Introduction to Healthcare Costs and Waste
[00:00:00] Stacey Richter: Episode 496. "Plan Sponsors Spend About a $1.20 to Buy $1 of Healthcare, and Clinical Organizations Receive 80¢ for Every $1.20 Spent." What? Today I speak with Mark Newman.
The Quest for Administrative Efficiency
[00:00:33] Stacey Richter: I'm gonna do a little series here called "The Inches Are All Around Us". And in this series, at least to start, all of the inches I'm gonna mention are full on administrative waste. Waste that is particularly egregious because it has nothing to do with patient care.
That's why when Shane Cerone said, "The inches are all around us" in episode 492 about hospitals and hospital prices, I really perked up. Because by fixing this friction, this administrative waste, we can actually improve patient care and reduce costs simultaneously.
Along these same lines, I have also heard Zack Cooper talk about the 1% steps to healthcare reform project, where he's like, look, find 10 or 30 or whatever, 1% problems, and you'll probably transform healthcare faster than if you're trying to find a 10 or 30% solution.
So same idea. Finding these inches, these 1% even in and of themselves, it's big dollars when it comes to how much the US spends on healthcare, which is, by the way, projected to reach 5.6 trillion in 2025 according to NHE projections from federal actuaries. Link in the show notes.
So I decided to go on a bit of a quest for these inches. You know, get a bead on where they may be nestled for anyone looking on behalf of their plan or their country or their state maybe. To this end, also recall or be aware of the episode with David Scheinker link in the show notes. Everything I say by the way that you're thinking you'd like a link for you will likely find in the show notes 'cause I got you.
But David Scheinker in that episode gets into how much every industry pays something like 2% to administer a transaction. But in healthcare, the provider pays something like 14% and the payer pays another 14% to submit and get paid for a claim, which is healthcare for, a transaction.
Don't get me wrong, it's the plan sponsors such as self-insured employers, members, and USA taxpayers who are ultimately paying for those two 14%. So that 28% of full on administrative costs, most of which we could agree, could go away and probably be better for patients, not worse.
This too is coming out of the pockets of the ultimate purchasers of healthcare. Those costs are getting passed along.
Understanding Healthcare Transactions
[00:02:44] Stacey Richter: I say all this to say, to kick off this, the inches are all around us exploration, I wanted to dig in a little more specifically into what goes on during these aforementioned transactions, ie, what this life of a claim kind of like looks like on the ground.
I wanted to start here, because yeah, we haven't done this before and this exploration is gonna continue into next week because we're gonna dip heavy into clearing houses with Zack Kanter and what they do all day. And then after that, I'm talking payment integrity programs. I'm talking prepayment review programs with Mark Noel, because you know what? Employers don't wanna be bringing a knife to a gunfight.
The Importance of Payment Integrity
[00:03:24] Stacey Richter: And I realized in the course of these conversations that any self-insured plan sponsor that is not doing for real payment integrity programs for real prepayment review, post-payment review.
I'm getting ahead of myself, but when you listen to the show next week with Zack Kanter, you will so totally see what I mean.
Interview With Mark Newman
[00:04:27] Stacey Richter: Today, as I mentioned earlier, I am speaking with Mark Newman, who is the CEO and founder of Nomi Health. Nomi aims to simplify the act of buying and paying for healthcare for self-insured employers.
Look 'em up. If that sounds intriguing, link in the show notes to their website.
I also do need to thank Nomi Health for so generously offering to donate to RHV to cover the expenses of producing this episode. So thank you so much to Nomi Health.
Okay, lastly here, just to set the basic framework for this conversation that follows, Mark gets into two main revelations, reasons that kind of sit behind all a large part of the waste and friction in healthcare transactions. Again, otherwise known as a claim getting paid.
Fragmented Data in Healthcare
[00:05:14] Stacey Richter: And these two reasons are: data isn't data isn't data. In other words, as a claim moves through the system to different stakeholders, the data starts to change and morph and come and go. Different people have different use cases for that data, so it starts to get added and subtracted, but nobody really has the universal level to tote up the difference in any organized fashion. So we talk about that first.
Then Mark Newman doubles down with another reason for the friction and waste. Here's the second revelation.
