Introduction and Guest Introduction
[00:00:00] Stacey Richter: Encore episode. "How Shareholders Impact Carrier Behavior Exactly and Specifically." Today, I am speaking with Wendell Potter.
Encore Episode Context
[00:00:27] Stacey Richter: I am drowning in all things Q1 right now. So this week we're going with an encore. But this is a great show to go back and reflect upon as it's about carriers and how shareholders impact the actions of said carriers.
To listen to this episode or read the show notes which includes mentioned links and article, visit the episode page.
And yeah, I think it's always been pretty clear heretofore that for shareholders, I don't know, money is the mission. Brian Klepper said that the other day in a different context, but yeah. And there's a certain amount of okay about that. Like, the finance person in charge of ensuring the pension fund doesn't run out of money for retirees. Right?
Money is the mission or the family office can continue for another generation. Money is the mission. Like there's a very vested interest in what amounts to profiteering. And if the business sells handbags or computer chips, I don't know. Profiteering is probably fine.
Shareholder Influence on Healthcare
[00:01:17] Stacey Richter: No one blinks an eye about putting profits before like shoppers or profits before other businesses in the supply chain, but this is healthcare that we're talking about and patient lives are the product.
And again, there just doesn't seem to have been very many conversations about a distinction between what might be okay when the product is a handbag that might not be okay when the product is caring for human beings.
This being said, I want to bring up an interesting caveat to this whole discussion and actually one reason I decided to encore the show with Wendell Potter from 2022. I'm going to read a very well put post in LinkedIn by Richard Staynings and he wrote this in mid January 2025. I'll link to it in the show notes. Here's the post.
UnitedHealth Group Case Study
[00:02:00] Stacey Richter: "UnitedHealth Group in the crosshairs, not by patients and regulators, but by shareholders. On Wednesday, UHG shareholders requested the company prepare a report on the costs and public health impact related to UnitedHealth's practices that limit or delay access to healthcare.
The Interfaith Center on Corporate Responsibility, ICCR, a group representing faith based shareholders, said it has filed a shareholder petition requesting the company to review how often prior authorization requirements and denials of coverage lead to patients postponing or forsaking medical treatment, as well as serious adverse events for individuals."
Wendell Potter, by the way, my guest today commented on that press release. As interesting as the post itself, I found the comments on the post and kind of, you know, curbing enthusiasm with a dose of realism on those comments. George Mathew, Dr. George Mathew, who also was on the podcast a couple of years ago, he commented, "Many of the large shareholders at these carriers may work at UHC, and they may vote against this type of transparency."
That is very thought provoking to see, actually, if the C-suite at these companies is more or less committed to patients/members than their shareholders. This podcast with Wendell Potter was recorded well prior to any shareholder uprising, however.
Now, I do want to say this next part, and I'm going to mention, coming up is a show with Dr. Vivian Ho about the sky high hospital prices being a big culprit for the high premiums that many American workers are saddled with. And that matters because, here's the sentence that absolutely must be said. The problems with healthcare in this country, and why some people call it the healthcare industrial complex, it's a problem with the whole healthcare marketplace, not just one stakeholder.
It's everybody in concert doing some not great stuff, egged on by shareholders and professional capital and boards of directors, not one villain in a black hat tying someone to train tracks, like in some kind of talkie, right? The problems that we have today are a confluence of a whole lot of folks, working at a whole bunch of different places, taking advantage of a whole lot of perverse incentives.
So, with that, this is a really interesting encore. As I said again, please do listen to it. My name is Stacey Richter. This podcast is sponsored by Aventria Health Group.
Milton Friedman's Perspective
[00:04:14] Stacey Richter: Here's a Milton Friedman quote. "There is one and only social responsibility of business to use its resources and engage in activities designed to increase profits. So long as it, that entity, stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
Okay, so this is Friedman, Milton Friedman, pretty much the most influential advocate of free market capitalism, stating quite clearly that an entity's greatest responsibility lies in the satisfaction of its shareholders.
His nod to social responsibility or ethics of any kind comes at the end there, where he says that for free market capitalism to function, there must be open and free competition and no fraud.
Payer Space Analysis
[00:05:03] Stacey Richter: So let's compare this to what's going on in the payer space in the healthcare industry. First off, there was just a chart in the New York Times the other day where pretty much every major payer except one got a check in a box for being accused of fraud.
