Category Archives: Insights

Clara Lending: A Big Swing

Screen Shot 2016-08-17 at 7.12.02 AM

There are few markets larger or more important to the US economy than the consumer mortgage market, which consists of $1.5 trillion in annual originations. Or more emotionally important to consumers, for whom homes represent an opportunity to build stability, a family and a better life.

Or more structurally broken. As was made clear in 2008, the mortgage market is fragmented into tens of thousands of companies in many different layers — brokers, originators, servicers, securitizers, government sponsored enterprises — whose complex interactions add costs, skew incentives and obscure risks, sometimes with devastating results.  

If one were seeking to reimagine this industry from scratch, the core problem to solve is much simpler than all this complexity suggests. On one side of the market you have consumers seeking low-cost financing for their homes. On the other side, you have the U.S. government, which finances more than 70% of consumer mortgages through Fannie Mae, Freddie Mac and the Federal Housing Administration and sets clear variables for the qualified mortgages it will subsidize.  

Why can’t one build an online platform to sit between these two sides of the marketplace, bringing transparency, lower costs, integrated data and a delightful consumer experience? That is is the vision of Clara Lending, a recent investment we’ve made that represents a big swing by its founders in one of the most important consumer markets there is. Clara is not simply reimagining the front end of the consumer mortgage experience. It is reimagining the entire mortgage bank from the ground up with software and data.  

The founders know this market unusually well and are as motivated as much by the social good the company can do as they are by the economic opportunity it represents. Jeff Foster, Clara’s cofounder and CEO, served as a senior policy advisor at the US Treasury during the first term of the Obama Administration to help fix the mortgage market and understand where the core data and incentive problems were. Lukasz Strozek, Clara’s cofounder and Head of Product and Technology, was previously a senior technologist at Bridgewater Associates, the world’s largest hedge fund, where he focused on translating complex processes and risk analyses into software.

If Clara is successful, it will lower mortgage financing costs for consumers and bring transparency and trust to an industry that tends to lack both. It will also bring transparency and integrated data to the mortgage supply chain, reducing macroeconomic risk and providing regulators with a clearer view of the market. It is a company we believe can create enormous value and bring enormous social benefit, the kind of investment we are most eager to make.

Source: http://www.nickbeim.com

DOLLAR SHAVE CLUB: HOW MICHAEL DUBIN CREATED A MASSIVELY SUCCESSFUL COMPANY AND RE-DEFINED CPG

Success has many fathers,
but in this case, there is only one.

Slide 3 of Dollar Shave Club’s Series A Pitch Deck

 

When I first met Michael in June of 2012, I had already seen the DSC launch video like everyone else. I saw his site melt down and watched the video explode and actually go viral. I asked Peter Pham for an intro, which he graciously provided, as Science had seeded and helped incubate the company.

What Michael was creating fit a number of my investment theses. I believed (still do!), in the age of social media, brands must become direct-t0-consumer in order to know their own customers. Having run eMusic and a few other subscription businesses, I knew that subscription is a business model that only actually works for a select few product categories, and that churn rates must be very low (well under 5% monthly) in order for subscription businesses to succeed at scale. I believed it was possible to use asymmetric marketing to injure existing incumbents who overly depend on broadcast advertising and distribute only through retailers. When I saw DSC’s early numbers, I immediately knew they were on to something big. There were many well-known seed investors and large VC funds already on the cap table — I was sure there would be a fight. Strangely, none showed interest. With other investors circling, and with Michael’s blessing, I led Dollar Shave Club’s Series A round and we became partners.

Michael knew all these things too. On top of it, it was clear he had enormous ambition and intended to build a dominant men’s lifestyle brand that went far beyond razors. He intuitively understood how to use content and conversation as marketing at a time when legacy brands were still shouting at their customers with TV ads, purchased without actually knowing their customers. He believed in transparency, making great products, and putting convenience and value first. And he knew it was crucial to build a trusted and beloved brand, albeit one that is entirely direct-to-consumer. His plan was grand, but his formula was simple…

Slide 19 in Dollar Shave Club’s Series A Pitch Deck

 

Michael built an incredible team. Hiring Kevin Datoo as COO very early on was a brilliant move. The team hit (or beat) every number they ever put in front of the Board. Following Javier Hall’s creative direction led to enormously high conversion rates coupled with elegant design. Adam Weber’s marketing strategy helped propel DSC to be the very clear number two razor company in the U.S., second only to Gillette and light-years ahead of the many followers who entered the market later. Janet Song’s obsession with high-quality customer service became a hallmark of the brand.

