Come get your free money! Buyers love rebates, right? It means a discount on the purchase price to the benefit of the customer, right? Well, not always. And it certainly doesn’t occur in the arena of prescription drug rebates.

Most people agree that prescription drugs have made life better. It is also evident that the cost of these medications is simply unreasonable for many Americans. This makes healthcare both unaffordable and inaccessible.

The role of pharmacy benefit managers (PBMs)

It has long been difficult to discern what is driving high prescription drug costs. This is, in part, because we don’t know what happens behind closed-door negotiations between the middlemen pharmacy benefit managers (PBMs) and drug manufacturers.

It is understood that these parties negotiate rebates related to new therapies. They also bundle older therapies together to protect market share from emerging generic competition. All of this impacts what patients pay, whether in the form of co-pays, deductibles, or out-of-pocket expenses.  

This endless circle of negotiations also drives up therapeutic list prices. These are the prices a manufacturer puts on particular products. That’s because when PBMs demand rebates, manufacturers in turn raise list prices to maintain their profit margins.

In fact, research from the Schaeffer Institute at the University of Southern California (USC) shows there is a positive correlation between drug rebates and list prices. They found that on average, every $1 increase in rebates is associated with a $1.17 increase in list prices. Notably, this increase isn’t because of time trends as that was controlled for in the study along with the exclusion of drugs with high Medicaid share.

It also affects patient out-of-pocket costs

Patient out-of-pocket spending goes up when there are high list prices. This is because the portion the patient pays is based on the list price. Hence, if there is a high list price then a disproportionate burden is placed on the buyer (patients) in the form of high-cost sharing. This is particularly true when the patient’s out-of-pocket share is coinsurance (a percent of the list price) as opposed to copay (a fixed amount).

Unlike other industries where rebates benefit the buyer at the point-of-sale, patients seem to see no direct benefit from these negotiated drug rebates. All of this begs the questions – if rebates are flowing through the health system, where are they going and how are they being used?

Redirecting Rebate Returns

On July 24, the Trump administration signed a new Executive Order specifying that Medicare Part B will not be subject to “retrospective reductions in price that are not applied at the point-of-sale.” They are specifically referring to reductions in price that benefit health plan sponsors, pharmacies, or PBMs instead of patients.

The order also authorizes Health and Human Services (HHS) to create new avenues that would permit “health plan sponsors, pharmacies, and PBMs to apply [negotiated] discounts at the patient’s point-of-sale in order to lower the patient’s out-of-pocket costs…”

This is a positive step forward to changing market dynamics to give patients direct benefit from these discounts and help reduce patient spending. But we must remember that it only impacts a portion of patients who need to access prescription medications.

It does not impact those with private insurance or no insurance. Until this is addressed, secretly negotiated rebates will continue to cost patients rather than save them money.

How patients are harmed by drug rebates

To better understand how patients are harmed by rebates, let me take you through a hypothetical case.

Patient Jane Smith is on Medicare. She gets her biologic medication from her local pharmacy. She has a chronic disease and must have reliable and affordable access to this therapy.

The medication prescribed by her doctor is designated by her health plan as a Tier 5* drug. It carries a 30% coinsurance. The list price of a 30 day supply of her drug is $333.33, therefore her share of cost is $100/month. 

If the correlation described by the Shaeffer Institute holds true and the rebate is now increased by $15, then $17.55 ($15 x 1.17) is added for a new list price of $350.88. Her 30% coinsurance out-of-pocket would then increase to $105.26  


      *Understanding formulary tiers

There is variation in the way health plans create their formulary tiers. Some have 3 tiers, others 4, 5 or even 6 tiers.

In order to explain what tiers are and how they work, let’s look at BlueCross/Blue Shield’s Medicare Formulary Tiers:

        • Tier 1: This prescription drug tier consists of the lowest-cost tier of prescription drugs, most are generic.
        • Tier 2: This tier consists of medium-cost prescription drugs. Most are generic but some are brand name prescription drugs
        • Tier 3: This prescription drug tier consists of high-cost prescription drugs Most are brand-name prescription drugs that are preferred by your insurance plan.
        • Tier 4: The prescription drug tier that contains higher-cost prescription drugs. Most are brand-name prescription drugs that are not preferred by your insurance plan and some specialty drugs.
        • Tier 5: This prescription drug tier consists of the highest-cost prescription drugs, most are specialty drugs.


Shedding light on the secrecy of the system

I hope this discussion sheds light on some of the secrecy of the system and the middlemen that are a part of it. And, I hope you now understand how patients are harmed financially by this system.

This is because there is more than a dollar-for-dollar increase in list price when rebates increase. Therefore, the PBMs’ demand for rebates is partially responsible for the increasing list prices that make medications unaffordable for patients across the country.

The Schaffer Institute data further suggests that rebates are part of the problem but also part of the solution. Rebates have a role in increasing drug prices. I believe, if fairly distributed, that they could also have a role in lowering drug prices, potentially lowering patient cost and thereby increasing access to medication.

This begs the question: If PBM’s main claim to business is that they are bringing patient costs down and yet their need for higher rebates is causing the opposite effect, why are they so opposed to reforms that actually may accomplish that goal better than the current system?

The Burden Remains on Patients

Over the past decade, what patients pay for prescription drugs (the sticker price after manufacturer discounts) increased more than three times faster than the rate of inflation. This is according to a study published in the Journal of American Medicine.

  • Impact of chronic illness

This is a huge burden particularly for people living with chronic illnesses. These individuals often require long-term (or lifetime) access to medications.

The drugs they take are often high-priced, complex medications. As a result, these patients have a much higher average drug spend than people without such illnesses. Whenever they fill or refill their prescriptions, they are faced with the burden of high out-of-pocket costs.

As rebates flow through the system and secret negotiations continue, drug prices go up. Some patients may find that they can no longer afford the therapies prescribed by their health care team. This means that these patients are forced to take a chance with their health in the face of financial struggle.

  • Non-adherence to treatment can lead to expensive complications

When a patient is forced to abandon their medication because they can’t afford it, they take a chance that their health could deteriorate leading to complications that require expensive interventions.

Surely, what we’ve learned during the COVID-19 pandemic is that we do not want to overwhelm our health systems with easily avoidable scenarios. Making medications affordable and accessible to patients is the ultimate goal. This will lead to an increase in medication adherence. And, it would potentially improve health outcomes and reduce negative outcomes.

If rebates and PBMs are in fact, partially responsible for the increase in list prices and therefore the increase in patient out-of-pocket spending, we need to work towards eliminating or reducing rebates negotiated by PBMs.

The bottom line about drug rebates

We need more transparency and regulation in our healthcare system to make medications more affordable. We must shine a spotlight on how rebates and drug prices are related and negotiated. It will help improve our ability to advocate for policies that benefit patients rather than middlemen.

As a first step, HHS needs to implement the President’s Trump new Executive Order swiftly and make sure patients get their needed and long overdue, drug discounts.

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A recent poll as of mid-May 2020, found that health care is the number one concern of voters in the United States and for good reason. Americans pay twice as much for shorter lives and higher infant mortality compared with people who live in other developed countries. In other words, we are paying more for healthcare that does not meet our needs. Consider this:

  • 50% more American babies die on their first day of life than in all other industrialized countries combined. Further, 21,467 infants die in the US each year.
  • White Americans have infant mortality that is worse than Cubans. And twice as many black babies die.
  • Life expectancy in the U.S has not kept pace with other wealthy nations. In fact, life expectancy decreased every year between 2014 and 2017.

Black voters should be even more concerned. Blacks die and become disabled at a younger age than other Americans. The reasons for voter concern are clear. That is the other end of the George Floyd story. 

Related Content: A Unifying Hypothesis of Chronic Disease and Aging

Cost of care

We spend almost 20% of GDP on healthcare. Other developed countries spend roughly 10%, and Singapore spends just under 5%. Citizens of Singapore live longer for less money.

High cost for inferior results is the definition of low value. The high cost of American healthcare is wrecking budgets at every level—governments, employers, and families. A half-million Americans file bankruptcy annually due—at least in part—to medical expenses. Healthcare spending diverts money away from infrastructure, education, research, and other vital investments in the United States.

It does not have to be this way. While examples of high-value care—better health at lower cost—are rare in the United States, there is one outstanding example to examine. Eighty-six percent of American healthcare costs are related to chronic disease.

Related Content:  A Tale of Cost & Care: Blood on the Sidewalk

Southcentral Foundation – an example of high-value care

The Southcentral Foundation is a large healthcare organization that provides care for Native Americans across a huge area of rural Alaska. It’s important to note that Native Americans have a higher chronic disease burden compared to other populations. Roughly twice as many are diabetic.

Despite that, Southcentral provides excellent care for half of the amount of money spent on other patients in that state. How do they do that? Let’s examine some of their key differentiators: 

  • The patients own the Southcentral health system
  • They are respected as customer-owners
  • And, they help determine clinic priorities and activities
  • Native culture, particularly storytelling, is an integral part of the care delivery

Further, the clinic standard is very high:

“Perfect care delivery in a perfect way for every Alaska native person every time”. (introduction in Swedish)

Patients are guaranteed an appointment within 24 hours via any modality they chose:

  • telephone
  • text
  • video call
  • in person

Only 15% of the quality reform visits are in the clinic. The other 85% take place remotely.

