a16z Podcast: How to Pay for Healthcare Based on Health

There's been a lot of talk about the need for our healthcare system to shift away from volume and fee-for-service, where you pay by appointment, procedure, etc, to value-based care, where you pay for both quality and outcomes—essentially, good health...

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  The content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com/disclosures.

• 0:17Hanne Tidnam?

  Hi, and welcome to the A16Z Podcast. I'm Hannah. In this conversation, A16Z Bio General Partner Jorge Conde, Market Dev Partner Venkat Motchila, and myself talk all about driving value-based healthcare with CEO of Blue Cross Blue Shield North Carolina, Patrick Conway. Conway, a pediatrician who was also formerly Deputy Administrator of CMS and Director of CMMI, has worked in both Republican and Democrat administrations and is considered one of the driving forces behind the national movement to value-based care. Conway takes a deep dive into what value-based care really means, and different models and ideas for how payers can implement the shift away from fee-for-service and volume-based care, as well as the role that social determinants play in our healthcare: food insecurity,

• 1:02Hanne Tidnam?

  transportation, and more; how tech can be a driver of change in those areas; and how to take a long-term view of the ROI in investing in these key healthcare factors. And finally, Conway shares his thoughts with us from an insider's point of view from the Hill on what's the way to actually affect change in policy and regulation in healthcare, and where are the areas where we can do that best right now. So you're now the CEO of Blue Cross Blue Shield North Carolina. Can we start with just a little history? What's the history of these kinds of plans? How did they first begin?

• 1:32Speaker 02

  So we started in 1933, actually Cambia. They've been around 100 years. Most of these plans basically evolved as like a state resource. In Texas, it was teacher unions. In the Pacific Northwest, it was timber. So literally Cambia was timber. In North Carolina, it was- A plan that evolved to take care of a workforce. Yeah, it was like, as healthcare became more expensive and you didn't want to pay cash, it was, well, let's take care of a workforce. That was true in North Carolina, too. So there was two of them that came together. That's actually why they're often called Blue Cross and Blue Shield. Many of them had like a cross and a shield. There's some states where they're still separate. Actually, Idaho has Blue Cross and a Blue Shield, so it's two Blues plans in that state.

• 2:11Speaker 03

  Oh, I didn't know that.

• 2:12Speaker 02

  Yeah, same in Washington. There's two Blues plans. And then many states like North Carolina, there's one. The brand evolved very early on, so 20s, 30s. And it was protection. Blue Cross and Blue Shield is here to protect you, to take care of you, to take care of you and your family.

• 2:28Speaker 03

  In healthcare innovation, all roads do ultimately lead to the payer. But as we talk about innovation, you know, there are various sources of innovation that an insurance plan could undertake to drive change.

• 2:38Speaker 02

  Yeah.

• 2:39Speaker 03

  What are the big buckets of innovation that you think about?

• 2:42Speaker 02

  It's all about better care, lower cost, exceptional experience. It's doing it at scale. It's across the entire system. So it's not like one piece, one program, one whatever. It's how do you drive change across, you know, a state with 10 million people? I met a 75-year-old the other day. We insured every day of her life. So the platform to drive change is huge. With that platform, if you actually test new things, if you drive change, it's a huge impact. You need a willing payer to drive change. And what we're doing is essentially a virtually integrated system at a state level to drive change, which I don't believe you can do from a single provider system.

• 3:19Hanne Tidnam?

  So you talk a lot about social determinants, so let's break those down. What are those?

• 3:23Speaker 02

  Yeah, I mean, so, you know, I'm biased, but you can invest in people. I'm actually working on some proposals to see if Congress would do this. Invest in food insecurity, transportation, housing. Violence and abuse is a major area. All the drivers of health that are outside the healthcare system. And you could debate whether it's social determinants or healthcare, but sort of primary care.

• 3:45Hanne Tidnam?

  So I understand intuitively quite a few of those, but transportation isn't immediately obvious. Why is that a social determinant of healthcare?

• 3:52Speaker 02

  There was a great study. The biggest driver of readmission to the hospital was transportation. If the person didn't have transportation home, that was the biggest driver of readmission because they actually couldn't get transportation to go to a doctor's appointment or go to whatever care they needed.

• 4:06Speaker 03

  So they can get there early enough, in other words, to avoid intervention.

• 4:10Speaker 02

  If you discharge them and they were like, I have no way to get home. You run all the medical comorbidities, everything you would look for. The biggest driver of readmission risk was that, that you have no support to get home.

• 4:21Hanne Tidnam?

  Is that because it's indicative of their life, their socioeconomic status? Or is it an actual cause?

• 4:28Speaker 02

  It's both. That's a great question. It is correlated with socioeconomic status, which is also a risk of readmission. But it's also if you had to give them a bus token to get home and they have congestive heart failure.

• 4:40Hanne Tidnam?

  Right. So like literally hard to go to the grocery store, hard to go to your doctor's appointment, all those things actually, yeah.

• 4:46Speaker 02

  The chance of them seeing their primary care doctor, eating right, is way lower. So we invest in Care More and Iora and Medicare Advantage. They pick people up, so they will order Lyft or Uber to get people to the doctor's appointment because they know if I get them in and I see them and I take care of them, they're more likely to not get hospitalized. And the biggest driver of costs in America are hospitalizations and drugs. So if you control hospitalizations, decrease them and control drug costs, that's the biggest total cost of care.

• 5:16Hanne Tidnam?

  So are all those proving out? Are you seeing examples of how the ROI and those types of social determinants, are there real examples that you're pointing to already?

• 5:24Speaker 02

  So we talked about transportation, let's do food insecurity. So I'm a practicing physician. I worked in the hospital last weekend. I take care of kids who get hospitalized.

• 5:31Hanne Tidnam?

