Posted on

The Perfect Storm (Part Three)

Post Covid-19 – The Business Response.


In the months of March and April over 36 million American’s filed for unemployment.  That means in just two months our economy went from having very little unemployment to the highest unemployment rate since the great depression of the 1930s.  Most economists project that before this crisis is over the unemployment rate in this country will exceed the previous record of 24.9%.  That’s right, before this is all over one out of every 4 people in the US job market will be without employment.  Most American’s weren’t even alive 87 years ago the last time we had this much unemployment.  The fact that this all happened in just two months is beyond comprehension and something no one ever expected to see.


Many industries like airlines, hotels and manufacturing have been virtually destroyed by this economic crisis.  The big question right now for everyone is what will happen when this crisis subsides and what the world will look like when we all try to return to work.


I am going to spend the next few minutes talking about how businesses are going to respond to this crisis as the economy opens back up and how that will impact the financing and delivery of health care.


As we recover from this crisis it’s clear that almost every business will have been damaged by this economic downturn.  It’s also clear that it will be some time before out unemployment rates return to where they were just a few months ago.  Both of these facts will impact what health care looks like in our future.


With damaged bottom lines, pressure from investors to return to previous levels of profitability and high unemployment employers will have the opportunity and incentive to reduce the amount of money they spend on health insurance for their employees and family members.  One way to do this is to simply reduce benefits.  Increases in deductibles and co-insurance levels are likely to become the norm.  In addition to that, many companies may either reduce or eliminate the amount they pay to cover family members of employees.  These actions can dramatically reduce the expense for employers by shifting those expenses to individuals.   For physicians and hospitals, moves like this will increase patient responsibilities which often times delay and reduce total revenue received for services provided.


In addition to these simple moves we may see a tectonic shift in how insurance is provided and the way those benefits are determined.  Let’s remember that it was an incredible historic event, world war II, that gave birth to the concept of employer funded health insurance.  Our current crisis could cause a significant change in the way health insurance operates in the future.


One tectonic change that could come from this is the shift from insurance reimbursing physicians and hospitals at contractual negotiated rates to a structure of defined benefits.  Under this type of insurance, the employer decides how much benefit they want to cover for each type of service provided.  For example, the employer could decide that they will pay $500 for an MRI needed by one of their employees.  The employee would be responsible for all costs above $500.  If the insured can find a provider willing to do an MRI for $500, they would have no extra expense.  If, however the insured had the MRI done at a hospital and the charge was $2,000 the insured would have to pay the extra $1,500.


This kind of change in how insurance is provided would have a dramatic impact on physicians and hospitals and how they interact with their patients.  For most physicians and hospitals this would be the first time they had to either compete on price or at least explain to their patients why their quality or service warranted a premium price compared to a practice across town or in another area.  This new dynamic creates both challenges and opportunities.  Some practices will pursue the “Walmart” strategy and try to attract volume by being the lowest cost option.  Others will pursue the opposite strategy and compete on quality and service thus justifying higher costs.   Either strategy can work depending on execution.  As an illustration, consider this, a large cup of coffee at McDonalds costs $1.49 while a large, sorry Venti, cup of coffee at Starbucks is more than twice that price.  Several blind taste tests show that a majority of consumers can’t tell the difference between the two.  Why do so many people spend more money for a coffee at Starbucks?  Well, because Starbucks has done a great job of creating real and perceived value in the eyes of consumers.  The same opportunity will exist in medicine.


So, as we look to the future and how businesses are going to react to this crisis, we should all be prepared for significant changes.  At minimum we will see the uninsured rate climb and patient financial responsibilities increase.  In addition to that we may see a dramatic shift to things like defined benefits.  Physicians and hospitals should begin preparing for these changes now in order to be ready when they happen.


This country along with everyone else got caught sleeping at the wheel when this pandemic hit.  Let’s not duplicate that experience when changes to health care happen post Covid.


Take a listen to our podcast that coincides with this blog post!

Posted on

The Perfect Storm (Part Two)

It can be hard to imagine a world without Covid-19 but it will happen.  At some point we are going to develop a vaccine and/or more effective treatments for this virus.  We are going to come out of our houses and return to work.  When this happens the world is going to try and recover from this pandemic and put things back together.  In this Podcast I am going to explore the possible strategies our government is going to use to get the US economy back on track and back to the good old days of 2019.  I am going to pay particular attention to how these strategies are going to impact health care and physicians.


For purposes of this exercise let’s assume that its January 2021.  A vaccine has been developed and the world is in the process of being vaccinated against Covid-19.  This means that the clinical threat of the pandemic is over.  We can now get back to work without fear of infection.


The President has taken the oath of office and the next congress has been seated.  The first order of business for the government is to pick up the pieces of a damaged US economy and try to put them back together again.  While no one can completely predict what the economy will look like in January of 2021 it’s safe to say that no one expects it to be fully back to the economy of 2019.  The most likely scenario is one where we are still dealing with high unemployment rates, lower or negative GDP growth rates and the potential for increases in inflation and interest rates.  What we do know for certain is that whomever takes the oath of office in January he will do so with the highest debt to GDP ratio in this country’s history and federal budget that is in tatters producing record deficits.  Federal tax revenue will be down, and expenses will be up because of the economic damage done by Covid.  The President will be facing national debt approaching $30 trillion dollars.  With that much debt the President will be particularly worried about interest rates and inflation.  Even a small uptick in inflation and interest rates would add billions of dollars of interest expense to the Federal budget.


In light of this, the President will have a strong incentive to improve the federal budget and reduce deficits.  The problem is, he will have a limited number of options available to get that done.  The most politically attractive strategy is to cut taxes and hopefully increase economic growth enough to actually increase federal revenue and reduce social program expenses.  It’s unlikely that this approach will be successful in 2021.  This is the tactic we tried with the tax cuts at the beginning of the Trump administration and it didn’t work.  The GDP growth rate in 2019 was actually less than it was just 4 years prior in 2015 under the Obama administration.  Given that, it will be argued that the last round of tax cuts didn’t spur economic growth and only added more money to the federal deficit.  Something we simply can’t do in 2021.  With that option taken off the table the President will be left with a choice between significantly increasing taxes or reducing expenses.


