EP490: The Problem Show: 3 Problematic Hospital Myths, Including “There Is a Healthcare Market,” With Shane Cerone and Sam Flanders, MD

Here’s a quote: “The reality is you can have razor-thin hospital margins if you are good at just spending all the money that is given to you.” Shane Cerone says this coming up and throw hot, right? Razor-thin hospital margins may be due to high costs or some problematic market condition or uncompensated care. Or razor-thin operating margins could also transpire because you’re just really inclined to spend every dollar you’re given.

For a full transcript of this episode, click here.

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Kind of shines a new light on the nonprofit word, right? Anyway, after Shane Cerone raises his eyebrows at the razor-thin hospital margin cliché at this point, then he continues, “And I think that’s what goes on without a competitive healthcare marketplace. It’s impossible to separate those things.”

Meaning is it some problem associated with providing care in a community, or is it too much money gassing up the private jet? “It’s impossible to separate [these] things and understand what’s really possible.”

Yep. That’s something that one of my guests today, Shane Cerone, will say in about T minus 19 minutes or something. So, spoiler alert.

Now, let me start from the beginning.

What happens when there is a market, an actual market, for any good or service? Well, prices are rationalized, supply and demand curves meet at an equilibrium point, and the invisible hand knocks sellers and buyers into line. Abracadabra. We have fair prices.

If I continue down memory lane to our freshman Econ 101 microeconomics class (just in case it was that 8:00 a.m. and any of us slept through it), those aforementioned supply and demand curves, for them to do their equilibrium thing, these curves require a series of transactions that “trial and error” themselves into that aforementioned equilibrium fair for buyers and sellers price. Transactions was the key word there.

In other words, a market is the sum or whatever the average of its transactions, right? It’s like a group of crows is called a murder, a herd of cows. Well, a group of transactions is called a market.

Now what is required for a transaction to be an actual transaction? Let’s see.

Oh, here’s a start. Both the buyer and the seller must be aware of the price at the time of the transaction as one fundamental rate critical. And this is not just textbook economics that I’m talking about right now. It’s also contract law.

And yeah, anyone who has spent five minutes at this rodeo, you listening, you have immediately cottoned on to the fact that this is already not going well for anyone planning to argue that there is, in fact, a healthcare market in the United States, because does anyone even know the price that they are buying or selling at for any given healthcare transaction prior to agreeing to buy or sell? Status quo carriers and TPAs (third-party administrators) have entered the chat.

But if you don’t have transactions with transparent cost or quality of the goods purchased, then yeah, real tough to have competition, which is another market rate critical that is dependent on there being, for reals, transactions.

Real hard to shop for quality when you don’t know what the quality is. We often talk about this topic from the standpoint of the buyer here at Relentless Health Value. Listen to the shows with Kevin Lyons (EP487, Part 1), Jonathan Baran (EP483, Part 1), Wayne Jenkins, MD (EP358). Today, though, we’re gonna talk about this from the point of view of the health system.

How does a non-market affect health systems? I’m thinking now about something John Rodis, MD, MBA, talked about in episode 286 that I repeat in the show that follows.

Short version: Dr. Rodis was CEO of a hospital that threw their backs into improving quality and safety, and they got zero volume, zero demands for their efforts—no increase in demand—nor were they able to negotiate higher carrier rates. So, like, why bother? Just put a snazzy billboard on the highway, “We are number one,” and call it a day. And yeah, what a loss for the community, for patients, for members, but also for folks working in any given hospital trying really hard to get their organization to do right by patients.

So, wow, was I on the edge of my seat today to get a chance to talk with Dr. Sam Flanders and Shane Cerone from Kada Health, who, by the way, donated to the pod to help out with our expenses. My goodness, do I love this tribe that we have created here and those of you who step up and help out. It costs a lot of cash, actually, to keep this show on the air.

So, thank you so much to Kada Health and also to everybody who pops up and drops a couple of bucks in the tip jar on our Web site that we do absolutely nothing to promote. We get five bucks here and $500 there, and it all adds up, and it makes my heart happy to see how great people are on days when things look so dark sometimes.

Sorry, we were talking about the non-market that is the healthcare industry. Okay, I was thrilled to capture Shane Cerone and Dr. Sam Flanders, as I said, and get them on the show today because they were responsible together for running a hospital—a hospital that ran at 158% of Medicare and which had highly rated quality and safety—because I wanted to get my mitts on someone who had done this successfully, because I’m trying to figure out why it seems so hard for others to emulate.

Now the solutions show is gonna be in two weeks where Shane and Dr. Sam Flanders get into how they kept prices low and delivered high quality and safety to their community. And if you can’t stand waiting two weeks, do go back and listen to the show with Dan Greenleaf—there’s two of them (EP489, Part 1 and Part 2)—and he talks about this from the standpoint of a multispecialty group.

Dr. Sam Flanders and Shane Cerone are talking about this from the standpoint of a hospital system.

Today, however, we are exploring, deeply and with great insight, problematic healthcare myths. Now, these myths are warmly embraced by those who kind of benefit from them being embraced, which is probably some pretty good foreshadowing for the solutions show.

But these 3 myths are, first, let’s just lay out the mother of all myths, that there is a functioning healthcare market where carriers control the prices of consolidated health systems etc.

Myth 2: Hospitals simply cannot afford to operate when prices paid by commercial contracts are less than 150% or 200% of Medicare. There has to be wild cost shifting to local employers; otherwise, they will go out of business in some kind of clearance sale.

Myth 3: When prices go down, so does quality, as a general rule. Now there’s gonna be one show in between this show, our problematic myth show, and the “okay, now let’s help hospitals solve for all of this” show.