Interestingly, if you look in the comments section of that article, people posted links where that one outlier was being accused of fraud, so not sure what's up with that, but yeah, let's just conclude that there's fraud in the payer space.
On to Friedman’s requirement for open and free competition. As we all know, there are a few very powerful, very big, consolidated entities who control the vast majority of the market, with both regulatory capture as well as the capital to continue to buy more and more adjacent businesses as well as any threatening upstarts and just close them down.
I want to shift gears now to discuss the rules of the game. And this is really the topic of today's podcast. Friedman said in that quote I just read that there are rules of the game that entities abide by. Therefore, these rules of the game are inarguably consequential. And today we're talking about how these rules of the game echo when it comes to payers, companies that are publicly traded on Wall Street with shareholders
So that's your spoiler for where this episode is headed. But before we go there, let me just say one or two things to the many listeners who I would consider certainly part of our Relentless Tribe who also work for payers. If you work for a payer, you have a few options.
Impact on Patients and Providers
[00:06:36] Stacey Richter: One of them is to do as much social good as you can. The other is to see the problems with clear eyes. I mean, we're in a place in this country where the majority, 67 percent of adults who reported medical bill or debt problems was insured when that care was provided. That's from Kaiser Family Foundation.
There's a hundred million Americans with medical debt. These numbers are staggering. What's the why with all of this? It's our dysfunctional healthcare benefits market. Listen to the show with Dr. Kevin Schulman for more on this at the systemic level. But today, we're talking about one entity in this dysfunction, which are payers.
Wendell Potter's Insights
[00:07:13] Stacey Richter: I invited Wendell Potter on the show to ask him to explain how for profit payers contribute to our dysfunction. Again, being blunt here, the reality is private payers have not been able to bring cost of care down. What they have done instead is settle more and more out of pocket with patients or with taxpayers or with employers.
Speaking of more and more out of pocket costs, although this is not the focus of the show, I am not giving consolidated health systems a pass here, obviously. But in this episode, we're focusing on why payers behave as they do, contributing to the dysfunctional healthcare benefits system in this country.
I could not have been more thrilled to have an opportunity to speak with Wendell Potter. His name most likely precedes him, but in brief, for much of his early career, Wendell Potter was a health insurance executive. After 20 years, he left his job after a crisis of conscience. Wendell testified before then Senator Rockefeller's Commerce Committee at a hearing about how healthcare companies actually operate. From there, he went on to write books and ultimately to start the Center for Health and Democracy.
Wendell Potter, welcome to Relentless Health Value.
[00:08:23] Wendell Potter: Thank you, Stacey. Good to be here.
[00:08:24] Stacey Richter: Today we are talking about publicly traded payers and how the expectations of shareholders impacts their behavior.
Medical Loss Ratio Explained
[00:08:31] Stacey Richter: Besides earnings per share, which is a pretty ubiquitous metric, You have pointed out a second metric that impacts payers with shareholders, which is their medical loss ratio or medical trend. Do you want to explain this metric that payers, CEOs, C-suite have so much riding on?
[00:08:49] Wendell Potter: Investors and Wall Street financial analysts want to see whether or not the company over the past three months or the past six months or past year was bringing down the cost of medical care or more precisely bringing down the amount of money that the insurers are paying out in claims. Recent evidence of why this is so important or that it's so important is the quarterly report or earnings from the second quarter filed by what's now called Elevance, Anthem, previously known as Wellpoint.
They really disappointed Wall Street because the medical loss ratio had creeped up fairly significantly, which was an indication that the company was paying more out than Wall Street, the financial analyst investors had expected. And they punished that company severely. The stock price tanked for the day.
And the company is still recovering from that. I've seen that happen many times, or I saw it happen many times when I was in the industry. And all it takes is just a small increase in the medical loss ratio, or some indication that the company is not doing enough to anticipate and handle medical cost increases.
And if that evidence is not there, they will get punished. And CEOs and CFOs and investor relations, people at high levels in these companies, they have a lot of skin in the game because they're paid a significant amount based on the company's performance through bonuses and stock options and stock grants. So when that happens, like it did with Elevance. The executives of that company lost a lot of net worth that day.