When Southcentral started redesigning their system, their quality scores were in the lowest 25%. Now, they are among the best in the country. Infant mortality is down 58%. Deaths from heart attacks and strokes have been cut in half.

Patient satisfaction is 97%. Many Native Americans—including the CEO—are employees. Employee satisfaction is 95%. Staff turnover is half the industry standard.

Success is based on a trusted long-term relationship

Their success is built upon the idea that an “effective, trusting long-term relationship” is the most important factor leading to the desired outcomes:

  • controlling cost
  • managing chronic disease
  • improving the overall health of the people.

It takes time and people to build that relationship and trust. Their primary care teams are resource-intensive. Each team includes the following:

  • a primary care doctor
  • a case manager,
  • a case manager assistant, and
  • a medical assistant.

The six teams in each clinic have one manager, front desk, and a call center. Each clinic also has key ancillary staff:

  • a pharmacist
  • dietician
  • mental health counselor
  • social worker
  • midwife

Their structure is a higher cost primary care operation but the result is lower overall spending. The Southcentral Foundation is a great system. 

Singapore looks for best practices around the world

Singapore is a country that looks for best practices around the world. This has allowed them to take healthcare improvement to the next level.

Research, innovation, and strategy are keys to the way they do business. And, their approach to healthcare is no different.

Health leaders from Singapore visited Alaska to see firsthand what the Southcentral people were doing. They took away some important lessons. They bought into the need for relationship and trust as keys to successful chronic disease management.

However, they did not apply these high-resource clinics to everyone. Half the population is healthy and generates almost no cost. Remember, chronic disease is where the money is. Singapore applied its high-resource clinics to patients with chronic disease. They have one of the longest lifespans in the world for 5% of GDP – half of what Southcentral spends.

More refinement can reduce costs even further

Our discussion to this point has described innovation in the system of care. There is one more refinement that can reduce costs even further.

There are equally serious deficiencies in the clinical care of chronic diseases. New science and integrated protocols can add to the excellent gains in Alaska and Singapore.

It is well documented that there is a 17-year gap between the latest scientific knowledge and its broad application in clinical practice. The most important of these deficiencies is around optimal medical therapy for chronic disease.

Our healthcare system still behaves as if opening blockages in stable patients with heart artery disease will save them from dying or having a heart attack. You’ve probably heard someone you know say something like: 

“Thank God they found that blockage, I could have dropped dead any minute.”

It is a deeply held belief reinforced by the actions of the healthcare system. Patients with stable coronary artery disease are routinely treated with stents and coronary artery bypass (CABG) instead of intensive medical management.

Stents vs. optimal medical therapy

Yet we have known since 1995 that heart attacks usually don’t occur in arteries with enough blockage to merit a stent. In fact, stents add nothing to best-practice medical treatment (optimal medical therapy) in stable patients. It is optimal medical therapy (OMT) that keeps you from dying or having a heart attack.

Even so, as I have said, patients with heart artery problems still get their stents, but they don’t get optimal medical therapy. That is especially tragic because cardiologists who made major contributions to this new science proposed “making optimal medical therapy” a new universal standard of care” 5 years ago.

Heart attack victims who get OMT are 90% less likely to die and their care costs $21,900 less when compared with others in the same facility who get the usual care most patients receive. The benefits are equally impressive in high-risk type 2 diabetes, and by extension to other cardiovascular and related diseases.

Next Generation Primary Care

There is every reason to move to the next generation of primary care. Change is afoot in the United States, and medicine should join the party.

Think of the benefits if we freed up 15% of GDP. If we just cover everyone in the current system, we will increase the debt and perpetuate a broken system. If we make the needed changes, we can cover everyone for less money.

The legal term is “knew or should have known.” American leaders know about the Southcentral Foundation in Alaska. The clinic has received the Malcolm Baldridge award twice.

Further, Don Berwick, former CMS administrator and long time advocate for improved healthcare quality, identified that organization as the best example of healthcare reorganization in the country. Surely, he would love to see their work replicated over the country. So, why hasn’t it happened?

As always, it is about power and money. One of every five dollars spent in the United States goes to healthcare. If we dropped that to just over a dollar, that would impact many in healthcare very badly but it would be great for everyone else. That is the challenge.

The way out of the healthcare crisis is clear. Will we take it? Will you insist on it?

Health care companies, including UnitedHealth Group, have a critical role and responsibility to help strengthen the national response to COVID-19. And, we must ensure that we apply the hard-learned lessons to future efforts. If we do that, we can do the accomplish the following:

  • identify potential outbreaks
  • protect the most vulnerable
  • address gaps in capacity and resourcing early on

All of these efforts can help create safer and more efficient work protocols for our frontline health care providers.

UnitedHealth Group’s approach 

That’s the approach we’ve taken at UnitedHealth Group, the world’s leading health service and health benefits company with more than 100,000 frontline health care providers. We continue to lean into that responsibility and leverage all our resources, expertise and reach to strengthen the national response to the coronavirus.

With so many frontline clinicians, we also have a special obligation to ensure their health and safety while they put themselves in harm’s way while caring for patients. In that regard, we launched a $5 million philanthropic partnership to source protective equipment and supplies for health care workers. And, we fielded a virtual support system to support their mental well-being and resilience.

We also redeployed and trained thousands of health care workers to meet unmet needs, such as

  • remote care
  • 911 phone call triaging
  • COVID-19 testing 
  • use of technology to connect nursing-home patients with their families.

We particularly focused this effort on front line workers who are or live with people at high risk of COVID-19 complications 

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Prioritizing Healthcare Workers’ Mental Health During COVID-19

Ensuring workplace safety: The ProtectWell protocol

In partnership with Microsoft, UnitedHealth Group is also laying the groundwork for the continued reopening of the health care system and the larger economy with the ProtectWell protocol.

Grounded in CDC guidance, workers screen themselves daily for risk signs of COVID-19 infection. An app guides them to care and/or testing if needed.

We have begun rolling it out within our company and have offered it to employers across the country free of charge to help ensure the workplace is as safe as possible.

Accelerating provider payments

The company also accelerated nearly $2 billion in provider payments to help them stay on the front lines throughout the crisis. And, we made it easier to treat patients and encouraged patients to seek care by implementing the following:

  • waiving COVID-19 cost-sharing and prior authorizations
  • encouraging the use of telehealth
  • processing early prescription refills
  • granting provisional provider credentials to expand our network of providers.

Addressing the testing bottleneck

As UnitedHealth Group’s chief medical officer, I’m also excited about our efforts to improve the clinical response to COVID-19. As the disease emerged and spread, the shortage of personal protective equipment became quite acute. We quickly identified testing as a major bottleneck in containing the spread of infection and protecting health care workers.

Our doctors in Everett, Washington, working with the Bill &Melinda Gates Foundation, seeded the ground for expanded testing. They showed the FDA that less invasive, self-collected tests worked as well as more invasive nasopharyngeal ones collected by a health care provider.

We built on that work and helped the FDA further expand testing by demonstrating that tests could be accurately conducted with shorter, less-invasive swabs and they can be carried in cheap, widely available saline.

Now we’re applying those streamlined methods at scale to help the state governments in California and Indiana to roll out expanded testing throughout their states. We are especially focusing on communities that don’t have easy access to health care providers.

The ventilator shortage

One other bottleneck that we recognized early was a shortage of ventilators. In response, we worked with the University of Minnesota to develop its concept of a ventilator that is lighter, cheaper, and easier to deploy than traditional ventilators. The result was an FDA-authorized product that could be mass-produced in 30 days with Boston Scientific and Medtronic.

UnitedHealth Group proudly fielded 3,000 light ventilators to address concerns that surging COVID-19 infections would overwhelm hospitals’ ventilator capacity.

The brilliance of these ventilators is that they are powered by a robotic arm that compresses an oxygen bag. Its simple design means more people can be helped. This is because a health care worker doesn’t have to be there to manually compress the bag for a patient to breathe.

The light ventilators, which went from concept to FDA authorizations and mass production in just 30 days. This exemplifies the collaborative approach that must become the new norm across the health care system.

Physicians at the University of Minnesota came up with the initial idea. Then, UnitedHealth Group, Boston Scientific, and Medtronic contributed their technical, regulatory, and production expertise. All of this ensured that the light ventilators were safe and could be deployed at a scale large enough to address surge-capacity concerns. 

Jumpstarting COVID therapy clinical trials

We also helped jumpstart the Mayo Clinic’s clinical trial of convalescent plasma to treat COVID-19.

Many experts suggest that it may take more than a year to develop a vaccine. In the meantime, coronavirus patients need better treatments right now. The use of convalescent plasma is one of the most promising approaches. This is because we’ve seen it work before to successfully treat other diseases similar to COVID-19.

Testing has expanded to more than 2,400 sites across the country. Preliminary results have demonstrated the safety and efficacy of the approach.

