Gregg Masters  00:10  Welcome to PopHealth Week on HealthcareNOW Radio. I’m your host Gregg Masters Managing Director at Health Innovation Media flying solo today, my partner and co-hosts, Fred Goldstein, is away. I first had the pleasure of meeting Robert Burns, PhD, the James Joo-Jin. Kim, Professor in the Department of Health Care Management and director of the Wharton Center for Health Management and Economics at the Wharton School, University of Pennsylvania at the 19th population health colloquium in Philadelphia earlier this year, amidst a seemingly constant drone of hype in the healthcare transformation and innovation space Burns offers observations rooted in empirically sourced facts with other industry colleagues, the likes of Stephen Shortell, Martin Gainor and Limor Daphne to name a few, Burns advocates a show me the proof way to detect a growing volume of quote, BS in healthcare, unquote, often based on unproven claims, fueling massive vertical integration of health systems and health plans, as well as the more recent wave of unusual M&A activity between the healthcare and tech sectors. In one example, Burns offered compelling testimony to the California Department of Insurance in 2018, opposing the then proposed merger of Aetna into CVS Health a matter that remains somewhat unsettled litigation wise to date, let’s start with healthcare mergers across the value chain, there’s been quite a bit of activity since the 90s, from the traditional horizontal plays to more recent, perhaps riskier forays into vertical integration. So is there value here? What do we know?

Lawton Burns  02:08  Well, if you rely on the research, the research record, track record, you can’t say that there’s any value there, I’m not saying there isn’t. Because a lot of these things are just way too new to decide one way or the other. And I’m specifically referring here to the you know, the Optum and DaVita, Aetna, CVS, Express Scripts with Cigna. And then you have a whole bunch of other players who are vertically integrating, you know, those things are two new Amazon PillPack. Those things are just way too new. But if you if you think about the other types of vertical integration that have been taking place at the same time, and that also occurred in the 1990s. And those would be vertical integration, mergers between hospitals and doctors, providers and health plans. We have a boatload of research experience there. And almost uniformly the research evidence is negative, suggests the things don’t add value, and oftentimes, they, they, they lose value, and they also increase costs and sometimes even reduce quality. So they do sometimes just the opposite of what we hoped they would do. So so the evidence from the payer and the provider world of vertical integration isn’t very, very favorable. A colleague and I’ve just finished a book probably won’t be out for another nine or 10 months, just updating all the evidence starting in the 1990s going into today, and nothing has changed. The research track record just isn’t as promising is, you know, people say is where people hope it would look like when we get to these new mergers, you know, between these somewhat disparate parties like Optum and DaVita up between Aetna and CVS. There’s much less research track record to go on. But you start looking at these vertical integration mergers. You know, I can’t help but be skeptical because these mergers are oftentimes predicated on a bunch of assumed efficiencies and benefits for which there’s very little evidence.

Gregg Masters  04:26  So let’s back up and maybe go on the front end of this which is and perhaps for those who may not get the whole vertical integration or consolidation strategy, maybe a few words about that, but didn’t this start? Now actually, two questions didn’t start essentially with vertical integration in the non initially the for-profit healthcare sector in the early days, American Medical International National Medical enterprises Humana, which was once a hospital management company, and then the VHA and their broad representation in the nonprofit 501c(3) marketplace, started selling the value prop as consolidation, more services, greater access, and better quality. And that was the selling proposition. And then right after that came the follow-on there of bridging into the payer space where you would getting major health systems doing provider-sponsored health plans, assuming risk, and then the big risk pushback in the 90. So let’s start there. If the value prop quoted to for a go decision on making these things work, just as it isn’t in evidence from a community benefit and general value prop thesis, why would they continue? Why are we seeing them? Why are they continuing? Why are they actually accelerating into marriages between nonusual suspects, such as the ones missing today?

