The Cost Problem Facing Healthcare, with Merrill Goozner Script

[00:00:01.320] Announcer:
Welcome to APG on American Healthcare, the official podcast of America’s Physician Groups, where we discuss current issues in the healthcare value movement. APG members are at the forefront of national healthcare reform, practicing at risk-based prospective payment and other population-based payment models, the very models described by federal legislation for the entire nation. And now, for an inspiring and educational look at the transformation of America’s healthcare delivery system, here’s your host, APG President and CEO, Don Crane.

[00:00:36.420] Don Crane:
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It is always nice to see someone outside of APG arguing for our cause, and it’s even nicer when their arguments are made as well or better than our own. That’s the case with Merrill Goozner, the former editor of Modern Healthcare. He continues to write a column for the trade publication, the best known and most-read magazine in the healthcare industry. In his January 3 column that appeared in the magazine, he pens a fictional memo to the Biden administration in which he implores, open quote, “set a goal of making capitated payment the rule, not the exception in American healthcare.” “The time has come to move aggressively toward capitated payments to providers no matter who writes the checks” end quote. This was music to my ears, of course. And I thought it warranted a deeper

We had that discussion the other day and it certainly didn’t disappoint. Take a listen. Merrill Goozner, so good to have you with us this morning. You’ve had a distinguished career in journalism for 40-some odd years as an editor and writer and educator, formerly professor of journalism at New York University, a master’s in journalism from Columbia, I think if not the leading journalism school in the country, certainly one of them. No question about that. And then for our purposes, where it gets really interesting is that from 2012 to 2017, you were the editor of Modern Healthcare. So, this trade publication is by far and away the leading trade publication in the healthcare industry. We all read it. Everyone subscribes to it. It’s a Bible. And you were the editor of it until 2017. And since that time, you’ve continued to write a column, I think it appears weekly, which from my perspective, reveals you to be one of the most really, and you know, this…don’t get too fat a head when I say this, Merrill, but clearly one of the most astute writers and observers and really an advocate on the healthcare scene today. You’ve written a number of interesting columns that have caught my attention…you and I talked the other day…but none as much as your January 3 column entitled, ‘The Coming Conflict Between Competition and Capitation.’ That caught my eye and had some, I think, some really important content. And we’re going to get into that in a minute. But before we do, I thought I’d ask a question or two about our current landscape.

So, here we have now the Biden administration. Indeed, Georgia went Democrat in the recent elections. So, all of a sudden, we’ve got, you know, effectively the Democrats controlling—I use that word guardedly—the White House, the House and the Senate where there’s a tie, but it’s broken by the Vice-President, Kamala Harris.And so, you’ve got this now alignment politically that could portend perhaps more legislation than we might have gotten otherwise. But none of that’s going to, I don’t think, happen in any big way until we get through the COVID pandemic. And so, indeed, as I see things, I invite your comment on this, it’s all COVID, COVID, COVID, for the Biden administration and appropriately so. I mean, here we are, February. I think the date is the 9th or something.

So, we’re almost to the one-year mark. But it certainly feels like we’re in the middle of a pandemic. You know, there’s now news of variants. At the same time, we’ve got the vaccines rolling out. So, you know, clearly the, you know, the oxygen in the room is appropriately being taken up by the COVID pandemic. But for us and for this interview today, I think what we want to talk a lot about is what’s next. So, what might the Biden administration agenda be post-pandemic? Will it be, for example, the affordability of healthcare issue that has for quite a number of years now really been foremost in the minds of everyone, including the electorate. So, your recent column with again, the title, ‘The Coming Conflict Between Competition and Capitation’ caught my eye. Before I get into a couple of, you know, really kind of questions about the content of it, anything about my intro there that you want to comment on or object to?
Did I misspeak at all in terms of the current lay of the land?

[00:06:02.890] Merrill Goozner:
No, not at all, Don. And first, let me thank you for having me on your podcast today. And because, you know, America’s Physician Groups as a group, as an organizational presence on the landscape, I’ve always felt never really gets enough attention because many policy thinkers over the years have thought that large physician practices should play a bigger role in driving change within the healthcare system or the much-needed changes. So, again, thanks for having me on today. And no, you didn’t get anything really wrong at all. You know, when you did mention the word advocates, the journalist in me sort of rebelled a little bit. But the reality is that I do write a column, you know, not every week, usually about three times a month and do as any columnist does, take positions. And, you know, it’s a different hat that you wear than when you’re an editor, where you’re really trying to make sure that you’re covering the waterfront and you’re being fair to all the parties involved. Sometimes, you know, the joy of being a columnist is you’ve got to call balls and strikes. So, and I do enjoy that role. I don’t know if you want me to jump right in and address the question you put on the table, which was, you know, what will the Biden administration address first when we finally get beyond the COVID-19 pandemic? I don’t know that we see necessarily the, I think you can say we see the light at the end of the tunnel. It’s still a big question about how far off the end of that tunnel is. But we’re certainly headed in the right direction now. I do think.