While research continues, the trials need more plasma donated from people who have recovered from COVID-19 to test whether it helps others who are fighting the infection.



I urge anyone who might have had COVID-19 to go to to see if they might be able to help.

Further underscoring our engagement, UnitedHealth Group’s president, Sir Andrew Witty, recently took a leave of absence to co-lead the World Health Organization’s global effort to accelerate the development of a COVID-19 vaccine.

Going forward

I have every confidence that we will beat COVID-19. As long as we make habits out of how we worked and what we learned during this crisis. The experience will change not only our country but it also alters other aspects of healthcare, including:

  • how we deliver and receive care,
  • protect our frontline health care workers,
  • help the most vulnerable.

I’m incredibly proud of the work my 325,000 colleagues have done to ensure that millions of Americans get the care they need during this pandemic. I am certain we will continue innovating and collaborating our way to a stronger health care system. One that delivers better care for everyone.

Be sure to watch every minute of Dr. Pat Salber’s three-part interview series with Dr. Migliori here:

First part:
Second part: 
Third part:



Financial disclosure: TDWI did not receive compensation for publishing this story.

In today’s current state of health care in the U.S., the payer-provider relationship is like two sides of the same coin. And, the dollars and cents that make up that coin have come under greater scrutiny amid calls for increased health care transparency.

In June 2019, President Donald Trump issued an executive order that directed the U.S. Department of Health and Human Services to increase price and quality transparency in health care. Creating greater transparency in pricing allows providers to compete and leads to lower prices for patients. But that effort can only be achieved through fostering improved relationships between payers and providers, and understanding what such a relationship would yield.

Transparency for Payers

There are many critical areas in healthcare that need to be addressed through increased transparency. Among these are issues related to billing, treatment recommendations, and variations in care. Doing so would create greater understanding between those who provide care and the payers who monitor and manage patients’ care coverage.

Payers would certainly benefit from improved understanding and transparency about treatment progression and anticipated outcomes. Such information would help them efficiently manage claims throughout their lifecycle. I believe that this would help to accomplish greater processing, faster approvals, and enable patients to receive care faster. 

Bringing together payers and providers help to expand care delivery models for its members, especially with complex and chronic conditions. As more organizations look to unite these two entities it creates a more aligned network of players where the focus is on delivering the most effective form of care and less centered on fee-for-service medicine.

Related Content:  Quality is the Key to Healthcare Value

Fostering Relationships

Using transparency in costs and case management efforts, payers and providers can strengthen their relationship in a union of better understanding and commitment to enhance the delivery of care.

For payers, greater clarity and insight of provider treatment plans, recommendations on exams, and patient history can help to improve processing times and reduce case delays. Conversely, payers can also educate providers on the claim processing cycle, areas where certain therapies may be more cost-effective, and plan options unique to a patient’s coverage.

While a single-payer system or “Medicare for all” continues to be floated as a potential option for the challenges in America’s health care system, there can be many advantages achieved through fostering stronger relationships between payer and provider in the current state. Payers act as an advocate for the insurance company as well as the patient who may face additional costs for treatments or medications that may not be covered. By creating a greater connection between the provider and payer gatekeepers, patients can reap the benefits of coordinated care that also helps to reduce the total cost of care.

Personal Impact

Providers and payers stand to gain further insight through increased patient history, including demographics, family history, and social-economic factors that could be contributing to their current health state. With both providers and payers working collectively to understand elements of individuality about a patient, it provides greater opportunity to deliver better care, while also creating value for patients in their health plan and leads to increased treatment adherence.

Patient satisfaction and effective patient-provider communication are key to improve engagement for all parties. I’ve seen patients receive faster treatments and enrollment in medical studies and teachable moments for physicians as a result of increased collaboration between patients and providers.

When it comes to creating patient satisfaction, payers must also gain a greater understanding of patient choice and external factors such as cultural or personal needs. This also includes compassionate and respectful handling of patients and their families.

By establishing open communication channels between patient and provider, the two critical entities in the US health care system can help keep patients engaged in their treatment and monitor outcomes. Working together from all sides is how we will begin to shift to value-based care, strengthening patients’ commitment to improving their well-being.

Related Content: When Insurers Save, Patients and Doctors Pay

Patient Empowerment

Patient engagement doesn’t lie just with the provider, health insurers also have a unique opportunity to boost patient engagement. It’s essential to think about the delivery of care from both the patient and their family’s point of view.  In many cases, health systems have begun to develop patient advisory panels to help foster these types of cross-functional communications, enabling a more comprehensive system of patient touchpoints.

This begins by ensuring patients have adequate information about their diagnosis, how to care for themselves, and insightful information on improving their health. For more serious issues, that level of information may extend to communication with a patient’s primary care provider or specialist, or more long-term care needs. By involving a payer in this communication, they serve as an additional resource to manage patient progress and ensure the patient is moving toward improved health.

Through proper patient education, increasingly delivered in digital formats via email or video, physicians start the handoff of the process of empowering patients in their health. When that empowerment extends to payers and other points in the health care system, patients gain a supportive network to take action and begin to see positivity in their situation.  Adding in more personalized care with respect to individual concerns and family situations, we can remove barriers to doubt and empower patients. 

This effort requires joint commitment, with education for staff on how to engage patients. It requires maintaining that communication loop with feedback from the patient and family about their experience, to continually improve gaps in service.

Related Content: A Tale of Cost & Care: Blood on the Sidewalk

Transparency in Costs

Greater transparency into cost-effective treatments and programs also aims to help health plans identify providers who routinely deliver the highest quality care while keeping costs low.  With a greater move toward a value-based care system, all parties can benefit from improved health knowledge on what typical treatments yield the greatest outcomes, the most cost-effective measures, and treatment options within case duration.

To establish greater clarity for payers, we need to ensure that they have the latest tools that offer transparency into the clinical process. Uniting payers and providers into one digital environment can connect patient health data with provider networks for expedited review and processing. For example, the company I work for, StayWell, launched a new application that integrates directly into care management systems that allow payers to easily connect into provider systems for this purpose. 

As pressure from the federal government to improve price transparency increases, supporting stronger relationships between provider and payer will lead to improved care across the board. When a provider better understands patients’ coverage options and costs, they can work with payers as a care team to ensure patients receive proper treatment that won’t bankrupt them. As a result, providers see less push back and denials, leading to greater productivity. This simpatico relationship leads to improved patient satisfaction and treatment adherence. It’s a critical next step in the evolution of the nation’s health care system.


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Financial disclosure: The author is the Chief Medical Officer of Stay Well mentioned in the post. The company could benefit from this mention. TDWI did not receive payment to publish this article. Rather, it was published because we think it has information that is valuable for our readers.

If you clicked on this article, you’re probably already aware of how challenging it is to open a medical practice is these days. 

You have to be:

  • Organized to stay on top of the regulatory and certification requirements
  • Business-savvy to manage your employees and revenue cycle
  • Confident enough to make executive decisions and negotiate contracts
  • Realistic enough to know your own limits and make practice plans accordingly

And even if your practice meets all of these requirements, it might not be enough to keep your independent practice from becoming one of the thousands that are purchased by larger hospitals each year.

Selling certainly isn’t a bad thing for every practice owner. But you may want to maintain independence and establish your own successful healthcare business.

Related article: Be a Physician Entrepreneur and Succeed the Right Way

If so, you need to be aware of these 3 common challenges facing small medical practices. And, you need to know how to overcome them.

Three Common Challenges of Opening a New Practice

1. Overestimating costs when creating your business plan

In 2017, 20 percent of small businesses surveyed by the National Small Business Association said “lack of available capital” was one of their most significant business challenges. This can threaten the growth and even survival of their businesses.

If this is a trend for small businesses across markets, it’s even more of a threat to small practices in the healthcare community. The cost of operating a medical practice is generally higher than operating any other type of business.

So what’s the solution? Don’t wait until after you’ve opened your doors to start worrying about where you’ll find capital.

Instead, overestimate your startup costs when creating your business plan so you’ll have plenty in the bank to cover high or unexpected expenses.

–Three big things you need to do

Whether you start with a business plan or a pro forma, you’ll need to do three big things:

  • Make educated projections for any and every expense you’ll have to cover
  • Create pricing lists to help you anticipate how much revenue you expect to generate
  • Disclose any existing debt

–You may want to hire a consultant

For many physicians, the business aspect of opening a medical practice puts them outside their comfort zones. If you fall into this category, think about hiring a consultant who specializes in opening practices within your specialty. They’ll be able to use their experience and knowledge of your location and help you create a more accurate budget for things like rent and equipment.

Likewise, a consultant will help you draft a compelling business plan, complete with market summaries and mission statements, to present to banks and other potential investors.

Speaking of presenting your business plan, be sure to submit your plan to as many banks as possible. This way, you increase your chances of obtaining funding and can compare offers so you can accept the best deal for you.

Another good tip is to look for banks with loan departments that specialize in healthcare. Any time you can work with people who know your business means you’ll spend less time explaining your market and justifying certain expenses.

