Introduction to the Problematic Hospital Myths
[00:00:00] Stacey Richter: Episode 490, The Problem Show: 3 Problematic Hospital Myths, Including “There Is a Healthcare Market.” Today I speak with Shane Cerone and Dr. Sam Flanders,
The Reality of Hospital Margins
[00:00:30] Stacey Richter: Here's a quote. "The reality is you can have razor thin hospital margins if you are good at just spending all the money that is given to you." Shane Cerone says this coming up and throw hot, right? Razor thin hospital margins, maybe due to high costs or some problematic market condition or uncompensated care. Or razor thin operating margins could also transpire because you're just really inclined to spend every dollar you're given.
Kind of shines a new light on the nonprofit word, right? Anyway, after Shane Cerone raises his eyebrows at the razor thin hospital margin cliche, at this point, then he continues, "And I think that's what goes on without a competitive healthcare marketplace. It's impossible to separate those things.”
Meaning is it some problem associated with providing care in a community or is it too much money gassing up the private jet? "It's impossible to separate these things and understand what's really possible.”
Yep. That's something that one of my guests today, Shane Cerone, will say in about T minus 19 minutes or something. So spoiler alert.
Now, let me start from the beginning.
Understanding the Healthcare Market
[00:01:53] Stacey Richter: What happens when there is a market, an actual market for any good or service? Well. Prices are rationalized. Supply and demand curves meet at an equilibrium point and the invisible hand knocks sellers and buyers into line. Abracadabra. We have fair prices.
If I continue down memory lane to our freshman Econ 101 microeconomics class, just in case it was that 8:00 AM and any of us slept through it. Those aforementioned supply and demand curves for them to do their equilibrium thing, these curves require a series of transactions that trial and error themselves into that aforementioned equilibrium fair for buyers and sellers price. Transactions was the key word there.
In other words, a market is the sum or whatever the average of its transactions, right? It's like a group of crows is called a murder, a herd of cows. Well, a group of transactions is called a market.
Now what is required for a transaction to be an actual transaction? Let's see.
Challenges in Healthcare Transactions
[00:02:43] Stacey Richter: Oh, here's a start. Both the buyer and the seller must be aware of the price at the time of the transaction as one fundamental rate critical. And this is not just textbook economics that I'm talking about right now. It's also contract law.
And yeah, anyone who has spent minutes at this rodeo, you listening, you have immediately cottoned on to the fact that this is already not going well for anyone planning to argue that there is in fact a healthcare market in the United States because does anyone even know the price that they are buying or selling at for any given healthcare transaction prior to agreeing to buy or sell? Status quo carriers and TPAs have entered the chat.
But if you don't have transactions with transparent cost or quality of the goods purchased, then yeah, real tough to have competition, which is another market rate critical that is dependent on there being, for reals, transactions.
Real hard to shop for quality when you don't know what the quality is. We often talk about this topic from the standpoint of the buyer here at Relentless Health Value. Listens to the shows with Kevin Lyons, Jonathan Baron, Dr. Wayne Jenkins. Today though we're gonna talk about this from the points of view of the health system.
Impact on Health Systems
[00:03:57] Stacey Richter: How does a nonmarket affect health systems? I'm thinking now about something Dr. John Rodis talked about in episode 286 that I repeat in the show that follows.
Short version. Dr. Rodis was CEO of a hospital that threw their backs into improving quality and safety, and they got zero, volume zero demands for their efforts, no increase in demand, nor were they able to negotiate higher carrier rates. So like why bother? Just put a snazzy billboard on the highway, We are number one and call it a day. And yeah, what a loss for the community, for patients, for members, but also for folks working in any given hospital, trying really hard to get their organization to do right by patients.
Introduction to Today's Guests
[00:04:44] Stacey Richter: So, wow. Was I on the edge of my seat today to get a chance to talk with Dr. Sam Flanders and Shane Cerone from Kada Health, who by the way, donated to the pod to help out with our expenses. My goodness do I love this tribe that we have created here, and those of you who step up and help out, it costs a lot of cash actually, to keep this show on the air.
So thank you so much to Kada Health and also to everybody who pops up and drops a couple of bucks in the tip jar on our website that we do absolutely nothing to promote. We get five bucks here and $500 there, and it all adds up and it makes my heart happy to see how great people are on days when things look so dark sometimes.
