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Three Things to Know about Herd Immunity by Dr. David Pate

Three Things to Know about Herd Immunity by Dr. David Pate

Herd Immunity for SARS-CoV-2

What is herd immunity?

The concept of herd immunity is used in the context of contagious, infectious diseases (most often viruses) and usually vaccine-induced immunity. The idea is that there are some in our population who may not be able to be vaccinated (e.g., newborns or those who have significant immunocompromise, especially when all we have is a live virus vaccine), those who can be vaccinated but may not develop a robust immune response (in some cases due to limitations of the available vaccine and in some cases the elderly who may not generate the same level of immune response as someone younger) and those who simply refuse to get vaccinated.

Herd immunity describes the point at which enough people in that population are immune (it could be through natural infection, but more often as a consequence of vaccination) that the virus cannot efficiently transmit within that population, so while a single of small group of people may be able to be infected for any of the reasons I stated above, generally you don’t see large outbreaks as we currently are for COVID.

Herd immunity helps protect those who remain susceptible to infection in the population because the large number of immune persons means that these vulnerable individuals are far less likely to be exposed to someone who can transmit the virus to them.

What determines the level of immunity a population needs to have so that we have herd immunity?

It is important to understand a few principles. First, the more contagious a virus is, the higher the level of immunity required in a population to provide herd immunity. For example, measles is one of the most contagious viruses. To avoid outbreaks of measles, we believe at least 94% of the population needs to have immunity.

Second, this was much simpler before we became a global society. Just to illustrate the point, let me make up a scenario. So, my best executive assistant ever just had a baby this month. Let’s say that in Boise, we have great herd immunity for measles. But, let’s say that she decides to go to a resort town in Idaho for the holidays later this year to be with family and to go out shopping for gifts in this resort town. However, this resort town is comprised of antivaccers, and the level of immunity is only in the low eighties. There are other visitors to this resort town and one family brings a child who develops measles while visiting. Measles begins to spread like wildfire (just to put things into perspective, measles is probably about 6 – 7 times more contagious than COVID). While my assistant’s child was not yet at the age to be vaccinated and thus remains susceptible, but was reasonably well protected in Boise, this beautiful little girl is now highly vulnerable in this community they have traveled to. So, when we speak of herd immunity, we are talking about the percentage of immunity within populations, but it is important to know that the virus can continue to spread in populations that have not achieved herd immunity, and susceptible persons may benefit from the protections of herd immunity in one population, but if they move or travel to an area with a population without herd immunity, they will have to take many more precautions since they will no longer have the benefit of protection within the herd.

Third, even within a population with herd immunity, we have examples such as religious and communal living communities within those populations with herd immunity that did not believe in vaccinations and were relatively isolated anyway because those communities were closed and not being exposed to the contagion, but later had significant outbreaks when persons form those communities made an international trip and then returned to their communal setting, bringing the infection with them.

What is the level of immunity in the population needed to protect the vulnerable from COVID?

Short answer, we don’t know. I have seen or heard projections anywhere from 10 – 90%. That doesn’t help us much.

So, most of us have most commonly heard the projection of 60% of the population with immunity to protect the vulnerable from continued outbreaks of COVID. Where did that number come from?

Well, there are mathematical models to predict the levels of immunity required for herd immunity. The simplest is the equation 1 – 1/R0, where R(R naught) is the number of people that an infected person will infect when at the beginning of an outbreak, at which time no mitigation strategies have yet been implemented. That number for SARS-CoV-2 is believed to be between 2.2 and 2.7. So, if we plug in R= 2.5, we get 1 – 1/2.5 = 0.6, i.e., the projection that herd immunity will require 60% of the population to be immune.

Now, while this is a convenient little equation, you may not be surprised to know that life is more complicated than this and that while this mathematical projection may be directionally correct, as I alluded to above, there are many factors that may contribute to what level of immunity will be required for herd immunity in different settings. For example, differing susceptibility levels in different populations could alter the level of immunity required for herd immunity. If young people are less susceptible to infection, a developing country with a much lower average age might require a lower level of immunity for herd immunity than a more advanced nation with a higher life expectancy. Social interactions can also impact this. In populations living in high density housing, significant crowding, or where people must show up to work sick in order to avoid losing employment, then higher levels might be necessary.

So, let’s go back to our equation, realizing it is not precise, it may not project the level of immunity required for populations that vary significantly from others in terms of their susceptibility, social interactions and risks for exposure, but with that said, let’s see if we can make sense of the range of 10 -90% that you can find out there, depending on whose projections you are taking.

One more thing about Rbefore we begin. If a person who is infected infects less than one person on average, the virus is not transmitting efficiently and is unlikely to produce outbreaks and community spread of the infection. In other words, with an Rof <1, we don’t have a lot of concern about the need for herd immunity. So, if Rwas 1.1 for this virus (which I don’t know anyone who believes that), then the level of immunity for herd immunity would be projected to be 1 – 1/1.1 = 0.1 or 10%. This is why I don’t currently believe that these low-end projections for herd immunity for this virus of 10 – 20%. In addition, while we still don’t know the percentage of Americans who have been infected, if you assume that 40% of all the infections have been asymptomatic (this is a reasonable assumption) and if you look at the confirmed cases of COVID in the country and if you assume that everyone who was infected is now immune (another fact that we doubt is the case), you can end up with an estimate that about 10.8% of the US population has been infected so far. Obviously, we have not achieved herd immunity as COVID cases are soaring around many parts of our country, so projections as low as 10% certainly don’t seem likely.

If you use the range that is commonly believed to be the Rfor this virus of 2.2 to 2.7, then you get a range of projections for the percent of the population with immunity needed to get herd immunity of 0.55 – 0.63, or 55 – 63%. That seems right to me, but as I said, we just don’t know. To the extent that these numbers are somewhere close to the levels of immunity required for herd immunity, we are a long ways off from achieving herd immunity, and given the impact on our economy, health care costs, the burdens on hospitals, the complications that some people appear to be developing post-COVID and the lives lost with just getting to 10 – 11% of Americans infected, there simply isn’t a reasonable basis to support the lock granny up, throw caution to the wind and get back to life as normal proposals to accelerate us getting to herd immunity, if that is even possible.

What do I mean, “if that is even possible?”

Well, herd immunity is based upon durable immunity in the herd. We still don’t know whether people who have been infected with SARS-CoV-2 are immune, and if so, for how long? There has been a lot of talk about antibodies, as if that was the entire basis for immunity (which it is not). But, studies on patients who have recovered from COVID are not particularly reassuring regarding the antibody response. Studies have suggested that not everyone makes antibodies following infection, oftentimes the antibodies produced are not the desirable types of antibodies that we would guess would be protective, even those who do make these best kinds of antibodies often do not produce them at high levels and a significant proportion of those who do develop antibodies experience a significant decline in their antibody levels in as little as two to three months. If antibodies are critical to the immune response against this virus (and I am not sure they are), and if these studies have accurately described the antibody response, then we would likely never have herd immunity through natural infection.

Now, don’t get too discouraged. First of all, our experience, though early, is that we have not seen a lot of cases where we believe a person previously infected with COVID has become re-infected. I don’t rule this possibility out, but if it does occur, it does not seem to be common. And, it may be because we have been chasing the wrong thing – antibodies. Oftentimes, with viruses, we find that the cellular immune response (see my prior blog post about this, as well as a soon upcoming one) is actually the most important. It may be that there are much higher levels of immune protection in our population than we think, since tests for cellular immunity are far more complicated, less available and not able to be performed in other than highly specialized laboratories. Regardless of this, it is very possible that the vaccines will stimulate a strong cellular immune response and a better antibody response than natural infection does, and in fact, with two vaccines for which we have data from early trials, that appears likely to be the case. The next challenge – get enough people vaccinated when a safe and effective vaccine is available that we can get somewhere around 60% of our population with durable immunity to this virus.