2. Not planning how to outfit your practice

We live in a pretty exciting time when it comes to technological advantages in healthcare. With tools like patient portals, telemedicine, e-prescription, patient engagement, and artificial intelligence, physicians are more equipped than ever to provide accurate diagnoses and excellent care to their patients, and that’s a great thing.

The flip side of that, though, is figuring out how a small medical practice can deliver all of those outstanding benefits on a budget. In truth, you probably won’t be able to afford all of the fanciest, cutting edge tech right away, and that’s okay.

Instead, think about how you want your practice to grow, and come up with a timeline that lays out when you’ll be ready to invest more in new and different software.

–Three basic tools to get organized

In the beginning, you’ll want to focus on these basic tools to get organized:

  • Electronic health records (EHR) software
  • Billing software
  • Scheduling software

Regardless of your budget or timeline, the very first thing you should be looking for is an EHR, especially so you can meet MACRA requirements.

An EHR is an unbelievably useful tool for managing patient records securely, and starting your practice with one is so much easier than changing from pencil and paper to an EHR later.

If you have more room in the budget from there, consider looking for a billing software or revenue cycle management system that will provide more control over how and when you get paid.

That is unless you’ve decided to outsource your billing, which can make life easier for some small practices.

Finally, a dedicated patient scheduling system can save loads of time by automating the scheduling process and helping you view and manage your whole schedule more easily.


If you have to prioritize your initial software purchases, that’s the order in which you should do it. However, if you’re able to afford all three types of software right away, or if you feel all three are important enough to your practice that you want to try and make it work, consider a practice management suite.

Many of these systems include all three of the above features in addition to other valuable tools such as patient engagement and reporting and analytics. These suites may be a little more expensive than any of the individual software types we listed.  These prices may be more manageable when you consider the alternative is three separate systems.

Related Article:  What Are the Best Growth Options for Your Practice?

3. Not having the right people in place to deal with the business of your practice.

It takes being a student for a long time to become a doctor. But one thing that isn’t covered in most curricula is the business aspect of opening and owning a private practice.

That means physicians who elect to start their own practice have to teach themselves a whole lot of extra information in order to keep the business going. That’s certainly possible, and many doctors have done and will do that very thing. But it’s not the only way.

Instead, focus on building a strong team of business-savvy people to support you in areas you’re unfamiliar with.

–You will need three people on your team

Over time, the size of your team will grow to match the growth of your practice.  Just like with technology, you need to start small and plan to grow as you gain patients and revenue. 

To begin, you’ll want three people on your team:

  • A lawyer
  • An office manager
  • An insurance agent

Your lawyer will help you establish your practice in a way that limits your liability in order to provide more protection in case you ever face a malpractice lawsuit. Without a guiding hand to make sure everything is done right when establishing your practice as a legal entity, you could be held personally responsible for any settlements.

Your office manager will help you handle the day-to-day aspects of running the business, from managing employees to establishing office policies and workflows. An office manager role has a good bit of overlap with an HR representative, so look for someone with experience managing people and businesses.

Your insurance agent will supplement your lawyer’s work by helping you select the appropriate level of malpractice insurance coverage. This stuff can be tricky to understand but it’s absolutely crucial that you get the right level of protection. So, be sure to pick an agent you trust not to mislead you.

–And maybe a compliance officer?

If you still have some room after you establish this three-person team, you may consider adding a fourth role for a compliance officer or specialist. This can be a big help in keeping you on top of HIPAA and MACRA regulations.  These regulations tend to change regularly and require a lot of attention to stay on top of.

Related Article: Why Strategic Planning is a Must for Medical Practices

And there you have it. Three of the most common challenges of opening a medical practice complete with tips on how you can overcome them.

Conversations about healthcare for people with Alzheimers Disease and other dementias (ADOD) often center around finding drugs that can prevent, slow or reverse the devastating neurologic symptoms. And, of course, that is critically important. But also important is managing the overall health of people with dementia.  This includes optimizing care for their comorbid chronic conditions, such as heart disease and diabetes as well as preventing medical complications related to dementia, such as falls, fractures, urinary tract infections, and pneumonia.

While consulting with a novel startup, Ceresti Health, that is developing digital and human capabilities to empower caregivers of patients with dementia to be better able to help with home management of their loved ones’ chronic conditions, I became interested in the question: What is the impact of dementia on the costs of modifiable comorbid conditions?

Cost of Care

My interest was spurred because I knew, after working in the industry for decades, if there is one thing that motivates payers, at least in the U.S., it is the prospect of significantly reducing the cost of care of their covered lives. It has been estimated that the expenditures for total health care and long-term care payments for Medicare and Medicaid’s patients with dementia were ~$159 billion in 2017. This number is expected to exceed $1 Trillion by 2050.

We know that a great deal of this money is spent to care for comorbid conditions as opposed to the treatment of underlying dementia. I wondered, how much of that $159 billion could be saved NOW if there was better management.   Not just of dementia, but of the comorbid conditions, like diabetes and heart disease, that we already know how to manage and for which we already have relatively inexpensive, effective drugs to do just that.

To answer the question, we pulled together a team comprised of an independent epidemiologist with years of experience in the field of population health, the former CEO of a large population health company and current Ceresti part-time executive, Ceresti’s CEO, myself (an occasional consultant to Ceresti).

The results of our research were just published in the American Journal of Managed Care*[registration but not payment is required to view full text]. AJMC is a peer-review journal that publishes research related to issues important to stakeholders in the managed care space.

Study Design

We performed a cross-sectional retrospective analysis of 2010 Medicare Claims from more than a million FFS Medicare beneficiaries (of note, the data set did not include drug claims). We identified a little less than 100K beneficiaries that had at least one claim (ICD 290, 294, and 331) for Alzheimer’s or other dementias – these folks are labeled ADOD in the tables below.

Because of the substantial impact of age in particular on the prevalence of Alzheimer’s, we used propensity score matching to adjust for age, sex, and race. An important design element in our study that differentiates us from most other dementia cost studies is that we purposely did not match for the comorbid conditions. This is because we wanted to study the impact dementia on the cost of those conditions.

Using a modified Delphi panel, we selected 15 comorbid conditions that are potentially modifiable by care management to study. We did not include mental health comorbidities because of difficulties with diagnosis and treatment in the setting of dementia.

The Number of Diagnostic Fields is Important

An important take away from our study design is that we looked for the dementia codes in all 10 diagnostic fields reported in our data set. We found that we would have only identified 35% of dementia cases if only the first field had been examined. In fact, the first 4 fields were required to get to 80% of the cases, leaving 20% unidentified as having dementia.

This is an important detail because most organizations that use claims to calculate prevalence only use two or three fields instead of all ten. And, dementia is often not listed amongst the first 2-3 fields because doctors always list the most immediate cause of an office visit or hospitalization (e.g., heart attack or COPD exacerbation) first, noting the presence of dementia much farther down the list of more acute (or some might say more billable) conditions.

Related Content: Dementia Facts and Stats Everyone Should Know

ADOD is associated with increased cost of care.

Our analysis revealed that 9.4% of the total population had dementia but they accounted for 22.8% of costs. The converse is that 90.6% of the beneficiaries who did not have dementia accounted for only 77.2% of the costs. Remember, these data are from the total sample and are therefore confounded by significant differences in age, race, and gender.

After we propensity score matched the population, we ended up with two equal-sized groups each with 99,483 beneficiaries. Now, as you can see in Table 1 below, 50% of the matched sample had dementia and 50% did not. The new groups were well matched for age, race, and gender, but not matched for the chronic conditions that we were studying.

Table 1. Impact of Dementia on Comorbid Conditions 650 x 316

Table 1 is derived from data published in the original paper published in the American Journal of Managed Care: httpss:// (c) Patricia Salber

Look what happens to the distribution of costs. They have almost flipped with beneficiaries with dementia now accounting for almost 70% of the costs and those without dementia, only 30%. Comparing the mean and median costs of individual beneficiaries, we found that the costs of those with dementia remain the same in the matched and unmatched groups. This is expected because they are exactly the same people. Individual costs in the groups without dementia increased only slightly perhaps reflecting the impact of matching for age, sex, and race.

It was our hypothesis that the dramatic difference in the cost of care was due, in part, to the impact of dementia on the management of these comorbid conditions.

Prevalence of the conditions is greater in the ADOD group.

Further analyzing the matched groups, we found that the prevalence of all of the study conditions was greater in the dementia group compared to those without dementia (Table 2). To make this easier to understand, we calculated the prevalence ratio (PR) by dividing the number of people with dementia by condition by the number of people without dementia with the same condition. A number greater than one indicates that the prevalence of the condition was higher in the dementia group compared to the group without dementia. The PR was greater than one for all 15 study conditions.

Table 2 Impact of Dementia on Comorbid Conditions 650 x 374

Note: this is a subset of the 15 study conditions. The prevalence of the full list can be found in the original article published in the American Journal of Managed Care: httpss:// (c) Patricia Salber MD

When we looked at how many beneficiaries with dementia did not have one of the 15 study conditions, it was only 19% in the dementia group compared to 36% in the non-dementia group. This is an important finding when because some of these study conditions are used as exclusion criteria in some Alzheimer’s studies.

