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Richard Helppie
Hello. Welcome to The Common Bridge. We've got a great returning guest today, Nate Kaufman of Kaufman Strategic Advisors in San Diego, California. Nate, my good friend and professional colleague, has been practicing in healthcare administration, finance, physician relationships, compensation matters, for many decades. He is recognized as the authority in many of these areas and can help us understand the economics of our healthcare system. Now, at the top of this episode, I want to make a couple of points. Number one, there is no benevolent bureaucracy any place in the world, public or private, looking to spend money on your healthcare. They do not exist. Every single system tries to limit what people can get in terms of their diagnostics and their treatment. It's a complex matter because there are other participants in the healthcare system that very much want to deliver care and make you better and there are others who want to sell products, whether you need them or not. Nate Kaufman is one of the preeminent experts around the world in this area. I also want to make [it clear] that, in light of recent events in New York, that Nate and I both condemn the despicable and cowardly murder on the streets of New York. There was no place for that, period. But we thought it might make a good conversation to just talk about United Healthcare and what their role is and what their business model is. You can follow Nate, by the way, on LinkedIn, he writes about this frequently. He has some of the best data you can find. And with that, let me welcome my good friend and colleague, Nate Kaufman. Nate, it's great to see you.
Nate Kaufman
Great to see you too, Rich.
Richard Helppie
Nate, why don't we just start with the basics, and remember that the audience of The Common Bridge - our listeners, our readers, our viewers - are more of a lay audience. They may not understand the intricacies of healthcare. So is there a easy definition for people? What is United Healthcare?
Nate Kaufman
Well, United Healthcare is an insurance conglomerate. It not only provides insurance coverage but they also provide what's known as pharmacy benefit management, which is basically pharmacy insurance. They also employ a fair amount of physicians, and they provide other types of services for the healthcare infrastructure. It is the largest private healthcare conglomerate in our country today.
Richard Helppie
They began life as an insurer, taking risks covering patient populations and deciding what doctors, hospitals and other providers they should pay.
Nate Kaufman
Yes. And what's unique in our country is the dominance of private insurance. Most of the insurance provided both for government programs and for commercial programs or employers is administered, or the risk is taken by, these private insurance conglomerates.
Richard Helppie
When we look at risk, one of the things that we've talked about on this program - with you, with other experts in the healthcare field, my own writings as well - is this notion of employer sponsored healthcare has seen its day, and it no longer makes any sense. We talk about risk because with an employer plan, if you get so sick you can't go to work, guess what? You lose your benefits too and you're out of the plan. Or you get so old that you're now going to start consuming healthcare resources. Guess what? You're retired and you're out of the plan. In my humble estimation, we need to eliminate this. The fastest way to do that would just be to tax that premium benefit as the compensation that it is. But that's a matter for another day. United Healthcare takes in money from employers and from other sponsored groups and they pool that money, then what do they do with it?
Nate Kaufman
Well, there are two things. About half of the country is covered by ERISA plan. ERISA plan means it's self-funded. So the employer is at risk for the healthcare spending, but they don't have relationships with doctors across the country and in hospitals to take care of these patients. They don't have the administrative infrastructure to manage the risk that they are taking so they hire an insurance company that does that. That's about half of the plans. The other half of the plans - these are commercial plans - are when United Healthcare, or Elevance or one of the other insurance companies, actually takes the risk; they get the premium, they pay out for medical services, and hopefully at the end of the year they make a profit. Now what's happened in Medicare and Medicaid is the government is saying rather than us paying the doctors and the hospitals ourselves, we'll give a lump sum of money per member, per month to the insurance companies and let them administer those services as well. In those cases, if they spend more than the government gives them, the insurance company loses money. So we have this sort of perverse incentive that the less is spent on healthcare, the more profits are made, up to a certain limit. That makes sense if everybody operates ethically. Unfortunately, we're beginning to see situations... this one... Dr Kaplan, a medical ethicist, said the idea of having an insurance company determine whether care should be denied or approved, which will impact their profits, is ethically nuts. In my opinion, we have this ethically nuts system whereby, to some extent, profitability is determined by the number of denials that are made. You would hope they'd be appropriate denials. It turns out that it's been reported, for example at Duke, that 97% of their denials are appealed, and once they're appealed, they're approved. At the end of the day, what's happened [is] the patient who has been told they're sick is waiting for care.
Richard Helppie
That's one of the techniques; deny care, delay care, and statistically, there's going to be certain number of people that give up after one denial versus pursuing it. We all think that we're covered - and this is true around the world - people think, Oh, I've got great healthcare, until they go to use it and then they find out what they really have.
