Let’s start the search for affordable health care with Diogenes (of all places). He carried a lantern or candle and shined them in the faces of the citizens of Athens claiming he was looking for an honest man. If we truly want affordable health care we need a combination of factors including more honesty and transparency and less talk about affordable insurance.

Let’s imagine a patient with a persistent cough. That person’s doctor makes a diagnosis of  bronchitis and prescribes an antibiotic. When the cough gets worse instead of better, the diagnosis changes to pneumonia and an anti-viral is prescribed. When that doesn’t work, the next logical stop on the runaway train is asthma, then sarcoidosis, then fibrosis. As frustrating as it is, no treatment works. The cough keeps getting worse and we now have burdened the system with numerous patient encounters and numerous prescriptions all to no avail with a frustrated patient and sizable medical bills which may or may not be a concern to the patient since the patient for all practical purposes is removed from the actual “purchase” decision.

Taking a step backwards and reevaluating the situation, we find out that the treatments aren’t working because the problem isn’t in the lungs. The patient has acid reflux, which is inflaming her esophagus and causing the insatiable cough. EUREKA!

Unfortunately, this patient is America.  Our persistent, worsening symptom is the rising cost of health care and insurance coverage, and Washington is our doctor. From the creation of Medicare and Medicaid in 1965 to the Affordable Care Act in 2010, Washington’s approach to solving this challenge has been finding ways to enroll more Americans in health insurance, be it public or private.

The results of our government’s repeated attempts at so-called “health care reform” speak for themselves. Per capita health care spending has increased dramatically since 1970, rising from $353 per person in 1970 to $11,582 in 2019. Average family premiums have more than tripled since 1999, far outpacing wage growth. Out-of-pocket costs have increased for patients, too, growing by 10 percent or more in recent years. Consequently, one has to definitely conclude that reform has been an abysmal failure.

In my opinion, the reason for this failure is simple. Much like our hypothetical patient’s doctor who kept focusing on her lungs, Washington is trying to treat our health care affordability crisis in the wrong place. Health insurance is just a pass-through vehicle for health care spending. So, while expanding coverage can help make individual health care spending more predictable, it cannot make health care more affordable, much to the chagrin of all of our citizens who keep finding new faces to point fingers at.

As we start an entirely new political cycle and administration, unfortunately, the new administration’s plans for health care are just an extension of the failed approach of the past five decades. The more things change, the more things stay the same. Proposals such as a public option and lowering the Medicare eligibility to age 60 will fail to make health care more affordable because they are focused on insurance, not health care. This tired, insurance-focused approach is likely to fall into the same partisan battle lines that have defined the debate over health care affordability for two decades with the result that nothing good will come of it. 

Democrats and Republicans be damned, It is time for a new treatment plan to attack what ails American health care.  This plan has to get to the root cause of the problem and in such a way that both parties can unite around it. It is not lack of coverage that is causing health care costs to rise. Instead, it is high health care prices and high health care demand. There is no way to make health care affordable without reducing both.
While many strategies may be put forth, there follows three strategies to make health care more affordable that President Biden and a narrowly divided Congress should be able to agree on and enable progress to be made-FINALLY?

First, we must fix the broken marketplace for health care goods and services that has led to runaway price increases. The track record of the past 50 years shows that third-party health insurers are, at best, incapable of controlling health care prices. At worst, they are contributing to the price escalation. We also know that when governments impose price controls, it leads to scarcity. (One only has to look back to 1971 and the Economic Stabilization Act which imposed price controls-also a time of increasing healthcare costs). Neither runaway prices nor rationing is acceptable for our health care.

Instead, we need to embrace what works in every other market to lower prices, increase quality and expand options: individual customers (in this case, patients) making informed choices between providers that are given the freedom to innovate. Research shows that 70 percent of inpatient services and 90 percent of outpatient services are shoppable. Reforms that give patients more visibility of price and quality, along with real incentives to act on that information and the elimination of barriers that make it harder for doctors to practice medicine, are the only way to bring real choice and competition to health care to lower prices. 
 
