Episode 37: Responding to Negative Payment Trends

Now is the time for physicians to review their business models, consider new opportunities, and address payment trends head-on, according to Dr. Tom Davis, founder and principal at TED Consulting. As the payment world grows more complex and unclear, the path to success comes by understanding which financial aspects of your practice you can control, and which ones you can’t. In this episode, Dr. Davis explains how to see the opportunities, rather than the challenges, associated with telehealth, cash-pay services, Medicare Advantage, and the pandemic.

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Full Transcript

Announcer: It’s time to think differently about healthcare. But how do we keep up? The days of yesterday’s medicine are long gone, and we’re left trying to figure out where to go from here. With all the talk about politics and technology, it can be easy to forget that healthcare is still all about humans. And many of those humans have unbelievable stories to tell. Here, we leave the policy debates to the other guys and focus instead on the people and ideas that are changing the way we address our health. It’s time to navigate the new landscape of healthcare together. And here’s some amazing stories along the way. Ready for a breath of fresh air? It’s time for your Paradigm Shift.

Michael: Welcome to the Paradigm Shift of Healthcare and thank you for listening. I’m Michael Roberts here today with co-host Jared Johnson and Scott Zeitzer. On today’s episode, we’re talking with Dr. Tom Davis, founder and principal at TED Consulting, a firm that helps patients by helping clinicians improve their personal and professional lives. Dr. Davis, thank you so much for coming on the show today.

Dr. Davis: Well, thank you. It’s a privilege to be here. And I must compliment you on how four-sided the name of your podcast is, the Paradigm Shift of Healthcare. It’s almost like you saw COVID coming and decided to get ahead of the curve.

Michael: It was really a fascinating thing. Because, you know, maybe a couple months ago, Scott and I were just having this conversation of, you know, the real paradigm shift is all about how patients are leading the way a lot more in this consumerization of healthcare. And then, you know, here we are in the pandemic, and you talk about a paradigm shift. We are certainly, certainly in it.

Dr. Davis: Times have changed, that’s for sure.

Scott: Yeah, and I think they’re going to be changing for some time. I know when this initially started, everybody said, “Oh, we’ll just stay at home for a couple of weeks, and then we’ll have like a V-shaped economy kind of a thing and we’ll get right back at it.” Obviously, this is not a V-shaped return to a normal economy. Hopefully, it’s kind of a short U. But who knows really what it looks like?

Dr. Davis: It’s a journey. We now know what our grandparents went through when Pearl Harbor was bombed or some other…or Sputnik was launched, how disruptive those were.

Scott: Yeah, it’s certainly a major disrupter, which kind of leads me to one of the things that’s been on my mind, which was basically how COVID-19, the pandemic itself has affected payment trends that practices were already dealing with, you know, such as Medicare Advantage, telehealth cash-pay. Just wanted some of your feedback about that.

Dr. Davis: Well, just like with any exacerbation of any chronic disease, what is good is getting better and what’s bad with you is getting worse. And there has been, as a result of people not wanting to congregate because they’re afraid to or the government tells them not to, there’s been a massive shift of the delivery of healthcare onto a virtual world. And if you were a clinician and you couldn’t deliver your core services virtually, or you couldn’t access the PPE to do it, then you were…you’re pretty much dead in the water. And there are a ton of very capital-intensive, deeply embedded practices that came to a full stop overnight. And we are just at the teeny tiny tip of the spear finding out what that means for the broader healthcare economy.

The trends that you’re seeing that are getting worse, that will get worse I should say, is that the one actor in the entire healthcare system that’s absolutely making bank are the insurers, and the larger the insurers, the more bank they’re making, right? Because people are not seeking care. And I’ve talked to some of my colleagues that are deeply embedded in these large organizations. They’re telling me that their risk profiles have just completely blown up, that, you know, they’re running out of places to keep their money because they’re not paying out claims like they anticipated.

And so, yeah, with all those resources, you can bet that what’s left of insurers, it’s going to consolidate even more and the individual clinicians and practices are going to be lucky if there’s just one major payer that they’re allowed to participate in in their market. And, you know, their collection percentage from the patient’s responsibility is going to go down, and their days in AR are going to go up at the same time when the bill collectors are knocking at the door. And all these things have been going on, you know, slowly over time. They’ve been accelerating before COVID, but COVID just made it worse.

Scott: Yeah. Let’s talk a little bit about the good side, telehealth, and maybe thinking through workflow a little bit more. Some of my pet peeve on the consumerism side, I certainly believe that telehealth is here to stay as an option for both clinicians as well as for patients.

