EP511: The Tension When Clinical Teams Take On Risk for Policymakers and Others Looking to Rustle Up Future Perverse Incentives, With Dr. Siva and Monica Lypson, MD, MHPE

[00:00:00] Episode 511, The Tension When Clinical Teams Take On Risk for Policymakers and Others Looking to Rustle Up Future Perverse Incentives. Today I speak with Dr. Siva and Dr. Monica Lipson.

[00:00:22] American healthcare entrepreneurs and executives you want to know. Talking. Relentless Health Value.

[00:00:31] Last week we talked Medicare Advantage with Betsy Seals and we talked about finding members who a plan can serve well. This makes sense because Medicare Advantage is a capitated program. In other words, Medicare Advantage plans get paid by CMS a per member per month and they have to keep their expenses lower than the per member per month payment that they are receiving.

[00:00:55] Now, they will get more money if the patient is coded at a higher clinical complexity. In other words, for sicker patients, you get paid more. Therefore, upcoding has become a thing and you see a number of plans, Medicare Advantage plans getting in a bunch of trouble. For upcoding, that's a great way to make money.

[00:01:13] If you are a Medicare Advantage plan because, right, you're getting paid to take care of a sick patient who's not actually as sick as you say they are. Therefore, they're not going to rack up the medical expenses that such a sick patient actually would because they're not actually that sick.

[00:01:29] Meanwhile, on the other side of the house, we have some health systems upcoding visit complexity just as fiercely. And then we see these same Medicare Advantage plans who have been in the past, at least, busy with their own upcoding, who are now doing automatic downcoding of the health systems upcoding. Takes one to know one, I guess. What a time to be alive.

[00:01:52] Meanwhile, in episode 505, I spoke with Dr. Ahilan Sivaganesan, Dr. Siva. And we talked about calculating the operative value index. What is the operative value of any given surgery or some other episode of care?

[00:02:12] And I want to play a clip that I cut out of that episode at the time because, yeah, it was just a whole other conversation and there was a whole bunch of other vectors and conclusions that could be drawn. So I want to follow some of those vectors now and foreshadowing. It definitely has to do with this upcoding business. So here's me talking to Dr. Siva.

[00:02:36] When it comes to surgeons, here's why I think time-driven activity-based costing is existential and absolutely necessary in the coming years. But when I present this kind of information, this data infrastructure that allows you to do prospective time-driven activity-based costing, when I present it to other surgeons and when I present comparisons, hey, surgeon X is 30% cheaper than surgeon Y, you can predict what the next comment is, right?

[00:03:03] Well, that's not really a fair comparison. My patients are different than his patients. What that comes down to is that there are certain confounders that we know. It's very procedure-specific, specialty-specific. But I know as a spine surgeon, what are the key patient-specific and surgery-specific variables that account for these dramatic differences in cost?

[00:03:22] And so you have to incorporate those confounders into the analysis so that when you do a ranking or a comparison from one practice to the next or one surgeon to the next, you are accounting for all those potential variables that could be a play. And that's what an employer would also want, right? If they want to make an intelligent decision, we want to go at risk for spine care.

[00:03:42] We're trying to choose between these two, quote unquote, high value practices that are ready to play ball with us. And we want to understand in a very quantified way what the costs are, what the payments are going to be and what the outcomes are. You have to have access to those confounders and be able to adjust for them. So this is a critical foundational requirement for any type of value-based marketplace. And so I think it serves multiple purposes.

[00:04:11] So like relative to cost accounting, and there is a methodology called TDABC or Time Driven Activity-Based Costing. Again, TDABC. But what we talked about here is just A, the fact that this doesn't exist. And then B, there's two ways it could go if it does exist.

[00:04:31] One is that you could use it for games, right? Like you could use it, which by the way, is one of the main reasons, not to bring up a sore subject, why it became illegal for doctors to own hospitals. Because doctors were getting real, real good at cherry picking and lemon dropping and then got kicked out of the C-suite. On the other hand, though, not knowing this information, recognizing that you're losing money in ways that you don't have to be, right?

[00:04:59] Like you do not have the action-based insights to actually take action if you don't have these kinds of things. So this is bigger than surgical outcomes, but certainly entwined. And I think the point that you're making is other industries have done this. It's complicated, sure, but we've seen the downsides of not knowing the information. We need to figure out how to move forward in the spirit of the endeavor. I totally agree. You can never expect a physician to go at risk in any way if they don't understand their own costs.