President Trump’s price transparency rules for hospitals and providers were a strong first step. Democrats and Republicans should be able to unite around reforms that reinforce and build upon that rule. Polls show that price transparency in health care is favored by 90 percent of Americans. As an actual example of the lack of transparency, let us look at a relatively simple emergency room visit-
Charges were:
Diagnostic/Therapeutic Imaging                      $18,532
Pharmacy                                                                 50
Emergency Room                                                3,630
Sub-total                                                             22,212
Insurance adjustment                                       (21,641)
Net Balance                                                           (565)
Insurance Payment                                                (560)
Net due from patient                                        $          5 

Granted that in times of emergency, one has little time to “shop”; However, this is an absurd example facing patients, especially those without insurance. If prices were posted, elective procedures could be performed in the most economical setting supported by the quality outcomes that would also be made available to the public.  There are certain sections of the country where transparent pricing has enabled just such a comparison and health care costs there remain lower than the national average.
 
Second, we must reduce chronic illness in America. These largely preventable conditions account for 75 percent of all health care spending and most clinician visits, prescriptions, home health visits and inpatient stays. We can start with reforms to prioritize preventative medicine and high-quality primary care. Our largely acute care-focused system is very good at keeping you alive, but not very good at keeping you healthy. It should be the responsibility of every citizen to maximize what they are doing to remain healthy and stay that way. Center for Medicare and Medicaid Services (CMS) has issued guidelines and fee schedules for chronic care management and other services such as end of life counseling that will compensate physicians (especially PCPs) to achieve a defined set of metrics for which they are rewarded with the goal to successfully achieve the Triple Aims -High Quality Outcomes, Lower Total Cost and Patient Satisfaction.

However, chronic illness is as much a cultural challenge as it is clinical. Research shows that 80 percent of health outcomes are due to factors outside the doctor’s office. Changing the cultural and societal patterns that lead to chronic illness will require a decades-long, society-wide effort. We should apply lessons from our success in reducing smoking to other lifestyle risk factors for chronic illness to build a culture of healthy longevity in America. COVID-19’s disproportionate impact on those with underlying health issues has put renewed attention on America’s poor health. Republicans and Democrats should be able to unite around a plan to “make America healthy again.” In fact, CMS conducted a study to determine if societal factors had a profound impact on overall health. They explored issues such as having transportation to the doctor’s office, the lack of food, housing etc. Common sense would suggest that these external factors play a major role in driving the cost of health care upwards.

The third strategy is to accelerate the rate of scientific and technological progress in health care by increasing public and private investment in research and development, and streamlining the pathway from lab to the patient. The genetic revolution holds the promise of cures for inherited illnesses that otherwise would lead to decades of expensive treatments. New science is emerging about the underlying biological process of aging that could extend our healthy years of life by making us much more resistant to age-related diseases. In addition, technologies such as health wearables, telehealth, home health kits and artificial intelligence give people more options for care and can drive prices down. New treatments and a renewed focus on prevention could one day eliminate chronic disease in America. 

Empowering patients and doctors to lower prices and improve quality; focusing on reducing chronic illnesses in the clinic and the culture; and heavily investing in scientific research and removing bureaucratic obstacles to accelerate the availability of new treatments and technologies in health care — these three approaches are very different from the typical Washington approach to “health care reform.” But only by changing our focus to the real causes of the rising cost of health care can we cure the disease.

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To explore ways in which we can provide assistance  with your  strategy or decipher the changing reimbursement rules being promulgated by CMS in this evolving health care environment, please contact David H. Fater at dfater@alda-associates.com or Richard M. Cohen at rcohen@alda-associates.com

Pick One: Your Doctor or Your Rights? A Look at This Decision And Other Anomalies Associated with the Private Equity Incursion into Healthcare by David H. Fater

In an earlier edition of our newsletter (archived on our website), we challenged the invasion of private equity into healthcare and whether it was going to be Groundhog Day and a repetition of the 1990s disasters. Nothing has occurred since that Newsletter came out that would suggest private equity would lose interest or sufficiently get their fingers burned to slow down or stop the invasion. The opposite is probably true and more dollars are flowing into healthcare from private equity funds. However, as Private Equity investors take over the physician practices (offices), they are now popularizing a controversial legal practice- forcing patients to agree to binding arbitration before they can receive care which is depriving those patients a fundamental right .

Let’s look at a case in point. A female patient who has been seeing the same gynecologist for 14 years presents at the hospital 5 weeks early and the physician calmly decides that the best  method of delivery is cesarean section. Pretty normal BUT right before the visit, a staff member of the practice telephoned and requested that the patient watch a video on the practice’s website. The message was introducing a form that needed to be signed by the patient which was agreeing to binding arbitration. This meant she was waiving her right to a jury trial in case of medical malpractice. The patient learned that all of the patients in the practice were expected to sign the form and in the absence of that were told they could no longer be seen at the practice and she would have to find another physician.
 