Nate Kaufman
Here are some fun statistics I just pulled out. According to Duke, they have 236 people appealing payer denials. That means the care could have been provided, but they're not getting paid or the patient is waiting for care. United Healthcare, according to Duke, denies 40% more cases than the other insurance companies. So think about the waste we have; we have 236 people doing nothing but administrative appeals for denials. Wouldn't that money be better spent on care? Now, we need some of this because there are some abuses that go on in the healthcare system by providers, and also some providers, maybe, are old school, using a technique that may not be medically necessary today. But what's happened is, it's gotten out of hand to the point where the American Medical Association does a study every year and they say, essentially, that some percentage of those prior authorizations and the delays associated with them are harming patients.
Richard Helppie
Indeed, because they do have that incentive to deny care or deny payment, and most people don't know how to navigate it and the pressure it puts on the physician office and hospitals. We also have dueling information systems; the hospitals - as one large part of the provider community - have software that tries to up-code a case so it will get a higher reimbursement, and then it's dueling with the insurance company who is trying to down-code that same case to try to pay out a lower amount.
Nate Kaufman
That's correct. It's a huge battle. And in many respects, nobody's right. I mean, everybody wants to make more money, the doctors, the hospitals. That's where I live, and unfortunately, government underpays the hospitals and physicians. And so the challenge is that the only place you can go to make up for the under-funding of the federal and state governments through Medicare and Medicaid is to go to the employer, which means you have to negotiate with the insurance company. Let me give you... just as we're talking about prior authorization, there is a case - Kelly Dwyer versus United Healthcare - this was this poor teenager who was in a residential treatment facility, went home and then was denied the ability to go back to that residential treatment facility. And in the case, it said the following: United contends that reversing its denial would require adopting a, quote "treating physician rule" end quote, which would unduly privilege the patient's treating physician over United's paper reviewer. Can you imagine that? That was their argument for why they could not reverse the denial.
Richard Helppie
The antithesis of the doctor is always right. They're saying, no, there's a bureaucrat someplace saying, no, that doctor that's looking at this young lady, sorry, we don't think you need to have this.
Nate Kaufman
That's correct. It's not even a bureaucrat. It's an AI system that automatically spits out. They said - I believe it was with Cigna - that the average time spent on reviewing a claim is less than two seconds. I mean, it's the system has gone bad, and everybody is trying to game it, and United's done... when I say game it, look for loopholes and workarounds that are still legal. But one would question the morals and ethics of those things. Another example, in Connecticut there's a medical group called Pro Health that United, or Optum, bought many, many years ago, and STAT has been writing articles about the fact that the physicians are being encouraged to make the patients appear sicker than they actually are so when Medicare pays United Healthcare for the Medicare Advantage plan, that they'll get more money, because the sicker the patient, the more money you get. So we're seeing all of these kind of work arounds that are actually costing the healthcare system quite a bit.
Richard Helppie
I'm glad you brought up Signa, because the problems are systemic. They're not unique to United Healthcare. Recently publicized case, for example, that Anthem Blue Cross, the largest Blue Cross provider in the country - I believe, there are various Blue Cross plans - said if your surgery goes long, well, we're going to stop paying for anesthesia. What evil mind would that come out of and who would advance that kind of an idea? I know my practice always was to ask people, if this was you or your loved one, how would you want to be treated? And then all of a sudden, it's different. Nate, let's move on a little bit to help people understand some of the policies, because that's what this program is about. It's been some time that we had the Patient Protection and Affordable Care Act, also known as Obamacare. There were exchanges put out but one of the things that people don't understand about the exchanges is that the shape of the product was mandated by the law. How is that impacting patient care and access now?
Nate Kaufman
Well, I mean, the product has to be comprehensive. That's number one. Number two, the co-payments associated with these products are so high that people, unless they're subsidized, many people can't afford it. But I want to talk a little bit about something that's been going on for years, is that the providers - the hospitals and physicians - are being told, oh, please, help these poor people out and give them lower rates and commercial rates. Well, when they did that, what they did is they just enriched the health plans. They didn't help the patients out. It cost just as much to have a nurse see a patient who was covered by the individual market or the Obamacare as it does a commercial patient. One of the things that I'm doing is encouraging hospitals and physicians to have just one rate. Because what's happening is -and this will get a little technical - there's a thing called ICHRA. ICHRA states that, rather than providing a healthcare benefit to an employee, you can give them a voucher and send them to the Obamacare sites and let them buy care. The employer still gets their tax deduction and they're out of the healthcare business. Now the problem with that is that one of the reasons this is happening is because the insurance companies are saying, you're a small group. We don't want to cover you anymore, go through ICHRA. So they're trying to take the least profitable business, move it into the Affordable Care Act program, where there are lower rates that were designed just for indigent people, and kind of screwing the providers, if you want to know the truth. So again, that's just an example of kind of work around that the insurance companies are looking for to try to improve their profits.