If President Trump wins a second term it is very unlikely that he would reverse his first term tax cuts and actually increase taxes.  This means his only option is to cut federal expenses.


If our next President is Joe Biden, he will likely try to reverse the Tax cuts of 2017 but even if he accomplishes that it won’t be enough to fix the federal budget problem.  He too will have to look at expenditure reductions.


No matter who wins the election in November there will be pressure to reduce federal expenditures.  In order to do that the President will have to attack one or more of the big three; Social Security, Health Care and Defense.  Those three categories make up almost two thirds of all federal spending.  Any meaningful reduction in spending has to include at least one of these areas.


If Trump wins re-election, he is likely to focus on health care and possibly reforming social security.  His approach on health care could mean further dismantling of the Affordable Care Act by reducing or eliminating the subsidies included in the law.  He could also attack the increased cost due to Medicaid expansion by reforming Medicaid into block grants to the states.  These moves could result in an increase in the uninsured population and increases in patient financial responsibilities.


A Biden Presidency would have a very different approach.  His administration would at a minimum try to expand the Affordable Care Act by creating a public option.  His argument would be that this increased competition would help drive down health care costs.  He has also talked about letting individuals and businesses “buy into Medicare” for people at 55 or 60 years old.  Under these strategies we wouldn’t see increases in uninsured, but doctors would be faced with reductions in revenues as reimbursement levels go down either through the competitive pressures of a public option or patients transitioning to Medicare level reimbursement earlier though a Medicare buy in program.


While each approach comes with very different results both place more pressure on physicians and their businesses.  Remember, one man’s “expense reduction” is another man’s “revenue reduction”.


Take a listen to our podcast that coincides with this blog post!

Posted on

The Perfect Economic Storm

This is the first of a series of pod casts that will take a serious look at the economic damage from Covid-19, what a post Covid world may look like and how it will impact various segments of the health care industry.  At the end of this series I will share a number of strategies that physician practices should consider pursuing to not only weather this storm but also to position themselves to thrive in the new world that will be born from this disaster.


In 1991 a rare collection of meteorological conditions including a cold front, a hurricane and a nor’easter all combined at just the right time and right place to make the perfect storm.  A few years after the storm a movie was made about the final voyage of the fishing vessel Andrea Gail that was lost with all hands when it got caught in the storm.


Today, economists like myself, are in the middle of a perfect economic storm the likes of which we have never seen.  If economic crisis were graded like hurricanes this one would be the worst category 5 storm we have ever experienced.  This is not an overstatement.  If anything, its understating the economic crisis in which we find ourselves.  The numbers are staggering.


Prior to this year the worst year for GDP growth was 1932 in the middle of the great depression.  That year our economy contracted by 13%.  In the second quarter of this year economists are predicting economic contraction of over 30%.  In 1933 the country had its highest unemployment rate ever of 25%.  Right now, many economists are predicting unemployment rates this year could exceed 30%.  That’s right, at its peak 1 out of every three working age adults in this country could be unemployed.  The other thing that is unprecedented about this economic crisis is how rapidly and dramatically it has happened.  Prior to this year the worst week in history for unemployment claims was in October of 1982 when 695,000 Americans filed for unemployment benefits.  This year we have had almost 10 times that rate when 6.6 million Americans filed for unemployment benefits in just one week.


While it’s clear that we are in the middle of the worst economic crisis in the history of this country what’s not clear is what recovery will look like.  Some are suggesting that the economy will recover just as rapidly as it declined.  They point to the underlying health of the economy before Covid and suggest that once the virus subsides, we will return to the good old days of low unemployment and economic growth.  Others take a much more pessimistic approach and suggest that we will never completely recover from the damage that has been done and that the new normal is a much smaller US economy.  I believe both camps are wrong.  The more likely scenario is one where we have some recovery but also suffer the effects of Covid for a year or more before we come close to the kind of economic numbers, we had in 2019.


Let’s for sake of argument assume I am right.  Let’s look at what 2021 would look like if we experience flat to slightly negative GDP growth compared to 2019.  Let’s look at a 2021 where unemployment runs around 10% to 12% rather than the 4% it was in 2019.  While those numbers are much better than where we are now, they still spell significant issues for the US economy and would put incredible pressure on the health care industry in this country.


Numbers like that are going to produce record deficits as tax revenue declines and spending on programs like unemployment, Medicaid etc. balloon.  These deficits will be added to the incredible deficit spending the government had to do in the middle of the crisis and will push our debt to GDP ratio to record levels.  These deficits could cause inflation concerns and push up interest rates.  The combination of inflation and rising interest rates are devastating as they rob American workers of purchasing power at the same time driving up mortgage and credit card payments.   All of this will put incredible pressure on the government to control deficits and try to right the ship in the middle of this storm.  There are really only two ways to do this, raise taxes or cut expenses.  Since raising taxes is the best way to become the x-Senator from your state there will be a push to cut expenses.  Health care being the single largest federal expense category will come under scrutiny and we are likely to see politicians who don’t understand the complexity of our health care delivery system try to fix our system in some very interesting ways.


Stay tuned for the rest of this series.  I will examine the possible government response to this crisis, how employers are likely to respond, the rise of consumerism and finally share some strategies that physicians should be pursuing now to make sure they survive this perfect storm.


Hold on tight.  The seas are getting heavy and the worst is ahead of us.


Check out our podcast that coincides with this blog post!

Posted on

Healthcare in 2021

As we start to think about re-opening the economy and trying to get back to “normal” it’s logical to start to think about what “normal” will look like in the future.  While no one knows for sure what the new normal will be there are some things we do know or can logically conclude.


We can be fairly certain that the new normal we be different than our reality was just a couple of months ago.  The impacts of this pandemic will be felt for several years and in some ways may change our reality for ever.