Success was not always obvious. Despite growing from $7M in revenue in year one to $20M in revenue in year two, no new investor was willing to lead the Series B round. At Venrock, we had such conviction in the team and the formula, we happily led that round too, fortunately increasing our ownership.

From that point on, it was like riding on a rocket ship. We grew to $60M in revenue in year three, and more than $150M in year four. As new competitors entered, we outmaneuvered them. We were eating marketshare, quickly reaching more than 15% U.S. men’s razor cartridges share last year, and getting smarter. As the team introduced new products they designed themselves, our millions of customers happily adopted them. Our software and systems performed admirably, and we ingested a large amount of data every day about our customers and their usage, refining the service and our products. It was a pleasure to watch the company transition from a razor subscription service to a trusted men’s lifestyle brand, increasing margins each step of the way, and serving more than 3 million people.

Many investors shy away from commerce companies. The multiples tend to be low, Amazon is ever-present, and lots of capital can be required to scale. To us, we didn’t see DSC as an “e-commerce” company, but instead as a model for new full-stack consumer products companies. Our investment criteria for this space is as follows:

  • Offer highly-differentiated products with high product margins (In DSC’s case, value and convenience were the differentiators and their product margins are very high. Avoid product categories that can be Amazoned.)
  • Invest only in zero-sum markets (A customer buying your product means they stop buying your competitor’s products. This is clear for DSC, but often lacking in apparel categories, for instance.)
  • Choose categories where incumbents sell only through retailers and have no direct relationship with their actual customers
  • Choose categories where incumbents overly depend on broadcast advertising
  • Choose categories where the CEOs of the incumbents are professional CEOs, not founders (thus are far less-likely to cannibalize existing businesses and adopt new business models)
  • Look for products and services which gather usage data and utilize machine learning to improve over time

Seeing Unilever recognize the importance of Dollar Shave Club’s incredible success and the brilliance of their team is a wonderful outcome for all of us. DSC will now have enormous resources to compete globally and to attain Michael’s original vision. It was an incredible privilege to work with and learn from this team. In addition, the co-investors Michael assembled around the table were a joy to work with. Thank you to Mike Jones and Peter Pham at Science, Kirsten Green at Forerunner, Woody Marshall at TCV, Rick Prostko at Comcast, Marc Stad at Dragoneer and the many others (like Mark Levine) who pitched in to help.

But most importantly, thank you to Michael Dubin. You are one of the greatest CEOs I have ever seen operate. You deserve all the spoils of great success. As you always said, “Great things happen when your ass smells fantastic.”

Michael Dubin at his offices in LA on 7/15/16. michaellewisphotography.com

Michael Dubin at his offices in LA on 7/15/16.
michaellewisphotography.com

Source: http://www.pakman.com

How to Make Our Crazy, Expensive, Amazing, and Uneven Health Care System Better Faster

This post first appeared in NEJM Catalyst.

I am often asked by health care entrepreneurs, policymakers, health system leaders, and clinicians to “explain” how health care in America works — and to offer ideas for how to improve it. Here, within a whirlwind synthesis, is a provocative thought starter for how to make U.S. health care better faster.

The State of U.S. Health Care

The U.S. health system is bigger than the entire economy of France.

The United States spends about $3.2 trillion on health care. This equates to $8,500 per capita, which is twice what other developed countries spend per capita. While health care spending growth has slowed since the 2008 recession, it still exceeds GDP growth. Unique to the U.S. economy, health care experiences negative labor productivity. It is also the largest source of new jobs since the recession, despite flat demand.

We waste the equivalent of the entire health care system of Spain annually.

Many economists believe that about 30% of spending, or about $900 billion per year, is wasted in the U.S. health system. The largest primary driver of excessive spending is high prices rather than high utilization. Prices in the United States are about 60% higher than in other OECD countries. High prices are a result of a fee-for-service reimbursement system based on paying “cost plus,” coupled with the market power of providers and suppliers to raise prices at a 5% CAGR over the past 20 years. Supplier market power is further augmented by a lack of transparency of prices and quality, complexity, insurance benefits with limited cost sharing, supply-induced demand, structural local provider market power, and consolidation. Commercial insurance prices vary by 50%–400% for all services, in all markets, and are seldom correlated with quality.

