Featured Guest: Stephen Parente, PhD
What he does: Dr. Parente is a health care economist, Professor in the Department of Finance and the Minnesota Insurance Industry Chair of Health Finance in the Carlson School of Management at the University of Minnesota, as well as Associate Dean of the Global Institute. As a finance professor, he specializes in health economics, information technology, and health insurance. He has been the principal investigator on large government and foundation funded studies regarding consumer-directed health plans, health information technology, and health policy micro-simulation.
On risk: "There's uncertainty in everything that we do. But in health care there's even more uncertainty. And when I look at risk from an economist standpoint, I can't go very far without thinking about risk aversion, meaning that different people have different risk tolerances … The way I look at risk is that if you're trying to mitigate it, you're trying to buy it off, you're trying to buy off the risk factors … Providers are at enormous risk - malpractice issues, quality issues, negligence, dissatisfied patients, legal concerns, not enough staffing, cost of operation and doing business"
Scott Nelson 0:01
Welcome to The Risky Health Care Business Podcast, where we help you prepare for the future by sharing stories, insights, and skills from expert voices in and around the United States health care world with a mission to inform, educate, and help health care organizations and individuals, ranging from one doctor practices to large integrated systems and organizations throughout the dental, medical, and veterinary health care industry with risk, while hopefully having some fun along the way. I'm your host, Scott Nelson, a guy that grew up in Ohio and has been working all over the United States during my 20 plus year and counting career in the health care industry, with a commitment to accelerating health care performance through creativity, not just productivity. Let's dive in.
In health care, terms like resilient, strong, capacity, contraction, and elasticity can be used in clinical or diagnostic settings. Those same words also translate into economics. Difficult economic conditions were concerns in health care in 2022 and have continued during 2023. Conditions created and influenced by things like inflation. Health care inflation and affordability hurts growth and can cause uncomfortable responses like layoffs or patients feeling less prepared to handle health care costs. Capital. Capital has become more expensive, which can present challenges for transformation like technology, and financial institutions place constraints on investments and capital availability. Labor. Labor shortages are more than an economic risk. Labor shortages - such as nursing - can create clinical risk. And supply. Similar to labor, supply shortages are more than an economic risk. And not just PPE, drugs, syringes, or contrast media, hospital and service closures are decreasing the availability of services. Each of those considered individually or collectively impact a health care business's performance and ability to absorb an unplanned shock event. There are examples across the country where labor and supply expenses are growing while revenues and margins decline. In the past, health care was thought to be a recession-proof industry. But what we're learning is that health care needs more than a recession-ready strategy. Is your health care business prepared to withstand whatever the future may bring?
Today I'm speaking with Dr. Stephen Parente. Dr. Parente is a professor in the Department of Finance and the Minnesota Insurance Industry Chair of Health Finance in the Carlson School of Management at the University of Minnesota, as well as Associate Dean of the Global Institute. As a finance professor, he specializes in health economics, information technology, and health insurance. Dr. Parente has been the principal investigator on large government and foundation funded studies regarding consumer-directed health plans, health information technology and health policy micro-simulation. His work has been published in peer-reviewed journals on health reform, medical technology assessment, and consumer choices in health and wealth management, including the Journal of the American Medical Association, the Journal of Health Economics and Medical Care. In Washington, DC, he served in government as Chief Economist for Health Policy and Senior Economist on the Council of Economic Advisers at the White House, Senior Adviser to the Secretary for Health Economics in the Department of Health and Human Services, and Adviser to the Congressional Budget Office. Let's talk with Dr. Parente about risk in health care.
Dr. Parente, welcome to the show.
Dr. Stephen Parente 3:23
Happy to be here, Scott. Thank you.
Scott Nelson 3:25
Before we begin our conversation about risk in health care, I'd like to take a moment to talk about your work as a health care economist. What is a health care economist, your work, and what do you do with health care?
Dr. Stephen Parente 3:33
So a health care economist is just a regular old economist. So we look at what how the economy works, we look at in terms of health care, we look at things like the insurance market, we look at how things get priced, say premiums, or how health care gets priced in terms of medical care. We also look at efficiencies in the market where things can cost too much and not deliver enough value. We get involved in looking at terms of production and outcome and quality of care. And for better or for worse, we play a pretty big role both in the public and private sector. In the private sector, more in terms of setting prices and insurance and finance and hospitals. In the public sector, we are usually thought of as the arbiters for is something going to cost too much money, should we cover a new medical technology. And that's not just in the US but but globally we play a pretty big role.
Scott Nelson 3:33
You've spent your career as a professor and principal investigator in subjects like health economics, health information technology, and health insurance. If I'm thinking about US health care and attempting to think about in simple economic terms, so if I'm going to use the law of supply and demand as a starting point for our conversation about risk, if supply is providers, and there's over 200,000 dentists in the US, there's over a million physicians, there's over 6,000 hospitals, and then if I think of those as the supply, and then the demand is patients, the US has a population of over 331 million people. As a health care economist, is that a way to quantify and think about the US health care market?
