Breaking the "Lodge" of Healthcare

Breaking the “Lodge” of Healthcare

For context. A “Lodge” in the anthropologic lexicon is a community held belief, passed down generation after generation in the community building (i.e. the Lodge).

Over time these beliefs are proffered forward by the leaders, even when they know the belief is false, as it provides consistency, power base, etc. Eventually, the truth comes out, the “Lodge” is broken, and the culture/community punishes the leaders who intentionally deceived them. A good example of a “Lodge” is when big Tobacco finally admitted it knew for quite some time that nicotine was addicting and smoking harmful. There are a couple of examples playing out in the media now as well. Healthcare has several lodges, and many are teetering on collapse. The collapse is being driven by the acceleration of change, as both technology from within and budget pressures from the outside converge like two locomotives on the same track and the hospital/doctor/IDN/ACO, etc are in the middle. The most fragile Lodge is the idea that healthcare system puts a patient’s best interest first and wouldn’t do anything really unnecessary for money. Believe it or not, in what most patients describe as the intimate moment, they fully trust their doctor to do/order what is best for the patient. Those of us “in the know” see wild variations in practice patterns that would refute this desperately held belief.

These phenomena are further acerbated by the two constant truths of the universe: 1. Change, and 2. Resistance to Change. Historically, there are luminary resistors - Kodak, Nokia, .... There are also luminary disrupter/change failures - Compaq, Circuit City, dozens of "dot.bombs". Superficial analysis of these events will lead to the “Sears” outcome. Resting on your early innovation laurels to become nothing more than a legacy. The same applies to healthcare and the supporting industries. One of the hardest things for a successful company to do is change away from current success or perceived success. FYI, Kodak “invented” the digital image sensor and owned the consumer point and shoot market, only for internal forces to drive it back toward film, and not toward cell phone imaging sensors.

We are seeing better techniques and engineering driving surgical procedures to lower intensity settings - completely predictable and predicted. We are also seeing the confluence of payer/provider which was equally predictable and, in fact, was predicted for several decades. Further, there has been an ongoing consolidation of the milieu of cottage industries in health treatment for decades. Some are starting to reach scale, or at least Wall Street thinks so. Some consolidations occurred just in time for extinction from the environment – trying to scale/save as a method to make an ineffective process efficient, an impossibility if ever there was one. Ponder this question, what are the most ineffective/inefficient elements in the delivery system and are they consolidating?

Never has it been more important (like that line... it is almost always true) that [fill in the blank industry] understand the true driver vs. the latest bright shiny object. As boring, methodical, deliberate, and challenging as that may be, when confronting the well-entrenched, legacy, sunk costs, “it’s what pays the bills today”, status quo machine, it must be done.

For healthcare companies, there are many paths to failure. I will focus on two: 1. Innovating poorly, and 2. Innovating last. Yet, we see healthcare companies going out of their way to do either or both of these.

Healthcare has been odd, largely because of the trilateral economics (provider: patient: payer) vs. the bilateral (supplier: customer). The trilateral structure (and some would complain Medicare Advantage is a quadrangle – I think of it as a triangle with a stick attached) has been eroding since the return to high deductible health plans. The Federal push for provider entities to take risk either exacerbates or accelerates the confluence of payers and providers and pushes the economic environment toward a bilateral structure.

Healthcare is odd for several others reason (personal effect vs. population funding) which needs to be accommodated and anticipated in both strategic and tactical planning.

So what, Mike!!?? What is this mystical underlying driver?????

Well, to paraphrase Bill Clinton: ”It’s the money stupid”. We have heard from every corner of the industry that our healthcare system is unsustainable. Yet, we haven’t unpacked what each of these constituencies actually perceive.

I have interviewed several hospital CEOs and asked a simple question (or at least attempted to ask as they answered it before I could finish): “What would happen if 30% of the Non-Medicare commercial business was suddenly paid at Medicare allowable?” Before I could finish the question all of them said they would cease to exist; economic bankruptcy. I asked the leadership of larger medical groups the same question, and they had the same answer.

Let me take a moment to point out that aging might be that other 3rd constant (technically a form of entropy). It certainly beats the alternative and, again, is completely predictable; as is the evaporation of margin from the differential in commercial vs. Medicare pricing.

If you ask the Federal budgeteers their thinking, they point to Medicare bankruptcy in 2026. Really, they do. They also typically take up a stance best imaged in the painting “The Scream” by Edvard Munch. Why do they look this way? Just calculate the daily increase in the Medicare budget, I’ll wait…., Ok, it is $135 million… per day. Divide that by the number of wage earnings and you see that Paul Ryan’s Secretary’s tax cut didn’t make it to the middle of the first week before it was entirely consumed by Medicare spending growth. I think it explains the pained expression. Further, the Feds know attempting to regulate medical necessity is a fool’s errand (see last attempt to bring science to Mammograms and Congressional contravention).