The economic effects of this crisis will most definitely be felt for many months if not years.  By the end of this year the federal government will have added several trillion dollars to the national debt.  A national debt that was already at a ratio compared to GDP that has not been seen since World War II.  In addition to that tax revenues will be down and expenditures at the federal level for safety net programs and social services will be up.  This will most likely produce record deficits for 2020, 2021 and possibly beyond.  Most economist believe that on election day in November the country will still be experiencing double digit unemployment.  It is safe to say that whomever occupies the White House next year will be governing over a seriously damaged economy.  If this pandemic and the global economic damage it inflicts causes interest rates to go up on the US debt and borrowing it could become a perfect storm and a recipe for disaster.  Even small increases in interest rates would put significant pressure on our federal budgets due to our enormous national debt.


In addition to the pressure being put on the government there will be significant pressure on businesses that try to recover from a terrible year in 2020.  With double digit unemployment there will be a surplus of labor and a shortage of demand for that labor.  That means that employers will have an easier time filling jobs and won’t need to be as generous with salaries and specifically benefits.


Both State and Federal governments as well as employers will start focusing hard on expense reductions to help them recover from the effects of Covid-19.  For both of these entities’ health care is one of their largest expense line items and as such will be under enormous pressure.  There will be renewed push for some form of health care reform.  The form it takes will be largely dependent upon who wins the election this year.  No matter who wins there will be a need to reduce costs and federal expenditures for health care in this country. Employers as well will need to reduce health care costs and we are likely to see a whole new approach to how health care benefits are delivered and financed.  Increased patient responsibility, increased consumerism, defined benefit plans, telehealth and other new approaches to health care will become the norm as employers struggle to return to the profitability levels they enjoyed in 2019.


It’s going to be a brave new world out there and that brings both opportunity and risk.  With any dramatic change there is opportunity for those who can see far enough ahead and then adjust to meet the needs of the new climate.  There is also risk for those practices and hospitals that want to stick their heads in the sand and try to do the same thing they have done for the last several years.  Those practices are not likely to survive the tectonic shifts we are likely to see in the coming years.


So, what is the new normal going to look like?  Well we don’t have perfect clarity on that, but we do have some general ideas.


The new normal in health care is going to include a significant increase in consumer involvement.  Consumers are going to be much more involved in the delivery of their care and specifically the cost of their care.  This is going to necessitate new tools and approaches to how care is delivered.


The pressure on costs will mean that physicians will need to focus on efficiencies, cost reductions and showing value.  The value play will be to consumers and to payers and each may have a different definition of “value”.


Employers are going to be able to push new forms of coverage.  Things like defined benefit plans and benefit levels tied to tiered networks like our current pharmacy benefit structures are going to be developed and may become the norm.  Practices are going to have to learn how to compete in this new world.


Information and information transparency are going to explode in this new world as consumers, employers and payers are not going to put up with the “black box” health care approach of the past.  This transparency will extend far past rates and financial information.  The new health care environment will have transparency around clinical indicators as well as quality information.  I envision a time where doctors malpractice history will be public information.  You will be able to see your surgeon’s rate of post-op infection as well as their complication rate.  Clinical indicators that have long been used inside the industry will become readily available for all to see.


The technology that allowed us to quickly shift to tele-health is also going to explode.  It’s not too hard to imagine a patient doing a tele-health visit with their doctor and a home blood pressure cuff, scale and other simple diagnostic tools all connected to thier computer and doctor’s portal so real time results are fed into the doctors EMR.  It’s also not too hard to imagine the lab company sending someone to your home or office to draw labs prior to your visit so that your doctor has the results available.


These and many other changes are going to impact our nation’s largest economic segment in ways that we can’t even imagine right now.


If you think this can’t happen or is too far-fetched, I would ask you to consider the following.  This morning I watched the news which included an announcement that Neiman Marcus was going to file for bankruptcy, Disney corporation was going to lay-off 100,000 employees and US Oil futures had opened at a negative $37 per barrel.  That’s right, if you wanted to buy 1 million barrels of US crude in a futures contract the seller would have to pay you $37 million dollars to take it off his hands.  So, I ask you, given that, is anything I am predicting really that far-fetched?


Recently I had a good friend ask me what it’s going to be like when all of this is over.  My response is that it’s going to be a bit like giving guns to children.  “I’m not sure what’s going to happen, but it is going to be exciting.”


Check out our podcast that coincides with this blog post!

Posted on

To Open or Not to Open…

To Open or Not to Open, that is the question:


One month ago, Gavin Newsom the governor of California became the first Governor to issue a statewide shelter in place order.  At the time of the order California had 900 positive cases and 19 fatalities.  Some thought the Governor jumped the gun in shutting down the state’s economy.  Others applauded him as educated and forward thinking.  Over the next days and weeks other state governors follow suit.  One month after the shutdown California has had 27,000 cases and 890 fatalities.  While that number seems like a great deal it’s actually a picture of success.  California has the highest population of any State in the country.  In spite of that they are 7th in the number of reported fatalities.  If California had the same per capita fatality rate as New York they would have over 28,000 fatalities.  So, you could make an argument that California’s early actions saved over 20,000 lives.


The side effect of all of these shelter in place orders are an incredible increase in unemployment and the resulting damage that does to the US economy.  In the last 4 weeks we have lost over 22 million jobs.  That is the total job growth we have experienced over the last 12 years.  It begs the question how much longer we can shut down the economy and be able to survive the lasting economic damage it will cause.


The dilemma this creates is a question of what is worse or what will kill us first, the virus or a destroyed economy.  Recently I have listened to people take extreme positions on both sides of this issue.


On one side are the people who think the economy should be opened right away.  They believe that this shelter in place order is an act of tyranny and it impedes their god given constitutional rights.  On the other side are some public health experts who say the only course of action is a complete shutdown of the economy until August or September.  I watched one such individual suggest that the government should just print about $10 Trillion dollars and pay everyone to stay home for several months.


This raises the question; which side is right?  The simple answer is they are both wrong.  What’s worse is the more extreme people on either side get the more their position become idiotic and not helpful.  At this point I am sure some of you reading or listening to this just got angry because you think I just called you an idiot.  I did not.  I said our position is idiotic.  I don’t know you well enough to decide if you are an idiot.


Let me explain.