Dr. Stephen Parente 4:58
I think it is but I think it's also important to think that would be the way you think about any market that's more of a retail market or a cash market. And I think that when I talk to folks, whether it's students or even just family, and they kind of ask what I'm doing and why the market is different for health care, it's that usually the demand for the services that you want are typically not well understood, because they are more often than not a lot of them are scientific based. There's medical procedures or surgical procedures. So the consumer, when they walk into a Target knows what they want. The consumer when they think and they're hurting, and they don't know why, even moreso if they're unconscious, they don't really know what they want. So that's one big difference. As economists would describe it an information asymmetry problem where the physicians or the dentists know more a lot more than the average consumer. Whereas it's usually a level playing field between the Target person who's helping me shop and me. The other thing is cost. Typically, you go into Target, it's a cash economy. No one's taking out an insurance policy to buy something at Target. And while there are some health economies like in India, it is a cash economy for medical care. For the most part, medical care has gotten to a point of price point for procedures where you just don't have the money out of pocket. And because it's not a frequent thing for having these super expensive procedures. It's a relatively rare event, but also an expensive event that actually fits really well a model of insurance, which is a third party in this whole gambit to essentially finance our health care system. So that's the fact that it's rare, expensive, there's an information asymmetry problem invites essentially a third party financing model, such as private insurance, or public insurance.
Scott Nelson 6:42
Now using numbers to give an idea about potential risk impact, so what's at risk and US health care from a numbers and dollars perspective. I mentioned the US population is over 331 million, historical national health expenditures have been around $4.3 trillion or 18% of GDP, 41% of the US population have medical debt estimated to total around $88 billion, providers have student loan debt, institutions have debt, there's provider revenue and income. All those things are at risk every day. What numbers tell what is at risk for doctors, hospitals, and other actors and stakeholders in US health care?
Dr. Stephen Parente 7:17
I think you're most the numbers you just talked about really talking about the scale and the risk is. I mean, the fact that it's a $4.3 trillion economy shows just how much demand is in that market. Now, you could argue whether or not 4.3 trillion represents an economy that's the right price, that it's too expensive for some of those services, or they could be negotiated differently. There's a separate question on what value they're going to get back. But in terms of the amount of debt exposure, you know, that's a lot of that is simply a reflection of, in my mind, monopoly pricing that occurs in this particular market. But I mean, at the same time, that monopoly pricing is the very thing that encourages the smartest people in the US and other places to get into this market. The downside of it is that there is there is that debt associated with it. Now, when we talk about medical debt, I mean, that's a deeper conversation, like how much of that medical debt is really that $80 billion, let's say? Or is it more likely to be, you know, $5 billion dollars, once we actually look into what the differences between, if you will, the retail price and the wholesale price or the actual cost of doing business of those particular institutions.
Scott Nelson 8:26
In general, how do you view and think about risk in health care?
Dr. Stephen Parente 8:29
The way I look at risk and health care is is fundamentally a way of saying that, you know, we there's uncertainty in everything that we do. But in health care there's even more uncertainty. You don't know when you're going to, you're going to be sick or not. And when I look at risk, from an economist standpoint, part of it can't I can't go very far without thinking about risk aversion, meaning that different people have different risk tolerances, and honestly, that'll be dependent on the state of their life that they're in. So they're very young, you don't really think that much about risk and all the consequences, and you might do really stupid things and that can lead to stupid outcomes. But when you get older, you become typically more risk averse. Sometimes that's just related to the money that you have you realize how much you have gained in life and how much you could lose if you don't have some level of income. So and health is a major factor of what a risk in terms of all the things that you would encounter in your life, whether it be income or health that are going to jeopardize your lifestyle. And the way I look at risk is that, you know, if you're trying to mitigate it, you're trying to buy it off, you're trying to buy off the risk factors. That's why I quickly go to insurance or, you know, in a sense, you can insure by buying an insurance policy or you could self insure by making a rainy day fund. There's nothing that much different. Someone has a beater of a car, and they know their car is going to die, but they need their car to get the work. If they're able to they're going to save some money so that when the beater of a car dies they can buy a better beater car to keep going.
Scott Nelson 9:55
You mentioned insurance and you have a lot of background in insurance. I'm thinking of where is risk in health care. So what are the areas that are or should be of concern to health care doctors, providers, and the organizations, to where if they are trying to be proactive instead of reactive a lot of times sometimes I'll think about insurance as a, is a reactive tool, you get an insurance policy in advance of something happening to cover you or to help you out once that that event takes place. Where do you see risk throughout the health care system?
Dr. Stephen Parente 10:25
Well, the providers are at enormous risk. We just talked about they as suppliers, just because of an array of issues that could come at them. I mean, one of the most common things for physicians or dentists, well, more physicians than anything else is malpractice issues, and some are a quality of issue that occurs, you know, and sometimes that could really, truly be for negligence. Sometimes it could just be a really, really complicated case. And you don't have full information and you're, you're in the heat of the moment. And you, you're concerned about what it could do. And you there's nothing in the United States and many other countries that prevents a patient from being dissatisfied, and then actually creating that as a legal concern for you. So there's that risk that can occur on that basis, there's also just quality of care risks, there's there are risks of not having enough physician staffing, not enough support people that basically be able to just make ends meet as a doctor. One thing I've been noticing is that it's really, really hard now for physicians to be solo practitioners, if at all, because of just the cost of operation, the risk of just keeping in the operation of all the things that they have to do, just to keep the money flow going from a private insurance standpoint, because very little of the health economy is cash. And so that the risk of doing business, if you don't have, you know, an adequate infrastructure that's pretty expensive, actually, to maintain, is very high.
