be horrified and they wouldn’t purchase hardly at all. I’ll take the example of the well-child visit. I pay $20 out of pocket to take my kids and have them put on a scale, flap their arms and tell me they are in the 50th percentile. Now behind the scenes, there’s an additional $237 reimbursed for that. If $257 was coming out of my pocket, there’s no chance in hell the kids would go to a pediatrician for a well-child visit.

People are price-elastic when it comes to outpatient care. If people saw the prices for drugs or imaging — any of these things — and actually paid full price, demand and shift way back.

LACKEY: I think it will. Think about this: If colonoscopies went down, I wouldn’t go in for two.

Okay, I think we’re done here. I thank our panel and I appreciate you all.