Latest / Becker’s Healthcare - Clinical Leadership Podcast / Dr. Robert Pearl, Stanford University Professor, Forbes Contributor, Bestselling Author and Former CEO of The Permanente Medical Group

Transcript

Dr. Robert Pearl, Stanford University Professor, Forbes Contributor, Bestselling Author and Former CEO of The Permanente Medical Group · Becker’s Healthcare - Clinical Leadership Podcast

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  Well, thank you so much for tuning in to the Becker's Healthcare podcast series.
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  This is Jacob Emerson, associate news Director in the Becker's newsroom.
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  Pleased to be joined today by an esteemed guest, Dr. Robert Pearl,
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  who is going to discuss with us consolidation in the healthcare industry and the
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  rise of health services giants. Now, Dr.
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  Pearl is professor at Stanford University's Medical and Business Schools.
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  He's the best selling author, a Forbes healthcare contributor,
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  and is the former c e o of the Permanente Medical Group. So, Dr. Pearl,
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  thank you so much for taking the time to be with us on the podcast today.
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  Thank you Jacob, for inviting me.
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  So, so Robbie, appreciate you taking the time to be with us. Um, you,
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  you've published so much of your thoughts on the topic of healthcare
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  consolidation, and this is obviously such a rapidly changing area, as you know.
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  So I wanna just start broadly by asking where you view our healthcare
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  system today. We've got so much going on right now with the big players, Kaiser,
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  of course, acquiring Geisinger to launch Rand Health,
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  United Health Group being the largest insurer and owner of physicians now.
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  And then the retail disruptors like Amazon and Walmart,
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  really expanding their healthcare capabilities.
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  So how should we be framing where we're at right now?
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  I think of this as a conglomerate of monopolies.
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  You're looking at five or six insurance companies
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  covering over half of the nation.
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  You're looking at hospitals that consistently are consolidating not
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  to improve performance,
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  which should happen in most economies of scale,
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  but instead simply to be able to raise prices.
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  We know that in the medication area,
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  drug companies are definitely consolidated,
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  all working to the same outcome of ever higher prices.
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  And now we're starting to see the entry of private equity into the
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  provider network. And their goal is, again,
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  market control to raise prices. So far,
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  I can't find anyone outside of a small number
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  of groups like Kaiser Permanente that are trying to focus on opportunities to
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  increase value and lower cost for patients.
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  Yeah, absolutely. And let's talk a little bit more about Kaiser Permanente.
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  You led the medical group side of the company for 18 years,
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  so I do wanna ask you a bit more about Rise and Health,
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  how you think that will go in the long term. Um, you of course,
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  you wrote in Forbes a few weeks back about the conversations that you've been
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  having since they first announced that deal. Um, and,
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  and you've been speaking with a lot of healthcare leaders across the country
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  about this,
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  almost all of them asking the question that I just did of will it work and
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  what is causing you some initial doubts on this acquisition?
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  There are two aspects that are creating doubt.
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  First problem that I see is that the acquisition was
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  done through the hospital and health plan, half of Kaiser Permanente,
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  not the medical group half or phrased differently through Kaiser,
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  not through Permanente,
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  and the knowledge about how to increase performance,
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  how to become the number one quality organization in the nation according to the
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  N C Q A,
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  how to achieve access and service as 20 points higher than,
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  than the communities around the medical centers
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  for JD powered associates.
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  How to have lower prices that resides in the medical group.
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  And I can't quite see how this is going to change the current
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  economic challenges faced by Geisinger.
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  The second problem that I see is that Geisinger has a very mix,
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  a hybrid payer revenue stream.
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  Some is capitated, they have their own health plan,
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  but a lot of it is coming through very traditional fee for service.
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  And when doctors are paid,
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  when hospitals have to perform with a hybrid model,
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  they don't quite know what to do because if you do the things that are
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  value based, lower demand,
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  move to the outpatient and home arena,
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  maximize care for patients with a chronic disease so they don't get heart
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  attacks and strokes and cancer,
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  you're finding yourself with half empty hospitals.
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  You're finding yourselves without having the income that you expected
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  before and making the pivot to something that is going
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  to be purely value-based. I think that's gonna be very difficult for it to do,
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  particularly as the competitors,
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  university of Pittsburgh Medical Center and the University of Pennsylvania
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  are acquiring medical groups surrounding them and trying to take market share
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  away from them.
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  Mm, that's a great point that yeah, as these, as the rise ant grows,
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  they are entering a very highly competitive area. Uh,
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  you just mentioned with U P M C as well. Um, we,
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  we heard Greg Adams last week or a few weeks ago, excuse me,
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  at AIPs 2023 conference, talking a little bit more in detail about this,
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  about this deal, about how this isn't meant to be the,
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  the replication of Kaiser Permanente in Pennsylvania, but,
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  but like you just said, Robbie, uh, spread of value-based care, um,
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  into other areas. Um, so a spreading of the Kaiser model.
