Entries in Finance (13)


Just Doing Our Jobs

by Kim Bellard, December 14, 2016


Health care fraud is bad.  Everyone agrees about that (except those who profit by it).  We'd similarly agree it is all too pervasive.   Some estimate that fraud could account for up to 10% of health care spending.  But that's chump change: estimates are that other kinds of wasteful spending, such as unnecessary care and excessive administrative costs, are easily double that

An op-ed in The Boston Globe may have it right:  we need an overdiagnosis awareness month.The op-ed was a tongue-in-cheek suggestion to highlight the various cancer awareness months, the most famous of which is October's Breast Cancer Awareness.  These campaigns promote the need for the associated screenings, but don't typically also mention how controversial many of them are.  

Overdiagnosis goes much further than screenings.  As Atul Gawande 
wrote last year, we're getting an "avalanche of unnecessary care," getting too many services of not just low value but of at best no value to patients -- and, at worse, actually harmful to them.  Not just pointless tests or unneeded prescriptions, but also too many questionable procedures, such as total knee replacementsheart stents, or spinal fusions

The real problem is that most people involved in the "
epidemic" of overdiagnosis and over-treatment our health care system, well, they think they're just doing their jobs. 

They don't think they're trying to rip anyone off, they certainly don't think that they're harming anyone, and they most definitely don't think their role is superfluous.  This is all only possible because it is still too hazy about what is the right treatment for who, when, not to mention what a "fair" price might be for anything.  So, when in doubt, do more.

As a result, health care employment is booming.  
Some project it will be largest job sector within three years.  Indeed, as the chart below shows, virtually all of the U.S. job growth this century has been in health care jobs.  That, quite simply, is astounding. 

Yet, despite all this growth, there continue to be 
urgent cries of shortages of key health care professionals.  We just cannot seem to get enough qualified health care workers.  If you're looking for a job, that's good news, but if you're paying the bill for all those jobs, it should be scary.

In health care, we just add more jobs.

Overtreatment works, at least if you're the one doing the treating.

And everyone in health care keeps doing their job.

Look, this fantasy isn't going to continue.  Health care isn't going to become 100% of GDP.  It's not going to get to 50%, or 40%.  At some point the revolt will happen, the revolution will occur, and health care spending will finally slow, stop, and eventually plunge. 

Then all those health care jobs are not safe.  People will lose their jobs.  A lot of people.  People who, until then, thought they were doing good.

So when the next health care innovator comes along, we should try to get past the hype and ask: OK, specifically, what jobs will this eliminate -- which ones, how many, when?  If they don't have answers, or only offer vague promises, well, smile politely and get out your wallet.

In health care, perhaps one way to do your job might just be to find a way to eliminate it.


This post is an abridged version of the posting in Kim Bellard’s blogsite. Click here to read the full posting


Hot Healthcare M&A Market Starting to Cool

By Clive Riddle, May 6, 2016

Irving Levin Associates reports that healthcare merger & acquisition activity, which has been relatively overheated, is starting to cool a little. Lisa E. Phillips, editor of Irving Levin’s Health Care M&A News tells us “the slowdown in deal volume in the first quarter of 2016 might simply be fatigue setting in after a record-setting year in 2015. Also, some buyers are still figuring out where the best opportunities are, as the shift to value-based reimbursements gains momentum.”

Health Care M&A News states that “health care merger and acquisition activity began to slow down in the first quarter of 2016. Compared with the fourth quarter of 2015, deal volume decreased 7%, to 351 transactions. Deal volume was also down 7% compared with the same quarter the year before. Combined spending in the first quarter reached $79.5 billion, an increase of 87% compared with the $42.5 billion spent in the previous quarter.”