The impact of dementia on each comorbid condition

In order to understand the impact of dementia on each comorbid condition at the level of the individual beneficiary, we looked at the costs of individuals with and without dementia who had only one of each the study comorbidities. (Of course, we could not control for other comorbidities or conditions that we did not study.)

Table 3 shows what we found. For each study comorbidity, the mean annual cost for individuals was substantially higher in the dementia group with costs differences ranging from a low of $2,738 per person annually for influenza (not shown in Table 3) to a high of $8,503 per person for UTI.

Table 3. Impact of Dementia on Comorbid Conditions (650 x 369)

Table 3 is derived from data published in the original paper published in the American Journal of Managed Care: httpss:// (c) Patricia Salber

Therefore, not only were the chronic conditions more prevalent in beneficiaries with dementia, but each of the chronic conditions appeared to be more costly in people with dementia compared to those without dementia.

This supports our hypothesis that chronic conditions may be more costly in patients with dementia compared to those without dementia. It is possible that this is because the management of many of these chronic conditions has an important component of self-care that may be impaired if the beneficiary also has dementia. It also could be that clinicians caring for these patients were less aggressive in recommending treatments. Or that patients with dementia had trouble accessing care due to mobility limitations. We also felt that some of the conditions may be related to dementia itself; for example, falls or UTIs. But even these conditions are potentially modifiable with improved individual care and population management.

Guidance for health plans and other organizations that manage care

In order to provide guidance to health plans and other organizations that manage care, we attempted to prioritize each of the study comorbidities at both the individual and population health level. To do this, we calculated what we called the Individual Cost Ratio or ICR (the difference in cost for each condition with and without dementia divided by a standard–-in this case we used a simple mean of the individual differences).

What we found (Table 4) was that the single comorbidity with the highest individual cost ratio (1.5) was UTI. Individuals with dementia and only UTI had $8,503 higher average costs compared to individuals with only UTI in the population without dementia. Diabetes with complications ranked second with an ICR of 1.4 and $8,092 higher mean costs. And fractures ranked 3 with an ICR of 1.3 and $7,260.

Table 4. Impact of Dementia 650 x 382

Table 4 is based on data presented in the original article published in the American Journal of Managed Care httpss:// (c) Patricia Salber

We also calculated a Population Cost Ratio (PCR) that takes prevalence of the condition into account. The prevalence of a condition is an important consideration for health plans and other organizations with population health programs as they try to decide how to allocate their resources.

We calculated the PRC by multiplying the ICR by the number of patients with dementia and then dividing by 10,000 so that the numbers would align with other numbers in our study. As you can see in Table 4, we found the study comorbid condition with the highest PCR was the fracture group (PCR 5.7) followed closely by UTI (5.6) and then Uncomplicated diabetes was a distant third with a PCR (2.4).


In summary,

Alzheimer’s disease and other dementias have a substantial impact on both the prevalence and costs of certain comorbid conditions that may be modifiable by care management and population management.

These are conditions that we already know how to manage or prevent and for which we already have effective, relatively inexpensive therapies.

We believe if these therapies are optimally applied, there is a potential to save a huge amount of money. In fact, multiplying the per person difference in costs by the estimated prevalence of Alzheimer’s in Medicare, it amounts to an estimated $60 billion dollars per year (in 2010 dollars) some of which could potentially be saved by optimally managing these comorbid conditions. This is money that could be repurposed to help find a cure for the disease.

Of course, future studies will need to be performed to determine if more intensive management of these comorbid conditions will actually significantly alter the costs of care for Medicare beneficiaries with dementia and result in the savings. They will also need to determine how large the savings are after subtracting the increased costs related to improved management.

Finally, our study strongly suggests that clinicians, caregivers, plans and other payers, like Medicare should not only focus on managing the patients’ dementia, but also on optimizing the care of their other comorbid conditions as well. And, we believe, that in addition to continuing the quest for a cure, researchers and research dollars should also be dedicated to finding ways to improve care and outcomes for these serious, expensive modifiable comorbid conditions.

*The original paper, “Impact of Dementia on Costs of Modifiable Comorbid Conditions” was authored by Patricia R. Salber, MD, MBA; Christobel E. Selecky, MA; Dirk Soenksen, MS, MBA; and Thomas Wilson, PhD, DrPH. It was published in the American Journal of Managed Care on November 8, 2018. It can be found here: httpss://

Most of us don’t think twice about getting on a commercial airline. The odds of dying on even the worst 39 airlines is 1 in 1.5 million or a .0000006% chance of death. This is more than five times better than Six Sigma quality (defect levels below 3.4 per million).

In a 2012 study published by The Lancet, mortality rates for surgery, up to two months post care, are 3.6%. Obviously, this is far from Six Sigma quality. Meanwhile, surgery volumes and outcome data are not publicly available to study.

Global tracking procedures

Remember the Malaysian Air Flight 370 that disappeared March 2014 killing 239 people? The global airline industry responded by augmenting global tracking procedures improved to mitigate similar future tragedies.

This is an example of an industry learning from failure and applying new standards to improve outcomes.  We can learn something here.

Tracking time to fail

A friend mine called to offer a sunset test ride in a Learjet 45. He’s the Captain for Caterpillar Aviation with over 14,000 hours flying all types of aircraft – even acrobatics. This is a hot rod of an airplane. It can do zero to rotate in only a few seconds and is capable of 535 MPH or 81% the speed of sound.

Earlier that week, a pre-flight check identified a warning indicator. The landing gear and back-up aileron hydraulics showed a pending failure in 20 operational hours.

The Learjet has an information system so thorough, connected, and well programmed that it tracks the time to failure for all critical flight systems based on historical failure. The flight crew is alerted when components are due for replacement before they actually fail – which could be in flight.

Bombardier, the manufacturers of the Learjet, collected data and programmed what it learned about critical failures in systems. They have also created a live indicator. Their goal was to have a great outcome: flight safety.

A critical failure live indicator

In this case, the parts were inexpensive brushes in a motor that drives a hydraulic pump. Sometimes the smallest things, combined with experience, have the potential for a large impact on quality.

Standard FAA quality procedures mandate that following maintenance on critical systems, a non-commercial test flight must be made. The fuel for the test flight costs more than the brushes. But the ride at sunset was a beautiful thing – lucky me!

Just like the flight system algorithms and indicators removed the impractical work of checking brushes before each flight, well-programmed healthcare algorithms, starting with structured historical data can do the same. An oncology project proved it. I’ll get to that in a bit, but first, more about data.

Time to fail: What healthcare can learn from airplanes

Have you ever heard of dirty data? In a paper published by Datamark, analysts from Merrill Lynch, Gartner and IBM agreed that between 60% and 80% of health data is unstructured.

It is referred to as “dirty data” meaning it’s not in a defined field like name, address, city, state or zip. Unlike defined fields, unstructured data cannot be easily sorted and mined. It includes physician notes and impressions, a paragraph in the EMR from the nurse, or even an image.

In addition, data in healthcare are not interoperable or translatable between systems.  Unfortunately, not much interfaces with much else. Instead, there are disparate, unconnected systems and uncommon languages.

Natural language processing

Natural language processing (or NLP) technology interprets spoken or written language. The limitation lies in its inability to semantically distinguish true meaning or lexicon.

For example, words might say “this is the third time I ordered this meal.”  Does that mean you were so pleased in the past you came back and ordered the same thing two more times? Or, does it mean you’ve placed your order three times and still don’t have it? 

Advancing to natural language understanding or NLU is the next step to contextual, semantic understanding of unstructured data. Development is underway in companies like Digital Reasoning and Cicayda who analyze e-documentation in legal reviews and discovery.

Progress Using Defined Data

Working with a very large oncology group, my company studied drug utilization appropriateness against patient outcomes. We looked at about 300,000 encounters over 2 years.

The lead oncologist, who is both brilliant and humble, wanted to know what was going to happen to patients before they treated them. Looking at the impact of oncology drugs was a great place to start.

Using defined non-Personal Health (Patient) Information (PHI), prescription orders from four different EMR systems and lab results, we programmed the EMR detail data against drug manufacturer’s guidelines.

Failure to follow guidelines

Forty-one percent of the time, drug utilization fell outside guidelines, including

  • too much drug used,
  • not enough drug used
  • drugs prescribed with the wrong timing.

The impact on patients, measured through outcomes (e.g. blood work) revealed the result. The financial impact of inappropriate use was easier to score at $16 million.

Failure analytics and the future of healthcare

The algorithm for the oncology equation worked. It consolidated the collective training and experience of physicians and scientists encapsulated in one place making for easy reference and guidance against real data from disparate systems.

This is the first step toward an automated indicator of future quality, using historical outcomes to guide treatment decisions.

In a directionally similar step, Medicare has mandated medical imaging begin using Clinical Decision Support tools January 1, 2021.

This mechanism uses past treatment efficacy to advise clinicians to the most appropriate procedure. While it uses static unconnected data, it’s a good start. It provides guidance to help those busy ER docs order the right exam.