The True Cost of Healthcare Dollars
[00:05:49] Stacey Richter: A dollar isn't a dollar isn't a dollar. And same kind of rules apply here. A plan sponsor might spend a dollar and, yeah, is that dollar spent or is that dollar accrued to spend? Which is kind of wonky, but also relevant. And if you didn't understand that, we'll get to it.
And then just because a dollar gets spent doesn't mean the provider gets that dollar. And by the way, I don't just mean, oh, there's spread pricing. How shocking. I mean that a plan sponsor could roll up to a hospital and say, we spent $10 million last year, and the hospital could say, no, you didn't. You only spent five.
And spoiler alert, in this case, it's not about spread pricing, although it might be, it's also about how much was the member responsibility that the members didn't pay. So a dollar is not a dollar for a whole bunch of different reasons.
My name is Stacey Richter and this podcast is sponsored by Aventria Health Group, and today it's also sponsored by Nomi Health.
[00:07:07] Stacey Richter: Mark Newman, welcome to Relentless Health Value.
[00:07:10] Mark Newman: Thank you for having me.
[00:07:11] Stacey Richter: So we can talk about the life of a claim between when it gets submitted and when it gets paid, otherwise known as what a healthcare transaction looks like. Short version. It's incredibly fractured. It's an incredibly fractured journey to put it charitably.
And there are many reasons how and why this came to be. And there are many perverse and otherwise incentives for why it continues to be, but that is not the point of this particular conversation. What we're talking about today is why knowing the life of a claim is suboptimal, is actually actionable information. And there's two actionable revelations, maybe I'll call them, that we wanna talk about today.
So, so let's start there. If we're talking about the life of a claim and what can go horribly wrong when the data is so fractured, what is actionable to know about that?
[00:08:00] Mark Newman: Let's put the different hats on. When you look at that data. Data isn't, data isn't data for different people. So from a data standpoint, a provider has their data and how they look at their business.
On this date, I saw these people I collected, there's this term RVUs, that's a kind of like quota. You know, for doctors production units on a daily basis or a weekly basis or monthly basis, how many RVUs they need to do. Did I get my RVUs based on date of service? Okay, that's one bucket.
Then there's a business operations data stream of that exact same of stream of work, right, from, like a doctor standpoint, then becomes a business data stream, business operations data right here.
[00:08:43] Stacey Richter: And when you say business operations data, you mean like somebody in accounting who's like, well these are what our...
[00:08:47] Mark Newman: Somebody in accounting in the provider's office or the health systems office. They have no idea what they're gonna collect, how much they're gonna collect, when they're gonna collect, and they just forecast it.
Right? It's an assumption. It's not specific.
Challenges in Healthcare Accounting
[00:09:02] Mark Newman: Then it goes over to the payer, the TPA you name it. They have their own accounting of that claim because they get a gross charge versus an actual bill charge versus like a contracted rate. Was it based on date of service? Who's paying it? Are we responsible for it or is the member responsible for it? Okay.
[[00:09:19] Stacey Richter: Just cutting in here. To summarize, there's a lot of data flying around, but the data set can certainly change and the translation as everybody tries to get what they need out of it.]]
[00:09:30] Mark Newman: When to deal with TPAs, there's the operations team and the payments team and the treasury team, and they fundamentally do not operate on the same data files.
[00:09:38] Stacey Richter: But wait, there's more. Okay, so there's a wrinkle that might even make it hard for a payer or a TPA to internally reconcile any given situation is what it's sounding like to me.
[00:09:49] Mark Newman: Then if you're the employer who runs the plan, you get a whole different set. And the reason why you get a whole different set is 'cause in most cases, you see what your responsibility, what your plan spent. Or is accountable for. Then what your responsibility is, your portion or plus all the fees for navigating this whole thing.
And so when you look at that data stream, everyone looks at this one event of healthcare, and it might be on a specific episode 'cause maybe it was a big episode, and every single person looks at this as something totally different.
And that makes up the data isn't the data isn't the data.
[00:10:28] Stacey Richter: Everybody, in a way is speaking a different language.
Implications of Fragmented Data
[00:10:37] Stacey Richter: Okay. So if we're thinking about what the implications are of all this fragmentation, and I say this a lot, effective collaboration is gonna be the next breakthrough innovation. If you can't even speak the same language, it's really, really hard to collaborate.
