Relentless Health Value™

In this podcast, Liliana Petrova, CEO/Founder at The Petrova Experience, translates her experience as director of customer experience at JetBlue to the health care industry. Her advice is practical and designed to actually work in environments as complex and regulated and driven by safety concerns as the airline industry—and also, coincidentally, health care.

In the past in health care, some have perhaps underestimated the impact of customer experience. But it’s hard to continue to do so in the face of Forrester research showing customer experience drives revenue growth by double digits compared to laggards in markets where there’s competition. Actually, this growth difference is true even in some markets where there’s not much competition. Why? Because when the customer experience is really bad, customers might choose to abandon the service/care altogether and just not return at all, anywhere. And Gartner touting facts such as 89% of companies these days are competing on a customer experience battleground.

But back to today’s conversation. Somewhere in the middle of our chat, Liliana says, “When building to simplicity, it has to be perfect.” I loved it! This is a really simple, if you will, maxim with a lot packed into it that we spend some time unraveling. One spoiler: Good customer experience makes it easy for customers, makes it simple for customers. And second, perfect means perfect from the patient’s or customer’s point of view, not ours.

One of the parts of the conversation I loved was Liliana’s dissection of just the physical space of a typical waiting room from a customer standpoint. I never thought about it before, but that desk that the front office staff usually is sequestered behind? That tall desk with the glass window? It resembles a payday loan place in a bad neighborhood. What’s the subliminal message there?

Liliana wrote a few articles about lobby design, among other topics, by the way; and the links are in the show notes.

I met Liliana at the Pharma CX conference hosted by PanAgora.

Liliana Petrova, CCXP, is a proven leader in the field of customer experience (CX) and innovation. She pioneered a new customer-centric culture, energizing the more than 15,000 JetBlue employees with her vision. She has been recognized for her JFK Lobby redesign and facial recognition program with awards from Future Travel Experience and Popular Science.

For a full transcript of this episode, click here.

I’m gonna encore this episode with David Scheinker, PhD, for several reasons; but here’s a big one: Why are we as an industry not doing what David Scheinker suggests in this episode?

Why are we not doing, I don’t know, kinds of logical things to reduce admin burden in this country when everyone agrees admin burden is a problem?

But let me back up for a moment for context. Two things happened since this show originally aired. One is that I was invited to a fireside chat by the Advisory Board to talk with Abby Burns, one of the amazing hosts over at Radio Advisory; and we talked about value in the healthcare industry. And if you define value as benefit divided by costs, and you can cut costs—like cut admin burden costs in half—then you have created some really nice communal value, which we talked about at length during that aforementioned fireside chat.

Here’s the other thing that happened since this show originally aired. I read the book by Mike Leavitt, mainly because Steve Schutzer, MD, kept talking about it. The title of the book is Finding Allies, Building Alliances. Maybe I will do a book report about this at some point, but let me share a couple of key quotes just to get the party started here.

Mike Leavitt wrote, “A diverse alliance, well led and well managed, can bring resources to bear on a problem that no organization can match—even the largest of organizations. The synergy of resources—from financial to intellectual—can deal effectively with a wide range of issues confounding organizations today.”

I found that very interesting. Here’s the second quote, which deals with what the top reason is that such diverse alliances may wish to hook up. “[It’s] a common pain: A shared problem that motivates people and groups to work together in ways that could otherwise seem counterintuitive.” Hmm ... so, back to administrative burden.

Let’s review the facts that David Scheinker, PhD, shares in the interview that follows. He says any given transaction will cost provider organizations 14% of the total transaction costs to manage to get paid. Yes, it costs 14% of a transaction merely to get paid for the transaction. This is a big reason why both Peter Hayes, in the episode with him (EP424), and also Marshall Allen (EP425) talk about for why cash prices can be a whole lot less than going through insurance prices because you can skip a lot of insurance burden.

Now, on the payer side, add to that 14% an additional 5% to 15% to pay said transaction. That 30% of healthcare is waste stat that keeps getting tossed around. Listen to the show with Will Shrank, MD (EP413) for more on that. But, yeah ... here’s 20% to 30% of every transaction that is waste. And we haven’t even gotten into redundant care or inappropriate back surgery yet. Our industry spends up to 30% of our money just trying to get paid and pay.

Here’s a case study for you. You know who has already solved for this whole “it’s really hard to get paid and pay” dilemma? Derivative traders. It used to cost derivative traders $100,000 to do a contract, any given contract. And they worked together and got this down to $5000 by doing some of the stuff that David Scheinker talks about in the show. And, I don’t know, I feel like the healthcare industry could also do this, too, if they wanted to. But there are a whole bunch of reasons why our industry cannot seem to get together and be as ruthlessly practical as derivative traders—or banks, who have figured out how to work together to process credit cards to reduce their own common pain.

