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[00:00:00] Stacey Richter: Episode 440, "What is the Optimal Size for a Medical Practice?" It's a good question, which, among others, I asked David Muhlestein, my guest today. 

American Health Care Entrepreneurs and Executives You Want to Know, Talking.  Relentlessly Seeking Value. 

Guest Introduction: David Muhlestein's New Venture

[00:00:29] Stacey Richter: Well, I reached out to David Muhlestein the other day to find out what he was up to since he left Leavitt Partners, which had been acquired by HMA, Health Management Associates. Answer, he's building his own company in stealth mode. Stay tuned.

But during the ensuing conversation, David said something and I immediately shanghaied him to come back on Relentless Health Value and discuss. 

The Ideal Physician Practice Size

[00:00:53] Stacey Richter: David said, the optimal size for a physician practice is 10 to 20 docs with obviously a team surrounding them.

This is big enough to get some economies of scale. 10 to 20 docs plus team can afford back office functions and technology and other things that you can afford when you scale up. But this size is small enough that the practice can be of the local community, the practice team can be collegial and collaborative, and the practice's actions can reflect the values and the ethics of said team who works there.

Now, it might be possible for this 10 to 20 doc practice team to be under a bigger tent within a larger organization, but only insofar as they are autonomous to the level that what I just said still holds true. That their values can and do dictate their actions. 

Challenges of Large Healthcare Organizations

[00:01:51] Stacey Richter: If the organization is big, structured, and acculturated in such a way that corporate policy is a steamroller, then yeah, this organization might be one that's become probably too big to succeed.

I mean, succeed when defining success as having anything to do with improving patient care, population, or community health. David Muhlestein and I dig into this optimally sized practice concept for the first part of the conversation that follows. Then things get even more interesting. We turn our attention from theoretical to the real world and another problem surfaces.

The Diversification Discount in Healthcare

[00:02:30] Stacey Richter: The other problem we are taking up today as it relates to healthcare delivery organizations who have rolled up or consolidated and are led with centralized control is the Diversification Discount. The Diversification Discount is actually a Wall Street word, and it means that companies doing a whole bunch of different things might wind up with a lower stock price than companies who do one thing really well or only do things that have the same business model.

The Diversification Discount of non-healthcare businesses on the stock market is probably the child's play of Diversification Discounts, though, when you compare it to the diversification challenges plaguing big health systems who are fiduciarily responsible for both primary care and also specialists. And not fiduciarily responsible for patients, which shouldn't remain unsaid, so let me just say it.

But think about this. Primary care cannibalizes specialty care. We know this already. Good primary care reduces the need for specialty care. But if our healthcare system pays a lot for specialty care, which it does, thanks to the RUC, etc, listen to episode 437 with Brian Klepper. And if we're thinking that the answer to funding primary care is to take money from specialty care to pay for primary care, which is how big health systems fund primary care, then we're reducing the amount of revenue earned by specialty care with said primary care.

What we're literally doing is asking the golden specialty care egg to make less money and also fund the making of the less money effort. How can a health system leader giveth and taketh and be a true leader for all in the face of these bare knuckle facts? Plus, say with a straight face that patients are a top priority.

I like how David Muhlestein puts it in the episode that follows, David said, it may very well be that some organizations really need to clarify their values do not align with primary care or a value based focus for treating patients.

I think that you could have a specialty focused practice that is phenomenal. Because they are all about efficiency and optimizing specific procedures. That doesn't align itself very well or very effectively with managing a population across the continuum of care. And I think, this is what David thinks, that where the board of directors or senior leadership really have to grapple and say, what are our values here?

You get the gist of this paradox of primary care, as I'm starting to call it. I could go off on a tangent right now about the decisions so many healthcare systems make to not prevent preventable heart failure readmissions right now, which is going on across the country, but I won't. I would say though, check the show notes for a post by Stacy Mays reposted by Peter Hayes for more on that front. 

But Now let's talk about a plan forward for when the delta gets big enough between what the big kahuna organization is doing and what those 10 would be doing, if those 10 had the autonomy to do what they wanted to be doing, and or when things start to get really twisted and inefficient due to too much diversification and discount contortioning, which again is going to result when the organization gets way bigger than the 10 to 20 docs and different business models start intersecting. Here's three ideas that David Muhlestein and I discuss in the show that follows. 