This is one of those things that you don't realize how powerful it is until you wind up sitting in a meeting and you've got numbers that don't match somebody else's numbers.
[00:10:54] Mark Newman: Or you're talking to a payer, you're a provider, you're talking to a payer. And they go, Oh, that's our ASO business versus our Medicare Advantage businesses versus our ACO, ACA business versus our small group.
[00:11:05] Stacey Richter: There's no, sometimes I call 'em anchor units, right? Like there's no number that everyone
[00:11:10] Mark Newman: Sources of truth.
[00:11:11] Stacey Richter: Yeah. Look at your spreadsheet and everyone find where it says this day and $35 and like, that's how, there's none of that. So it just makes it very, very difficult to work together to even do analytics. Nobody's keeping track of the same thing.
[00:11:25] Mark Newman: Or, you know when it is solved or when you do have that answer, finally 30% of the cost of healthcare is associated with figuring that out.
[00:11:34] Stacey Richter: And you can start to see why.
So Revelation 1 here is that the data is fractured among the multiple entities along the exact same claim journey.
They are focused on different parts of the dataset, and maybe as a result, there's not one single spreadsheet view that everyone around the table is going to be referencing. Try to negotiate a deal when no one cannot only agree on the baseline, but even clearly see what that baseline is from, not only just from a number standpoint, but just from a parameter standpoint. Like what are the fields in the spreadsheet to start with? Everybody has different fields.
This might happen organically because different parties have their eye on different balls for probably decent reasons, but there's also, if you think about it, a perverse incentive that they don't line up, right?
Like if you're in the business of spread pricing and or arbitrage and you're interested in folks not quite understanding how much you might be hoovering out of the middle of any transaction, then not having the spreadsheets line up between the sellers and the ultimate buyers is actually a plus for you.
Okay, so at the top of the show, Mark, you said that the data isn't the data, and I think we get this. But now let me pivot because you also said to me earlier that a dollar isn't a dollar. Let's talk about what you mean by that.
[00:12:57] Mark Newman: Okay. So if, so, if a provider shows up to talk to a plan sponsor. Plan sponsor says, we have so many lives that come to you, that incurs $10 million a year of claims.
And we want a better rate on this part of it, and the provider shows up and says, uh, we have some portion of those lives that come to us, and our net that we get from this is perhaps $5 million. Plan sponsor goes, what are you talking about?
[00:13:27] Stacey Richter: Whoa, wait. So plan sponsor thinks they're spending 10 million, but the provider organization only has 5 million on their books. Half that a dollar is not a dollar. In other words?
[00:13:36] Mark Newman: Where that kind of Greek and Japanese breakdown happens. Is the fact that the plan sponsor shows up and says we have X amount of, you know, charges with you and we ignore. There's a plan responsibility and there's a member responsibility. And in fact, they don't wanna get their hands dirty to say, our members don't pay.
Our members can't afford it. Our members have too high of deductibles. You know, whatever it might, whatever it might be. They just say, we do this much of service. The provider shows up and says, um, I'm first bill for most people on this plan. I don't ever get paid 'cause my cost of collection is so high, you know, etc, etc. So my net that I get is this.
And so that's why you have this Greek and Japanese. One person's talking about one number, another person's talking about an entire another number.
[00:14:23] Stacey Richter: Which I could see if you're trying to do direct contracting could be a rather interesting conversation because the employer's coming in saying, this is how much business I have with you. And the provider might be, not so much really.
[00:14:35] Mark Newman: Well, even worse 'cause the employer might be whatever the payer said. Because the very rarely does the employer have the level of scale. They're just renting the things from the payer, which is like. I dunno. There's Greek, Japanese, and German. There's three languages going.
[00:14:49] Stacey Richter: We're just talking about the self-insured employer, you know, or the union. Would it matter if the finance department from the self-insured employer was in that room meeting with the provider organization or HR?
[00:15:02] Mark Newman: Yeah, if finance and HR are they will have fundamentally different answers. When they go in, when they go into that.