Here are but a few of the reasons, potentially, why the healthcare industry doesn’t get together to reduce administrative burden in some of the ways that Dr. Scheinker talks about.

1. Some organizations actually make a lot of money off of that transactional waste. As but one example—and not to just pick on one, but we don’t have all day—how about some RCM (revenue cycle management) companies who may or may not be owned by the same vertically integrated stacks as the payers themselves? As I have said any number ...

Look, bottom line, value-based care has to be the future of health care delivery in this country. That’s just inarguable at this point. Nobody disagrees except for health care industry stakeholders trying to reap as much reward as possible while the going is good. And they’ve been really successful with their reaping thus far.

Here’s the thing, though: There’s speculation that health insurance premiums may go up, like, 4% to 40% next year if the status quo remains the status quo. Is this the moment when we all start to get real about value-based care? Not because it would be a nice thing to get up and running, but because we have to. Health care costs are already too high in this country. You can’t just add 40% and think that somebody’s gonna find that kind of change in the bottom of their pocket, which has already been turned inside out. But also because on the provider side of the equation, it’s less risky.

Here’s what I mean by less risky: All of those health systems struggling right now because of the decrease in elective procedures—if they had all had a significant portion of their revenue derived from value-based agreements where they were contracted to take care of populations, they’d all still be getting paid their global/capitated payments right now and actually able to take care of patients who need care instead of sitting on the sidelines watching their bank accounts dwindle.

In this health care podcast, I speak with Eric Weaver, who is the newly minted executive director of the Accountable Care Learning Collaborative based in Utah. We talk about how life could have been a lot different for PCPs and also specialists, by the way, and health systems had we lived in a value-based world instead of an FFS (fee-for-service) one. Considering that this pandemic might consist of waves that extend for months if not years, this might be a call to action for providers to get meetings set up with payers, like, right now to switch up payment terms into value.

But it’s also a call to action for purchasers of health care like employers and commercial carriers. When I was talking to Guy Culpepper, a PCP, in episode 272, he really wants value-based contracts; but he can’t get them alone. Purchasers and payers have to be willing to come to the table and offer them.

So come on, everybody! Let’s belly up to the conference room table—or your little Zoom Brady Bunch box, as the case may be. Now’s the time to really flip the switch to payment models that work for patients and enable physicians at the same time to provide the kind of care that’s in alignment with their values.

One acronym heads-up in this conversation that I have with Eric Weaver coming up: APM stands for advanced payment model, which is, at its simplest level, a kind of value-based payment model.

Eric Weaver, DHA, MHA, is nationally recognized for his work in payment and delivery transformation. He is the recently appointed executive director of the Accountable Care Learning Collaborative (ACLC), a nonprofit organization founded by former Secretary of Health and Human Services Mike Leavitt and former Administrator of the Centers for Medicare and Medicaid Services Dr. Mark McClellan. With a mission to accelerate the readiness of health care organizations transitioning to value-based payment, the ACLC has defined the standards for high-value organizations and the workforce skills and competencies needed to advance value-based care.

Dr. Weaver has been recognized for his contribution to the health care industry by receiving the ACHE Robert S. Hudgens Award for Young Healthcare Executive of the Year and the Modern Healthcare “Up & Comers” Award in 2016. Prior to assuming his new leadership role with the ACLC earlier this month, Dr. Weaver was a senior vice president for Innovista Health Solutions, a population health MSO, and was the president and CEO of Austin, Texas–based Integrated ACO—one of the more successful physician-led accountable care organizations in the country.

For more information on Dr. Weaver and his vision for the future of the ACLC, you may access this video. If you are a provider organization looking to succeed in value-based care, you can obtain a free membership to the ACLC at accountablecarelc.org/join-us.

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Mark Tomaino is an Operating Partner at Welsh, Carson, Anderson & Stowe, a New York City based private equity firm that invests, principally, in two markets, healthcare and information/business services. Mark’s focus is exclusively on healthcare technology investment opportunities, including deal generation, due diligence, execution and portfolio company monitoring. Mark has served on the board of directors of Matrix Medical Network and GetWellNetwork.

