If you want to save the most money, look where the most money is. You lot listening are like, “No kidding, Sherlock.” If you want to figure out how to cut down the GDP being sucked into healthcare, or the spend for any given plan sponsor on healthcare, look at how much money is being made by Fortune 10 companies like carriers. Or big, huge, consolidated provider organizations—their billions and billions of dollars in margin or profit or quarterly earnings or redonkulous C-suite bonuses.
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Let me misquote Jeff Bezos right now. Excess healthcare industry margin is my mission for us to take back for members and patients. And there’s trillions of dollars on big healthcare company balance sheets that we can eye up here. Just pull up these big guys’ financial reports, which is something that my guest today, Preston Alexander, does on the regular. And all of what we’re talking about today is very actionable if you consider it strategically.
Now before we get into this episode, I’m going to quote Robert Sundelius; and he said on LinkedIn, “Profits are not evil, and for-profit companies are not evil. Many organizations that create profits also provide societal benefits. However, when we exploit established insurance or medical care systems to maximize problems at the expense of public health, we are treading a fine line between business and ethics.”
If you are interested in more along these same lines, I definitely would recommend going back and listening to the episode from a few weeks ago with Ben Schwartz, MD, MBA (EP481).
Okay, back to the topic at hand, surprising ways carriers make money. Today I am speaking with, as aforementioned, Preston Alexander. And we’re gonna talk about, as I just said, not the normal boring ways like underwriting profit. Today we’re gonna talk about the surprising ways.
And this is important, these three surprising ways. They’re important if you’re a plan sponsor or if you’re a taxpayer or a policymaker, because these surprising ways carriers make money are news you can use. They drive carrier behavior in ways that impact you, the plan sponsor, member, or taxpayer. There’s probably some lessons in there for some indie physician groups as well.
And if you’re a policymaker, these are the flags on the top of the hill that carriers are gonna try to protect. There’s a lot of extremely relevant details that Preston Alexander reveals, but, oh wow, I can’t stop with the spoilers.
So, let me tell you the big kahuna of surprising ways. They make money off of taking taxpayer or plan sponsor or member dollars and then playing the float, as they say. As much as 20% of some carriers’ revenue can come from taking member premium dollars or some kind of capitated payment and then trying to not pay bills for as long as possible.
Eric Bricker, MD, made a point on a video the other day that is adjacent to all of this. But Dr. Bricker was talking about some of these rev cycle, AI-augmented, “tech the crap out of it” promises made to some provider organizations to, like, increase the speed carriers will pay bills.
And Dr. Bricker pointed out, slow-paying bills is a feature, not a bug. The slower the carrier pays bills, the more interest they make off the money in the meantime. Like so much in healthcare, getting paid faster is not a technical problem; it’s a “they don’t actually want to pay you” problem.
A carrier, I just read, in 2024 made something like $4.8 billion in investment income … $4.8 billion! I wish I had that money. I’d use it for Medicaid patients. But a carrier with $4.8 billion lying around can use it to, for one thing, buy companies. And then they get even more vertically integrated and consolidated, which allows them more of the second surprising way to make money, which is intercompany eliminations.
If you don’t know what I’m talking about when I say intercompany eliminations, well, you’re in the right place. Listen to the episode and you will. But if you’re up on this general concept already, consider 48.86% of UnitedHealthcare premiums went to Optum. UHC (UnitedHealthcare) paid their sister company almost half of their premium dollars. Things that make you go, “Hmmm.”
There’s an interesting post written by Joshua Brooker and referencing something that Chris Deacon had written earlier.
But using these intercompany eliminations for the purposes of, I don’t know, potentially obscuring profits, it allows any so inclined carrier to get even more saucy with the third surprising way many consolidated carriers can make money, which is upcoding in Medicare Advantage for excessive risk-based payments.
And those capitated payments are (oh, right) made up front. So, more float to be had. Nice little flywheel there where the big get bigger.