[00:10:22] Stacey Richter: We have CEOs, their compensation is tagged to “corporate performance” as defined by these Wall Street analysts and how those analysts evaluate that corporate performance. And you have the medical loss ratio, which in its simplest terms is, taking the revenue of the company, subtracting how much they're paying out on medical claims and what's left over is potentially profit or there's a part of it that's profit, which is obviously why Wall Street is super interested in it, because what they're trying to deliver is dividends and value back to shareholders. So if they're paying it out as a medical claim, it's obviously not going back to shareholders.
Revenue and Premiums
[00:11:01] Stacey Richter: The other thing that I have also heard is that Wall Street very much rewards higher revenue, much more than doing innovative things that could ultimately reduce costs. So value based care and innovation and care delivery isn't a great way to impress Wall Street analysts. The best way to do so is to figure out how to raise premiums basically.
[00:11:24] Wendell Potter: Exactly right. Investors absolutely want to see increasing revenue and insurers have been able to oblige by increasing premiums. The reality is insurers have been jacking up premiums for employers and individuals for a long time and we're seeing that healthcare costs continue to go up, healthcare premiums continue to go up.
And their profits continue to go up. And executive compensation continues to go up. So what's not right about this picture, and it is, I think, the whole way that Wall Street really demands these companies behave the way they do. They don't really care, as you said, about all this value based care, value based insurance design.
They want to make sure that revenue continues to go up and that they're converting increasing amounts of that revenue to profits so that profit margins are stable and hopefully expanding.
[00:12:12] Stacey Richter: So Wall Street analysts are not super concerned about patient outcomes, is what I'm understanding.
[00:12:17] Wendell Potter: Exactly. I can't recall a time, and I handle, my name was on every earnings release at Cigna for 10 years.
I can't recall a time when an analyst asked about patient care and quality of care. Similarly, I can't recall a time when I was in conversation with CEO and CFO and relations folks about the need to improve quality of care or the patient experience. The conversations are all about the numbers and making sure that the company doesn't disappoint Wall Street every three months.
It's a short term game. Every three months, you've got to have things in place to make sure that you're showing Wall Street analysts and shareholders that you're considering them stakeholder and making sure that they're getting the return on their investments that they're expecting. That is the way it is.
[00:13:06] Stacey Richter: I don't know how surprised anybody listening is because fiduciary responsibility is something that the board of a publicly traded company signs on to and fiduciary responsibility means fiduciary responsibility to shareholders, ie, delivering the goods, the money back to shareholders. I don't think in any fiduciary statement there is obligation toward the customer served nor to patients.
[00:13:36] Wendell Potter: That's right. None of the big insurers, the big for profit insurers are B Corp companies that take into consideration things like what you're doing to make sure your employees are taken care of or that you're doing something to improve quality of care. In the case of health insurers, it is none of them have looked to change their structure so that they can B Corp and I don't think they ever will.
These companies keep bringing in more and more revenue. It's just incredible. The CVS and United this year both likely will exceed 300 billion dollars in revenues, both of them.
[00:14:07] Stacey Richter: Yeah, that's not small potatoes.
Controlling Healthcare Costs
[00:14:10] Stacey Richter: So if we're talking about medical trend, which is one of the things that you said is really important that Wall Street analysts look at, let's dig into that.
In the what gets measured gets managed category, on a day to day basis, if I am a CEO and I am super concerned about my medical trend, what exactly am I measuring there?
[00:14:34] Wendell Potter: You're looking at categories of providers and what is happening in each of those categories. You look at obviously drug expenses, at hospital expenses, at physician and other outpatient expenses, and that doesn't concern shareholders all that much, except they want to see evidence that you are not spending a whole lot more on actually paying claims than you were the quarter before or this time last year.
But they do expect that you will price your premiums ahead of medical trend. Let's just say a number. Let's say that the underwriters at a given company anticipate or they're seeing that hospital costs are gonna, they're gonna be 8 percent higher this quarter than the same quarter last year.
That's notable, but what is the company doing to make sure that it takes that into consideration and prices its premiums a few points ahead of what medical trend is? So it's a game that's been going on for a long time and it is, it shows when you look at how much we spend per capita on health care in this country, how much we spend overall, you're seeing that these companies are not doing a very good job at all of controlling costs because they don't have the incentive to do that.
The incentive is to make sure that you are Paying fewer claims in various ways and that you are anticipating and handling medical trend by increasing your premiums.