[00:05:29] This is a prerequisite, right? And so if anyone who believes either in the short term or the long term that physicians going at risk for outcomes and costs is necessary for true movement towards value-based care must understand that physicians have to know their own costs. How else can you go at risk? Otherwise, you're jumping blind into an abyss.

[00:05:49] And so that's the way I think about it is that knowing your own costs in a prospective, scalable, condition-specific way is an absolute minimum requirement for physicians to go at risk and then move us towards a value-based marketplace. We know that procedural bundles are coming, whether it's Medicare and the latest CMS program or the commercial payers following suit. The payer is going to come and say, all right, you want to do this elective spinal fusion? Here's the most money you get.

[00:06:19] And this needs to cover your 90-day global or whatever that may be. If I don't understand the true cost of delivering care for my practice or hospital within that time horizon, I'm going to get screwed. I won't even know which type of patients to pick to include in that bundle because there's going to be a sliding scale, right? There's going to be the super complex sick patient that needs a revision third-time operation. That's going to be a bundle buster where I'm going to lose money on that patient.

[00:06:48] And then there's going to be the other young, healthy, first-time operation patient where my costs are going to come under that predetermined lump sum from the bundle. If I don't know how to predict which patient is favorable for a bundle or not, I'm going to be in no position to be able to enter the fray of any type of at-risk contracting, whether it's at the procedural level or at the condition level. Okay, so you just operationalized cherry picking and lemon dropping, which I'm sure wasn't your intent. Right.

[00:07:18] What happens with those patients who need that third revision? Yeah, it's a great question. One thing I've been talking about for a while in our published works is the idea of sliding scale bundle payments. So if you have the ability to do time-driven activities costing, and you can show a bell curve of true costs based on the complexity of the patient and the complexity of the surgery,

[00:07:39] then you're armed with the information to go to a payer or a self-funded employer and say, here's the distribution of my true costs. So here's what I'm looking for from a distribution of actual bundled payments that reflect the complexity of the procedure and the patient. So you know what? We don't want to avoid taking care of that super sick patient with the needs of four-time operation.

[00:08:03] But based on our data that we're going to make transparent to you, our costs are about 35% higher to take care of that patient. So we're asking for a payment that reflects that difference so that we can take care of the whole pie. But the only way you're going to be able to do that nuance and have that sliding scale bundle payment is if you're doing time-driven activities costing on a regular basis prospectively, and then be able to slice and dice it like this. I brought up the cherry picking and lemon dropping.

[00:08:31] In short, it's when if there's risk-based anything, there's a lot of incentive to pick up patients, i.e. cherry pick, patients who are going to do real well and not cost a lot. And then lemon drop. In other words, if somebody you think is going to be really difficult and be costly, you're kind of like, oh, we don't have time for you today. You get rid of them.

[00:08:51] What you're saying, though, is you sort of as a practice have to know what your costs are in order to effectively run your practice and then to help make sure that lemons don't get dropped or cherries don't get inappropriate operations. You can use it to negotiate to stop the need for that to happen to begin with. And you're doing it in a very informed way.

[00:09:15] Now, this will require someone leading an organization who is quite interested in the spirit of the operation and not revenue maximization. Yeah. You got to avoid the gamesmanship. To the point of conflict of interest, I'm glad you brought that up. I sometimes chuckle when I hear this notion that, well, physicians shouldn't own hospitals because then they're just going to steer patients in a certain way and game the system.

[00:09:40] But you know what my fundamental, most deep conflict of interest is right now is that I get paid to do surgery. It's fee for service. That's the deeper conflict of interest. Interesting, right? Dr. Siva summed up the tension here really well. On one hand, we say physicians shouldn't own hospitals and shouldn't cherry pick or lemon drop.

[00:10:01] On the other hand, we say it's all about providers going at risk and built into that going at risk is selecting patients. So the very, you know, holy grail that we are promoting here, i.e. providers at risk and value-based care, has patient selection and risk incentives baked into it while we simultaneously claim that we can't trust doctors with these same incentives. Conundrum, big one that we just uncovered here.

[00:10:29] And it's crazy to me that we are this far along into the value-based care thing. And I do not recall anybody saying this directly in the way that is coming out in this podcast episode right now. If we think that we're going to pay health systems in particular, we're talking about big corporatized companies, organizations here.