When challenged by the patient, the physician explained his hands were tied because the practice had been sold to a private equity firm and the private equity fund was insisting on standardization. The interesting wrinkle here is that the patient is a practicing attorney and the agreement happened to be one that she litigated several years ago to the point where the State Supreme Court agreed that the agreement was unenforceable and void. The private equity/ medical group decided it was better to have an unenforceable form in the file as that alone could dissuade a patient from filing a lawsuit.

The argument for arbitration hinges on the rising costs imposed by malpractice lawsuits, which some policymakers and doctors say have made medicine more litigious and led to worse care. One in three babies in the U.S. is delivered via C-section, a procedure that, compared with vaginal delivery,  is more expensive for patients, requires a longer recovery period, and carries higher risks of infection and blood loss- but which is less likely to result in a lawsuit if complications occur during labor, at least according to the American Congress of Obstetricians & Gynecologists. The group has said that limiting physician liability would cause C-section rates to drop. Somewhere we also have to revert back to the Triple AIMS of Lower Cost, Higher Quality Outcomes and Patient Satisfaction.
 
Advocates of arbitration contend that it's a sensible alternative to resolving disputes in a trial. Arbitration, they say, frees doctors to treat patients more holistically and to worry less about how a treatment decision might play with a jury. But it has also helped enable a trend that has very little to do with patients' well-being: the rise of private equity in medicine. Over the past decade, almost 4,000 independent clinicians in women's health have come under private equity ownership, according to a study published in August in Journal of the American Medical Association. The figure is likely much higher, according to the study's authors, but the deals aren't uniformly disclosed.

The Covid-19 pandemic, during which doctors' offices shutdown temporarily and furloughed staff, is only accelerating this trend. The average medical office's revenue dropped 32% in 2020, according to a survey released in November by the American Medical Association, even as rates for malpractice coverage have gone up by as much as 30% .  Private equity firms, on the other hand, raised billions from investors last year and have been buying up struggling practices on the cheap.
 
The private equity playbook involves acquiring practices in fields such as dermatology, gastroenterology, and obstetrics and rolling them up into enormous medical networks with hundreds of doctors' offices and thousands of individual doctors under a single brand.  [All too often we also forget that healthcare is a national issue but is delivered locally. All we have to do to drive this point home is look at Columbia which attempted that branding which ultimately failed]. For these big practices, arbitration may be especially useful. Jury trials, even in the era of tort reform, can still lead to awards in the tens or even hundreds of millions of dollars for plaintiffs. Juries, understandably, are likely to have less sympathy for a well-capitalized Wall Street owner than for a grieving mother who's been treated poorly.

For years now, private equity has been following a similar strategy in a wide range of medical fields- from anesthesiology to hospice care- buying small practices and putting them under a corporate umbrella  With patients shunning in person visits and postponing elective surgeries amid the Covid-19 pandemic, solo offices are struggling to stay afloat and are under increased pressure to sell to chains. However, alarms are being sounded among doctors, researchers, and antitrust regulators. The concern is that mergers and take- overs are diminishing choices for consumers, potentially undermining quality of care and raising costs. The Democrats have said there would be increased scrutiny directed at anti-competitive behavior in medicine. (See preceding paragraph.)
 
There is no doubt that the “industry” will continue to consolidate. The real question is how long will it stay consolidated or do we see what we experienced in the 1990’s of acquisition/divestiture/acquisition/divestiture.
 
Who knows-Maybe it is Groundhog Day!!!

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To explore ways in which we can provide assistance  with your  strategy or accessing private equity,  please contact David H. Fater at dfater@alda-associates.com or Richard M. Cohen at rcohen@alda-associates.com