[00:15:08] Stacey Richter: Wait, what? So you just said even within the self-insured employer, there might be different languages going on. Which is similar to the two languages, two definitions for what a dollar within the payer is between their various departments.
[00:15:20] Mark Newman: Oh, absolutely. Um, so HR will generally have visibility into what's going on and what's happening, and they might say, this is how many expenses we've incurred this year. Here's not only our medical claims expense, here's our, our pharmacy expenses.
But there's a lot other things that go into this plan cost. Stop-loss reimbursement, transactional fees, PEPMs for digital health tools, consultants, brokers, TPAs, all this stuff.
So HR kind of in benefits teams they'll generally have a set number from the beginning of the year. We think we're gonna spend $10 million this year, or a hundred million dollars, whatever that number is. And they're kind of like tracking it like a burn down, like that's my budget and here's my kind of burn down against it.
Finance might get a single invoice from a TPA that they're just, either that they're supposed to pay.
Or they might be getting funds pulled from an account, supposedly accrued to pay bills and claims that are smoothed out. And so finance might show up and have no idea they're spending $3 million at this provider and $4 million over here or whatever.
In fact, most finance organizations are like, alright, we think it's $10 million this year. Okay, we're just fed up. We're just gonna accrue it at $833,000 a month. Flatten it out. Hopefully we don't overrun it in Q4. And just plan for it to go up eight or 10% next year.
Or they get, they go deep into the matrix and they find out that they have to do accrual accounting and benefits does cash accounting, none of them have any idea what it means for the member if they're actually able to pay the bills that they have.
[00:16:58] Stacey Richter: Yeah, so what I'm understanding, even within the plan sponsor, the self-insured employer, whoever's the ultimate purchaser here, what's even going on within their own organization. And we're talking now about, I'm gonna say the organizations that do not have finance intimately involved with what's going on with benefits, obviously.
And I know we have a lot of self-insured employers that listen to this, show who, who may, so not talking about you or not talking about what you know is ultimately the right thing to do at least.
What we've got is the benefits team is calculating what they actually spent actually gonna going out the door based on what happened in the claims wire. But then you've got the finance team who can see what got pulled from the account, but how they're budgeting, as you said, the aggregate, the universal number and then we just divided it by 12 and said that's what we were gonna accrue on a monthly basis. So like if you again, try to have a meeting even within that one employer. You know,
[00:17:47] Mark Newman: It's like the finance team got the American Express bill and just paid it and they're like, we have no idea what was in that American Express bill. It's like we got the total amount, we have no idea what's underneath that. And sometimes people say, that's proprietary, that's HIPAA. Like that's kind of the nonsense.
Conclusion and Key Takeaways
[[00:18:11] Stacey Richter: Okay, so we first talked about how data isn't, data isn't data. That was Rrevelation 1, about how data starts to transform and or go missing as it travels along the claim journey.
Now we're talking about the second Rrevelation, which is a dollar isn't a dollar isn't a dollar. And when I say revelation, I mean, actionable information about this fragmented claims journey.
So we covered how a dollar might not be a dollar. That could be true because of different accounting methods like using accrual accounting for some things in cash accounting for others. And yes, this is wonky as hell, but if a provider organization uses both methods simultaneously, or if a plan sponsor in different departments uses both accounting methods simultaneously, you won't have numbers that match up.
I mean, this is why the IRS makes you choose when you set up a business, which accounting method you're going to use, accrual or cash for taxes, and you have to pick one and only one like more is not better. It's calculating the same thing two different ways. And then a dollar is not a dollar, at least in that accounting period.
But then also a dollar isn't a dollar because you have inside of payers and maybe plan sponsors rolling all spend up into one big number, but providers are splitting it between what they got from the TPA payer versus what they were supposed to collect from the member, but probably didn't.
And look, you might not have followed that whole deconstructed pathway here, and it almost doesn't matter. The point is this whole thing is a thing, and when we talk about the transaction costs of healthcare being high, all of this, as Mark said earlier, becomes a whole cottage industry to straighten out, and that costs all of us, 28, 30% of our healthcare spend a year.
That's a really actionable thing to know. The inches are all around us, but this one, I don't know, might even be like a foot or a yard. ]]
[00:20:02] Stacey Richter:So Mark, if, if you are gonna summarize this whole, a dollar isn't a dollar isn't a dollar point. How would you do that?