Let the evidence guide us

We must transform practice (try this) into science (know).

Health data challenges are complex but can be overcome with planning, communication, and strategy.

Processes and standards should be driven by evidence and outcomes” 

This is the direction in which we need to be pointed. 

Let’s start by using consolidated historical data from clinical information (not just claims data) combined with the collective experience of clinicians to inform better clinical decisions and not just create post-encounter reports.

Augmented intelligence is needed

Capable technology that can accept disparate defined data is proven. More complex, but also proven is capturing the subject matter expertise of clinicians in algorithms.

Combining data and automating functions can produce active, stratified, evidence-driven guidance. No artificial intelligence here.

Augmented Intelligence, rather than artificial intelligence, is a more accurate representation. It distills the details of every encounter, treatment, and outcome to guide future treatment. It does this by consolidating the experiences of many and sharing it as universal guidance easily stratified by user preference. This approach will drive quality outcomes and value.


A bee swarm is a force to be reckoned with. Working in the yard the day after my ride in the hot rod Learjet ride, I enjoyed the full wrath of one.

After the fired-up little bees got under my clothes, they succeeded in stinging me in all sorts of unimaginable locations. It was a display of amazing coordination.

I’m lucky I don’t have an allergy to bee stings and am thankful for 100mg of Benadryl. The point is that the smallest things, when coordinated with great communication, can have a fierce impact on change.

These small creatures are a great illustration of the power of aligned goals with common communications and a strategy, producing an effective force that drives away perceived danger.

The bottom line

The current trajectory of healthcare indicates that we will miss our flight safety targets if we don’t get to work…starting with the small things. While public transparency and automated clinical risk indicators from common data remain elusive, the good news is, progress is taking place, albeit often in silos.

Please comment below or drop me a line at [email protected] I’d love to hear your ideas and progress.

At its core, America’s healthcare value crisis is rooted in our system-wide failure to focus on managing quality. Health outcomes for specific conditions and procedures vary wildly across providers, health plans, and markets. A highly regarded 2008 PricewaterhouseCoopers study estimated that more than half of US healthcare spending provides no value.

Our health system optimizes revenues, no matter what

Our health system optimizes revenues, in part, through excessive care. This means that many clinicians largely disregard quality. And, they ignore whether treatment pathways are right or founded in evidence. If you compare U.S. care patterns to those in other developed countries – or to the top-performing domestic programs – overtreatment is obvious.

Putting medical errors aside, vast quantities of care are intentionally unnecessary. This is a problem so pervasive that, compared to other developed nations, we’ve come to consider our inflated procedural statistics as normal.

Half or more of all orthopedic surgeries are inappropriate. We administer chemotherapy regimens to cancer patients that often lack proven efficacy. According to an article in JAMA Internal Medicine,

“Our results show that most cancer drug approvals [by the FDA] have not been shown to, or do not, improve clinically relevant endpoints.”

Even after an abundance of evidence showing that coronary stents provide no significant benefit in stable heart patients, we implant thousands every day. And on and on and on.

We must follow the evidence

When care follows the evidence, health outcomes and improvements in cost can be dramatic. This is clear in the emerging crop of “high performance” healthcare organizations that consistently deliver better health outcomes and/or lower costs than conventional approaches.

Typically, these firms’ founders are data- and evidence-driven, passionate, and mission-driven. They also have high subject matter expertise in whatever niche they work. And, they have deconstructed a problem in that space and devised, then refined, solutions that are, in most cases, different than the conventional approach.

Because these types of founders are typically so confident about their ability to perform that they are often willing to guarantee their results. In other words, they put their fees at risk against the performance targets they claim they can achieve.

Integrated Musculoskeletal Care

A striking example is Integrated Musculoskeletal Care (IMC), a Florida company that generates breathtaking results. Two senior clinicians lead the organization. Both began as practitioners of Mechanical Diagnosis and Therapy (MDT).

MDT a credible medical discipline that is especially valued for the precision of its diagnostic approach. MDT has a reliable assessment model that allows clinicians to accurately isolate and identify the source of pain. In most cases, the model allows them to classify or select the most appropriate care for musculoskeletal patients.

Academic studies have demonstrated MDT’s efficacy. However, like nearly all of modern medicine, little or no quality management infrastructure has been in place to reveal in real-time whether each intervention benefited, harmed, or had no material impact on the patient.

Related content:
Reshaping Healthcare: What We Can Learn from Alaska
Are Social Determinants of Health Key to Healthcare Value?

Building a better mousetrap to achieve healthcare value

In response, the IMC team set about building its own quality management system. They adopted validated indices capable of measuring a patient’s perceived pain, function, and disability as a gold standard metric to measure clinical effectiveness. Every time they intervened with a patient, they recorded and watched the numbers. In most cases, patients responded positively.

When a pattern emerged that showed a less-than-desirable result, they rethought their model and course-corrected the treatment pathway. They also updated their protocols. And, they did this over and over and over again.

Over time, with repeated adjustments, their clinical model organically evolved. It was no longer MDT, but a different fully fleshed out musculoskeletal disorder treatment methodology.

The results have been compelling

The results, developed over several hundred thousand patient encounters, have been compelling. Clinicians using IMC’s approach can appropriately intervene in 90 percent of musculoskeletal disorder cases.

Compared with conventional treatment:

  • pain drops dramatically
  • function with daily activities improves
  • suffering duration goes down by half
  • surgeries are reduced by two-thirds
  • imaging studies are cut in half
  • injections are reduced by two-thirds

Further, the likelihood that a patient will have recurring, intensifying problems every year or so drops by 60 percent. Importantly, the cost typically goes down by half. This is a result so strong that the company financially guarantees a 25 percent reduction in musculoskeletal spending on the patients they care for.

An achievement of staggering proportions

Now consider this. This performance occurs in an area that consumes about 20-25 percent of all group health spending, and 60 percent of occupational health.

It’s typically the most prevalent problem and the top spending category in any health system. IMC’s approach is essentially a better mousetrap. It consistently delivers better health outcomes in about half the time and half the cost.

The fact that IMC has found a better way is overwhelmingly impressive. They got there, in large measure, by the development of an approach that lets them, in real-time, watch their own results and course-correct as appropriate. This is an achievement of staggering proportions.

Why isn’t everybody doing it?

IMC’s success begs an even bigger question about this perfectly logical but exceedingly rare effort. It makes you wonder why aren’t clinicians within every medical domain (cardiology, ophthalmology, gynecology, endocrinology, urology, neurology) following the same path?

Isn’t there every reason to replicate their approach, clinical monitoring, and improvement? Particularly since it represents a combination of Deming and the scientific method. Shouldn’t that accelerate clinical effectiveness? And, shouldn’t that make quality the most important vector in medicine? Further, isn’t it likely that that would make care far more efficient as well?

The bottom line when it comes to healthcare value

The quality we all claim to seek in American health care is sitting in pockets right in front of us. We only have to plant it in every medical domain and watch health care’s beautiful flower bloom.

On August 7th, the Centers for Medicare & Medicaid Services (CMS) announced that Part B Medicare Advantage health plans are now able to implement step therapy [1] and other drug-limiting programs – on new prescriptions for medications that many people with arthritis take. This is part of the Trump Administration’s plan to lower drug prices by introducing more negotiation and competition. While the new policy requires plans disclose these practices to patients, that’s small comfort to chronic disease patients who rely on these drugs and are merely warned by CMS that there may be instances where enrollees will experience higher out-of-pocket costs. This is not good for patients and does not represent lower costs to them. With a few tweaks, however, the program can protect patients from paying more.

Part B medications are treatments that need to be administered in a provider’s office or in a hospital setting. Patients with rheumatoid arthritis and other autoimmune diseases are often forced to use medications covered under Medicare Part B because of the complexity and progression of their disease. Therefore, this policy has the effect of targeting chronic disease patients.

Don’t Fail First. Succeed First.

Step therapy, or “fail-first”, protocols are a one-size-fits-all, cost-saving practice which requires patients to try and fail on one or more prescription drugs — sometimes for as long as 130 days — before coverage is provided for the medication originally chosen by the patient’s health care provider. Sometimes physicians endorse fail-first for medical reasons, but when it is used solely to save the system money, it can be misused. Using step therapy, insurance companies save money by starting patients on older, less expensive medications, thereby delaying or even overriding a treatment plan created by a doctor and patient. These unnecessary practices undermine physicians’ ability to effectively treat patients and lower the quality of care, potentially resulting in setbacks and disease progression.

Further, despite claims from some insurers, there is no evidence that savings are passed on to the patients.

This is what’s most concerning about the CMS plan. It doesn’t save the patient money, but equally important, the policy could be expanded to everyone using Part B and stabilized on their medication to fail on other medicines before getting back to the one that works for them. We prefer to see patients succeed first, not fail first, and we think CMS does, too.

