Dec 17 2019 | Podcast | By

Tuning Healthcare, Episode 3: What’s Next for Primary Care?

Paul Keckley, Managing Editor of The Keckley Report

As a widely renowned industry expert, Paul Keckley has a first-hand view of the changing forces in healthcare today. In addition to being Managing Editor of The Keckley Report, Paul is a distinguished writer and researcher, who also worked extensively with industry trade groups on the development of the Affordable Care Act.

In this episode of Tuning Healthcare, Paul shares insights around key factors that are impacting payers, providers and consumers during the industry’s constant state of change.

“There are winners and losers in every sector, and the winners in those sectors have the technology, have the scale, have access to capital. They’ve got leaders that see a future where they’re paid for a result instead of volume. They are looking at individuals, they’re not looking at patients, and they’re looking at ways of treating that go beyond a pill or a test.”
– Paul Keckley

In this episode, Paul talks to Lumeris Senior Vice President Nigel Ohrenstein and discusses:

  • The pace of industry change from volume to value,
  • Insights from working on healthcare reform and the Affordable Care Act,
  • The evolution of primary care and where health systems need to prioritize,
  • Changing dynamics between payers and providers—and who will win and lose in the future,
  • Private equity interest in primary care models and holistic care,
  • The importance of leadership, technology, scale and access to capital in enabling the move to risk.

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  • Read Transcript

    Nigel Ohrenstein: I’m joined today by Paul Keckley, the managing editor of The Keckley Report and a widely renowned industry expert. Paul played an instrumental role in the passing of the ACA and has held leadership positions at multiple companies including FICOR, Deloitte and Navigant. In this episode of Tuning Healthcare, Paul and I discuss the ACA, primary care and how it needs to evolve, the evolution of alternative payment models, and the pace of transition from volume to value. Join Paul and me in Nashville as we Tune Healthcare.

    Nigel Ohrenstein: Thanks for joining me. Thanks for welcoming me to Nashville. Great to be with you a couple of days before Thanksgiving. So thanks for taking the time.

    Paul Keckley: Oh my pleasure.

    Nigel Ohrenstein: How’d you get into healthcare?

    Paul Keckley: True story. When I was 11 years old, I played golf for the first time at Brainerd Municipal Golf Course in Chattanooga, Tennessee, and I made a birdie on a par three and I told my father when I got home that I was going to be a professional golfer. And without missing a beat, he said, ‘You’ll have to be a doctor because they’re the only ones that can afford to play golf.” And back in that day, every Wednesday, the medical practices were closed because the doctors played golf. So I did the organic chemistry, the whole thing because dad said, “If you’re going to play golf, you have to be a doctor.” So healthcare was natural.

    Nigel Ohrenstein: How many birdies have you had since?

    Paul Keckley: Maybe not one or two more.

    Nigel Ohrenstein: Yeah. It’s one of those games that can seem so simple, but it’s so hard.

    Paul Keckley: It’s frustrating. It’s a great mental game. It’s a mental game.

    Nigel Ohrenstein: So ACA, you played an instrumental role. Tell us a little bit about how you became so involved in the ACA and your role, and then move on a little bit to tell us about what are you happy about with the ACA and what frustrates you.

    Paul Keckley: I was kind of minding my own business in Washington. I was running the Deloitte Center for Health Solutions, which was their healthcare think tank. And I got a call from Nancy-Ann DeParle who said, “President Obama has just had a photo op with the heads of AMA, AHA, AdvaMed, bio, pharma, and AHA.” I think I may have said that. “Six big trade groups and they’ve agreed they’ll create a health reform package that’s presented to Congress this year.” And this was in 2009. “Now the president’s going to go overseas in eight weeks and they’ve agreed to collectively create that legislative package and we need someone to facilitate that between the white house and these big trade groups. Would you do it?” And Nancy-Ann, I had known through her time in Nashville. She’s actually a graduate of the University of Tennessee, ran the state Medicaid program.

    Paul Keckley: I’d been in Nashville for years. So I said, “Well, sure.” So I didn’t know what I was getting into. The trade groups were very committed to solving the problems of everyone else at the table—but their own. So everyone would say, “Here’s a suggestion. We need to take cost out of the system by having the insurance companies standardize all their administrative processes and language and make it simpler for us to get paid.” And the hospitals would say, “We are doing everything we can to take costs out of the system, but everybody else at this table isn’t.” So my job evolved to take all of the ideas, evaluate them independently with a team of analysts and clinicians and actuaries and come back and say, “If you did this, then the result would be that.” And we had 54 ideas that kind of germinated from that process.

