What’s Shaking Up the Business of Healthcare?

By Patricia Salber, MD, MBA | Published 2/18/2018 0

Shocked business people 1500 x 1000

A whole host of really big things are happening in healthcare right now including the proposed cross-sector merger between CVS Health and Aetna followed by an even bigger surprise: The partnership between Amazon, JP Morgan Chase, and Berkshire Hathaway to create a new healthcare company. I wanted to know why all of this was happening now, so I turned to healthcare expert, Dr. Rita Numerof, to find out what she thinks are the underlying factors that are behind these stunning efforts to shake up the status quo in healthcare.

You can listen to the podcast here:

Read the transcript below (condensed and modified for readability):


What’s driving these changes?

Patricia Salber: I’m delighted to have Rita Numerof Ph.D join me today to discuss what’s shaking up the business of healthcare. Dr. Numerof is an internationally recognized consultant and thought leader as well as the Co-Founder and President of Numerof and Associates, a strategy consulting firm that develops customized market-based solutions for strategic and operational challenges of organizations in industries undergoing significant transition. I think there’s no question that healthcare definitely meets that standard right now.

So Rita, welcome. We really look forward to having your perspective on some of these pretty amazing changes that are shaking up healthcare right now. Why are we seeing so many of these changes now? What are the underlying factors that are contributing to these announcements one after another?

Rita Numerof: I think the simple answer is that there’s a recognition that the business model of the healthcare sector is broken. We’ve been trying to get to better health, better health outcomes at lower cost or greater value for more than 30 years. As an example, the Center for Medicare and Medicaid Services (CMS, then named the Health Care Financing Administration or HCFA), was trying to bend the cost curve back in the mid-1980s when it instituted a little experiment that started in the state of New Jersey called Diagnostic Related Groups (DRGs).

I had just finished my doctorate and was on the faculty at Washington University in St. Louis where I was teaching a graduate course in Health Policy. I predicted at the time that DRGs were going to lead us down a path of poor health, poor coordination, and higher cost—the exact opposite of what the intent was. My argument at the time is relevant to the conversation that we are having today. There was no connection between payment outcomes, no transparency, no focus on the continuum of care, no accountability across that entire space, and it was not consumer-centric. In fact, the word “consumer” wasn’t even part of the equation at the time.

I had a bias for many years that hospitals were never meant to be destinations of choice, that doesn’t mean that we don’t need them, we do. But if we are serious about getting to better health and better health outcomes at lower cost, then we need to be engaging people as participants, as consumers. That’s because a lot of the choices that we make about our healthcare are really important in driving underlying cost and getting to different kinds of outcomes.

I think if we examine these underlying factors and the business model which has not been a market-based model with transparency and accountability, we will realize that we are not going to get to the solutions we are hoping for. All segments of the industry have to deal differently with their business models. As I said in my last book, bringing value to healthcare requires changes to business models not only for healthcare delivery but also for the device, diagnostics, and pharmaceutical sectors as well. I think that employers have a very important part to play in this whole equation that they haven’t really exercised until relatively recently. I think this is the beginning of a lot of change that we’re going to continue to see over the next several months and years.

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Can large employers really make a difference?

Patricia Salber: That was a lot to chew on. I think I will start with the employers because I spent a big chunk of my career working with large employers at an earlier time when we also believed that they were going to be able to drive change. On loan from Kaiser Permanente, I served as a physician executive with General Motors’ healthcare team. This was at a time when GM was the largest private purchaser of healthcare in the world. But the problem they were trying to solve was not just their problem, it was all our problems.

Let’s look at the failed experiments of the past—not only DRGs but also ‘pay-for-performance’—and what we did to the actual delivery of care. These well-intentioned changes to healthcare have not been good for patients. Take, for example, the rise to dominance of the 15-minute office visit where 10 minutes is spent on the EHR and maybe 5 minutes is spent with the patient. I am not anti-managed care, but none of these things have worked as we hoped.

So, do you think that new efforts by large employers, such as the Amazon-JP Morgan-Berkshire Hathaway partnership, are going to be informed by the lessons of the past? And, will they apply their efforts to the delivery system as opposed to just monkeying around with health insurance? And, by the way, do you have any insight into what they’re actually up to?