Three tweaks to help ensure patients succeed

The tweaks that will help ensure patients succeed first are simple. First, put the patient first. Patients who are stabilized on their drugs need to be left alone. It can take a long time to find the right drug or drugs to combat serious autoimmune diseases, so the successful patient needs to be protected. Destabilizing a patient doesn’t save money, it costs money.

Second, the actual procedure for trying different drugs needs to be scientifically rigorous, not just economically expedient. We don’t see any reason to force a patient to fail on drugs in the same class, but this is what can happen when one class of drugs are the cheapest. In this case, the insurer is favored, not the patient.

CMS optimistically expects health plans will put the patient first and that savings will be passed on to them, but this doesn’t generally happen. Insurers are in business to make money. Without providing any specific form of policing, there is no way to ensure that these health plans are following through on those expectations. The third tweak is monitoring and enforcement. Luckily, this can be done nearly automatically with insurer’s existing software that tracks prescriptions.

The downside to “fail-first”

In Massachusetts, the Global Healthy Living Foundation (GHLF) and a coalition of more than 30 patient advocacy groups have, for the past two years, educated legislators about the downside to patients of “fail-first”. Some health plans force patients to use and fail on up to three medications before they might have access to the treatment their provider originally prescribed based on a professional assessment of a patient’s individual need. CMS can learn from Massachusetts’ mistakes, save money, and have healthier seniors.

For example, Susan D-P. (pseudonym for privacy), a volunteer patient advocate with the Global Healthy Living Foundation’s grassroots advocacy arm, the 50-State Network, witnessed her husband, Neal, progress through “fail-first” protocols to treat an infected leg wound. Frustratingly, his doctor correctly predicted that the first medicine in the step therapy protocol would likely be ineffective, but the insurance company refused to cover a more expensive treatment despite the infection spreading over time. After several months of calling and fighting, Susan was able to get her husband’s original medication covered, but not before he had to get treatment five times a week in a hyperbaric chamber so the infection in his leg didn’t spread even more. CMS can learn from this and make sure “fail-first doesn’t cost more than succeeding first.

This past session, bills that would have prevented that from occurring in Massachusetts failed to gain enough support and patients remain subject to these dangerous practices.  By allowing step therapy to be used in Medicare Advantage plans, more seniors will be forced to fight, just like Susan, to get their prescribed treatments.

Easy tweaks can save money and keep seniors safe

While we understand and appreciate the administration’s attempt to lower drug prices for Medicare patients, we do not believe that inserting the one-size-fits-all model of step therapy into Part B Medicare Advantage plans is the way to do it when easy tweaks can save money and ensure healthy seniors.

Without these tweaks, potentially dangerous delays in access to effective treatments will face a mostly elderly patient population that can ill afford these types of setbacks.  Since its creation, one of the best features of Medicare Part B, even the privately managed Medicare Advantage plans, has been that patients are able to access their treatments without delay. Seniors can’t live with delays.

GHLF believes a patient’s health care provider should have the ultimate treatment decision-making capability for their patients. “Fail-first” stands in the way of patients receiving the right medication at the right time. It may be too late to completely eliminate the practice in the private healthcare market, but our organization and others that represent patients and providers will continue to fight for sensible patient-focused decisions as well as an easier appeal process so that patients can access the treatment outlined by their provider before any damage occurs.

We’re inviting chronic disease patients concerned about the CMS policy to learn more at

More by this author: Step Therapy: Why Fail First for Everyone is Not a Good Idea


[1] “CMS empowers patients with more choices and takes action to lower drug prices” Press release.

Imagine you’re a physician caring for a patient with high cholesterol. You have educated her about the importance of maintaining a healthy lifestyle and prescribed a statin to lower her risk of a cardiac event. You’ve discussed the potential negative clinical consequences of not taking her medicine as prescribed. You ask if she is regularly taking her medication, and she admits that she is not— she cannot afford it. Sometimes she splits her pill in half or skips days to make each prescription last longer. What do you do?

As Americans are being asked to pay more for medical care in the form of copayments and deductibles, one in four Americans reports having difficulty affording their prescription drugs. Value-based insurance design (V-BID) is one potential solution that may increase access to high-value drugs without increasing overall medical spending.  In a recently published Health Affairs article, researchers reviewed the latest evidence on V-BID.

What is Value-Based Insurance Design?

V-BID is built on the principle of lowering or removing financial barriers to essential, high-value clinical services. V-BID plans align patients’ out-of-pocket costs, such as copayments and deductibles, with the value of services to the patient. They are designed with the tenets of “clinical nuance” in mind – in that the clinical benefit derived from a specific service depends on the consumer using it, as well as when, where, and by whom the service is provided.

Does it work?

Yes – according to a literature review published in the July 2018 issue of Health Affairs. The researchers found that V-BID programs which reduced consumer cost-sharing for clinically indicated medications resulted in increased adherence at no change in total spending. In other words, decreasing consumer cost-sharing meant better medication adherence for the same total cost to the insurer.


The review examined studies that reduced consumer cost-sharing for high-value medications, focusing on specific chronic diseases for which a generic medication was available. It examined a variety of drug classes, including anti-diabetics, asthma medications, and statins. Of the 796 included studies, the V-BID model was associated with significant improvement in medication adherence in all but a small handful of cases. However, there were little data on patient-centered outcomes and health care quality.

Of the 9 included studies that evaluated health care spending, the Health Affairs reviewers found that all measured a decrease or no net change in total spending. This suggests that increases in pharmaceutical spending by plans were offset by decreases in spending for other health care services, such as emergency department visits or hospital stays. The review suggests that V-BID plans which reduce cost-sharing for high-value services are cost-neutral.

Could Value-Based Insurance Design save money?

Currently, there are no published controlled studies on V-BID programs that limit the use of low-value care through increased consumer cost-sharing. Thus, the Health Affairs review covered only V-BID programs that reduce consumer cost-sharing for high-value services. Low-value care is defined as care that offers little to no clinical value or exposes patients to unnecessary harm, such as diagnostic testing before low-risk surgery or non-clinically indicated Vitamin D screening tests. It is estimated that the U.S. spends upwards of $200 billion per year on low-value care.

The authors noted that increasing the cost-sharing for low-value services would provide immediate and substantial savings to the plan. These savings would create headroom to allow for an increase in spending on high-value services. Thus, the authors predict that using value-based insurance design to limit low-value care would ultimately save cost.

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Imagining a Value-Based Future

Provider-facing initiatives such as accountable care and bundled payments encourage clinicians to prescribe medications that produce healthy outcomes for patients. However, these incentives do not always correspond to incentives in patients’ benefit design, particularly if high cost-sharing acts as a deterrent for high-value services and medications. Value-based insurance design aims to align these incentives to encourage patients and providers to choose the clinical service of the highest value to the patient.

In the case of high cholesterol, cost-related non-adherence to statins could potentially lead to a preventable heart attack or stroke. The ultimate goal of a V-BID model is to increase access to and encourage the use of medications like statins to prevent the downstream need for interventions like coronary artery stents.

The value-based insurance design model strives to change the conversation from “how much” we spend to “how well” we spend in an effort to remove cost-related barriers and ultimately improve health.

Reimagine: you’re a physician caring for a patient with high cholesterol. You have educated her about the importance of maintaining a healthy lifestyle and prescribed her statins to reduce her risk of a cardiac event. She is now enrolled in a V-BID plan which reduces the out-of-pocket costs of high-value medications, like statins. Now that she can afford her prescription, she takes the medication as prescribed. Such a scenario improves patient-centered outcomes, aligns with provider quality metrics, and increases the efficiency of health care spending—a win-win-win for patients, clinicians, and payers.

The most consequential healthcare question of our time is whether the iron grip on policy and the marketplace exerted by the industry’s dominant players – a grip that continues to favor volume-based, opaque quality and cost information, widespread information blocking, and little in the way of quality or safety management – can be broken in favor of high-value healthcare. Decades of lobbying on every relevant healthcare law and rule has facilitated the industry’s capture of regulation, formidably favoring incumbents and putting innovators at an equally formidable disadvantage. The fix is depressingly in.

It is also remarkably comprehensive. Every healthcare sector – supply chain, care delivery, finance and information technology – has devised mechanisms that allow it to extract about twice as much as it gets in any other developed country. Because US healthcare has relentlessly pursued the maximized cost promoted by regulatory advantages and fee-for-service unbundling, our care and cost patterns are dramatically different and more inflated than those in other industrialized countries. Our use of high-cost specialist care instead of low-cost primary care, for example, is far higher.

Every niche within the vast healthcare ecosystem is excessive. Drug companies accept generous development subsidies or tax advantages, then develop breathtaking pricing unrelated to the costs of development or production, for drugs that may or may not work. Electronic health record companies take government subsidies under the promise that they’ll become interoperable, then conveniently walk away from that commitment. Health plans offer networks that include poor performing providers and approve payment for unnecessary and inappropriate care. Market-dominant hospitals pursue exorbitant pricing for routine procedures. “Everything is rigged” was how Rolling Stone’s Matt Taibbi put it a few years ago.

