Tag Archives: chase

Is This the Largest Undisclosed Risk?

The Employee Retirement Income Security Act (ERISA) has been around since the Ford administration. Most people know the law in relation to retirement benefits, but it’s emerging as an unexpected, yet high-potential, opportunity to drive change in the dysfunctional U.S. healthcare system.

The law sets fiduciary standards for using funds for self-insured health plans, which is how more than 100 million Americans receive health benefits. Health plans for wise companies with more than 100 employees are self-funded because they are generally less costly to administer. As a result, more than $1 trillion in annual healthcare spending is under ERISA plans or out-of-pocket by ERISA plan participants. While it’s roughly one-third of healthcare spending, employer/union-provided health benefits likely represent more than two-thirds of industry profits as they wildly overpay for healthcare services because of the misperception that PPOs help save them money. In reality, PPO networks cost employers/unions dearly.

This overpayment makes ERISA plans an attractive target for operational efficiencies. Healthcare is the last major bucket of operational expenses that most companies haven’t actively optimized (they’ve already optimized operations, sales, marketing, etc.). For those that don’t get on top of this, it could also be a source of significant potential liability for companies and plan trustees. We are already aware of the ripple effect on benefits departments — one entire benefits department (with the exception of one person) was fired when the board realized the lack of proper management.

See also: ERISA Bonding Reminder  

ERISA requires plan trustees to prudently manage health plan assets. Yet very few plans have the functional equivalent of an ERISA retirement plan administrator who actively manages and drives effective allocation of plan investments. This person (or team) would have deep actuarial and healthcare expertise to enable them to deeply understand and negotiate potential high-cost areas of care, something traditional human resource departments lack.

At the same time, it’s broadly estimated that there is enormous waste throughout the healthcare system. The Economist has reported that fraudulent healthcare claims alone consume $272 billion of spending each year across both private plans and public programs like Medicare and Medicaid. The Institute of Medicine conducted a study on waste in the U.S. healthcare system and concluded that $750 billion, or 25% of all spending, is waste. PwC went so far as to say that more than half of all spending adds no value. It’s impossible to imagine any CEO/board allowing this in any other area of their company.

Increased outside scrutiny on how ERISA-regulated health plans spend their dollars could create immense potential liability for both company directors and health insurers across the country. Nationally prominent lawyers, auditors and others are catching on to this and are taking action to get ahead of it or are advancing potential new categories of litigation that could result in hundreds of billions in damages.

In just the last couple of months, we at the Health Rosetta Institute — a nonprofit focused on scaling adoption of practical, nonpartisan fixes to our healthcare system — have learned of some key events that will likely further increase scrutiny on ERISA fiduciary duties.

First, two Big Four accounting firms have refused to sign off on audits that don’t have allowances for ERISA fiduciary risk. A senior risk management practice leader at one of those firms told a room of healthcare entrepreneurs and experts that ERISA fiduciary risk was the largest undisclosed risk they’d seen in their career. As more accounting firms start to require this, it will change how employers manage ERISA health plan dollars.

Second, independent directors have quietly sounded the alarm to three company auditors about this growing issue, recognizing the potential for personal financial liability that director and officer insurance policies may not cover. We expect to see more of them focusing on this issue, given that healthcare spending is roughly 20% of payroll spending for most companies.

Third, attorneys are building litigation strategies around employers filing suits against their ERISA plan co-trustees (the plan administrators who actively manage the plan’s health dollars) alleging they breached their ERISA fiduciary duties by turning a blind eye to fraudulent claims. We expect the first of these cases to be brought this year and expect to see significantly more in the next couple years. One firm we’re aware of is working on cultivating dozens of these cases.

The implications of this third trend could be enormous. If boards and plan trustees know fraud could exist and don’t take action to rectify the issues, they could open themselves to liability from shareholders and plan beneficiaries. The scale of damages just for fraudulent claims could be on the magnitude of lawsuits over asbestos and tobacco. A very conservative estimate of what percentage of claims are fraudulent is 5% (many believe 10-15% is more accurate). Employers spend more than $1 trillion per year on healthcare. If you take the low-end estimate (5%) and extrapolate over the statutory lookback period for ERISA (six years), that would be $300 billion.

These legal threats could force employers to actively manage health spending the same way they manage other large operational expenses. We’ve already seen companies doing this, reducing their health benefits spending by 20-55% with superior benefits packages.

Employers use a variety of approaches, but most are relatively straightforward and focus on proven benefits-design solutions that make poor care decisions more costly and better care decisions less costly to encourage the right behavior. Most importantly, they don’t focus on shifting costs to employees. This cost-shift to the middle class has devastated the American Dream and was the backdrop for the populist campaigns that were badly misreported (in terms of their root cause).