We compete with Cuba and Costa Rica on quality.

The United States comes in 37th on international comparisons of quality, just behind Cuba and ahead of Costa Rica. Our life expectancy lags behind other OECD countries and is improving less quickly than others.

We only perform better on cancers and preterm babies. We diagnose cancer earlier thanks to more widespread screening programs that are very profitable to providers. We do not do better on chronic diseases. The United States is “less sick” than other OECD countries only because we are younger and have lower prevalence of smoking. We are the only OECD country without national insurance; in 2013, 50 million Americans were uninsured. Moreover, 18% of Medicare patients are readmitted to hospitals for the same condition within 30 days. About half of these readmissions are believed to be avoidable.

Just 10% of patients account for 65% of U.S. health care spending.

A cohort of 35 million Americans who suffer from multiple chronic diseases and spend $90,000 per year, on average, drives most U.S. health care spending. Most of these people are unable to work, poor, and covered by Medicare and Medicaid (referred to as dual eligibles). End-of-life spending accounts for only about 10% of spending. So while people may spend large amounts in hospitals in their last year of life, it is a relatively small contributor to overall spending since only about 2.6 million people die annually. Expensive biologic drugs, cancer drugs, high-tech medical devices, and new technologies collectively account for only 15% of U.S. spending.

Our health care market is massively fragmented.

Health care in America is subscale. Care is organized around roughly 500 disease categories and delivered by loosely organized collections of local providers and hospital systems. The largest hospital system in the country, HCA, accounts for only 5% of the market. While a bit more than half of the roughly 850,000 doctors are employed by local hospitals, those in private practice are in groups of 4–8 physicians on average.

As a result, most doctors care for several types of patients within their specialty, and virtually all hospitals are general hospitals with low volumes of many types of patients. The typical Medicare patient under treatment has 16 doctors involved in his or her care. Nevertheless, scale appears to be one of the most important predictors of quality, with doctors and hospitals performing higher volumes of similar cases delivering better outcomes. Other countries have fewer, larger, and more specialized hospitals, and specialty providers with narrower practice areas.

The Affordable Care Act is a big step forward.

The ACA was designed to expand coverage largely by redistributing about 5% of current Medicare spending to subsidize coverage for up to 30 million uninsured. Newly insured people would be covered by private health plans sold on exchanges or Medicaid (in states that expanded their programs). Most of the uninsured are poor, young, male, and comparatively healthy. The ACA has improved insurance market competitiveness for individuals by standardizing policies (for example, gold, silver, or bronze) and eliminating underwriting, so that all people are able to purchase insurance at prices that vary only by age.

The ACA has made minimal changes to employer-sponsored insurance plans; most Americans will continue to receive health insurance from their employers for the next decade. The ACA has also introduced new payment models containing incentives of varying strength for providers to improve quality and reduce costs. The transition from fee-for-service to alternative payment models is going to take at least a decade, as 90% of payments made in the United States today are still fee-for-service. The Congressional Budget Office expects the net effect of the ACA to be a small slowing of federal health care spending, about $300 billion of deficit reduction, and an expansion of health coverage from 85% of Americans to 95%.

Employers are best positioned to improve the health care market.

Nearly all of the margin for hospitals and doctors comes from patients with commercial insurance. For a hospital, a 1% decrease in commercial patient volume equates to a 10% reduction in EBITDA or surplus. This is a byproduct of commercially insured patients paying prices that are far higher (10%–400%) than Medicare (set payments that are plus or minus 3% net margin for providers) and Medicaid (money-losing for providers). If employers are willing to consolidate their purchasing, they can negotiate substantial discounts from hospital systems and, in some cases, warranties for quality. Tools like reference pricing, direct contracting with specific facilities, bundled payments, second opinions and referrals to higher value clinicians, and benefit designs that reward value-consciousness are promising approaches being used by some employers to reduce spending trends and improve quality.

Some care organizations are succeeding.

There are many examples of higher-quality and lower-cost care delivery models in the United States. Kaiser Permanente, HealthCare Partners, andCareMore, all in California, are held up as national models.