[00:15:56] Stacey Richter: So it's in my best interest to raise premiums as high as I possibly can. What the game becomes is I need to accurately forecast what my costs are going to be ahead of time so that I can raise premiums ahead of those cost increases.
So that becomes the kind of marker of success. How high can we make the costs lagging the premium increase that we have accurately forecasted, right? That's what the best ones are trying to do.
[00:16:24] Wendell Potter: That's exactly right. And that's what we saw play out when Elevance announced earnings for the second quarter this year.
Investors just concluded that the company was not doing as much as other companies in that sector had done in anticipating and dealing with medical trend. I can remember several years ago when I was in the industry, Aetna really disappointed Wall Street and the stock was just savaged. It was a huge drop in market capitalization.
[00:16:51] Stacey Richter: As we all know, and we have discussed multiple times on this podcast, consolidated health systems, have market power even versus these large payer organizations. As we see, hospital prices just are raising way higher than the cost of inflation. They are actually the biggest proportion of most employers spend, most Medicare spend, it's racked up in hospital prices.
It sounds like the payers may or may not be super concerned about that just because this gives them a very well validated rationale for why premiums are going up.
[00:17:28] Wendell Potter: That is correct. There's a paradox here that they have, they've been able to persuade employers that they can bring costs down, but the evidence is that they cannot, but they've been able to sell this for a long time.
They've been able to get even organizations that presumably represent employers to lobby against things like a public option that can be open to employers. They've got this figured out, they being the payers. They know how to bring in allies to keep the status quo going. But it's a game that the employers so far haven't been able to figure out or do anything about.
[00:18:02] Stacey Richter: So going back to what we talked about before, which is as long as they can stay ahead of the trend, then they shouldn't care a ton what their medical costs is as long as their premiums are higher.
It just seems like they're unduly focused on independent providers and less focused on the hospitals. Like, they're okay with prices going up in the hospitals, but they're, like, really not okay with the prices going up with some of these independent or outpatient kind of physicians,
[00:18:31] Wendell Potter: It's because of what they can do. They can beat up on the independent practice physicians.
[00:18:35] Stacey Richter: But why would they? It is my concern. Like, why don't they just let the price go up? Because then they're like, ah, premiums have to go up even more.
[00:18:41] Wendell Potter: They can still jack up those premiums and pocket the difference. That's what I'm saying. They can say to an anesthesiologist in North Carolina, we're going to cut your compensation, your reimbursement for seeing patients by 50%, you don't like it, we're going to kick you out of network. They do that because they then pay less for the anesthesiologist's care.
[00:19:03] Stacey Richter: Even they may realize that you can't raise premiums 90 percent in one year. So, because hospitals are maybe, in certain cases, untouchables, then what they're trying to do is knock down the vulnerable, really, the independent physicians that don't have a ton of leverage so that they're not sacrificing their MLR, their medical loss ratio, while premiums inch up.
[00:19:31] Wendell Potter: That's right. Insurers have figured out over time that there is a range of increases if they can get away with that employers will agree to ultimately. The thing about hospitals in particular is that they, we've seen so much consolidation certainly on the hospital side. A lot of attention focused on that we'll see even more of that I think going forward.
I would argue that they in many cases have consolidated in self defense. Insurance companies has been an arms race in healthcare and as a consequence hospital prices continue to go up, premiums continue to go up, and it works for both hospitals and insurers.
They might make public statements and point the finger blame at each other, but it's a synergistic system. It works for all of them. It works for drug companies, and it works for hospitals in particular.
[00:20:19] Stacey Richter: Yeah, as Dr. Kevin Schulman said on the show, he said it's not A or B, it's a whole dysfunctional benefit system. And everybody being a rational economic actor, beholden to Wall Street a lot of times in this, in this mix, or even if they're tax exempt, if someone's stating that they have a fiduciary responsibility to charge as much as possible, then really same rules apply.
[00:20:40] Wendell Potter: That's exactly right.
There have been a number of studies that have shown that in healthcare, you have market failure. It doesn't work in healthcare like it does in other sectors, other industries. It's just an outlier. But as these companies, whether we're talking about insurers or big hospital systems, as they've gotten bigger, they have more political clout.
They have more ability to influence campaigns and who's elected and public policy through lobbying expenses. They spend enormous sums of money to protect the status quo, whether it's an insurance company or a hospital company. They also, the CEOs and executives of these, various entities come together in many cases, work together, pool their resources to push back against healthcare reforms that one or all of them don't like. And that's just a way of perpetuating the status quo.
