Healthcare Startups Hint At Radically Simplified Payment Models
Last week, the Wall Street Journal reported on 20 large companies forming an alliance to target healthcare costs. As big companies are wont to do, they are unnecessarily complicating things. They can save themselves a lot of time and money by understanding two simple items that have proven to slay the healthcare cost beast.
- Massive pricing failure is the biggest factor in out-of-control healthcare costs. In contrast to most markets where price correlates with value, it is often inversely correlated in healthcare.
- Primary care has been massively undermined in this country. IBM studied the impact of their annual $2 billion spend on health benefits around the world. The results were conclusive -- the countries where there were the most robust primary care models existed delivered the greatest value. This is why they dedicated Dr. Paul Grundy to lead the renaissance of primary care.
Few would argue with my characterization of the current healthcare payment model as a Gordian Knot designed by Rube Goldberg. I spent much of the early part of my career trying to make sense of it on behalf of providers as it caused them fits. Despite that, it’s remarkable how there is an implicit assumption that we’re stuck with that mess until the end of time.
Hint Health is a company that radically simplifies the payment process for providers and employers who pick up the tab for the majority of the workforce. When I spoke with Hint's CEO/founder, Zak Holdworth, his contrarian view was that billing and eligibility processes were going to be overhauled, and the investors who believed in his vision understood the transformative role that Hint would play.
[Disclosure: Hint Health was a recent addition to Healthfundr’s portfolio. I am the Managing Partner of Healthfundr.]
As I wrote about in UnitedHealth: The Exchange Is Dead. Long Live The Exchange, a couple things that inform my thinking:
Health plans aren’t doing very well with consumers. After all, health insurers have the lowest Net Promoter Score (NPS) of any industry...
Some of the biggest chunk of the workforce— millennials—would rather clean their toilet than try to understand their health plans.
As much as consumers don’t like dealing with health insurance, that pales in comparison to doctors since they have to deal with it daily. In The Story Behind Epidemic Doctor Burnout And Suicide Statistics, insurance companies were cited as a primary factor driving burnout. If consumers don't like them and healthcare providers don't like them, one would assume that they would have at least slayed the healthcare cost beast or health outcomes had dramatically improved. Unfortunately, that isn't the case either -- healthcare's hyperinflation has gone unchecked for decades with healthcare costs growing at 34 times the rate of inflation. On the outcomes front, despite selling lots of "disease management" and "wellness" programs there is little evidence these programs have made a meaningful dent in the explosion of chronic conditions. The cost part of the equation is mentioned as one of the 95 Theses for a New Health Ecosystem.
81. The dirty secret The dirty secret of health plans is that higher care costs have, counterintuitively, led to greater profits for the plans. This is changing. Winning health plans will capitalize on the opportunity to fundamentally rethink plan design to be optimized for the fee-for-value era.
Thus, it's no surprise that health insurers are getting disintermediated. For example, in Seattle we see Boeing setting up its own ACOs directly with two of the major health systems. Or in Florida, direct contracting with providers was at the heart of how this employer not only saved 50% per capita on health benefits, they transformed a neighboring community.
Lipstick on a pig won't get the job done
Through my writing and investing, on a daily basis I see countless efforts to "fix" the problem of healthcare's hyperinflation. Thus far, for every 171 companies we've seen, we invest in 1 -- many of those are trying to pretty up a fundamentally flawed process. For example, there are so-called "cost transparency" tools. At best, they put lipstick on a pig and show the best bad deal and they do little to improve the brain damage inducing "EOBs", co-pays, "this is not a bill", co-insurance, deductibles and other obfuscating items that frustrate people. It's no surprise that the most prominent "transparency" player has seen their stock crater. My knowledge of transparency tools suggests they typically get 2% of employees to engage. Meanwhile, a carrier-backed startup that was trying to make the convoluted process more friendly has been shutdown. It should be no surprise that it's hard to make a Rube Goldbergian process consumer friendly.
As I was told as a 22 year old consultant receiving training at the beginning of my career, it's critical fix the process before applying technology. This is what I saw being done when I returned from my detour away from healthcare. The first piece I wrote about healthcare was Health Insurance's Bunker Buster that predicted an unraveling of failed health insurance approaches. Due to my roles as a startup CEO, writing for Forbes, working on a documentary that captures how healthcare's status quo is the greatest threat to America and creating the blueprint for smart healthcare purchasing, I've scoured the country for the heroes who've slayed the healthcare cost beast. The recurring theme is the transformation has been fueled by primary care's renaissance.
The so-called "death of primary care" has actually been more of a resurrection. It's understandable when people think primary care is dying when the flawed fee-for-service reimbursement scheme has turned primary care into milk-in-the-back-of-the-store. That is, the reason health systems have gobbled up primary care docs is they use them as loss-leading referral machines to high margin procedures, tests and consultations. The result is predictable -- purchasers of healthcare are getting milked.
