Every health system leader has unprecedented executive management challenges facing their organization in the wake of the pandemic. In this episode, we invite Paul Keckley to share his insights on trends regarding change innovation and change management. Paul is dubbed The Healthcare Expert and is a trusted advisor when talking about coming trends in the industry. He is the Principal of The Keckley Group, a research and advisory practice focused on health industry trends, policy issues, and growth strategies. Today, he highlights a significant shift in how businesses approach the healthcare system. What motivates employers to continually subsidize the healthcare economy? How should we adapt and navigate this shift in the industry? Find out by tuning in to this episode and get valuable information and the unvarnished truth from Paul.
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Navigating The New Landscape: Innovation and Change Management in Health Systems
It’s great to be with some of my friends, as usual, Mr. Ben Sawyer and Dr. Darin Vercillo. Darin and Ben are executives at ABOUT Healthcare. It’s great to see you as always, guys.
It’s good to be here, Chuck. Thanks.
For our audience, thank you all again for reading. We’ve had a great response. Thank you for your feedback. We always are looking for that as well. We’re going to have a great discussion. We have a great guest whom I’ll introduce in a second. We’ve been covering several topics, including leadership challenges and talk about some of the alternative competitors that keep popping up in the landscape for health systems, academic medical centers and physician organizations. We also spent a lot of time talking about a lot of the challenges that came out of the COVID pandemic, including staffing and retention. We’re moving into a different area that we’re going to talk about over the next several episodes, which a lot of it revolves around change innovation and change management.
We have a great guest with us who is a perfect person to talk about this in the context of the trends that he sees coming in the industry. Particularly a lot of your customers or patients, those that are employed and otherwise, what they’re looking at in terms of their expectations and the changes that they expect to see going forward. We also want to talk a little bit about some of the challenges that have been out in the media. I don’t know how many of you were able to see the Kaufman Hall flash report. Having been a hospital CEO myself, I can tell you that both the challenges and some of the financial issues that a lot of hospitals and health systems are seeing are at the tipping point and frankly, are a little bit scary.
There are a lot of things that we have to talk about going forward. This episode will be a great kickoff to that. Let me introduce Paul Keckley. Paul and I have known each other for several years. He’s the Managing Editor of The Keckley Report, a healthcare policy analyst and a widely known industry expert. A number of you have probably seen or heard him on nightly newscasts. He’s been an expert that they’ve brought in as well.
He’s a scientist. I can tell you that everything you’re going to hear from Paul is based on science and data. It’s not speculative. It’s science-based. That’s important. He is a frequent speaker and advisor to healthcare organizations focusing on long-term growth, sustainability and advocacy strategies. In addition to the weekly Keckley Report, he’s published three books and 250 articles.
He’s also served as an advisor to the federal government, preceding the passage of the Affordable Care Act, for example. He facilitated sessions between the White House Office of Health Reform and major health industry trade groups as private sector input was sought in legislation. He’s also an advisor to many firms, including ERDMAN, SullivanCotter and Lumeris. He’s a member of the Health Executive Network and Healthcare Financial Management Association. He completed his BA at Lipscomb University, his MA and PhD degrees at Ohio State and a Fellowship in Economic Policy from Oxford. It’s great to have you here, Paul. It’s good to see you again.
Thanks, Chuck.
First off, I’d like to start by asking you to maybe give us a little bit of a review of your report, which talked about big business, their playbook going forward and some of the five key trends that you’re watching. The reason I’m asking you this is that I know that big business is a big player outside of the government in terms of paying for healthcare, covering healthcare for all of the consumers and patients that people in our audience are seeing every day. They’ve taken a front seat in terms of a lot of the determinations going forward that are going to impact the folks in our audience. If you could talk about the way they thought about healthcare in the past and the way they’re thinking about it in the future and what they plan to do to change the way they approach healthcare.