[00:07:42.520] Don Crane:
Tell you what, before I let you do that, I’m going to accept that offer and let you talk about what’s coming next. And then before I get to my questions, but I want to pick up on one item you’ve just mentioned because it is near and dear to my heart. And that is sort of, oh, I don’t know, pecking order is the wrong word. But, you know, in American healthcare, there’s hospitals, there’s health plans, there’s individual physicians, there’s pharmaceutical industry.
And somewhere in the mix there and I don’t know where on the hierarchy is our physicians, of course, individual, but for our purposes, physician groups. And I’ll get you to respond here now, I guess, to my bias, which is obviously strong for pretty obvious reasons. Physician groups to me are the Pentium chip of the American healthcare. So, it’s physicians that admit patients, discharge patients, write prescriptions, hold the pen that’s so associated with the spend and the cost of health care. They’re clearly sort of ‘quote-unquote’ if I may say, in charge of quality. And this becomes all hyper-true in the context, I think, of an organized group as opposed to individual physicians. So, as I look at this, you know, we’re all going to laugh at my self-serving comments. I mean, I just think that physician groups should be the primary voice in American healthcare. And so, react to that, if you will.

[00:09:03.520] Merrill Goozner:
You’re not alone. You know, you don’t have to be a member of a physician group or a head of its trade group, which you are, to hold that view. One of the most influential thinkers for me as I was learning about healthcare…now we’re going back several decades…was Arnold Relman, the former editor of The New England Journal of Medicine, who in his, he you know, he was the man who coined the phrase ‘the medical-industrial complex’. And shortly before he passed away, which was, you know, maybe five or six years ago, he wrote a book called ‘A Second Opinion’, in which he thought the nexus, the place where reform should be located in changing the payment system, was in the large multi-specialty physician practice, which would include primary care, but also include specialists.
So, you know, many of the large integrated delivery systems have such large physician practices, probably the best well-known one in the country is Kaiser Permanente with its separate physician practice in-house. But if you, you know, it doesn’t have to be in-house. It could be a stand-alone large physician practice.
But where that’s where the decision making goes on in what goes on in healthcare. And, you know, where the choices get made. You know, if you’re going to adapt common practices…if you’re going to ultimately have financial responsibility for patients under some kind of payment reform system, which we will get
into. So, you’re not alone in thinking that there have been many thinkers in the past who say that the large physician practice where doctors get to practice medicine the way they think it ought to be practiced ought to be the focal point of healthcare and for both financial and for medical reasons. And I find that to be a quite persuasive argument.

[00:11:02.090] Don Crane:
Very, very, good. Well, we’re clearly in agreement on that. That’s certainly a good predicate to start the conversation on. So, OK, before I get into your article, which is such important comments in it, tell me generally what you think the Biden administration and Congress really together will do and what they probably should do?

[00:11:24.500] Merrill Goozner:
Well, that’s a very large question. Let me start by saying that at the outset of any administration, personnel is policy. And right now, we know who he has appointed to be the head of the Health and Human Services Department. That’s Xavier Becerra from California, the former Attorney General there. Prior to that, he was a Congressman. And in choosing him, there is some definite implications to that since he is the man who successfully brought an antitrust suit against Sutter Health in California, which is, let’s be frank about it, one of the most expensive healthcare systems in the country in one of the most expensive regions in the country. You know, northern California, I’m told, often spends, you know, multiples of what Southern California spends. So, there is, you know, a lot of market power issues that have played out in that region. You know, Attorney General Becerra went after Sutter on that.

He won a fairly large settlement in the range of $500 million. I can’t remember the exact number. $575. So, you bring that mindset to the top of the agency. And this gets at the issue that I did write about in that article that you’ve referenced, that column that you referenced, which is that presumes that competition is a way of really addressing the pricing problem in the financial, you know, the cost problem that healthcare faces.

But we still haven’t seen up to other very key personnel choices yet. But one would be for the obviously for the head of the Centers for Medicare and Medicaid Services. The last Democrat to hold that position, you know, prior to the Trump administration, was Don Berwick, who was never approved by the Senate. Don, being, Dr. Berwick, being very much in the reform mold, very much into payment reform and the alternatives that were being, you know, experimented with for the Center for Medicare and Medicaid Innovation, CMMI, for people who know the inside baseball of that agency. And so, who Biden and now Becerra say ought to be in charge of CMS is going to be a very key person. The front runner, according to some press accounts, and is Chiquita LaSure who ran his transition team
for healthcare. She has been at Net Health, which is a consulting group, and you know, their focus as an organization, and I do believe in her writings, which I took a look at, she has focused on Medicaid rather than Medicare.

Now, Seema Verma, who ran the agency under the Trump administration, also was a Medicaid-focused person. And to a certain extent, the real bread and butter of the agency, which is Medicare, not Medicaid. Medicaid after all, its policies are shaped at the state level. At the federal level, you can encourage things and grant waivers for people to do things at the state level. But the core thing is set by Congress and the federal government has, you know, some leeway, but not over, you know, not as much sway as it has over Medicare.