But it actually gets worse. For every $135 million in Medicare expansion, there is $75 million in commercial payer contraction – or $15-25million in margin evaporation. Every. Single. Day.

Mitch McConnell, a few weeks ago, signaled something very important. We know that Medicare is going bankrupt in 2026, and Mitch expressed that he hoped Congress would take entitlement reform seriously soon. And, indeed, his timing is foreshadowing what the history of Congress has been – historically, Congress acts about three years before the full-on crisis occurs. Congress and “The feds” have a budget/tax crisis in the making. He also said entitlement reform will never happen when one party controls both Houses and the White House… Well, here we go….

Adding to these economic woes is the actual payer/consumer: taxpayer/patient only knows the healthcare system is administratively byzantine in complexity, bizarrely expensive, and largely dysfunctional (my oil change place sends me an email about oil change, yet my doctor doesn’t remind me a HbA1C is due). Most families pay far more for their healthcare per month (employer contribution and theirs) than they do for housing and cars combined.

So how do you peel down the driving force of money and help your organization avoid the “Sears fate”?

1. It is very unlikely anyone is going to raise taxes to prevent the Medicare bankruptcy. The idea of a politician offering up such a bill and successfully running on such a platform just brings chuckles (Google: Walter Mondale).

2. Taxpayer/Consumers are just on the edge of being “done with it” related to cost and complexity. What cultural anthropologists describe as “Breaking a Lodge” (Google: society response to tobacco finally admitting it was all about nicotine addiction – YouTube Dr. Jennifer James – she is fantastic regardless)

3. There are enough boomers with enough money that they aren’t desperate and willing to roll with the punches to help their offspring/grandchildren be able to live/earn/keep a decent wage and lifestyle. (Which for the first time in recent human history, our children are facing a lower economic outcome than previous generations – this is very real.) Further reinforcement that increasing payroll taxes will be very hard as it is my guess that only 20% of the “seniors” are economically desperate enough to truly vote against their kids/grandkids pay checks.

4. Employers are aching to get out of this “no win” middle and have been so for decades. Unions influenced/managed health plans only want the contribution to the plan be high enough to cover the expenses including the admin expenses.

5. Internet/technology is disintermediating much of the current system – including payers. The idea that a true “retail” market place could exist (one that could get close enough with technology to offset massive scale re: admin costs) scares the bejesus out of United, et al. That is why they are becoming a provider and forming the bilateral structure.

6. Reinsurance and other financial risk management techniques are a small fraction of cost compared to the care delivery efficiencies and admin economies of scale (see #5 above).

Conclusion:

1. As fast as the guys with big bucks can make it happen, the differentiation between payer and provider will disappear. How is your organization positioned, what is it doing?

2. Technology provides admin efficiency at unheard-of levels in the near future, but alone it won’t be nearly enough savings to sustain the system. It will enable sustainability, not be the cause of it. How is your organization deploying/implementing tech which speeds communication, validates treatment requirements, and integrates the best practice?

3. The paradigm of market share growth moves from procedure count to population, as population-based payment models (risk) are pretty darn near the only path to success. By extension - “It’s the population stupid”. Population market share growth must provide enough care transactions to allow the existing system to be cost effective. Heaven help the system that has population market share decline. What are the market messages you are sending? Are you still the cancer hospital or the place where health is maintained or improved?

4. Trying to “meter change”, as one hospital system CEO (now unemployed) expressed, will result in your organization innovating last and, therefore, poorly. Are you planning for 5,8,10% per capita utilization reductions? What is the implied market share growth required if you are not?

5. Almost all beneficiaries/members/insureds identify and align with a human (i.e. physician, etc.) more than they do a corporate entity (payer). How are you leveraging or creating the sticky population that instinctively think of your organization when they want to improve their health and/or change a lifestyle?

Competently deploying tools, techniques, and strategies that knit in your population (if you can even accurately describe it) is the mission critical skill set. Offsetting per capita utilization reduction with population market share growth provides differential advantages for the organization to survive.

Now, if only you knew the population being served, how they navigate the system, which nodes are bottle-necked, and whether there are any detours leading them astray within your greater catchment/service area.

If you don’t know what a teaming diagram is, how strong the empirically observed relationships are, which nodes are “orphaned”, and other critical aspects of truly managing longitudinal networks - I might be working for your competitor.