Here’s a snapshot the publication provided of the quarter’s activity:

How big was 2015?  Bigger than 2014, which was also a huge year.  Irving Levin’s Lisa Phillips says “health care mergers and acquisitions posted record-breaking totals in 2015. The services side contributed 62% of 2015’s combined total of 1,503 deals, which is even higher than 2014, when services deals accounted for 58% of the deal total.” A separate Irving Levin publication, the Health Care Services Acquisition Report, cites that “deal volume for the health care services sectors rose 22%, to 936 transactions versus 765 in 2014. The dollar value of those deals grew 183%, to $175 billion, compared with $62 billion in 2014. Merger and acquisition activity in the following services sectors—Behavioral Health Care, Hospitals, Laboratories, MRI & Dialysis, Managed Care, Physician Medical Groups, Rehabilitation and Other Services—posted gains over their 2014 totals. The exception was the Home Health & Hospice sector, which declined 33% in year-over-year deal volume.”

In the hospital sector, for 2015, they report that “activity remained strong in 2015, up 3% to 102 transactions, compared with 99 transactions in 2014. An average of 2.6 hospitals were involved in each transaction, compared with an average of 1.8 in 2014 and 3.3 in 2013.” Philips noted that “several deals resulted from the mega-mergers of 2013,” and that “we’re seeing more sales resulting from bankruptcies, especially in states that have not expanded Medicaid coverage.”


Healthcare Innovation Models and Accelerators

By Clive Riddle, November 7, 2014

Intermountain Healthcare and Healthbox just announced an interesting healthcare innovation collaboration, with their Innovation at Intermountain Healthcare Initiative. Intermountain is the Utah-based health system non-profit juggernaut with 22 hospitals, 185 clinics, 1,100 employed physicians, and the SelectHealth health plan.

A physical structure in Salt Lake City is being constructed next to Intermountain’s flagship medical center to house the initiative, which includes three components:

  1. The Intermountain Foundry which they state “provides a structured framework for help high-potential employee ideas and near-market concepts become commercial businesses.”
  2. Strategic Investments that “will source companies from the broader healthcare ecosystem and develop partnerships that include investment and potential customer relationships.”
  3. The Healthbox Salt Lake City Accelerator, which launched in September in partnership with Health Equity, Zion’s Bank and BD.

Healthbox sees themselves as a “preeminent source of healthcare innovation and drives actionable collaboration between inventors, entrepreneurs and the healthcare industry.” They have operations in five key markets across the U.S., in addition to London and Tel Aviv, and a portfolio of more than 80 active companies and strategic partnerships with more than 30 healthcare organizations.

Speaking of Accelerators, the just released November issue of Healthcare Innovation News addresses the question “how can healthcare accelerators ensure success in their quest to nurture entrepreneurs and support their startup ventures?” in their Thought Leaders’ Corner. Below are three selected responses to this question from their Thought Leader panel.

Tom Olenzak, Director, Innovation at Independence Blue Cross in Philadelphia says “we believe that the key issue facing healthcare innovators is access to customers. The investment of time, expertise and resources by potential customers is critical to help startups turn their innovative ideas into sustainable businesses and products. That’s why we participate in healthcare accelerator programs, such as DreamIt Health Philadelphia. DreamIt Health puts a focus not only on providing funding, but also on the mentorship and access needed to nurture the startups.  I’ve seen firsthand how access to a customer’s point of view, along with business knowledge and data, can have a direct impact on the success of startups. Last year we provided anonymous claims data to the startup Grand Round Table and these data helped the company to solidify its value proposition, helping doctors find appropriate diagnoses faster and reducing the number of unnecessary tests and treatments. The healthcare industry, as we know it, is experiencing dramatic change, and the future of the industry relies on innovative thinking to overcome our biggest challenges. Healthcare accelerators that establish the perfect blend of entrepreneurial coaching and corporate support are the ones that will be successful in developing ventures that push the envelope, and deliver solutions that provide high-quality, affordable care that patients deserve. The future of our industry depends upon innovation, but the opportunities are endless when you embrace partnership and have the right mix of bright minds. Most accelerators help companies grow, but those that provide access to customers and other decision makers breed startups that develop sustainable and scalable solutions to the most pressing challenges.”