A better way

When fresh projects like the Amazon, Berkshire Hathaway, JP Morgan effort come along, some health care prognosticators have responded that their approaches have been tried before and that the innovators may not appreciate the problems’ complexity or the depth of the industry’s influence over the processes. Apparently, as with the Borg, “Resistance is futile.”

Here’s a counterpoint to that view. While the vast majority of healthcare remains conventional,

a growing crop of companies has emerged that is dedicated to delivering and managing care and cost in new, far more efficient ways.

These organizations – think of them as high performers in clinical, financial or administrative risk management niches – are data-, evidence- and mission-driven. Many have devised and then refined approaches that allow them to deliver far better health outcomes and/or lower health costs than conventional methods in high-value niches. They’re typically so confident in their ability to achieve positive impacts that they’ll put their fees at financial risk, against the performance targets they claim they can achieve.

High-value healthcare companies

In musculoskeletal care, for example, a Tallahassee company, Integrated Musculoskeletal Care (IMC) has, over time, developed a conservative, accountable approach to managing musculoskeletal conditions, which are generally about 20 percent of all group health costs and 60 percent of occupational health costs. IMC’s approach successfully intervenes in about 80 percent of all musculoskeletal cases, delivering improvements in pain reduction, Activities of Daily Living and range of motion in half the recovery time and half the cost of conventional orthopedics. The organization is confident enough in its performance that they’ll guarantee a 25% reduction in musculoskeletal spend for the patient population they touch, though their actual savings are generally much higher.

Companies with similar high-value stories have emerged in many niches: cardiometabolic care management, cancer care management, drug management, imaging management, medical claims review, large claims resolution, dialysis management, allergy management, second opinion and so on. They haven’t been well received by conventional health plans, which make more if health care costs more, but they’re starting to find strong reception among employer groups fed up with standard health care.

Advocates for high-value healthcare

Over the past three years or so, a fledgling but rapidly growing community has emerged dedicated to advocating for and deploying high-value approaches. Vendors, benefits advisors and benefits managers for purchasers (i.e., employers and unions) have become convinced that the way forward depends on finding and working with vendors dedicated to high value, and everything that term entails. Employers and union groups of all sizes – from a hundred to 1.5 million covered lives – are actively pursuing these high-performance solutions as carve-outs from their conventional health plan.

There are other signs that the health care change game is afoot. While it remains spotty, going around conventional health plan arrangements through direct contracts between purchasers and provider organizations, is a mushrooming, if immature, trend. An arrangement between General Motors and the Henry Ford Health System has received a lot of attention recently.

But it’s early. It’s questionable how many employers have the internal skill sets and resources to pursue an effort this ambitious in the near term. The same goes for providers. A Modern Healthcare article recently asked whether most health systems have the “chops” – the analytical expertise – required to manage the clinical and financial risks inherent in direct contracting arrangements. That said, direct contracting would lend health systems more control and the promise of more market share, so they’ll no doubt rally their capabilities and continue to pursue this opportunity.

The bottom line

The bottom line is that there is a growing marketplace of healthcare purchasers interested in greater healthcare value and increasingly willing to go around traditional health care arrangements to access it. At the same time, a small, vibrant community of scalable, high-performance, niche healthcare providers is being harnessed by these employers and unions around the country. These two vectors have created a new tension for rank-and-file providers who, on the one hand, fear loss of business to new models and, on the other, fear moving to new models that will yield less money that they’re used to, but will likely jump in favor of value to see where it can lead.

In other words, high-value healthcare is available and succeeding to varying degrees in the market, independent of what the power players can do in policy. If that’s not a reason for optimism about American healthcare, I don’t know what is.

Max Weber (1864-1920), the German sociologist and political economist widely considered the father of bureaucracy, espoused a philosophy more than 100 years ago that has inarguably remained a respected foundational blueprint by organizations and societies throughout the world. A champion of hierarchical structures, he stated: “Precision, speed, unambiguity, knowledge of files, continuity, discretion, unity, strict subordination, reduction of friction and of material and personal costs—these are raised to the optimum point in the strictly bureaucratic administration.” Most experts would agree that, in theory, his suppositions were correct. When implemented with rigor, discipline, and quality at the core, his management solution would result in rational, efficient and organized activity that eliminated favoritism and improved the human condition.

Imagine, however, if Weber were able to experience a day in the life of a politician in Washington, D.C., or better yet, experience being a patient in the current U.S. healthcare system. Perhaps, he would be tempted to side with contemporary counterparts like Gary Hamel, who firmly believes that in order for organizations to flourish, bureaucracy must die. A visiting professor at London Business School and co-founder of The Management Innovation Exchange, he argues that when the goal is anything other than efficiency, bureaucracy itself is to blame for discord. “By their very nature,” he states, “bureaucracies are inertial, incremental and uninspiring. That’s a problem because today operational efficiency is just the price of entry; a necessary, but far from sufficient, condition for competitive success.”


The costly and inefficient bureaucracy of U.S. healthcare

In no other industry is this more palpable than the U.S. healthcare system, where the high cost and low quality of care are a direct result of a gangly and growing hierarchy often inclusive of a cast of case managers, nurses, specialists, administrators and insurance providers, among others, all working in silos, with arduous amounts of paperwork and increasing regulations piled up between them. This nebulous network not only inhibits collaboration, stifles communication and undermines participation and teamwork, it invariably leaves patients at the bottom of a $3.54 trillion industry that, according to Plunkett Research, is expected to soar to $5.55 trillion by 2025.

Moreover, mounting pressures from increasing mergers and acquisitions, continuously advancing technology and complex government and insurer regulations have further compromised the healthcare ecosystem. It’s no wonder physician burnout rate in the U.S. now affects nearly half of all doctors (45 percent) and costs the U.S. an estimated $5 billion per year. This hidden epidemic, examined at great length in a new report, has far-reaching consequences beyond doctors, however, with stress and depression among nurse practitioners, physician assistants, medical assistants and other health-related professionals contributing to the widespread yet avoidable medical errors that are now the third leading cause of death in the U.S.

For those still unconvinced the U.S. healthcare system is being strangled by bureaucracy, data from the Bureau of Labor Statistics (BLS), the National Center for Health Statistics and the United States Census Bureau’s Current Population Survey reveals that between 1975 and 2010, while the number of doctors in the United States grew 150 percent, the number of healthcare administrators increased 3,200 percent. In fact, The Atlantic reports that while there were 7 million more workers in manufacturing and 2.4 million more workers in retail than in healthcare in the early 2000s, America’s biggest employer is now healthcare. It seems disproportionate to the number of hospitals nationwide, which according to the American Hospital Association stands at 5,686, with expenses totaling about $859 billion.

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Healthcare costs have reached an all-time high

Even as Americans are forced to resign to healthcare costs that have reached an all-time high—and adjust to the new normal—it is indisputable that patients continue to pay more while receiving less. Increasing numbers of reports, such as Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better U.S. Health Care released by the Commonwealth Fund, put into perspective just how far America’s healthcare system has plummeted. Rather than leading the world, the U.S. has fallen to the last place on a list of the top 11 countries with similar high-income populations, scoring poorly in nearly every category, including administrative efficiency and healthcare outcomes, and reinforcing the notion that high spend is no guarantee for high quality.

Of course, many argue these studies are flawed, clinging to the ghost of what was once a well-oiled machine. But when criticism comes from within, it’s hard to ignore the truth that bureaucracy extends to nearly every person and agency involved in healthcare, including the Centers for Medicare & Medicaid Services (CMS), which recently declared the need to reform its own burdensome regulations that are part of this growing problem. This announcement comes on the heels of a report from the American Hospitals Association revealing that activities related to regulatory compliance cost hospitals, health systems and post-acute care providers roughly $39 billion a year (or the equivalent of $1,200 per patient admitted to a hospital) and divert precious time away from direct care.

To add insult to injury, the Department of Health and Human Services (HHS) released a 2017 analysis showing how premiums have doubled for individual health insurance plans since 2013, with the average American now paying nearly $3,000 more for health insurance per year. In the states of Alaska, Alabama, and Oklahoma, premiums have tripled. Meanwhile, wait times to see doctors and specialists have soared.

At the heart of healthcare, there may be nothing more important than time and attention, particularly when it comes to a health emergency. But even with the U.S. spending more on healthcare than any other country in the world at $10,348 per person, which amounts to nearly 18 percent of gross domestic product, it still takes on average 50 percent longer to see a family medicine doctor and 30 percent longer (24 days or more) for a patient to get an appointment with a new doctor in comparison to just three years ago, according to a 2017 Merritt Hawkins survey. With the recent deadly flu season claiming the lives of 168 children as of May 2018, according to a report by the Centers for Disease Control (CDC), that waiting game has become a matter of life and death.

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The door to the iron cage

One hundred years ago, Weber may have made the case for why bureaucratic management can generate obedience and, as a result, increase efficiency, yet not without warning of its dehumanizing effects—namely the “iron cage” he suggested, which can limit the potential for human innovation and social interaction. When that occurs, he surmised, the only way to escape the mechanical existence it imposes is for a transformative charismatic leader to emerge with a new system or ideology to replace it. That should be easy once we recognize the door to that iron cage has always been open.