[00:20:09] Mark Newman: What I mean by a dollar? Not being a dollar, not being a dollar. The employer is paying rental fees to access that dollar of negotiated rates, transactional fees, EPMs, consulting fees, you name it.
And as you stack all those up, that turns into roughly a $1.20 to a $1.30. So they're paying a $1.20 to a $1.30 for their members to access a dollar of healthcare. And you can actually see this even in like the ACA plans or the fully insured plans across states. And that's called medical loss ratio.
So that was under the Affordable Care Act, where there's a dollar of premium and the payers are required to spend 85 cents on care.
The Cost of Healthcare: A Deep Dive
[00:20:49] Mark Newman: Now, they never do, but supposedly they're there to spend 85 cents on care. But if you think about that 85 cents becoming that dollar, that means that you're paying a dollar plus.
Right. You know what I mean? You're paying a dollar 20 to get a dollar of healthcare. But if you talk to any doctor that you know in your life and you say, okay, you're owed a hundred dollars. How long does it take you to get paid that a hundred dollars? And how much of it do you collect? They kind of laugh and cry at the same time.
Doctors and MBAs: Navigating the Business of Healthcare
[00:21:14] Mark Newman: And what you see, and this, you can see this in public companies and health systems, you name it, that it takes somewhere between 2 to 9 months to get paid and they're writing off roughly 75% of patient balances.
And between denial rates and unpaid service levels and skew, you know, claims and codes and whatever they're collecting like 90, 85 to 90 cents on the dollar at best from payers. And when you blend that together around their business, they go: “On my best day, I get 70 to 80 cents of what I thought I was contractually owed for the work that I just did.”
The Hidden Costs of Revenue Cycle Management
[00:21:49] Mark Newman: And on top of that, about 12 to 15% of any budget in any health system or office now is on things like revenue cycle management, administrators, billing people. So it's being spent on the cost of figuring out how to get paid.
Comparing Healthcare to Other Industries
[00:22:07] Mark Newman: And so when we think about that, we go, okay, in a restaurant, a dollar on a bill, you know, is we as a consumer, pay a dollar. They might get 97 cents if it's a credit card swipe right and we all move on. But in healthcare, that dollar means that it's a $1.20 to a $1.30 to the actual buyer of care, the employer, and functionally the member, because that's how their planned cost gets priced.
The Impact of Payment Delays on Providers
[00:22:33] Mark Newman: And on the flip side of it, the provider is collecting maybe 70 to 80 cents and that right there, is a trillion and a half dollars a year of US healthcare costs. It just goes out the door. And there isn't one boogeyman.
The Friction in Healthcare Costs
[00:22:46] Mark Newman: Like, it's just the cost of the friction. It's the, you know, the spread, the margins, the this, the figuring it out.
It's the why nots, the, you know, the call centers, the this, the noises, the mail. And like that's the spread and that's the biggest opportunity for self-insured employers and healthcare in general to solve if we solve that spread problem. We solve healthcare.
[00:23:07] Stacey Richter: And I think it's important to point out that friction, if we cut it out, you know, a lot of times we think, oh, if we cut things, it's gonna be a detriment to the member, or it's a detriment to..., this is the exact opposite. Cut that friction out, and it is actually better for members.
[00:23:25] Mark Newman: For sure because the provider themselves can't run their business on the hope and dream they get a dollar. They budget their business, they hire, they make their profit margin, whatever on 80 cents, and if they collect more, it's upside.
[00:24:24] Stacey Richter: Obviously there's issues for providers there who are waiting. Payers make a lot of money on the float. So like, you know, again, none of this, you had said something earlier, which is this is not just an accident.
Intentionality Behind Payment Delays
[00:24:35] Stacey Richter: There's some intentionality here and, and if I am gonna just hypothesize what you might say, and then I'll ask you what you will say.
But if I'm gonna hypothesize the why relative to the intentionality, number one, listen to the show with Preston Alexander and Dr. Eric Bricker mentioned this in a show as well, just relative to, you know, the getting paid faster is not a technology problem a lot of times it's a, the carriers wanna keep the money issue for obvious reasons, because they make 10, 20% of their profit margin on float or investments that they can make while they have the money. There's a lot of power in having money even temporarily.