All tend to focus on caring for people with chronic disease to keep them out of the hospital. They are able to achieve 10%–40% lower rates of hospital utilization, fewer diagnostics tests, better medication adherence, and greater likelihood of following clinical guidelines, and much more use of information technology. They also attain high patient satisfaction and, in the case of Kaiser, lower churn than other health plans. All of these systems have in common two elements: capitated reimbursement models, and salaried doctors where margins are maximized by spending less money. In this way they have closed the payment and provision of care loop within one income statement. There is no evidence that these systems deny people needed care — rather, they coordinate care better to avert hospital use, duplicative tests, and unnecessary specialist visits.

What Needs to Be Done?

While the political climate makes additional legislative changes politically unlikely, there is broad agreement that the following changes would be smart:

  • Accelerate the rate at which the payment system shifts from fee-for-service to risk-based approaches, to incentivize lower-cost, more efficient approaches to care
  • Standardize care approaches to reduce unnecessary variation
  • Expand the scope of practice of non-doctor clinicians
  • Utilize technology to reduce duplicative care, increase the use of evidence-based care, exchange data, and coordinate care
  • Release data on drugs, devices, hospitals, and doctor performance at the patient and disease level to reduce information asymmetry
  • Reform the medical malpractice system to eliminate the incentive to perform unnecessary defensive care and reward adherence to evidence-based medicine
  • Reduce administrative cost and complexity of health care transactions
  • Incentivize patients to engage in their care and providers to engage in shared decision-making over treatment plans and goals

Fortunately, all of these changes can be initiated, tested, and proven by states or the private sector without new federal legislation. This is a call for hospitals, health systems, physician organizations, payers, self-insured employers, and state regulators to move ahead with changes to the health care system that will improve quality and reduce costs. There are mutual benefits to be captured, but only if all these parties work in tandem — and to the benefit of patients.

How can technology help?

Information technology is critical for improving the fidelity and specificity of care processes. It is also critical for catalyzing a much more competitive and efficient market.

To lower overall health care costs, payers, providers, and suppliers must employ technology to improve labor productivity similar to other manufacturing businesses. It should be possible to integrate all medical data to deliver patient-specific care plans optimized for simplicity, cost, and quality of life. Moreover, these same systems should be capable of generating services that instruct caregivers on how to achieve these goals. Finally, technology holds promise for engaging patients in the planning, purchasing, and the ongoing monitoring of their care to assure that treatments are working and course corrections are made seamlessly to avert complications. Done well, it may even be possible to make preventive and chronic disease care both safer and cost-efficient. I believe that IT remains the key to making U.S. health care better faster, just as it has most every other sector of our economy.


Source: http://bobkocher.org

How to Make Our Crazy, Expensive, Amazing, and Uneven Health Care System Better Faster

This post first appeared in NEJM Catalyst.

I am often asked by health care entrepreneurs, policymakers, health system leaders, and clinicians to “explain” how health care in America works — and to offer ideas for how to improve it. Here, within a whirlwind synthesis, is a provocative thought starter for how to make U.S. health care better faster.

The State of U.S. Health Care

The U.S. health system is bigger than the entire economy of France.

The United States spends about $3.2 trillion on health care. This equates to $8,500 per capita, which is twice what other developed countries spend per capita. While health care spending growth has slowed since the 2008 recession, it still exceeds GDP growth. Unique to the U.S. economy, health care experiences negative labor productivity. It is also the largest source of new jobs since the recession, despite flat demand.

We waste the equivalent of the entire health care system of Spain annually.

Many economists believe that about 30% of spending, or about $900 billion per year, is wasted in the U.S. health system. The largest primary driver of excessive spending is high prices rather than high utilization. Prices in the United States are about 60% higher than in other OECD countries. High prices are a result of a fee-for-service reimbursement system based on paying “cost plus,” coupled with the market power of providers and suppliers to raise prices at a 5% CAGR over the past 20 years. Supplier market power is further augmented by a lack of transparency of prices and quality, complexity, insurance benefits with limited cost sharing, supply-induced demand, structural local provider market power, and consolidation. Commercial insurance prices vary by 50%–400% for all services, in all markets, and are seldom correlated with quality.

We compete with Cuba and Costa Rica on quality.

The United States comes in 37th on international comparisons of quality, just behind Cuba and ahead of Costa Rica. Our life expectancy lags behind other OECD countries and is improving less quickly than others.