And so, if they, again, put somebody in order to be worried about Medicaid, it’s an interesting question about how much focus there will be on reforming the Medicare portion of the system, which is really where you can drive change on a nationwide basis. The other key appointment, and we won’t, I won’t talk
at length about that, that’s on the table is who’s going to head the Food and Drug Administration. Right now, there is a battle between a longtime insider, Janet Woodcock, who ran the Center for Drug Evaluation and Research and Dr. Woodcock, to put my opinion hat on, she has been perceived as quite friendly to the drug industry. The other alternative from outside is Dr. Joshua Sharfstein, who came up through Henry Waxman’s office, served as a deputy commissioner at the FDA during the Obama administration, went on to become the head of the health department in the state of Maryland and first the city of Baltimore and then the state of Maryland, and now is at the Bloomberg School of Public Health. Dr. Sharfstein, I think, would be, have a much more open mind to many of the concerns that people have about the games that people play at the Food and Drug Administration in terms of patents and other things, that would be more friendly to efforts, people who are trying to control drug prices, which is, after all, one of the major drivers of rising healthcare costs in this country. Not the main one, but a major one, clearly. And so therefore, that’s also going to be a very key appointment. Until we see that the direction of the Biden administration will be, it will be hard to divine looking out over and beyond. Certainly, and this will be my final comment on this whole future direction question, I do think that we just still have this major piece of unfinished business out there. We are the only advanced industrial country in the world that does not provide universal health insurance. We are literally closing in on three quarters of a century behind the countries of Western Europe. It’s taking us longer to get the universal health insurance than it took us to get to abolishing slavery compared to other countries, all right, which itself was an outrage at the time of going back into the 19th century.

[00:17:22.330] Don Crane:

[00:17:23.260] Merrill Goozner:
We need to deal with that. And I think that will be the number one issue. And, you know, they’re already beginning to make the moves in terms of expanding the Affordable Care Act. I think the direction they will take will, in that regard, will be trying to use the vehicles in hand rather than passing new legislation and trying to figure out ways to get more state, all the states to expand Medicaid, increasing the subsidies for the Affordable Care Act exchanges, and doing the kinds of things that can get us much, much closer to that universal, you know, probably within 5 or 6 percentage points rather than the 10 or 11 percentage points we’re probably behind it now.

[00:18:09.790] Don Crane:
So, I interpret those comments to mean that you’re not giving in your handicapping here. You’re not giving up the public option that Biden spoke so much about in the run-up to the election, much of a chance. Is that correct?

[00:18:24.040] Merrill Goozner:
Well, that’s good. That would require legislation and legislation of that type may not be able to be accomplished through reconciliation. Now, you’re above my pay grade. I am not an expert on law. I tend to rely on other people’s reporting on those particular issues. But I’m…the most likely…something like that would require legislation. And so now you’re going to have all the issues around the filibuster. And let’s be frank about it, you know, America’s primary healthcare institutions have banded together to fight the public option. I don’t know. You know, I have real questions. You know, if Rick Pollack of the American Hospital Association were on the line with us, I would pose the question to him directly. And I have…I don’t understand why you folks are against the public option to give competition to the insurance companies so that we can move towards universal coverage in markets where there’s inadequate, you know, representation of insurance plans and also to, you know, have something that can compete on price, you know, and that perhaps explains why some of the special interests like the hospitals and perhaps even some of the physicians organizations, you know, a lot of the physician organizations are saying we’re not interested in the public option, not to mention the insurance companies.

So, when you take all of those lobby groups involved and you take that you have a hard Congress, you know where you’re going to, may need to get 60 votes in order to pass a bill in the Senate. I think you’ve got a pretty long road to climb to get to a public option. And that doesn’t even begin to discuss if that’s the best option on the table. But personally, I am supportive of it because I do think there are an awful lot of markets where we need competition against insurance companies where, you know, we often talk about hospital market power. But, you know, the inverse of that is insurance company market power. And in many markets in this country, it’s a comparable reality. We have two, you know, oligopolistic industries, you know, where there’s only one, two or three players at the most in a market. And, you know, when there’s only one, two or three players in a market, it’s pretty easy to, you know, not overtly set prices, but to essentially, you know, trail each other in setting prices and you don’t get real competition.

[00:20:51.780] Don Crane:
Well, very good. So, you raise two provocative or make two provocative…you draft, so to speak, two highly provocative memos in your column that I want to talk to you about. The first one, you first lay the background in terms of the nomination of Xavier Becerra, Xavier, as we call him, Becerra, and make reference to his action against Sutter in the settlement and all happening under his tenure as Attorney General in California. So, considerable talk about trying to reduce prices and improve competition by reason of antitrust enforcement. And then you say and here’s the verbatim, quote, “Antitrust enforcement will never succeed in putting a significant dent in the prices charged by American hospitals,” close quote. That’s what I want to talk about. So, why do you say that, Merrill? Why will antitrust enforcement, why is it not the silver bullet? Why? What do you think?