See also: Solution to High-Cost Indemnity Payments?  

Three high-potential areas for improvement include actively managing high-cost care to move it to high-quality, lower-cost care settings; directly addressing drug costs; and creating incentives for wise care decisions. Here are a few repercussions these changes may have for companies and investors:

  1. As more procedures move from expensive hospital settings to lower-cost independent ambulatory surgery centers, this means lower margins at for-profit hospitals, threatening return assumptions on hospital revenue bonds and growth potential for ambulatory care categories.
  2. Tackling pharmacy spending puts downward pricing pressure on pharmacy benefits managers. An indirect example of the consequences of this is the face-off between drug middleman Express Scripts Holding Company and health insurer Anthem. In the next quarter, a statewide health plan is doing a reverse auction to select their next PBM. It’s hard to imagine the incumbent PBM will be willing to drop its pricing and rebate games for a high-profile public entity.
  3. More active management of healthcare, self-insurance and lower costs by employers reduce revenue and margins at public insurance companies, threatening core revenue streams. This is compounded by self-insured employers moving to independent plan administrators not tied to traditional insurers.

Surprisingly, the most sustainable and high-impact of these approaches will benefit employees, as well. Most wasted spending in healthcare that directly affected patients is the result of overuse, misdiagnosis and sub-optimal treatment.

Time and again, we’ve found that the best way to slash costs is to improve health benefits.

And isn’t better healthcare at a lower cost the best outcome for all of us?


This article was also written by Sean Schantzen, who was previously a securities attorney involved in representing boards, directors, officers, and companies in securities litigation and other matters including some of the largest securities cases in U.S. history.

An earlier version of this article was also published on MarketWatch.

3 Trillion Reasons Against Change

With 3 trillion reasons ($$) to protect the status quo, it should be no surprise that employing frontal assault on healthcare would be laughably ineffective. This would be like the revolutionaries battling the British army via a frontal assault. One could argue that top-down, governmental efforts to reform healthcare are experiencing what happens through a frontal assault — fierce resistance, rage and lobbying to name a few. Rather, there are two overriding drivers to how the Health Rosetta Institute (HRI) is approaching the daunting challenge of attempting to transform an industry that is remarkably adept at preserving a wildly under-performing status quo.

Healthcare is already fixed. Join us to scale the fixes

As we state on the Health Rosetta Institute’s website, “Healthcare is already fixed. Join us to scale the fixes.” The genesis for the Health Rosetta was my seven-year quest to find all of the solutions that are actually working. The great news is that we’ve found a wide array of pioneers who’ve proven what works in rural and urban settings, in the private and public sector, in large and small organizations and in every corner of the country. They’ve shown how to tackle even the most vexing health challenges with extremely demanding populations. These are the sorts of things I capture in my forthcoming book, CEO’s Guide to Restoring the American Dream: How to deliver world class healthcare to your employees at half the cost. This is a contrast to what’s happening in DC, which is largely moving deck chairs around on the Titanic debating who pays for a “morbidly obese” healthcare system that is the third leading cause of death (due to preventable medical mistakes) despite pockets of brilliance in our system.

Community-driven change from the bottom-up: A network of networks

We believe in community-driven change from the bottom up. Central governments have largely reached the limits of what they can achieve, so community-level change is where the real action is. Bruce Katz articulates this in his book, “The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy.” Social-impact-investing pioneer Chris Brookfield has put this approach into effect in areas ranging from microfinance to local food production. “Community” can be defined as an employer and its employees, a town, a neighborhood or a group of five women. These are local networks able to drive change in their sphere of influence.

See also: A Caribbean Hospital: Healthcare’s Solution?  

Nothing about the Health Rosetta is employer-specific or even U.S.-specific. However, employers and unions are two communities that have an imperative to change. The smart ones are embracing that opportunity and spending 20-55% less on health benefits with spectacular benefits packages. A key reason that the goal of universal care is feared by some is that both the private and public sector versions of healthcare in the U.S. have out-of-control costs. Government entities themselves are huge employers. With few exceptions (Kirkland, Milwaukee and Pittsburgh are examples of how to do things right), public sector employers are just as bad at purchasing health benefits as any private-sector employer. Even when there is political will, such as in Vermont, efforts at universal coverage failed as unaffordable. For those seeking universal care as an objective, a logical path is for it to start with public-sector employees in high-value benefits programs. Once proven there (like Kirkland, Milwaukee and Pittsburgh), extend to state-based programs such as Medicaid, and then there will be a large body of evidence that it won’t bankrupt citizens. In fact, it will do quite the opposite if the smart path is chosen.