Strategies for Organizational Evolution

[00:05:59] Stacey Richter: Idea one, you split up or organize into business units that all have aligned business models. Bifurcate primary care and population health type value based stuff from specialty care.

Idea two, and these aren't mutually exclusive, you restructure toward a more collaborative organizational model that is decentralized so that those 10 to 20 docs and their teams actually would have sufficient autonomy to align their actions to their values. David Muhlestein calls this phase of organizational evolution, delegation, by the way.

Idea three. Boards, especially boards of nonprofits, are you kidding me that we even need to say this out loud, boards of nonprofits could and really should take a cold hard look at exactly what their values are. And how their organization's value, in the real world, not in the marketing copy, align with those values. And if they don't align, to reorganize, see idea 1 or 2, accordingly.

Boards may want to consider the Diversification Discount impact if the organization includes primary care and specialty care. This probably warrants deep contemplation, like go up to a cave on a hill level contemplation, to determine if idea one or idea two is in play here.

But also, and this is me talking now, here's another non-rhetorical question to contemplate while up in the cave. Is organizational value derived mainly from market and political power? Or is organizational value a function of an ability to improve patient and community health? How many hospital boards have engaged in any of these contemplations?

I don't know. Maybe some public hospitals actually, which turn out to be the only ones using 340B money to support community health needs in underserved patient populations. Link in the show notes. Oh, by the way, when I say public hospitals, I don't mean just nonprofits in general, which is truly disappointing.

This conversation with David Muhlestein digs into all of this with far greater granularity and he is much more eloquent than me. 

My name is Stacey Richter. This podcast is sponsored by Aventria Health Group. David Muhlestein, welcome to Relentless Health Value. 

[00:08:05] David Muhlestein: Stacey, it's always great to be on. 

[00:08:06] Stacey Richter: Well, it is such a pleasure to have you back.

So I really want to jump right in here. If we're thinking about the optimal provider model, and when I say optimal provider model, I mean one that works from a business standpoint, but also from a patient better outcomes standpoint. I know you have thoughts on what that optimal model looks like. Do you want to share?

[00:08:27] David Muhlestein: Yeah. So what I think you have to have for an optimal provider practice is the operating unit be both large enough so that it can provide the necessary overhead. So the technology, the billing sources, the scheduling, all of those sort of things that need to exist, but it also needs to be small enough so that it can actually make changes so that there's a level of collegiality and people know each other and there has some autonomy within that group.

And so when I think of that unit, I think of a practice of 10 to 20 doctors. Obviously, there'd be a series of support staff that goes with them, but that allows them to know each other, to work together, to have common goals, to be able to make decisions, to have. their finger on the pulse of what's happening with the practice and also be able to contribute to it. 

Now, this doesn't mean that you can't have a potentially a larger group, but if there is a larger group on top of that, there needs to be some value that that parent organization, if you will, is providing. And there also still needs to be the autonomy and flexibility that exists in that practice level. 

[00:09:30] Stacey Richter: So I find that incredibly interesting.

What you're saying is the optimal practice model is going to be around 10 to 20 docs with support staff, with the team surrounding them. The reason you're suggesting that would be the best number, you have to be big enough to take care of whatever economies of scale are in fact available. And healthcare, as many have found out the hard way, is really difficult actually to get massive economies of scale.

Like ask any of these retailers who took primary care out for a test drive. Or any of the sprawling health systems who swore up and down that consolidation would lower their prices. But there are some, right? You have to be big enough to be able to afford technology, blah, blah, blah, like all the things.

But at the same time, you have to be small enough so that personalities can intersect, that there actually can be collaboration, there can be a culture. I often call this the golden mean, actually. You have to be big enough to accomplish some things but small enough to accomplish others. And it's really interesting that you came to about 10 to 20 doctors.

Is that golden mean? 

[00:10:41] David Muhlestein: Yeah, it just relates to having sufficient size as you're mentioning to be able to accomplish things. But at the same time being small enough so that you can operate together. Medicine is still very much personality and individual driven. But it's not like creating a widget where you can crank it out from any factory and it looks the same.

It is still very customized for individual people. It's based on the personality of the physician, the personality of the patient and their family, all of their needs. It all comes together at a very personal way that doesn't lend itself to rote standardization. Now, that doesn't mean you don't go with best practices and try to follow things.

And the idea is that you would treat a similar patient or the same patient in a similar way no matter who the doctor is. But it would be a unique way for the individual needs of that patient. 