    Paul Keckley: Many never saw the light of day because politically they were not, to one or more at the table, something they were comfortable with. So can you imagine taking leftover TARP money? Remember when the automobile folks were bailed out? And we essentially buy out at book value the excess beds in the healthcare system, and this is 2009, pay book value to these Catholic orders where you’re operating hospitals where it’s not necessary. We don’t need the beds. At that point we were operating almost three beds per thousand. At that point we needed about 2.2 beds per thousand based on demand. And now fast forward another 10 years out, we’ll be at 1.1 bed. So it made sense. Why don’t we take excess capacity out and redeploy those assets.

    Nigel Ohrenstein: Do you feel that ACA has been successful at reducing excess capacity?

    Paul Keckley: No.

    Nigel Ohrenstein: Why not?

    Paul Keckley: Two reasons. I think about this a lot, Nigel. This is something that I literally lose sleep about. It’s highly politicized and not well understood. The combination of those two means people have defined it in their own terms who’ve never read it. So The Affordable Care Act included a lot of things beyond expanding insurance coverage through Medicaid expansion and healthcare.gov, the marketplaces. You would only hear about insurance, but that law, Title V for instance, was about let’s create a whole new healthcare workforce that’s technology-enabled and uses data and operates in teams and practice at the highest level of their training. You would not hear anything about that today.

    Paul Keckley: So I think the fact that it became highly politicized, especially among folks who’d never read it. And I think a second and related is it was branded as Obamacare, and that kind of drove this wedge between the folks that thought Barack Obama is the second coming or Barack Obama is the antichrist. And it became shorthand for his administration instead of the concept of health system reform. And as a result, I think ironically we’re back to saying maybe there are things in The Affordable Care Act that we should revisit. The Republicans are actually beginning to say maybe there are parts of it that we could accept with some tweaks. But at that point, in 2009 going to the 2012 election, it became a political football, and I think that disabled it.

    Nigel Ohrenstein: But it was passed and as we look today, there’s still excess capacity. There are a few systems that really and truly have taken beds out of the system. I was honored to have Niyum Gandhi last week in the last podcast as a guest. In Mount Sinai’s taking a thousand beds out of the system, but there are very few systems like that. So why haven’t they? Why are they not embracing the opportunities that, not just ACA, but a lot of the other regulations and opportunities to move to value-based care that have been afforded to them, but yet they seem slow.

    Paul Keckley: Well, it’s a pretty complicated answer, but one, let’s recognize that the system, the incumbents do well financially in the fee-for-service model. Our system has operated on a mark-it-up and pass-it-through business model. And it was growing at 2% above GDP year over year over year. So not surprisingly, who wants to change that? The second issue was, so if we all say that the incentives need to change, who’s going to be the one to decide what incentives are going to change, and one sector’s income from that change is an operating loss to the other. So if you think about it, this is what I would hear in that two-year period. The insurance companies are all over value-based models, value-based purchasing because if they spend less on medical care, it’s profit to the insurance company. And the hospitals would say, “Well, and that means you’re driving operating losses on our P&L.” So there was not a belief of a system reform.

    Paul Keckley: It defaulted to each sector had to define its own risk if we make this transition from volume to value. And what we tried to do in the law was integrate things that had been tried. What people don’t recognize is in the seven different models of value-based care that are in the Affordable Care Act, all were cut and pasted from things we had done before. The Medicare Shared Savings Program section 3022, which is ACOs, was the physician group demonstration projects in years past when we had kind of a dose of capitation. So nothing in the law that pushed from volume to value was a new concept. What was technically difficult is how much and how fast do you want to make that transition, and where do you start, and where do you get the biggest bang for the buck? And that’s an unresolved question today.

    Nigel Ohrenstein: So talking about the biggest bang for the buck, the latest government-sponsored primary care model, Direct Contracting, just released a lot more information about it. What’s your take? Does it excite you? For me personally, I think it’s incredibly exciting because so many health systems in particular have large populations of Medicare fee-for-service lives, yet this now creates an opportunity for them to truly manage them. I think we can all agree it’s probably the most unmanaged population.

    Paul Keckley: Absolutely.

    Nigel Ohrenstein: So does it excite you as much as it excites me?

    Paul Keckley: Absolutely. I’m convinced that the combination of the bundled payments and direct primary care will be the one-two punch that pushes the needle from volume to value. And the reason is employers and commercial populations will see that and they’ll even expand it. So what Medicare does in most markets is introduce some things that may or may not work the first time. The first time we did the ACOs, when they came out, we didn’t get it right and the success was not what folks would have liked. We’re getting there. So I think what government has done in spite of the politics of healthcare is recognize that Medicare can lead.