A Note to Hospital & Health System CEOs & Boards, by David Pate, MD, Part IV

A Note to Hospital & Health System CEOs & Boards, by David Pate, MD, Part IV

A Note to Hospital and Health System CEOs and Boards

The Time to Seriously Reevaluate Your Organization’s Strategy is Now

Part IV

This is the last of a four-part blog series on reevaluating your organization’s strategy. If you read the first three blog posts, you have considered the following very important factors as you contemplate what your strategy should be:

  • Your financial repositioning following the pandemic.
  • The financial pressures on the individuals, companies and local governments you serve.
  • The potential impact of the 2020 elections.
  • The potential impact of the Supreme Court’s decision on the constitutionality of the ACA.
  • The threats caused by disruptors and especially private equity and venture capital firms.
  • The changing consumer expectations and their fears about seeking services at hospitals.
  • The upcoming realignment of the health care delivery system, particularly for critical access hospitals, community hospitals and independent physicians.
  • The stability of your relationships with your employed physicians.

So, here is my question for you. I am willing to bet money that you have told your board at sometime in the past that fee for service is the problem and value is the answer, or your boards have heard about this at a conference or from an outside speaker, or you have had consultants that have told you and your board this, and most likely all three are the case. Am I right? If so, do you still believe that? Has anything changed to convince you that the current health care spending is sustainable and that the pressures on politicians to address insurance coverage, health care costs, the viability of social security and Medicare, and drug costs will go away, especially during an economic downturn? Are you convinced that employers are going to continue to willingly incur ever rising health care costs in the face of a downturn in their own business?

If these questions were not enough to get your attention and convince you that you are going to have to make a decision as to whether you continue to milk fee for service for all its worth or whether you change strategic direction and pursue value, let’s consider the numbers. Ask your CFO to create a graph or table or whatever method she wants to portray the numbers and take a look at the following 3 or 5-year trends (up to year-end 2019; let’s not confuse things by including the disruption caused by coronavirus):

  • Inpatient and outpatient episodes provided to Medicare and Medicaid beneficiaries as a percentage of all episodes of care for which there was a payer. (In other words, is there a trend in patients moving onto Medicare and Medicaid, which will obviously impact your revenue per case?)
  • Growth in inpatient services vs. growth in outpatient services
  • Net revenue per adjusted admission vs. cost per adjusted admission

There certainly are parts of the country that have been relatively spared from declining fee for service revenues and/or profitability, but my guess is that the majority of hospitals and health systems have been seeing a shift in payor mix to more lower revenue governmental payers at the expense of higher revenue commercial payers, a movement of services that used to provided as an inpatient to lower revenue outpatient settings (get ready for a movement of all but the highest risk total hip replacements to the outpatient setting), and rising costs per case that will threaten your profitability if you cannot also get increases in revenue per case, which you will be unable to get from governmental payers.

As has oft been quoted, “never let a good crisis go to waste.” I would urge you to forecast your profitability under fee for service, given what I imagine were deteriorating metrics even prior to coronavirus, but also with the environmental factors I discussed in the earlier blog posts of economic conditions, cost pressures on your customers, new market entrants and disruptors, changing relationships for physicians, and a continued movement of inpatient services to outpatient settings.

Then, I go back to my earlier question – do you still believe that fee for service is the problem and value is the answer? If not, stop saying it. If so, read on, because I am going to argue that now is the perfect time to make the shift in your business model.

I know this is hard. I have led a transformation of my organization’s business model, and it is not easy. We undertook preparations for a shift in our business model for seven years and then pulled the switch on January 1, 2017, moving nearly a third of my health system’s revenue largely to percent of revenue arrangements (think global capitation). You might ask why then and why that much.

Why then was because my team and I and our board saw the writing on the wall. We realized that change was coming and that it would be far better to make that change while we were still doing well in our current business model to help fund early losses that would be associated with a change in business model. Secondly, we expected, and it turned out to be correct, that there would be a first to market mover advantage. Plus, we had used that preparatory time to gain the alignment of our staff and physicians. Everyone knew this was the right thing to do and people were excited to do it.

Why that much was because of human nature. I hear of many health systems who say that the answer is in moving to value, but they only pay it lip service with putting 2 – 4 percent of their revenue at risk. That level of risk is not enough to change behavior of your leadership team, your physicians or your staff. I can assure you that it is difficult to make the investments necessary to manage risk if you only have several percent of your revenue involved. And, the organization will not change its behavior. When you have a downturn in finances, the first response will be to increase volumes.

We know from history that many companies have failed in transforming their business models when they were still doing well in their current business model, even when they were convinced that change was coming.

The reason that health care leaders should look at transforming their business model now is that almost no hospital or health system is doing well in their historical business model today. And, if they look at their 3 to 5-year trends, as I suggested above, I think most will conclude that fee for service was on the decline even before coronavirus. Then, if you consider the changed environmental factors I have presented in the earlier part of this series, I think most will conclude that things do look bleak, at least for the next few years.

But, I always prefer making strategic decisions based on opportunity rather than merely responding to threats (though I think anyone would be foolish to ignore the threats). It turns out that the coronavirus has actually presented tremendous opportunities for being more successful in moving to value now than we had when we did this back in 2017. What are those opportunities?

  • People are currently hesitant to proceed with “elective” procedures. (Note: This is bad for fee for service!)
  • Many people have tried telemedicine services for their health care during the pandemic and they like the convenience and safety of it. (Note, in those cases where payers pay less for telehealth visits than for in-office visits, this is also bad for fee for service)
  • Physicians are currently providing a lot of the services that previously would have been provided in the office by phone or by skipping the office visit altogether. (Again, bad for fee for service) Here is an example. My wife had an open reduction and internal fixation of her humerus in December, just before this outbreak. She was scheduled to come in and see the surgeon for a post-op visit last month, at which time she would have an x-ray to check alignment of her bone fragments. The physician’s office cancelled the office visit and just directed my wife to get the x-ray and then the doctor would call her. We did and it saved us time and convenience. Okay, you might argue, well that visit should have been included in the global surgical services fee, but you are missing the point. How many services were we making patients come in for that weren’t necessary? And, because of the pandemic, we actually have physicians deciding what is necessary and what is not, which is exactly the thinking we want under value arrangements, rather than insurance companies making those decisions under fee for service. Further, most every health system has access problems. This is why urgent care clinics, retail clinics, telehealth providers and other disrupters have been able to capitalize on this opportunity to see patients that health systems otherwise would have seen. But, now, with this change in behavior to not make patients come in to the office that don’t need to be seen despite the incentives under fee for service, under value arrangements, we still meet those patients’ needs less costly without an office visit, but we also have just freed up time to see a patient who does need to be seen who we otherwise would not have seen and they either may have gone to one of these alternative care sites or worse, their condition may have deteriorated by the time we could see them to the point that it is now more expensive to care for.

All of these present opportunities for us to manage risk, to lower costs, to promote better access, and to provide care in ways to patients that they are likely to prefer. And, we can look at other opportunities that disruptors were already beginning to pursue even before the coronavirus outbreak, such as mobile health care services that bring care to the patient’s home and hospital-at-home services.

And, the ultimate beauty of this is that while the disruptors and those who are promoting the disaggregation of health care services can beat us at fee for service, very few of them can or, even if they could, would want to manage global risk arrangements. Health systems are uniquely positioned to do this. And, large employers like Walmart, have already realized what I have been arguing for a decade now. The answer is not in a lower unit price. The answer is in controlling utilization and getting high quality services when they are needed. Fee for service does not incent either of these goals. As other employers come to realize this is true, I think private equity and venture capital firms may be happy they sold their health care holdings several years from now.

You know how you fared under fee for service during this pandemic. How would you have fared under full value arrangements? Well, just compare the quarterly earning reports for hospital companies versus those of the insurance companies. There is your answer. Now, I know you are thinking, but this pandemic is going to end sometime, perhaps next year, and things will go back to normal. If you are thinking this, you need to go back and reread the first parts of this blog series.