Richard Helppie
That's really fascinating. I know we've had dueling legislation, and we won't dissect the entire Obamacare bill here; some of the really nasty things have been taken out but a lot of the structural failings remain. One of those is something called the medical loss ratio, which I think was a well intentioned part of the legislation, to say, look, if you're a health plan, there's a percentage of your premium dollar, your income, that has to go out to pay medical expenses. How is that working out?
Nate Kaufman
Well, so the theory is - let's just use large group - that you have to spend 85% of your dollars on medical care. Well, let's talk about the workarounds. If you employ physicians and you pay that physician group or subsidiary of your organization higher rates - which, according to STAT, United Healthcare is doing - the medical loss ratio goes down, but the profits of your medical group go up. If you raise the prices of retail drugs, which you can do because you control the pharmacy benefit manager, when I go and buy my drugs, my deductible and co-payment is going to be based on the retail price of the drug, not after the rebate. And so at the end of the day, that money is coming out and profiting my pharmacy benefit manager. Again, it's having an impact on raising the medical loss ratio, so you don't have to rebate money. I know this is technical and it's confusing, it's just that people need to understand that if there's a workaround or a loophole where you can make more profits, these insurance conglomerates are going to find it. And by the way, so will the health systems.
Richard Helppie
Indeed, and it is a tension there, but let's try to break that down just a little bit. So I'm a health plan, just for example, and I take in $100 in premium, the law would say I have to spend $85 on medical expenses. And I say, okay, great, I will go pay a physician group $45 and so now I'm under the compliance with Obamacare, but I also own the physician group. So I'm taking $45 from one pocket, putting it in another pocket, and driving up profit in the physician group. But wait, it gets worse, because the pharmacy benefit manager that I hire to administer prescription claims, I also own that. They charge [people] a rate based on the retail price of the drug, but the pharmacy benefit manager purchases the drug from the drug manufacturer at a deep discount, or with the rebate, to show that they're not as profitable, and now my pharmacy benefit manager actually is making money too. So this theoretical health plan, I'm in compliance with the law, I've spent $85 but I've just moved it to other pockets, and then the pharmacy benefit manager has also manipulated the data by showing me one price, but really buying things at a lower price.
Nate Kaufman
Right. Brand name drugs, the average rebate - what is about 35% - so in other words, they buy the drug, they charge the patient $100, but at the end of the day, their net cost is $70. So somehow or another they're profiting from the $100 rather than saying, I know I'm going to get a rebate, so I'm going to only charge $70 for that drug. I mean, again, they benefit from the complexity of the business. There's also just another component that makes it even more bizarre, because people say, well, all those rebates reduce the premium. Well, it's turning out that there are rebate aggregators that are located offshore and so we don't even know how the money is flowing anymore with respect to the pharmacy benefit managers, which is why there's so much legislation dealing with them. One other thing, three pharmacy benefit managers, which are all owned by the big insurance conglomerates including Optum RX, control 80% of the flow of outpatient drugs in this country.
Richard Helppie
It's an astonishing number. And of course, they're driving demand for those name brand drugs by advertising on television. Ask your doctor, you know, with the old joke about I watched the guy digging clams on the beach and dancing with his wife, he's on vacation in Spain, and I'm like, I want that disease, right? [Chuckling] That's what I get if I get that disease.
Nate Kaufman
Exactly.
Richard Helppie
But Nate, we can look at all these and say, alright, I understand why people would believe things like Michael Moore's movie that Cubans have better healthcare, which is absurd. It is among the worst in the world. But there were people literally that thought that was a documentary and that that would be a good way to do healthcare. So when we think about actions that could be taken for healthcare reform... say you get a call tomorrow from Health and Human Services, we'd like you to advise the incoming administration. What kind of things might you tell them?