Lawton Burns  05:59  Okay, well, first off your historical Chronicle. And timing is correct. We did start off in the 60s with the mergers of AMI having the formation of AMI, HCA, National Medical enterprises, Humana entered in the 1970s. And then you had the nonprofit hospital chains form and as well as their group, purchasing organizations and 70s in the 80s. Those were all horizontal mergers. Those are mergers of companies that do the same thing. So hospitals with hospitals, what happened in the 1990s is they added on the vertical dimension, along with the horizontal dimension. And that’s where the hospitals get into the physician business, the hospitals get into the health plan business, I have a bunch of health plans to get into the physician business. Some places do all the above hospitals get into physician and the health plan business, that all happened in the 1990s. And those most of those things just did not work well. And we knew that by the end of the 1990s, there are several literature reviews going on. So you’re asking, you know, so if all that is true, by the way, the horizontal mergers, did not increase quality and did not reduce cost. The vertical mergers did not increase quality and did not reduce cost. Some of those mergers benefitted the parties doing them. So for example, hospitals that formed hospital systems in the 90s, by the early 2000s, they were able to exert market power over the local insurance companies and increase their rates. That’s the major reason why they did them. So they those horizontal mergers benefited the hospitals doing them. And so that’s why they continue to do them. It’s basically to squeeze as much margin out of the commercial tears in the local market, because you don’t have any leverage with Medicare and Medicaid. So that’s why the horizontal mergers continue. The vertical mergers came and went in the 1990s. And they come back with a vengeance after 2010 with the Affordable Care Act, and the hospital merger start coming back as well. And I think what you have there is these these Horizontal and Vertical, Vertical mergers, keep reappearing every time you have federal health care reform, or the threat of federal health care reforms. So, you know, in the 1960s, you had Medicare that prompted the first set of mergers. In the 1990s, you had the Clinton health plan, which threatened a lot of regulation posed a lot of uncertainty that that sort of sparked a whole another series of horizontal and vertical vertical mergers. 2010 to the Affordable Care Act that sparks yet another wave of horizontal and vertical mergers. So you know, the light motif there as well, you know, my gosh, the the government’s doing something to shake up the ecosystem. Not sure what’s going to happen, but maybe there’s safety in numbers. So it’s like our herding instinct, you know, so that that would be one rationale for it. A second rationale is maybe people see an opportunity, given new payment models to put together new types of provider networks, provider and payer networks, a shift to Value-Based Payment, you know, the need to move patients to higher-quality, lower-cost settings, which, you know, could be one reason for the Humana Kindred deal. And so on. These these legislative changes, sort of alter the thinking of the incumbents in the hospital, physician payer landscape, they end up doing new strategies to try to hopefully take advantage of these changes. I think oftentimes they missed the mark. Or sometimes it’s just it’s just as simple as thinking, well, if I’m big, big in size and diversified and services, I’ll be able to weather whatever the storm is.

Gregg Masters  09:55  And all of the incentives seem to reinforce those strategic decisions, particularly roll-ups at the vertical if non-horizontal level, but if they’re not delivering on the goods, in other words, where’s the beef? Why does this continue? And where’s the accountability of health care leadership?

Lawton Burns  10:16  Well, you know, let’s be, you know, this thing I deal with here in class at Wharton. I mean, these healthcare executives are accountable to their boards, the boards are sometimes looking for their systems to survive and grow in the local market. So these could be just a local growth strategies, if they’re part of for-profit companies, you know, Wall Street values growth. And so sometimes these deals look good on paper, because you’re, you know, you’re taking earnings from one company dumping on the earnings of another company, and you’re showing growth, at least in the short term. And so growth could be valued by investors. Now that growth is not the same thing, as you know, what’s the benefit to society? You know, in society, we sort of refer to the three major goals of a healthcare of our healthcare system, as cost, quality, and access, are we doing something to control the rate of increase in costs? Are we doing something to improve quality? And are we doing something to improve the public’s access to care, and then, you know, with the triple aim, which is the new kid on the block, you know, we’re also trying to improve the patient’s experience of care, as well as try to improve population health. Well, you know, you put all those things together, those five different, you know, societal goals. And that that’s a lot, a lot of freight for these mergers to be carrying. And, you know, to be honest, I don’t think these mergers are done with an eye towards improving any of those five things. I think they’re designed to ensure your survival, improve your survival prospects in the local market, maybe edge out a competitor, maybe increase your market power over the local payers, maybe it’s designed to develop, you know, an extended sort of network, and capacity of services that appeals more to the people upstream and downstream from you that you contract with the basically to drive more business, more volume, more revenues. It’s along these lines, there’s an interesting survey that was conducted a week or two ago by Health Leaders, basically saying that hospital CEOs are more interested in growing revenues than cutting costs, I think, I think that’s been going on for decades. And in some ways, you can’t blame them, because their constituents and their stakeholders and their shareholders are expecting them to do that. But you know, as outsiders, we’re, we’re sort of hoping that all these strategic moves in the healthcare world would do something to address what we as a society are interested in, which is, you know, controlling the rate of increase in costs, improving quality and improving access, but does not accept that these could be just two ships in the middle of the night passing each other.