[00:11:27] Stacey Richter: Like there has to be some kind of thought process to reduce the variability of care and all of the things that we know are how you achieve patient outcomes.

But at the same time, there has to be an acknowledgement of exactly what you said. There's an art and science of medicine and the art of medicine. And Dr. Robert Pearl said this, I thought, really eloquently on a show. What he said is the art of medicine is making sure that you're taking onboard patient preferences and enabling the clinicians to do that, I think, requires exactly what you're talking about right now, right?

Like you can't be so big that you're steamrolling anybody. 

[00:12:08] David Muhlestein: Yeah, and it goes back to this combination of trying to standardize things to the extent that it makes sense while also leaving significant customization to the extent that that makes sense. That's two sides of a balance and oftentimes you put more on one or the other.

What I've seen is when you have a very large organization, particularly, you know, with like a PE roll up or something where you have a bunch of different units across multiple states where they really don't have any contact with each other, but they're still trying to standardize things across all the different pieces that they've brought together.

You don't have that autonomy, that flexibility that reacts to both the needs of the individual practices and their locale and the needs of the patients that are there. So how can you get the benefits of the standardization while still maintaining the benefits that come from the flexibility and autonomy of a group that, you know, joined at the hip and have common goals and objectives. It's very much a more of an art than a science. 

The Crisis of Autonomy in Healthcare

[00:12:59] Stacey Richter: Not to state the obvious, but the current landscape is not what you have just described as optimal. 

[00:13:07] David Muhlestein: Not at all. And let me kind of reference a journal article. It was from 1972 that I find very helpful. It's called "Evolution and Revolution as Organizations Grow".

So, this was somebody that was looking at manufacturing companies, but it really applies in healthcare as well, but it says this is how companies grow over time and the challenges that they get into. So, originally, there is a growth of kind of the creativity. You have a single doctor, it's a solo practitioner, they're able to do whatever they want, they and some of them are very good.

Some of them are not as good, but there's not standardization at all across the entire system. But over time, as they start to grow, as they start to bring in a larger staff, as there starts to be technology needs and contracting needs and things, they realize that they just can't do things all by themselves and just have their solo shop.

So then what the author talks about is that there's going to be a crisis of leadership. And you say, well, we need to create some level of standardization. That's what we saw when there started to be the roll ups, I think in the 1980s and 90s, we started to see that, but certainly in recent decades, you don't see very many onesie twosie practices anymore.

And so you've created that level of standardization. What happens is that you're able to have this phase where you have more directed growth, where you're able to say, look, this is how we operate. This is what we do. 

But all of a sudden, people start to feel stifled. And they say, I can't operate under this. This is not what medicine is. I need to be able to have flexibility to address the needs of my patients. And I need to build a practice that really relates to the career I want to have and the care that I want to provide for them. This is leads to what's called the crisis of autonomy. And so that's where I see a lot of practices right now where people are feeling stifled, where they say, I can't do this.

I'm not functioning. I'm burnt out because I'm filling out countless forms on behalf of payers and I'm filling out these EHR records that I don't really like and it's all about just trying to bill. It's not about trying to provide the best care of that patient. What's fascinating is that when they go through this and look at the life cycles of the firm, that's only the second phase out of five, but organizations have to grow through that over time.

The next phase, which is what I'm advocating for, and it's, again, it's a process, is where there starts to be a period of delegation. So there's some amount of centralized services that are there, but a lot of delegation that's going back to the practices. So somebody no longer feels like a cog in the machine, but they're able to have some autonomy to make decisions, to address the needs that are unique to their local market or situation, and at the same time, be able to collaborate at a certain level with the rest of the company.

That is, I think, where we're at right now with many healthcare practices, as we need to go from that second phase to that third phase. Now, there will be some challenges down the road and that happens over time, but I think at that 10 to 20 physician practice, you're large enough that you can be delegated authority, have some autonomy, and then still be able to though get some of the benefits that come from the much larger parent organization if it exists.

[00:15:59] Stacey Richter: Just starting from the very beginning, you start out and there's a lot of independent physicians. They start to come together. At a certain point, even if you have six or twelve employees, you can't just do things the same way that you were doing them before. Things have to be standardized, otherwise chaos ensues.