We only perform better on cancers and preterm babies. We diagnose cancer earlier thanks to more widespread screening programs that are very profitable to providers. We do not do better on chronic diseases. The United States is “less sick” than other OECD countries only because we are younger and have lower prevalence of smoking. We are the only OECD country without national insurance; in 2013, 50 million Americans were uninsured. Moreover, 18% of Medicare patients are readmitted to hospitals for the same condition within 30 days. About half of these readmissions are believed to be avoidable.

Just 10% of patients account for 65% of U.S. health care spending.

A cohort of 35 million Americans who suffer from multiple chronic diseases and spend $90,000 per year, on average, drives most U.S. health care spending. Most of these people are unable to work, poor, and covered by Medicare and Medicaid (referred to as dual eligibles). End-of-life spending accounts for only about 10% of spending. So while people may spend large amounts in hospitals in their last year of life, it is a relatively small contributor to overall spending since only about 2.6 million people die annually. Expensive biologic drugs, cancer drugs, high-tech medical devices, and new technologies collectively account for only 15% of U.S. spending.

Our health care market is massively fragmented.

Health care in America is subscale. Care is organized around roughly 500 disease categories and delivered by loosely organized collections of local providers and hospital systems. The largest hospital system in the country, HCA, accounts for only 5% of the market. While a bit more than half of the roughly 850,000 doctors are employed by local hospitals, those in private practice are in groups of 4–8 physicians on average.

As a result, most doctors care for several types of patients within their specialty, and virtually all hospitals are general hospitals with low volumes of many types of patients. The typical Medicare patient under treatment has 16 doctors involved in his or her care. Nevertheless, scale appears to be one of the most important predictors of quality, with doctors and hospitals performing higher volumes of similar cases delivering better outcomes. Other countries have fewer, larger, and more specialized hospitals, and specialty providers with narrower practice areas.

The Affordable Care Act is a big step forward.

The ACA was designed to expand coverage largely by redistributing about 5% of current Medicare spending to subsidize coverage for up to 30 million uninsured. Newly insured people would be covered by private health plans sold on exchanges or Medicaid (in states that expanded their programs). Most of the uninsured are poor, young, male, and comparatively healthy. The ACA has improved insurance market competitiveness for individuals by standardizing policies (for example, gold, silver, or bronze) and eliminating underwriting, so that all people are able to purchase insurance at prices that vary only by age.

The ACA has made minimal changes to employer-sponsored insurance plans; most Americans will continue to receive health insurance from their employers for the next decade. The ACA has also introduced new payment models containing incentives of varying strength for providers to improve quality and reduce costs. The transition from fee-for-service to alternative payment models is going to take at least a decade, as 90% of payments made in the United States today are still fee-for-service. The Congressional Budget Office expects the net effect of the ACA to be a small slowing of federal health care spending, about $300 billion of deficit reduction, and an expansion of health coverage from 85% of Americans to 95%.

Employers are best positioned to improve the health care market.

Nearly all of the margin for hospitals and doctors comes from patients with commercial insurance. For a hospital, a 1% decrease in commercial patient volume equates to a 10% reduction in EBITDA or surplus. This is a byproduct of commercially insured patients paying prices that are far higher (10%–400%) than Medicare (set payments that are plus or minus 3% net margin for providers) and Medicaid (money-losing for providers). If employers are willing to consolidate their purchasing, they can negotiate substantial discounts from hospital systems and, in some cases, warranties for quality. Tools like reference pricing, direct contracting with specific facilities, bundled payments, second opinions and referrals to higher value clinicians, and benefit designs that reward value-consciousness are promising approaches being used by some employers to reduce spending trends and improve quality.

Some care organizations are succeeding.

There are many examples of higher-quality and lower-cost care delivery models in the United States. Kaiser Permanente, HealthCare Partners, andCareMore, all in California, are held up as national models.

All tend to focus on caring for people with chronic disease to keep them out of the hospital. They are able to achieve 10%–40% lower rates of hospital utilization, fewer diagnostics tests, better medication adherence, and greater likelihood of following clinical guidelines, and much more use of information technology. They also attain high patient satisfaction and, in the case of Kaiser, lower churn than other health plans. All of these systems have in common two elements: capitated reimbursement models, and salaried doctors where margins are maximized by spending less money. In this way they have closed the payment and provision of care loop within one income statement. There is no evidence that these systems deny people needed care — rather, they coordinate care better to avert hospital use, duplicative tests, and unnecessary specialist visits.

What Needs to Be Done?