[00:21:59.640] Merrill Goozner:
So, first off, let me just start by saying, as somebody who spent most of his adult life in the Midwest, where Xavier universities are everywhere, forgive me if I said Xavier, but as opposed to have Xavier Becerra. But to get to the question at hand, healthcare as…the idea that you’re going to break up, whether it’s vertical or horizontal monopolies in any marketplace and therefore create entities now where there used to be one, now there’s going to be two or multiples, you know, five. You know, years ago when they used antitrust to break up Standard Oil, they, you know, you had different, you know, Standard Oil Companies…Standard Oil of Ohio, Standard Oil of Indiana, Standard Oil of New Jersey, et cetera, et cetera. And, well, wait a second. I mean, where’s the price competition if you have different entities in different regional markets, it’s like take a major hospital chain that’s all over the country, you know, like Catholic Health Initiative or now…I’m blanking on its name…but it doesn’t matter which one it is. If you take those and they’re going to end up having one hospital in every market. And how does that promote competition? And then you get to the consumer side of it. The idea that you’re going to have competition in healthcare suggests that there’s somebody out there shopping for healthcare. Well, there are some services you can shop for. If I have to get an MRI, you know, and it’s on a discretionary operation, you know, whether I need one or not, I can, you know, I might find three or four different places that are competing and one might be $400 for the MRI and one might be $1,200. And what the heck, if I’m on a $1,000 deductible plan going to a $400 MRI, it’s going to make a lot more sense to me than going to the $1,200 one where I’ll have to pay the first $1,000 myself. But how much of healthcare is actually like that? If I’m in the middle of a heart attack, the last thing I do in the back of the ambulance is this, “Oh, by the way, don’t go to that hospital on the way to the other one because the other one is cheaper. You know, take another ten minutes, please, so that I can save a few bucks.” You know, and that, of course, is an extreme but I think it raises the issue of where is agency in healthcare? Agency in healthcare is really in the hands for the most part, of the prescriber. It’s in the hands of the physician. It gets back to what we were talking about earlier. It’s about where is the locus of decision making? OK, when we talk about large physician practices, that’s where it is. When my doctor tells me you ought to do this, I might say, well, I need a second opinion on some circumstances for that. But for the most part, I say, OK, doc, you think it’ll work? And he says, yeah, this is the best thing out there. It’s following all the clinical practice guidelines, you know, 8 times out of 10 this is, you know, going to work for you, you know, in this particular circumstance. And I say, fine, I’ll take it. I don’t shop for price. I don’t even begin to think about price in that discussion. I get hit with that information later, even if it’s made available to me on the front end. And that’s because to do, to think about price at that point, is just to really begin to interfere with the doctor-patient relationship on the patient side. Forget about the doctor side. I’m thinking about this as a patient. I don’t want to have to think about that, quite frankly, as a patient. So therefore, I don’t see where competition can ever play a major role as an economic textbook would have it, in reducing healthcare expenditures.

[00:25:44.260] Don Crane:
So, your column says, if I can synopsize just that, basically, is you point out, that as we look across the globe, no other industrialized nation, many of those that are doing moderately well with their healthcare.…Germany, France, no other industrialized nation relies on antitrust and spending controls to reduce costs. They get at that in other ways. And I think you also point out that in the case of most mergers, they’re failing hospitals, frankly, and not about increasing prices, but they’re trying to keep failing hospitals open. But your final explanation is one that I want to pick up on, if I may. That is that antitrust enforcement could conceivably even lead to higher prices by reason of somehow interfering with the nascent basically value movement in which we are trying to integrate providers and their services, hospitals and physician groups. And it’s on that last point that I’d like you to kind of expatiate and expand, if you would, a little. Do you see potentially, you know, antitrust enforcement stymieing the kind of efforts we have underway to integrate healthcare in our fragmented world?

[00:26:58.150] Merrill Goozner:
Yes, is the answer. But let me first start by saying that the effort to actually create true integration through mergers and the primary method for doing this has not been cross-market hospital mergers, where most of those, as I guess you just recounted from what I wrote, which most of those are really about one hospital being taken over by another one and merging and creating a stronger financial entity because the weak one was really suffering and really faced some difficult choices. Where we’ve seen more vertical integration is hospital systems, buying physician practices, expanding physician practices, even going into the post-acute care space. The idea being is that if you have it, you build essentially an integrated delivery network, all of the Kaiser model that now you have both the scale and the financial resources, physical scale and the financial resources to actually take on actuarial risk and move to various forms of payment reform in which now, you know, and this was the ACO, you know, ACO models were an attempt to, you know, accountable care organizations…let’s just go straight to the acronym…let’s define it first…Accountable Care Organizations. The idea of pushing hospital systems and or physician practices, either one can be in the lead in one of those, I should point out. But if you create that kind of vertical integration that then you start a different form of paying people in those vertically integrated things. This is the model. Well…

[00:28:39.940] Don Crane:
So, that’s just the theory. What do you think of it?

[00:28:42.040] Merrill Goozner:

[00:28:43.408] Don Crane:
Do you support that theory?