And the show I’m gonna pop right in the middle of these two bookends is a show with Elizabeth Mitchell from PBGH, the Purchaser Business Group on Health, because toothpaste is out of the tube. And anyone banking on the nonmarket bonanza continuing … yeah, heads up. Here’s what it looks like around the corner in the future coming up, because (oh, my God, I’m terrible at keeping the suspense under wraps) but PBGH just took all the transparency data and a whole bunch of claims data and quality data, and now they can see actual prices being charged and actual quality and safety being delivered by any given health system or organization.

And—oh, wow!—is that powerful, because it actually creates the potential for actual transactions, which are the building blocks of markets, and—oh, wow!—does it have an impact on health systems on consultants, on TPAs, and ASOs (administrative services only). I’m controlling myself from going off on a whole tangent about this impact on consultants and TPAs, but I will not because that’s what half the show is about next week, so come back next week.

In the meantime, enjoy this episode with Dr. Sam Flanders and Shane Cerone. Then again, as I said, come back next week, listen to Elizabeth Mitchell. Then come back for the solutions part of this episode, where we talk about, yeah, solutions, where Dr. Sam Flanders and Shane Cerone, just with such wisdom and experience, tick through how to slow the raising prices roll; how to make things work fine, just fine, on 150%, 200% of Medicare; how there is zero reason any hospital should be thumping its chest and saying quality will go down or dire this or dire that if they don’t get their double-digit rate increases.

So, onward here is my problematic myths conversation with, as I’ve said 19 times already, Shane Cerone and Dr. Sam Flanders from Kada Health; and the show is sponsored by Aventria Health Group with an assist from Kada Health.

Also mentioned in this episode are Kada Health; Kevin Lyons; Jonathan Baran; Wayne Jenkins, MD; John Rodis, MD, MBA; Dan Greenleaf; Elizabeth Mitchell; Purchaser Business Group on Health (PBGH); Vivian Ho, PhD; Stanley Schwartz, MD; ZERO.health; Mark Cuban; Cora Opsahl; Eric Bricker, MD; Dan O’Neill; and Lisa Bari.

You can learn more at Kada Health and follow Shane and Dr. Flanders on LinkedIn.

Shane Cerone is the CEO of Kada Health, LLC, a consulting, management, and leadership practice that supports employers in reducing the cost of exceptional healthcare and advises hospitals, health systems, outpatient centers, and physician groups on practices that improve care quality and efficiency.

Prior to establishing Kada Health, Shane spent more than 20 years leading high-performing hospitals and physician group practices in both community and academic health systems. He has served as the president/chief executive for Beaumont Hospital (Royal Oak), Mercy Iowa City, Virginia Commonwealth University Hospitals, and St. Luke’s Hospital & Health Network in St. Louis.

During his tenure as its president, Beaumont Hospital (Royal Oak) was recognized as one of the nation’s highest-performing hospitals and health systems, consistently ranked as a national leader for clinical excellence (US News & World Report), care quality and safety (University HealthSystem Consortium), and affordability (the RAND Corporation).

Shane earned a bachelor of arts degree in biology from Nebraska Wesleyan University and a master of arts degree in hospital and health administration from the University of Iowa, where he serves as adjunct assistant professor.

Sam Flanders, MD, FAAP, is a seasoned healthcare executive and physician with a distinguished career in quality, safety, and performance improvement leadership. He most recently served as executive vice president for quality, safety, and population health at St. Luke’s Hospital in St. Louis, Missouri.

Prior to joining St. Luke’s, Dr. Flanders held the position of senior vice president and chief quality and safety officer at Beaumont Health (now Corewell Health) in Michigan. Prior to Beaumont, he served in a similar role at Indiana University Health (formerly known as Clarian Health Partners).

Dr. Flanders earned his medical degree from the University of Illinois College of Medicine and has an undergraduate degree in computer science from University of Michigan. He is board-certified in pediatrics. For over 30 years, he has served as a volunteer physician at summer camps for children with diabetes, helping to educate and support young campers to better control their disease.

09:28 EP466 with Vivian Ho, PhD.

09:31 EP486 with Stan Schwartz, MD.

09:42 EP488 with Mark Cuban and Cora Opsahl.

10:08 Why we need to focus on prices in healthcare.

11:50 The first myth that holds change back: the healthcare “market.”

15:04 EP286 with John Rodis, MD, MBA.

15:51 The reality behind why there is no functional market in healthcare.

17:11 Why price simplicity is so important.

19:15 EP472 with Eric Bricker, MD.

19:31 How there is pricing failure while hospitals are still facing razor-thin margins.

22:11 The second myth: Can a hospital survive on Medicare rates alone?

25:21 What is the best hospitals can achieve?

26:01 List of hospitals recognized as national leaders for care quality and affordability.

29:23 The third myth: When you lower prices, do you get lower quality?

33:11 Why a decentralized approach at improvement is the way to lower cost and raise quality.

You can learn more at Kada Health and follow Shane and Dr. Flanders on LinkedIn.

Shane Cerone and Sam Flanders discuss #hospital myths on our #healthcarepodcast. #healthcare #podcast #financialhealth #patientoutcomes #primarycare #digitalhealth #healthcareleadership #healthcaretransformation #healthcareinnovation

Recent past interviews:

Click a guest’s name for their latest RHV episode!

Dan Greenleaf (Part 2), Dan Greenleaf (Part 1), Mark Cuban and Cora Opsahl, Kevin Lyons (Part 2), Kevin Lyons (Part 1), Dr Stan Schwartz (EP486), Dr Cristin Dickerson, Elizabeth Mitchell (Take Two: EP436), Dave Chase, Jonathan Baran (Part 2)