Businesses have several years more than the lion’s share of the profit contribution or margin contribution of the health delivery system, doctors, hospitals, ancillaries and outpatient that the system allowed through their insurance tracks. The latest data we have is that the employer pays about 224% of what Medicare pays for the same product or unit of service. That’s not an even cut across all employers. Bigger employers pay more of that and smaller don’t. Industries like education, government and even healthcare tend to pay more and some industries retail, transportation, light manufacturing, hospitality and others paid less or none.
Employers, especially large employers, have stepped back and said, “Would the forecast of 6.5% increase cost to us?” They’re thinking about that differently. What was interesting is when I was in the White House in 2009, 2010 on the Affordable Care Act, the US Chamber of Commerce, the Business Roundtable, The Conference Board, the three big business groups and even the National Association of Manufacturers decided to stay on the sideline of the whole discussion of health system reform.
The willingness of employers to subsidize the rest of the healthcare economy is going to continue to shrink over time. Click To TweetThey purposely said we’re at the table via the representation of the health insurance plans. Our interest is being articulated by them at that table. They don’t believe that anymore. The fundamental shift is that bigger businesses are looking at a combination of economic issues, work issues and unit cost increases in healthcare saying we have to do something. It’s not enough to pay hidden taxes to the healthcare system so others can benefit. We want to get more bang for the buck. It’s interesting that the business health coalitions around the country, about 120 of them, are all over the place on this.
Some are becoming very aggressive about collecting data and defining value in their market or region. Some are still launching and learning clubs where nothing much gets done. That’s a theme in terms of change management, even looking at how employers become direct purchasers of care or integrate care as a cost center in their operations, which more than 3,500 companies have done where they’re employing or contracting directly with a group of providers, especially primary care to deliver healthcare. It’s a new day for employers. That report and some subsequent reports have been trying to peel back on what changed and why did circumstances prompt them to be activists when several years ago they were pacifists about all this.
What do you think some direct impacts of this new way of thinking are going to have on our readers in their health systems? Whether you’re a physician taking care of patients/employees, a hospital or a health system, whether you’re on the outpatient or the inpatient side, what do people need to start anticipating seeing from some of the private pay community? Everybody looked at the private pay community as the subsidizer of the government community. From what you said, that’s probably not going to be tolerated by them a whole lot longer. What do you think the impacts are going to be on the folks that are reading?
It’s huge. I mentioned the 224. A few years ago, it was 248. The willingness of employers to subsidize the rest of the healthcare economy is going to continue to shrink over time. Since no law requires an employer to provide health benefits at all and since the basic premise for doing so has been I want to have a readily available workforce, by the way, that sweetened, because I get a tax exemption for my part of those policies, both of those are coming near tipping points where it may be smarter longer term to find different ways to attract a workforce than providing benefits as a hook, especially with data showing that inflation plus the way employers play with health benefits has negated wage increases which people miss.
What employers will be asking the system to do that they’ve not necessarily heard or been as responsive is one, they want to know the price, underlying costs, total cost of care, anticipated outcomes, how much of the avoidable cost is the response of the system not managing operationally it’s clinical pathways as well and how much of that is the consumer/employees nonadherence, willful or not or social determinants and factors that they can mitigate. They will separate those two and be aggressive in both.
Thank you. Ben and Darin, I know you have some questions. Why don’t I turn to you first, Ben?
Historically, employers have worked with their insurance brokers to be the mediator between themselves and the providers. It seems like that’s also being reduced somewhat where they’re going direct, particularly some of the larger ones, like for example, Walmart which has acquired and has its clinics to better serve its consumers. There’s a question on that.
Also, when you talk about the incentives of the employers, let’s use Walmart as an example, they’re able to improve the health of their consumer market. Therefore, consumer behavior stays either steady or goes up versus unhealthy consumers that don’t come to the stores. What is evolving there? What do you see as an end-stage with large employers setting that trend and then coming down into mid to smaller employers?