Scott Nelson 11:47
With the points of the malpractice and the dissatisfied patients and the quality of care, even including, I would say, scope of services and when you bring in the staffing scope of services with advanced practice providers, how can risk negatively affect the doctor or the organization? If those three examples, what happens if one of those things comes to fruition and actually happens how could that affect those groups in a risk situation or negatively?
Dr. Stephen Parente 12:12
Well, there's few things that can happen. I mean, one is for the advanced nurse practitioners and other allied health professionals that are really doing the work of what traditionally a general practitioner did. And the good news in that in terms of risk is that it allows potentially you as a physician to have more time available to mitigate some risks, and really spend more time with the patient to see what's going on. You know, sometimes there is no substitute, if you're a physician for getting to know the patient, and relying upon a set of chart notes that are written up by somebody else, and may not have gotten the level of training that that person had to really understand the full diagnosis of what's going out there. That's sort of the pro and con of having all the support staff personnel. It really depends a bit on the nature of the patient that that practice is operating with. If the practice is a fairly general practice, where you really could just substitute in essentially a nurse practitioner for a general practitioner, it's probably okay. But it gets for complex diagnosing, where there could be multiple disease states going on and a specialist is available, sometimes that gets more complicated and the advanced nurse practitioner unless they're really deep into a particular space is not going to potentially be as helpful. So to your point about the scope of practice has allowed essentially more and more practitioners to get into the space across all states states, each state has its own scope of practice laws, but they at the same time, you know, there it has to fit the right challenge that practitioners are dealing with at the moment. And one last comment, there are some things where there's just not enough capacity and advanced practice practitioners or even telemedicine is really the one of the better ways to try to mitigate that because in the absence of having nothing it's better to have something there. But at the same time, one of the challenges practitioners might have or just the corporate side of this is that everything is governed by state law and reciprocity for telemedicine, for example, is still you know, it waived for the for the pandemic but it hasn't gone much beyond that. And I think that if telemedicine is going to realize it's potential there has to be more reciprocity, if not just national guidelines
Scott Nelson 14:30
You've studied, published, and talked about waste, fraud and abuse. How does addressing and reducing something like waste, fraud, and abuse, which I see as a risk, and other risks improve health care?
Dr. Stephen Parente 14:40
The biggest way waste, fraud, and abuse can be mitigated essentially, what it I'll take a step back, how it improves health care really is the core question you're asking is that it will make the transactions that are occurring in health care and the care delivered a true representation of what the care is. So my concern about waste, fraud, and abuse is not so much that a physician or practitioner did something wasteful, per se, I mean, so one person's definition of waste could essentially be another person's way of being thorough in terms of making sure everything is okay. And granted, there is sometimes excessive defensive medicine that might go on, that could make costs go higher. But what concerns me the most about fraud is like true fraud. And this is something where most practitioners should really pay attention to because the true fraud, and I'm thinking about is phantom claims, things that are submitted for reimbursement under some practitioners name that never occurred. It doesn't take that much to fool, unfortunately, an insurance system, whether it be Medicare, or private insurers, if you have all the right credentials, and can submit in some reimbursement and essentially get paid back. The people who do this are fairly clever about how they're doing it, they don't, they operate on the principles of not being too greedy, you know, not putting in like, you know, five fake CABG procedures and knowing that that's going to root them out. It's going to be the type of stuff you see in credit card fraud, where just a little bit of siphoning off in different places, well get that to happen. And unfortunately, that, you know, that could actually cost the health care system, my estimates are somewhere between 50 to $100 billion a year, that could otherwise be spent in other ways. And it also, if you're a practitioner, you got to be careful because you're for all, you know, your number was used, and you didn't even know your number was being used to care for a patient that's out there.
Scott Nelson 16:33
What are potential obstacles and challenges to tackling that or taking that on?
Dr. Stephen Parente 16:38
The some of the biggest obstacles, honestly, is it really infrastructure to share information to find better analytics to see what's going on. So one thing that I've written a lot about on this topic is really drawing analogies for success from the financial services industry when they, particularly looking at credit card fraud in the early 80s and early 90s, decided to work collaboratively in the financial services industry to really stamp out fraud on a on a pretty big scale. And this is before the era of you know, AI and big computing, Big Data computing, we do this, but was the banks agreed to pool their data in real time to see transactions that are actually going on so that they can identify systematically fraud occurring on multiple different cards or platforms that were going on. The functional equivalent of that in health care is for all the insurance companies to allow their claims transaction platforms to be visible to any one of them to mitigate waste, fraud, and abuse. And it doesn't happen. The systems that are out there right now, while they are electronic, they are slow. They are not operating in real time. There's a question of you know, is that even possible? Is health care too complicated? Of course it's possible. There are more credit card transactions to go through, then claims data in any given year period. It's just a question of the if you're asking for barriers, the insurance companies basically getting to a point of pain, the way the banks got to at a certain point in time to say like, Ah, I think we need to collaborate. The other issue too, is that the the insurance companies still see their data as an asset that they want to monetize for their own purpose. And the banks got over that, the banks realized they were losing more money, and it made more sense to actually collaborate and actually help them to get better customer relations through the collaboration than to hoard their data.