[00:28:43.750] Merrill Goozner:
I do, in theory. The problem is, is that it has been done in such a piecemeal effort. And it has been done in such a pilot-project kind of way. And where we measure results in very poorly designed ways. In other words, we attribute people to the ACO rather than the organization, even knowing who’s in it. Right? You know, there have been a lot of flaws in the way it was rolled out. And then when they show that, oh, it only saves one percent or two percent, well, you know, which is sort of what the numbers show and everybody says, well, that’s not really going to work. I think that, you know, it hasn’t been extensive enough. It hasn’t been properly structured. And quite frankly, I just don’t think that they ramped it up to where it needs to go to fast enough. Meaning, you know, there are various ways of, you know, to me, the per member, you know, the per capita, the per-member-per-month set fee, what they call capitation, is the way ultimately that we need to move to control costs. I want, you know, we’re going to give the healthcare system a set amount of money, risk adjusted for every patient in there under their purview. And then it’s their responsibility. You know, if you have a large enough panel of patients, actuarially, you can determine what that per capita monthly payment needs to be. And if you’ve done your actuarial work properly, then it now falls to that healthcare system whoever is leading, whether it’s accountable care or whatever we call it, integrated delivery network, accountable care organization, whatever you want to call it. It now falls to that organization to figure out how do I deliver appropriate care, best care to get the best results at the highest quality within that budget. And if that’s, if we have our own eyes set on that as a vision, as a goal, then I think the short-term things we can say, OK, what’s going wrong that doesn’t allow your organization to make it work rather than, say the model itself doesn’t work.

[00:30:58.460] Don Crane:
So, that brings me to your second memo that you effectively, figuratively sent to the Biden team, and I’m going to quote it here. Stick with me because it’s a couple of sentences open. Quote, “Set a goal.” This is you speaking to the Biden administration: “Set a goal of making capitated payment the rule, not the exception in American healthcare. Write rules for Medicare and Medicaid, which combined account for nearly 40 percent of all healthcare spending that move in that direction, whether the payments come from private insurers running government programs or directly from the government. The time has come to move aggressively towards capitated payments to providers, no matter who writes the checks. Under capped per capita payments under capitation, per capita payments that grow only at the rate of inflation, provider margins and income will come to depend on keeping people healthy and delivering more efficient care,” close quote. And so, you started to describe really an answer to my next question is tell me more about this love affair with capitation. Why do you have it? What’s so good about it?

[00:32:11.300] Merrill Goozner:
Well, let’s put ourselves for a few moments in the shoes of the payer. Whether it’s a government or, you know, about a third of all healthcare costs are paid for by private companies. Essentially, we call, we say insurance, right? Insurance companies pay for healthcare. Well, who buys insurance from the insurance companies? These are employers for the most part. And we also should just remind everybody is that when it comes to private insurance, meaning through, you know, whether it’s UnitedHealth or Cigna, Humana, whomever, when it comes to private insurance, somewhere between 50 and 60 percent of what they do is actually as third-party administrators for employers who are essentially self-insured. So, you know, they’re not even at risk at that level. It’s the employer who remains at risk. So, a third of all, more than a, slightly a third of all healthcare expenditures come from those private employers. There’s the slug that comes from the government. There is direct employment government as well, things like the V.A. or whatever. And then, of course, you have out-of-pocket, which is somewhere in the range of eight, nine percent. So, you know, that adds up to the total payment. If we put ourselves in the shoes of the major payers for a moment, whether it’s government or private, what they’re concerned about is we’re paying a fortune. You know, what we want to do…and the growth goes up at five or six percent per year in nominal terms, not real terms. You have to back out one and a half to two percent for inflation. And then you get down to in the last 10 years, better than in previous decades, it was slightly higher than economic growth. You know, we only went during the Obama years and even during the early part of the Trump years…we don’t have, you know, the data lags a couple of years. We only went from like 17.4 to 17.9 nine percent of GDP in healthcare. That’s far different than like under the Bush years…second Bush administration. The first decade of this century where we went from like 13 and a fraction up into the 17’s. You know, almost, you know, every year we would go up one and a half to two times the economic growth in healthcare. And that was clearly unsustainable. So, we did better under Obamacare and the experiments. People often forget about that. But even there, what employers desperately need, and I think what this country needs, is to bring our overall healthcare spending down more in line with the rest of the industrialized world. And how do you, you’re going to have to then shrink it as the sector, as a share of the total economy. In order to do that, you need to actually grow at least as fast as inflation and perhaps at some close to economic growth, because healthcare, you know, quite frankly, we’re an aging population and we also have advancing technology.

And, you know, it’s also the preference of an older population to want more healthcare. So, there’s just simply consumer preference. So, between all of those things, you could say, well, maybe we should grow at no more than the rest of the economy and maybe we should set it at a half a percent less or a quarter
of a percent less year after year. But you can’t…if that’s a goal, then you can only do that by having budgets. You can only say this is the top and your job is to come in a little bit below that. OK? And if you can come in a lot more below that now, you’re going to make money as a provider because you get to keep that when you know what your annual budget. Well, that’s where per-capita-per-patient, you know, per-patient-per-month…PMPM… comes into play. This enables you to set budgets for providers.

[00:36:02.460] Don Crane:
So, it’s a great idea. I’m in love with it. But are providers around the country ready? Are payers around the country ready to move into that payment model?

[00:36:14.780] Merrill Goozner:
Well, let’s just say that a lot of places it is already happening. You know, the integrated delivery networks which control their own insurance arms, famous ones. You know, Kaiser Permanente is the best known one, but there are many others. Geisinger, you know, who have been very successful at this model over the years and they internally manage their payments this way. And I, you know, you see in a number of areas where people are experimenting with this and making it work. The Medicare Advantage program, they give the insurers a set fee for everybody that joins their plans. Now, the insurers who are managing Medicare Advantage programs and this is, you know, full disclosure, I belong to a Medicare Advantage plan…I am one of the 36 percent or so seniors who have opted into
that kind of plan. It could be close to 40 percent now.