Dr. Davis: Well, the folks that are calling the shots in terms of healthcare delivery, they love telehealth. They’ve been trying to get their arms around how to make the investment and make the transition into telehealth, but they love it. Because it serves the industrial delivery model of healthcare and basically removes a lot of the friction in between each visit, the knocking on the doors, and the, you know, actually smiling, looking at the patient and washing your hands. It actually eliminates all that. So, it’s possible to deliver more of some types of care more quickly, and thereby make you more productive.

And one of the things I do is I mentor clinicians in how to create their own telemedicine practices as independent contractor. And because of that increase in efficiency as a family physician, I can flat double your hourly wage. I mean, it’s not unusual to earn $200, $250 an hour doing this because of that lack of friction. Telemedicine is absolutely here to stay because COVID has forced these…the healthcare delivery system to pivot that way. And then we’re just getting the news today that the federal government’s thrown another 75 billion in the kitty to the health systems. And so, they’re actually going to have the resources to make that pivot.

Scott: Yeah. And I think that’s just great. I mean, there’s so many “conditions, concerns, follow up” that can be handled via telehealth. So, I’m excited about that. And if, as a practitioner, if you’re getting it the bundled payment modalities, being able to follow up without having all that extra work involved in terms, just like you said, of moving them from the waiting room into the exam room, washing, moving to the next one, all those interactions can certainly be handled. A lot of that post-surgery, pre surgery can certainly be handled with that and taken advantage of, quite frankly.

Dr. Davis: You’re absolutely right. There is a lot of low hanging fruit here and accelerating the adoption will only unlock value in those situations. But it’s very important to understand that a virtual health encounter is not an office visit. And usually the doctor that takes care of you is not your doctor. And so, as a patient, you got to proceed with caution. And as a clinician, you got to proceed with extra caution for a variety of reasons.

Scott: You know, it’s funny, I didn’t think about it from that perspective. I was thinking more along the lines of just being able to communicate via a telehealth modality with my own doctor, not with “some doctor.” So, if I have a private family practice person, I just want to talk to my own. I didn’t think about it, rightfully so. You’re bringing it up rightfully so from the perspective of, “I’m just going to talk to someone at, says Kaiser.” You know what I mean?

Dr. Davis: Uh-hmm. For clinicians that are employed and patients who are seeing them, the patient can expect less engagement with their personal clinician, not more, because the very nature of telemedicine will encourage creation of systems that you’re going to have to jump through a ton of hoops before you can get to your own personal clinician. On one hand, there is a lot of low hanging fruit in terms of collaborative care and making sure the bundled payments come in under cost. But on the other hand, it’s simply going to accelerate the fragmentation of the healthcare market.

And that is an enormous opportunity for that subset of clinicians who are looking around and they’re seeing that the one practice model that is thriving in this situation are the small micro-practices that are primarily cash based, that are very low overhead. They’re not saddled with debt because they don’t have to buy a lot of stuff in order to do their thing. And they are finding that patients are flocking to them because those patients, even though they don’t have very much money, they can afford the subscriptions or the office fees rather than not being able to see their clinician at all. And people hunger for that connection, especially in times as uncertain as this. And so those cash pay micro-practices are going to be a key tactic for individual clinicians going forward that don’t want to be subsumed into the employment model.

Scott: It’s really interesting. You see that for…I definitely could see that for, say, a family practitioner, pediatrician, internist. You see that for more specialized like neurology, orthopedics, spine, you know, that type of thing.

Dr. Davis: Well, I absolutely see it for specialties and subspecialties that are not procedure heavy. So, neurologists would be a great one. Any procedures they do is usually in the office. What you’re going to see is a bifurcation of 80% of the specialists who [inaudible 00:09:33] procedures, going over to the employed model. And they’re going to experience the treadmill even more than they’re experiencing now. And then you’re going to get 20% who are going to divorce themselves from that system completely. They’re going to go and continue the trend towards physician-owned surgical centers which are tied to their site of practice, and they’re going to be completely separate from the hospital system.

And as you look in the future, what you’re going to see is the health systems using their new partnership with the government to make this pivot in their care paradigm. And it’s going to take them a while to kind of digest things and get everything up and running. And once they do, they’re going to start looking around for additional market share. And they are going to target those specialists who have adopted that model, like the Oklahoma City model. And there…because the government essentially now is a partner with these health systems in the delivery of healthcare, clinicians shouldn’t expect any autonomy, any independence, any political protection of any kind. It’s not going to happen next year or the year after next. But in three to five years, the headline is going to be a moral urgency to bring all the physicians, all the clinicians under one umbrella, which is going to be a proxy for the employment model.