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A Note to Hospital & Health System CEOs & Boards, Part III, by David Pate, MD

A Note to Hospital & Health System CEOs & Boards, Part III, by David Pate, MD

A Note to Hospital and Health System CEOs and Boards

This is part III of a four-part blog series entitled, “The Time to Seriously Reevaluate Your Organization’s Strategy is Now.”

The health care delivery system in the U.S. is about to realign. The pandemic has likely accelerated alignment decisions that hospitals and physicians were already considering or would likely soon consider even if it were not for the coronavirus.

With all that has happened, do you remember back to last year and the year before? Do you remember the discussions from leaders all across the country that fee for service was the problem with the American health care system and value was the answer? Now, I should be clear. When I refer to value, I mean risk – downside risk. We won’t align incentives with pay for performance or upside only arrangements and shared savings arrangements are unlikely to work in the long-term, they haven’t so far.

While it seemed that health care leaders across the country and even CMS and HHS agreed that the answer was in moving to value, that was the easy part. The hard part is how? I will have more to say about this in Part IV.

But questions circulated as to how big do you have to be to take on risk? What is the role for a critical access hospital in a value world? What about an independent community hospital? What about independent physicians?

For small or independent hospitals, before the pandemic, the question of survival as an independent entity was largely a strategic one – a question that revolved around the world view of the board and CEO. How long would the world remain the same relative to health care? Could the hospital ride it out in fee for service and maintain its independence for the foreseeable future, or even if change was coming, could we ride it out for now, but still have time to make a different decision later if the world does change? For a number of these hospitals, the pandemic has stressed already challenging financials and now the question may be not only the strategic one, but one of financial survival.

For independent physicians, many may never have faced an existential financial threat to their practice before. The pandemic has likely financially impacted nearly every practice negatively. Unlike hospitals, physician practices do not ordinarily strive to have a significant number of days of cash on hand. They typically have few reserves for a situation like this. Most often, a significant cash flow event will cause physicians to make up for it by reducing expenses (lay off staff) and reducing their incomes, both of which are very unpleasant.

Even before coronavirus, many physicians were considering where health care was headed and what their best options would be. While physicians generally value independence and by nature, like to be the ones in charge and making decisions, independence comes at a cost. Practice expenses increase every year, but except for large groups or physicians in short supply, they often have little leverage with managed care companies and may not see revenues increase enough to cover the increasing expenses. Plus, regulations continue to become more burdensome, submitting claims and collecting payments has generally become more challenging given the number of insurers and the differing rules for each payer, and administration of the office continues to become more complicated and less fun.

After this pandemic, or even during it, many physicians may be rethinking their risk tolerance and may seek greater security and ease of practice administration through employment. Others may wish to remain independent, but may seek other revenue streams to provide greater protection, or at least more control, in anticipation of another disruption to their practice.

So, what does this all mean for health system leaders? First of all, open up your channels for communication. Smaller hospitals may want to have exploratory conversations. Even if your health system is not interested in acquiring that hospital, you will need to consider the implications if that hospital is acquired by one of your competitors.

The other thing is you need to begin conversations with your physicians – both employed and independent. You need to know how these physicians are doing, what they are feeling, what concerns they have and whether your relationship is secure.

One of the first questions is whether they felt supported and protected during the pandemic. Unfortunately, I have heard directly or indirectly from physicians across the country who did not feel supported. Physicians who did not feel cared for and did not feel that they had adequate protections. Unfortunately, there were some isolated instances where leaders did not respond productively to care givers’ concerns about safety. I cannot imagine that those physicians will feel any loyalty to those hospitals or those leaders, if they don’t feel respected and cared for.

Even if the physicians did feel respected and cared for, and I am sure that this is the case for the vast majority of hospitals and health systems, they may have concerns about the hospital’s finances and their long-term viability. They may be concerned that the path to financial recovery means cutting physician salaries, because this is exactly what would have happened in their private practice when they were independent when cash flow was impacted. In my experience, physicians are very unlikely to come to the leaders and express their concerns or worries directly. Instead, they may assume the worst and look for a more stable and secure arrangement. Therefore, you need to have these conversations with your physicians and be open and honest about your situation and your plans to recover.

And, even if the physicians felt respected and cared for, and even if they are not concerned about the financial viability of the hospital, you are unlikely to know who is meeting with your physicians and what they are offering. As I mentioned in Part II, private equity and venture capital firms will be looking for better returns than they can make in the bond or stock markets for the foreseeable future. Health care will be one of the opportunities they pursue. They already were prior to coronavirus. Plus, as I mentioned in that previous blog post, they can play off of patient fears about going to hospitals.

I mean no disrespect to physicians. They are brilliant people and amazing professionals who make tremendous sacrifices for their patients, often at the expense of their families and/or their own well-being. But, as brilliant as they are, they are often unsophisticated about business. These private equity and venture capital firms can make all kinds of representations about how much better life can be, how they will be in charge and making all the decisions, how they will have a seat at the table, how they will be far more secure, and the amazing returns they can expect. I haven’t seen one yet that was upfront with physicians and explained the risks and made clear that the way the firm would make more money is to become more efficient (i.e., staff reductions – all that control physicians thought they were going to have over staff and personnel matters – gone), more productive (i.e., all that control over your schedule and how often you would see patients – gone), add more services (i.e., drive more volume for higher revenue-generating services), and that in 3 – 5 years, when the cash flow and profit margin are increased, the firm plans to sell the practice (i.e., you will have a new owner and you don’t have a say in who that is, it will be whoever offers us the most money).

As part of your review of your strategy, you must reassess your physician relationships. Your strategy will do you no good if you do not have engaged physicians to drive the strategy forward.




A Note to Hospital and Health System CEOs and Boards, Part II, by David Pate, MD

A Note to Hospital and Health System CEOs and Boards, Part II, by David Pate, MD

A Note to Hospital and Health System CEOs and Boards

The Time to Seriously Reevaluate Your Organization’s Strategy is Now

Part II

In Part I of this series, I encouraged health care leaders and their boards to reevaluate their strategic plans in light of the impact of the pandemic as well as the changes in health care that we likely will face with the new normal. In Part II, let’s continue the exploration of what some of these new pressures will be.

As hospital leaders, facing the tremendous financial pressures that you have experienced with loss of revenues and services, you are likely focusing on increasing your revenues by restarting services, as well as cutting expenses since those lost revenues will take quite some time to recover. Guess what? Almost every company and individual you serve will be doing the same thing. While there are exceptions, most companies experienced a significant loss of revenue and will only slowly be able to regain their business. Individuals, too, have lost work and income and likely have incurred more debt. For those who regain work, their hours may be limited, their commissions may be a lot less, and they, too, are likely looking for cuts to their household expenses. It is not likely that most had met their deductible before the coronavirus shut things down. Meeting their deductible now may be a significant deterrent to them seeking any “elective” services anytime soon.

Given the financial realities we are facing, I would suggest that unlike the past, we cannot “make it up on volume.” We have to think differently. Companies and governments will all be looking for cost reductions and health care costs will be a line item with a target on its back. I would also caution health care organizations to no longer think of ourselves as immune from market forces. I would challenge you to think of one industry or one company that has been successful in the long-term by ignoring consumer’s complaints that their product or service is too expensive for substantial numbers of their customers.

I want to suggest that things are different. I want to point out that disruption was coming to health care and I want to make the argument that coronavirus will only accelerate that disruption. Let me explain.

First of all, let me remind you that disruption was already underway before the coronavirus outbreak. You likely haven’t considered that free standing imaging centers, ambulatory surgery centers, free-standing cardiac cath labs and physician-owned surgical hospitals have largely come about and expanded over the last three to four decades. Even more recent was the development of so-called “micro-hospitals.” Also, more recent, the development of telemedicine and telehealth services. Even more recently, mobile health care services to provide primary care or urgent care to people in their homes and also very recent, the design of hospital-at-home services. We can all think of additional examples of disrupters looking to break into the $3T health care industry to get their bite at this, but making services more convenient, more affordable, and a better experience.