[00:37:19.550] Don Crane:

[00:37:19.550] Merrill Goozner:
And, you know, my reporting says to tells me that a lot of the insurers then turn around and pay out in feefor-service to their providers. But what we have seen in many areas of the country is this: When it comes to high-cost Medicare patients that, you know, is the old rule of thumb, five percent of patients account for 50 percent of all healthcare costs. And if you really want to control costs, if you can figure out a way to address the needs of that five percent, that that’s really where the big money is. And what you know, in terms of savings, in other words, it comes down to things like, hey, if somebody is going to the hospital five times a year for asthma attacks and is running up to $50,000 in charges for your insurance plan, maybe a better thing to do is to send a home health nurse aide out to the person’s home and figure out what the hell is going on so that you don’t have so many asthma attacks. And it’s going to be a lot cheaper than sending them to the hospital five times. So, there are people who are experimenting with those kind of models through a lot of these new startup companies like Oak Street Health, which is based here in Chicago, ChenMed, and some others, and which what they’re doing is that they are hiving off to these people, the management of these high-cost patients on a fixed contract. Again, it’s the equivalent of per capita, you know, per person, per patient per month payments to them in order for them to get that slug of money. And then they say and now you’re on the hook for taking care of these people. And if you can bring it in less money by doing different kinds of things with that money rather than, you know, just figuring out what can I build for under fee for service, then you’re going to be able to make money on the difference because you’re going to get that guaranteed budget no matter what.

So, this is going on in places in the country. People are showing that it has worked and that it can work. And then the real problem is, is that other major large systems all over the country, especially in certain areas of the country, more predominantly than others, they are addicted to fee-for-service medicine,
they’re making a ton of money through fee-for-service medicine, and all of this accurately smacks of caps on their potential to make money.

And so, again, it’s the question of special interest in healthcare. Are we primarily concerned with delivering the highest quality care at the lowest cost possible? Or are we just simply in the business of taking care of people the best way we can and delivering high quality care? Everyone will assure us. And we’re also here to make as much money as we possibly can. It’s really two different philosophies. And we don’t have a consensus around the former philosophy, which I think is a more societal-oriented one, because we can talk about it, if you like. But I have this other agenda that I think about all the time.

[00:40:07.760] Don Crane:
Well, let me stop you. I do want to interrupt you.

[00:40:11.900] Merrill Goozner:
Sure. Sure.

[00:40:11.900] Don Crane:
We talk about society…does our society, do they care? So, let’s just call it the public. Does the public care, particularly, how their physicians and physician groups and hospitals are paid? You know, I think that it would be a very different discussion everywhere…state capitols, Washington, DC…if you had, you know, the public clamoring for a new payment model. But you don’t hear that because it’s pretty esoteric. What do you think about the public? Do they care? Should we try and get them to care? Will they ever care?

[00:40:46.550] Merrill Goozner:
They should. They needn’t care about the internal workings and payment models of a healthcare system. You’re right. It’s completely esoteric and there’s no need for them to know. What they do care about is the fact that they haven’t had a raise in 20 years, in real terms. And why is that? Why do we have this growing inequality of wealth and income in our country? Why do people…why is our minimum wage stuck? Another issue we can talk about, it’s seven dollars and twenty-five cents at the federal level and hasn’t been increased in over a decade.

All of these things, if you go to the employers, they say, I’m paying a ton of money extra every year for my employment bill. My employment bill goes up every time my healthcare bill goes up. That’s a fringe benefit the way we have an employer-based system. If we’re going to have an employer-based system, that’s another discussion. OK, we’re not on that one today. But if we’re going to have an employer-based system, that means it’s part of the wage bill and that the way we subsidize that is not through, you know, direct government expenditure, but by tax expenditure, i.e., it’s a deduction from federal their federal taxable income, just like wages are. OK? So, you pay out more in wages, but you have the same disincentive. You don’t want to pay out more in wages. So whatever…sometimes employers and their workers face this directly. If you have a union contract, for instance, and if you go to any one of the ERISA plans, these are what union, you know, controlled health care funds are called ERISA plans because they’re governed by the federal government. You know, whether it’s the UAW plan or so many of the trades have them. Their own healthcare plans.

They sit down when they’re at three years, five years, whenever they renegotiate their contracts and they say, listen, we can give you a three-dollar raise. But if you don’t want your members to pay more out of pocket on healthcare four of those dollars, have to go into the healthcare fund. We’re paying an extra five dollars an hour. We get that. But this is where it’s got to go. Now, in places where there are no unions, where there are…which is the vast majority of Americans at this point…I think it’s 93 percent of private employees today are not represented by unions. It’s down to the lowest level since, you know, before the Great Depression. You know, and all those employers, they just simply, they make that choice themselves. I said my healthcare, my wage bill went up five percent last year. I just had to put four and a half percent of it into my healthcare. So, that’s the part, if the public understood it, they said, listen, you have a stake…

[00:43:32.900] Don Crane:
So, how do we get the public to understand that? Do we use billboards or skywriters or…

[00:43:39.640] Merrill Goozner:
Well, you know, I wish I had the answer to your question. Let me put it a different way. If we spent as much money educating the public about that as we do every election season about educating about things that are absolutely untrue, about the healthcare system in a variety of ways, we’d certainly be a lot better off.