Scott Nelson 18:27
That's an interesting point with the data because I've talked with some groups and individuals in the dental care space that talk a lot about how they don't have a lot of data to make decisions on to utilize in a way that helps patient outcomes, to help you know with setting fee schedules setting charge masters, which is very far behind where the medical care space is, and you know, with medical care uses data for everything. And you know, you're able to take a look at that insurance information or your your tracking on on your own. It's very distinct and different between those two. And does that come from the owners of the data wanting to maintain that control and not wanting to you know, I think a lot of the people think that well, they're not going to share the information because provider reimbursement is proprietary, and they don't want everybody else to know, since these are individually negotiated. So the owner wants to hold on to maintain control that data. Do you see that sense?
Dr. Stephen Parente 19:23
Yeah, I do. I see that exact sense. I see that most insurance companies, for the most part, look at that data as proprietary as proprietary contracts. And to be fair, some of the providers look at the prices as proprietary as well because they negotiated with the insurers. However, there are, you know, two new initiatives that came out of the most recent presidential administration in that price transparency for medical care. So one was designed for hospitals to reveal their prices. And that's been happening for about two and a half years. And that's there's been some research articles out there and the Wall Street Journal has covered this in terms of looking at variations in terms of seeing what's there but that wasn't that comprehensive. The one that actually I spent some my own time working when I was in the previous administration doing it was having the insurance companies disclose all their negotiated prices on a monthly basis. So that gets exactly to your point that if the insurers sort of may look at this as proprietary, effectively what this rule from the federal government that is saying like, well, no, that consumers should be able to see that information. And actually, they are now required to unless it pays very substantial fines, get that information out the door. Now that that rule went into effect in July 1 of 2022, the insurers are for the most part conforming to the letter of the law, but they are also making the data pretty challenging for the average user, let alone the average super user researcher to use, you know, probably in a concerted or at least a deliberative fashion. So that's actually an area where I think there could be vast improvement going forward. But at least it it's a, it's a creek into the door of saying, look, if the prices are no longer proprietary, and the data has real value to show quality care outcomes, particularly for the patients, why can't that be more available? Because the other thing that's actually, it was in that previous administration, at least the rules that came out kind of a joint between the Obama administration and Trump, that during the Obama administration, 21st Century Cures Act that passed the show for better data access, the Trump folks wrote the rules that came out in 21st Century Cures, and more or less codifies forever, saying the patient owns their own data. And while there could be information blocking from providers and insurers, as long as there's not a unfair price for that blocking, that data should be owned by the patient, and they should see their whole history, even the claims data that's very comprehensive. Now, there hasn't been much made of that yet. But at least now, there is a federal requirement that if essentially, someone makes the ask of the insurance company, that data has to be provided electronically.
Scott Nelson 21:56
Thinking about from a price transparency, a different angle of that I've had, specifically surgeons for a long time in my career have told me when they talk about price for transparency, and, and having to come up with a figure of what their that surgical procedure is going to cost, multiple surgeons have told me over time is that I'm not going to know what's going to happen until I get in there. And so I'm going to come out and say, I'm gonna go in and fix your leg, or you mentioned like a CABG, I'm gonna go in there, and maybe something else happens. And I'm have all these other codes that are going to come up that I'm not going to know. So, you know, you go in with one thing and something else happens, from their perspective, a price transparency piece, it's a little bit more of a challenge to give that information without knowing what's going to happen once I get in.
Dr. Stephen Parente 22:40
Yeah, I mean, that's fair. But the reality is like, there usually is one major procedure upon which the biggest surgeons, right, there's usually one major procedure that everything hangs around. And you can then use that as an identifying procedure, and then look at all the things in the data that is related to it, including follow up post operative care, even rehab, and you can put a price point on it, you can put a range on it. And we did that actually, when I was the Chair of the Health Care Cost Institute, we had an initiative still is out there called guru, where we got all the data did exactly that and showed the price ranges, and even the regional ranges that were there. Now, whether that's true, that kind of care practitioners say like, Hey, here's the price, I'm going to negotiate for your CABG and everything that comes with you. If you're a fairly complicated case, I'll give you a fixed price value of x. That mean, that might be more complicated. You know, we don't see auto mechanics do that where, you know, if you're gonna get a new transmission here, is the the fixed price of that or get pretty close to that. I think the there are certain services that are, let's say, are considered shoppable. And CMS Center for Medicare Medicaid Services, listed at least 70 shoppable services that are discrete shoppable events that are usually under a high deductible health plan, say under the $5,000 price point, they could be thought of as discrete events that you could price just like you know, when you go into, you know, the to buy something at a deli or something else like in, you know, pretty much what you want or even go to Starbucks. There's something on the board, it's clear what it is. That's the attempt at the 70 shoppable services was designed to do. I have a paper that just came out in the journal Inquiry showing that, you know, if you managed to negotiate just you know, closer to the cash price, rather than the insured price of those services, get halfway there for only half of those services that could save the American taxpayer American consumer I should say broadly defined 80 billion a year out of a $4.3 trillion economy. And that's just in the under 65 market. Nothing to do with Medicare, you know at all.