Okay, so no one is surprised by this. What is my point? My point is that coronavirus has just handed them a big helping hand. First of all, patients are already saying that they are going to put off all of those services that make hospitals money under fee for service. Surveys indicate that some will put those services off 3 months, some 6 months and some a year. Oh, and what do you think happens if we do have another bigger, deadlier second wave this fall? You would be foolish to think that patients are not going to consider the appeal of these non-hospital settings to receive care as opposed to hospitals where they take care of patients with COVID, even though their concerns may be unfounded.

Second, given at least an economic recession and possibly a depression, the financial pressures on people and the companies or local governments they work for are going to be immense. The appeal of benefit design to drive employees to lower cost settings will be significant.

Further, coronavirus did a lot to force some people to try out telehealth services who before would not have considered them or preferred an in-office visit. From the surveys I have seen, it appears that many who tried it liked it and may enjoy the convenience of it in the future. If hospitals and health systems don’t make this offering available, there are plenty of telehealth companies who will step in to provide it.

Now, I’ll explore this more in Part III, but let’s consider this. The bond market and the stock market are likely not going to be great investment vehicles for the short-term. There will be a lot of private equity and venture capital looking for places to safely and profitably invest their money. It would be a serious misstep for us not to assume a lot of it will go into health care. This, coupled with physicians who have had their businesses turned upside down, probably for the first time in their careers, will be willing partners to create new opportunities for financial returns that can take advantage of the new market realities.

It is not my intention to only identify the problems facing health systems. I will talk about solutions, but first, it is important to finish exploring these challenges because change is hard, and few are willing to make sufficient changes until forced to do so. I want to make the case that while people naturally tend to believe making changes are risky; I want to make the argument that not making change is riskier.

In Part III, let’s discuss physician challenges and opportunities.


A Note to Hospital and Health System CEOs and Boards, Part I, by David Pate, MD

A Note to Hospital and Health System CEOs and Boards, Part I, by David Pate, MD

A Note to Hospital and Health System CEOs and Boards

The Time to Seriously Reevaluate Your Organization’s Strategy is Now

Part 1 of a 4-part blog series

First of all, I wish to convey my appreciation to all of you for the amazing response to the coronavirus pandemic. I have always been proud of the important work we do as health care workers, leaders and board members, but I have been even more inspired by the courage, bravery, passion, and dedication to our patients and communities that our physicians and staff have demonstrated during this rapidly evolving and challenging time.

No doubt that your communities are very proud of your organizations and your people. During 2019, the national conversation about hospital prices, while a valid concern, nevertheless put the evaluation of hospital prices in the same category of free-standing imaging centers, free-standing ambulatory surgery centers, and physician-owned surgical hospitals that are, in many cases, little more than glorified ambulatory surgery centers. This was an unfair comparison, but it was also very difficult to communicate why. Very few good things have come out of this pandemic, but one of the good things is either the revelation or the reminder that community, regional and academic hospitals and medical centers are very different, and in fact, are critical to the care of our communities and our nation. During this crisis, it was not imaging centers, ambulatory surgery centers and physician-owned surgical hospitals that got us through this crisis and that are preparing for the “next wave,” but rather these community and regional full-service hospitals that provided emergency care, intensive care and saved countless lives of people infected with SARS-CoV-2 that developed severe illness. While the federal government lent some limited assistance to hospitals in a few hot spots of the country, the reality is that without our community, regional and academic hospitals, the deaths in our country would have been much more staggering than they already are.

Hospitals and health systems have suffered tremendous financial losses during the pandemic already, and as I have written previously, we are far from being through this. Some hospitals will not survive financially; some will survive but through a change in ownership. Nevertheless, we will eventually get through this, life will return to a new normal, and memories of the health care heroes will fade – not that we will ever forget, but just like 9/11, where we were justifiably proud of our first responders and there was justifiable national pride for some period of time, the pressures of daily life and new events and challenges will take over the headlines, and for many, the remembrance of all those who lost their lives and those who were the heroes responding to this crisis has become an annual event on the anniversary in September.

Next year, or whenever it is, the headlines will no longer be consumed by coronavirus (let’s hope!). But, we likely will have an economy hard hit by this pandemic, with small businesses and other companies perhaps still feeling the economic pressures from the fall-out, a focus on managing costs (which will revive the discussions about health care costs), and perhaps still high unemployment. In addition, state and local government budgets will be stressed (which will again bring focus to health care costs) and given what are sure to be tax revenue shortfalls, these governmental bodies will be making cuts to their budgets, including looking for health plan savings.

Additionally, by this time, we will have a presidential election and are likely to have one of the most important Supreme Court decisions ever to be issued – the fate of the Affordable Care Act. Both are of monumental importance to health care leaders and may profoundly impact your organizations. All of this needs to factor into your review of your strategy or renewed strategic planning.

Let’s just remind ourselves of what we are likely to see as we open back up our normal services under the current administration and with the ACA still in effect.

Record numbers of people have lost their jobs or were furloughed. Hopefully, many will be reemployed soon. However, we know that unemployment will be up, which will mean those who have lost their incomes and don’t have other sources are likely to join the ranks of our uninsured or Medicaid expansion populations (for those states that have expanded Medicaid). Some will qualify for advance premium tax credits and subsidies on the public exchanges that will enable them to remain insured. But, regardless of how this all shakes out, it is hard to imagine that we will not see:

  • Increases in bad debt, especially for those who maintain their insurance with high deductibles and significant out-of-pocket expenses or those who lose their insurance and are not eligible for Medicaid (the gap population).
  • Increases in charity care.
  • A marked increase in Medicaid.
  • A continued shift from commercial insurance to Medicare.
  • A shift of commercial coverage with rather broad access networks to exchange plans with narrow networks, which may mean you are now out-of-network for some patients you previously cared for.
  • Decreased revenues from ambulatory and outpatient services as people put off care or planned surgeries.
  • Decreases in revenues as some patients continue to fear coming to the hospital.
  • Patients presenting with more advanced disease as they put off screenings and preventive care (this will increase the number of patients for which the revenues do not cover the costs of providing the care)
  • Patients may present sicker because of deferring coming to the emergency room due to their fears of contracting coronavirus, which will make their care more costly and less likely to be covered by DRG payments or other reimbursements.
  • Decreased operating margins, which will in turn decrease our capital spending on facility renovations, new facilities, new technology and new services.
  • Decrease in days cash on hand due to the decrease in revenues and increased costs managing through this pandemic.
  • Downgrades of bond ratings by rating agencies based on the deteriorated financial performance and metrics, which will increase borrowing costs.

Not a rosy picture, right? It gets worse. Let’s now imagine that Republicans maintain control of the White House and Senate and the Supreme Court strikes down the ACA.

I have not seen the Republican replacement health care plan – or maybe I have, which would be more alarming. Maybe the plan is the bits and pieces we have already seen – association health plans, short-term “skinny” health plans, religious ministry cost share programs and block grants to states for Medicaid.

With striking down the ACA, the public exchanges, advance premium tax credits, subsidies and Medicaid expansion all go away.