Scott Shreeve, CEO at Crossover Health in California says he believes “the challenge for health accelerators is to nurture disruptive ideas and companies yet remain connected to the needs of healthcare providers and payers. Accelerators are good at incubating consumer-focused, digital health innovations. Exciting for sure, but we don’t always see how these isolated innovations bridge the ongoing divide between consumers and providers, and the realities of our current third-party payer system. This is critical in our view because transforming the costs and quality of care won’t be consumer, provider or payer led, but a powerful mix of all three. Crossover Health works with leading employers to deliver primary care services directly to employees via worksite, near-site and virtual care models. We focus on delivering an exceptional patient experience, which not only develops deep patient/provider relationships but also inspires people to take ownership of their health. Innovative provider-led, care delivery and new direct payment models support our experience-centered approach. And, critical to its success are our discovery and adoption of digital health technologies that create new channels of communication, enable population health analytics and facilitate chronic health management in new and different ways. Accelerators can help ensure the success of their startups by making a strong effort to collaborate with equally disruptive providers, who are working with payers that are willing to think differently about health. It’s the responsibility of the accelerator to match different key players together to yield the greatest opportunities and results. By creating a mutual selection process, accelerators can show the power and values of true technology and market disruption.”    

Jason Wainstein, Principal at Deloitte Consulting in Philadelphia shares that “ensuring success is a lofty quest given the nature of accelerators. Not all ideas will pan out. So it’s not about batting 1000; its about providing the best environment to foster the maturation of concept into a viable business. Four dimensions that are critical for accelerator success are: Maintain the right temperature. Many start-ups are focused on building their product/service offering and can benefit from enhanced structure and commercialization cadence, as well as lessons learned from prior startups. Providing a playbook allows the thought leaders to stay focused on building the business. Perfect the role of super connector. One of the greatest values of an accelerator is connecting startups with industry leaders, potential investors and target distribution channels. The top accelerators work relentlessly at building their networks and actively connecting their portfolio companies to these relationships. Be a talent agent. With top talent in high demand, having a network of highly skilled resources that can be brought to bear on short notice can make the difference between success and failure given how aggressively startups must move. Know the white space. There is no shortage of ventures that pop up to capitalize on the hype of the moment, for example, analytics, patient engagement, chronic disease and remote monitoring—like moths to a light. Knowing the white space within these areas and guiding startups to differentiated positions are critical. Otherwise, young companies risk becoming noise in an overcrowded system. Accelerators must treat each startup as a customer, focus on the four dimensions above and be selective in which ideas are brought into the fold based on cultural and content fit.”

Derek Newell, CEO of Jiff in Palo Alto says that “accelerators, by definition, exist to help develop very early stage companies. At this stage, entrepreneurs must transition their companies from a concept phase to a delivery phase. In order to do this effectively, they need to clearly define their value proposition, product and business model. There are two key ways accelerators can support entrepreneurs in facilitating this process.

First, accelerators should connect entrepreneurs to potential customers. Customers validate the product and let companies know they have a commercially viable concept. Talking to customers is the most important thing a startup can do to refine its value proposition. In addition, customers provide critical feedback on product. For the first time, the venture will understand the problem and their target customer’s’ needs at the level of detail necessary to create a meaningful solution for it. Finally, accelerators can help startups figure out their business models early. Many entrepreneurs coming into the healthcare space lack a deep understanding of the complexities and nuances of the industry. Unless the venture is developing a new technology, there is probably a good reason that the solution doesn’t already exist. Within an accelerator, industry experts can help the entrepreneur identify and understand the stakeholders, existing systems and barriers to entry. The forces inhibiting the adoption of the company’s solution could include technology, regulation, operations and/or sunk costs, just to name a few.

By introducing entrepreneurs to potential customers and helping them better understand the healthcare industry, accelerators can help startups navigate this space and support them as they refine their value proposition, business model and product.”


The Los Angeles Times Reports on The Most Litigious Doctor

Clive Riddle, August 24, 2012

The Los Angeles Times recently ran a feature story, State suing doctor over billing tactics regarding “Jeannette Martello's aggressive tactics to collect fees from emergency room patients — including lawsuits and taking out liens on their homes — prompt unprecedented court case by state officials. “

The article notes that “the state's lawsuit against Martello, however, is the first of its kind, according to Marta Green, California Department of Managed Health Care spokeswoman. State officials allege in court papers that Martello collected or attempted to collect more from patients than insurance companies paid, a practice known as balance billing.”