    Paul Keckley: And it has to because of the budget. We have a $947 billion deficit last year in the federal budget. And the easiest place for federal budget folks to address excess government spending is Medicare. They’re not going to touch Social Security and they’re afraid to do much with Medicaid, but Medicare is something which everybody acknowledges could be improved. So what they have done is say Medicare will be the lab for this transition from volume to value. We’ll try some things and some are going to work and some are not going to work, and then we want employers and insurers to double down and expand that. And that’s why direct primary care and Direct Contracting is so interesting because employers will jump on that.

    Paul Keckley: They think, “Well, yeah, that makes perfect sense because I can get to my workforce, even my healthy employees, instead of just always addressing the big ticket items that end up in the hospital ED or as an admission.” So it’s going to be regardless of the election, this is what surprises people. Healthcare as an industry is on a course that’s very predictable right now. The past is not sustainable. The future requires that the incentives change. The future requires that we identify what constitutes value, that we embrace the notion that individuals who may be patients or enrollees or your employees play a role in that, and that if provider organizations have the tools and they have the incentives, they’ll partner with these individuals to create value in the system. Now the race is who’s going to figure that out best? Who’s going to execute well?

    Nigel Ohrenstein: So I agree with you. The value chain has left the station and you obviously played a big role in ACA, which is, as you said, was part of the Obama Administration. Today we have Direct Contracting coming out, which is obviously part of the Trump Administration, and it’s clear that the past is unacceptable and the future has to be based on value. Who loses in the future because you have payers who have certain entrenched ways of doing business, you have provider systems, and the employer, and the employee, right?

    Paul Keckley: Yeah.

    Nigel Ohrenstein: Those are really the four people that pay for healthcare. And let’s put the government to the side for a second, outside of the government. But if those commercial institutions, the employer, the payer, the provider system, and the beneficiary, who wins and who loses? Because surely everybody can’t win.

    Paul Keckley: No. The employer is likely to be the near term winner because our ways of directing care in the commercial population clearly point toward excess utilization of hospitals and unnecessary diagnostic tests where individuals in tandem with a primary care team, not necessarily a primary care doctor, a primary care team, can actually mitigate a lot of demand. We can reduce demand in the system. And then in the supply, it’s a rationalizing game. So bigger systems that are fully integrated that have the ability to offer a plan, not just hospital beds and outpatient services, will be at an advantage. And those that choose to be simply we’re an inpatient outpatient entity, they’ve got a hard time ahead.

    Paul Keckley: If you were to make bets on the winners and losers, scale wins. You can’t play in this environment with Google and Ascension saying, “We’re going to commingle data.” Or Haven with Amazon, JPM, and Berkshire with a million lives in that dataset. That says you’ve got to have data, you’ve got to have technology, you’ve got to have process, and that says you got to have capital. So if you don’t have capital to achieve scale and acquire technology, you’re probably odd man out. The interesting wrinkle in this is how much private equity is stepping into that to provide that capital and that technology to a lot of these folks? So private equity investments in medical groups, over 300 deals in the past two years, rolling up groups like dermatology, urology, ortho, because they want to equip them with the tools to manage risks, to manage value, and not simply become an employee of a health system.

    Paul Keckley: So I don’t think it’s a matter of which sector is the winner or loser. There are winners and losers in every sector, and the winners in those sectors have the technology, have the scale, have access to capital. They’ve got leaders that see a future where they’re paid for a result instead of volume. They are looking at individuals, they’re not looking at patients, and they’re looking at ways of treating that go beyond a pill or a test. They’re looking at food as medicine, or behavior modification, primary care that’s physical and behavioral health, prophylactic dentistry, ophthalmy care. It’s pharmacy, it’s nutrition, and it’s a coach that’s telling you how to change your behavior. That’s an exciting future for healthcare and that’s what we’re headed to. So the ones that kind of embrace that in those sectors will be a winner, and the ones that have their head in the sand and think we’re going to somehow go back to the way it was, I think they’re odd man out.

    Nigel Ohrenstein: So I agree with you for the most part. One of the things that I find perhaps most frustrating being out in the market and talking to a lot of health systems today is the failure of the payer to be truly collaborative. Time after time, I’m talking to a health system CEO and she says, “I want to move faster down the path to value, but my payer is not collaborative, not willing to share enough of the value. So we as Lumeris often bring a collaborative pair to the market to help solve that problem.” Do you see a future where the payers will become collaborative, or do you think they’re going to continue on this path of trying to dominate the local market and do as much as they can to really not truly be collaborative with the providers in the market?