The Season of Resilience

Speaking broadly, Brookfield points out how 1950-2001 was the Efficiency Era – or what he calls “The Great Moderation” that had key attributes such as conglomeration and centralized production and control. 2001-2016 was about hierarchies fracturing with tumult such as Brexit and American populism that led to the success of the Sanders and Trump campaigns. Hierarchies are fracturing in healthcare such as an explosion in employers taking control of their healthcare spending and doctors leaving insurance-centric practice models — in both cases, they’re cutting out middlemen that are out of touch with specific communities.

Looking forward from 2017 is what Brookfield calls the Season of Resilience, where geography is resurgent and grassroots is the dominant lever of change. Just as the electrification of America happened at different rates in different locales, the move toward Health 3.0 will happen in some geographies faster than others. However, we draw from the lessons of the Internet and open, distributed systems, which is a network of networks. For too long, healthcare has operated as a set of isolated tribes with limitations on tribal knowledge being passed around slowly. We believe the Health Rosetta Institute’s greatest value is serving as a network of networks to accelerate the dissemination of proven approaches that can then be adapted to local market conditions. The first network we’re building, due to their outsized influence on the health ecosystem, is benefits consultants. Despite not promoting it at all and it being buried on our website, we’re getting tremendous interest in our first phase rollout.

One of the individuals most responsible for the explosion of Internet growth was Tom Evslin who has a blog called Fractals of Change. The depiction of fractals show how a fractal is a never-ending pattern (click for an interactive version). Fractals are infinitely complex patterns that are self-similar across different scales. They are created by repeating a simple process over and over in an ongoing feedback loop. Driven by recursion, fractals are images of dynamic systems – examples include trees, clouds, coral reefs and the Internet in a virtual context.

Another visual is at the heart of the approach we’re taking with the Health Rosetta. The non-profit institute is gathering and sharing insights in an open, distributed manner. It has a sister organization, the Health Rosetta Group (HRG), that is focused on bringing capital to ideas that fuel the positive transformation of the health ecosystem. Brookfield created the graphic depiction below to describe how his social impact investing approach is replicated in a distributed manner. Health and healthcare are very local but there are approaches that can be shared to rapidly accelerate transformation.

Graphic courtesy of Chris Brookfield

The HRG believes sustainable investing requires focus on a particular region/sector with an eye towards social and economic benefits that reflect aligned values. It has a long-term focus that taps motivated local entrepreneurs to create businesses that enhances economic resilience which creates sustainable economic development (“Economic Development 3.0”). These emerging organizations are strengthened through local business and ultimately can create value for investors that ensures long-term resilience of local interests. We believe the path to optimizing health is a move away from centralized massive assets whether that is massive food production producing low-value food or massive medical centers that produce high volumes of low-value procedures (e.g., where 90% of spinal procedures were of no help). A strategy that is more aligned with community interests will deliver resilience, variability and locality that is part and parcel of Health 3.0.

See also: Healthcare Buyers Need Clearer Choices  

I wrapped up by TEDx talk with the following that seems appropriate here:

For too long, we’ve let healthcare crush the American Dream. We can’t stand for 20 more years of an economic depression for the middle class. No country has smarter or more compassionate nurses and doctors and no country has more innovators that have reinvented our country time and again. In every corner of healthcare, people went into healthcare for all the right reasons but perverse incentives and outdated approaches have shackled them. Whether we knew it or not, we all contributed to this mess. Now, it’s on us to fix it. When change happens community by community, it’s impossible to stop. Yes, healthcare stole the American Dream. But it’s absolutely possible to take it back. Join us to make it happen in your community.

We are working on catalytic events to accelerate the change. The institute is helping raise awareness of the rising risk to corporations and boards that will compel them to act. In parallel, we continue work on The Big Heist film (think The Big Short for healthcare) that will wake up America to the greatest heist in American history.

Please share Ted talk: Healthcare stole the American Dream. Here is how we take it back. Sign up for The Future Health Ecosystem Today newsletter to be in the know about healthcare’s future.

A New Focus for Health Insurance: ‘Negaclaims’

Historically, the “do more, bill more” fee-for-service model of healthcare measured success by increased billings. In the fee-for-value era, we need a new framework for assessing healthcare results. Quality indicators are logical, but they are mostly geared toward measuring actions taken. We can borrow a concept from the energy sector for an additional metric.  We need a concept for removing waste and unnecessary care that could be inspired by a concept from the energy sector described in this blurb from Wikipedia for something called Negawatts.

