Category: Economics

What Amazon can’t do

February 13th, 2018 by
Watch out below!

Now that Amazon and its partners JP Morgan Chase and Berkshire Hathaway have decided to tackle healthcare for their employees, everyone  is tossing out ideas for what they might do to solve the system’s myriad problems.  I count myself among those lobbing in suggestions, with my emphasis on making the system more patient-oriented.

Two letter writers in the Wall Street Journal have interesting ideas about what the partnership should do, but ultimately they are misguided.

Fred Hyde, MD, JD, MBA thinks the team should take advantage of association health plan (AHP) rules to beat up providers over pricing, pointing the finger at “monopoly pricing by larger health systems” and prescribing reference pricing or a Dutch auction for the procurement of hospital care. He points to ERISA as a great liberator for larger companies and thinks  AHPs could be the answer for smaller businesses.

Well, all three partners already can take advantage of ERISA and that hasn’t really helped them. There’s also no particular reason to think providers are going to give the companies lower prices just for the heck of it.

Robert E. Mittelstaedt Jr., Emeritus Dean from Arizona State University, thinks full price transparency is going to be the answer, “forcing patients to make economic decisions” and pushing government to allow providers to compete on price. In my experience providers don’t want to compete on price and sick patients and their families are not well positioned to shop for most healthcare, especially the expensive and emergency stuff like cancer treatment and trauma care.

The writer says the partnership is “no different” than the history of Kaiser Permanente. In that case why not have all employees join Kaiser? After all there is already Kaiser Permanente Washington, based near Amazon’s headquarters, the former Group Health Cooperative. These plans are no panacea.

I’ve heard people quip that the best thing this group of companies could do for their employees is advocate for a single payer system in the US. I think they can do better than that, but it’s actually a better idea than a lot of what’s being discussed.

—-

By healthcare business consultant David E. Williams, president of Health Business Group.

CVS + Aetna. Are we sure this adds up?

December 5th, 2017 by
CVS and Aetna. Love at second sight?

Many of the stories I’m reading about CVS’s acquisition of Aetna suggests the deal is a bold move to expand CVS’s retail clinic business.  See for example, CVS-Aetna deal has major implications for retail health, primary care practices in FierceHealthcare.

If the merger goes through, CVS plans to expand health services at its retail pharmacies, according to CVS and Aetna officials. Although it will take several years to accomplish, CVS will increase its number of clinics and add staff and equipment for a wider variety of treatments.

This seems like silly reasoning. If the idea is to get health insurers to offer plans that favor retail clinics, why not just contract with those plans? Aetna is a big company but as a national plan its market share in many geographies is relatively modest. Often –like here in Massachusetts– the local Blue Cross has the biggest market share. If CVS is big and powerful enough to actually buy Aetna, surely it can get that company and others to come to terms on retail clinics.

If there’s strategic logic behind the deal it’s more likely to be in the pharmacy management side of the business, where, for example, the combined CVS/Aetna will be the biggest player –but not a dominant one– in Medicare Part D pharmacy plans. That’s not so compelling.

Possibly, the two companies just wanted to do a big deal that wouldn’t get blocked by the Justice Department. Aetna already got slapped down for its attempt to merge with Humana, and CVS doesn’t have a lot of options for horizontal takeovers of other drug chains or pharmacy benefit managers.

There is some kinship between the companies. Both are New England based and CVS’s Chief Medical Officer, Troy Brennan previously held the same role at Aetna.

It seems just as likely that CVS will offer Aetna “products” through its stores. As @WilliamGerber points out on Twitter, CVS could sell Part D plans at retail. I’m thinking maybe CVS will eventually offer consumer friendly health plans from Aetna that go beyond pharmacy.

Certainly, the shadow of Amazon is hanging over the deal. CVS is extremely nervous about Amazon coming in and eating its lunch in a way that Walgreens never could. So it’s doing something Amazon won’t –getting more into third-party reimbursement.

Stay tuned. I look forward to seeing how this one plays out.

Ambulance bill rip-off: There’s always a public option

December 1st, 2017 by

A Kaiser Health News story on sky-high ambulance bills caught my attention; I have a long-standing interest in out-of-network billing and a more recent experience of taking a pricey ambulance trip myself.