The crowd that thinks this shelter in place orders should be lifted right away and these orders are a violation of their constitutional rights often make statements that this is not different from the flu so why are we shut down.   Some of them even believe the virus was man made or its some kind of political conspiracy.  Ok, lets deal with these arguments.  First of all, the constitutional argument is ridiculous.  Nowhere in the constitution does it give a person the right to put others in danger which is exactly what violating the shelter in place order does.  Your rights do not extend to the point of putting someone else at risk or in danger.  So, let’s stop being silly with this nonsense.  The other argument that this is no worse than the seasonal flu is also nonsense.  Covid-19 is significantly more contagious and deadly than the seasonal flu.  There is simply no comparison.  What is abundantly clear is the direct correlation between testing and mitigation efforts like social distancing and shelter in place and a significant reduction in cases and fatality.  Because of this correlation we know that ending these mitigation efforts too early and without a vaccine will result in a significant outbreak and a large number of fatalities.  I don’t see anywhere in the constitution where it points out that my rights supersede someone else’s right to live.  As for the theories that this is man-made and somehow politically motivated, I’m not going to even justify that with a response.


Now, for the other extreme.  The public health academics who take the position that we have to close the economy for several months because every single life is precious are equally wrong.  Their idea that our government can just print trillions upon trillions of dollars and pay everyone to stay home for an extended period of time is about as realistic as me thinking that the Red Wings are going to call me and offer me an NHL contract to be their goalie.  If we shut down our economy to the extent that these people are suggesting the lasting damage it would cause would be worse than the Virus.  In response to their suggestion that we just print money to solve this economic problem I would ask them to research post WWI Germany.  After WWI, Germany was forced to make reparations for the war.  This caused them so much debt that their economy went into a period of hyperinflation and their currency was seriously devalued.  In 1919 it took 48 German Marks to buy one US Dollar.  By 1923 that exchange rate was 4.2 trillion marks to one US Dollar.  That’s not a typo folks the exchange rate was 4.2 Trillion to one.  In 1922 it cost 120 Marks to buy a loaf of bread in Germany.  One year later that same loaf of bread cost 200 Billion Marks.  My point here is if we shut down the economy for 6 months or more and just print money to pay for it, we could experience similar kinds of hyperinflation.  Getting a government check doesn’t help you very much if it won’t buy a loaf of bread.


So, what should we do?  Well, like all things the truth is in the middle.  The key will be to thread the needle and balance the risk of further outbreak with that of lasting economic damage.  This is not going to be easy because it’s a balance between two bad choices.  From my perspective we need to intelligently open up the economy in stages and with this balance in mind.  We need to also ramp up testing to help make these decisions.  For example, I don’t see any value in sending kids back to schools until next fall at the earliest.  This is not the economy and a school are a perfect breeding ground for transmission.  I also don’t see any need for sporting events and concerts with live audiences.  Those things should be done for TV only right now.  On the other hand, we could start looking at allowing some small businesses to open with sensible restrictions and in certain geographic areas.  A restaurant in a rural area with very little outbreak could open with 50% capacity.  This would allow for an open table between each occupied table.  Wait staff could wear masks and gloves.  It may not be great ambiance but its relatively safe.  A small shop in that same area could open and limit the number of customers at one time so they could social distance.  Now it may be some time before those types of businesses could open in New York City but in other parts of the country it may be ok.  Options like that should be pursued and evaluated as a way to balance both the need to be clinically safe and the need for people to be able to work and earn money.  As I said it won’t be easy.


The key to all of this is for smart, reasonable people to make the best decisions they can in a fact-based balanced approach.  They should know that it won’t be perfect and accept that we are balancing between two lousy situations.  What doesn’t help are the idiotic statements being made by both extremes.  Those people need to permanently social distance themselves and we need to find a way to turn off their internet.


Take a listen to our podcast that coincides with this blog post!

Posted on

A New Age in Medicine

Every time a system or people go through a significant event lasting changes are produced.  After 9/11, the ways we travel and handle security were forever changed.  After this pandemic is over, I am sure there are going to be lasting changes to the way we prepare for a crisis as well as how we deliver care.


The COVID-19 crisis allowed for a massive proof-of-concept trial for telehealth.  All over the country physician groups in almost every specialty went from zero to sixty for telehealth in a matter of days.  We have now proven that some portion of care can be delivered remotely during this time of crisis.  After the pandemic is over, it is my belief that most successful practices will embrace telehealth going forward – but for different reasons.  I also believe these forward-thinking practices will embrace other changes to how they provide care.  How they view their customers, as they look to a very different future than the one they expected just a few months ago, will also change.


After this crisis is over, medical practices will be impacted by new factors that are a direct result of dealing with the corona virus.  Adding to their new reality, though, will be issues they’ve been dealing with for some time, now heightened in light of recent events.


To illustrate, let’s look forward 6 to 12 months.  Most economists believe that the economic impacts of this crisis will not be resolved as quickly as they arose.  Most believe that we will be dealing with double-digit unemployment through at least the end of this year.  In addition, the crisis and the stimulus bills that came with it will add more than $3 trillion to the national debt.  Employers will be trying to recover from the financial damage the very necessary quarantine and closures caused.  We’ll have an election that will put significant pressure on both political parties regardless of which way it goes, and health care as our largest federal expenditure.  Put those together and the need to reduce health care expenditures and reform our system of care delivery and financing will never be stronger.  Medical practices are going to find themselves in an environment where reimbursement rates are likely to be under significant scrutiny.  They’ll be under pressure to attract the “right” patients to make their practices successful.  The new element in all of this will be the redefining of “the right patient”.  As we move forward, the right patients are more likely to be the millennial and Gen Z consumers.  As millennials and Gen Zs get older they’re becoming an increasingly large portion of the health care consumer market.  This is the type of patient practices will need to attract, and they’re very different consumers than practices have dealt with in the past.


Millennials and Gen Z are often referred to as “digital natives”.  They’ve grown up in a digital world and don’t know anything else.  These digital natives now account for over 160 million people in this country, add their children and the number soars higher.  These same individuals are quickly taking over the health care decision making for their elder parents, which broadens their reach into health care delivery even further.  The simple fact is these digital natives are making health care choices for well in excess of 60% of the US population.  This is the group of potential patients practices need to attract in order to be successful in the future.  Unfortunately, many physicians don’t understand the type of consumerism this group exhibits, and many practices are not set up to meet the needs of these digital natives.  Success in the future will largely be dictated by a practice’s ability to adapt to these new consumers and deliver the type of care they want in the manner they expect.