While the political climate makes additional legislative changes politically unlikely, there is broad agreement that the following changes would be smart:

  • Accelerate the rate at which the payment system shifts from fee-for-service to risk-based approaches, to incentivize lower-cost, more efficient approaches to care
  • Standardize care approaches to reduce unnecessary variation
  • Expand the scope of practice of non-doctor clinicians
  • Utilize technology to reduce duplicative care, increase the use of evidence-based care, exchange data, and coordinate care
  • Release data on drugs, devices, hospitals, and doctor performance at the patient and disease level to reduce information asymmetry
  • Reform the medical malpractice system to eliminate the incentive to perform unnecessary defensive care and reward adherence to evidence-based medicine
  • Reduce administrative cost and complexity of health care transactions
  • Incentivize patients to engage in their care and providers to engage in shared decision-making over treatment plans and goals

Fortunately, all of these changes can be initiated, tested, and proven by states or the private sector without new federal legislation. This is a call for hospitals, health systems, physician organizations, payers, self-insured employers, and state regulators to move ahead with changes to the health care system that will improve quality and reduce costs. There are mutual benefits to be captured, but only if all these parties work in tandem — and to the benefit of patients.

How can technology help?

Information technology is critical for improving the fidelity and specificity of care processes. It is also critical for catalyzing a much more competitive and efficient market.

To lower overall health care costs, payers, providers, and suppliers must employ technology to improve labor productivity similar to other manufacturing businesses. It should be possible to integrate all medical data to deliver patient-specific care plans optimized for simplicity, cost, and quality of life. Moreover, these same systems should be capable of generating services that instruct caregivers on how to achieve these goals. Finally, technology holds promise for engaging patients in the planning, purchasing, and the ongoing monitoring of their care to assure that treatments are working and course corrections are made seamlessly to avert complications. Done well, it may even be possible to make preventive and chronic disease care both safer and cost-efficient. I believe that IT remains the key to making U.S. health care better faster, just as it has most every other sector of our economy.


Source: http://bobkocher.org

The Coming Battle over Shared Savings — Primary Care Physicians versus Specialists

This paper was co-authored with Anuraag Chigurupati.

Abstract: New health care payment models will create economic winners and losers. As primary care physicians are rewarded for contributing to savings, specialists who fail to develop the capabilities to drive value improvement will face a threat to their incomes and practices.

Read the full article in The New England Journal of Medicine.


Source: http://bobkocher.org

The Coming Battle over Shared Savings — Primary Care Physicians versus Specialists

This paper was co-authored with Anuraag Chigurupati.

Abstract: New health care payment models will create economic winners and losers. As primary care physicians are rewarded for contributing to savings, specialists who fail to develop the capabilities to drive value improvement will face a threat to their incomes and practices.

Read the full article in The New England Journal of Medicine.


Source: http://bobkocher.org

What will happen when PCPs are paid like Quarterbacks?

This post first appeared in The Evidence Base. It was co-authored with Anuraag Chigurupati.

By 2019, more than 50% of all Medicare physician payments will be delivered through non-fee-for-service payment models as the move to new payment models accelerates with the implementation of the Medicare Payment Reform (MACRA) legislation.

Most of these models position primary care physicians (PCPs) as the “quarterbacks” of the healthcare team- coordinating care to generate better quality at lower cost. With this new team dynamic, there is an implicit deal made: PCPs will create more economic value through better managing cost and quality of services and in return, they, or whoever employs them, will earn additional revenue in the form of shared savings, bonuses, or as profits in capitation. Not surprisingly, PCPs have strongly held that they deserve large portions of the additional value they generate. In primary care-led practices that performed well in early versions of these risk-based payment models, PCPs have been earning substantially more money—often more than specialists have in their markets.

The challenge with increasing pay to PCPs is that money used to pay PCPs is zero-sum: the payer’s “shared savings” are at the loss of some providers’ revenues. In this case, providers include hospitals, labs and specialists and their respective losses are the result of fewer hospital stays, labs and images, and procedures.

In a perspective article published July 14, 2016 in the New England Journal of Medicine we discuss the magnitude of losses that this income redistribution is going to place on hospitals, hospital-centric health systems employing lots of specialists, and private practice specialists. We illustrate that small, and plausible, changes in referrals or commercial insurance prices will have a large impact on specialist’s incomes. For example, a 10% reduction in Medicare patient imaging demand equates to a $35,000 reduction in a radiologist’s income, and a 5% commercial insurance price reduction for interventional cardiology equates to a $25,000 reduction in a cardiologist’s income.

