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Competing in the New Health Economy, a Q&A with Trilliant Health CEO, Hal Andrews

"The challenge is that there are a declining number of commercially insured patients because of the silver tsunami, which is shorthand for the fact that 10,000 Americans become Medicare eligible every day, and so we, in effect, take 10,000 patients who are commercially insured and convert them to Medicare patients." Trilliant Health CEO, Hal Andrews, discusses strategies to compete in the new health economy.


You’ve often said that the hospital business is a negative-sum game, how can health economy stakeholders compete within this reality? 

I think the first thing that people must understand is the need to compete, and one of the longstanding issues that we've had in healthcare is that people thought competition was impolite, rude, was something not to be discussed, which is ironic because the people who are most focused on competition historically are the sisters of the Catholic healthcare systems for whom competition was essential. It's a Catholic sister who said, “no margin, no mission.” But a lot of people don't think about competition. Some of that is because historically the reimbursement scheme didn't require them to compete, the original Medicare reimbursement schedule, reimbursement scheme was cost-plus. You were paid more, the more you spent.  

I think the second thing about how you think about a negative-sum game depends on where you are. The negative-sum game is much different for health systems than it is for insurers. Insurers have moved over the past 70 years from being an entity that bore the risk of healthcare costs for their members to being an entity that manages risk or that provides business services. 

Approximately a hundred million Americans are insured by their employer. The employer is self-insured, it hasn't allocated the risk to a large payer. The job of the insurer there is to manage the risk, to take the dollars in from a premium perspective, to deliver a network that the employees can access. 

However much healthcare the employee uses doesn't actually impact the insurance company. In terms of pharmaceutical companies, medical device companies, they have to understand that the fact that there are fewer and fewer commercially insured patients will inevitably result in lower yield. You have to think about whether you win more market share or whether you lower the cost of your product or whether you do both. 

The final piece in terms of thinking about competition is you have to understand that winning is just losing less than whoever you're competing against. The old days of actually increasing your market share are pretty much gone. It's now a game of maintaining your position or maybe just losing less than the people you're competing with. 

From a policy standpoint, I think the government has already figured out that the cost of the U.S. healthcare system is unsustainable. If you look at a recent congressional budget office analysis, they have said, “we've basically tried everything, nothing works, we're just going to have to limit reimbursement.” 

That’s a pretty blunt instrument. It's one that is a new policy position. It's one that would have an impact on everybody because, while it would start with hospitals and physicians, it would end up affecting everybody who works with a hospital physician. Whether you're selling band-aids or tongue depressors, or masks, or gowns or complex medical devices. 

To the extent that your customer's getting paid less, then you're ultimately going to get paid less. 

The Total Available Market (TAM) of commercially insured patients is shrinking. What implications does this have for health economy stakeholders? 

The commercially insured patient is the lifeblood of the U.S. health economy. On a general basis, the reimbursement for services delivered to a commercially insured patient are two and a half times the rate for a patient who's a Medicare patient, and they're four times as much as a patient who's a Medicaid patient. 

The challenge is that there are a declining number of commercially insured patients because of the silver tsunami, which is shorthand for the fact that 10,000 Americans become Medicare eligible every day, and so we, in effect, take 10,000 patients who are commercially insured and convert them to Medicare patients. 

We replace them every day with the 10,000 babies who are born of whom half are commercially insured, and half are Medicaid eligible. We basically lose 5,000 commercially insured patients every day from the U.S. health economy. Forecast to continue until 2030. The implications for anybody who's selling goods or services in the healthcare economy are that the patients for which they receive the most reimbursement are declining the most. 

The patients for which they receive the least reimbursement are increasing the most, and that's going to happen for the next decade. To counteract that, you either have to change your market share or you have to change your operating cost or both. The notion of a negative-sum game is that there are winners who win not by gaining market share but by simply maintaining market share or even by losing less market share than the others at a market level. 

There is no bad hospital, is an old saying; there are only bad markets. What really happens at the local level is that the trends from a demographic standpoint of the aging of the population, of the percentage of babies who are born every day who are Medicaid eligible will impact the providers in that market. 

It'll be very different from market to market. Providers in Austin, Texas face a much different feature than providers in Detroit, Michigan. 

​What is your reaction to the Congressional Budget Office's recently issued analysis discussing policy recommendations for bending the cost curve? 

I think the starting point is to understand how regulation is actually crafted in Washington. 