Nate Kaufman
Well, the first thing is the revenue cycle. What's happening now is about 20% of the cost of a hospital is sending out bills and collecting money. And in order to do that, they may have 40 different contracts with 40 different insurance companies and 40 different ways that those insurance companies are going to deny care and how you're going to respond. Why can't we standardize that? Why can't we standardize the forms and how claims are going to be processed and the rules on what's medically necessary and what isn't and take those rules out of the insurance companies and possibly create some sort of entity that could develop those rules. If we could just standardize the process of submitting, clearing claims and getting paid. Then people say, oh, hospitals are so expensive. Of course they're so expensive, have you ever seen the business office? We could reduce the cost without impacting care at all by just doing that. That would be step number one. Step number two is patients should be only charged the net cost of drugs, not the wholesale cost of drugs, which is made up by the insurance companies. If we buy a drug for $100 and we're going to get a $30 rebate, charge the patient's deductible and co-payment based on $70 not $100. I mean, those are just two things that we could do and significantly reduce the cost of healthcare without impacting the doctor-patient relationship at all.
Richard Helppie
That would be very clean. Now, things that I would look at would be getting off of this notion that we should buy insurance every year, maybe for my car that makes sense but healthcare is longitudinal. Health outcomes are going to be dictated by genetics, they're going to be dictated by environment, going to be dictated by lifestyle choices. There is not much incentive in the system itself to deal with people that have... we all have some kind of genetic thing that exposes us to disease, we also are all susceptible to accidents. Of course, that can happen to anybody at any time, but there's no incentive for prevention or good health or safety. How do we inject that into the system?
Nate Kaufman
Let's talk about the first thing, which is outcomes. We talk about value based care. Value is a function of outcomes and service divided by cost. So if you go to a cheap MRI center and you get a misdiagnosis, is that value? One of our problems is we're not measuring outcomes in service yet. We don't know whether the patient's getting the right diagnosis. We don't know if the patient's getting the appropriate treatment plan. So we're deferring value to cheap. If it's cheaper, outcomes are just a commodity. Then we use these knucklehead CMS indicators. Academics, who, by the way, are paid by a venture fund and influenced by this fund, are writing papers and articles saying, look at the CMS quality indicators per unit of cost. Well, they don't measure outcomes or service. And so one of the issues we need to deal with - and most people now have an electronic medical record - is we need to begin to measure outcomes. Cleveland Clinic did a study, about three years ago, they looked at second opinions and something like 21% of the diagnoses that came in were wrong. We need to get away from this issue of cost. The reason we have high cost of healthcare is because the insurance companies want to make more money. That's the first reason, so they create deductibles and co-payments so they're not the primary insurer; they're the secondary insurer. And then the second thing we need to do is begin to really measure outcomes so we know that if we're spending a million dollars are we getting what we should be in terms of people being cured or not. We don't know that at this point in time.
Richard Helppie
For my audience, CMS is Center for Medicare and Medicaid, it's a part of our Health and Human Services federal structure that oversees these two programs, the two largest payers. It is very difficult to measure because there is very little longitudinal data, and so much of the analysis is done on claims data, which isn't really what diagnostics and treatment are about. It's really more about the insurance rules, and to your earlier point, huge investments in information systems, personnel and management overhead just to manage the insurance. Part of this... I talk to lots of people, and it's my own view, after looking at this, that some basic level of care - whether you want to call it Medicare for all, Medicaid for all, or some other name - that there should just be a basic amount of care and then a robust private market over that. I think that would shove us a lot further downstream toward getting to a healthy society, because that base level of care it's going to be longitudinal, yet we want to do prevention.
Nate Kaufman
But there's this whole thing about our mortality rates. 40% of our people in our country eat fast food once a week or more. We're a very diverse society, clearly, so there are social determinants of health and those kinds of issues. I agree with you that we need a basic form of care. What scares the heck out of me... as you mentioned earlier, I negotiate with physicians every single day, usually involving their compensation, and I will tell you, we have a shortage, and the shortage is getting worse. People say, well, the answer is primary care. There are no primary care practices taking new patients. If you're in Boston and you need to see a rheumatologist, it's 170 days before you'll see a rheumatologist. It's 30 days before you get to see a cardiologist as a new patient. And while everybody's over here looking at cost and transparency nonsense and all that other stuff without outcomes, nobody's dealing with the real problem, which is, we have this massive access problem. It's caused, by the way, in part, by Medicare and the private insurance companies underpaying physicians, and because of that, they're leaving practices in droves, or they're closing their practices and limiting the number of say, Medicaid patients they'll see. Access is going to be the major problem in healthcare. My advice to you and to your clients or your listeners: get a concierge physician now. You have to, because there aren't going to be physicians out there available to take new patients when you need them. That's what scares me.