[00:44:07.360] Don Crane:
I couldn’t agree more. Let me try it easy question for you then. So as we talk about payment models, principally sort of fee-for-service and budget-based or capitated payment systems, how does that discussion in your mind, relate, if at all, to the really large discussion going on now about social determinants of health and racial disparity issues in healthcare, or stated another way, do either of those two payment models put us in a better position to address and maybe ameliorate the shameful situation we have in terms of social determinants and racial disparity?

[00:44:47.270] Merrill Goozner:
Yes, because there are no codes for putting food on the table. There are no healthcare codes for paying somebody’s rent if they’re about to get evicted, or finding them a place to live if they showed up in your emergency room in a healthcare emergency and they have no place to go home to. Therefore, should the healthcare system be responsible for those things is a question. But because we have seriously underfunded social services in this country for many, many, many years. And, in fact, if you look at the last year during COVID-19, social jobs in social services as a category under the Bureau of Labor Statistics has fallen faster than the rest of the economy. So much of that is delivered by the non-profit sector, right? And when people are being laid off and when people, you know, donations are drying up, et cetera, we actually are doing a worse job, it would appear, in providing these things at the time of greatest need. So, there is this crying need to address the social conditions.

My father, you know, that’s why I wrote a subsequent column. I don’t know if you saw it or not. I said, why raising the minimum wage is a health care issue. I often think about my father. My late father passed away several decades ago already. But he used to say to me, when I would spout my, you know, moral arguments about, you know, the right and wrongs of society and everything I saw wrong with it was usually my arguments. And he says, you know what, the problem with poor people is? They don’t have enough money.

And so, the truth of the matter is, is that that’s why things like raising the minimum wage, which President Biden is trying to put in the COVID relief bill, actually is a healthcare issue because we literally have gotten to the point where people who work full-time all year long in many of the lowest rungs of our service jobs, including, I might add, many service jobs within the healthcare sector are not even making a wage.

You can work 40 hours a week, 50 weeks a year, you know, at ten dollars an hour. And you don’t even make poverty. You know, you don’t even get above the poverty line as defined by the government. And, you know, and then we want to wonder why, you know, they’re living in an apartment that maybe is the best that they can find at that price. And yet it’s filled with vermin and or, you know, hasn’t been painted in many years. And, you know, this is a stressed-out family. And then we wonder why they have escalating healthcare costs. So, is it the issue that the healthcare system can deal with it? Well, you can help in a variety of ways if you’re given a capped budget, just like I was talking about earlier. And you decide, you know, the best thing from a financial point of view is for me to send a home healthcare worker out into that person’s home to actually figure out, oh, my God, here’s what’s going wrong. This is why it’s led to these healthcare costs. I’m going to call the building department right now. I’m going to call the local food pantry. I’m going to get you a brand-new refrigerator rather than the one that, you know, you can’t barely keep anything frozen. And we’re going to put this into this house and we’re going to actually, you know, we’re going to do the work of calling up the social service agencies that that home health person can come in there and actually begin to address that person’s problems, begin to show them that there is some social support for them, help them get off the bottom rungs of the economic ladder and improve their overall healthcare status. That is a role that the healthcare system can play if it’s properly reimbursed. Under fee-for-service, you know, you would say, OK, let’s do these things, let’s create a code for it and figure out how many of these things can I do.

I mean, it’s the totally roundabout and I would say almost idiotic way of thinking about that as a problem. So, you could never fit it into the healthcare system that way. You could incentivize the healthcare system to help in improving people’s lives, which would improve their health status if we had a different kind of reimbursement system.

[00:49:35.380] Don Crane:
Agree completely. Hey, I’ve got a final area. I want to ask a wrap-up question, if I may. And it is this: As you look across the land here, we’ve got Biden coming in and we were talking even about Chiquita LaSure and Medicaid and so forth. And maybe Medicaid is the avenue for some of the ‘quote-unquote’ value movement going forward. Do you see any extant examples now across the country of experiments, demos, and the like, that catch your eye as being potentially good for me further scaling and expansion? So, you got the Oregon CCO, you got Maryland, you got Massachusetts. I think there’s a couple others out there, a little smaller, perhaps in scale, you see any out there that look like good candidates for us to double down on and try and proliferate across the country?

[00:50:28.230] Merrill Goozner:
So, one I just wrote about for this week in Modern Healthcare and also expanded on my own personal website/blog, which if I can put a plug in, I will. It’s on Substack. It’s Gooz News dot Substack dot com. And it took a look at the Maryland all-payer model. One of the things I think we need to be thinking about,
those of us who are really interested in seeing payment reform move forward in the next period of time under this administration and hopefully, you know, get permanently embedded in the system, is Maryland all-payer system. It builds allies because it has the potential of bringing in the business community in if
they could finally see their way clear to, you know, joining with the idea of far-reaching payment reform because it would grow, you know, when you have all payer, that means, and you could do it with doctors’ offices, Maryland only does it with hospitals. But all-payer with a global budget combined does the same
thing as per-capita-per-patient-per-month payments.