Millennials and Gen Z have grown up in a digital environment.  They are used to and demand the products and services they consume be available in a digital world right on their smart phones.  They also demand greater access to information and data than any other consumer before them.  They have shown in many other industries that those companies that embrace their needs will be successful and those that don’t will perish.  Case in point: How many of you have Netflix but can’t remember the last time you saw a Blockbuster?  How many of you can remember the Sears Christmas catalog but shop on Amazon on a regular basis?   These are just two examples of the impact a changing consumer base can have on an industry.


When it comes to health care, the physician practice of the future is going to have to understand this new kind of patient and develop ways to meet their needs.  Let’s look at the old school approach to a patient visit and compare it to the demands of the new consumer.


Currently, patients call the physician office to request an appointment.  Many times, they have to wait on hold or go through multiple phone prompts.  They eventually schedule their appointment.  When the patient shows up at least 15 minutes prior to their appointment they have to fill out more forms (hopefully on some kind of tablet).  After filling out the forms they are told to wait to be called back.  When they finally get to the exam room a nurse comes in and asks more questions to populate the EMR.  Once again, they are asked to wait for the doctor.  The doctor comes in and conducts the visit.  After the doctor is done the patient is sent to “check out” where they once again wait to pay their co-pay and get any follow up instructions.  When the patient finally leaves the practice, they are frustrated with all the wasted time and duplication of effort.  When they get home, they might have questions or be waiting for test results.  They have no good way to get those questions answered or get their test results without playing a frustrating game of phone tag.   This process is not going to work for this new consumer, and they are going to demand a different reality.  Not only that, but they are so connected digitally that they are going to make their positive and negative feelings known.


In the new world the consumer is going to demand a significant increase in digital connectivity.  They are going to demand that information be input only once and then transfer to any system that requires it.  They are going to demand that they be able to input information themselves from a smart device as well as demand access to their chart and results at all times. They are going to want the ability to schedule appointments without a phone call and the ability to eliminate all waiting and forms at the time of their visit.  The new digital consumer is going to want telehealth visits and other forms of communication about their health care.  Finally, this consumer is going to demand the ability to rate their experience in real time much like they do their Uber drive as well as have access to the ratings of others to help them make their care decisions.


It’s a whole new world out there.  The practices that adapt and adjust to this new environment are going to be successful.  Those that don’t may not be around much longer.


A wise man once said; “Change isn’t required.  But then again, survival isn’t guaranteed either.”


Take a listen to our podcast!




Posted on

What Washington can do to help Doctors

Whenever a country faces a crisis, the people of that nation look to the leaders of their local, state and federal governments.  Throughout our history we have dealt with a number of crisis situations ranging from war to national disasters and now a global pandemic.  During this crisis we once again look to our elected leaders to help.  On March 18th the President signed into law the Family First Act to provide enhanced benefits for people who lose their job due to the virus.  Less than 10 days later on March 27th the President signed the unprecedented 2 trillion-dollar CARES Act to help individuals, small businesses and other segments of the economy who are being impacted by the coronavirus.  Both of these bills were greatly needed, and as we learn more about the depth and breadth of this crisis, we understand that further actions by our government is likely to be needed and needed quickly.


While many segments of the economy are being significantly impacted there is one critical segment that is not being discussed or addressed.  Another segment is likely to profit significantly due to pandemic.  Our elected leaders have an opportunity to utilize the unexpected windfall from one industry and provide relief and support to individuals, small businesses and our front-line health care professionals during this time of need.


Let me explain.  When the virus started, physicians and hospitals across the country did what they always do in a crisis.  They began planning for the impact of the virus in wide variety of ways.  We’ve all learned about ICU bed capacity and ventilators at this point.  What most of us don’t fully understand is all the other ways our health care professionals have quickly adjusted to keep us well and reduce the threat of spreading the virus.  Very quickly, physicians across the country, in almost every specialty, began using telehealth visits to care for their patients.  This act of clinical social distancing allows them to provide care in many situations while reducing the risk of virus transmission to patients and staff.  Across the country hospitals started canceling and delaying elective procedures to both create more capacity in their facilities while also reducing the possibility and threat of transmission.  These actions are necessary and beneficial to both patients with COVID-19 and all the other patients whose treatment could not be put on hold.  Let’s remember that not only are we dealing with COVID-19 but we still have to care for patients with cancer, MS, heart disease and all the other conditions that cannot be ignored while we fight this pandemic.  The patients with these comorbid conditions are the ones at most risk from the coronavirus and these measures are designed to protect them as much as possible and save lives.  Unfortunately, these actions also have a negative financial impact on the very professionals that put them in place.  Simply put, our nation’s physicians have once again put their patients first.


While we all understand the value of these actions, what is not obvious are the economic impacts these changes are having on the physicians, our health care delivery system, and the insurance companies in this country.  When these capacity-increasing and transmission-reducing measures were put in place it significantly reduced the revenue flowing into almost every physician group across the country.  Doctors, like so many other industries, saw their revenues reduced without warning almost overnight.  The difference between a medical practice and another business is the physician practice can’t just shut down and send everyone home.  They have to stay open in case of emergent need, as well as for the distance care they provide to their other patients.  They still have to be open, therefor continuing to incur most of their operating costs, but without the necessary revenue to pay for these operations.  As if that wasn’t bad enough, they know the patients that still need care and can’t be handled through telehealth have to be seen, even when doing so puts the physicians and their staff at personal risk of contracting the virus.  Social distancing and shelter-in-place are simply not options for these dedicated health care professionals.