Negawatt power  is a theoretical unit of power representing an amount of energy (measured in watts) saved. The energy saved is a direct result of energy conservation or increased energy efficiency. The term was coined by the chief scientist of the Rocky Mountain Institute and environmentalist Amory Lovins in 1989, arguing that utility customers don’t want kilowatt-hours of electricity; they want energy services such as hot showers, cold beer, lit rooms, and spinning shafts, which can come more cheaply if electricity is used more efficiently. Lovins felt an international behavioral change was necessary in order to decrease countries’ dependence on excessive amounts of energy. The concept of a negawatt could influence a behavioral change in consumers by encouraging them to think about the energy that they spend.

The healthcare parallel would be a “Negaclaim™” — i.e., an unnecessary claim avoided. This isn’t about simply denying care. Just as consumers aren’t interested in kilowatt hours, patients aren’t interested in claims — they want health restored and diseases prevented, which can be done more efficiently and effectively. When individuals are fully educated on the trade-offs associated with interventions, they generally choose the less invasive approach. A nice byproduct is that the invasive approaches are frequently more costly and medically unnecessary. The following are a few of many examples of how unnecessary care can be eliminated while improving the patient experience:

  • Day-to-day and chronic disease care: One of the key reasons Direct Primary Care (DPC) has proven itself to be the Triple Aim  leader is that a proper primary care relationship involves time spent with patients to explain trade-offs of various medical options.  Without incentives to push for “more,” DPC providers have demonstrated that they can reduce unnecessary utilization by 40-80%. By contrast, “hamster wheel” primary care has effectively turned primary care into 7-minute, drive-by appointments that leave little time to do anything but direct patients toward additional costly items, whether it’s ordering a prescription, test, hospitalization or specialist visit. In many cases, those could be avoided with a robust primary care relationship.
  • High Cost Procedures: Leah Binder wrote about what major employers such as Walmart, Loews, Pepsico and others are doing to reduce risk to their employees while also saving money, in What We Can Learn From Walmart: How Our Healthcare System Can Save Lives and Dollars. Employees found that 40% of the transplants that were recommended by local hospitals were deemed medically unnecessary by top physicians at the Mayo Clinic and other nationally renowned facilities. Employees were thrilled to avoid risky (and expensive) procedures. It also sent a great message to employees that their employer valued them enough to send them to the best medical centers in the world for second opinions.
  • End of Life: Quality of life is affected dramatically by the end-of-life decisions we make. This was outlined in How Not to Die. The system is oriented to do more even if it is at odds with quality of life. Doctors themselves recognize this when they are the patient, as described in Why Doctors Die Differently. While quality of life is the driving factor for patients and families, there is a second-order benefit that the procedures that reduce quality of life are typically very expensive.

The problem in healthcare has been that providers have incentives to do stuff because of the flawed reimbursement models that dominate our present healthcare system. Respected studies such as from the Institute of Medicine demonstrate that there is more than $750 billion in waste. PwC stated that more than half of healthcare spending is waste. Incentives have driven providers to encourage more interventions, and consumers have been led to believe that more is better even though, in many cases, less is more.

That has added a challenge for health insurers. The general perception is that health insurers reflexively deny claims (sometimes getting in trouble for that). This has resulted in health insurers having the lowest Net Promoter Score of any industry. Consumers have clearly decided that health insurers aren’t doing this for consumer benefit. Fair or not, they have concluded it’s simply for the financial health of the insurer. Clearly, health insurers need a different approach if they want to improve their image and the health of their customers while ensuring their financial viability.

One incentive that has changed revolves around the Medical Loss Ratio (see Aetna’s explanation here).  In contrast to “customer service” reps focused on claims, an investment in patient engagement can have the same or greater effect on reducing claims while qualifying as a healthcare expense. Enter patient engagement.

Patient Engagement Is the Blockbuster Drug of the Century
Leonard Kish made the case that if patient engagement was a drug, it would eclipse all blockbuster drugs before it. Kish cited results of studies showing benefit when patients were successfully engaged in their health.

Compared to those not enrolled in the study, coordinated care “patients have an 88 percent reduced risk of dying of a cardiac-related cause when enrolled within 90 days of a heart attack, compared to those not in the program.” And, clinical care teams reduced overall mortality by 76 percent and cardiac mortality by 73 percent.

Rather than reflexively denying claims and building up a mountain of ill will, insurance companies should invest resources in helping their customers get engaged in their health. Their customers would, in effect, “self-deny” their own claims.

Note that when I describe patient engagement, I’m including family members and caregivers. Did you know that families provide care valued at more than $450 billion per year  – more than our total spending on Medicare! Thus, much of what is outlined below speaks to caregivers (particularly with elderly patients), not just the patient. Having more resources/tools as a caregiver would be welcomed, as most of us have no clinical background and are thrown into a caregiving role virtually overnight.