[00:10:51] If we think that we're going to pay these organizations on a sliding scale, how is that really any different than basically handing them their own version of a RAF, of a risk adjustment framework? And we know exactly what happened. We just talked about it. What happened with the Medicare Advantage RAFs? Again, we're not talking about individual doctors.

[00:11:10] These are big organizations with C-suites that are incentivized on growth with whole departments dedicated to revenue cycle management or whatever we're calling maximizing the revenue and the profit off of any given transaction. For good reasons and not so good ones, just to be clear. But what is definitely pretty inarguable, everybody has a very vested interest in early and often the highest codes possible. That is what the incentive is.

[00:11:37] So it would follow that if we hand out a RAF, risk adjustment framework, directly to these health systems in the form of a sliding scale, look, in T-minus 10 minutes, the same health systems with these separate departments,

[00:11:49] how bent to upcode like every ER visit to a level for complexity, listen to the show with Al Lewis, are probably going to, odds are good, they're going to upcode almost every patient some material complex level. Kalshi or Polymarket probably wouldn't even let you bet on that prediction because it's so obvious that this is what's going to happen.

[00:12:15] So many patients, so many members will achieve lemon status and health systems will get paid accordingly and costs will inflate. And here we go again around the circle. All the plans will start down coding the patient complexity just like they do with service complexity. And now we have another bot war. Meanwhile, premiums are still going up.

[00:12:39] All of this reminded me of a conversation that I had had with Dr. Monica Lipson a while back. But as many conversations about heretofore at least intractable problems go, it's still unfortunately extremely relevant. I want to listen to this conversation with you and then we're going to figure it out.

[00:13:00] And when I say we, I'm also including Dr. Siva in this because as aforementioned, this is a conversation that the two of us had and I have definitely folded his insights into this mix. Okay, so here we go. Monica Lipson, MD, MHPE. Welcome to Relentless Health Value. It's a pleasure. Thanks for having me. Conventional wisdom would really presume that value-based care is good for underserved communities.

[00:13:26] Value-based care tends to address social determinants of health in ways that a fee-for-service system just simply doesn't. Do I have it right? Yes. So as Einstein says, intelligence is being able to hold two competing ideas in one's head at the same time and realize they're both true.

[00:13:44] So as a believer in value-based payment systems and a believer in that is probably our next best approach to the healthcare system, I do believe that that is a fiscal mechanism to improve the care of the underserved. Okay, so let's collect some wisdom here in our quest to solve the tension between a desire to maximize revenue and a desire to pay a fair price for value.

[00:14:12] To define terms, when we say underserved here, consider that this could be a patient with preexisting conditions wherein those conditions are not controlled or resolved for many reasons. It could be someone with limited access to primary care or specialty care. It could be someone with social drivers of health given their health literacy or their income or employment status or housing situation or language barriers. There's a lot rolled up into this underserved word is the point.

[00:14:39] And if I have an incentive to upcode, I could make the most of it. Or if I have an incentive to not serve a patient who might be hard to serve because I know I'm going to lose money. Yeah, a lemon could have just gotten dropped.

[00:14:53] However, in the same breath, if you have the wrong incentives, if you create perverse incentives, you actually might make known healthcare disparities worse by allowing for the fiscal system to pick and choose patients that are best suited to meet your quality metrics or to meet the demands value.

[00:15:20] Aha. And this is what we mean by cherry picking and lemon dropping. Yes. I've even heard this applied in situations where a patient shows up, has a BMI over a certain level or had a heart attack previously. I mean, not necessarily even in an underserved community. And the cardiologist is like, nope, sorry, can't fit you in. And I think that happens if I want to be Pollyannish, I will say it probably isn't done volitionally.

[00:15:49] There's other things I can do to make me cherry pick those populations. If I only have office hours between 9 and 12 on certain days of the week, potentially I'm only picking either patients that are employed and can get off of work or patients that are retired. Versus if I have evening hours, I'm much more acceptable. So there are ways that even the healthcare system that says, hey, I didn't discriminate against that one person.

[00:16:18] There actually might be systematic and structural ways that the healthcare system might say to a certain group in the population, we're not really interested in taking care of you. Some have used this cherry picking slash lemon dropping as a reason why fee-for-service is better than value-based care. What do you think of that position?

[00:16:42] I would say we've tried that experiment since 1965 and we have issues around disparities, etc. And part of that, the incentive to have a good outcome is not there. The incentive to have another visit is there. Fee-for-service incents another office visit.