On the other side of this coin are the insurance companies.  Keep in mind that what a physician calls revenue an insurance company calls expense.  Every claim filed by a physician ends up being paid by an insurance company.  So, if physicians are experiencing a significant reduction in revenue, that means insurance companies are experiencing an equally significant reduction in expenses.  Those insurance companies are still collecting premiums for that insurance, they just aren’t paying out as many claims.  Through no fault of anyone, clear economic winners and losers have emerged.  This creates a wonderful opportunity to match these two situations in such a way that it helps and supports not only the people caught in this crisis who have lost their jobs, but also the hard-working physicians fighting this virus.  A great deal of good could be done with three simple legislative actions.  The good news is that these actions wouldn’t cost the federal government anything, which would allow them to focus their resources on other segments of the economy in need.


  1. The first action would be to make changes to the current rules for COBRA coverage:  Currently, individuals that lose their jobs qualify to purchase COBRA coverage and continue on their employer’s plan.  The current program allows the individual to continue their coverage at the same cost their employer pays for the coverage plus a 2% administrative fee for 18 months.  This is advantageous to the individual because they keep their same coverage and keep their doctor.  In addition to that, if the individual has paid part or all of their current deductible or maximum out of pocket expense those amounts carry over to the COBRA coverage.  In the age of high deductibles this could be a major benefit.  The problem is that most individuals who have just lost their jobs can’t afford to pay for this coverage.  My proposal is for the government to do two things:  First, given the known reduction in elective services, the cost for this coverage should be reduced.  The government should require that individuals that elect COBRA coverage be allowed to do so at 75% of the current employer premium amount.  This should still allow the carriers plenty of money to pay claims.  Remember that for most insurance companies, between 15% and 20% of the premium is dedicated to administrative costs and profits.  These members will have little to no administrative costs – which include things like sales, marketing, and corporate overhead which are largely fixed expenses.  In addition, the insurance companies should not be making profit on these members right now.   The second thing the government should do is allow the ACA subsidies to be applied to COBRA elections so that individuals wouldn’t be forced to change plans, possibly change doctors, and have their deductibles reset during this time of crisis.  This action would not cost the government any additional resources and would help individuals impacted by this event.


  1. The second thing the government could do is put a moratorium on any plan terminations of either group or individual policies for non-payment for the next 90 days. Much like policies that some cities have implemented that put a moratorium on evictions for failure to pay rent or mortgages, this would be a similar patient and small business protection plan.  There are many individuals and small businesses that will be facing a cash crunch right now that will hopefully be short-term.  Those individuals and small businesses shouldn’t lose their insurance coverage during this time of crisis, especially when we know companies collecting their premiums are going to be flush with cash.  This action would actually save precious government resources by keeping more people in their current insurance plans rather than switching them to a Medicaid or an ACA plan that is paid for, or subsidized by, state and federal resources.  If this is done, it is critically important not to allow plans to suspend paying claims and to require them to pay all claims within 30 days.  If this isn’t done it will only transfer this cost to hard working providers when they can least afford it.  Think about a cancer patient in this scenario.  That oncologist has to buy the chemotherapy agent at significant cost.  If the insurance company suspends that claim it only makes the cash crunch that doctor is experiencing worse.  Let’s face it, insurance companies have huge reserves and are set up to handle these kinds of situations. That is the essence of insurance.  They should not be allowed to transfer their financial responsibilities to the doctors that are on the front line of fighting this battle.


  1. The final thing the government could do would be to set up a special business continuation fund for independent physician groups.  We all expect that the demand for the initial $350 billion in small business loans will greatly exceed the money that has been set aside for that purpose.  We have an opportunity here to create a specific fund for physicians which will pull them out of that demand pool.  We also have an opportunity to fund these loans with cash currently held by insurance companies and the significant cash that they are going to accumulate during this crisis.  My proposal would be that we require each insurance company to contribute proportionally based on their size into this fund.  Non-profit companies like many of the individual BCBS plans must also be made to contribute.  The amount of the contribution would be calculated based on an actuarial estimation of the reduction in claims they are likely to face for the next 90 days and by drawing down on 50% of their state mandated reserve requirements.  This could produce a fund of as much as $200 billion.  Let’s take my home state of North Carolina as an example.  BlueCross BlueShield of North Carolina currently has around $3 billion in reserves.  They pay out over $500 million each month in claims.  If we required them to draw down 50% of their reserves and if we assumed that for the next 90 days, the claims expense is going to be reduced by 25% that would mean that BCBS of North Carolina would contribute almost $2 billion to this fund.  Now if we assume that all the other carriers combined in North Carolina are about the same size as BCBS that’s another $2 billion to the fund from just this state.  If North Carolina is an average state, then by this rough math the total amount of this fund for all 50 states could be as much as $200 Billion.  This fund would be used much like the small business loans but would be exclusively for independent physician practices.  When the practices pay back the loans the government will return that money to the payers.


Doing these three simple things will benefit Americans whose employment and insurance coverage have been disrupted, as well as the hard-working physicians that are doing incredible work saving lives and keeping us well.  These actions would free up scarce resources for other impacted industries and individuals by simply using excess resources of insurance companies where they are needed most.  I have seen and heard insurance company executives say that we are all in this together.  Right now, I don’t think that’s true.  They are all safe at home drawing a full paycheck while hard working doctors are putting their personal safety at risk, and in many cases not getting paid while they try to keep their nurses and staff employed.  It’s time for the insurance companies to get in the game and truly join the fight.

Posted on

The End of Medical Groups

It seems like forever ago, but it’s only been two months since the first case of the Corona virus was diagnosed in this country.  Just two months later our reality has changed, maybe forever.  In just two months we have seen the stock market lose a third of its value, our government flush an unprecedented $2 trillion dollars of into the economy to keep it on life support and in just one week we watched 3.2 million American’s lose their job.  As if that weren’t enough, we now have news channels with total case numbers and death counts constantly displayed like some morbid ticker tape.  Any single one of these developments by itself is terrible, put together they are staggering.


In this new reality we do see small visions of hope and promise.  We see people coming together and trying to support one another.  We see teachers reaching out to their students in new ways and people putting in long hours trying to keep our grocery stores open.  Example after example of American’s stepping up and doing whatever it takes to help out.