[00:16:16] David Muhlestein: What it is, it's really where you have to have some layer of management. Once you bring in an office manager, you're no longer just a small little flat team. It's like, oh, we need people that have different responsibilities. Somebody who's over finance, somebody who's over nursing. That's that point where you say we have to have some structure.

[00:16:33] Stacey Richter: I can see that crisis of leadership over time in the healthcare industry leads to the crisis of autonomy that you talked about, because if you start having those leaders then disconnected from those who are actually treating patients, it's going to be more stark, I think, in healthcare than potentially in other businesses where a leader and a frontline somebody.

It's still business. It's still kind of under the category of business, but in healthcare, it's different. If you have those upstairs who are thinking business and then those downstairs who are thinking health and taking care of patients, there could be a dynamic that I definitely could see has gotten us to the place that we are now.

And as you call it, this stifling and this crisis of autonomy that has wound up happening. So then you kind of have backlash. Which leads to this third phase, which is the delegation phase. And you're starting to see that now where physicians, nurses, PAs, clinicians across the board are saying, this organization is no longer aligned with my values.

Like there is cognitive dissonance afoot. I just did a show with Dr. John Lee about this exact topic. And I think that's probably the curve that we're talking about here. 

[00:17:47] David Muhlestein: A lot of organizations, they recognize that this is an issue and they try to address it. So somebody's like, well, we're going to have a physician who's our CEO.

It's like, great. Well, is that physician a surgeon? Have they ever really related to the primary care doctors that they're over? Or are they a primary care doctor? Are they ever really going to understand the motivations and the values and the culture that's built around their surgery department? There's always that challenge, which is that healthcare represents a lot of very different specialties, a lot of different needs.

I mean, it's a very, very broad set of sub industries that all fall under kind of one overarching industry, and they're very different. It's impossible, I would say, for somebody to fully understand all of the needs and be able to predict all of those needs that are happening at any one level. Great example of this is when the USSR tried to have a fully centrally planned economy.

It didn't work. You cannot have a fully centrally planned healthcare system. Nobody is smart enough to understand what are the differences that need to play out among different specialties, in different markets, in different clinics. across any sort of a geographic area. 

[00:18:53] Stacey Richter: It's so funny that you mentioned that because I just did a show two weeks ago on the RUC, the RVU update committee, and I did liken it in fact to a Soviet era ghost plan.

[00:19:04] David Muhlestein: We're just seeing obvious parallels. I mean, it's pretty apparent that centralization doesn't function effectively in practice. 

[00:19:13] Stacey Richter: And I could see that that would be especially true because healthcare is very local. So the second that things start to be centralized at a national level, or even at a big regional level, those local needs and unique factors start to be underappreciated and then you wind up with many of the issues that we have today. 

[00:19:38] David Muhlestein: Now, one of the things that I do want to stress is that decentralization and standardization that exists is not a bad thing. It is only a bad thing to the point where it eliminates the ability to address for all of the local circumstances.

If you go back, a few decades and you go back to the "Dartmouth Atlas" when they were first looking at the variations in practice, you saw that there were hugely different approaches to how you care for patients. People that really look kind of the same when you look at a population and but very different approaches to those.

That means that you are not following whatever the best practices might be because there are no best practices. I think that there's a lot of things that can and should be centralized and standardized but there has to be a give and take, a conversation about where the flexibility needs to be while pushing people towards the best practices where those make sense.

And one of the hard parts is being able to differentiate between what is a best practice from a patient care standpoint and a corporate policy. Because oftentimes the corporate policies are pushed out and trying to be standardized the same way as maybe a best practice. And there's certainly can be conversation about what's a policy versus what should be considered a best practice for patient care, but they're not all the same.

[00:20:52] Stacey Richter: Yeah. And we have done the show with Kate Wolin, the show with Jodilyn Owen, that really in stark terms reflect exactly what you're saying, that when an entity is a national entity and starts thinking at a national level, corporate policy starts to become very interested in what is efficient. 

Spreadsheet jockeys upstairs can definitely decide that they're gonna cut everything that's labor intensive because that's the really expensive stuff or the inefficient stuff or they eliminate things that only work in a unique local market. Forgetting that most if not all local markets are unique in some way and that the whole nation is comprised of local markets, if someone wants a cheap national program, what you have is the needs of the local market trampled underfoot by the needs of the corporate entity who are answerable to shareholders.

And you see that happen over and over again, where something that's actually working at the local level, the national people will come in and be like, wow, we can't do this everywhere the same across the country, so we can't do that, cross that off as an option. And in this effort to standardize care, they diminish essential elements.