Scott Nelson 24:49
A recent Axios piece titled “The next driver of inflation: health care” quotes a JP Morgan note that stated: “as many medical care prices are set in advance, the combination of higher wages, prior supply chain disruptions to medical supplies, and post-pandemic increases in utilization are still pushing up health care inflation…while the outlook for medical inflation remains uncertain – on net – we see risks skewed toward further increases that also contribute to a narrower wedge between CPI and PCE inflation.” For the listener, CPI stands for the Consumer Price Index and PCE is Personal Consumption Expenditures. Dr. Parente, other topics you've written and published on are wage growth for the health care workforce, as well as demand for health care workers. So I'm interested in your thoughts about health care inflation. How does health care inflation affect health care providers and organizations?
Dr. Stephen Parente 25:39
Depends how you look at it. Usually health care inflation on wages usually gets people paid more money. I mean, look, the reality is health care inflation has, with very rare exception of only one or two years in the course of last 50/60 years, always been higher than regular inflation. And so, you know, there a part of it is simply the fact that new medical technologies come out. And the standard for reimbursing a new medical technology is whether it is efficacious, whether it is effective, at what it is doing. It is not whether or not it is cost saving, that it's replacing an older technology that is cheaper. So, and then that new technology is cheaper than the older technology. And because of that, the good news is that we're getting better technologies, but there's not necessarily a way of saying, you know, we're gonna get them at a cheaper price. Which is vastly different than, say, modern computing, you know, when you look at Moore's Law, you know, we essentially get, you know, a doubling of computing power, you know, every few months, based upon advances in semiconductors. And granted, that's largely a physics issue more than anything else. What largely drives health care costs going up, and this relates to wages as well, is that let's say you do come up with a new medical procedure, you still have to train people to know the old stuff they used to know and the new stuff they're going to have to know plus the diagnostics to know the distinction between the two. Moore's Law doesn't apply there. You know, and so and even the arguments, in business school, we hear a lot of time with supply chain people in Six Sigma approaches, like we just have to Toyota engineer this thing. And my comment, always back to this is that, guess what, we build cars, you know, we don't build the human body. And so in the process of trying to find these efficiencies for a technology platform that honestly we didn't design yet, probably don't, for quite a while, we can't really get to that that level of precision that you want, that would give you the cost savings that we that we hear from all these analogies and engineer.
Scott Nelson 27:45
Does that take time? I was thinking about telemedicine and telemedicine has been around for a long time. But it wasn't necessarily adopted by a lot of providers until COVID. And then once COVID happened, and then the government started authorizing and approval for billing for telemedicine services, then they started getting interested in started looking at it. Now once they started engaging in and having these telemedicine platforms, digital health pieces, you would think I guess in theory, it's supposed to be more efficient, you know, there shouldn't there be less people involved in those kinds of things. However, since they haven't had any experience with it, they're still using the exact same model, operating model, with a digital telemedicine platform. So those same people are still involved. So it's still costing the same amount to produce that patient visit. Over time, would you expect that to improve, become more efficient, become more cheaper? And then hopefully, the ability to bill still exists.
Dr. Stephen Parente 28:47
I think I think the answer is yes. I mean, I think part of it is just trying to invent a different telemedicine platform that does tend to allow for more innovation and efficiency and also economies of scale. You know, if you think about it, telemedicine can pretty much work globally, right? We have lots of diagnostics that work on the IT systems and platforms that are truly global, where the the wage costs of having someone in India take care of a computer server system versus someone in Palo Alto is vastly cheaper. We don't do that in health care, yet. We are still even bound on the telemedicine rules to state specific transfers. There's there's plenty of opportunities where there are folks potentially in English speaking countries that potentially have excess capacity to do some general practitioner work that could probably do some stuff in the US to create more of a global model to have that occur. One of the biggest reasons why I never really moved until COVID, until was just a fear factor of that people would excessively bill for this and there'd be little accountability for what's going on. What needs to happen is to have a different model tele telemedicine where essentially and I actually see some examples of this where people are paying for kind of a concierge telemedicine service where you may have one or two things where you go and get a test to a certain area that gives you certain diagnostics, that sort of a commodity component of it. And in the meantime, you have a concierge telemedicine person that always has access to your records, no matter where you are, they can actually do with more advanced diagnostic care and also point you to a more trusted diagnostic person, if necessary, depending upon the situation that you're in. And it operates globally or at least nationally. We're not there at all. That's what needs to happen if we're actually going to see those sort of efficiencies in that system. Unfortunately, what we saw instead was that people just started using the same reimbursement codes they were using before telemedicine became a different place of service. And it helped it kept the kept the lights on for COVID in terms of giving people the revenues to keep their operations in place. But in terms of the transformative change, there's no reason why a nonprofit hospital wants to basically you know, suddenly take all their physicians and say like no, you know, you guys all go work for a private telemedicine company that's based out of you know, Indiana, that has a nationwide population. I think we're waiting for that transformation to occur. But there's there's a lot of territoriality. And again, back to monopoly rights. It's what I teach my students all the time. What makes this market different than almost every other market is the extensiveness of legal monopoly rights. And what monopoly does is it drive costs up or at least lets the monopolists always set the price and most other commercial markets that it just isn't as extensive as that.