Sorry, we were talking about the nonmarket that is the healthcare industry. Okay, I was thrilled to capture Shane Cerone and Dr. Sam Flanders, as I said, and get them on the show today because they were responsible together for running a hospital. A hospital that ran at 158% of Medicare. And which had highly rated quality and safety because I wanted to get my mitts on someone who had done this successfully because I'm trying to figure out why it seems so hard for others to emulate.
Now the solutions show is gonna be in 2 weeks where Shane and Dr. Sam Flanders get into how they kept prices low and delivered, high quality and safety to their community. And if you can't stand waiting two weeks, do go back and listen to the show with Dan Greenleaf. There's two of them [EP489, Part 1 and Part 2], and he talks about this from the standpoint of a multispecialty group.
Dr. Sam Flanders and Shane Cerone are talking about this from the standpoint of a hospital system.
Exploring Healthcare Myths
[00:06:16] Stacey Richter: Today, however, we are exploring, deeply and with great insight, problematic healthcare myths. Now, these myths are warmly embraced by those who kind of benefit from them being embraced, which is probably some pretty good foreshadowing for the solution show.
But these 3 myths are, first, let's just lay out the mother of all myths, that there is a functioning healthcare market or carriers control the prices of consolidated health systems and etc.
Myth 2. Hospitals simply cannot afford to operate when prices paid by commercial contracts are less than 150 or 200% of Medicare. There has to be wild cost shifting to local employers, otherwise they will go out of business in some kind of clearance sale.
Myth 3, when prices go down, so does quality as a general rule. Now there's gonna be one show in between this show, our problematic myth show and the, okay, now let's help hospitals solve for all of this show.
And the show I'm gonna pop right in the middle of these two bookends is a show with Elizabeth Mitchell from PBGH, the Purchaser Business Group on Health, because toothpaste is out of the tube. And anyone banking on the nonmarket bonanza continuing yeah heads up, here's what it looks like around the corner in the future coming up. Because, oh my God I'm terrible at keeping the suspense under wraps, but PBGH just took all the transparency data and a whole bunch of claims data and quality data, and now they can see actual prices being charged and actual quality and safety being delivered by any given health system or organization.
And oh wow is that powerful because it actually creates the potential for actual transactions, which are the building blocks of markets. And oh wow, does it have an impact on health systems on consultants, on TPAs and ASOs. I'm controlling myself from going off on a whole tangent about this impact on consultants and TPAs, but I will not because that's what half the show is about next week, so come back next week.
In the meantime, enjoy this episode with Dr. Sam Flanders and Shane Cerone. Then again, as I said, come back next week listen to Elizabeth Mitchell. Then come back for the solutions part of this episode where we talk about, yeah, solutions where Dr. Sam Flanders and Shane Cerone, just with such wisdom and experience tick through how to slow the raising prices roll.
How to make things work fine, just fine on 150, 200% of Medicare. How there is zero reason any hospital should be thumping its chest and saying quality will go down or dire this or dire that if they don't get their double digit rate increases.
So onward here is my problematic myths conversation with, as I've said 19 times already. Shane Cerone and Dr. Sam Flanders from Kada Health and the show is sponsored by Aventria Health Group with an assist from Kada Health.
Dr. Sam Flanders, welcome to Relentless Health Value.
[00:09:02] Dr Sam Flanders: Thank you very much, Stacey. Great to be here.
[00:09:04] Stacey Richter: Shane Cerone, welcome to Relentless Health Value.
[00:09:06] Shane Cerone: Thank you. It's our pleasure to be here.
[00:09:08] Stacey Richter: Well, it is a pleasure to have you both on the show today because we are talking about something that has felt like a black box to me frankly.
We've done a lot of shows talking about just the amount rising hospital prices have to do with rising renewals. There was that show with Vivian Ho, which dug into that. We've also had quotes like Dr. Stan Schwartz from Zero Health. He was talking about how a lot of what is wrong with medical expense has to do with pricing failures.
We had Mark Cuban and others on the pod talking sort of about that same thing and how a lot of the risk is shifting over to hospitals, but what is going on within the hospitals and whether this is a totally intractable, like this is just gonna happen and there's nothing we can do about it, flywheel, that we haven't talked about.
So I am fascinated to have you two today.