One of the biggest examples of people doing the right thing in this time of crisis are our health care workers.  Doctors, nurses, and administrative personnel all putting themselves in danger of infection to make sure they are available to not only treat those with the virus but also everyone else with their illnesses or diseases.  Let’s remember that during this crisis MS didn’t take a day off, cardiac disease and cancer didn’t hit the pause button.  So, while we scramble to find ventilators and PPEs to treat those that are infected with Covid-19 our health care professionals continue to provide incredible care to everyone else as well.  For them, shelter in place and social distancing simply isn’t an option.


I am encouraged every time I see someone say “thank you” to these individuals on social media.  It makes me happy when people who used to take our health care delivery system for granted suddenly develop a newfound appreciation for these dedicated professionals.  Let me pause here and add my personal thank you.  Thank you to ever doctor, nurse, administrator and non-clinical personnel.  Thank you for what you are doing now and what you do every day.


What most people don’t understand and hasn’t been reported much is that these wonderful people are being hurt financially right now.  We understand the financial impact this crisis is having on the travel industry and the restaurant industry, but most people don’t understand what is happening to physician practices during this crisis.


With the exception of Emergency Physicians almost every other physician group and specialty is experiencing a significant and almost immediate reduction in revenue due to reductions in patient volumes.  Elective surgeries are being canceled.  Preventative medicine services like mammography and colonoscopy are being put off.  Patient visits are down as people are choosing to stay home out of fear of infection.  Across the country physicians are spending their time caring for their patients while at the same time struggling to figure out how they keep their employees and pay the bills when the revenue is cut off.  I have talked to way too many physicians who have told me that they are not taking any paycheck and don’t think they will for the next two months at least so that they can pay their nurses and staff.  That’s right, not only are they putting themselves at risk of infection to keep the rest of us well, they are doing it in some cases without any pay.


As if that were not bad enough, it appears that there is going to be a winner as a result of this crisis.  That’s right, there is one industry not named Amazon that is likely to profit significantly from all of this.  The big winners in all of this may be the health insurance companies.  You see, when doctors talk about revenue reductions caused by Covid-19 that means that somewhere there is an insurance company that is experiencing an expense reduction.  All of those health care services not being done mean claims and bills not being paid by insurance companies.  Those insurance companies are still collecting the full health care premiums they just aren’t paying out as much money in claims.  This comes at a time when insurance companies are making record profits.


Take United HealthCare as an example.  Recently UHC released its earnings for 2019.  The company reported that revenue was up by 7% over 2018 and profits were up by 15% to $13.8 Billion.  Its hard to imagine a company that is that profitable actually doing better due to this virus, but it could be true.  Don’t take my word for it, a report from an industry analyst suggests; evidence points to drops in elective surgeries, doctor office visits and outpatient rehab visits.”


So, we find ourselves trying to come to grips with the new reality.  We are now familiar with terms like “social distancing” and “community spread”.  Many of us now have a newfound respect and admiration for the teachers that work with our children every day.  I know I do.  We try to come to grips with what is easily going to be the worst economic crisis since the great depression.  As we come to terms with all of this and express our appreciation for everyone on the front lines of this fight, we now face the very real possibility that large numbers of medical groups may not survive this event.  How sad will it be if the very people we are counting on the care for us during these difficult times become business casualties of this virus while the insurance companies’ profit.


These are difficult times.  Most of us are going to be impacted in some way or another before all of this is over.  I just hope that we don’t end up sacrificing the independent practice of medicine while adding to the coffers of insurance companies.


Take a listen to our podcast that coincides with this blog post!

Posted on

Surprise Billing – Where will this leave us?

Over the last few months, congress has been working on legislation to address the issue of surprise billing.  As most of you know, a “surprise bill” happens when a patient receives services at a hospital that is in their insurance network but receives a related bill from a doctor that isn’t in their network.  Often times, especially with Emergency Medicine, Radiology, or Anesthesia, the patient doesn’t get to choose the doctor that cares for them.  They have no way to avoid the surprise bill.  When the doctor is not in the insurance company’s network the patient’s benefits are often less, and the physician can balance bill the patient up to billed charges if they chose to do so.


This situation has received a great deal of attention and may be one of the few things in D.C. that has bipartisan support right now.  I mean who wouldn’t want to protect people from getting a surprise bill?  The federal legislation being discussed would limit the payment the doctor can receive for the services he or she provided and would eliminate the doctor’s ability to balance bill the patient.  Patient advocates applaud this approach as a measure to protect patients and insurance companies applaud the approach as a way to help control health care costs.  Physicians and hospitals challenge the approach as a win for insurance companies and government rate setting.  So, who is right?  As we so often see in hotly contested issues, to some degree both sides are right.


I won’t argue that some hospital-based groups have taken advantage of their position.  They have avoided negotiating with insurance companies because it was in their financial best interest to be out of network and they do aggressively bill patients who end up in their hospital.  There are enough anecdotal horror stories about huge bills to show us this has happened.  I, too, think something should be done to help those patients and address these truly egregious practices by a few bad actors.  My issue with the proposed legislation is one of balance.  Some of the proposed solutions are an overcorrection and will provide insurance companies with a huge stick that they will gladly use to punish hospital-based doctors.  This overcorrection may produce side effects that are worse than the problem they’re trying to solve.


Consider this scenario:  The government passes into law a bill that sets the maximum payment at the payer’s median contracted rate.  Armed with this new federal law the payers could terminate the highest 50% of their contracts.  This would reduce the median contracted rate and allow them to pay each of these now non-contract groups that used to be in-network at a significantly lower rate.  This would give the insurance company a huge increase in profits at the expense of physician salaries.  Furthermore, the insurance companies would have no reason to ever negotiate rates with hospital-based groups again.  Before you scoff at the idea, understand that we’re starting to see this happen already.  More on that later.


This reduction in physician compensation could have some very serious negative side effects.  What if emergency medicine groups reduced staffing levels to compensate for the loss in income?  Wouldn’t that produce longer wait times in the emergency department?  What if radiology groups were forced to stop hiring sub-specialty trained radiologists because of the loss in revenue?  Wouldn’t that reduce quality?  What if anesthesia groups stopped staffing rural hospitals that were no longer financially viable?  These are very real possibilities, and to be honest, are more likely probabilities.  If this happens aren’t, we just trading one problem for another?