Scott Nelson 31:38
Another point of information for the listener, The US Bureau of Labor Statistics measures the average change over time in the prices paid by consumers in the Consumer Price Index. The CPI has 8 major groups, one of the major groups is the medical care index which is comprised of 2 main components: medical care services - professional services, hospital and related services, and health insurance - and medical care commodities - medicinal drugs, medical equipment, and supplies. Dr. Parente, what data points and metrics do you keep an eye on? What data points are important or would be beneficial for a doctor or a hospital or a health care organization to monitor?
Dr. Stephen Parente 32:11
Well, the ones you covered are kind of the key ones. I mean, the one that I usually use as a pretty good barometer is the CPI index of pharmaceuticals, because the that typically to me is sort of a leading edge indicator of where affordability is actually going or not going. And I'll tell you why. Even though physicians and nurses and hospitals are really important in the health care system, in terms of actual contact interaction, or in my nerdy world health claims, far more is happening on pharmaceuticals, than there is on medical interaction. So for an average person under the age of 65, I might see, let's say 30% of people having you know, any claim in a given year for what they do. And that's including young invincibles, people that don't get a physical exam, etc. The versus the their pharmacy claims it might be you know, 80% of people had some script written for them. Where, you know, it's kind of scary that they're not going back to their doctor and saying like, is it should I still be taking Zoloft? It's been a bunch of years. But you know, a lot of times physicians just will call it in and be people that way. So I think that this, what you're seeing is that if CPI for pharmaceuticals is kind of going in the right direction. That means the market is probably relatively efficient. That's usually a leading indicator for me. The reason why I don't put as much information into like the wage components for physicians and nurses say is that those things have a lot of leads and lags to them, particularly in markets where like, let's say the nurses are underpaid, underpaid, underpaid. You'll know pretty quickly how underpaid they are based on when they're striking. And then there's an overcompensation. This happened this past few years, where they started really paying nurses more in their strike, and negotiations go higher, you suddenly see there's more nurses that started pumping out of medical schools. And there's actually a good friend and great co author Joanne Spetz documented this was her doctoral dissertation at UCSF, and then you see this like four years swing where suddenly like, you know, wages start pressure starts decreasing because there's a supply of additional nurses in the market. And then the market receipts itself like there's too many people there, the wages get too high again, we get to a another session period for nurse supply. So I would say that that's what I usually typically as pharmaceutical pieces, and honestly, I think the pharmaceutical market to me, and we can talk about this going forward, is where the greatest excitement to me is because typically for most things in medical care, surgery will cure you depending upon how advanced your disease is. But if you get to a point where some of the pharmaceutical treatments are not just treating the malady to sort of ameliorate it, but actually just curing you like the Hep C vaccine did few years back, it's transformational. And what's exciting is that the pharmaceutical industry is working toward that goal in many different domains.
Scott Nelson 35:01
Well, maybe this gets to that as well. Are you seeing any trends in health care?
Dr. Stephen Parente 35:03
So I'll keep going on that riff. I do see people now focused on more cure for pharmaceuticals. Now, there's good and bad of this, right? The good is that cure sounds great, right? If you cure somebody early stage with MS, or ALS, I mean, that's just an absolute game changer, right? Site specific cures for cancer absolute game changer. However, the expectation is like getting to that precision medicine solution, or genomic medicine more often than not, requires a lot of money, a lot of investment, a lot of trial and error. And granted computational models are going to be helpful to reduce that element. But the expectation is, these treatments could be targeted for a person, and they will cost a million, two, three, $4 million, but you'll be cured. And so this becomes kind of a challenge, because then the question is, well, when are you getting that treatment? If you get that treatment, and let's say you do have MS at 23. And it's a $4 million treatment, from a cost economics cost effectiveness standpoint, as a health economist, that's going to get paid, because the thought is, you're gonna have that many more years of productive life where you are now cured from an otherwise very debilitating disease. But on the same time then let's say someone's MS and they're granted question, but they'll make it this far, 55, we're going to cure you. The math is going to get disturbing at that point, right? I mean, granted, you could be talking about 30 more years of life. But then this is, for better, for worse, maybe the US doesn't think about this quite this way, but other countries do. And they will put the math in there to see whether or not they'll cover it or not. Now, more often than not, they won't just they won't make individualized decisions like that usually. They will more likely look at the country's profile of where the disease progression is to decide. But that's the exciting thing to actually have cures on the market that literally could reduce health care costs in the long run, because you think about it, you know, for someone who has MS and all the different complications that goes along with their life with MS. If you eliminate that, I mean, your health care costs have to go down with cure. And so that that's really exciting.
Scott Nelson 37:18
We experienced shock event back in 2020, the COVID 19 pandemic, and in some cases are still recovering in health care. From your perspective, how fragile is the US health care system? Are there any areas or segments that are under stress right now? Where are the strong parts? And where are the weak parts?