So, let’s see how this combination of events would cause me to revise the list of impacts above. Here is the revised list:

  • Significant increases in bad debt, especially for those who maintain their insurance with high deductibles and significant out-of-pocket expenses and those who develop conditions that are excluded form coverage under their new policies, and from those who lose their insurance and will almost certainly not be eligible for Medicaid and for whom there is no option of a subsidized exchange plan. Bad debt will also increase due to failure of association health plans or religious ministry cost sharing plans to cover the service after it was provided or as a consequence of their insolvency given their lack of state department of insurance oversight.
  • Significant increases in charity care.
  • Some increase in Medicaid.
  • A continued shift from commercial insurance to Medicare.
  • Decreased revenues from ambulatory and outpatient services as people put off care or planned surgeries.
  • Decreases in revenues as some patients continue to fear coming to the hospital.
  • Patients presenting with more advanced disease as they put off screenings and preventive care (this will increase the number of patients for which the revenues do not cover the costs of providing the care) due both to fears of coronavirus, but also the fact that preventive care and screenings will no longer be covered services and will no longer be provided without out-of-pocket expense.
  • Patients may present sicker because of deferring coming to the emergency room due to their fears of contracting coronavirus or limited insurance coverage, which will make their care more costly and the costs less likely to be covered by DRG payments or other reimbursements.
  • Decreased operating margins, which will in turn decrease our capital spending on facility renovations, new facilities, new technology and new services.
  • Decrease in days cash on hand due to the decrease in revenues and increased costs managing through this pandemic.
  • Downgrades of bond ratings by rating agencies based on the deteriorated financial performance and metrics, which will increase borrowing costs.

I have written previously about what I think the outcome of the legal challenge to the ACA should be (uphold the lower court’s determination that the individual mandate is unconstitutional, but preserve the remainder of the statute and merely sever the individual mandate from the statute). But, predicting the outcome with the change in the make-up of the Court since the last time it considered the constitutionality of the ACA has become much more difficult.

All of this must be taken into account for your review of your current strategic plan or for your new strategic plan. But, there is much more to be considered. I will address additional concerns and issues in Part 2 of this blog series.


2019 Predictions: a rocky road for hospitals, new players, artificial intelligence and more

2019 Predictions: a rocky road for hospitals, new players, artificial intelligence and more

2019 Predictions: a rocky road for hospitals, new players, artificial intelligence and more

By Dr. David C. Pate, News and Community
January 1, 2019

The landscape for health care has significantly changed with the mid-term elections that resulted in a shift of control of the U.S. House of Representatives from Republicans to Democrats. What can we expect in 2019?

Health Care Reform and the Affordable Care Act

Given the Democrats’ control of the House, the only changes the Trump administration can make to the ACA, other than those that would have support from the Democrats, are those that the administration can make under their rule-making authority. I don’t expect to see any significant changes to the ACA in the next two years, unless the ruling in Texas v. United States is upheld on appeal. I wrote about the case and the ruling for a post Dec. 17.

Medicare for All

“Medicare for All,” the idea of a publicly funded, single-payer health insurance program for all Americans, has been championed by progressive Democrats. Public support for such a program has been growing and has reached majorities in both parties, though support significantly drops off, especially among Republicans, when the discussion turns to payment for this through new and increased taxes.

Political support for Medicare for All is picking up steam, given that health care was the single most important issue for voters and Democrats gained the largest pick-up of Congressional seats since Watergate. It has been particularly fascinating to me that Medicare for All supporters also won elections in swing districts and traditionally conservative states.

Despite the growing support, there is no chance that Medicare for All will come to pass in the next two years. President Trump would veto it, even if it could get enough support in the Senate, which is highly unlikely. We might see the House try to pass a Medicare for All bill to get Republicans to vote against it in the face of increasing public support in anticipation of the 2020 races.

Medicaid Expansion

Proposition 2 passed by popular vote last month in Idaho, but there remain two threats to Medicaid expansion in Idaho.

One is whether the Legislature will vote to overturn the law or refuse to fund it. I predict that neither will happen. Prop. 2 won by a pretty clear margin. I think that lawmakers will realize and respect that the vote represents the will of the people. I do believe that lawmakers will fund the expansion, as I think they will believe it is their responsibility to the people to do so.

There is some concern that Idaho may seek to implement work requirements as some other states have, but I think that while the Legislature will look at this, they will realize that putting a process in place to monitor work status is expensive and will add to the bureaucracy of government and ultimately decide against it.

The other threat is a constitutional legal challenge to the law that will be heard by the Idaho Supreme Court early in 2019. I predict that the challenge will fail, and the Supreme Court will uphold the validity of the law.


Next year will be a very challenging year for hospitals. Among the negative factors that will result in weakened financial performance: a continuing payor mix shift to governmental payers (Medicare and Medicaid), which is lower-margin or even negative-margin business; an increase in bad debt as employers and insurers continue to shift more costs to patients in the form of deductibles, co-insurance and co-pays; and a continued shift of business activity from inpatient to less profitable outpatient services.


Medicare for All may or may not be an existential threat to insurers, depending upon whether there is still a role for insurers to administer plans for the Medicare program, as they currently do with Medicare Advantage. No doubt insurers will be developing their lobbying strategy.

Insurers face another threat as more providers take on managing risk. Payers are, for the most part, reluctant to become third-party administrators. For those that fear this, the adoption of risk by providers remains low. However, the pressures on providers to take on risk will only increase over time.

On the other hand, some insurers are embracing this change and realizing that if providers successfully manage risk, this will confer a premium advantage that will result in market share gains when they are able to offer and sustain lower premiums than those plans that retain risk and rely on traditional unit cost pressures to keep costs down. This will be a particular challenge, given that I think premiums must and will stabilize close to current levels to appease regulators and to avoid pricing more people out of the market.

Some insurers will enter the provider space. Others will be acquired by providers, as we saw recently with the acquisition of Aetna by CVS Health. It remains to be seen whether CVS can leverage its acquisition of Aetna to lower costs and advantage Aetna health plans by enabling them to keep premiums down compared with competitors. As best I can tell, CVS is pinning its hopes on reducing unnecessary hospital admissions by managing patients more effectively in its MinuteClinics; I am unaware of any data showing that retail medicine services have been able to do this.

New Market Entrants

2019 will usher in the next generation of disruptive market entrants. One example: Carbon Health, a health-care startup that is trying to disrupt primary care by changing the model from one that is centered around doctors and hospitals to one that is centered around the patient. Key to this is the use of technology, including video visits and an artificial intelligence-assisted messaging system. Other startups similarly are attempting to leverage technology to disrupt primary care.

Babylon is a disruptor that seeks to combine the “computing power of machines with the best medical expertise of humans to create a comprehensive, immediate and tailored health service.” Babylon offers telemedicine services and a symptom-checker. I used the symptom-checker while I had a disease in mind, answering questions as if I had the symptoms of that disease, and it didn’t identify the disease as the most likely diagnosis, but it did fairly well and came up with a reasonable alternative diagnosis. Babylon also states that it uses artificial intelligence to help patients understand their current health condition and gives them practical insights into staying healthy.

These new market entrants are worth keeping an eye on to see if they can improve the outcomes of chronic diseases, better coordinate care, reduce unnecessary emergency room visits and admissions and reduce the total cost of care.

Many are variations of direct primary care (for example, offering subscription services for monthly payments above and beyond insurance premiums for prompt access and free office visits), so if traditional primary care practices can figure out how to make their services easily accessible, as I predict they will, the disruptees will become the disruptors.


Artificial Intelligence

Up until now, AI’s impact on health care has been limited. 2019 will be an inflection point. AI will improve the speed and accuracy of medical diagnosis by analyzing data quickly and accurately. These applications will improve the efficiency of physician workflows.

The research and development process for medications is painfully slow and expensive. AI will be able to explore chemical and biological interactions and early-stage clinical data to identify new treatments that are much more likely to prove to be effective, especially in the area of cancer treatments.

AI also has the potential to automate surgical procedures by robots, assisting the surgeon or in some cases, replacing the surgeon. Eventually (not in 2019), this technology could be used to perform emergency surgery in rural areas where there is no surgeon and little time to transfer the patient to a metropolitan center.

The Internet of Medical Things (IoMT)

Technology will advance remote monitoring of patients through wearables, smart sensors and mobile apps. Thirty billion IoMT devices are expected to be deployed worldwide by the end of 2019. Uber and Lyft are already creating health-care divisions to connect patients with providers. Uber will deliver meals; don’t be surprised to find Uber and Lyft delivering prescriptions to patients’ homes from the pharmacy.