Ironically, the more we assist in that navigation, the more standardized care is, the better the outcome, the lower the cost, and the user experience is enhanced. Click To TweetTo start, the benefit consultant market ranges from single shingles up to big houses that have masses of data. Many of which have been acquired by others are part of the constellations of healthcare organizations. They have access to data. The bigger consulting houses names that you hear like Mercer and others are using data to more aggressively target specific conditions both acute and chronic inside employer organizations and define clinical pathways and best practices to address them, even encouraging carve-outs.
In my growing-up years in this industry, the only carve-outs we had were EAD, if you remember. Now, it’s across-the-board opportunities for carve-outs. The midsize market is caught in no man’s land, more dependent on TPA relationships with insurers, especially the Blue Cross plans and less able to afford or use some of the bigger benefit houses.
They are still a bit more codependent on the insurers than on large stuff insurance. For the smaller piece, it’s a matter of whether a benefit at all. What the data shows is that the companies with 100 employees are deciding that benefits might not be the path to keeping the workforce, especially if wages become more important than the benefit design.
For these low hourly or low-income careers, there’s a marketplace in the state where even a subsidy to purchase a product on the exchange is better than you get in the business of providing benefits. You can almost look at the cohorts, the bigger, large self-insured, especially in industries that have provided rich benefits but find that not necessarily the hook for a better workforce, midsize that are still dependent largely on TPA relationships with their insurers and small, which are fending for themselves.
The data shows they tend to be more dependent on a local chamber of commerce and the trade group that they may or may not be affiliated with, those state trade groups, the state association of road builders or things like that. If they came up with a co-op approach to benefits, then they tend to follow that. What’s the implication of that long-term? The clearer departure is that the third-party insurance company’s role is being compromised.
There’s not a belief among even midsize and large employers that insurers have contributed to a smart approach to buying healthcare. They view that as more a market up and pass it through business model and that insurers had been somewhat complicit in unnecessary costs. I keep coming back to costs. Employers think about cost first. They presume that cost is a direct result of processes and processes that are more standardized and processes that eliminate an inappropriate variation get better results.
They don’t see this thing that a lot of providers see, which is to get the quality, you need to spend more. They don’t accept that premise at all. What employers have done is fascinating. There are three core strategies that employers are pursuing, especially large midsize. This is 500 FTEs up to about 2,500 and then above. One is insourcing their data management/benefit management analytics. They believe there’s a lot to be learned. Ironically, Ben not asked for their data. Historically, they’ve left it to somebody else to tell them to.
Two is insourcing or creating exclusive contracts with a whole purse model of primary care, which means not just an MD or a DO that sees 20 to 35 patients a day in a clinic setting. It’s a business model where prophylactic dentistry, mental and physical health, nutrition counseling and to some extent, a pharmacy benefit is integrated so that it’s not one shot for physical medicine and then you’ll take your chances. Typically, it’s being funded through a capitated model and that may be even subsidized by the employer. More visits to that rather than fewer visits as the driver. That’s the second.
Defining lead indicators and monitoring is increasingly important and attached to that is lead indicators from adjacent and even different industries altogether. Click To TweetThe third is a clear expectation that the clinical process matters. They’re paying attention to interventions, step therapies, signs, symptoms, risk factors, co-morbidities, preferences and values. They’re integrating all of that into their algorithms and then looking at how the provider community aligns with that. They’re not simply ignorant or unappreciative of clinical judgment and clinical processes but we shouldn’t dismiss these employers as being stupid.
After all, the thought of them is hiring some of the best doctors in the country and the best data scientists to help them evaluate this stuff. That’s pretty cool. They’re not going to sit on the sideline and they’ve got a lot to say. Chuck, I remember back in the day when we talk about the same handful of companies. Boeing and 3M were doing something and GM did a few things. There was a company up in Maine that was going to do medical tourism. There’s an endless number of employers that are doing more.