Taken for a ride? Ambulances stick patients with surprise bills, is not a new story. To sum it up: it’s not unusual for a patient to get a bill for thousands of dollars and then to be stuck with a big part of the charge, even if that patient is insured. That’s because many ambulance companies can make more money by being out-of-network. Unlike physicians and hospitals, ambulance companies don’t lose patients by being out of network and refusing to offer discounts. After all, if you need an ambulance you wouldn’t have time to shop around, and it doesn’t affect repeat business either.

The article cites an example of a Fallon ambulance in Chestnut Hill, MA, one town away from where I live. A patient was transported to Brigham and Women’s hospital four miles away and charged $3,660, which the article points out is $915 per mile. The insurer paid about half and half was the responsibility of the patient.

In my own case I was crossing the street in a crosswalk and was struck by a car making a left turn. My bill from Fallon was $3,427.50 for a one-mile ride, so at least on a per mile basis it was much higher than the Chestnut Hill example.

But to be fair, the bill comprises a base fee of $3,350 for an advanced life support ambulance plus $77.50 per mile. That works out to exactly the same rate as what the suburbanite paid ($3,350+4x$77.50=$3,660) and demonstrates that Fallon is not mainly charging for mileage, it’s charging for the equipment and personnel being ready to show up on a moment’s notice.

Much of the ire is directed at the ambulance company for price gouging and the insurance company for leaving patients hanging. There are calls to regulate prices and otherwise tighten the rules, and I’m sympathetic.

But notice this point a little further down:

” If the injury had happened just a mile away inside Boston city limits, he could have ridden a city ambulance, which would have charged $1,490, according to Boston EMS, a sum that his insurer probably would have covered in full.”

When you call 911 to report a fire or a crime in Chestnut Hill and anywhere else near Boston, fire fighters and police officers are dispatched at no charge. It doesn’t matter what insurance you have –or whether you have insurance– it’s a service provided by the local government as part of its budget. Police and fire fighters responded to my crash, too, but they aren’t sending a bill.

Cities and towns could do the same with ambulances if they want. Some, like Boston, do. Public ambulances can still bill insurance and individual patients, but they’re less likely to antagonize patients and insurers with outrageous bills.

So while we think of policy solutions for ambulance bill rip-offs, let’s not forget that there are public options and lots of hybrid solutions, too.


By healthcare business consultant David E. Williams, president of Health Business Group.

What free market healthcare really looks like

July 27th, 2017 by
piglet-1639589_640
Get while the gettin’ is good!

As an economics graduate, MBA, and entrepreneur I’m a fan of the free market system. The invisible hand is a beautiful thing, and it’s certainly been good for me.  A healthcare management consultant and board member, I make my living from the business of health.

Capitalism has a place in healthcare, but in developing policies we should also recognize the limits of free market approaches and be open to the benefits of socialist ideas. For example, before the Affordable Care Act, people with pre-existing conditions or high healthcare costs would experience “job lock.” They couldn’t afford to leave their employers’ group insurance plans even if they wanted to start their own small business. Would-be entrepreneurs used to call me asking for advice –not about business plans, raising money, hiring, or product development– but about how I handled health insurance. Fortunately in Massachusetts this was not a problem, even before the ACA, because we had guaranteed issue (could not be denied coverage for pre-existing conditions) and community rating (premium based on larger group, not individual risk). In most parts of the country, though, it was a problem, and  if the ACA is repealed it may become a problem again.

A recent New York Times article (The Company Behind Many Surprise Emergency Room Bills) provides another example of the limitations of a free market approach. It’s worthwhile for free market ideologues to understand this before setting policy. To recap:

  • Some hospitals hire outside companies like EmCare to staff their emergency rooms. To maximize profits, those companies sometimes decide not to negotiate contracts with insurance companies. Hence they are “out of network” on purpose
  • When patients come in to the emergency department –suffering a heart attack, stab wound or whatever– they are treated by these out of network doctors, who then bill the insurance company at a rate that may be a multiple of in-network rates. This is true even if the hospital itself, and most of its doctors, are in network
  • The insurance company may pass along some or all of the expense to the patient, especially if the patient has a high deductible plan
  • Patients get angry, and a story appears in the New York Times