Telemedicine is not a new concept, but its adoption has been rather slow. Expect utilization to increase significantly in 2019. More and more insurance companies are providing this as a covered benefit. As more people experience it, they will be repeat users and will expand use through word of mouth.

Virtual/Augmented Reality (VR/AR)

VR/AR has tremendous utility in clinical education and training. Expect more medical and nursing schools to adopt this technology. We will also see more use of VR/AR in surgery to assist and guide the surgeon in small spaces of the body or under complicated circumstances. This technology may also assist first responders in caring for the ill and injured, while recording critical information about the patient prior to arriving at the hospital. Finally, there is great potential for VR/AR to assist patients in treating their pain and reducing the use of addictive opioids.

Big Data and Data Analytics

The most widespread application of big data in health care is electronic health records systems. Data analytics will be developed that allow providers to glean meaningful, actionable data to improve care for patients and populations of patients, the insights from which would not be available from a casual review of the medical records. Predictive analytics will be developed that allow providers to identify patients at high risk for admission to the hospital or deterioration in their conditions, making possible proactive outreach and modification of their treatment and care plans to avoid costly hospitalizations, complications or even death.

St. Luke’s Health System

St. Luke’s Health System is going through a transformation. We are well on our way from fee for service to pay for value, with nearly a third of our revenue at full risk (global capitation). We are going through an organization design reshaping that moves us away from the hospital-centric model of most health systems to one that is truly population health-based. We are also focusing our service lines on improving outcomes and lowering the total cost of care and completely redesigning our end-to-end utilization. My predictions for next year are that we will see measurable improvement in outcomes and a bend in the cost curve for those populations we have under risk agreements.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke’s Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.

How Does a Virtual Care Center Work? See What St. Luke’s is Doing!

How Does a Virtual Care Center Work? See What St. Luke’s is Doing!

St. Luke’s Virtual Care Center Will Extend Reach, Expand Services

From left to right: Krista Stadler, senior director of telehealth services for St. Luke’s Health System, Lisa Knox, St. Luke’s project manager and Diane Wilson, St. Luke’s interior designer, on a recent tour of the 35,000 square foot virtual care center.
By Chereen Langrill, News and Community
April 3, 2018

St. Luke’s Virtual Care Center is one of the most exciting developments for patients served by St. Luke’s since I have been here. We have piloted components of the center including teleICU, remote patient monitoring, teleurology and telenephrology, but now the pieces are all coming together as a virtual hospital. This will translate into better outcomes at a lower total cost of care.

Here to tell you more about this exciting development is St. Luke’s Communications Coordinator Chereen Langrill.

– David C. Pate, M.D., J.D.

Construction on St. Luke’s new virtual care center in Boise should be finished by summer 2018. The high-tech hub will feature a centralized medical team and 60 virtual care stations.

When St. Luke’s began offering telehealth services several years ago, the focus was an electronic intensive care unit that decreased the number of days people spent in the intensive care unit and improved overall patient outcomes. It was an important first step in a journey to improve patient care by harnessing technology, and that journey continues today.

St. Luke’s is now building a virtual care center that will serve as a hub for a suite of telehealth programs, consolidating the services in one building to allow the team to collaborate and coordinate care.

Construction on the 35,000-square-foot center began in January, and soon teams will begin training in the space. Expected to be complete this summer, the virtual care center represents St. Luke’s ongoing commitment to giving patients access to quality care without barriers.

Those barriers can be geographic when people living in rural areas have limited or no access to specialists. People with physical barriers can be too sick to travel to a provider visit. Other patients face barriers related to transportation because they can’t drive or don’t have access to transportation.

In addition to removing barriers, virtual care also helps St. Luke’s more effectively reach specific patient populations, such as people with chronic illnesses.

“Merging technology and care delivery is the way we have to operate in order to be successful in population health,” said Krista Stadler, senior director of telehealth services for St. Luke’s Health System. “Hiring an army of 20,000 people to deliver quality care services is not realistic.

“With the growing Idaho population and consumer demand for convenient care, we have to explore how we can use technology to achieve our goals and meet the needs of our patients.”

A high-tech hub in Boise will feature a centralized medical team that includes physicians, nurses, allied health professionals and IT professionals. When fully operational, 350 team members will work to ensure the center provides continuous care. This means services are available at night, on weekends and even holidays. Telehealth services are available for patients at clinics, hospitals and homes throughout Idaho and Eastern Oregon.

There will be more than 60 virtual care stations with the ability to operate continually using two-way audio and video. A generator and back-up power will support the virtual care center and a St. Luke’s Disaster Response Center.

“If you peel back the curtains of the virtual care center, it will look like a lot of desks and people, but it is much more than that because of the level of care and services we can provide and the number of patients we can serve,” Stadler said.

Among the services that will be supported:

  • Inpatient telehealth (intensive care unit and neurology)
  • Telehealth in the home (remote patient management)
  • Clinic telehealth consultation for services such as urology, nephrology, sleep medicine autism and pediatric surgery

Regardless of the care setting, telehealth is a way to enhance the service already given through patients’ primary physicians. Support offered through telehealth technology allows the provider to consult with a specialized team, extending the impact of evidence-based care.

“This space will allow us to grow our services and capacity throughout the organization to ensure patients have access to the right care at the right time, regardless of geographic location,” Stadler said. “We believe there is an opportunity to improve a patient’s access to care and ensure that care is patient-centered.

“The virtual care center will serve as the epicenter of discovery and innovation as we act on this belief.”

About The Author

Chereen Langrill works in the Communications and Marketing department at St. Luke’s.

Thinking Globally, Executing Locally: St. Luke’s Plans the Patient-Centered ‘Medical Neighborhood’

Thinking Globally, Executing Locally: St. Luke’s Plans the Patient-Centered ‘Medical Neighborhood’

Thinking Globally, Executing Locally: St. Luke’s Plans the Patient-Centered ‘Medical Neighborhood’

Care coordination is a significant part of the team-based care approach at St. Luke’s Clinic – Payette Family Medicine and St. Luke’s Clinic – McCall Internal Medicine. Team huddles – like the one shown here – are often held to discuss patient care plans.
By Chereen Langrill, News and Community
March 6, 2018

Besides the malaligned incentives created by fee for service, one of the biggest downsides of that reimbursement methodology is that it produces fragmented care. With fee for service, providers are paid for defined visits, procedures or hospital stays but not work that might occur between visits. That is why, when I was in practice, I treated patients at appointments that were months apart, even though their disease or condition continued between visits.

The nature of fee for service also is that we typically only have time to address one problem at a time during a visit – again, an outcome of the incentives created under fee for service. Pay for value really changes the incentives and best promotes doing whatever it takes to improve outcomes and lower the total cost of care, including meeting patients’ health care needs in between visits to keep their diseases and conditions under control to avoid costly complications and avoidable emergency room visits. This has led to our patient-centered medical home model of care. Here with a report is St. Luke’s Communications Coordinator Chereen Langrill.

– David C. Pate, M.D., J.D.

A team-based care approach introduced in McCall and some other rural St. Luke’s locations is serving as a springboard to launch similar efforts at other St. Luke’s clinics.

Sometimes referred to as a patient-centered medical home, the approach emphasizes care customized for each patient. This comprehensive, coordinated care incorporates various providers based on patients’ needs, such as prevention, acute or chronic disease or behavioral health. A team of health professionals housed in one location can help patients avoid unnecessary emergency room visits and reduce the cost of their care.

Instead of a single-visit, single-provider approach, it is more of a big-picture focus. The team can triage, assess and help navigate for each patient’s best outcome.