At this point some of you are saying; “That won’t actually happen.  I mean, insurance companies won’t take advantage of a law this way.”  Unfortunately, they will.  A recent survey by the American Society of Anesthesiologists found that 42% of respondents had contracts terminated by insurance companies in the last six months.  Additionally, 43% of respondents experienced dramatic payment cuts from insurers, in some cases by as much as 60%.  This activity is going on before the law is passed.  Can you imagine what it’s going to be like after one gets passed?


Right now I have 16 hospital-based groups among my clients.  In the last four months half of them have received a termination letter from a payer.  In each one of those situations the payer demanded a significant reduction in their reimbursement rates to avoid being thrown out of the payer’s network.


So what’s the answer?  Balance!  A balanced approach is almost always the best answer.  Congress should make sure that any law that is passed to protect patients from a surprise bill should also protect doctors from draconian actions by insurance companies.  Make sure the bill has an easy way for external review or arbitration.  Make sure that process includes things like past contractual rates, differences in patient severity and hospital payer mix.  Don’t give insurance companies a club with which to beat physicians and don’t reward this kind of heavy-handed behavior.  Consider network adequacy requirements to make sure the payers still have an incentive to negotiate in good faith with doctors that staff and service our hospitals.  Balance, that’s the answer.


If we don’t get this right, we could find ourselves with the problem of balance billing a thing of the past and the problem of understaffed hospitals and a reduction in clinical quality staring us in the face.


Take a listen to our podcast that coincides with this blog post!

Posted on

Today is March 24th

Its March 24th and we now have over 50,000 cases of Covid-19 in this country.  We have had almost 700 people die and more than 100 are dying each day now.  Many experts believe that we still at the very beginning of the worst of this crisis and that things will get worse before they get better.  It is still too early to know if the restrictions and calls for social distancing are going to flatten the curve.  These are difficult times.


On Fox news last night Dan Patrick, the Lt. Governor of Texas suggested seniors may be willing to “take a chance on your survival in exchange for keeping America that America we love for thier children and grandchildren”.  Later the President tweeted that we need to make sure that the cure isn’t worse than the problem.  In an interview he indicated that he wanted to get the country working again by Easter Sunday.  He made the comment that “we lose thousands of people a year to the flu, we never turn the country off”.  He went on to say, “We lose much more than that to automobile accidents.  We didn’t call up the automobile companies and say, ‘stop making cars, we don’t want any cars anymore.’  We have to get back to work.”


Upon reflecting on these comments, I think both are making a good point here.  I mean we can’t let the stock market go into free fall.  If we do, how are the rich hedge fund managers going to be able to afford their vacation homes.  I mean really, it’s just the flu.  So, what if a few old people die.  Well, there are also the diabetics who will also die.  People with COPD or high blood pressure are also going to have to lean in and take one for the team here.


You have to look at the bright side of this.  When we are all done with this and the virus runs its course just think about how much better things will be.  With fewer old people our Medicare and Social Security trust funds will be in much better shape.  Getting rid of some people with things like High Blood pressure, diabetes and COPD will reduce our health care costs in this country.  I mean we know that 5% of the population spends 50% of all the health care dollars.  So, getting rid of a few of them will make things better for the rest of us.  Plus, once this virus has done its job our work force will be reduced which will reduce the unemployment rate.  Heck, this may be the best thing that ever happened to this country.  Well, as long as you survive it.


Ok, I can only be sarcastic for so long and I’ve reached my limit.  Time to break out my soap box and climb firmly upon it.  To Dan Patrick and President Trump I say this with all due respect, which is not much.  “Are you both out of your freaking mind?”  “Seriously, have you fallen and taken a serious blow to the head.”  Unfortunately, I think the answer to the first question is yes and the second is no.


Ok, let’s get serious and look at what the experts say could happen if we are two quick to remove the restrictions on our country and economy right now.  Now these experts are people who have devoted their lives to epidemiology, population health and infectious diseases.  These experts universally think that “getting back to work” too early is a terrible idea.


So, here are the numbers if we can’t control this thing.  This is a new virus so there is a lot we don’t know. Experts and modeling suggest that without restrictions and social distancing somewhere between 25% and 80% of the population could get infected.  We know that on average 20% of those infected require hospitalizations.  We know that the fatality rate is as high as 7% in Italy and 2.3% in China.  So, what do things look like if only 40% of the US gets infected.  If that happens it means that 132 million people would become infected and over 26 million of them would need a hospital bed.  If we assume a fatality rate of only 2% that would mean 2.6 million people would die.  To put that into perspective there were 38,000 fatalities last year from auto accidents.  Another way to look at this is 2.6 million American fatalities are about twice as many deaths as the total casualty count in every war American has ever fought since the revolutionary war.


So, my comment to the President is this.  Grow up!  Listen to your experts and start leading this country.  Your comments are not helpful, and they are dangerous.  If you can’t do that then get out of the way and let some adults take over in your place.


Right now, I’m sure there are some people who think that I am just a bleeding-heart liberal using this situation to throw stones at a Republican.  Fake news right!  Actually, I have voted Republican more than anything else.  This is not a political rant.  My problem is not the President’s party but rather his comments and actions.  While I am on my soap box and we are talking politics, I think Senator Schumer and the Democrats in the Senate should be ashamed of themselves for trying to add their progressive agenda to the stimulus bill. Shame on you.  Shame on you Senator McConnell too for thinking it was a good idea to float $500 billion dollars to businesses without enough control or oversight on what they have to do with it.  Stock buy backs and executive compensation should not be allowed.  A plague on both of your houses.


Look, I’m an economist.  The economic damage that will be caused by closing the country for weeks or months is staggering to me.  It keeps me up at night.  I don’t want to see people lose their jobs or houses.  My problem is that I don’t think killing over 2 million American’s in order to keep the economy going and the stock market alive is a good trade off.


It’s time for serious people to make serious plans on how we fight this virus.  We know that no matter what we do people will die and the economy will take a serious hit.  It’s time to do what is right and best based on facts, data and experts and stop making truly idiotic and dangerous statements.


There, I will get off my soap box now.  Thank you for listening.


Be safe and be well.



Take a listen to our podcast that coincides with this blog post!