What’s Preston’s advice moving forward, especially for plan sponsors, considering all of this? Critically evaluate relationships with carriers and look for consultants who can offer unbiased expert advice. Every guest lately has been saying the same thing.
Andreas Mang, Jon Camire are probably the latest (EP478), but I think it’s come up on the show, like, 90 times in the past year. Find an impartial “you can trust them” expert who understands the intricacies of all of this. This is so wildly important because, yeah, regulation’s slow to change. Policy reform is uncertain. So, we all gotta, sadly, listen to shows like this one so that we can competently grab a seat at the table and advocate for ourselves.
Because you know what they say: If you aren’t at the table, consider yourself on the menu. Also, unfortunately on the menu, are members; and if we’re in policy, then all of the taxpayers in our state or district or country are also on the menu if you aren’t at the table.
But hey, you know another way to stay off of the menu? Read The Healthcare Breakdown, which is written by my guest today, as I’ve said multiple times already, Preston Alexander.
What Preston does over there at thehealthcarebreakdown.com is he pulls back the curtain primarily for clinicians. But frankly, I’m not a clinician and I find these breakdowns ridiculously insightful. But his goal is to use these insights to help bring back independent practice for physicians looking for a different, better way to practice medicine.
And he’s also got some really great posts on LinkedIn, so I would certainly follow Preston over on LinkedIn as well.
Also mentioned in this episode are Forward Slash / Health; Robert Sundelius; Benjamin Schwartz, MD, MBA; Vivian Ho, PhD; Eric Bricker, MD; Joshua Brooker; Chris Deacon; Andreas Mang; Jon Camire; Ann Lewandowski; Phil Harrison; Phillip Holowka; Kevin Lyons; Stan Schwartz, MD, FACP, FIDSA; and ZERO.health.
You can learn more at The Healthcare Breakdown and Forward Slash / Health and follow Preston on LinkedIn.
Preston Alexander is the founder and CEO of Forward Slash / Health, a company that helps independent physician practices escape the money pit of traditional revenue cycle management, create financially resilient practices, and remain totally independent. After a decade-long career in medical devices, managing global portfolios and ultimately selling a medical device company that he founded, Preston began to look deeper into the healthcare system, working to understand the financial mechanisms that made it all work. Or not work. Through speaking with hundreds of clinicians, administrators, industry veterans, and spending countless hours pursuing understanding of the system, Preston came to one conclusion: Independent physicians are who we need leading the healthcare system. And Forward Slash / Health’s mission is to enable an environment where independence is the rule, not the exception.
08:29 What is float, and why is it a surprising way that carriers make money?
14:01 Summer Shorts on pharma rebates with Ann Lewandowski.
14:41 Why carriers really do denials and delays of payouts.
17:34 What are intercompany eliminations, and how do they make carriers more money?
22:21 How do carrier-owned pharmacies play into this?
23:19 How are carriers creating profit off of Medicare Advantage and Medicaid Advantage markets?
27:18 How the fee-for-service price increases affect Medicare prices.
28:12 Why aren’t large insurance carriers motivated to make costs go down?
32:42 What is a potential way forward to fix the rising cost of healthcare?
33:36 As a plan sponsor, how do you address carriers making profit on your float?
35:07 EP478 with Andreas Mang and Jon Camire.
36:34 “Our economy’s not gonna survive healthcare.”
Recent past interviews:
Click a guest’s name for their latest RHV episode!
Dr Tom X Lee (Take Two: EP445), Dr Tom X Lee (Bonus Episode), Dr Benjamin Schwartz, Dr John Lee (Take Two: EP438), Kimberly Carleson, Ann Lewandowski (Summer Shorts), Andreas Mang and Jon Camire (EP479), Justin Leader (Take Two: EP433), Andreas Mang and Jon Camire (EP478), Stacey Richter (EP477), Charles Green (Bonus Episode), Ann Lewandowski