“Team-based care is an important strategy as we shift from a volume-based model to one that is value-based,” said Lucy Dennis, vice president of operations for St. Luke’s physician services. “It improves patient outcomes and drives up patients’ perceptions of the value of their care. And it has the added benefit of supporting our physicians by preventing burnout and reducing stress.”

Team-based care makes sense for a community like McCall, where the population is approximately 3,000 and there are limited medical services available. In McCall, St. Luke’s has two clinics recognized as patient-centered medical homes. In 2014, practice manager Don McKenzie led the effort to adapt the patient-centered care model at St. Luke’s Clinic – Payette Lakes Family Medicine and St. Luke’s Clinic – Internal Medicine: McCall.

Before that shift, patients would sometimes visit the emergency department for treatment that could have been handled in a clinic setting because access was possible without a wait. The cost for an emergency department visit is significantly higher than a clinic visit, however, and doesn’t necessarily foster a long-term relationship between a physician and patient.

“A lot of our drivers were because we live in a rural community that doesn’t have all the services that are available in the Treasure Valley,” McKenzie said.

When people need care that isn’t available in McCall, it can become a roadblock. It can mean the delay of a critical diagnosis or lead to complications from a chronic illness.

“Some just say they won’t deal with it,” McKenzie said. “The saddest thing in this field is if you could have screened something early and stamped it out.”

McKenzie likes to call the clinics a medical neighborhood; a community rich with resources. Some of those resources include patient access navigators, early detection services, education that promotes healthy living, care coordination and behavioral health specialists.

These resources work together as a team when a patient needs multiple types of care. For example, a teen who comes to a clinic for a school sports physical may display signs of depression. He or she can be referred to a behavioral health specialist in that same location. Having multiple resources in one location makes it more likely a patient will receive additional care. When patients have to go elsewhere for care, they are less likely to follow through with a referral, especially when that care is far from home, according to McKenzie.

“There is so much work that occurs outside of the actual patient visit,” he said. “All these people with co-morbidities and chronic conditions, it takes a team to achieve success for that patient.”

Dennis is leading an effort to transform the care model at all St. Luke’s clinics and to adopt the type of team-based model that has been successful at clinics like those in McCall.

“We started with these patient-centered medical homes in these rural areas where, by default, it is the only place where patients could go,” Dennis said. “Our charge now is to take the very best and scale that throughout the system. To think globally but execute locally.”

To achieve that goal, the focus needs to shift from a physician-centric model to one that is patient-centered. Magic Valley is in the process of making that shift at two locations: St. Luke’s Clinic – Physician Center: Twin Falls, College Road, and St. Luke’s Clinic – Physician Center: Twin Falls, Pole Line Road. Dr. Bartholomew Ripepi helped launch a patient-centered medical home at the University of Pittsburgh and has provided support at the two St. Luke’s Magic Valley clinics as the project and physician lead.

“The patient-centered medical home model delivers a means of coordinating care and acting upon individual patient needs that may not otherwise be identified in a single patient visit to achieve high-quality, whole patient care,” Dr. Ripepi said.

Dennis said a team is looking at how to leverage the approach at highly diverse clinics.

“This is about working like a family would, with great communication, a strong culture and a team environment where everyone is focused on the patient and doing what’s right for that person,” Dennis said. “This is what we are trying to promote and deliver across the system.”

About The Author

Chereen Langrill works in the Communications and Marketing department at St. Luke’s.

It’s Time for a Bipartisan Approach to Health Care Reform by Dr. David Pate

It’s Time for a Bipartisan Approach to Health Care Reform by Dr. David Pate

It’s Time for a Bipartisan Approach to Health Care Reform

By Dr. David C. Pate, News and Community
July 25, 2017

We all watched as the House of Representatives passed the American Health Care Act (AHCA).

It was hugely unpopular.

The bill then went to the Senate, where senators said they were going to start with a clean slate and instead tweaked the AHCA to come up with the Better Care Reconciliation Act (BCRA).

It soon became clear that the BCRA would not attract enough votes to pass, so Senate leadership made some further changes to the bill.

Still not enough.

Most recently, the leader of the Senate has indicated that a vote on a bill to repeal the Affordable Care Act (the ACA, known as “Obamacare”) without a concurrent replacement bill will be undertaken and Republicans will have two years to come up with a replacement bill.

It appears that there will not be enough votes to pass this repeal-only bill, either.

So, where do we stand, and where do we go from here?

Although it appears that Republicans have run out of options, I’m not counting them out. They are under tremendous pressure to repeal the ACA – and the fear of what will happen during the 2018 midterms if they don’t.

On the other hand, the prospects are dim, and I wonder whether the calculus of their risk with voters for the upcoming elections weighs in favor of doing something in a bipartisan manner. Republicans have the opportunity to be heroes and let their constituents know that they were the ones who “fixed” Obamacare.

In hopes of a bipartisan possibility, here are my recommendations. For this purpose, I am assuming that the ACA will remain the law of the land, simply because neither party has the desire, will or votes to scrap the ACA and start from scratch.

First of all, let’s be clear. Health care reform may consist of insurance reforms that regulate how the insurance market works (this is primarily what the ACA, AHCA and BCRA do) and/or it may consist of delivery system reforms that regulate how health care is delivered, which is a significant challenge facing the country but which was only cursorily addressed by the ACA and was not addressed in either the AHCA or BCRA.

Insurance Reform

Let’s address insurance reforms first. A bipartisan approach is possible if Republicans admit that their attempts to repeal the ACA have been unsuccessful and that the goal must now be to provide constituents with relief from increasing premiums and a limited choice of insurance plans in those counties where there is only one plan or no plan on the public insurance exchange.
Here, then, are the critical decisions to be made:

Commit to enforcing the individual mandate.

This is a bitter pill for the Republicans, but if they keep their eye on the prize – lowering insurance premiums – this is one step that would reduce premiums somewhere in the range of 7 percent to 20 percent, according to estimates I have heard from insurers. It can also be a good-faith gesture toward the Democrats, who would be likely to support this in exchange for concessions.

Commit to the cost-sharing reduction payments.

All businesses dislike uncertainty, and this is no less true for insurance companies. In times of regulatory uncertainty, they will increase premiums to decrease their risk. The cost-sharing reduction payments, which assist those who are below 250 percent of the federal poverty level with their deductibles, copays and co-insurance, are critical to the stability of the plans sold on the public insurance exchanges. The Trump administration has been making decisions month by month as to whether to pay these payments.

If the administration were to commit to making these payments and Congress would appropriate the funds for them, this would stem the losses of insurance carriers from markets and might entice some companies to return to the public exchanges. More insurance companies offering plans on the exchanges means lower premiums and lower annual increases. The Republicans have been making these payments anyway, and Democrats will readily support this measure. I would propose that we return stability to the market, commit to these payments and let Republicans take the credit.

Eliminate the employer mandate.

Here is a win for the Republicans, for whom mandates are anathema, and an opportunity for Democrats to make a concession.

The employer mandate was implemented because of the fear that employers would abandon coverage for their employees and send them to the public exchanges. This fear never was realized, and employers continue to understand that employee benefits are important and essential in being competitive for workers and talent. Let’s just get rid of it and let Republicans take the win.

Induce more insurance companies to offer plans on the exchanges.

There are several ways to achieve this. First is to enforce the individual mandate and commit to the cost-sharing reductions that I mentioned above. I offer up these additional ideas:

  • In those counties that have no insurer or only one insurer on the public exchange, offer reinsurance for a period of three years. This would minimize the risk for insurance companies to offer plans in those markets and encourage more participation.
  • Require that, if plans want to offer a Medicaid plan in a given state or individual plans in other counties in that state, they must participate on the public exchange in all counties of the state so that all counties end up with one or more insurance plan options.
  • Offer a public option through a private Medicare Advantage plan that allows enrollment starting at age 50 to take higher-risk patients out of the risk pool for commercial plans in those markets, pay the plan the average Medicare per capita fee for that market (which should be attractive to plans) and separate this population from the plan’s age 65 and older enrollees for purposes of calculating the plan’s star rating so that payments for the traditional Medicare enrollees are not diminished.