[00:10:07] Shane Cerone: Stacey, for my entire career and, and since before then, for decades, we've been concerned about the rising cost of healthcare. It's my view that we have for many, many years created new programs that are sometimes just renewed initiatives of things we've tried in the past, but they're very heavily focused on controlling the volume of use in the industry.
And of course those initiatives are really important and they're essential, but we've never really done anything about price. I really follow the old Uwe Reinhardt story from years gone by. It's about prices. And in my view, if we don't do anything about prices, no matter what else we do, the cost of care will continue to rise.
And if there's a message at the beginning for the end, is that we have to fix the lack of any market structure on pricing in healthcare if we're gonna get to a better solution.
[00:10:59] Stacey Richter: You mentioned the Uwe Reinhardt quote, "It's the prices stupid", which is pretty much just a different way to say what Dr. Stan Schwartz was saying, which is that we have pricing failure here. What do you wanna add here, Dr. Sam Flanders?
[00:11:09] Dr Sam Flanders: I would just add that the prices are so different. Between hospitals in the same market for the same services, and we can talk more about this later, but there's not differences in quality.
But explain this, no one's really dealing with those differences. That data's been publicly available for a long time, but we haven't been able to put it to use yet.
[00:11:28] Stacey Richter: And that for sure, right? Like you can look at, there's enough transparency that is available now.
There's just, there's a number of entities that are popping up in the market, which just show these wild deltas and how much things cost. And to your exact point, there is very little that would support some kind of quality as the difference, the differentiator there.
Which kind of leads us to the first excellent segue there. Into the first myth that may hold us back if we believe it. And that myth is that there is market control here that carriers are somehow controlling not only UM, but also pricing.
Myth 1: The Healthcare Market
[00:12:09] Stacey Richter: Who wants to dig into what the myth is first and then why it's a myth.
[00:12:16] Shane Cerone: I'd be happy to take a first run with it. The myth is that we have a functioning marketplace and we don't. I would say, we don't have a broken market. It's closer to a nonexistent market.
And what I mean by that is, as somebody who's been the CEO of multiple hospitals and health systems, hospitals don't compete on price for patients. It just doesn't work that way. And so we don't really have a normal market incentive to reduce the cost, or in this case, the price for services in order to remain competitive.
In fact, I would say it's you can run the most efficient, high quality hospital in the country. And it really will have very little to no effect on your business in terms of steering volume to the organization. And that's what's required for, you know, for a functioning marketplace, we need a system where buyers and sellers can make informed decisions. Which then lead to the efficient allocation of market resources.
Functioning markets have to have free and fair competition, and there's no competition in healthcare and price because nobody understands the pricing. Even with the latest efforts for price transparency, which are, you know, it's a great step, we're still nowhere near a place where people can use price to factor into their decision making.
I sometimes like to say, and this may seem ridiculous, but in healthcare, to use a different example, you can imagine if Visa and MasterCard said, you know what, we have a lot of purchasing power. How about we negotiate the price of milk with your local grocery store? We'll get a better price for you.
But here's the catch. We're not gonna print or publish what the price of milk is. We're just gonna get the best possible price for you. And you won't see what the line items are, but at the end of the month, we'll send you a bill and tell you how much you spend on all of your groceries, including the milk and everything for which we've negotiated these great prices.
Then down the road when your grocery bills get high or when you, when they're too high and you complain, instead of trying to achieve better pricing on milk. Visa comes back and says, how about I put a program to try and help you reduce your consumption of milk, but that's gonna add administrative expense to my processing fees.
That's how I view healthcare. Something we would never do in another industry. We would never let a third party like this set prices. And so unfortunately, part of the challenge in the industry is, I don't think insurance companies have, at least to this point, been able to create competition on price in the industry, and that's what we have to have to drive change.
[00:14:38] Stacey Richter: I'm gonna reiterate a couple of the points that you made and then see if Dr. Sam Flanders has anything about the problem or the myth to add before we move into what the reality is. Which we sort of have already dipped into a little bit here.
You said the market's not broken, it's nonexistent. And the reason or one supporting element that you said there is that hospitals do not compete on price and they do not compete on quality. And kind of backing up that we had Dr. John Rodis on the pod a while ago who was the CEO of hospitals in New England, and he kind of said the same thing that when he first became the CEO, he did this huge effort to improve.