Then we wind up with suboptimal results. 

[00:22:09] David Muhlestein: Yeah, suboptimization is very real throughout business and throughout policy and certainly plays out in healthcare. And I think that that's one of the challenges is that, I mean, there's always going to be a tension between kind of the, the economic side and the patient care side.

And I think there needs to be that tension. If you do absolutely everything that's possible, then it's wasteful for a patient. And if you don't do enough, then it might be optimizing the financial returns, but it's certainly not optimizing the patient outcomes. And I think one of the challenges that we have, both at the organizational level, but also at a societal level, is we have not had the hard conversation about what we collectively value as it relates to healthcare.

So what are the goals of the broader quote unquote healthcare system, really a whole bunch of different subsystems built into it, but what is the output? We have a lot of conversation around the inputs, but what are we trying to accomplish with healthcare? What do we value? Which are the values that are consistent across the country versus ones that are very susceptible to the whims of the local populace or maybe to an individual or to a physician. 

I guess, which are the ones that are really more dependent on a smaller group and what is that group that makes those decisions? And when you don't have those overarching theories of what you're trying to accomplish you just have a lot of push and pull.

You don't get to a lot of conclusions. 

[00:23:25] Stacey Richter: Yeah, that is very, very well said. There's very few policy statements that are at a level that can be looked at where you can say, yeah, I get what we're trying to achieve here. But at a higher level than just like a whole bunch of very processed level in the weeds measures where it's hard to find the direct line between them and a flourishing community or excellent health.

There's a podcast actually a while back with Dr. Mai Pham on Medicare Meetup, I think, the Medicare Meetup show that I will link to in the show notes, I thought made this point really in a very nuanced way that there's this kind of white space in between. vision and really tactical measures. 

[00:24:09] David Muhlestein: Yeah, I think that there needs to be time taken regularly by leadership teams to really talk about what they're trying to accomplish.

And that's something that rarely takes place because you just jump right into the weeds. You're all about the details, but there's not that big picture of, this is why we're here. This is why we're doing this. These are the goals. And this is what we've really tried to say that, that as an organization, we are trying to achieve.

[00:24:33] Stacey Richter: Someone said this, I think it was Ann Kempski. She said, and this is something that boards of directors at, for example, health systems should be also accountable for and really state, I mean, not in their marketing copy, but actually state that in addition to the financial metrics, which we're striving to achieve.

These are the other metrics that we're striving to achieve because you can have also have an executive team. And I really feel for some executive teams who are being held accountable for benchmarks that are very lopsided. 

The Role of Values in Healthcare Leadership

[00:25:04] David Muhlestein: Yeah. And that's, I think, indicative of the challenge that we have, which is, do we do things because they align with our values?

We have to clarify what those are. Do they align with what our goals are? Or do they align with a policy? And when you have too much policy driven care, you suboptimize the clinical outcomes and certainly the satisfaction of anybody that's delivering that. But the challenge is to really be able to articulate the why of why something is just a corporate policy that we do because versus, we do because it directly relates to better outcomes and we've been able to show that.

[00:25:39] Stacey Richter: Can you give an example of a corporate policy of which you speak? One that aligns with values, where there is a relationship to better patient health and outcomes or community health? 

[00:25:51] David Muhlestein: So you're in a large fee for service system right now. That's becoming an ACO and they say one of the things that we need to do is a better job as a part of our ACO is we need to keep people healthy.

And the primary care unit says if we're trying to keep people out of the hospital, we need to have the authority and part of that is having the budget that allows us to create the programs that will help keep people out of the hospital. If we can't get it through a, you know, a one-off contract with a payer, how will the organization provide the necessary resources so that they're able to do it?

And that's where you can go and start to reposition revenue. Where you'd say, maybe internally we think that certain specialties are overpaid, let's reallocate some of that revenue to the primary care practice. That's where you're still operating under that fee for service model. But you're saying, let's put the resources to what our values are stated.

[00:26:39] Stacey Richter: This is where I'm thinking the real world rears its ugly head. 

[00:26:44] David Muhlestein: Yeah, this is where theory hits reality in it. 

[00:26:47] Stacey Richter: Yeah, let's just pause here for a second and chat about, for example, heart failure, which is the most common discharge diagnosis among Medicare beneficiaries and the most common cause of hospital readmissions, actually.