It's not like Schoolhouse Rock, and it's also fortunately not the 24-year-olds who come out of Congress and become legislative aids for congressmen, but it starts with policy shops. The Congressional Budget Office is one of the most respected policy shops in Washington, D.C. They're responsible for helping Congress understand the budget implications of any massive program that Congress implements. So, the fact that the CBO has issued this policy paper is more significant than probably any other policy shop because of the relationship that the CBO has with Congress. The import of this is that they've taken a deep dive into the unsustainable trend of healthcare costs in the U.S. economy, which have been increasing two to three times the inflation rate for 37 of the last 42 years. After looking at all the things that we've tried from a policy standpoint to limit the growth of healthcare, to bend the cost curve, to do something about the fact that we spend $4.3 trillion in the U.S. health economy. In 2021, they've decided that nothing really works. 

They have studied the impact of price transparency, which has been an initiative for the past two decades, and they've determined that really it doesn't bend the cost curve at all for the country. There are pockets, there are regions where it's helped. There are certain employers where it's helped, but it's never bent the cost curve for anyone for more than two to three years at a time, and it certainly hasn't done anything for the health economy as a whole. 

They've also looked at the impact of the FTC and the DOJ trying to limit competition, and they've realized that even limits on competition don't help. So, the FTC and DOJ are currently really focused on limiting mergers and acquisitions because of the anti-competitive effect. The CBO analysis says that it doesn't matter whether you do that or not, it doesn't bend the cost curve. 

Based on a survey of all the policy tools that are in the tool belt of policy makers, they've decided that price controls are really the only thing that works. Perhaps not surprisingly, Washington is next to Maryland. Maryland has had a rate setting commission for decades. Maryland is the only state that can point to their results and say that they've done something to bend the cost curve. 

So, it's probably not surprising that the CBO has said this is the only thing that will work. The challenge of implementing price controls is the impact on everyone, with the possible exception of insurers. It'll start with hospitals because that's the biggest part of the spending. That's about 1.2 trillion of the $4.3 trillion. It'll then go to physicians who are about 6 or 700 billion of the $4.3 trillion, but it will trickle down to pharma companies, to medical device companies, to anybody who delivers anything to a hospital or a physician The impact on the physicians themselves, the decisions they'll make if the government decides to cut their income, there's certain to be consequences. What's uncertain is what those consequences might be or how fast they might occur. 

​Where have all the patients gone and how can we bring them back? 

Primary care utilization in the United States, really, overall care utilization in the United States peaked in October of 2019, ironically, just before the pandemic. There were two factors that really changed the volume of healthcare in this country in the spring of 2020, sort of the April 1st to June 30, timeframe. 

One was the images of the chaos in the large hospitals in New York. New York was the epicenter of the pandemic in the U.S. There are some things that are unique about New York that made it worse: urban density, the fact that it was undetected in the New York system, the use of public transportation in New York. There are a number of things completely unique to New York that led to it being the epicenter. One of the things about New York is it's the financial capital of the U.S. It is, in some sense one of the two cultural capitals of the U.S. So, things that happened in New York were broadcast all across the country and all across the world. 

Those images of hospitals that were overrun with patients, emergency departments overrun with patients, just the utter chaos that was on a continual loop are seared in the minds of the American people, and that's reflected in surveys about trust that Americans have in every part of the U.S. healthcare system. 

Since the pandemic, the patients have been scared of the system. They have lost trust. They've lost trust in doctors, in nurses, in the CDC, in insurance companies. Everything that you measure, patients have lost trust and patients are like the rest of us when we're just being consumers. They’re influenced by how they feel, and they have learned that they feel like they can't trust the healthcare system and that they're scared of it. 

So, they haven't come back because we've scared them away. The other thing is that there was forced intervention from the government. The Centers for Disease Control implemented a ban on all elective surgeries and all elective procedures on March 15th, 2020. Because the CDC and CMS control so much of the health economy, people complied. 

We scared them and we shut off access, and so we created our own story where we told people they shouldn't come and they couldn't come, and they've been slow to come back. When they have come back, they have not come back to levels that they were utilizing the healthcare system before. 

They have come back to settings that are less acute. So, if you think about a hospital as the most acute setting, as the setting with the sickest patients, with the most complicated technology, with the longest wait times. That is a more complicated and frightening scenario than going to a surgery center and going to a doctor's office is less frightening than a surgery center. Going to an urgent care center is less frightening than a doctor's office, and so over and over again, the American consumers are picking the least acute setting, which is also the setting that they feel best. We'll see if they ever return to the pre-pandemic utilization patterns of October of 2019. 