They had really low safety scores, like their leapfrog safety rating was a D or something. And he busted everybody's behinds to lift it up to an A and got absolutely no volume for it. Like no one cared, which to him was an absolutely shocking revelation. Which I think emphasizes the point that you're making is do we actually have a market where you could lower prices, which I've also heard people try to do and get nothing for it, or you could raise quality, raise safety, and literally there is no market benefit. Let's get into the reality now here.
[00:15:51] Shane Cerone: You know, in terms of the reality, if you're the CEO of a hospital or a health system and you work to reduce your cost so that you can reduce your prices, but the market doesn't move to you, when you get that work done, all you've done is really lowered your top line, and most boards are gonna frown on that.
And so you know you, again, even with the right effort, a CEO's just not working in a marketplace that allows her or him to do what's best for the market, for the employers who pay for care for the patients who receive care.
[00:16:21] Stacey Richter: Let me ask you something though. You had mentioned so there is many times when this topic comes up, there are definitely those who say, because of pricing transparency, and by the way, just to be super clear here, no one is saying, let's not have transparent prices.
That is not the point that we're making here.
[Elizabeth Mitchell from PBGH, come back next week]
But you had mentioned even with the existing price transparency that we still have a ways to go because people still don't understand the prices. What do you mean by that?
[00:16:55] Shane Cerone: It's nearly impossible for a patient to, or a physician who's referring a patient for care, to really know the prices that that will be paid for those services, let alone what the patient will have to bear.
And, and that's where, again, it's just, you know, part of it is we have to get to a simpler model in our industry too. We need transparency, but we also need price simplicity so that doctors and patients can make decisions about what to do and where to go for the care that the patient requires.
[Stacey Richter: OK, I guess this is my new thing now, sticking in these little sidebars. Did what Shane Cerone said just now remind you of the conversation with Mark Cuban and Cora Opsahl entitled “Trust, simplicity, and a Chicken.” Yeah, me too. But this point really matters in this conversation without simply knowing the price to be paid or received, no transactions and no market for you. But for the longer version, definitely go back and listen to that earlier episode.]
[00:17:52] Dr Sam Flanders: I would add that it's also almost impossible for employers or plan sponsors to know the answer to the same question. How much is it costing to go to this hospital versus that hospital for the same line of service? And until they know that and have some control over it, it's gonna be really difficult to deal with this problem.
[00:18:10] Stacey Richter: Got it. So it's not, so basically the point that you're making is like double down on the existing transparency, make sure that it trickles down through the system.
[00:18:17] Dr Sam Flanders: We need to do more of it and just make it transparent. There needs to be a mechanism to bring that to the market.
[00:18:22] Shane Cerone: I think what you find, Stacey, is that when organizations negotiate with payers, they negotiate and so if they're trying to reduce prices or they're negotiating a certain area like the cost of cancer care, the payer may want to decrease the amount that is being spent on infusion care. The health system may say, well, I can do that, but I, you know, they may try and negotiate some different pricing models or different payment models in other areas.
And so what you end up with in, I'm sure almost every market is just a really confusing mess of negotiated rates. It's not simple. And then to translate that into something that a referring doctor or patient could understand. I think it's nearly impossible. I don't really see a way out of it other than pricing as a percent of Medicare reference base myself.
[00:19:09] Stacey Richter: It's interesting, and anyone who has any doubts about what Shane just said, go back and listen to the recent pod about stop loss contracting between hospitals and carriers in the show with Dr. Eric Bricker.
But yet so, so let's just think about the hospital now, or at least what I have heard many say.
Myth 2: Hospital Operating Margins
[00:19:38] Stacey Richter: They point to their operating margin and they say, we have to charge these prices because look at our operating margin, even with these increased prices.
We are still losing money or are we still razor thin margin? That's the, like we should play a drinking game where every time you hear razor thin margin, we'd all be extremely, probably in the ER with alcohol poisoning. But you know, like how can these two things be true at the same time that there is pricing failure while at the same time hospitals are still struggling with, you know, to pay the rent if you read the press releases.
And by the way, right now I am talking about large, consolidated health systems, mostly, not rural or very urban hospital systems that for real have tons of uncompensated care and Medicaid and all kinds of other issues.
[00:20:28] Dr Sam Flanders: Well, I think that what you just said is true, and these hospitals do have these economic issues, but you can find lots of examples of really high quality hospitals out there that get by with much lower pricing.