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  Um, we are of course, we're seeing non-health systems, UnitedHealth Group,
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  CVS Elance slash Anthem,
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  they're continuing to grow into non traditional,
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  what they started as as insurance companies. Um,
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  they're healthcare service giants now that have incorporated the insurance piece
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  of the business, the care delivery side, and a heap of other services,
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  of course. Um, so, so I guess the question naturally is,
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  is this the model of the future for everybody? I.
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  Do not believe so because to me,
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  Kaiser Permanente is successful only because it has
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  the combination of the insurance, the hospital and the medical group.
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  And when you don't have all three of those fully aligned,
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  I don't think you see a major change in performance. And as you've noted,
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  given all of these changes in the healthcare world,
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  what did the government, uh,
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  published last week that by the year 2031
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  healthcare will be $7.2 trillion, right?
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  And a consumer is 20%. Now we can debate whether that's accurate or not,
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  but that view that basically what exists today isn't going to turn
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  the trend in the right direction. It's not gonna raise quality, improve access,
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  and lower cost simultaneously. I don't, I don't,
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  I maybe the future of the current incumbents,
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  but as you mentioned earlier,
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  I think the real future is going to come through the retail giants only because
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  the people inside the industry aren't going to do what's needed.
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  And there, what you see is you see the Amazons, the cvs,
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  the Walmarts acquiring all of the pieces, a pharmacy,
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  a delivery system, a home health system, an insurance arm,
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  or they'll be looking to do it through self-funded insurers,
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  and they're not gonna contract with all the doctors in the community,
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  and they're not going to contract with all the hospitals.
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  And they're gonna find centers of excellence able to do superior total joint
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  outcomes at 40% lower prices.
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  And this is gonna be the disruption in healthcare, not this year or next year,
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  but somewhere in the five to 10 year range.
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  And if you look at what every one of them is focused on Medicare
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  Advantage, why? Well,
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  it's possible we could debate the fact that it's has excellent revenue stream
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  that's been talked about as being fairly high.
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  But more importantly,
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  I think they're doing it because it's the inroad to capitation,
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  the only fully capitated program outside of a Kaiser Permanente that I'm aware
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  of in this country, maybe Chen better or a couple of other primary care groups.
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  But that's not the model that exists. Capitation,
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  I think is gonna be the future for the employer, for the payer.
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  It's a guaranteed cost with promised quality and service.
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  It aligns the incentives to avoid heart attack, strokes and cancer.
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  It allows people to focus on patient safety early, uh,
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  access to care, to avoid complications and secondary problems.
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  I think that that's going to be the future.
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  We've talked about it for almost a hundred years,
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  but I think that's actually coming.
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  And if the government is right and healthcare costs reach
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  19.6% of gdp,
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  that will be the trigger that makes what has been a theory into practice.
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  Yeah. So capitated is the future.
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  The first tow dips into that pool has been the Medicare advantage realm
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  for most of these companies. Um, but so, so it seems fair to say then, Robbie,
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  that the traditional healthcare entities, let's say a health system,
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  the ones that are most cozy with these retailers,
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  are likely going to be the most successful moving forward.
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  If you mean by that, an Aetna with cvs to me,
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  you can call it Aetna, you can call it cvs. It's going to be in essence,
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  very similar to Kaiser Permanente. Mm-hmm. ,
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  it has an insurance arm, it has, uh, you know, it acquired
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  Oak Street, it acquired signify, you look at Amazon, it acquired one medical,
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  this, this is the fully integrated model.
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  I think that's duplicating where Kaiser Permanente has been successful.
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  You know, if you look at the failures of Kaiser Permanente,
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  and there've been five or six regions that have had to close,
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  even though they're called Kaiser Permanente, that's not how they performed.
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  They were in essence,
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  fee for service models contracted with many physicians in the community
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  providing the type of reimbursement at the delivery system level that encourages
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  volume not value. So it's not what you call something,
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  it's how it performs.
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  And you can be Kaiser Permanente and fail as much as someone else,
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  but I can't see how the types of massive changes,
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  and I'm talking about 25% improvements in preventive services.
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  I'm talking about 25% fewer complications from chronic disease.
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  I'm talking about 15,
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  20% lower cost while quality and services going up.
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  When I was the CEO in Kaiser Permanence, that's what we achieved. Yeah.
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  And so it's possible, but it requires that you have the right structure,
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  the right incentives, and anyone who believes that simplify,
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  putting a label on it is going to accomplish it, is going to be disappointed.