Dr. Stephen Parente 37:37
That's a great question. So I mean, a little bit of background. So I was working in the White House during COVID, when it first occurred in 2020. And also kind of on dispatch to HHS at a pretty high level too. There were things in that experience that surprised me about to your point the fragility and but also the resilience of the system. So the fragility part of it was, in the very early stages, realizing that the way the US health economy works is pretty much operating on an insurance reimbursement model. Versus, say, the British National Health Service or even most of Western Europe, where they have some central budget model, where, you know, the money to keep, say, hospitals and nurses, other folks treating folks during a pandemic, you know, the money will be there, because the government essentially allocated through a central taxation and financial finance system. And even Medicare, which people generally think of as the US version of having a national health insurance really doesn't work the ways that the NHS does. In other words, if the buildings aren't there, Medicare is not going to provide the assistance necessary to keep things going. So what what I saw actually, in data I had access to at the time in the White House was that that health care, health care economy and all its practitioners was literally collapsing. Like, remember, we were getting calls and end of March early April, saying, you know, we hospital X in Nashville have six days of cash on hand, and then we have to let people go. We can't we, we have no reimbursements because basically, most hospitals operate on elective procedures and surgical services. So that was the downside, the fragility side of it. The upside of it was that one thing we did in the White House was that we worked with a private insurance firm that had a bank, once Congress allocated CARES Act money, the first round of money for relief for COVID, that we can actually move the money and repopulate. We're giving money to most hospitals, and most physicians, up to 300,000 of them, basically an overnight transfer of $30 billion. We did that by April 9, which no one had ever attempted before. It was the first time, if you think of it this way, the US became a national health payer national health care system in one day, using private insurance structure and a bank from a bank account from the Fed. So that showed resilience in an interesting fashion. To be honest, the flip side of that though, is that when we tried to do it through the Medicare program, and no joke, the Medicare folks, at least one of the carriers said, like, we'll study that we'll get back to you in six weeks. I think we can implement it in about two months. We're like, you're in the same pandemic with us, right? I mean, you're, you're, you're not watching something on the History Channel, it weren't a different parallel place here. So that was that was disturbing. So it was good to see a private sector response when necessary. But it was, I mean, to be honest, that our first go to was Medicare, until it was probably the most depressing response I think I've ever heard in my professional life. So that speaks to the fragility, I think, you know, once the money was back into the system, somewhat things worked fairly well. Another issue of the fragility of the system is just the data systems, we spent all these money and all this electronic medical record systems. And yet, our tracking of this was just was really not that great. And even some of the better tracking we had was actually through the claims data systems. We got a feed of, for free, it was a nice volunteer effort from one firm in Nashville, that gave us essentially 80% of all the claims transactions going on in the country. We could literally track COVID moving even retrospectively, as early as January and February, certain pop ups of it 2020. And that was enormously helpful. But at the same time, CDC and the other agencies had no bearing on it. Even to this day, we keep on saying like, you could put this into place, and yet they're operating on a parameters that are like, you know, mid 20th century and contact tracing, but there just needs to be a better a better structure for that, you know, relying on your Apple phone to say like, Yeah, I think I got near this other Apple phone is, is it's helpful for contagion. But it's not necessarily helpful for actually identifying the next stage, which is like, do you actually have symptoms or not in terms of what you're doing? So those, those are the things that could make that system, so much better. But at the same time, I fear that there's, there's just such a culture now that says that anything that's privately based and privately financed is bad. And everything that public health does must be nonprofit, or else it's not pure. And the reality is, you know, the computers that the pure public health people have are actually made by privately capitalized firms, there has to be a distinction somewhere and I think data flow, and data access needs to, you know, kind of come to 21st century versions of that really needs to be better available so that we can have a better response going forward. I think with with COVID, we got lucky, honestly, that it did not impact more people, particularly younger ages, the way people thought it might, that was a warning shot to all of us to kind of get our data systems together. But to this day, there's still too much proprietary control of information systems. And the last point of that is like, almost every major hospital chain insurer these days or at least MCO managed care organization has access to Epic or buying Epic, there needs to be like an Epic kill switch, that more or less like, you know, in case of pandemic, all Epic systems now merge to cloud. And then we'll revert to proprietary monopolistic behavior afterwards. But we're still not there.
Scott Nelson 43:07
Looking forward over the next one, five, ten years, what could or will health care face? What do you see as potential issues in health care and how can individuals and organizations work to anticipate and be prepared?