If you look at the RAND data we put on our website last year, over 20 hospitals that are top quality, nationally rated, and can get by on less than 200% of Medicare. So it's possible to do it if you know how to improve quality and lower costs in the correct way.
[00:20:56] Shane Cerone: And I think you know, Stacey, that Sam and I, when we started our work together many years ago at Beaumont, this was before a lot of this price data was made transparent and publicly available.
But you know, in the years when we worked together there, it was an organization that was paid around 150% of Medicare among the lowest, not just in the country, but really among the lowest rates, even in the state of Michigan. And what was an organization that I was really proud to work with then and was, I'm still proud to have been associated with it, a really high quality specialty center with national rankings and national awards.
So, Sam and I, to his point, we know from both the data that's published and from personal experience, that the care can be delivered much more efficiently and at much lower prices. And this will sound, you know, I hate the way this sounds, but you know, there's a lot of health systems that have small margins.
It doesn't mean that they're efficient. Some are, maybe, and truly struggle and some probably aren't. I mean, the reality is, you know, you can have low margins if you're good at just spending all the money that is given to you. And I think that's what goes without a competitive marketplace it's impossible to separate those things and understand what's really possible.
[00:22:05] Stacey Richter: I'm definitely gonna circle around to the, you will have a low operating margin if you spend all the money that's given to you. But I do wanna segue into the second myth that we have, obviously we organized this show in a very thoughtful way because, because we have gotten out to the, the second thing that we did wanna talk about, which is that hospitals cannot survive on Medicare/Medicaid payments, which is why they have to cost shift to commercial employers.
So before I dig in on that and I ask you a follow up question about the spend, all the money they are, given, do either one of you want to expound on the myth and how it may have happened that a hospital just simply cannot bear to be on Medicare rates alone?
[00:22:57] Dr Sam Flanders: I think that that can certainly be true and Medicare rates are are very low.
But can a hospital be on 150% or 200% of Medicare rates instead of 300 or north of 300 Medicare rates? I think that's the question is could they survive on that? And Shane just explained that we lived in a hospital that did not just survive, but do very, very well on that. So it really depends on whether the hospital can do the correct kind of improvements that are needed to work on both quality and cost.
And by the way, my specialty is quality, and those two go together very, very well. If you do things well, it almost always costs less so it can be done.
[00:23:35] Stacey Richter: One of the things that I often hear is that if you are in a market where there's one hospital that's charging whatever wildly over Medicare rate, you know, four or five, whatever percentage over Medicare, then they can afford to pay way more.
Therefore, all of the clinicians and staffing go over to the hospital that can pay them more. And then the one that is trying to rationalize prices, winds up paying less. Therefore, they have a competitive differentiation because people follow their doctor.
So is what you're saying true across the board or is it only true in areas where you sort of have a, a market where that's not in play?
[00:24:15] Shane Cerone: I think it could be true. I mean, if you have a market where one organization is paid on the high side of the market and the other is not, it is an advantage to that organization in terms of the resources they have available to invest in clinical programs and to recruit personnel and to compensate physicians and executives and nurses.
So, I mean, I think just at some level I that it makes sense and is logical, but kind of back to the baseline question, I don't know if we know how efficient we can become as a country in terms of percent of Medicare. And what I would say is, you know, on one hand there aren't many places that don't accept Medicare.
So, you know, what you really find is that you can make some margin on Medicare patients. It may not total up to cover all of the overhead and, and the allocated costs in an organization, but in that environment, what you want are really big, large, busy medical centers that can achieve greater economies of scale.
And in large part, I think that's what Sam and I experienced in our time together at Beaumont. It was a really large, one of the 20 busiest hospitals in the country and we were able in that environment, you can get a lot closer to Medicare payments and be viable and sustainable.
My view, and this will not make people in the industry happy that do what I, what I do for a living, but is that we've got it all backwards. We should think of, we have hospitals in the country today, as Dr. Flanders mentioned. That are doing very well at 160, 70, 80% of Medicare in terms of the quality of care they provide.
I think that's not the best we can achieve. I think it's the floor and that if we really had a competitive marketplace, we would see great care being delivered at far lower multiples of Medicare than even that.