Gregg Masters  12:55  So let me ask you this with boards, whether 501c(3)  or fo-profit boards, particularly at the institutional excuse me, at the institutional system level, and their CEOs are essentially the stewards of what are limited scarce healthcare resources, how does one incorporate these broader societal benefits, specifically community return in the alchemy of their managerial focus or guidance or expertise? Is it possible to to link these two and especially now we’re hearing all this talk about moving from sick care to health and social determinants a whole wider view from a population health perspective of incorporating these I guess, metrics and KPIs at some point? Is it possible to roll this together and see some results?

Lawton Burns  13:54  Well, of course it’s possible. And, you know, I’ve been around long enough to know the the old guard and hospital administration, they were the old school. And these are people probably retired by now. But the old guard sort of got this message and felt like they were more stewards of societal resources. But I think as as those older cohorts retire, and you get these newer cohorts of executives coming in to run these systems, I’m not I’m not 100% sure they share the same values as their predecessors. I think everybody’s interested in growth and revenues and net revenues and things like that. I don’t want to you know, paint all CEOs with the same brush there probably a number of CEOs who have, you know, that the right sorts of orientations that are more community-oriented, to some extent, local communities and states, you know, taxing districts hold the hold the feet of the CEOs to the fire by threatening to revoke their tax exemption, if they don’t at least meet some, you know, minimal goals in terms of providing charity care and things like that. But that’s not necessarily the same thing as delivering on the goals of cost quality and access. I think it’s just really hard. I mean, the people who are running these systems are running these systems for the benefit of the systems. And you know, we like to think that that benefits society as a whole, but the aggregate evidence, I’m not saying that individual systems can’t or don’t do this, but the aggregate evidence suggests that they haven’t done it for some for society’s welfare in general. So can we hold them hold their feet to the fire? Yeah, but it probably takes a lot of pressure from the if they’re nonprofit hospitals, the local boards to get them to act more this way. Rather than incentivizing them to grow. I just, you know, we just don’t know a whole lot about the board’s and nonprofit hospitals and just what kind of oversight they put on the the CEOs running those systems, the CEOs are very powerful people. And in addition to that, they have more information on these systems than the people on the board, unfortunately, can more be done. Sure. Doesn’t happen. It doesn’t seem to be happening on mass.

Gregg Masters  16:06  Yeah, I’ll date myself with you on that representation as well. There was once upon a time the division of the three-legged wobbly stool of sort of baseline hospital nonprofit typically, Governance.

Lawton Burns  16:19  Sure that was that was Richard Johnson’s article back in the 70s.

Gregg Masters  16:23  Right, exactly. So it hasn’t gotten any more stable, because it’s essentially the same model today.

Lawton Burns  16:29  Well, I think it’s just one leg of a stool. Now that three legged stool for your listeners, there used to be this uneasy division of labor between the board the CEO, you know, the C suite and the medical staff. And historically, over time, the way hospitals developed, it was the board that raised the money and ran the place in the early 20th century, then, with the rise of the medical profession, and the admission of paying commercial insured patients, physicians kind of ran the joint. And then starting in the 70s, in the 80s, with all the cost containment initiatives and all the regulatory initiatives, you had to have more representation in hospital administration to oversee all these Regulatory Affairs and meeting them. And so the C suite became a lot more important. I think what’s happened over time is that the board has sort of withdrawn from actively running or managing the institution. And the physicians certainly have their hands full just being trying to be productive, and managing incomes that are largely flatliners. And so I think the C suite has basically now in command of the ship, and these are clearly now business enterprises, whereas 40 years ago, they were more community-based, community-oriented enterprises. I don’t think there’s any doubt about that.

Gregg Masters  17:45  Oh, and that’s for sure. And and what do you think the What am I call it direct contracting 2.0, where the employers are basically saying, you know, what, we’re just you third parties, large group, multi-group, whatever, under Administrative Services Only contract you don’t have, you’re not in alignment with our incentives. So we’re just going to go direct. So you think this, this rediscovery of direct employer contracting, might somewhat tame the beast?