[00:51:49.920] Don Crane:

[00:51:51.540] Merrill Goozner:
And what it does, though, is it you have to gross-up Medicare and Medicaid somewhat and that brings down employer costs because everybody’s now paying the same thing. Right now, employers pay far higher prices than either government agencies, whether it’s Medicare or Medicaid. And, you know, some people call it cost-shifting. Others just call it variable pricing. Whatever it is, under all-payer, you have a single price. Well, this eliminates an awful lot of administrative overhead for maintaining multiple collection systems for every private contract and every government agency which every healthcare provider has to maintain, as well as insurers, for that matter. But it also has the potential of saying, oh, my God, we’re shift…now, the government would face a problem in capturing some of that revenue in the form of taxes in order to pay for that grossing up. But the point is, is…

[00:52:53.040] Don Crane:
It’s a subsidy. It’s a government subsidy to achieve that grossing up, I take it.

[00:52:58.620] Merrill Goozner:
No, it’s not a subsidy. It’s actually allocating costs where they lie.

[00:53:03.180] Don Crane:
But they’ll pay more for Medicare and Medicaid cause those payers to pay more such that commercial employers pay less.

[00:53:10.290] Merrill Goozner:
Again, this we can get deep into the weeds. There’s a general consensus that both Medicare and Medicaid pay, in Medicare’s case, slightly less than the actual cost of care. In Medicaid’s case, some, you know, more than that, less than the actual cost of care, which means private employers pay somewhat higher than the actual cost of care. What the actual cost of care under capitated budgets that can come down over time, you can push it down because there’s probably a lot of waste in the system, that if you incentivize providers correctly, you hopefully will begin to get rid of, and if you put them on a glide path, which is, you know, budgets will only rise by X amount every single year and you know what that’s going to be, then they’re basically going to be forced to look internally to figure out how do we live within the budget.
So, that is, I think, a very attractive model to be thinking about and experimenting with and other states around the country and trying to adopt it because of the political…when employers increasingly say, “Oh, my God, look what just happened in this state,” I mean, I know I had one little branch plant in Maryland,
but I didn’t pay any attention to that. But if I did this in California or if I did this in New York or if I did this in Arizona or someplace like that or in even in a, you know, a rural, semi-rural state, you would say, you might all of a sudden wake a lot of people up. Do it in Nebraska where Warren Buffett lives. Right? Where he just formed this whole organization for three years. You know, put Atul Gawande at the head of it…and it completely collapsed. Right? Because they were thinking about what can I do as my company rather than even begin to understand the complications of paying for healthcare in this country.

[00:55:01.410] Don Crane:
The larger ecosystem, yep.

[00:55:03.300] Merrill Goozner:
Right, the larger ecosystem. So, their whole effort collapsed. Do it in Nebraska and maybe you’ll wake up some people in the business community and to what the intricacies of this are, but also what is a potential path out of it? So, I would look at that and then I would also look closely and this is, I think, relevant for your audience at a lot of what these new startups like Oak Street Health and ChenMed and others are doing, where they are taking on actuarial risk for panels of patients on budgeted amounts of money given to them by insurers for the most part. And it’s mostly involved with Medicare, it’s not in private insurance. But I would say where we have large physician practices in place, like your members, who are willing to actually say, you know, I’m going to do this with this panel of patients, this fifty thousand people give me the money and internally build up the expertise of managing that money and managing that level of you know, patient illness, if you will, in an actuarially-sound way. And then building in the internals…you know, it’s really almost like shifting personnel from right now in what the hospital sector they call the revenue cycle business.

[00:56:26.930] Don Crane:

[00:56:27.820] Merrill Goozner:
And shifting them over into the cost management business. It’s the same set of skills in some way, you know, but now you’re bringing in population health management techniques and all of the things that people have been talking about in the fringes but making it the centerpiece of your financial control system within your practice. And if you do that, then I think you can be a big winner and then we can demonstrate to the rest of the country that this is doable and what skills you need to acquire. And then once you get a base of them around the country, well, then you can look at all the people that if you force them to do it by legislation in a state, say, OK, who’s flailing under this? We don’t want your practice to die. Let us come in and help you figure out how to get the job done. Right? And so, it’s not survival of the fittest. It’s everybody figure out a way to get everybody to adapt to a new payment system. So, those are two places where I would look.

[00:57:27.110] Don Crane:
So, to that I say ‘amen.’ I agree with you completely. I hope we are able to, you know, execute on your vision. I think we have in large areas, but there’s much work to be done. And so, with that, I say we’ll be working together with you, hopefully, Merrill. We’ll do this again some sunny day, I hope. And I just want to thank you very, very much for your time. And we’ll talk to you soon.

[00:57:49.730] Merrill Goozner:
Don, thank you so much for having me. It’s been a real joy to, you know, go on about the issues I’ve been thinking about a lot for the last couple of years.

[00:57:57.140] Don Crane:
Very good. So, thank you very much. Take care now.

[00:58:01.340] Announcer:
Thanks for listening to APG on American Healthcare with your host, APG President and CEO Don Crane. For more information about APG and transcripts of this show, visit the APG website at APG dot org.