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  Yeah. And I know you've written directly that the,
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  the ones that are gonna be most successful here are those that, uh,
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  disrupting healthcare, those that have the size, the national presence,
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  and the willingness to accept massive risk among all these changes that are
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  occurring. Um, but, but I did wanna ask you, Robbie,
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  do you think healthcare regulators are prepared to take on this new
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  environment?
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  I'm not certain what you mean by healthcare regulators. There are a lot of them,
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  obviously , uh, ,
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  they haven't stepped into stop hospital consolidation with higher
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  prices. And it's been well written about by Zach Cooper from Yale. Mm-hmm.
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  , uh,
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  how much higher the costs are in communities that are consolidated versus not
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  consolidated. Um,
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  they've made some small steps in different locations,
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  and there's obviously a lot of state regulators and other regulators.
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  So I'm not sure that they're ready to handle the challenges of
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  healthcare overall. Even Medicare that should be able to lead the way.
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  It's these tiny steps. NIPS and macro. Yeah.
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  8% here and 4% there.
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  What you have to fundamentally shift the entire
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  structure that exists,
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  you have to have all your providers being capitated at the
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  delivery system level, including doctors in hospitals.
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  And the thing about these large organizations, remember Forbes,
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  fortune 500 came out, I think two weeks ago,
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  and of the six largest companies in the United States based upon
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  revenue, four of them are in the space. Amazon, cvs,
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  Walmart, and United, that's now the partner of Walmart. These,
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  these companies have the resources to weather the transition.
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  And I know that Becker's focuses tremendously on hospitals.
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  The problem when moving from fee service to capitation for a hospital is
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  that in year three or four,
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  you're gonna have half of your beds empty until you get market share.
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  And transitioning through that, I'll call it the next five years,
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  bankrupts them. They just can't survive the transition.
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  And I think that's why a lot of delivery systems, hospitals,
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  health systems don't do it. They just can't figure out how they can,
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  they can see the other side across the chasm,
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  across the massive value valley. They just can't get there.
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  They don't have a bridge to get there.
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  These companies have the dollars to do it. Now, whether they will or not,
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  that's a different question. Many of them are going to be publicly traded.
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  They're gonna have shareholders. They're not gonna want to see the income drop.
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  We're seeing layoffs in a few of them. So we don't,
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  I don't think it's in any way certain,
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  but I can't imagine that our nation will be able to tolerate
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  7.2 trillion.
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  That's 3 trillion more than today.
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  Imagine what we could do that in this country to be able to change,
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  uh, impact the social determinants of health, racial disparities,
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  education every, almost everywhere we look,
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  that money could be better spent than essentially getting the same healthcare as
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  today simply for $3 trillion more.
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  Absolutely. Well, you've teed me up perfectly, Robbie,
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  by talking about our focus on hospitals for all the
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  hospital and health system leaders listening to this all over the country right
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  now. Your final thoughts,
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  your final pieces of advice for them as they navigate this changing
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  environment and they, they watch these companies,
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  these health service companies look to dominate the entire healthcare spectrum.
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  Your final thoughts for them?
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  My first thought is they all should read Clay Christensen's book on disruptive
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  innovation and ask themselves,
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  why is healthcare going to be different than
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  all these industries?
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  And he has 20 or 30 of them that saw the same process
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  of ever a higher cost without conglomerate value and someone being
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  able to come in the marketplace and just disrupt it.
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  Now so far, the incumbents have been so strong, and if you're an incumbent,
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  you may feel strong.
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  But that's why I think these retail giants are going to accomplish it.
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  They're amassing all the things they need not to
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  become another player,
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  but to actually replace the insurers of today,
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  replace half of the hospitals of today, replace half of the doctors of today.
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  And once disruption starts my experience and I teach you say the Stanford
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  Graduate School of Business, you never catch up. You will be gone.
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  And that may be hard to imagine given the size of some of the industry players
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  today, but if I were them,
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  I would be looking to figure out how to do capitation,
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  how to put together an insurance system with a hospital system with
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  fully capitated physicians and other clinicians at the delivery
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  system level. And I think the clock is ticking. You have five years,
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  but if you don't start in the next one or two years,
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  you're never gonna get there.
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  Fantastic. Dr. Pearl, thank you so, so,
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  so much for taking the time to be with us, to share your insights with us.
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  It is just so fascinating to hear you speak and it's such an exciting time to be
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  in healthcare. So thank you.
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  Thank you, Jacob. I appreciate you inviting me today.
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  You can tune into more podcasts from Becker's Healthcare by visiting our podcast
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  page at becker's hospital review.com/podcast.