But again, in today's marketplace, those organizations are most likely not rewarded by the market for that level of performance, and we have to change that.
[00:26:01] Stacey Richter: Yeah, and you did send over a list, which we will put in the show notes of hospitals that are fine hospitals, great quality, that have rational pricing.
Anything to add? Dr. Flanders?
[00:26:12] Dr Sam Flanders: I think the only thing I would add is that in order to get this ball rolling, there has to be a mechanism to get the prices so that they are competitive and so that there's some incentive for the hospitals to wanna offer those competitive pricing.
And once they do that, then the impetus for quality improvement and cost improvement will be there in a very transparent sort of way. Today we don't really have that competition on either price and or quality, and so it's hard to get people motivated to really make those changes.
[00:26:40] Stacey Richter: And from what I'm understanding, the carriers themselves and just the way that they negotiate and the various potentially conflicts of interest, if I wanna just put it in the baldest terms. The more money healthcare costs, if you're taking a percentage of the total, the bigger the healthcare pie, the more money there is which, is very, very basic and also very, very pernicious, frankly. I mean, it's just, it, it just, it just is.
Back to kind of the first myth that we have a functioning market here that rationalizes prices because we don't, the downstream effect of that hospital organizations aren't rewarded for doing things that a market would reward them to do because we have no market ie, better quality rational prices.
[00:27:26] Dr Sam Flanders: I think that's absolutely true, and in any given market, if a carrier negotiates rates, let's say with six hospitals, and it ranges from 150% of Medicare up to north of 300 of Medicare for the same services. The plan sponsors or employers don't know what they're paying at each hospital. The members don't know, and there's no incentive for the members to choose one of a lower cost hospitals.
[00:27:48] Stacey Richter: And that actually has even shades of gray in it. For example, I was talking with a head of primary care actually had a large consolidated health system that frankly had done a, and they admitted this fully, not a great job 20 years ago, negotiating their primary care rates versus other local hospitals. Kind of like back to the point that I was making earlier.
So this one particular hospital was trying to negotiate higher, like their primary care rates were shockingly low. They couldn't keep any primary care physicians. And the carrier was like, Nope. You know, sorry, you screwed yourself.
Meanwhile, you hear people like Elizabeth Mitchell talking about how the businesses in the area are they're frankly, okay, paying more for primary care, just given everything that we now know about primary care. But you've got a carrier who's thumping, so it's almost like the opposite problem also. It's not only how much you're paying, but what are you paying for that could also not have a market.
[00:28:51] Dr Sam Flanders: There's so many different levers and so many different things that could be done, and they're all good. I guess our main point is start with hospital pricing and quality. And if we could deal with that, that would give us a huge leg up to be able to then do some of the other things that we also need me to do, like primary care and lots of other things, but it's low hanging fruit that hasn't been harvested.
[00:29:12] Stacey Richter: And how do you harvest this low hanging fruit? See you in two weeks during the solutions show.
Myth 3: Price and Quality Correlation
[00:29:18] Stacey Richter: We've gone through a lot of the issues that these myths create, and I just wanna throw a third myth into the bucket here as well, which is that you lower prices and you get lower quality, which Dr. Sam Flanders, you just directly countermanded when you said that sometimes when you lower prices you get higher quality because now people are actually thinking really hard about what their processes are and what their protocols are, it's etc.
So we've got three myths here. That all definitely flywheel around each other. The first one being that we've got a functioning market that controls prices. The second one being that hospitals cannot survive on Medicare, 150% of Medicare, 200% of Medicare. That the prices have to be more than that with cost, is that we gotta cost shift.
And then the third one that we just added into our mix here is that you lower the price, you lower the quality. Intractable question mark.
[00:30:11] Dr Sam Flanders: Well, I'll address the quality question and then I'd like to ask Shane to address the question of what do we do about this? But it's been known since right after World War ii, thanks to the work of Dr. W Edwards Deming in Japan and later in the US, that improving quality lowers costs, those two go hand in hand, and that lowering costs often is less expensive. Then doing things at higher cost because again, quality and cost are related in, in a positive sort of way. So there's no question that you can do things well at a lower cost than that list that you're going to put out on your website will show all the listeners that that's completely possible.
So there's, there's no quality barriers from doing what we're talking about here.