So, we certainly have the intentionality that is there, but then on the the flip side, you have the providers who don't have the money, therefore they have to spend more money. And again, referencing that Preston Alexander show, talking about bonds.
And all, and I am certainly not suggesting in any way that many large consolidated health systems in this country, particularly, in fact, the nonprofit ones have fiscal discipline. Listen to the shows [EP490 and EP492] with Dr. Sam Flanders and Shane Cerone for more on that topic, but it definitely creates a situation for sure in this particular way.
They absolutely are not wrong to have these gigantic revenue cycle management. And then I also will mention Andrew Tsang, he put the 27 streams of revenue in between provider does something and carrier pays the…,
[00:26:08] Mark Newman: I love that. The 27 streams gave up at 13. I'm like, Hey, I'm, I'm deep enough in Dante's Inferno for no here. Like it's time to build something different. Yeah.
[00:26:16] Stacey Richter: But if we're talking about the intentionality, you talk about, you think about everybody in the middle there who's taking 1% or 2% or whatever percent, and it adds up to 40%. But nobody in the middle has any incentive to cut themselves out because their entire revenue stream is in fact the friction.
And I am certainly not talking like I am making a very broad stroke statement there. And I'm also separating out long term from short term. That is a thing you, you can understand that in the long term, something is really a problem. But in the short term, if you stop doing it, patients would be harmed.
I mean, like that's half the ethical dilemmas that I myself wrestle with are, I know that ultimately this is creating a bad cycle, but if you stop doing it, then you're gonna have patients that are caught in the crossfire. And what do you do there.
[00:27:02] Mark Newman: People are putting off care, people aren't getting raises and you know, dealing, being able to handle a cost of living increase because premiums go up 8 or 12% every single year. So patients are in the cross fire.
And so now it's a function of what do we do about this? 'cause now, before it was just the members, but now businesses and school and businesses aren't just highfalutin Fortune 500 companies that complained like, no one needs to cry for Jamie Dimon or Jeff Bezos and the healthcare costs, they're good, they're fine.
But school districts can't hire teachers because their healthcare costs are now $40,000 per family per year, and just went up another 8%, 10%. Well, that's $4,000 that they now have to come up with on a per teacher basis. And it turns out if they can pay teachers 64,000 instead of 60,000, you know, or over the course of three years, 75,000 instead of 60,000, they'll have a 30% lower vacancy rate.
They'll keep more teachers, they'll have less turnover. No, no, no. We can't do that because we have to keep handling this benefits cost. And, you know, it's like Charlie Munger said, “if you figure out the comp model, I'll tell you exactly the outcome you're gonna get, right?” HR 101, you get what you pay for.
And if you look at the what pay people get paid for, at the biggest payers in America, they're all public companies. Revenue per share. Earnings per share, profitability, gross margin, and I don't care if they're for profit or not for profit, they all get paid for the same shit, you know, kind of on, on, on this part of it.
So as a result, they do not get paid for revenue to go down. They do not get paid for margins to decrease. They do not get paid for, like United had their earnings go down. It was something like small on the grand scheme of things, and their stock price went down 50% over the course of a couple of weeks. So what are they gonna do? Their CFO was in Becker [Payer Issues] saying “We're gonna bring the swagger back to United.” And I'm telling you, swagger for United is not good for America.
And so it's not even hard to figure out. It's what do people get paid for? What do they get their bonuses on?
[00:29:00] Stacey Richter: How do we fix this? Mark?
[00:29:03] Mark Newman: When you're talking about those 27 layers, like in, in that journey of the bill, the 27 layers, any one of those layers isn't going to change the trajectory of US healthcare. So that's why we believe that the only way to do it is to kind of bypass the 27 layers.
The Role of Self-Insured Employers
[00:29:20] Mark Newman: And that doesn't work everywhere, but it can work for self-insured employers. Because behind every payer is a buyer who hires them.
Self-insured employers know how to buy things and pay for them. They know how to negotiate. They know how to deal with cost of goods sold, you name it.
But the industry hasn't been equipped or hasn't been enabled to serve employers that way. You're seeing green shoots, but there isn't the infrastructure for an employer to take advantage of that.