The story about Doctor Martello’s very unique, aggressive tactics to pursue balance bills for contracted patients first broke months ago in MCOL affiliated Payers & Providers.  The Payers & Providers weekly California Edition reported on her activities, and then released a twelve page white paper,  The Many Stories Of One Highly Litigious Physician, with the sub-heading: “Surgeon Treats Patients at Southern California ERs – Then Sues Them” that details account of her 46 small claims and 23 superior court claims filed against her ER patients during the past several years, and the impact upon a number of the patients and their families.

The Times article cites Payers & Providers Publisher Ron Shinkman: “Ron Shinkman, who wrote about Martello and her tactics in the trade publication Payers & Providers, said he had never seen a more litigious doctor in 19 years of healthcare reporting.”


Three ‘Brutal Facts’ That Provide Strategic Direction for Healthcare Delivery Systems- Preparing for the End of the Healthcare Bubble

By Nate Kaufman, April 10, 2012

In August 2005, David Lereah, chief economist of the National Association of Realtors stated “All of the doom-and-gloom forecasts of a housing debacle are not only irresponsible, but downright  wrong” Lereah was not alone,  economists from Goldman Sachs, National Association of Home Builders and the Mortgage Bankers Association all stated similar opinions. Wall Street firms such as Lehman Brothers and Bear Sterns bet their companies on the strength of the housing market. Eventually the lack of financial sustainability inherent in sub-prime mortgages burst the housing bubble and the industry collapsed. (shilling)

 The lack of acceptance of the housing bubble by industry leaders is a clear example of “cognitive dissonance”.  The theory behind cognitive dissonance is “the more we are committed to believe something is true, the less likely we are to believe its opposite is true, even in the face of clear evidence that shows that we are wrong.”  (Marshall Goldsmith)  Refusal to recognize new market realities is a fundamental strategic flaw that has lead to the demise of many organizations. As Admiral Stockdale noted in his discussion with Jim Collins:  “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be” (see Collins web site)

The recent passage of the Patient Protection and Affordable Care Act (PPACA) has created uncertainty about the future of the nation’s healthcare delivery system.  Regardless of how PPACA is implemented, or funded or modified, there are certain ‘brutal facts’ regarding the future of healthcare delivery in the United States.  In order to prepare for the ultimate impact of these ‘brutal facts,’ healthcare organizations must begin today to modify both their core beliefs and clinical practices.  By focusing strategy on these new market realities (regardless how brutal they may be), a healthcare organization can begin to position itself for success in the future.

Our Healthcare Bubble Will Eventually Burst

In their open letter to the American people published in November 2010, several months after PPACA became law, the bi-partisan Debt Reduction Task Force:

“The federal budget is on a dangerous, unsustainable path. Federal debt will rise to unmanageable levels, which will push interest rates up, endanger our prosperity, and make us increasingly vulnerable to the dictates of our creditors, including nations whose interests may differ from ours…. we must take immediate steps to reduce the unsustainable debt that will be driven [in part] by the aging of the population and the rapid growth of healthcare costs...”

Even the Congressional Budget Office (CBO) appears to be skeptical about PPACA’s ability to reduce the deficit as was reflected their original ‘base line’ projections. As a result, the CBO produced an “alternative fiscal scenario” using the more realistic assumptions that: 1) tax revenues would remain at historical levels (i.e., 19% of GDP) and 2) cost control features of the new law would only have a moderate impact. (Frakt)  This more realistic scenario further supports the Debt Reduction Task Force’s assertion that healthcare costs will contribute to the destabilization of the economy.