[00:21:27] Stacey Richter: It sounds like what we've got going on here and I'm just going to recap something very complicated obviously in a very simplistic, stepwise way here. Some insurer figures out that, alright, the max that we really can raise premiums this year is 9 percent or whatever it is, right?
I mean, even employers who are a little bit asleep at the wheel aren't going to accept a like 35 percent premium increase, right? So somebody figures out what could reasonably be accepted maximally by these employers. They decide on that percent increase and then they look at how much they're gonna be able to profit from that.
How much can they beat up hospitals buy at this juncture because these, some of these consolidated hospitals have a lot of market power. So they take a look at that. If there's anything left over, maybe they'll throw some scraps at independent providers, I guess, especially the ones that they need to maintain network adequacy.
But at the same time, there's going to be some side action going on here because dollars can also accrue to provider groups owned by that payer.
[00:22:22] Wendell Potter: That's right. The reality is that these big companies have gotten increasingly into healthcare delivery. They own big chunks of healthcare delivery. Big hospital systems are doing the same thing.
They are buying up physician practices and have their own outpatient facilities. So here too, we've got evidence of some kind of an arms race hereto determine who is going to wind up owning the most providers.
[00:22:45] Stacey Richter: So let's talk about then controlling utilization. And when we say controlling utilization, I think, again, just reiterating what we talked about before.
This isn't necessarily an absolute, hey, we have to control utilization in absolute terms. It's that we have to control utilization so that we don't wind up spending more than we have projected based on the premiums that we're taking in. So I think that would be an important sort of caveat here.
Benefit Buy Downs
[00:23:07] Stacey Richter: But then how do these payers go about ensuring that what they have projected is what the spend comes in at, especially in an FFS world where providers are paid by volume. How does this work?
[00:23:23] Wendell Potter: Yeah. To back up just a little bit, there are really two major ways of, if you will, managing or controlling healthcare costs, neither of which I think we're doing. But you can reduce the unit price of a good or service, or you can, you can influence and presumably reduce utilization. As we've talked, it's becoming pretty evident that they're not able to control the unit cost. Insurers are not able to bring those costs down.
Again, we've talked, they don't necessarily want to. Where they do have leverage is through the way that they have structured their health plans. There's a term in the industry called benefit buy down. And that is a broad term that encompasses all the various ways that an insurance company can reduce the value of a health plan.
I talk often about the barriers that they've created and the barriers are increasing out of pockets year after year, making more things subject to out of pockets, more aggressive prior authorization requirements. We've seen a lot of evidence of that or at least doctors saying that they're seeing an increase in the use of prior authorization for more things and manipulating the networks. We've talked about this a bit, kicking some doctors and facilities out of network.
These barriers collectively have been raised year after year so that people who have insurance, they're finding it increasingly difficult to get the care that they can afford. And also they're facing the reality that in many cases what their doctors know that they need or say that they need is not necessarily going to be approved and provided or covered by their carrier.
[00:24:55] Stacey Richter: On that last point, here's the headline. Federal investigators find Medicare Advantage plans too often deny and delay needed care. There's a commonly known stat in the industry, I hear it a lot, that 65 percent of prior offs are not appealed.
So if I just, if I'm an insurer and I just deny claims, I'm going to save 65 percent just because those claims don't wind up getting appealed, even if it's something that really should be covered, which is therefore the aforementioned federal investigation. But just going back to the top of your earlier comment about benefit buy downs.
So what that effectively means is that an insurance carrier is trying to, again, they're trying to align premiums and then what the max is that they want a beneficiary to spend. So it sounds like the benefit buy down is the process by which we ensure that the spend doesn't exceed what I want, what I want the cost for that beneficiary to be, did I get that right?
[00:25:51] Wendell Potter: You did, you did. And it's death by a thousand cuts. It happens incrementally, year after year. The changes are not necessarily so stark that people pay a lot of attention to it. But if you look over a span of 10 years, which I often do. You can see what's really happening, that people are paying far more out of their own pockets than they were 10 years ago.
More and more of what their doctors recommend are being denied through the prior authorization process, which is something that I think could be defended. Prior authorization has its role, but when you bring it into a setting in which it's, most insurers are for profit, and there's this pressure from Wall Street, it's used as a tool to avoid paying claims, and you're right.