[00:30:50] Stacey Richter: Which is fascinating. I just can't help but jump in. Sorry, Shane, over to you in a sec. It is just fascinating because it is so often put on a counterpoint where the second anybody talks about lowering cost, there's just kind of this, and maybe it's just intuitive, right?
You just think, oh, the lower the price, the lower the quality. Like that's normally how things work, but the point that you're making, and there's Edwards Deming, there's the Toyota model, there's just any number of different, very well validated assessments which show that if you really start thinking about what you're doing and organizing what you're doing, that you can't, and I'm sure there's a threshold here, right?
Like you can't go below some number, and I think you said 150, 200% of Medicare might be that threshold, but if you're working in that sweet spot and you really start thinking about what's efficient, then you actually may raise quality because now you're thinking about it hard.
[00:31:47] Dr Sam Flanders: You absolutely can. And we're big proponents of the Toyota model, which we've successfully adapted to healthcare and organizations where we've worked, and it really changes the way you approach performance improvement for both cost and quality in a way that empowers frontline workers to be able to be much bigger participants in that effort than they typically are in most health systems.
[00:32:09] Stacey Richter: One of the things that we often forget about hospitals also is we think hospital and we think care delivery, but these are huge sprawling bureaucracies. For example, I was listening to Dan O'Neill talk on Lisa Bari’s podcast.
And he was talking about physician credentialing and this one healthcare organization had this form where a doctor had to fill in stuff that was easily available on the internet, like so then you had to go offline. It was this hard copy thing. You had to fill it in and then send in a physical check, and they had a whole department that just managed all of that, and you're thinking to yourself, how much did that cost?
But you get these little fiefdoms, right? That again, have nothing to do. Well, I mean, I guess indirectly, but they're really far away from direct care and incrementally, you add that plus another different day, different department, and you can get really costly, really fast, and you standardize and make that really efficient.
It's got nothing to do with patient care. Right?
[00:33:07] Dr Sam Flanders: Yeah. Well, if I could just add one more thing to that. I think the point you make is really good. And in addition to creating perhaps bureaucracy that doesn't need to be there. There are hundreds or even thousands of problems in health systems everywhere, even really good health systems that need to be dealt with.
And there's no way you can do that from a central location. You can't have a central quality team or a department, or a czar or anyone that can be aware of all of those sorts of things. If you look at how Toyota structures theirs, their model is conceptually very simple. Every employee needs to do their job and do their job and perform it well every day.
But also be thinking and making changes constantly to try to improve the way their job is done. And that's the model that can get out into the front lines, into all of the different recesses that are out there that are impossible to manage centrally because there's too much complexity.
The people that are doing the work know how to improve it. If you'll let them. If you'll encourage them, if you'll coach them. And letting that happen makes an enormous difference. And really gets you to continuous improvement. You've talked a lot about the flywheel model in this podcast. I've heard it numerous times and it's the same sort of thing. It's a giant flywheel, and if you get everyone in the organization pushing on it, the flywheel begins to turn faster and faster.
If you only try to do it centrally, you can't even get the first turn of the flywheel to go.
[00:34:28] Stacey Richter: And just to be clear, oftentimes on this podcast we talk about kind of the death spiral direction of the flywheel where quality goes down or at a minimum remains neutral, I guess best case, but prices go way up. What you're talking about is the virtuous spin, so turning that flywheel around, how do you make it go the opposite way? I am on the edge of my seat Shane to hear how, how we do this.
Conclusion and Upcoming Episodes
[00:34:50] Stacey Richter: Wow, with that cliffhanger do come back, as I said next week, listen to Elizabeth Mitchell of PBGH talking about the demonstration project. That is a first step. It is a foray into making an actual market.
Then come back week after that for Part 2, the solution show of this conversation where Shane Cerone actually gets a chance to answer the question, What do we do to countermand these problematic myths that we have spent the last 30 minutes discussing in this show?
So see you on the other side.
[00:35:23] Shane Cerone: Hi, this is Shane Cerone with Kada Health. I like to think of Relentless Health Value as a solution center. A unique place where industry insiders and experts gather to break down the failures of our nation's health system and talk honestly about the problems we confront and the solutions we need.
It's a rare place where you hear strategies that are actually being used to drive the changes we all want and need to see in the industry. If you're interested in making an impact, I'd encourage you to follow Relentless Health Value on LinkedIn and share your perspective. Thanks for listening.