Fortunately, Medicine Is Going Through A Revolution -- With Doctors' Help. These doc-entrepreneurs have waded into the most challenging patient populations -- the so-called Hot Spotters -- and become population health heroes. Up and down the stack of highest performing healthcare services defined in the Health Rosetta, there are the "picks and shovels" technology enablers making helping these heroes who are reinventing care. For example, Twine Health powers health coaches who've proven to be the most effective at effecting behavioral change that is central to tackling lifestyle-driven chronic diseases. Twine has demonstrated impressive results in randomized control trial.
Radical simplification generates breakthrough results
Direct primary care (DPC) models referenced above remove insurance bureaucracy from the payment for primary care. However, money does need to change hands. Hint Health stepped in to fill that need. As the schematic below demonstrates, the process was radically simplified.
[Disclosure: As I've disclosed many times, the Health Rosetta is a non-commercial open-source project that provides a reference model for how purchasers of healthcare should procure health services. In my role as managing partner of Healthfundr, a seed stage venture fund, the Health Rosetta is the foundation of our investment thesis. Hint Health is a portfolio company of Healthfundr]
As a startup CEO, I received a lot of grief from investors and even conference organizers who wondered why I had OCD on DPC saying things like "shouldn't you be a CEO, rather than a writer"? Writing the seminal paper on DPC was a way to dive deeper (and it helped pay some bills in the bootstrapping phase of my startup). What they didn't understand was that it was crystal clear to me that DPC represented a microcosm of how healthcare's future would unfold. It's a future where there is true transparency. I also learned from my 10-year detour away from healthcare the amazing profit opportunities in deflationary economics and how non-value-add middlemen get cut out. Economic power and technology requirements also shift as this schematic derived from Deloitte demonstrates. This is certainly the case with value-based primary care.
One of the HR executives hinted at the need to rethink the value middlemen were providing.
Bill Allen, chief human resources officer at Macy’s, said it was possible the companies also would take a hard look at the health industry’s middlemen, such as pharmacy-benefit managers and the third-party administrators that act as the front line operators of corporate health insurance when the companies themselves meet the cost of claims.
Unbeknownst to me, it was my writing on DPC that played a pivotal role in Zak Holdsworth co-founding Hint Health. Unlike many investors who continue to not understand the transformative role Hint will play, Zak understood that billing and eligibility processes were going to be overhauled. While primary care is critically important and is often the starting point for reformed healthcare purchasing, it's the tip of the iceberg. The trend of cutting out the middleman has extended into other areas such as a Transparent Medical Market. While large employers have thrashed around with so-called transparency solutions, I've heard no evidence of it slaying the healthcare cost beast. In contrast, radical simplification has enabled Enovation Controls (a small manufacturer) to address the most vexing problem in healthcare -- pricing failure. It has allowed this small, self-insured company to save 30% on per capita costs on health benefits. More importantly, it has saved their modest income employees from medical bill induced financial ruin.
It is mystifying why seemingly sophisticated large companies need to band together when they already have orders of magnitude more buying power than much smaller companies. The HR leader of that company understands what seems to be is missed in the Orwellian-named "consumer driven health plans" -- the math simply doesn't work for a huge swath of the workforce that are on high deductible health plans. Imagine you are making $30,000-$40,000 per year. Very few of those people have $3,000 sitting around. It is why the majority of medical bill induced bankruptcies (the leading cause of bankruptcy) happen to people who have insurance. The exciting thing is how a small company such as Enovation Controls can contribute to the largest non-profit health system in the country going to transparent pricing. Underpinning this development is The Zero Card's transparent medical market solution which uses the eligibility capabilities of Hint. The graphic below shows how rapidly growing Hint was even before extending into one of the five other areas they are pursuing where direct contracting is happening.
When I spoke with benefits experts such as Jim Millaway of HUB International he stated that plan design is critical to creating the write incentives. Further, having adult conversations with employees is the key to getting their buy-in. Smart companies such as Enovation Controls understand that blunt instrument high deductible health plans (HDHP) produce painful results for employees. Worse, Health Affairs and others have reported that HDHPs result in people avoiding necessary care that will cost the employer more in the long run. Millaway advise his clients to make the best choices free or near-free while poor choices are made highly unattractive. The reason Enovation Controls has been able to remove 97% of pricing failure is they walked their employees through some simple examples of how healthcare is paid for and how the money flows for common procedures. The byproduct has been thrilled employees and family members. The HR leader conveyed how he received a hug from the spouse of an employee at a high school football game because their approach to benefits had saved their family from financial ruin that their previous approach would have created.
The simple fact is most employers are spending more than enough money to fund an outstanding health benefits and retirement package. Sadly, they are getting neither. Whether they are large or small employers, the leading employers recognize that there is a way to deliver much greater value. The companies I mentioned above are private companies primarily owned by the founders. Brian Klepper, the recent past CEO of the National Business Coalition on Health (an organization of large employers), shared with me the story of a very large manufacturer who had adopted a smarter way to address employees with cardio-metabolic issues. Despite getting fewer than half into the new approach, the savings they achieved positively impacted their EBITA by nearly 2%. These kinds of savings suggest that companies not taking these proven approaches are failing in their fiduciary responsibility.
This article was also published on Forbes
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