Hospitals and health systems will have a hard time responding to both the demands of their PCPs and specialists. PCPs will be tempted to flee to PCP-led groups offering to pay them much more than they can earn in specialist- or hospital-centered groups. Specialists will want to be rewarded for avoiding RVUs (relative value units associated with care they deliver) that erode savings and in some cases will have income guarantees negotiated in the fee-for-service era. Even where specialists do not have income guarantees, the prospect of lowering wages seldom goes smoothly. Some health systems may be able to “right size” their specialist workforce to preserve incomes, but reducing specialists is—to the say the least—very hard to do.

Regardless, if hospitals and health systems do not tackle these thorny specialist income challenges, they are likely to lose their PCPs or lose unsustainable amounts of money by paying PCPs more and specialists the same when their payers are keeping up to 50% of the lost revenue as their “share” of the savings.

Our perspective discusses both offensive and defensive strategies that specialists could take to reduce the risk that they lose their jobs, lose their referrals, or lose their incomes. In all cases, the first step for specialists is to objectively understand where they perform today in terms of cost, quality, total cost over the course of a year, for specific patient populations (Medicare, commercial, Medicaid) and for specific diseases or procedures. With this insight, they can figure out how to achieve competitive differentiation. For some, it will mean having a reliably low cost (e.g., for routine procedures or imaging). For others it will be by delivering objectively higher quality, at higher prices, when quality matters (e.g., for complex surgeries or medical conditions). Quality may also mean coordinating a patient’s care across a full episode, or helping to avoid hospital readmissions or long stays in skilled nursing facilities. Finally, others may differentiate around their institutional brand and ability to drive self-referrals (e.g., Hospital for Special Surgery).

For PCPs, they should rejoice in the reality they can finally be paid like the quarterbacks they have dreamt of becoming. That said, it is not a foregone conclusion that they will be paid like a quarterback, unless they fully redesign their practice to manage cost, quality, and a patient-level reliably. They will also have to embrace team-based approaches, data analytics, and expanded patient access (both seeing patients in person as needed without regard for the schedule and by email, text, video as often as necessary to keep them out of the hospital). The potential for higher incomes comes with greater accountability for performance. If they fall short on any of these fronts their incomes could fall, even relative to today, as losses from poorly managed risk comes out of their pockets.

Both specialists and PCPs face immediate challenges as the new models for delivering and paying for care continue to change the health care landscape. The transition is going to be painful for many. We think that many hospital-led health systems will unravel over these physician income tensions just as they did in the 1990s.

But we are optimistic that these new risk-based payment models are better approaches for delivering value than the current fee-for-service system. We think that tighter relationships aligned around cost and quality between PCPs and specialists will lead to genuine teamwork based on mutual interest in care coordination, data sharing, and ultimately patients engaged in achieving their best possible clinical outcomes.


Source: http://bobkocher.org

What will happen when PCPs are paid like Quarterbacks?

This post first appeared in The Evidence Base. It was co-authored with Anuraag Chigurupati.

By 2019, more than 50% of all Medicare physician payments will be delivered through non-fee-for-service payment models as the move to new payment models accelerates with the implementation of the Medicare Payment Reform (MACRA) legislation.

Most of these models position primary care physicians (PCPs) as the “quarterbacks” of the healthcare team- coordinating care to generate better quality at lower cost. With this new team dynamic, there is an implicit deal made: PCPs will create more economic value through better managing cost and quality of services and in return, they, or whoever employs them, will earn additional revenue in the form of shared savings, bonuses, or as profits in capitation. Not surprisingly, PCPs have strongly held that they deserve large portions of the additional value they generate. In primary care-led practices that performed well in early versions of these risk-based payment models, PCPs have been earning substantially more money—often more than specialists have in their markets.

The challenge with increasing pay to PCPs is that money used to pay PCPs is zero-sum: the payer’s “shared savings” are at the loss of some providers’ revenues. In this case, providers include hospitals, labs and specialists and their respective losses are the result of fewer hospital stays, labs and images, and procedures.

In a perspective article published July 14, 2016 in the New England Journal of Medicine we discuss the magnitude of losses that this income redistribution is going to place on hospitals, hospital-centric health systems employing lots of specialists, and private practice specialists. We illustrate that small, and plausible, changes in referrals or commercial insurance prices will have a large impact on specialist’s incomes. For example, a 10% reduction in Medicare patient imaging demand equates to a $35,000 reduction in a radiologist’s income, and a 5% commercial insurance price reduction for interventional cardiology equates to a $25,000 reduction in a cardiologist’s income.