Rita Numerof: I think your comment about the problems of pay-for-performance and the intrusion of managed care and the requirements for certain uses of the EHR have created enormous bureaucracy. However, whether they are well-intended or not is really not part of the discussion. Let’s give them the benefit of the doubt and say everybody that was involved in all of this was doing it with good intent. I think the focus was misguided and the idea that we would look to Washington to really continue to bend the cost curve through a mechanism of bureaucracy and more administration is a fool’s errand.

My expectation is that these three mega-corporations will be looking at different solutions. They have an opportunity to create real clout with regard to provider organizations in delivering different kinds of health outcomes. It’s a statement that the market is frustrated with the current model employers have used to drive change; most of what they’ve done is write checks. Traditional insurers have not necessarily had the opportunity to change the fundamental payment model.

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If you think about any other business where we engage, we have an idea about how much it’s going to cost, whatever the product is that we’re going to buy, we know who’s paying for it. We can comparison shop, but in healthcare, you can’t do that. I’m not talking here about emergency care but in other kinds of purchases of delivery services, there is absolutely no transparency.

I think that this conglomerate is, in part, trying to change that model. There are opportunities to engage very differently outside of the current fee-for-service CPT code level reimbursement plan, to be able to create different solutions with providers that themselves are interested in changing the model of care delivery itself.

Patricia Salber: Can I interpret what you just said as a vote for direct contracting between employers and the delivery system? Are you in some way proposing that we cut out or minimize the role of the existing insurance giants?

Rita Numerof: I think that direct-to-employer contracting is something that we’re going to see more of around the corner. We have examples of this in other parts of the economy today, typically on a carve-out basis. Walmart, for example, has engaged with five or six centers of excellence in the area of spine care. They evaluated what the capabilities are of these various centers before including them in their Centers of Excellence program, but it took an enormous amount of work for them to get to that point. They qualified lots of different centers. The ones chosen were deemed as having the best diagnostics relative to the care that was being contracted. Walmart created benefit arrangements that encouraged their employees to go to these centers. The expense is basically picked up entirely by Walmart.

There are other examples where there are guarantees and a move to direct-to-employer contracting. It doesn’t mean that we do away with the role of insurers. Insurers are a part of the healthcare ecosystem but they also need to think very differently about their business models. We are seeing changes within United Healthcare and there is the change that you mentioned with the acquisition of Aetna by CVS. I think this does foreshadow dramatic changes in the way in which healthcare is delivered and paid for in this country.

Patricia Salber: I said earlier that GM had quite a bit of clout when I was working with them. They were very committed to driving a cost-quality agenda. The problem is healthcare isn’t their core business. GM’s core business is to make cars and trucks, not to manage healthcare. And healthcare, as we know, is complicated.

We’ve talked about transparency for years and years and years. But part of the problem with transparency is that you can give a lot of information to consumers, but it can still be hard for them to manage their own care. I’m a physician and I recently had a very complicated eye disease. It was a struggle even for me to understand what were the best options for myself.

If you’re talking about consumers making simple decisions, such as ‘should I take my drug or not?’ ‘should I get on insulin or not?’, that’s one thing. Those aren’t really complicated decisions. But when you start to get into decisions related not only to complicated diseases but complex clinical solutions, such as the new cancer therapies, it’s a different story.


How are we going to go from good ideas to a new reality?

Do you think that we’re going to be able to get where we need to be with the employers alone? Or at the end of the day, are we going to need insurers to step up and do what they probably should have been doing all along—managing care better? Are we going to move to a single-payer system and have them help drive some of this? Or are we going to invent some new infrastructure altogether? How do you think we are going to go from a really good idea to something that can actually happen? How are we going to accomplish the goals that we’ve been trying to get to for 30 years?

Rita Numerof: I hope that we don’t move to a single-payer because I don’t think that’s the solution. From my perspective, I don’t think having everything under one umbrella is going to get us there any faster. That being said, I think that CMS as the largest payer in this country has a role to play in establishing the standards at a macro level and requiring an appropriate level of transparency. But not in the minutiae because CMS, just like any large corporation, isn’t going to be able to mandate care delivery at the individual physician-patient level. Nor, I would argue, can a healthcare delivery system, whether it’s one of the large well-known facilities like a Kaiser, the Cleveland Clinic, Mayo, or Geisinger and lots of others in between that do fabulous work. I think that that is never going to happen and an attempt to do that through administrative fiat is going to just cost us more money and get in the way of achieving the goal that you and I as well as others have established.