Richard Helppie
Indeed, and you and I talked about this, it's got to be at least 15 years, maybe 20, that the trend was physicians retiring and physicians graduating [were] about the same number. But those retiring were 70 hour a week people, and those now coming into practice are 45 hour a week. And so we've been squeezing the supply. Now, the tragedy is that if you're a government tax supported insurance plan, or you're private, guess what? That is lower cost because there's less healthcare. Again, as we talked about at the top of the program here, there's not a benevolent bureaucracy any place in the world trying to get you more healthcare. It's all designed to get less diagnostics and fewer treatments. That is the way that things are structured and there are opportunities to break out. But today, we really wanted to focus in a little bit about United Healthcare, the tragedy, of course, putting it into the forefront of the news. Nate, anything that we need to talk about that is specific to UHC, or are they just a player responding to the incentives that they've been given?
Nate Kaufman
My feeling is, as somebody that represents providers, that they are the most difficult to deal with. They're the most - I would agree with Duke - that they are the most aggressive with respect to denials. In some respects, you have to admire them for figuring out the loopholes and...
Richard Helppie
Further deviousness and lying and evilness.
Nate Kaufman
Yeah, they have figured stuff out. But I think that the answer is... as you said before, I abhor physical violence. I abhor... I think it's horrible, but there is a term called structural violence and it kind of applies here. Structural violence is a form of violence where an institution may harm people by preventing them from meeting their basic needs. This is where... and again, we don't fight violence with violence, all violence is horrible, but the harm that's caused to people when care is delayed or denied is just unacceptable. And they're not fixing the system, we see more denials every year as a percentage of claims, and that's the part that gets me. I can understand the voice that's come out on behalf of patients with respect to the harm that's been caused to them by the system that exists today.
Richard Helppie
No safe harbor, literally, anywhere in the world. Again, whether you're in a single payer plan, there are all the incentives to limit care in our - I don't even want to call ours a system, because it's not a system, it's just a bunch of methods thrown together that are certainly in need of reform. But it's going to come down to your personal health; what do you eat, how do you exercise, how do you rest and then how do you manage whatever genetic factors you're born with, and how do you overcome any environmental situations that you're in if you're able to, not everybody's able to. Nate, as we come to the end of our talk today, I think it's important for people to understand my opinion, and I believe you share this, that we do have a healthcare system that is filled with compassionate people that really do want to make other people better. My experience with thousands of hospitals as clients and hundreds personally, they're not business people. They're there as scientists, as caregivers. They want to make us well and feel better. It's certainly not the people on that side of the equation, but they're also victims of this mishmash of methods we've got. I don't know if you would amplify that or counter that at all?
Nate Kaufman
I would say that 85% of the people, the physicians and hospitals and especially nurses, are doing the right thing. And we do need to have a governor over the fact that 15% may be trying to be a little bit aggressive or work the system. But they really are our heroes. People say all the time, oh, we need a healthcare system. Well, healthcare, as you said, is more personal, behavioral than it is anything else. I am so happy at age 71 we have a sick care system because I know I'm going to get sick soon. And we have great, compassionate people there that are available to care for us, but they're being treated like commodities, and they're being burned out by all of this nonsense that we see with United Healthcare and others. It's unfortunate that we can't figure out a better way of systematizing our care, as you say.
Richard Helppie
Well, great. We'll probably bring my good friend Chris Allen back to talk about the social determinants of health. He is not only an expert, but very passionate about finding solutions with this. Nate, is there anything that you'd like to convey to the listeners and readers and viewers of The Common Bridge as we move to our close here?
Nate Kaufman
I encourage them to look at my LinkedIn posts. I tell everybody I can only afford my psychiatrist twice a month, and I deal with healthcare every day. I need an outlet, and LinkedIn happens to be it. And so if you ever want to see what I call a cranky contrarians perspective on the healthcare system based only on facts and not emotions or opinions or trying to make more money in business, just visit my LinkedIn posts.
Richard Helppie
That reminds me, many years ago one of your fans, a very esteemed healthcare executive, said that Nate Kaufman is an iconoclast and a visionary. I think you prove that every day. We've been talking today with Nathan Kaufman of Kaufman Strategic Advisors, highly recommend you follow him on LinkedIn. He's got great insights, lots of data, and he's fearless, quite frankly. This is your host, Rich Helppie, signing off on The Common Bridge.
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