We’re gonna talk about EHR systems today (electronic health records). It was unexpected when Jonathan Baran brought them up, I gotta say. And yet, part of the flywheel, for sure. I see that.
But let me start from the beginning.
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Did you listen to the show with Preston Alexander (EP482)? Here’s the short version: Carriers and the not transparent brokers and EBCs (employee benefit consultants), they actually, this crew, actually benefits, they make more money when employers pay more for healthcare prices going up—not usually a problem.
Whoa. Did I just blow your mind? That’s not what the marketing says, and sure, no one wants a midyear unexpected anything that the actuaries didn’t predict.
But if we’re talking commercial markets, where the ultimate purchaser is not the carrier but some self-insured employer or other plan sponsor, then yeah. I mean, it’s always true that someone’s cost is someone else’s revenue stream. It’d be problematic to forget that.
And carriers make a percentage of premiums. This is their underwriting profit. But they also make a percentage off of float, right? Take those premium dollars and invest ’em in the bank until the bills come due. Again, there’s a whole show on this with Preston Alexander (EP482) from a couple of weeks ago.
All this said, how does a carrier ensure max revenue from its commercial service lines? Well, don’t actually control underlying healthcare costs. The best way for a carrier to make the most money is for premiums to be as high as they possibly can be, because anyone making a percentage of a higher number makes a higher number. Anyone investing a higher number makes a higher number in interest.
But conundrum: What do you put in your marketing so that it looks like you’re controlling costs but you actually don’t have to control costs because you kind of don’t want to if you’re obeying your fiduciary responsibility to your shareholders to margin it up?
It’s impressive, actually, how they have achieved this. You know, have your marketing cake and eat the profits, too. And spoiler alert, this is the concept our flywheel spins around. It’s the axle of our flywheel. It is so very, very clever. Here it is.
Talk in terms of discounts, not underlying costs. Sell discounts. Honestly, whoever came up with this—get the employers to buy discounts—this deserves a prize from the “your margin is my mission” set. Someone at some conference in Boca Raton 20 years ago probably got some Stanley Cup–sized trophy.
So again, if I was gonna make one concept, the greased-up axle of the flywheel we’re gonna talk about today, it’d be discounts. And when I say discounts, I also kind of mean anything that is a discount, just spelled with different letters, like rebate or shared savings, to a certain extent.
Listen to the show with Chris Crawford (EP465) and Cynthia Fisher (EP457) for more on those two terms. Ann Lewandowski talks about this also.
In fact, now that I’m thinking about this, the Employer Coalition of Louisiana quoted Ann Lewandowski from that episode (Summer Short). They said, “Health plans continue chasing rebates simply because they are presented as savings and dangled like a golden carrot. However, it does not address the cost problem.”
Before I get into what discounts/rebates/shared savings even mean as a general construct and why I’m nominating them for the honor of claiming that middle of the flywheel prime real estate, let me just quickly explain the term “flywheel” in case anyone is unfamiliar.
Jim Collins, the author of that famous book Good to Great, he coined the concept of a flywheel; and he wrote, “No matter how dramatic the end result, business sea changes, where some company makes lots and lots of money, never happen in one fell swoop. … There is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.”
And this is why renewals can be 9% or 22% or 36% when inflation is a fraction of that. It’s because we have ourselves a flywheel in the healthcare industry that is spiraling on behalf of companies who are starting that flywheel spinning. And the faster it spins, the more revenue flies out of it.
Jonathan Baran, my guest today, really nails what the healthcare flywheel is and how it works in the episode that follows. So, I am not gonna get into it right now. I’m gonna focus on the middle of the flywheel, this whole discount thing, as kind of our tee-up and lead-in.
So, middle of the flywheel. What do discounts even mean? I bought a shirt the other day that had a list price of $600. I’m not making this up, but before you think I’m all that and a bag of chips, let me tell you, it was 90% off. So, I got a bargain, and I bought it for $60. I’m thinking I’m amazing, right? Super shopper.
Except it was a $60 shirt. Like, it was made of cotton with no thread count, and the hemline was a little crooked. You get my point.
Scott Galloway, I get his newsletter. Anyway, he wrote the other day, “The way you become a billionaire or create massive shareholder value is by inventing a product that exploits a flaw in human instincts.”
And right, selling discounts does that for sure. Buyer thinks they’re amazing, and seller is laughing all the way to the bank because, keep in mind, in healthcare world, you wouldn’t know the original price of the shirt and you wouldn’t know the final price. All we’d know is we saved 90%. Next year, I could be super pleased with myself because I got a 95% discount on my new replacement shirt.