​What data signals are you tracking that may suggest shifts in acuity in the years ahead? 

One of the impacts of not being able to access the healthcare system and losing trust in the healthcare system is that people delayed preventative care screenings. 

There are a number of advances in technology and therapeutics over the past 40 years that allow us to treat patients if we diagnose them early. Cancer is the best example. If we diagnose patients with cancer when they are early stage, preferably stage one, there are any number of interventions that can cure cancer at this point or that can allow people to live for decades after that initial diagnosis. 

That changes if they're diagnosed at stage three or stage four. The decline in utilization of screenings will have an impact at some point where people who didn't receive their screening will show up and be more complicated. We didn't cure cancer during the pandemic; we didn't change the incidence of heart disease or cancer or autoimmune diseases in the country, but we did delay the diagnosis of those things. So, to the extent that people show up later, they will inevitably be farther along in their disease progression, which means that the interventions will have to be more acute. Are they going to come back more than they were before the pandemic? No, but when they come back, they will be sicker than they were before. 

​Typically, hospitals make projections of 3-5% growth - when the reality is closer to 2%. What does a 1% difference look like for the future of demand and how should it impact strategic planning? 

I think a couple of things have impacted the way that hospitals have developed strategic plans and growth projections. One is they are prone to look at census data and so the growth of America is often treated as a proxy for the growth of demand and healthcare services. 

The other thing that has happened for the last 40 years is that a particular model of demand forecast that has been in place since 1986 in the American healthcare system that has consistently suggested that growth would be 3% to 5%. The final piece of that is that the burden of disease in this country increases at a very high rate. The rate of obesity in this country is startling and breathtaking and relentless. So, people have been prone to confuse burden of disease with demand for healthcare services. The reality is that the demand is actually flat to declining; hospital admissions peaked in the 1980s. They've been in decline since the 1980s. 

They've been in fairly consistent decline since 2008. So, if you look at inpatient hospital utilization as a key driver of demand, since hospitals are the largest part of the healthcare economy, you start with the standpoint that hospital demand is flat to declining. Outpatient surgeries are slightly up. Over the same time period, Inpatient surgeries are slightly down. So, the impact of predicting that demand will go up 3% to 5% when it's actually going up 0% to 1% are stark. It's compound interest, and so if you forecast that growth will be 5% over a 10-year period, and it's actually 1% over a 10-year period, at the end of 10 years, the volume differential will be more than 60%. 

The reason it's important for acute care providers, not just hospitals, but people who are building care settings that have more acute services is that most of those assets are 40, 50-year assets. There are hospitals in this country whose underlying foundation, if you went in the basement, was built a hundred or 150 or 200 years ago. 

Pennsylvania Hospital was built in the 1750s, and so if you think about making a 40- or 50-year capital investment, with an error rate of 60% in terms of volume over a 10-year period, you'll spend a lot of money you probably didn't have to spend. So, from a capital allocation perspective, it's critically important to understand what actual demand is. 

Can you share a few examples of how healthcare utilization is different across patient segments? 

One of the things that's come out of the pandemic is that telehealth utilization changed dramatically in two ways. One, in terms of behavioral health, there was an unbelievable growth in the use of telehealth for behavioral health. 

There's a reason for that: one, it's very convenient. Telehealth's a great use case for behavioral health because it's asynchronous, and also because based upon patient preference, they actually prefer the distance that telehealth gives to their provider. There's something that gives people comfort about talking remotely about their mental health issues that they don't like when they're talking about their physical health issues. 

There's a clear break in the surveys about preference for seeing a physician for medical issues and not seeing someone in person for behavioral health issues. I think a second thing is that women have returned to healthcare, much faster than men, particularly women between the ages of 20 and 39, particularly commercially insured women between the ages of 20 and 39. 

So, if you look at what appears to be a return to care, at the American population level. You realize that what the return to care is comprised of is COVID testing. There's been a large growth in utilization of urgent care centers for covid testing. There's been a massive increase in the number of people using healthcare for behavioral health, and there has been an overrepresentation of women between the ages of 20 and 39 to primary care, which masks the fact that men as a cohort have not returned to care and women, not between the ages of 20 and 39, have not returned as much, as well.