    Paul Keckley: Well, just as there’s no cookie cutter health system, there’s no cookie cutter health plan. So I deal with a lot of them. Some are exactly as you describe, their way or the highway. Others view their role as being the engine inside a provider organization to allow it to take risk and bring the capabilities that are missing. But if you look at this from an investor perspective, the core business in the health insurance portfolio is decreasingly profitable. Taking risk on a group is decreasingly profitable.

    Paul Keckley: So it puts groups like Cigna in a unique position because they’ve primarily been an ASO operator. They’re not taking a lot of group risk. Some, but they buy in Express Scripts. So I’d say if you pick the right payer and if the terms of that agreement are both based on a shared level of risk, transparency about the data, medical management that’s collaborative, then you’ve got a good payer to partner with. I see both. I see places where health systems have joint ventures with health plans that have never been collaborative, where the system can’t even get access to its own data and they’ve got an exclusive agreement with them for 15 years. So that’s just stupid.

    Nigel Ohrenstein: Let’s talk about another topic that I know is near and dear to your heart and also to mine, which is accountable primary care. Lumeris has pioneered the Nine C’s®, which is truly about how do we transform primary care and make them a truly accountable quarterback of healthcare. You’ve written many times in the Keckley Report about what’s fundamental about primary care. Where do you see us in the journey of the transformation of primary care?

    Paul Keckley: I think we’re in a stalled mode right now. Here’s why. Primary care clinicians are at the low end of the totem pole still when it comes to access to capital. When it comes to income, their overhead is still higher than any other. And when most traditional health systems are thinking about their physician strategies, they’re not looking at primary care as the centerpiece of that. They still think of it as a peripheral part. And they think, “Well, maybe we’ll do an ACO and maybe we’ll have some primary care docs at the table,” but it has not been central to the way most of the health systems have thought about their future. There are exceptions, but not surprisingly what’s interesting about what folks like Goldman Sachs are doing with Privia and other investments, you’re reading about, and Ioras and ChenMeds. The models that have an outside investor who says the front door of the system is primary care.

    Paul Keckley: It’s not confined to an internist, a pediatrician, a family physician seeing 30 patients a day. It’s a management process, it’s multidisciplinary, it’s digital, it’s physical and behavioral. They’re way out ahead. In most communities that doesn’t exist. So I see some pretty exciting models, but I also see the politic in most communities where it’s not quite as developed as it should be. And I think that’s simply the local politic. Most hospitals are still dependent on their specialists. Most hospital CEOs are evaluated based on their financial performance, their P&L and their balance sheet and their solvency and sustainability and things like that. And a lot of that really is directly related to how satisfied the specialists are. So I think the system needs a jolt. I love this Direct Primary Care/Direct Contracting that CMS is doing. Here’s one of the ironies, if we can get political here for a minute.

    Nigel Ohrenstein: We can always get political.

    Paul Keckley: Well, what Alex Azar did when he came in, remember after Tom Price left, is basically lay down some principles. And one of the principles he laid down is that we have to change the incentives of the system. We have to embrace alternative models. As a kind of Washington guy, a lot of people hear that, but they really still think, “Well, that’s just going to be a slow walk and it’s just going to take forever.” What they’ve done, whether you or I guess they call them a never Trumpers or love Trumpers or whatever they are, regardless, they’ve doubled down on incentives. And I think appropriately so. They’ve said, “This is the way the system has to change,” and you’re not getting pushback from centrist across the system. You do have kind of the Medicare-for-All crowd that says, “Let’s just forget all that and let’s go to that.”

    Paul Keckley: We’re not going to that. So I think alternative payments coming out of the last four years of the Obama Administration with the Affordable Care Act to then into Trump’s first four years have really gotten a toehold. I don’t think we’re going back. That will separate winners and losers. And primary care, not surprisingly, is where Larry Merlo justifies to his investors, CEO of CVS, by saying, “Well, guess what? We’re going to be America’s front door. It’s primary care.” And purchases Aetna to achieve that end. So that’s back to your question of some payers versus other payers. There’s a view that the role health insurance plays is transitional and it’ll be integrated into a delivery system of health that may be offered by a CVS or it may be offered by-

    Nigel Ohrenstein: I totally agree with that.

    Paul Keckley: Jefferson or Sentara or whoever, and we’ll be competing that way.

    Nigel Ohrenstein: That’s absolutely right. And if I were a payer today, I would be concerned that my brand will meet up to their brand. So if I’m going to have to deal with an insurance company that carries the health system brand, it’s likely to win nine times out of 10. And so if I were advising a payer today, I would say, “Figure out how to collaborate quicker rather than slower because otherwise you will find the health system is putting its own brand in the market.”