The vast majority of people do not appeal those denials. Insurers are able to factor that in. They know that's the case, and they get away with it. There's money left on the table that people who are, who have the policies are leaving on the table. They're accepting this and not pushing back. It's a complicated system.
They don't know, in many cases, if they can or just don't think it's going to be worth the effort. And in many cases, it's a relatively small amount. But when you're a big insurer, those small amounts add up very quickly.
[00:26:58] Stacey Richter: Yeah, indeed. So it sounds like the process of benefit buy downs includes raising barriers for beneficiaries to gain access to their insured benefits.
And you stated four of them. So number one is raising out of pockets. The more you raise out of pockets, the more you're going to diminish the amount of care that someone seeks or uses. That's number one. Number two, you had said. That there's more things that are subject to the out of pockets, right? Like you, there's this term, predeductible stuff, like preventative care.
The more you remove the predeductible things or the more that you make everything have a copay. Charge a specialist copay for physical therapy is probably one example. Then again, you're gonna diminish utilization. Another one is increase PA requirements for pretty much anything, because as we've just discussed, PA processes are complicated.
Sometimes they require snail mail and that's not accident. And then lastly, as you said, manipulating who and who is in and who is out of network. If I start reducing my network adequacy, obviously, you can probably only do that up to a point, but if I start doing that, reducing my network and making it narrower and narrower, then the likelihood of someone going out of network, the insurance carrier is paying less.
Did I sum that up?
[00:28:13] Wendell Potter: Yep, you did. And that last point I think is maybe worth spending a minute or two on, too. Network adequacy. Nobody is paying enough attention to that. Not at the state level, which state regulators are not resourceful enough to really make sure that networks are adequate and there's no federal entity that is looking to make sure that is the case either.
Every now and then you'll see some evidence of an insurance company, maybe addressing that in some meaningful way. There's not very much scrutiny of it, not very much awareness that it's happening. As a result, I would argue that many, if not, most networks are inadequate and that certainly is true in the Medicare Advantage business.
There's a phenomenon that has been documented through federal reports and studies that as Medicare Advantage beneficiaries get sicker toward the end of their life, many of them disenroll, go back in traditional Medicare, which is a, is a more of a burden on the traditional program. And of course, insurers are fine with that.
They are able to offload what would become their most expensive patients if you will or members.
[00:29:18] Stacey Richter: I think all of these things are becoming more and more discussed. For example, the number of people on GoFundMe trying to raise enough money to pay their deductible. There was a tweet I think you made the other day, which is high deductibles helped UHC reach $7 billion in profits in Q2 as a 14 year old begs for deductible assistance on GoFundMe.
Like, that is tragically common these days. Here's another thing that I would like to discuss, which is really timely.
Pharmacy and PBM Dynamics
[00:29:49] Stacey Richter: We keep hearing more and more about pharmacies that are closing and understaffed. I mentioned this because a lot of these large consolidated carriers have a PBM arm and they also have a pharmacy, a retail pharmacy arm.
And there's a tweet that Eric Davis noted on Twitter, and I'm wondering what you think about this. He says, "There's no broad shortage of pharmacists. There's a shortage of pharmacists who are willing to work in understaffed and under resourced pharmacies whose incentives are to drive their companies to fill more and faster, regardless of the erosion of care to patients".
So it sounds like there's another, and I have no knowledge of whether this is true or not, but it sounds like another way to increase the profit margins in a place that obviously PBMs are not subject to MLR ratios, but it sounds like one of the things that they have discovered is that if we reduce operating costs more and more, then clearly that raises the bottom line.
[00:30:51] Wendell Potter: It absolutely does. And it is why the three biggest PBMs are owned by big insurance companies. United, CVS and Cigna; PBMs that control 80 percent of the marketplace. These PBMs are becoming increasingly more valuable to these companies. They're contributing more and more of the revenue that we talked about earlier, overall revenue.
[00:31:10] Stacey Richter: But the pharmacies though, there, because that sounds like very much a pharmacy driven profit center.
[00:31:16] Wendell Potter: It's true. And it's a profit center. These big companies are able to encourage more and more of their enrollees to order their medications through the mail, through the PBM. CVS, look at what they do. They own the retail stores and the pharmacies, but they also have a big PBM.