Paul, it’s interesting what you said because my friends, Darin and Ben, we had the Chief Medical Officer for Oak Street on. What she said was almost verbatim what you said in terms of the way they’re seeing the marketplace. If you see what Amazon has done with One Medical and what CVS did with Signify Health, it backs up a lot of what you’re saying and the sweet spot that a lot of these new entrances are seeing in the marketplace. That was very interesting.
They’re going to create a new front door to the system. Not unlike the construct of the NHS where primary care trust as they call them is a necessary front door to access the rest of the system but then those primary care entities take on the role of a navigator and arranger. From my perspective, that makes perfect sense. That’s exactly what the consumer wants. They don’t want to navigate through all this stuff. Ironically, the more we assist in that navigation, the more standardized care is, the better the outcome, the lower the cost and the user experience is enhanced. It makes perfect sense that’s the direction we’re going. That’s the reason private equity is throwing so much money behind this model. There are probably half a dozen different models of that, whether it’s direct primary care, this or that.
Paul, quick question. You’ve done such a great job at painting that macro picture and focusing on and bringing a lot of information, especially on that consumer side of medicine around the employers. Many of our readers and my background in hospitalist and intensivist medicine in the hospital setting, many of those who are reading this are operating hospital systems and healthcare systems and on the provider side from that clinical aspect. Visions of Blockbuster, Kodak and other companies that failed to engage in the change management they needed to over the years are coming to mind.
If you were sitting at the table, you’re in the room with those who are trying to adapt to this new world and looking at what they need to do within their organizations to align those who are participating, the owners and the managers of those healthcare systems, the physicians and providers that are providing the healthcare, what do you tell them in this new landscape of how they need to adapt to make sure that they are not the next Blockbuster, Kodak or group that falls by the wayside as innovation and change passes them by?
I remember my dad. He was an opera singer. He used to say to about certain other artists in believing their publicity. He’d look at me and say, “Don’t ever believe your publicity.” That’s probably a start. There are, at last count, about 840 hospitals that are top 100 hospitals if you believe your publicity. We have to get a grasp of reality. Probably a second thing would be there are important lag indicators that all of us can benefit from trending but we do an inadequate job in healthcare of picking the right lead indicators because we tend to stay within our sectors and sub-sectors and believe only the ones that we think do the same thing we do but maybe different or better.
Defining lead indicators and monitoring for me is increasingly important. Attached to that are lead indicators from adjacent and even different industries altogether. I’ve been looking at how vitamins and nutraceuticals are impacting food and security and whether Medicaid programs are picking up on other ways of addressing food and security. That’s one example.
Behavior modification and cognitive mapping is a tool set that we need to build into our outreach of a growing market. Click To TweetThe industry of food is not something that we put in the mainstream of healthcare. These social determinants seem to be pretty sexy. We were all trained around risk factors and comorbidities but the degree to which we look beyond traditional walls of information, competition and sector definitions to others that are giving us an insight into the future and how behaviors would change and tie those lead indicators through correlations and some analytics to lag indicators, we will be shocked.
We’re going to wake up and realize healthcare is not as different and local as we always said it was. That’s a second whole area, Darin. We’ve got to pay more attention to lead indicators from a wider variety of sources. Probably, last, I’d say a willingness to question and maybe take some shots at our sacred cows. I remember early in my career, I spent a lot of time in hospital board meetings. Chuck and I had this discussion once. I remember seeing day after day, week after week, when you’d go through that SWAT profile, “What are we doing well and not doing well,” every hospital had the same two strengths.
Our quality is awesome and our doctors are awesome. Quality of care, quality of medical staff. I started reading the various data sources that said it’s not so. There are a lot of variabilities. We tend not to be willing to step up and challenge some of those things. Even the notion that an orthopedist does great work on hands may not be the best for the knee. We ought to be challenging some of the sacred cows.