    Paul Keckley: Yeah. And people trust the providers more than they trust the plans. We know that. So-

    Nigel Ohrenstein: Yeah. So have you ever called your plan when you had a sore throat?

    Paul Keckley: Yeah, but they also don’t necessarily think the plans are going to tell you what’s best for you. They think plans may be too money-oriented, or they make money by denying care. So that again is sector by sector. You can kind of pick out the winners and the losers by sector and look at the signals they’re sending operationally, kind of strategically, how they’re addressing their capital sources. And I think primary care is the future of the system as its foundation.

    Nigel Ohrenstein: Right. One of my concerns in some of the models of the companies you mentioned a few moments ago is that they’re very niche, right? That after a very specific part of the health care system. We at Lumeris have a much more holistic approach about managing the whole person, whether that be a Medicare person, a commercial person. As primary care, you need to manage the entire panel and you need to manage them across the life cycle. As you think about the different models out there for transforming primary care, do you agree with me that a holistic approach is truly where we have to aim towards, and there might be others along the way? Or do you look at it differently and say, “I’m more comfortable with different niche players and so be it?”

    Paul Keckley: No, I’ve modeled basically kind of three models on a continuum of the status quo of primary care, which is largely defined by access to MDs and DOs that do physical medicine, up to a very holistic model where behavioral health, nutrition, food insecurity, homelessness, all of those factors are integrated in. And then this kind of middle where you’ve got some of that, but not all of that. I think we are necessarily going to this holistic model because it’s the only way to reduce demand. If we leave this current model in place, then four out of five in the population that don’t have a regular relationship routinely with a primary care provider, are going to find the emergency room or anything goes. And I don’t think that solves the problem. So again, where is capital making its bet? It’s making a bet over here on holistic. It’s saying advanced practice nurses and nutritionist bring a lot of value to primary care. It’s not just MDs and DOs. So-

    Nigel Ohrenstein: It’s fascinating to watch. When we hit December, which we’re in, and we think the year has ended, and I always think that the cycle of healthcare starts for me in January with the JP Morgan conference. And the amount of capital that you now see looking to invest in healthcare at JP Morgan last year compared to five years ago and 10 years ago is absolutely incredible. And-

    Paul Keckley: Yeah. There’s $2 trillion of fresh capital at the disposal of private equity right now. Tech, financial services, and healthcare are the targets. We fare well when compared to financial services because of the fluctuation of currencies and things. So that investor says now within that world, where is the opportunity for a 20% CAGR, a 2% management fee? And I can flip this asset, this is the average 4.7 years. That’s their hold period. So private equity is looking for quick hits that it can flip to move on and deploy its capital elsewhere. Healthcare has got a lot of that. Just think about this, Nigel, if I got really serious in primary care about your problem with anxiety, which influences your weight and your type two diabetes, you can’t solve that problem in one year. But we know from the literature, if you really manage it aggressively in two to three years, you can bend that curve big time.

    Paul Keckley: So you can’t do it in one year. And that’s why I like this notion of direct contracting in primary care. If we put those primaries at risk and we create a holistic model and manage your health, and you become a part of that solution instead of just a user, I think we’re going to see some cool stuff, I think we see a bend of the cost curve that’s substantial, and I think private equity already sees it.

    Nigel Ohrenstein: Paul, we’re going to come back here year after year and measure the progress. Before I end, I like to end with what I call a few quick fire questions. Medicare Advantage-for-All or Medicare-for-All?

    Paul Keckley: Medicare advantage.

    Nigel Ohrenstein: Favorite golf course you’ve played in the world?

    Paul Keckley: Probably Harbor Town, Hilton Head.

    Nigel Ohrenstein: Best piece of business advice you were ever given?

    Paul Keckley: Invest in management.

    Nigel Ohrenstein: If you had $100 million to invest in healthcare now, where would you place it?

    Paul Keckley: At-risk primary care.

    Nigel Ohrenstein: And finally, if you could change anything in healthcare, what would it be?

    Paul Keckley: Ignorance.

    Nigel Ohrenstein: Paul, thanks for joining me today.

    Paul Keckley: Thank you.

    Nigel Ohrenstein: Thanks for joining us today. Don’t forget to follow us on your favorite streamer, whether that be iTunes, SoundCloud, or Spotify. You can also check out www.lumeris.com for more information. This is Nigel Ohrenstein with Tuning Healthcare.

mgordon@lumeris.com

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