 Richard Foster, the Chief Actuary for CMS supported this concern when he testified before congress that the new law will increase the nation's overall spending on healthcare by $289 billion through 2019. (Modern Healthcare)

The State Budgets are in no position to absorb the cost of PPACA.  According the Wall Street Journal,

“PPACA puts cash-strapped states in a tenuous position, forcing them into one or more unattractive policy choices: cut spending in crucial areas, such as public safety and education, to compensate for the additional health care costs, raise taxes to fund the new spending, or borrow money to pay the bill and sink further into debt. (WSJ)

Thus it is a brutal reality that we are in an economic healthcare bubble that will eventually burst.  Out of necessity, both State and Federally-funded healthcare programs will intensify their pressure on providers to reduce the per capita cost of care. In the immediate term this pressure will take the form of draconian reductions in fee schedules (as we are currently seeing from some states Medicaid programs.) Over the longer term, government-funded healthcare will move from the fee for service reimbursement methodology to either bundled/episodic or population based payments. Given the historical pace with which government implements changes in payment methodologies, one  can expect these new payment systems to be phasing in between 2016-2018.

Both the Shared Savings ACO Program and ‘First Generation’ Clinically Integrated Networks Will Not Produce Desired Results - Buyer Beware 

An Accountable Care Organization (ACO) is a group of providers (physicians, hospitals etc.) that share accountability for the cost and quality of care they provide. PPACA established a “ Shared Savings Program” for Medicare fee for service patients in which ACO providers would share in cost savings should the ACO meet certain quality and cost benchmarks.

The ACO concept has been pilot tested under the “Physician Group Practice Demonstration Project.” (PGP.)  Ten of the nation’s most integrated medical groups participated in the PGP demonstration. The demonstration provided groups the “opportunity to earn performance payments derived from savings for improving quality and efficiency of delivering health care services through better coordination of care and investment in care.” (CMS fact sheet)

After four years, these ‘all star’ group practices achieved a 40% success rate. That is, during the first year only two groups received a shared savings payment. By the fourth year five groups received a payout. Ultimately, over the four years, only sixteen shared savings payments were distributed out of a possible 40. (i.e., 10 groups times 4 years.) Among the brutal facts from the PGP demonstration project are:


  1. It is difficult for even the most integrated medical groups to generate significant savings on Medicare fee for service patients
  2. When a group received shared savings payments, the magnitude of these payments were not sufficient to cover the infrastructure cost associated with operating an ACO.

The Center of Studying Health System Change recently noted:

"the economic and market rewards [for ACOs] may not materialize for a long time, if ever,"… "None of the organizations [in the PGP] indicated positive return on investments related to improvement activities,"  (Modern Healthcare)

There is little hard data documenting the primary source(s) of the cost savings that generated the shared savings payments. Both the PGP participants and CMS reported anecdotally that the savings came from reductions in both admissions and high cost procedures e.g., imaging. It is a brutal fact that ROI for the ‘successful’ PGP participants was negative even before accounting for the loss of admissions and procedural revenue.  From a financial perspective, the PGP participants would have been much better off not participating in this ACO-like demonstration.  From the PGP experience it appears that the only parties that will receive financial benefit from the establishment of a Medicare-ACO are the lawyers and consultants retained for this purpose- buy beware!

Many physicians and hospitals have formed ‘clinically integrated’ networks which they believe will evolve into ACOs. While these networks have noble goals and some have positive results, few have demonstrated the competency to significantly lower the cost of care. Even Advocate Physician Partners, a joint venture clinically integrated network in operation for over 15 years could not document “medical cost savings” in real green dollars but stated that improvements in the cost of care are “inferred.” (see health affairs)

One could argue that even though it is unlikely that ACOs and first generation clinically integrated networks will fail to achieve cost saving benchmarks, these ACOs will eventually evolve into an effective delivery model. However, as the noted futurist Jeff Goldsmith points out, the track record for past efforts for physician-hospital collaboration has been ‘dismal’ and there is no reason to assume that this time it will be different. (goldsmith)

Based on the brutal fact that ACOs and ‘first generation’ clinically integrated networks’ will not generate sufficient cost savings to be relevant, it is recommended that healthcare organizations skip the first generation models and move towards the creation of ‘second generation clinically integrated networks’ capable of managing risk and targeting the 20% of the population that consume 80% of the cost. The most current research on reducing the per capita cost of treating Medicare patients conclude:

Health reform policies currently envisioned to improve care and lower costs may have small effects on high-cost patients who consume most resources. Instead, developing interventions tailored to improve care and lowering cost for specific types of complex and costly patients may hold greater potential for “bending the cost curve.” (Reschovsky)

 Also, rather than pilot test an ACO model on Medicare and/or commercial fee for service patients where reductions in admissions will impact the revenue of the health system, it is recommended that these networks ‘cut their teeth’ on the self-funded pool of hospital employees and dependents, where a reduction in admissions/cost results in savings for the organization.