So they're capturing an enormous amount of what we spend on medications and not necessarily passing it along to consumers. A lot of consumers who have Aetna coverage have to pay a lot of money out of pocket, but they're told that they might pay less out of pocket if they enroll in a plan that their medications mail to them through the PBM.
Just like independent practice physicians are endangered, so are community pharmacists or independent pharmacists. They're being pushed out as well too. They're finding it very hard in many cases to keep their doors open.
[00:32:03] Stacey Richter: So it sounds like what the playbook is there is figure out how to create a captive market, which is a term that's often used.
So if there's a captive market that has to go to a certain pharmacy, then I mean, in a classic B school case study, like this is a well trodden path here where once you have a captive market, then you have the opportunity to reduce operating costs to increase margin. Like in food products, like that's a classic play.
You get everybody hooked on a brand and then you methodically reduce the spend of the expensive ingredients so that it starts to taste worse and worse. That's the playbook there. And it sounds like that also translates to some of what's going on in the sector as well.
[00:32:49] Wendell Potter: That's right. It is part of the playbook.
It's what's playing out and your use of the term captive applies more generally as well too. These big corporations have been able to capture the regulatory system and that's just another way that they're able to keep this game going.
[00:33:05] Stacey Richter: So you've got captive populations, you've got regulatory capture, there's a lot of capturing that's going on.
Wendell, is there anything I neglected to ask you that you would like to mention?
Conclusion and Final Thoughts
[00:33:15] Wendell Potter: Just to go back to what we talked about at the beginning, most people don't realize the role that Wall Street plays in our healthcare system. This year, more than 80 percent of the people who enrolled in Medicare Advantage plans were enrolled in plans operated by for profit companies.
The biggest are United and Humana and Anthem and CVS. They have enormous market share, not only in PBMs, but also the Medicare Advantage space and Wall Street demands this, and going back, also, there, who really drives this as much as shareholders are this handful of financial analysts who work for J.P. Morgan, Credit Suisse, Deutsche Bank, other big banks that have these financial analysts that have immense power. You don't know their names, or even though they exist in many cases, but they have incredible power over our healthcare system. Big investors. buy their reports, look to them for information about what's happening at a particular company or within the sector. So these people have, they're not elected, you've never heard of them, but they run our healthcare system.
[00:34:19] Stacey Richter: Do you want to hear my big idea, Wendell?
[00:34:21] Wendell Potter: Yes.
[00:34:21] Stacey Richter: As you know, those Wall Street analysts analyze more than just the healthcare industry. There's others that analyze other employers, other businesses who are also big employers.
My suggestion is that part of what they include in their analysis models is how good that employer is on managing their healthcare costs, which is often the second biggest line item, right? So if you have a large employer and they have healthcare spend, which is over some threshold because they are not managing it well, then that's a knock on that business.
My big idea is get a model that includes the employer's deftness in their healthcare benefit design, which could be a counterbalance to the other analysts who are analyzing the healthcare industry. How's that?
[00:35:11] Wendell Potter: It's a terrific idea. Let's get that going.
[00:35:14] Stacey Richter: Yeah.
[00:35:14] Wendell Potter: How do we do that?
[00:35:15] Stacey Richter: Exactly. I do. We'll talk later.
[00:35:17] Wendell Potter: That's right.
[00:35:18] Stacey Richter: Wendell Potter, if someone is interested in learning more about your work, where would you direct them?
[00:35:23] Wendell Potter: I would suggest that they follow me and sign up for my newsletter on Substack. It's Wendellpotter.substack.com and I write routinely about health insurers and how they're getting away with what they're getting away with, as we've been talking about.
[00:35:36] Stacey Richter: Wendell Potter, thank you so much for being on Relentless Health Value today.
[00:35:39] Wendell Potter: Thank you, Stacey. It was great.
[00:35:41] Chris Skisak: Hi, my name is Chris Skisak. I am the Executive Director of the Houston Business Coalition on Health as well as Texas Employers for Affordable Health Care. I've been a long time listener and have had the privilege of getting to know and work with Stacey Richter.
There is no doubt in my mind that Relentless Health Value is the best podcast out there that addresses the financial challenges and opportunities in healthcare delivery. I think it gives hope and encouragement to what can be accomplished through collective perseverance and resolve. Thank you very much.