The Times story ends there, and it’s bad enough. I guess you could argue that the free market is sort of working here. After all, physicians are setting their own rates, and in theory patients could decide to go elsewhere. The consumer making noises helps to bring the market into equilibrium. And maybe the problem is not enough capitalism. Maybe EDs shouldn’t be required to take patients who can’t pay…

What the Times doesn’t say –probably because they don’t know about it– is that there’s an additional capitalist ecosystem that comes into play here. Let’s say a physician charges the insurance company $100,000 for something that would be reimbursed at $10,000 under a network contract. In case you think I’m exaggerating, this kind of thing actually happens –if not with emergency physicians then with ambulatory surgery centers and behavioral health.

The insurance company or third party administrator may then hire a cost containment vendor to ‘re-price’ or negotiate the claim. The cost containment vendor negotiates with a separate “revenue cycle management” company hired by the physician group.

Let’s say for the sake of argument that they agree to a reduced payment of $15,000 instead of $100,000. The cost containment company might take 20% of the savings (20%*$85,000=$17,000) as a commission and the revenue cycle management company might make $1500 or so for their efforts. So everyone in this scheme is happy:

  • The physician still collects $13,500 compared to $10,000 in a network deal. (And in some circumstances if the insurer isn’t paying attention they’ll get the full $100,000.)
  • The revenue cycle management company takes its cut, even if it’s less than the others
  • The cost containment companies makes more than the physician ($17,000 v $13,500). It doesn’t usually work that way but sometimes it does. [Note that I had these numbers wrong until I was corrected in the comments.]
  • And the health plan pays $15,000 rather than $100,000. If the payer is acting as a TPA or ASO rather than bearing risk, they may even get a fee from their employer customer for the cost containment service

While it’s great that so many new jobs and business opportunities are created, this is not exactly the way to hold down the cost of healthcare and improve affordability.

Contrast this scenario with one where the patient is covered by a government program: Medicare or Medicaid. The government determines the fee for services rendered and pays it to the physician. The patient contributes at most a $50 co-pay. The physician may or may not like what he’s being paid, but there are no shenanigans.

If you adore the free market and abhor government interference, maybe the first scenario is best. Having seen it up close, I have a hard time arguing for it.

By healthcare business consultant David E. Williams, president of Health Business Group.

Tufts nursing impasse: I'm quoted in the Boston Globe

July 13th, 2017 by
matchstick-20237_640
Who “wins” in a strike?

The first nursing strike in Boston in three decades is an ugly situation. I feel badly about it, especially for patients and their families who are collateral damage. Even if the quality of care is the same with the replacement nurses, the extra stress and aggravation really are a problem.

I’m quoted on the dispute in today’s front page Boston Globe story (At Tufts Medical Center, pressure to cut costs in a city rich with hospitals). I’m not directly involved with Tufts management or nursing leadership, so I commented on the overall environment in which its occurring.

“I think the root cause is that Tufts has to compete with the other academic medical centers in the city, and they don’t get the same level of reimbursement,” said David E. Williams, a consultant at Health Business Group in Boston. “The disparities of the payments actually cause friction in the labor market.”

The story of unequal payments to Boston area hospitals is not a new one, and people have heard about it so often that they’ve tended to zone out. But this is the first time I can think of that labor relations have taken a public hit as a result, so perhaps it will reinvigorate the debate.

Meanwhile, few of the articles about the strike provide broader context about where nurses fit in to hospital finances. A couple of statistics are worth mentioning:

  • A 2015 study published in the Journal of Nursing Administration (Hospital Nursing Workforce Costs, Wages, Occupational Mix, and Resource Utilizationconcluded that nursing labor accounts for just over 30 percent of total hospital costs. That means nursing costs are central to hospital finances and it explains why Tufts isn’t just giving in in the face of the strike.
  • Nurses in Boston earn six-figure incomes. According to Tufts, its senior nurses (which represent 60 percent of the total staff) “earned an average of $152,000 in 2016.” That’s comparable to what some primary care physicians make.

I hope the dispute is resolved soon, so that the nurses and the rest of the Tufts team can get on with the job of caring for patients. If the strike ends up stimulating a serious debate about inequities in hospital reimbursement, that will be its only silver lining.

By healthcare business consultant David E. Williams, president of Health Business Group.