So those orthopedists and other specialties that are very procedure heavy, you have to take a look at the medium and long-term value of any kind of financial investment that you make. Because experience teaches, and having gone through this personally myself, I can attest to it, you’ll be asked to sell at the point of a gun. And if you decide not to sell, then you’ll wish that you did. And so, you have to factor that in in terms of any kind of investment, any kind of capital that you want to put into that. And you might decide that, you know what? I don’t even want to do that anymore. I want to back off a little bit, and maybe work in my specialty in a little less procedural-oriented fashion, even if it means I’m going to make less money.

Scott: Yeah. You know, as you were talking to me, I was thinking that, over the years, medicine in general has kind of stayed separate from, just as a business I mean, it has basically stayed old fashioned. I guess that’s where I’m going. A practitioner graduates, joins a small firm of partnership in some sort…whether it’s one person, five people, whatever. It’s a very small business, hiring people that support these few people. But not much changes. Now, we’re going through some major changes where either groups are being combined to form very, very large groups or, as you’re saying, they’re being absorbed into “the system,” whether that’s Kaiser, whether that’s some large combination of local hospitals that everybody’s seeing now. It really is interesting about how the small business side of being a doctor, like most of the time, that was the primary modality. Most doctors were in a small business. Now, they’re not. And I do think that’s going to be a major change for both physicians and practitioners.

Dr. Davis: For your listeners, the paradigm that they need to realize, that they need to use is the bank bailout back at 2008. And the government essentially owns the bank. The bank essentially owns the government, and together they work together to create a regulatory environment where the small fry is not welcome. And so, you’ve had a tremendous number of banks open, and then they get acquired. That’s actually a business model. And who knows, that might be a pretty good business model. You start your own surgery center and then sell it five years later and do it again. I doubt that the powers that be will allow the regulatory environment to allow that but that’s one thing to be considered.

Think about what happened in 2008 with banking and what happened since that time. Well, what happened with those banks just happened with the health system and you…as you make your allocations for your expectations and your future investments, you really have to think about that. The only banks that really are surviving are the micro-banks with the very, very, very strong balance sheets. They are doing very well even in a time like this because they’re able to work with their customers. But a very few small banks survived for the first five or six years after the banking crisis. Their examiners were very aggressive. Admittedly, we’re looking to shut them down so that they would have to sell. And that, again, is a feature, not a bug. I mean, that’s part of the deal. Government wanted to consolidate the banking industry, and they did. And then they’ve backed off a little bit, but now they’re turning to healthcare.

And any clinician who is in a private business has got to realize the landscape has completely changed. And it’s now not just the health systems you’re competing against, it’s the health system plus their government allies. And they are the terminators. They will never ever, ever stop until they’ve got you.

Scott: Let’s back up for a second and talk a little bit about small practice. We’ll pick two. We’ll say a procedure-oriented small practice like an orthopedic surgical practice, and we’ll pick a just a pediatrician’s office. What would you have them focus on from both the perspective of what to avoid and what to focus on?

Dr. Davis: The most important thing is to keep your overhead structure low, low, low. Your capital needs low and completely and totally out of debt. Okay? That’s the very first thing. So, using that as your foundation, then you have to start looking. It’s like, “Okay. Well, with those limitations, what kind of procedures can I offer? What kind of revenue can I generate? What kind of ancillaries are there?” For the pediatrician, now the no-brainer is a subscription practice run out of a wing of their own home, which they have to live in anyway. And there’s some tax advantages to doing that and offering house calls, and if your wife or your spouse can’t be your nurse, then paying your nurse on a per diem basis as opposed to as a full-time employee. You got to be careful with that but there are ways to do that. And just generally look to see what ways that you can deliver care.

It requires looking in the mirror and saying, “Okay. What do I have a value that I can offer? And then how can I best offer it?” Looking at that, if you can package things, especially the third-party payers who are going to make it worth your while, then you can contract with them. Most of the time, you’re going to find that’s not the case. So, you’re free to innovate any kind of care package you want as long as it’s legal. And that is for clinicians who primarily are selling their cognitive purposes. Now, specialists like orthopedists, it takes a great deal of skill to do what they do, and it takes a great deal of cognition to recognize when you should proceed and when you should not proceed. So, they’re in a little different situation because their revenue streams are dependent on the overcompensation of procedures at the expense of cognitive treatment that has been in place for the past 60 or 70 years.