And that's where I think there's the next big opportunity in healthcare, whether it's us, whether it's new entrants, whether it's digital health.
And we think, like in our personal lives, I can book a flight to Miami and it comes up with a rental car and a hotel and show tickets and weather and whatever, and a price.
But in healthcare, if I book a flight to Miami and get a rental car in New Jersey, a hotel in New York, weather for Seattle and a price for it six months later, that's not something that you can incrementally fix.
[00:30:12] Stacey Richter: Sandra Raup on LinkedIn just wrote a comment, which was short, but I think incredibly powerful. She said, We're over, we're over tweaking. It was something like this. You can't talk anymore. Totally. We're done.
[00:30:22] Mark Newman: Yeah. You know, I can get a phone call. Hey, Mark, you didn't do this charge. Is this you? We never questioned the validity of the bill on our American Express.
And we're not going to get a new better system from the people with their hands in the honey pot. They have no incentive to it. And so we have to, and that doesn't mean that all has to disappear. What it has to mean is who are the parties that matter?
If we said, well, providers, providers matter. Obviously drug manufacturers, they matter, obviously, like we need them. We need a method of distribution, right? You know, we need to be able to get drugs to people. We need to get healthcare to people. But then who pays the bill? If we can simplify that, where it says, here's the care that you delivered. And you just got paid for it. It works.
Innovative Approaches to Reduce Healthcare Costs
[00:31:06] Mark Newman: We've been experimenting with a no copay, no deductible model, just to say is part of the ambiguity here and the problem of the, the cost of this ambiguity a function of too many parties involved. Right? What happens whether it's a hundred dollars primary care visit to a hundred thousand dollars surgery, if you just take the member out of it.
[00:31:23] Stacey Richter: And you're talking at Nomi Health right now?
[00:31:25] Mark Newman: Yes. We just said, listen, we're gonna go like, rip this thing apart. We're gonna have it all data driven, all digital, straight payments, no copays, no deductibles, and like we're gonna price in the risk, we're gonna see what happens, you know, like, let's go, let's kind go do this.
And three things happened. One, the contracted rate will be found with the providers when no ambiguity of collections for the services that I just delivered. So we call that the real cost of healthcare, right? The real price was roughly 20 to 30% lower. Then a BUCA traditional contracted rate, which for us is pricing in the risk of nonpayment. That's the difference.
If you have zero risk of nonpayment, then it's this price. If you have to price in the risk of nonpayment, then it's that plus. Simple. If a restaurant had to do it, they'd do the same thing.
The second factor was what happens to utilization patterns? Because the myth is you need copays and deductibles to mitigate utilization. Does that make sense? Like if you don't have copays and deductibles, healthcare is gonna go crazy and whatever.
Now this isn't Medicare. These are working age families who have other things to do in their life. They're not, and there's like a natural limiter to how much healthcare they're gonna be able to go and get because it's life.
So it turns out, total number of claims, like just claim volume utilization went up like seven 8% in claim volume, but mix that seven, 8% increase in claim volume was a bit more mental health, more physical therapy, more primary care, bit more specialty visits. All the things that people put off because they were underneath their deductible.
The other mix though is what breaks the self-insured plan isn't primary care. It's NICU babies, cancers, accidents. And there weren't more of those things. There weren't more NICU babies. In fact, you know, we're gonna find out if there's less. But like there wasn't more of those things.
And then the third dynamic was it, and this is like Malcolm Gladwell, so I'm not even sure how to like call, how, what to call it yet. But think about, you know, in our own personal lives, what we've done from a behavioral economic standpoint, when you hit your deductible.
There is such a fascinating acceleration of utilization.
[00:33:35] Stacey Richter: I did a whole show on that called Moral Hazard something or other if, if anyone wants to listen to a 15 minute rant.
[00:33:42] Mark Newman: Let's go get that ankle surgery.
Let's go do this. Let's go do that. Right. Well, what happens if behaviorally, you don't have to worry about that now. And we've been watching it and it didn't take two, three years to figure this out. It took one. It literally just smoothed. It just smoothed out. And so in this pilot area, you're now seeing a 38% decrease in healthcare costs.