Hospitals and health systems will have a hard time responding to both the demands of their PCPs and specialists. PCPs will be tempted to flee to PCP-led groups offering to pay them much more than they can earn in specialist- or hospital-centered groups. Specialists will want to be rewarded for avoiding RVUs (relative value units associated with care they deliver) that erode savings and in some cases will have income guarantees negotiated in the fee-for-service era. Even where specialists do not have income guarantees, the prospect of lowering wages seldom goes smoothly. Some health systems may be able to “right size” their specialist workforce to preserve incomes, but reducing specialists is—to the say the least—very hard to do.

Regardless, if hospitals and health systems do not tackle these thorny specialist income challenges, they are likely to lose their PCPs or lose unsustainable amounts of money by paying PCPs more and specialists the same when their payers are keeping up to 50% of the lost revenue as their “share” of the savings.

Our perspective discusses both offensive and defensive strategies that specialists could take to reduce the risk that they lose their jobs, lose their referrals, or lose their incomes. In all cases, the first step for specialists is to objectively understand where they perform today in terms of cost, quality, total cost over the course of a year, for specific patient populations (Medicare, commercial, Medicaid) and for specific diseases or procedures. With this insight, they can figure out how to achieve competitive differentiation. For some, it will mean having a reliably low cost (e.g., for routine procedures or imaging). For others it will be by delivering objectively higher quality, at higher prices, when quality matters (e.g., for complex surgeries or medical conditions). Quality may also mean coordinating a patient’s care across a full episode, or helping to avoid hospital readmissions or long stays in skilled nursing facilities. Finally, others may differentiate around their institutional brand and ability to drive self-referrals (e.g., Hospital for Special Surgery).

For PCPs, they should rejoice in the reality they can finally be paid like the quarterbacks they have dreamt of becoming. That said, it is not a foregone conclusion that they will be paid like a quarterback, unless they fully redesign their practice to manage cost, quality, and a patient-level reliably. They will also have to embrace team-based approaches, data analytics, and expanded patient access (both seeing patients in person as needed without regard for the schedule and by email, text, video as often as necessary to keep them out of the hospital). The potential for higher incomes comes with greater accountability for performance. If they fall short on any of these fronts their incomes could fall, even relative to today, as losses from poorly managed risk comes out of their pockets.

Both specialists and PCPs face immediate challenges as the new models for delivering and paying for care continue to change the health care landscape. The transition is going to be painful for many. We think that many hospital-led health systems will unravel over these physician income tensions just as they did in the 1990s.

But we are optimistic that these new risk-based payment models are better approaches for delivering value than the current fee-for-service system. We think that tighter relationships aligned around cost and quality between PCPs and specialists will lead to genuine teamwork based on mutual interest in care coordination, data sharing, and ultimately patients engaged in achieving their best possible clinical outcomes.


Source: http://bobkocher.org

Running Through Walls: 6Sense’s Amanda Kahlow on values that stick

For Amanda Kahlow and 6Sense, one of the most important aspects of the company is its culture. The values of the company have been baked into the operations of the team, how it interacts with itself and its customers.

Kahlow says it boils down to family — an acronym for fun, accountability, mindfulness, integrity, love and yes. And as a company, before they start meetings, Kahlow and her team acknowledges a member of the group for embodying the values of the company.

Every day, the executive staff acknowledges one of its own for adherence to the values… including Kahlow, who said, “Everybody wants to hear when you’re doing a good job or when you’re embodying love to somebody.”

This extremely positive culture even encompasses 6Sense’s approach to firing folks. “Letting someone go is a positive experience for everyone,” says Kahlow. “We like to wish everyone well and leave them with the highest positive intention for their future.”

In the tight labor market of San Francisco, the emphasis on corporate culture extends into the hiring process and maintaining a team culture through off-sites.

“We actually get to the biggest core issues that we have,” Kahlow says of the company’s multiple off-sites that management uses to engage and attract different views and strategies for the company’s vision and mission.

Finally, Kahlow sees her experience as a female entrepreneur has been a benefit rather than a disadvantage. “Find your true self and believe in yourself and love yourself.”