It's also the most costly condition and accounts for more than $39 billion per year in healthcare expenditures. Bad news, not a secret, and yet, 1 percent of those with heart failure are on optimal medical therapy. Despite the fact that optimal medical therapy is a bunch of cheap generics, keeping heart failure patients out of the hospital is not a giant mystery.

But yet, the way that the current financials work, I've heard of, and Dr. John Lee mentioned this, a group of clinicians set up some amazing heart failure preventing readmission program. It worked amazingly well and the hospital system shut it down. They're like, you know what, we kind of like... it's very profitable actually, heart failure patients coming into the ER and then getting admitted.

I am just stating the facts here in a very blunt way. And since I aired the show with Dr. John Lee, I've gotten several phone calls from other people who had a similar thing happen. What all these programs ultimately do is they were actually reducing hospital revenue downstream. And this is just the quintessential issue with primary care being owned by hospitals.

If they do their job well, they reduce revenue. And if you're reducing revenue, where's the money coming from to transfer back to primary care? This is what I'm thinking right now. 

[00:28:11] David Muhlestein: Yeah. And that is the problem. And what I think the issue comes down to is what are the values of the organization not as written, but as practiced, and it very well may be that some organizations need to clarify that their values do not align with primary care or a value based focus to treating patients.

I think that you could have a specialty focused practice that is phenomenal because they are about efficiency and optimizing specific procedures. That does not align itself very well with effectively managing a population across the continuum of care. And I think that's where the board of directors and senior leadership really have to grapple and say, what are our values?

And in my mind, it's very painful to have a value-based care focused business model under a fee for service system. It just makes it very, very difficult because the natural inclination and the natural values that exist are to go not towards the primary care, not towards preventing hospitalizations. And so maybe there does need to be more of a bifurcation where organizations say, look, our values align with episodes of care.

We want to do lots of volume and we want to get paid well for it. And we're going to be really efficient. Other organizations say, no, we really believe, particularly for not for profit organizations, for our community, we need to have our values align with keeping people healthy, building around primary care, and we have to change how we operate.

That is the existential question that very few boards grapple with. 

[00:29:44] Stacey Richter: Let's just say they did grapple with it, David, and they come to the conclusion primary care cannot, you can't have the same leadership as the specialty gang. Like these two things are at a bit of a counterpoint. It would be really hard for one leader to have the cognitive dissonance or whatever required to be able to balance those two.

So maybe it's better that they're not within the same organization. But at the same time, the way that the current financials work, they sort of have to be. I also guess we have integrated care models, maybe better integration happens when docs are all under one roof. Except, as we all know, oftentimes care isn't any more integrated between PCPs and specialty and consolidated entities.

That was a promise unfulfilled as per lots of data relative to consolidation. Also I just lately keep hearing stories about how patients are discharged from the hospital, go to a hospital owned PCP for post discharge follow up. And are told that whatever the specialist said to just follow because the specialist is now in charge of care.

That's three hours of some patient's life that they'll never get back. How do you think about this? 

[00:30:59] David Muhlestein: There's a concept that you can read about in investing and economics that's called the Diversification Discount. And it's the idea that a diversified firm will be valued less than a firm of the similar size that is in a single industry or has a single segment.

And the reason for that, and this is the exact problem that you just articulated, is that when you are diversified across many different sectors, it is very unlikely that your leadership team is either well positioned or able to effectively lead each of those different sub segments. So this is the idea that a CEO that is great at building a consumer facing business is probably not the same CEO that's going to be great at building a manufacturing business.

They're just different skill sets. If you're great at running restaurants, you're probably not great at running tech companies. It's just a different skill set that's there. And what we've created in healthcare is by design, very diversified companies. They are conglomerates with different business models, different industries within them.

And I don't think people take the time to recognize that from an investment standpoint, they are incredibly diversified and really should be having a discount on their valuations. And I think ultimately we're going to see investors start to realize that and say that, look, you can't have these conflicting ones.

If you are a fee for service system, you're probably going to always struggle with primary care because you're just not going to know what to do with it. And so I think and hope that over time people recognize this and that you start to identify ways to either bring them all so that you are not diversified so that you are operating under a common business model with common objectives. Or you separate those out and let them run separately. 