Lawton Burns  18:16  Well, I’m glad you use the word rediscovering because we tried that, you know, 20 years ago, I remember, I actually had the people come to class, at one point in the 1990s, Chrysler Corporation was trying to do direct contracting with providers with hospitals and physicians and the insurance companies and have value-based and value chain networks, like they did with their auto suppliers that, you know, the the effort was short-lived, it was a nice asset, it was nice aspiration. I just don’t see employers, you know, having sustained interest in doing this, you know, their interest in health care costs, waxes and wanes with the underwriting cycle and insurance, you know, as premiums go up, employers get engaged, when premiums, the rate of increase in premiums goes down, employers become less engaged. And that’s just been going on for decades. And then you know, that it’s not like the health plans don’t provide a valuable function. I’m not here to defend them. But I teach a whole course on managed care. And so I understand the insurance companies really well. And you know, they provide a valuable function that basically no one else wants to provide and no one else really can provide. So I don’t think they’re going to go anywhere. I don’t think employers are really going to disintermediate them too much. You have some, you know, initiatives at the fringe. You know, you have some big box retailers, perhaps contracting with the Cleveland Clinic for CABG surgery, you know, things like that, but I don’t think you’re going to see anything widespread there. You know, it’s just a lot of heavy lifting. And it’s a thankless task to do what the insurance companies do for such a low margin.

Gregg Masters  19:52  Yeah, and those center channeling to centers of excellence, you know that that’s not innovation. We’ve known about that for decades. So ,

Lawton Burns  20:00  yeah there’s nothing new here.

Gregg Masters  20:02  Yeah, there’s nothing new here. So let’s go back just to the impetus afforded by the Affordable Care Act to sort of push the mergers and acquisitions mode into higher gear here, spinning off ACOs, maybe energizing Medicare Advantage. What do you see with all the with where we’re at, in this ambiguity around health reform and health policy, given the Trump administration sort of, I don’t know, a serial direction here. What do you see as the likelihood that essentially the two workhorses ACOs are gonna move across the risk spectrum to become more like Medicare Advantage plans, a aka gatekeeper model? HMOs. Do you think there’s a there? You think that’s going to inform and shape some of the M&A we see and and maybe a commentary about a company like Aledade, you know, which is an ACO management company leveraging tech and aligning incentives with results to grow independent practice in an ACO model? What are your prospects for that?

Lawton Burns  21:10  Well, you just asked me a boatload of things. First off, the ACOs were developed under the Affordable Care Act, they actually had some progenitors, but they were pushed by the Obama administration as a alternative to Medicare Advantage, because Medicare Advantage back then was viewed as something that George Bush Jr. was pushing. And Obama wanted to push something a little bit different. So it comes up with ACO. So they’re kind of like two different ships, you know, moving along, one’s you know, dealing with the the the Medicare senior population, about 30 33% of it. The ACOs were seen as something that could be used not only in Medicare, with the Medicare Shared Savings plans, but also with the commercial population. Just so your readers know where I’m coming from, I published an article in 2012, I put on my prognosticator hat. It’s published in Health Affairs in 2012, basically arguing that the ACOs, we’re going to go the way of the integrated delivery network of the 1990s, or at least we’re at, we’re under serious threat of going the same way, which was south. And if you look at the latest evidence from MedPac, as well, as a study that was just released by Harvard, they haven’t saved any money, and they’ve been they’ve hardly improved quality. And so there’s no net savings to Medicare from doing this. And we’re now seven years into doing this. And so  will we do better, maybe there’s seem to be some bright lights here or there. But for all this determined drawing, and all the effort and money, we’ve sunk into the things, we would have hoped we would have seen more Medicare Advantage is a totally different beast. You know, because of the high payment rates historically, they haven’t really saved money either. But they serve as sort of a chassis for nudging the elderly into HMO plans, you know, in the biggest, the biggest managed care vehicle for Medicare Advantage is an HMO, and sort of like bringing back the 1990s and the narrow networks of providers to treat the elderly population. The one issue there is that they seem to suffer from favorable not suffer, they seem to enjoy favorable selection. In other words, the patients who use the Medicare Advantage plans tend to be a little bit healthier than the ones who stay in fee for service Medicare tend to be sicker because they want freedom of choice. So the jury’s still a little bit out on whether or not that’s gonna, you know, deliver the goods to so those are, those are two of our biggest organizational initiatives going on right now. We have a whole bunch of others. But you know, we we wrote, We published a paper a colleague and I, last year on whether or not all this quote-unquote, transformation is really transforming the healthcare industry. And we came to the sad conclusion that it isn’t, and we we barely, you know, gone down the runway, let alone You know, wings up and we’re flying off into the bright new future. I think we have a long way to go. And that brings me to the Aetna CVS merger. If you look at the they a week or two ago, CVS had its annual investor day. And they had this enormous deck of presentation slides. And if you look through that deck, it talks how CVS is going to drive long-term value and it’s through the magic word transformation. And so if you read through that deck, you know you’re my eyes start to roll because I’m thinking, how are you going to transform the healthcare system? By focusing on minute clinics in your local pharmacy, it just didn’t seem like the obvious point of leverage to improve quality, reduce costs, but they’re basically putting a lot of their the a lot of eggs into the consumerism basket. They want to transform the patient’s experience of care. And and things like that hopefully reduce cost, improve patient satisfaction, customer loyalty, and hopefully drive transformation that way and maybe use the, the stores and the the assets of Aetna to, to provide some new analytics solutions. And, you know, big data plays and stuff like that to deliver the goods. You know, to me this, this is all such pie in the sky and really speculative. So, every time I hear the word transformation, and everybody uses it, my eyes just roll because I don’t think most people have a clue as to what really transforms healthcare.