Dr. Stephen Parente 43:19
That's a great question. I think, I mean, there probably is another pandemic of something coming. I don't know, if it's coming in five years, it might be more like ten or fifteen. But I mean, it's, there's likely to have something to happen again, the world is fairly interconnected. I hope not. But I would, you know, I honestly think some of the big things that we're facing are really more and more mental health challenges and figuring out a way to kind of deal with that, effectively, I think, for once, where I think we're finally getting beyond some of the stigma of mental health and people recognizing they can talk about it. But in the process of doing that, there's just not enough support services available for them. This is one area where I think telemedicine can be enormously helpful. And the technology is all there to do it. And yet, it just seems like we're just not doing it at the scale that we need to do it to do it effectively. But that's that's one major challenge. And we already talked about the notion of having cures on the horizon and how the pay for cures on the horizon will be an interesting piece of it. Another major concern, I guess, is the the Inflation Reduction Act is supposed to have an impact to sort of price regulate some pharmaceuticals that are on the market. We'll see how well that works. Most people, and this even came out from a Congressional Budget Office study and then folks in the Capital Economic Advisors and another follow on study showing that they will dampen innovation for drugs. And so you know, dampening innovation could be that thing that restricts a cure being developed. That could be you know, so much more effective. So, seeing how that goes forward will be interesting. There's a lot of money that's allocated in the Inflation Reduction Act for CMS to regulate prices of pharmaceuticals in terms of manpower, about $3 million I think per year is allocated actually for that that's a lot of people to hire. That's not that could be outsourced to others. But that's in terms of cost effectiveness analysis. And that's, that's pretty much the budget of the entire world health economics community, outside the US doing that sort of analysis, all for CMS. So seeing how that will unfold will be an interesting challenge. And then finally, one thing that will be interesting to see is what happens with all the things with the Affordable Care Act that we don't talk about anymore. I think there's two elements of it, one is Medicaid expansion. Congressional Budget Office just assumes Medicaid will expand eventually across the whole country. That's how they price things out. Whether that happens or not, well, we will see. The election will be interesting. Some of the candidates, even on the GOP side might have proposals that propose using the money differently that gives comprehensive coverage to all states, for example, the and then the other thing is on the insurance side, short term limited duration plans, the administration is basically proposing to do away with them, even though it might be coverage for 364 days over the course of three years. Premiums are a lot cheaper for those, they're pretty affordable outside the market, it would, it would I hope those get a chance to survive, because they have actually filled a pretty specific niche that I think is still valuable.
Scott Nelson 46:19
Finally, from your perspective, are there things doctors and health care organizations can do to improve their position? If I'm a doctor or health care organization, what would you recommend to me to improve or strengthen my position against economic forces? You and I've actually talked before about cash reserves, buffers. You had mentioned a rainy day fund and you'd also talked about cash on hand. I know from experience a lot of hospitals and large organizations, monitor the days cash on hand, putting it in different perspective, the rainy day fund might help the one to two doctor practice that do not look at days cash on hand. But that puts it in a different scale and a different perspective for them to think of the rainy day fund. What are some things that you would recommend to folks to do to help against economic forces that may be coming against them?
Dr. Stephen Parente 47:07
Besides the rainy day fund, I think is part of it's also a question of like, what kind of practice do you want to be in as you're, as you're out there, I mean, the one way that if you can't afford a rainy day fund with one or two practitioners, maybe you really should think hard about joining a group practice or having others like minded with you build your own, so that you build your own professional resistance and autonomy. In the Twin Cities, I mean, we have tremendous consolidation of medical group practices, compared to where I grew up on the East Coast of the US with much smaller group practices. And so there's very few, depending on the specialty, very few independent practitioners left staying in the upper Midwest. But I do think that there's, there's no reason why people can't think about how they want to consolidate their resources. The other thing too, is like look at what your electronic medical record system is, trying to get one that's lean and efficient. I think having one on a cloud is better than, than most. I know, it's kind of a nerdy thing to think about but I mean, that that could potentially give you your best value back to talking to your patients about what to do. And then the last thing, this might be kind of interesting. If price transparency works a practitioner should sort of look at those 70 shoppable services, and there's another 300 shoppable services and just sort of say, like, particularly if you know, financials like hey, well, what services can I actually just put online? What services can I just sell separately, there's so many more people now that have health savings accounts, or are willing to pay cash for some of those services. That could be another way to deal with the rainy day fund aspect of it, which is, you know, and particularly some of those things related to telepsychiatry telemedicine to, you know, there's that could be another avenue for folks to be in that market. When I when I thought of the entrepreneurs that would use that price transparency data, my thought was they're going to build like an Expedia for health care. But the only way that that works is that the vendors, you know, in the case of Expedia it's like hotels and rental car companies saying, yep, yeah, I agree to that price. Here we go. It requires the providers to say, oh, that's the median or average price in my market, that's not such a bad price for those 70 services. I think I'll take that, oh, wait, they want to give me a calendar booking service. And they're gonna give me a visa transaction. And I'm gonna get paid now, and I'm not going to have to run this through insurance. Hmm. I think I might like that. That would be my advice, basically have, you know, have some of the providers think about how they can take money in a in a decent enough way online, that enables their patients. And the last thing is, if a patient asks you for their claims history or wants to have you authorize it, what's the harm in letting them see it? More often than not their they want to be part of the care process. And you should look at them as a partner not a risk. Ultimately, the physician has the authority and I understand that mental health you can't disclose everything. But I mean, that also can be a way to make patients partners in care to mitigate risk because if a patient understands the full profile of what's going on with the challenges, they're that much more likely to see if there's a concern about malpractice or quality downstream.
Scott Nelson 50:14
That's a great point to conclude our conversation. Dr. Parente, I very much appreciate your time, and you're sharing your thoughts today. Thank you very much.
Dr. Stephen Parente 50:21
Thank you, Scott.
Scott Nelson 50:25
Thank you for listening to The Risky Health Care Business Podcast. You can listen to all episodes from the resource center page of the SpringParker website, springparker.com, or click the Listen link in the show notes to listen and subscribe for free on your platform of choice. And remember, accelerating health care performance is achieved through creativity, not just productivity.