[00:32:49] Stacey Richter: I actually was just listening to a Pivot podcast, Kara Swisher and Scott Galloway. They were talking about the Diversification Discount relative to actually Amazon. And they were like, AWS should be its own company, you know, you have these companies who are kind of like, well, we've got this less profitable business unit, but it's okay because it's supported by this more profitable one.

And the two of them were like, yeah, this is why they should actually not be under the same corporate umbrella. 

[00:33:17] David Muhlestein: I mean, really, if you look at the leadership team, the senior leadership team, you would not pick the same person to run consumer Amazon as running AWS. And yeah, you can try to say, well, we're big enough that we can have wholly dedicated units, except ultimately it rolls up to a single decision point.

They can overrule any individual unit. That's the same thing that happens when there's not clarity about responsibility and authority and, you know, that's well known across the organization. So many different, particularly in primary care, people that are moving towards value-based models are saying, we want to keep patients healthy. We want to do that. 

They get overruled. It's like your example, our heart failure program was too successful, so it got scrapped. Or we thought that we could do great with partial capitation, but that would impact some other part, the really profitable orthopedic surgery practice. And so it's like, nope. That got scrapped. That's the challenge. We've got very diversified companies being run by leadership that has to optimize one of the many business models. 

[00:34:16] Stacey Richter: You even think about Amazon and people talking about Amazon should divest this or that for exactly the reason that you're talking about, that there's this Diversification Discount.

Amazon's level of that cognitive dissonance is like peanuts compared to the level of dissonance when you're talking about healthcare. And healthcare, it's actually, I was going to say zero sum game, it's actually a negative sum game. If you optimize one, you more than likely can create a problem elsewhere.

I mean, if you optimize, say, for example, primary care, you inadvertently are going to trash your big inappropriate stent cash cow, or you're going to slow the roll on avoidable but profitable readmissions from heart failure or end-stage renal disease or whatever. So in healthcare, it's just an order of magnitude larger problem from a business perspective.

Then add patients into this mix and lives and humans and values and all of this stuff. I'm hearing you loud and clear. Let me just ask you one final question though. It sounds like from what you're saying, it'd be hard to argue, we have two different motivations and they are at counterpoint.

Primary care can't separate because of the financial models that we have, or it's hard. I mean, there are some that are succeeding who are working directly with employers, but it's rough. What are the steps forward here? Do you have any advice, especially if you are potentially an employer or maybe a primary care doctor who's listening to this, who's like, yeah, I hear you, but I don't know what to do.

[00:35:50] David Muhlestein: Yeah, it is a challenge. I mean, that's where we've been for literally decades, where we know that what has been done in the past is not optimized for what we would like to achieve in the future. But I think it starts with really articulating what the values are. And I think a target audience for this is the boards for not for profit health systems.

Where they need to be educated and really understand the tradeoffs and what's being grappled with about whether you're focused on the fee for service model or you're moving to something else, but say, what are we prioritizing? Really understand the stakeholders and say, this is our community. How do we define success?

And, for example, success for a not for profit health system may not need to be building a new hospital. Maybe it's closing a hospital because you don't need as many anymore because people are being treated in outpatient settings. That's a huge shift in thinking that needs to happen where bigger and more is not necessarily better, particularly for all of these not for profits out there.

So that's where I would start. It's very hard to do from the bottom up where you're a single primary care doctor and you're trying to make these changes. You can advocate for these, but I think a bigger opportunity is to educate people on the tradeoffs that are being made or have decisions that have been made in the past.

And many times people didn't even realize that a decision ever took place. So that's where I would start is what are our values? What are we trying to build toward? And then what are the changes that need to happen for us to be able to ultimately achieve what we hope our healthcare system will achieve?

[00:37:18] Stacey Richter: So recapping that very sage advice, it does center on really articulating, as you said, what are our values? How can we achieve those values? And then ensuring that we're educating and working with the boards of directors or the trustees of especially non-profit hospitals who may be inadvertently doing things where they're unaware of what the downstream impact actually is and the impact on the community.

[00:37:44] David Muhlestein: Yep, I think that's where you have the best opportunity to make a difference today. 

[00:37:47] Stacey Richter: David Muhlestein, thank you so much for coming back. 

[00:37:50] David Muhlestein: Thank you for having me, Stacey. 

[00:37:51] Stacey Richter: Hey, could I ask you to do me a favor? If you are part of the Relentless Tribe working hard to transform healthcare in this country, I don't need to tell you that we need as many on our side as we can get.

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