[00:17:03] And by the way, that another office visit also could mean a profitable readmission when the underlying problem or root cause of the issue isn't solved, like a readmission for heart failure. But I also want to point out something that Dr. Kristen Dickerson said in the episode with her about direct contracting for imaging. Link in the show notes. She said for green imaging, which is her company, fee-for-service works. The plan pays for only services rendered.

[00:17:33] And it's almost impossible for a directly contracted imaging contractor to refer themselves another office visit. So the main perverse incentive of fee-for-service is mitigated. That's a point to ponder there. The only indictment I have on the fee-for-service system is that it's gotten us to where we are right now. That system is not working, right? We have health care inflation. We have health care disparities.

[00:18:02] We are the nation in the world that spends the highest amount on health care. And our outcomes are middling, if not low, compared to our brethren. We haven't. There was no overt mechanism to actually measure the quality. So again, if we even say most providers actually have the best intentions for their patient, regardless if it's a fee-for-service or value-based system.

[00:18:29] If you don't have systems in place to understand and connect the data points between the labs that might have happened outside of your system, the prior visit. If you don't have any connection in that system, even the provider trying to do best by the patient and provide a good outcome might be disconnected because the system is not in place to actually connect the lines for them or connect the dots. Fair enough.

[00:18:59] Fee-for-service and most current network contracts available to self-insured employers and other plan sponsors. There are some exceptions aside, but most do not include really almost any robust quality assessment. Listen to like any of the episodes with Elizabeth Mitchell for more on this. Links in the show notes. So if we're saying the word patient outcomes, obviously that's open to interpretation.

[00:19:27] What are the must-haves for a value-based, patient-focused, fiscal system to create the outcomes that patients actually want and need and drive that clinician satisfaction? If I knew the answer to that, I could retire. Here's my perspective. The systems that have been shown to work are those who really take a, the VA is calling it a whole health model, or they're really looking at the whole patient as one.

[00:19:56] So the patient is not a sum of its problem list or healthcare problems. The patient is a person who presents often with a healthcare concern if they need healthcare, but those systems also typically offer access to things that make health a priority as well. So preventative services, a focus on both mental and physical parity issue.

[00:20:23] And now what we're learning is we deal with the social needs of the patient and what's the social context of the patient as well and what that contributes to health. I can give you a real patient example. So I have a patient who is experiencing homelessness and has been without a permanent shelter for at least one or two years and gets re-admitted to the hospital.

[00:20:50] It's been this interesting conversation because what will actually eventually save his life is getting him shelter. He has recurrent infections because it's going to happen as long as he remains undomiciled. There's not a lack of knowledge that that is exactly what needs to happen. The hospital knows that. Social worker knows that. I, as a primary care doctor, knows that. The hospital team that takes care of him every time.

[00:21:19] And every time we think we get close to finding him shelter, there's some issue that we find he's not eligible. It's sad because the easy fix is the cost of housing this patient for one year would be cheaper than his next admission to the hospital. That's crazy. In a fee-for-service model, that patient, actually the hospital is rewarded every time he shows up with an infection. That's correct. Hold the phone.

[00:21:49] Whole Person Health has entered the building. Before I go further, let me count how many others have said Whole Person Health on this show related to, for example, advanced primary care. We have had Dr. Scott Connard, Dr. Grace Terrell, if you want to go way back. Dr. Kenny Cole, Larry Bauer. Listen to the podcast with Dr. Mick Connors where we go off on this exact topic. But here's why this is such a big deal relative to solving the tension between upcoding and downcoding.

[00:22:17] Because none of those games are going to be solved merely by getting clinical teams to take risk as aforementioned. But here's the thing. And I'm quoting Mark Weber right now, who was quoting Dr. Zane Gates in a recent LinkedIn post. It's much cheaper to take care of people than it is to insure them. Link in the show notes to that post. So bottom line, if we're paying for Whole Person Health for that care in a really thoughtful way,

[00:22:43] many of the current upcoded profit centers determined to take advantage of the, how can we get paid the most to insure them, games, these profit centers become cost centers. And look, this by a long shot doesn't eliminate the potential for other troubles with tribbles, upcoding, downcoding problems, or the trying to constrain access or deny care to take advantage of the float problems.

[00:23:08] But I'd consider it a path forward that is at least better than the status quo at a minimum. Or the funding streams don't line up, right? How can I take money from healthcare dollars and put it into housing? Our systems are set up such that it would be conceptually difficult to move that money around. How have you seen this work?