[Disclosure: My patient relationship management company is one of the organizations providing patient engagement tools to healthcare providers, which is why I'm familiar with these examples.]

Just about every myth has been debunked about how patients of all types supposedly won’t get engaged in their health, whether it’s low-income diabetes patients, native American populations or the elderly. However, providers are largely failing in their efforts at engaging patients as they haven’t had the incentives, tools or training.  Provider-patient communications guru Stephen Wilkins points this out clearly in a few pieces.

Despite less than stellar results that Wilkins highlights, the initial attempts by providers at engaging patients are welcomed just as a muddy puddle of water in the Sahara Desert is welcomed. However, much more can be done.

Catalyzing Patient Engagement in Health Plans’ Best Interests
A wave of new requirements and challenges have crashed on top of providers. Insurers could help if they focus in the right areas and are mindful of the challenges. JAMA recently wrote a piece highlighting one facet of patient engagement — shared decision-making (SDM). Physicians aren’t going to magically take on this challenge without a change.

The brevity of visits constrains the opportunities to address these elements of SDM. Furthermore, clinicians are not adequately trained to facilitate SDM, especially eliciting patient values and preferences for treatment.

[Note: Resources to train clinicians on patient engagement are emerging. One would expect that a host of continuing education courses will emerge. One example is HIMSS (the professional association for healthIT), which released a seminal book on patient engagement.]

In the places where providers have successfully achieved the Triple Aim objectives with challenging patient populations, they have had payment aligned with outcomes. Teams were unleashed, led by doctors, to get creative about how to tackle the challenges. While doctors are vital, they use non-physicians for a substantial part of the interaction with patients. It turns out, for example, that doctors and even nurses can be less effective at effecting behavioral change in patients than non-typical care team members. Rather than being relegated to low-level tasks, medical assistants and health coaches play a vital role in the successful models. Once again, while the goal is an improved health outcome, there is a second-order benefit that being more effective lowers costs by avoiding complications, and the medical assistants and health coaches are generally paid less than doctors and nurses. Unfortunately, in a typical fee-for-service reimbursement model, these types of services typically aren’t compensated despite their impressive results.

Dr. Rob Lamberts described this problem in detail in Washington, We Have a Problem. He summarizes the conflict between people’s desires and healthcare’s flawed reimbursement framework.

This is why, I believe, any system that profits more from people with “problems” than those without is destined to collapse. Our system is opposed to the goal of every person I see: to stay healthy and stay on as few drugs, have as few procedures, and avoid as many doctors (and drug companies) as possible.

Health insurers have implicitly viewed their customers as adversaries by creating a claim-denying framework as the default. The smart health plans will figure out how to harness the consumer goals. This isn’t some fanciful dream as it has been demonstrated (profitably, I might add) by the physician-entrepreneur organizations outlined in The Hot Spotters Sequel: Population Health Heroes.

This isn’t about minor tweaks to a fundamentally flawed model. Rather, as one physician-entrepreneur put it, too many models are “putting wings on cars and calling them airplanes.” Rather, it’s supporting proven models where they have rethought care delivery – here’s how one physician-entrepreneur describes rethinking care delivery from the ground up (video).

While financial rewards are important, most physicians are not motivated primarily by money but by autonomy, mastery and purpose. In the successful models, the physician-entrepreneurs created their own autonomy and recognized that the focus of their mastery and purpose had to fundamentally shift. A nice byproduct was the growth of “Negaclaims” as the educated and empowered patients better understood the significant risks of overtreatment and errors.

Too frequently, health plans have tried to micromanage clinical processes. With proper financial incentives combined with a move toward enabling clinical teams to become masters at driving patient engagement, the health plan is much more likely to achieve the desired outcomes. As the Stephen Wilkins pieces referenced above illustrate, clinicians haven’t been trained or rewarded directly or indirectly for encouraging patient engagement. It should be no surprise that most haven’t achieved mastery in helping their patients achieve patient engagement. Instead, the language of medicine has been punitive and demeaning, talking about “non-compliant” patients as though they were petulant criminals. That doesn’t further the partnership between patients and their care teams, which is necessary for optimal outcomes.

Previously, I outlined the strong business case for patient engagement. Those who have understood that business case have moved on to practice the 7 habits of highly patient-centric providers. It’s clear that past efforts by health plans to reduce claims have fallen short and created ill will and sub-optimal health outcomes. Putting the patient/member at the center need not be a marketing gimmick. Rather, it’s central to the notion of “Negaclaims” and to a winning strategy in the fee-for-value era.