Representative Engagements

• Advisor to three drug development companies for raising capital, designing and implementing clinical trials and interfacing with the FDA.
• Initiated and developed a de novo Accountable Care Organization to participate in the Medicare Shared Savings Program which grew to over 250 physicians over three years which successfully generated savings.
• Financial advisor to large physician practice in connection with a potential acquisition transaction where engagement includes determination of strategic and fair value and assisting in negotiations for closing the acquisition and in post acquisition integration.
• Review and in-depth analysis of new Medicare Reimbursement rules for subsidiary of Fortune 50 insurance company and assistance in developing a business model enabling the capture of a new revenue stream for both physician practices and affiliated providers.
• Acquisition due diligence and integration assistance for a public healthcare staffing company involved in numerous acquisitions. Retained by parent company to manage acquired company for 22 weeks through ALDA developed integration plan.
• Turnaround assistance for a near bankrupt client company, including tax and financial restructuring, and ultimate sale at a significant cash price.
• Leadership of development of client company's strategic plan for the next decade and assistance in repositioning the company.
• Determination of strategic value of a client company, packaging for sale and assisting in negotiations.
• Providing the entire management team for several life science and healthcare companies from early stage through obtaining additional patent protection, guiding clinical development plans, navigating the pathway through the FDA, establishing the manufacturing processes, initiating commercial sales and eventually transforming the Company into a publicly traded Company.
• Determination of strategic implications of a line of business with weak performance; development of strategies to maximize profitability contribution.
• Turnaround assistance for a troubled venture-backed company, including raising additional debt and equity capital.
• Acquisition and financing assistance for a public, international railroad in connection with a $300 million cross-border acquisition and refinancing.

Our experienced professionals are dedicated to helping clients unlock inherent value and create new value.

The ALDA Team includes, among others:

David H. Fater - Chief Executive Officer

Strategy, capital markets, restructuring, and mergers and acquisitions experience with public healthcare companies focused on physician management, rural healthcare, nursing homes, HMO's, diagnostic imaging and medical devices. Deeply involved in the implementation of the Affordable Care Act with Accountable Care Organizations, Independent Practice Associations and Management Services Organizations. 

Richard M. Cohen - Senior Operations and Business Development Executive

Healthcare operations and worldwide sourcing experience. Skilled in healthcare (physician management, clinical trials, medical and patient process flow, diagnostic imaging and life science) operations as well as in issues dealing with importing, exporting and manufacturing operations in South America, Far East and Europe. 

Thomas J. Bohannon - Senior Financial Executive

Accomplished, creative CPA, outstanding analytical and technical abilities. Has experience for over 40 years in public accounting and private industry including nursing homes, medical device companies,  hospitals, not-for-profits, retail, manufacturing, import/export and natural resources.

R. Brent Miller, Ph.D. Senior Research Executive
Focused on advancing Chemistry, Manufacture, and Controls (CMC) activities of small molecules from discovery through development. with more than 30 years of drug development experience. working with start-ups, mid-size, and large pharma companies. Throughout this experience, he has led a wide variety of operational departments, including Technical Strategic Alliances & Due Diligence, Project Management Office, Pharmaceutical Sciences (Formulation Development/Analytical Development), Bioanalytical Development, Quality Control and Stability.  .

A. Ronald Turner - Senior Healthcare Executive

Senior healthcare industry executive with strong entrepreneurial focus including CEO and COO positions with start-up hospital companies and a publicly-traded hospital company. Extensive and successful operations experience for more than 50 hospitals and 9 nursing homes, and senior reimbursement experience for a major publicly-traded hospital company and a national accounting firm. Experienced in mergers and acquisitions, led operational turnarounds and debt restructurings that created significant value.

Mark W. Caton – Senior Healthcare Executive

Senior hospital executive with over 30 years experience in operating not-for-profit and investor-owned rural/community hospitals as CEO or COO, and Regional COO with several national hospital companies.  Skilled in strategic planning and business development, operations management, revenue cycle management, medical staff development, and quality/resource management.

Daniel N. Weiss, M.D., F.A.C.C. - Chief Medical Officer

Medical devices and healthcare practice experience, engaged in a private medical electrophysiology practice where he performs numerous invasive cardiac procedures and has served as a consultant for several Fortune 500 Medical Device Companies including Philips, Boston Scientific/Guidant, St. Jude and Medtronic, as well as for several medical device and drug start-up companies. 

David Bott - Senior Information Technology Executive

Systems and network support solutions experience, proviedes analyis of strategic business needs and assessment of business models and their integration with technology.  

Santiago Guzman - International Executive

Experienced in new project development for companies in a variety of industries from start-up to Fortune 500. Client relations management, fluent in English and Spanish. Skilled facilitator for introductions with influential leaders in South America including those in the health care industry. 

With offices in:

• Delray Beach/Boca Raton, FL
• Atlanta
• New York
• Quito, Ecuador

For additional information, please contact:
David H. Fater, Chief Executive Officer
ALDA & Associates International, Inc.
15977 Brier Creek Drive, Suite 100
Delray Beach, FL 33446
(877) 845-4657
dfater@alda-associates.com

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