Using your analogy, cars are also complicated. I don’t know how to build a car but I can rely on third party information whether it’s consumer reports or JD Powers or other kinds of publicly available information to be able to help me make choices based on parameters that are important to me. We’re not talking about the emergency purchase of a car so we’ll take that off the table for a minute. And, I do recognize that buying a car is very different from contracting for healthcare services.

But the point is that the Federal Government has established certain kinds of standards for cars. We may agree or disagree about what those standards are but we have to have compliance with emission standards. There has to be certain safety regulations that are in place and there has to be city or highway driving mileage standards that are posted and available to consumers in a way that’s digestible.

If you now think about the healthcare information that’s been available to consumers, it’s been next to non-existent until relatively recently. A lot of consumers are uncomfortable navigating the lay of the land, particularly when going into a physician’s office. They may not know the kinds of questions they need to ask. Or they may be so anxious that when they ask the question and they get an answer, they are not sure how to process it or remember on the backside what to do with the information. We need better education of consumers.

Physicians also aren’t comfortable with that kind of discussion and I realize this is obviously not universal. If their patients ask a question having to do with cost, most doctors either don’t have access to cost information or what it costs the consumer depends on a complex formula based on what the patient’s particular insurance coverage is. So we have a lot of obfuscation. What I’m arguing for and what I think we’re going to be seeing more going forward is simpler, greater transparency and accountability.

Patricia Salber: I hope that you are right. Transparency has been a goal for quite some time—even back in the days when I was at GM, we talked about transparency. The problem that I see is that healthcare delivery and options aren’t getting simpler, they’re getting much more complicated. It’s going to be really interesting to see how this plays out.

I can’t believe our time is up already. I would like to invite you back so we can continue this conversation and perhaps have the focus next time on how delivery system changes could reduce the cost of actually delivering the care. At the end of the day, if the costs of delivering the care go down, then a lot of the issues around who is and who is not insured and what kind of access they have would go away. It’s because, in part, healthcare services are so expensive that we have many of these issues. I want to thank you for an interesting conversation and fascinating insights. Let’s continue the conversation sometime in the near future.

Rita Numerof: I look forward to it, Pat. It was a pleasure.


Patricia Salber, MD, MBA

Website: https://thedoctorweighsin.com

Patricia Salber, MD, MBA is the Founder. CEO, and Editor-in-Chief of The Doctor Weighs In (TDWI). Founded in 2005 as a single-author blog, it has evolved into a multi-authored, multi-media health information site with a global audience. She has worked hard to ensure that TDWI is a trusted resource for health information on a wide variety of health topics. Moreover, Dr. Salber is widely acknowledged as an important contributor to the health information space, including having been honored by LinkedIn as one of ten Top Voices in Healthcare in both 2017 and 2018.

Dr. Salber has a long list of peer-reviewed publications as well as publications in trade and popular press. She has published two books, the latest being “Connected Health: Improving Care, Safety, and Efficiency with Wearables and IoT solutions. She has hosted podcasts and video interviews with many well-known healthcare experts and innovators. Spreading the word about health and healthcare innovation is her passion.

She attended the University of California Berkeley for her undergraduate and graduate studies and UC San Francisco for medical school, internal medicine residency, and endocrine fellowship. She also completed a Pew Fellowship in Health Policy at the affiliated Institute for Health Policy Studies. She earned an MBA with a health focus at the University of California Irvine.

She joined Kaiser Permanente (KP)where she practiced emergency medicine as a board-certified internist and emergency physician before moving into administration. She served as the first Physician Director for National Accounts at the Permanente Federation. And, also served as the lead on a dedicated Kaiser Permanente-General Motors team to help GM with its managed care strategy. GM was the largest private purchaser of healthcare in the world at that time. After leaving KP, she worked as a physician executive in a number of health plans, including serving as EVP and Chief Medical Officer at Universal American.

She consults and/or advises a wide variety of organizations including digital start-ups such as CliniOps, My Safety Nest, and Doctor Base (acquired). She currently consults with Duty First Consulting as well as Faegre, Drinker, Biddle, and Reath, LLP.

Pat serves on the Board of Trustees of MedShare, a global humanitarian organization. She chairs the organization’s Development Committee and she also chairs MedShare's Western Regional Council.

Dr. Salber is married and lives with her husband and dog in beautiful Marin County in California. She has three grown children and two granddaughters with whom she loves to travel.

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