It puts people in a difficult position. They’re sitting in the C-Suite. Chuck lived this. A lot of the sacred cows are owned by the doctors themselves. You got to be delicate about how you challenge some of those sacred cows. The ACAG data showed that the number one reason that the CEO loses his or her job is tension with the medical staff. I’d have to think about it some more but that probably is at the top of my list.
I was going to follow up and ask a couple of related questions, Paul. A classic interaction between health systems and insurers, going back to what you were talking about, is the case rate negotiations. It sounds like because the insurers are no longer the intermediary, that’s not a good blanket way of essentially managing the market anymore. You’re dealing with much more stooped buyers that have a vested interest in their employee group and making decisions. Also, related to what you were talking with Darin about, some providers are outside your clinically integrated network which is potentially your buyers.
In other words, they’re the ones that are making steerage decisions and access decisions on behalf of the employer, whom they work for or the pay fodder, if that’s the entity. I’m intrigued by that. You’re talking about leading indicators. Are those the kinds of things, for example, clear recognition of where your referrals are coming from so you know how to be able to manage that? What are some of those classic things that health systems have done to manage their external market, maybe faulty that are resulting in reduced volume and margin that they need to be aware of and reset their database?
Ben, I spent a lot of time analyzing a fencing strategy for an organization. How many touch points do we have with households? What areas and for what reasons? They want to reduce leakage. One, that’s a defensive strategy. You can look at all the interactions we have and arrive at a population of X but a certain portion of that population is not happy with the care that was received. Another portion has been displaced because of an insurance product.
Third, we never integrated them into our system and they were multi-users. They had multiple relationships we think they’re ours. That’s all lag indicator-focused. The interesting stuff there is whether can we identify unique identifiers and then medical records that let us define the difference between Paul Keckley and Paul H Keckley or P.H. Keckley and all that good stuff.
That’s all defensive. That’s a lag indicator. That’s the start but the rest of that is using various analytic tools, especially around demopsychography, where we know types of people, needs and future opportunities where we proactively reach out. Here’s an example. We know that 1/4 of the Medicare population suffers from depression but 3/4 of that number don’t get any treatment and care for that. It turns out that they’re more expensive. It turns out that they’re engaging with their family members or others with needs that can be served by the system but you have to be able to identify them and reach out effectively.
The whole notion of behavior modification and cognitive mapping is a toolset that we need to build into our outreach into a growing market. That’s one example. What we’ve done, most systems, as you know, that’s what these MA plans are doing to get paid. That’s reasonable. About half the Medicare population is in an MA plan. The other half isn’t. The other half is nonetheless still costing us some money if we don’t manage them well. There are a lot of opportunities like that where we’re going to use analytic tools to reach out to individuals in the circumstance in which we can make the most impact on their health.
Those involve lead indicators, not just lag indicators. We cannot depend just on claims data. That is bass-ackwards. I’m looking for all kinds of ways to know where people shop, what websites they search, brand preferences through a variety of tools and these net promoter scores that people advertise a lot. They can be misleading but that’s where we start to get lead indicators and where behavior is hit.
Paul, this has been a great conversation. We touched the surface. I wanted to thank you so much for being here with us. You’ve graciously agreed to be our keynote at the CEO Innovation Council meeting, which Ben will be talking about here. I would encourage all of the audience. If you’re a CEO at a healthcare system, a hospital or a physician group, please, look for the invitation that’ll be coming soon in your mail and your email. We’re going to have a great conversation with Paul in person. You were looking forward to welcoming at least 15 to 20 CEOs. Ben has some more to say about that. Thank you so much again.
I want to thank our audience for joining us. We’re going to continue over the next episodes talking more about change, innovation and some of the things that Paul introduced us to. It was a great conversation, Paul. That’s a lot to think about. I like to talk about focus, the 80/20 rule and the whirlwind. What I see is that 80% of the time is spent in the whirlwind. Only 20% of the time is spent thinking about strategy, innovation and what we need to do to be ready for the change that’s not going to happen to us but that’s already happening to us. That’s confirmed when you look at the Kaufman Hall report.