Did I get a better price, though? Who knows? The new blouse list price could have been $1800 or whatever, but just try to get that data point and you’ll find out fast enough whether your broker, carrier, or PBM (pharmacy benefit manager) or out-of-network network has any interest in transparency. Listen to the show with Dave Chase that’s coming up for a whole lot about that.
Okay … so, that’s your lead-up to where you’re gonna drop into the healthcare flywheel today with Jonathan Baran. So, what you’re gonna hear today, you can call this part 1 of the conversation; and this is the flywheel as it spins, I’m gonna say, a direction that does not behoove plan sponsors, plan members, taxpayers.
Next week, though, come back because we’re gonna have part 2 of this conversation, where we reverse the flywheel and send it spinning the other direction. That’s gonna be part 2 of the show, so do come back next week to hear that uplifting segment.
Also, in the podcast feed today, there’s a bonus clip, and in this bonus clip—it’s like four minutes or five minutes long—but Jonathan Baran and I do spend a little bit of time talking about how, as we have conversations like this, it’s really important to keep in mind that we’re talking about an entire, you know, stakeholder, if you wanna use that term. We’re not talking about every single individual.
As I just said at least three times, my guest today is Jonathan Baran. He has always been a healthcare entrepreneur. Today he is co-founder and CEO of Self Fund Health, which is committed to challenging the expensive healthcare system in Wisconsin.
If you are in Wisconsin, do look them up. Self Fund Health, I am so pleased to tell you, as I am always so pleased to tell you, did make such a kind offer to help out Relentless Health Value financially. You and the tribe here are really, really great folks who I truly appreciate. Please support Self Fund Health again if you are in Wisconsin.
And with that, here we go. This episode is sponsored by Self Fund Health.
Also mentioned in this episode are Self Fund Health; Preston Alexander; Chris Crawford; Cynthia Fisher; Ann Lewandowski; Scott Galloway; Dave Chase; Stanley Schwartz, MD; ZERO.health; Rina Tikia; Ge Bai, PhD, CPA; and James Gelfand, JD.
You can learn more at Self Fund Health and follow Jonathan on LinkedIn.
Jonathan Baran is a serial healthcare IT entrepreneur and the co-founder and CEO of Self Fund Health, a fast-growing health plan redefining how employers buy and manage healthcare. With a mission to eliminate waste and realign incentives in the healthcare system, Self Fund Health empowers employers to take control of rising costs by giving employees access to high-value providers at no cost, while replacing traditional insurance with real-time technology, dedicated nurses, and an aligned ecosystem of care.
Prior to founding Self Fund Health, Jonathan was the co-founder and CEO of Healthfinch, one of the pioneering companies to build apps on top of electronic medical records. Healthfinch automated routine workflows for physicians using clinical data, significantly improving efficiency and patient care. Under Jonathan’s leadership, Healthfinch raised over $15 million in venture capital and scaled to more than 50 employees. The company received national recognition, including being named a “Cool Vendor” by Gartner, a “Top Emerging Vendor” by KLAS, and one of Modern Healthcare’s “Best Places to Work.” In 2020, Healthfinch was acquired by HealthCatalyst.
Jonathan holds both a bachelor’s and master’s degree in biomedical engineering from the University of Wisconsin–Madison.
He lives in Madison, Wisconsin, and continues to push the boundaries of innovation in employer-sponsored healthcare.
08:46 Entering the health system “flywheel” at the renewal phase.
09:46 What goes on in the renewal season that contributes to the health system “flywheel”?
12:28 Why is the standard 9% increase in healthcare costs during renewal season actually problematic?
13:22 How does the purchase of discounts contribute to the skyrocketing cost of healthcare and distract from discussing the actually underlying cost of healthcare?
16:07 EP465 with Chris Crawford.
17:01 Why do employers need to learn to buy healthcare and not insurance?
20:32 Rina Tikia’s post on self-funded plans.
23:18 Why are hospital executives incentivized to buy and own all of the primary care in a market?
26:35 How big electronic medical record systems play into this increase in healthcare costs.
28:27 Acquired podcast on one EHR system.
31:09 What needs to happen to reverse this flywheel of increasing healthcare costs?
Recent past interviews:
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Dr Stan Schwartz (Summer Shorts), Preston Alexander, 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)