And you know, we, we need to see the whole year prove out. But even if that cut in half because people like went and got that care and whatever, 20% healthcare costs decrease.
[00:34:16] Stacey Richter: And what's exciting about that, even more so is that that is coming from the just friction, the cost of removal friction.
[00:34:25] Mark Newman: The providers are over the moon, the employers are like winning awards. They have, they're getting rounds of applause at their benefits meeting.
[00:34:32] Stacey Richter: And the interesting thing is Dr. Stanley Schwartz was on the show from Zero.health.
The Future of Healthcare: Direct Contracting
[00:34:35] Stacey Richter: He was talking about something similar with direct contracting. We had Dr. Cristin Dickerson who said a similar thing [EP485].
So like this is something which is, hey, cut the cost of friction, and everybody wins except potentially the 27 revenue streams that are, that, that sit in the middle there that I, you know, again, maybe necessary in a really dysfunctional system, but if you make the system functional, they're subject to the Innovator's Dilemma, right.
[[For sure. I am referencing the seminal book by Dr. Clay Christensen, who explains in that book, for example, why Kodak crashed and burned when they could see the writing on the wall, probably just as well as anyone else. Why they crashed and burned, it's because when you are the incumbent and you're making a whole lot of profit off of doing something the hard way, you aren't going to cannibalize those high profits by promoting a new and better and more agile and streamlined way.
Your company just can't do it. It's too much cognitive dissonance. It's too many folks with too much personal vested interest in not causing their whole department to get laid off it. It just, yeah, it makes sense.]]
[00:35:43] Mark Newman: One of our main investors and has been in Nomi, me was Clayton Christensen and his son Matt Christensen.
[00:35:48] Stacey Richter: No kidding.
[00:35:49] Mark Newman: Oh yeah. No, they were in Nomi before he passed. And Matt's on board. And this is core to every single thing that we believe in. And you have to start at the basics and you just keep going further up market. And I think in self-insured healthcare, we can be the blueprint for the right system for America, but we have to prove it.
And the the other thing that I think is important is the problem with VCs and even private equity firms, that you have this kind of dynamic where some initial traction, you have a brilliant idea. Then you get a bit of money, and then you have revenue hurdles that you have to hit and growth that you have to go deliver back on.
And what do they do? They go, oh, it's really hard to go do that thing. You know, what's really easy? Let's just go get a deal with Cigna. Let's just go get a deal with Centene. Let's just go get a deal with, right?
And it's this dynamic where that starts happening, and it's why you start seeing all these digital health companies and their IPOs. They go, 70% of our revenue is from three payers. And you're like, goddess, are you gonna change things or are you just gonna get 70% of your revenue from this?
[00:36:49] Stacey Richter: Well, and that's true across the board. Like, go talk to a pharma company, you're gonna hear exactly the same thing, right? Like, oh, we can't piss off the PBMs because that then there goes 80 plus percent of our revenue that comes from three players.
Introducing Nomi Health
[00:37:01] Stacey Richter: So talk to me about Nomi Health.
[00:37:03] Mark Newman: So at Nomi Health, we work with the employers and their TPAs, and we do three things for them. One, we are their analytics platform to break open the black box. Two or their payment system to take back control of their money, right? Rather than outsource that and kind of separate that out.
And three, we then take the fact that we know where you spend your money and how you and move your money to then buy direct access with, from employers. We have about 19 million lives on our analytics platform already because people wanna break open that black box.
We recently received our bank trust charter in the state of Nebraska and have been building out the, you know, the newest and modern digital payment system to providers, and we're about 40% of providers in America right now.
And then third, kind of off of that is building out these direct contractor relationships.
Conclusion: Join the Rebel Alliance
[00:37:46] Stacey Richter: Mark Newman, If someone is interested in learning more about Nomi Health, other than what you have talked about here, where would you direct them?
[00:37:53] Mark Newman: Come visit us at nomihealth.com. That's NOMI health.com or even reach out to me at mark@nomihealth.com. We are building the Rebel Alliance and, uh, want more members?
[00:38:04] Stacey Richter: Mark Newman, thank you so much for being on Relentless Health Value today.
[00:38:07] Mark Newman: Thanks for having me.