Gregg Masters  25:46  So in our few remaining minutes here, how does one vet, you know, signal from noise here, because renting transformation is so called innovation. And now everybody is innovating and refresh this little result is in evidence, as far as I can tell, how can people sort of discern what is BS from viable places to put your cards?

Lawton Burns  26:11  Well, I’m glad you brought up the word BS, because no, it gives me Look, I’m from the Wharton School. This is President Trump’s alma mater. We’re into shameless self promotion here. We we issued two reports at the end of 2018 and early 2019, you can get them online from the Leonard Davis Institute. They’re entitled Detecting BS in Health Care, what we do in those two reports is we enunciate 21 different ways to spot BS, they’re usually code words or code phrases or ideas. And these I’m not just picking these things out, I’ve been teaching in the area of health management and health care management for the last 40 years. This is drawn on academic research, a lot of experience in dealing with the healthcare industry, and there are 21 different signs that if you hear these things, in a strategy presentation, or something that’s pitching, you know, here’s the initiative we ought to follow, it’s time to get on your your skeptics hat and ask people, what’s the evidence for what you’re saying, I always tell my students, you know, they, they have to have two words on their mind whenever they go to class or whenever they listen to any presentations, those two words are prove it. And remarkably, very few people who spout this stuff can prove it. And to me, that’s always a danger sign if people can’t prove it. I don’t know why they’re saying it

Gregg Masters  27:38  and very quickly, just the sense of what are the prospects for these mergers of unusual partners, ie tech with health financing or numbering?

Lawton Burns  27:49  Yeah, I said that tech, I was just teaching on the tech stuff last week, though, a major pharmaceutical company, because a lot of that tech stuff could potentially quote-unquote, disrupt their business too, especially dealing with patients and consumers. I mean, the promises of tech disrupting healthcare are long off. There’s, there’s a lot of talk about it, and you can get into artificial intelligence or all the other things. Those things, you know, have limited applicability right now, I’m not saying they won’t have an impact down the road. But I think people overemphasize their impact right now and perhaps underemphasize it, you know, decades from now. But I think in the short term, it’s not as disruptive as people think. We’re, we’re not even sure if Amazon and PillPack is going to be that disruptive. Let the wait and see. And

Gregg Masters  28:36  that will be the last word on today’s broadcast. I want to thank my guest Robert Burns, PhD, the James Joo-Jin Kim Professor in the Department of Health Care Management and director of the Wharton Center for Health Management in Economics, University of Pennsylvania. For his time and insights today, do follow Professor Burns most recent work via searching for quote Detecting BS in Health Care 2.0 and until we meet again on PopHealth Week for Robert Burns, PopHealth Week, and HealthcareNOW Radio, this is Greg master saying bye now.