Providers of care, hospitals, physicians and clinicians, we can hope that this isn’t going to happen but if you look at Kaufman Hall’s flash report, it’s pretty clear. The patients are not storming back as we expected them to do after the pandemic. Behaviors have changed dramatically and they’re changing right in front of our eyes. We either have to open our eyes, recognize it, be different and do things differently. Potentially, some of us are going to go the way of the dinosaur. That’s a real risk. I would encourage everybody to look at your report. There’s an opportunity to subscribe to Paul’s reports. We all need to make ourselves a lot smarter and understand what’s coming down the pike because it’s a freight train it feels. Thanks again. Thanks to our audience.
I heard a statement and it stuck with me. “When all think alike, no one thinks very much.” That’s where we are in healthcare. We’re having to rethink this thing from the start. I look forward to being with your folks.
Let me give a little specific on that. This is limited attendance, CEO Innovation Council that the Baldrige Foundation does. It limits it to fifteen participants. If you’re a CEO of a health system and you want to get in on this conversation, the theme is innovation and the topic is the new transformation. It will be held at the Chateau Elan Resort, which is North of Atlanta in a town called Braselton and the Legends Golf Club, which was started by Gene Sarazen.
There’ll be a little activity on Thursday evening, November 17th, 2022. Paul will do the keynote. The next day on Friday, November 18th, 2020, will be a round table conversation addressing these things. It’s something I don’t think CEOs are going to want to miss, particularly given how fast these trends are unfolding. If people are interested in that, they can reach out to Erin Sellers, who is the Senior Event Coordinator from the Baldrige Foundation for that event.
Her email address is ESellers@BaldrigeFoundation.org. She’d be happy to answer your questions and get things scheduled. Paul will be there as the keynote. If you liked what you read, you’re going to appreciate having a greater length of time to be able to pick his brain and talk about what some of the trends are.
Thanks, Ben. Thanks, Paul. Thanks, everyone in the audience for reading. We’ll look forward to being with you again soon. Take care, everybody.
Important Links
- ABOUT Healthcare
- The Keckley Report
- ERDMAN
- SullivanCotter
- Lumeris
- Health Executive Network
- Healthcare Financial Management Association
- Oak Street
- ESellers@BaldrigeFoundation.org
About Paul H. Keckley
Paul H. Keckley is Managing Editor of The Keckley Report, a healthcare policy analyst and widely known industry expert.
He is a frequent speaker and advisor to healthcare organizations focused on long-term growth, sustainability and advocacy strategies.
In addition to weekly Keckley Report, he has published three books and 250 articles. During the period preceding the passage of the Affordable Care Act, he facilitated sessions between White House Office of Health Reform and major health industry trade groups as private sector input was sought in the legislation.
He is an advisor to Erdman, Sullivan Cotter, Lumeris, Western Governors University and the Lipscomb University College of Pharmacy. He is a member of the Health Executive Network and Healthcare Financial Management Association .
Previously, he served as Managing Director of the Navigant Center for Healthcare Research and Policy Analysis (2014-2015), Executive Director of the Deloitte Center for Health Solutions (2006-2013), executive administration at Vanderbilt University Medical Center (1998-2006), Chief Executive Officer of PhyCor Management Corporation-the IPA Subsidiary of PhyCor Inc. (1994-1998) and Managing Partner of The Keckley Group, a health care research and policy analysis firm (1974-1994). He also served as Independent Chairman of Interdent, a California dental practice management company (1992-1996) and as an Adjunct Professor in the Schools of Medicine, Business and Health Policy at Georgetown University and Vanderbilt University.
He completed his B.A. at Lipscomb University, his M.A. and Ph.D. degrees from Ohio State University, and a fellowship in economic policy at Oxford University. He resides in Nashville, Tennessee, and enjoys golf, jogging, and the search for great coffee.