Critical elements for a successful ‘second generation’ clinically integrated network include: primary care-based medical homes, digitally connected electronic medical records with point of care protocols, disease management programs and a culture committed to improving the cost and quality of care for a population of patients vs. maintaining individual provider income and autonomy. (Kaufman)

Physician Autonomy and the Organized Medical Staff Will Become Less Relevant

On January 13, 2011 CMS published the proposed rule for the Value-Based Purchasing Program for Medicare inpatient services (VBP.) Starting October, 1 2012, hospitals can earn incentive payments based on the care they deliver to Medicare inpatients. These incentive payments will be funded by a one percent reduction in the base DRG payment. Thus hospitals that underperform will see a relative reduction in their Medicare payment rate. The VBP incentive will be based on adherence to clinical processes, (e.g., Aspirin prescribed at discharge for AMI patients) and patient experience ( e.g. communication with doctors, responsiveness of staff etc.) CMS will eventually include mortality-related measures in VBP as well. In addition, as part of the National Patient Safety Initiative, by 2015 9% of a hospital’s Medicare reimbursement will be “tied to public reporting of errors and provision of safer more reliable care with particular focus on hospital acquired infections and readmissions.” (cms proposed regs)

Traditionally the  medical staff had the responsibility for monitoring and maintaining high quality care within a hospital. While hospitals have always borne the financial risk for the cost of care ordered by its physicians, VBP now puts a hospital’s revenue at risk for their physicians’ clinical practices and communication skills. The evidence is clear from Geisinger, Thedacare, Virginia Mason and others that the standardizing care through thoughtful process redesign can improve efficiency, quality, safety and patient satisfaction. Most medical staffs have been unwilling to tackle an issue associated with the variability of cost and quality of care unless it exceeds broad limits.

It is a brutal fact that hospitals can no longer afford to delegate the responsibility and accountability of the cost and quality of care to the independent medical staff composed of physicians practicing and promoting the traditional autonomous, highly variable model of care. Hospitals will have to develop a work with the members of their medical staffs to:

1) modify bylaws to require conformance to patient safety, patient satisfaction, process and quality metrics as a condition of keeping hospital priveleges, and

2) develop the clinical infrastructure with a new breed of physician leaders in which medical directors will have the authority and accountability for cost, quality and patient satisfaction in their serviceline.

Not If But When

The nation’s rate of spending on healthcare is unsustainable. As with the housing bubble, the fundamental economics cannot support the status quo and yet many healthcare thought leaders and politicians dismiss claims of a healthcare bubble as “doom-and –gloom.” Others choose to ignore the brutal fact that AAPACA may exacerbate the cost crisis rather than moderate it.

Those that recognize the existence of a bubble and prepare for its brutal realities can actually benefit when the bubble bursts. This was clearly the case with the housing bubble where Michael Burry and his investors earned hundreds of millions of dollars betting against mortgage-backed securities (Wikapedia.) Healthcare organizations that believe in the brutal realities of the healthcare bubble can also position themselves for success when the bubble bursts. These organizations will dismiss the incremental approaches such as Medicare Shared Service ACOs, first generation clinical integration, physician co-management and focus on meaningful transformation into a provider system that is comprised of data driven, digitally connected, physician-lead TEAMS consistently delivering  evidence-based, patient-centered health care, able to treat higher volumes of patients, at lower predictable costs per episode, demonstrating measurable high quality and providing an exceptional patient experience.. As Don Berwick stated Healthcare is hungry for something truly new, less a fad than a new way to be. (VA Mason)