Enact changes that will reduce insurance premiums.

Enforcing the individual mandate and committing to the cost-sharing reduction payments I discussed above will decrease premiums. There are four more things we can do to lower insurance premiums:

  • Increase the age rating band.

Generally speaking, an insurer will spend five times more on its oldest subscribers as its younger ones. The ACA instituted a fee cap of 3:1, meaning insurance companies could not charge more than three times the premium to older subscribers as they do to younger ones.

Republicans are in favor of increasing that age rating band to 4:1 or 5:1 and doing so would lower insurance premiums for younger, healthier individuals needed in the insurance risk pools.

The downside would be that premiums for older individuals will increase, and Democrats would be likely to oppose this. I would propose that we increase the age band but provide additional subsidies to older individuals through the advance premium tax credit to help offset those premium increases.

  • Create invisible high-risk pools.

In most all populations, 5 percent of people account for nearly 50 percent of health care spending. Insurers have to increase premiums significantly for the remaining 95 percent of the enrollees to cover the costs of caring for this 5 percent.

An invisible high-risk pool would allow these higher-cost individuals to remain under the insurer’s health plan, but would cap the insurer’s liability and use state or federal funds to pay for all the costs above the cap. This could significantly reduce premiums.

Republicans are in favor of high-risk pools and included funding for them in the AHCA and BCRA, so this should not be a stretch. Democrats have generally been opposed to high-risk pools because of the experience with traditional high-risk pools, but an invisible pool would alleviate most concerns as there would not be a waiting list, a waiting period, decreased benefits or an inadequate network of providers.

  • Create an early buy-in for Medicare.

We could lower Medicare eligibility to age 50 or 55 and require those beneficiaries to pay the average Medicare per capita spending amount for that geographic area as their premium until they reached age 65. These are the highest-risk enrollees in commercial insurance plans, so removing them should improve the risk pool and lower premiums.

At the same time, these patients would be the lowest-risk patients in the Medicare risk pool, so if they paid the average Medicare beneficiary per capita spending amount as their premium, they should cover their costs in aggregate and not pose a negative financial impact to the Medicare program. The expansion of Medicare eligibility should be attractive to Democrats, and the ability to lower premiums and not add to the deficit should be acceptable to the Republicans.

  • Lower drug prices.

According to Politico, “Obamacare has helped reduce the overall growth of health care costs to the lowest rate in half a century, but prescription drug prices have continued to soar.” Many plans now spend more on drugs than hospitalizations.

There are many possible ways to reduce drug prices. Here are two:

      • Implement the equivalent of a medical loss ratio. The ACA put in place a medical loss ratio (MLR) for insurance companies that requires that 80 percent to 85 percent of the premium must go to providing medical services. The remaining 15 percent to 20 percent can be used for administrative purposes and profit. Any amount less than the 80 percent to 85 percent spent on medical services must be refunded to subscribers. Congress could impose similar limits on pharmaceutical companies and require that a certain percentage of their revenues be devoted to research, development and production of medications. Another percentage of their revenues could be used for marketing and administrative purposes. Revenues in excess of the limits on marketing, administrative costs and profits would have to be refunded to the health plans, employer-sponsored health plans and individuals who purchased their medications.
      • Tie profits to the length of pharmaceutical companies’ patents. Currently, pharmaceutical companies obtain patents that allow them to be the sole producer of a medication for a period of years. During that time, they can price their medications at levels as high as the market will bear. I would propose that as soon as the aggregate sales revenue reaches the amount a company has invested in research and development of the drug, the patent expires. This would discourage high prices that bear no relationship to the R&D costs, and firms not discouraged by this approach would pay for it in loss of patent protection. Their higher prices additionally would attract competitors.

Get rid of the Cadillac tax.

Neither party likes this. It is a tax on the richest employer-sponsored health plans. Republicans hate it because it is a tax. Democrats hate it because it is unpopular with unions. The reason it was implemented was to discourage rich health plans that encouraged health care spending and because it was a minor attempt toward equalizing the tax treatment of employer health benefits, which are excluded from income taxation, and health plans bought on the individual market, which are bought with after tax dollars.

Let’s get rid of it and replace it with a limit on the exclusion from tax exemption of employee health benefits. This could be set at the 90th percentile of benefits, which are typically received by those who are in higher-paying jobs and can afford the tax. The benefit of doing so is to achieve the purposes of the Cadillac tax, but not lose the revenue anticipated with that tax.

Roll back Medicaid expansion

(a win for Republicans), but replace it with tax credits and cost-sharing reduction subsidies for those below 138 percent of the federal poverty level, so that instead of being eligible for Medicaid in expansion states and not eligible for anything in non-expansion states, all of these low-income individuals and families could be covered under commercial plans on the public insurance exchanges. The latter would be a win for Democrats.

Delivery System Reform

I believe the approach outlined here could achieve bipartisan support for health insurance reform. For delivery system reform, we must first understand where the costs are coming from. I put them in three buckets:


The American health care delivery system does not do a particularly good job in this area. In its defense, until the ACA, insurers did not spend a lot in this area, even though prevention of disease is much less costly than treating the disease. Of particular concern to me is the rising epidemic of childhood obesity and the huge health care costs that will be associated with these children’s care as they become adults. I am also concerned about the opioid and other drug/alcohol addiction problems in this country and the corresponding health care costs and costs to society.

We need to identify and invest in programs that are effective in combating these health threats, and we need value-based insurance benefit design changes that not only provide prevention and screening services not subject to the deductible and copays, but also lifestyle medicine interventions for at-risk patients.

Low-value/no-value services.

It is estimated that 30 percent of health care services are of low value or no value. These range from treating patients with antibiotics for viral illnesses to futile care, or surgery when a patient is just as likely to achieve their goal with conservative treatment.

To address these problems, we need to change the reimbursement system from fee for service to pay for value so that providers are accountable for the outcomes of care and the total cost of care.

Here is an example from another sphere of care. My beloved dog just suffered a slipped disc and loss of motor function in his hind legs. Jake underwent surgery and is expected to recover.

However, the vet has offered three additional optional services: laser treatments, hyperbaric therapy and hydrotherapy. From what I understand, there is little research to support these treatments, but I love my dog and want to do everything that is reasonable to promote his recovery. From the fee-for-service standpoint, are they recommending these services because each one comes with another charge, or would they get some or all of these services if it were their dog, the way I would like for the decision to be made under pay for value?

Patients with multiple chronic diseases.

Twelve and a half percent of the American population has five or more chronic illnesses, and half of these patients account for half of all health care spending in the U.S. It is also in this population that a lot of mental health, behavioral health and substance abuse disorders coexist, at least doubling the cost of caring for this population. Under fee for service, care is fragmented and poorly coordinated, and there is huge opportunity to reduce spending and at the same time, improve outcomes, care and health.

To address all of this, we need to move from fee for service to pay for value to encourage health care providers to take accountability for patients across the continuum of care, better coordinate care, manage transitions of care, develop disease management programs and address underlying mental health issues.

For high-risk/high-cost procedures, I think commercial payers and the government should develop centers of excellence programs, where the use of those providers who are able to offer the best outcomes at the lowest total cost of care are encouraged by waiving out-of-pocket expenses and providing for travel expenses. A beneficiary could still choose to get care locally with the standard deductible and copays and co-insurance if they desired to, but they would be provided with a financial incentive to get care for high-risk/high-cost procedures at those hospitals with the lowest mortality and complication rates for that particular procedure.

We’ve seen multiple runs at the Gordian knot of care and costs in America now for decades, most recently with Obamacare and all the recent attempts to revise that law. Politicians of all stripes now have a unique opportunity to work together on behalf of millions of Americans. I hope they rise to the occasion.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke’s Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.