Prior to September 2010, Mark served as Senior Vice President, Corporate Development and M&A at The TriZetto Group, a leading healthcare information technology company to the healthcare payer industry, where he had responsibility for developing and executing its external growth strategies, including mergers and acquisitions, strategic alliances, joint ventures, investments and capital raising activities. Mark initiated the $1.4 billion go-private transaction with Apax Partners in August 2008 ending TriZetto’s tenure as a NASDAQ-listed public company. Prior to joining TriZetto, Mark worked at Bausch & Lomb Incorporated in a variety of legal, strategy and business development capacities.

Mark holds an M.B.A. from The Paul Merage School of Business, University of California, Irvine, where he was Valedictorian and a member of the Beta Gamma Sigma Society, a J.D. from the Albany Law School of Union University, where he was a member of the Law Review, and an A.B. in English and Economics from the College of the Holy Cross.

One of my mentors often said price is irrelevant. He said he would sell anything for any price as long as he could define the terms of the deal. During this conversation today with Scott Haas about PBMs, that quote was playing in my head like an earworm.

I’m henceforth gonna struggle with the term rebate to define dollars that the PBM gets back from Pharma, because, according to my guest in this healthcare podcast Scott Haas, it turns out “rebates” comprise only about 40% of those back-end dollars that some PBMs manage to score from pharma manufacturers. I don’t have any insight really into this, but Scott Haas certainly does—and this is the average that he has seen in his work and that we’re going to dig into today. But in sum ... wow! Let me just repeat that a mere 40 cents on the dollar of the gross amount that PBMs take in “rebates” from Pharma these days winds up going back to plan sponsors, even plan sponsors who are getting “100% of the rebates.”

If you didn’t understand what I just said, no worries. I’m gonna explain it right now. If you did and you know the why behind all of this also, you could probably skip ahead about five minutes.

Here’s the backstory on this whole rebate fandango. Let’s start with part one of what is a two-part transaction.

So, part one: the deal between pharma manufacturers and PBMs. In general, a pharma manufacturer signs a deal with a PBM to give back whatever percentage of their gross sales revenue to the PBM at the end of the year, say. It’s along the same lines as a cash-back coupon for the PBM.

Why would a pharma company be up for giving cash back like this? Well, to get on a PBM’s formulary, giving cash back is like the price of admission. PBMs have a lot of leverage, after all—at least the big ones. They control access to millions and millions of patient lives. So, if Pharma wants their drug to be accessible to those millions and millions of lives, they have to play the cash-back game, otherwise known as the rebate game. They have to agree to give back to the PBM a certain amount of cash on the back end.

So, PBM pays Pharma’s list price up front—that’s the gross amount paid, based on the list price of the drug—and then after all the cash back gets toted up at the end of the year, there’ll be a net price. List price or gross price minus the cash back equals net price. It’s this net price that’s the true kind of final price which the pharma company gets paid per script by said PBM at the end of the day.

These days, most everybody pretty much knows that PBMs are getting these so-called rebates—this cash back from pharma companies that I just explained. And it’s pretty common knowledge the so-called gross-to-net bubble (the gross-to-net dollar amount) is pretty huge, meaning the rebate or cash-back amount is pretty huge. And many have also noticed that the gross-to-net dollar amounts seem to be growing bigger and bigger every year. I mean, for one insulin manufacturer, consider this: Their list price, their gross price, is $350 per script. And their net price after cash back/rebates was $52 this past year. Wait ... what? After all the cash back to the PBM, the insulin manufacturer got paid 86% less than their list price—$350 went down to $52 per prescription. The PBM vacuumed up 86% of the dough for every script written for this particular brand of insulin.

OK ... so, say Pharma gives $100 back to the PBM based on the terms of their deal. Call that part one of this example transaction.

Here’s part two: the deal between PBMs and health plans or self-insured employers. Health plans and self-insured employers are customers of the PBM. They hire PBMs to manage the pharmacy benefits for their members or employees.

So, because everybody knows this whole rebate thing is going on, as part of the contracts that the PBMs put in place with their customers (meaning the health plans or employers), the PBMs tell their customers that they’re going to give 100% of the rebates back to the plan/employer. So, you’d think that if the pharma manufacturer paid $100 to the PBM, that the customers of the PBM (the plan sponsors) would get the $100 back then, right? The PBM would pass on 100% of the savings, as it were, if they’re saying that they’re gonna give 100% of the rebates. I mean, if this is actually true, that $100 in and $100 out, then the PBM is potentially performing a useful service, right? They’re lowering drug costs for their customer, the plan sponsors for their members and employees.

Except ... turns out, not so much. Because what is a rebate, really? A rebate can be anything the PBM defines as a rebate. And it turns out that, on average, as I said before, according to those in the know, something like $60 of that $100 is not a rebate. It’s an a...