Ever since Medicare started contracting with the RUC through the AMA, there’s been a shift of compensation dollars from cognitive to procedures. And, you know, the procedure-heavy specialties are going to have to realize that the world has changed. And if they want access to that dichotomy, that payment that is not really associated with true value because it wasn’t…due to an arbitrary or shifting of healthcare dollars, then they’re going to have to go on the treadmill to get it with all the implications that that means, you know, the employment and dealing with all this stuff that goes along with it. Otherwise, they themselves can develop a cognitive practice that’s full of a lot of office procedures, that they can charge, you know, whatever they want for based on what the market will bear. And even, there are going to be some seniors, they’re going to be willing to pay a subscription to have access to their orthopedist, for whatever reason. And that is a very reasonable model going forward.

But I recognize what I’m saying. The orthopedists and other folks that are sitting here shaking, listening at this are shaking their heads saying, “No, no, no, no, no.” Well, I got to tell you, the world has changed. The compensation associated with procedures is an artifact of the political advantage that the specialist had in the AMA compared to the primary care doctors. And that’s led to a chronic shifting of resources, of healthcare dollars from one to the other. And unless you’re very honest with yourself and have…and recognize that, then you’re going to be sorely disappointed in the world become because the third-party payment rates are not going to allow that dichotomy to continue.

And it’s not that the primary care are going to make any more money. It’s that they see that as the excessive compensation as being fat. And they are going to crank that down through a combination of having you do more to earn it and forcing you to run on the treadmill faster and faster to get it. And so, you know, the folks out there that are in these procedure specialties, they have to look in the mirror and they have to think about what the future holds.

Jared: Tom, this is all pretty fascinating. And really what it all comes down to is the clinicians themselves, right, the physicians who have started the practice or who have been involved in one or who are weighing their options and are trying to understand what the best path is for them business model-wise, to make this all work for them and their practice and their approach to everything, that can obviously lead to burnout when all those things don’t go as expected. So, I don’t know if we can talk about the burnout side of it enough. You know, how do clinicians avoid burnout, especially as it seem to have accelerated during the pandemic?

Dr. Davis: Well, in the short term, it’s all the straightforward stuff, which is to take care of yourself physically. You know, you eat right, make sure you’re getting regular exercise, get plenty of sleep. There is a certain level of discomfort because the clinicians, especially the employed ones, have always have agreed to a deal, which is, you know, we’ll do what you want in exchange for a steady and outsized paycheck. So, the first thing you’ve got to do is you got to give yourself lot of…take care of yourself. The second thing which is absolutely mandatory is you got to read a book, and I didn’t write this book. It’s a book called “Transitions” by William Bridges and it is a classic in the genre.

And basically, what it does is it talks about people who are either intentionally making transitions in their lives or had transitions forced upon them. How the journey is similar in many ways, how the journey can be different. But to let you understand that there is a paradigm that most transitions follow that you can anticipate, and forearm is…forearm is forewarned…forewarned is forearmed and you can take changes to help you appreciate that. And that no matter if you’re going to make a change at all in terms of your career or whatnot, in this day and age, it’s absolutely mandatory reading. It’s called “Transitions” by William Bridges, “Making Sense of Life’s Changes.” So that’s a single actionable take that everybody should be doing in the clinical space.

Jared: Yeah. Tom, there’s one piece related to that as kind of a way to wrap up this whole conversation, about you’ve been known to consult and share the advice that if you can’t invest in tomorrow, invest in yourself today. And that sounds just kind of a good way to kind of wrap up the self-care part of what you were just describing.

Dr. Davis: Well, that’s correct. When I decided that working as a clinician was…as a employed clinician wasn’t a good fit, I started looking at what service lines I could do. And then I started improving my ability to do them. For instance, if you want to be a professional speaker, I went and I took the Dale Carnegie course, which I cannot give you a recommendation too highly. That is a premier organization. Gold stars, if you want to try to build your talent stack. But that was an example. So, whatever your interest is, there is a training program that you can create yourself. And the challenge there is that we are so used to as clinicians having our training paths set out in front of us that we’re very uncomfortable walking out, getting out from those wheel ruts. So, if you want to thrive in this new world, you need to get out of the rut and build your talent stack in the way that you feel best is…best to you. And don’t be afraid of making the mistakes, because very few people actually do it. And just the fact that you try makes you infinitely valuable.

Michael: Definitely a lot of stuff to think about here, Dr. Davis. I really do appreciate you coming on the show. And I think that we’re going to wrap here. But thank you again so much for sharing your thoughts on this. It’s definitely a lot for clinicians, for us as patients to be thinking about in the days ahead. So, thank you so much and we really do appreciate it.

Dr. Davis: And it’s been my privilege. Everybody out there, help each other and we’ll be fine.

Announcer: Thanks again for tuning in to the Paradigm Shift of Healthcare. This program is brought to you by P3 Inbound, marketing for ortho, spine, and neuro practices. Subscribe on iTunes, Google Play, or anywhere you listen to podcasts.