[00:23:35] There's two examples I can think of. I spent most of my career as a staff physician for the Veterans Health Administration. Actually, within that healthcare system, it was actually a lot easier to kind of order up housing. Meaning there was an initiative over the last two decades to house, to end homelessness among veterans.

[00:23:59] You actually had a much more nimble system where at least there were dollars allocated within that system to say, we need to house her in a way that will take care of it. Because we're actually probably, the whole system will save money in some ways by that. But even in that system, those were separate funding streams.

[00:24:20] You saw this at the middle of the opioid epidemic in Vermont, where the hospitals in Burlington, what they sort of realized is if we could discharge our patients to a stable shelter, and we'll pay for that healthcare system, maybe we can save money. There are a bunch of pretty good examples of whole persons getting taken care of out there,

[00:24:47] such as, of course, independent advanced primary care practices, but also the VA, the Veterans Administration, maybe also some of the really good FQHCs, federally qualified health centers. Nothing is, of course, perfect, but there's likely lessons to be learned in these examples. There's also community health plans that Dave Chase talks about quite frequently. Bryce Heinbaugh has pulled together some of these. There's primary care for all Americans,

[00:25:13] where towns are paying for its residents to get access to primary care and keep these people from becoming patients showing up in the ER. What's that quote? The future is here. It's just unequally distributed. We're seeing this in small kind of pilot areas, but I think people are finally realizing we actually have to fix some of these structural issues if we really want to fix health. We want to be responsible stewards of that dollar,

[00:25:43] and I think the system should recognize that. That's why you actually have to have patients in the room. That's actually why the community and the patient is probably the most important. Their bias is the bias we want in the room. This is where it all came together for me. A patient's bias is actually the bias that we want in the room. And why do we need that? Many reasons, but here's one. Because everyone else has bias.

[00:26:11] And the problem with that other bias is that the healthcare sector makes patient lives as the product, but nobody has agreed thus far on what guardrails that requires. And again, there's nothing objective about a proclamation made by anyone who is well and truly biased. So why are we letting entities who we know are biased calculate, for example, their own RAF adjustments in the first place? I read an article a while back, I'll see if I can find it,

[00:26:40] that said a more accurate way than any RAF is just use someone's zip code. This is one of the most accurate predictors of risk that you'll find. Dr. Siva scratched his head at the moment because we discussed this. He said, yeah, what our goal should be is to find global column ground truths about patients that cannot be gamed. What we need here are detached arbiters who are calculating patient risk and complexity. That should be the basis of upcoding or downcoding.

[00:27:07] You can't ask biased parties to create their own homework. The data has to be outside the control of those who clearly, again, have a very, very big incentive to put a finger on the scale. Right? Like credit scores, for example. There's plenty of industries do this. They have a weights and measures body that at least has some measure of independence and some measure of transparency. Dr. Lipson, thank you so much for being on Relentless. I'll find you today. My pleasure. Thank you for the opportunity.

[00:27:36] So look, I feel like I am beginning to cotton on to something that maybe should have been very obvious, but I really didn't see it before. Here's the job to be done. Be good stewards of the dollar and do what we need to do to figure out how to give a competitive advantage to honest actors. Your next question will be, how do we do that? In situations where there is a risk adjustment framework or there is a sliding scale for bundles

[00:28:03] based on clinical complexity, get a neutral third party to risk score patients. Just like we do with credit scores or in many other industries that have standards for weights and measures. Who is this? I don't know. Would I be kind of confident it's possible to do based on ground truths? Yeah. And right now I'm thinking about that there was a case study from several years ago

[00:28:29] when some retail store, and this became a big brouhaha, knew that some teenager was pregnant before her parents knew the teenager was pregnant. Buying habits, credit card swipes, co-pays paid, geofencing, right? So there's a lot of deep capacity at this juncture to do predictive analytics around individuals that has the potential to be more accurate than any chart review. Just saying. Thank you so much to Dr. Siva.

[00:28:58] Thanks to Dr. Monica Lipson. My name is Stacey Richter. This podcast is sponsored by Aventria Health Group. And I do also want to thank our 2026 series sponsor, Payerset. Thank you so much for the financial support to keep this show on the air. Hi, this is Dr. Kristen Dickerson. Stacey not only unearthed and distills the problems with the existing healthcare system, she also offers hope for a better future for healthcare and for restoring trust in the system.

[00:29:25] If you rely on this podcast as much as I do, please make sure to follow the podcast on Apple Podcasts or Spotify and leave a review.