  In all your free time?

• 5:32Speaker 02

  In all my free time.

• 5:33Speaker 03

  You made me feel.

• 5:35Speaker 02

  I do it, I only do it, I don't do it every weekend. But I take care of kids, including last weekend, way more than should happen, that get admitted for failure to thrive, which is an equate game. And sometimes there's a medical cause. Often it is lack of food. So I took care of a kid last weekend hospitalized for failure to thrive. Health system spent, you know, $40,000 for that three day hospitalization and it was lack of food. We could have fed the kid for years for that hospitalization. Like if you think about our health system, it's so backwards. But when you invest in these things, there is an ROI. We invest in preventing child abuse. So I had a for-profit payer that was like, what? Why are you doing that? I'm pediatrician, so I said, first of all, pretty good evidence preventing child abuse

• 6:19Speaker 02

  has huge positive outcomes.

• 6:21Hanne Tidnam?

  I don't even understand the place where the question comes from.

• 6:24Speaker 02

  His point was the ROI.

• 6:26Speaker 03

  Yeah, but what's the ROI?

• 6:27Speaker 02

  Never return to him, which is true. Most for-profit payers, United, Cigna, et cetera, including in our market, they're like 10 to 15% of the population. They have churn, they'll talk about social terms, but in reality, like, they're going to invest in more near-term things because they know people are moving in and out and they, I'm biased, but I think the mentality is, we insure people often for like decades. So there is an ROI. More importantly, it's the right thing to do, that's why we do it. But in reality, we measure in things that are more near-term. Some of them are shorter term, actually food insecurity, transportation are probably shorter term. Honestly, it's hard to measure preventing child abuse because it's like a decades-long outcome. But there's good evidence on the return in terms of health and outcomes for a population, which is why we do it.

• 7:12Speaker 03

  So you have the benefit of being able to take a very long view on ROI because you do keep members.

• 7:18Speaker 02

  I don't have shareholders.

• 7:19Speaker 03

  Exactly, and they're going to stay on for decades over a lifetime.

• 7:22Speaker 02

  Yeah.

• 7:22Speaker 03

  One of the fascinating things to me in the example of, you know, food shortage, access to food, in so many examples, if you look over the history of public health, for example.

• 7:32Speaker 02

  Yep.

• 7:32Speaker 03

  Very, very simple interventions have had massive, massive beneficial impact. So obviously vaccines.

• 7:38Speaker 02

  Yep.

• 7:39Speaker 03

  I mean, one of my favorite examples is one of the big innovations in public health to treat children dying of diarrhea or dehydration was just.

• 7:46Speaker 02

  Oral rehydration.

• 7:47Speaker 03

  Oral rehydration therapy, which is pennies.

• 7:50Speaker 02

  Yep.

• 7:50Speaker 03

  Right, and so.

• 7:51Speaker 02

  I worked on that in Nicaragua many years ago.

• 7:53Speaker 03

  Okay, so you've seen this, like, this is incredible, children that would die otherwise, you give them a couple pennies worth of electrolytes, right?

• 8:00Speaker 02

  Yep.

• 8:00Speaker 03

  And they survive. But in your case, when most plans are focused on sort of year-long cycles because members churn out, how should broadly plans think about investing in these interventions if the ROI is not obvious in the short term?

• 8:16Speaker 02

  So, you're right, we can take a long-term view because we've looked at the data. We insure 60 to 70% of the population and they're fairly sticky to us, they stay with us. But let's take the broader view. A couple of thoughts. One is, there are some countries the US doesn't do this, literally do interinsurance transfers. So they literally measure like, what are your outcomes in terms of quality and cost? And if somebody churns, you either pay a toll because you didn't do so well, or you collect a toll because you did well. The US hasn't done that yet. I'm not sure politically we'll do it. But I do think there are policy changes. If I was still at the Innovation Center at CMS, which I ran for five-plus years, one of the models I was working on that I hope they launch, because it's still in the queue, was Medicare Advantage for a three-to-five-year cycle.

• 9:01Speaker 03

  Okay, so just extending that window would change behavior?

• 9:04Speaker 02

  It would. So it's a great test. And you're not going to force it on people, because we're not going to do that politically. But let's imagine, to my mother, or anyone else in America, you say, "Well, you can buy a plan, but it's three to five years, but here's what you get." And you probably have to have an opt-out politically, but they're going to invest in you. They're going to address all your needs, because they know they're going to insure you for the next five years. And so then, it broadens the investment window, because it's a longer time horizon.

• 9:31Speaker 05

  This is actually a fascinating topic, because the famous quote is, "Culture eats strategy for breakfast."

• 9:36Speaker 02

  Yeah, yeah.

• 9:37Speaker 05

  Policy eats culture and strategy and in healthcare.

• 9:39Speaker 03

  And politics eats policy.

• 9:41Speaker 05

  And you're a physician who's spent a lot of time in DC and in public stage. What is it about, you think, the industry doesn't know about changing American healthcare policy, that you wish all of us knew around the table?

• 9:54Speaker 02

  One is, everybody focuses on the hill, like, law. Law's important. We should focus on that. People often discount and don't realize, regulation, CMS, Medicare, Medicaid, FDA, they actually, within the law, they have, I would argue, a much bigger impact. So that's point one. Focus not just on law, but also sort of the regulatory side. I think point two is, at CMS, I had so many people come in, and they have their talking points, how this will help me. And they read through them, and you're like, "Well, this is pretty worthless, because I could have read those to myself." That's your vested interest. What rarely happens, and is much more effective, is think about what makes the system better. It may help you. But actually come in and be like, "Here's a policy proposal that would make the system better."

• 10:39Speaker 02

  That unfortunately, in DC, is really uncommon.

• 10:42Hanne Tidnam?

  Can you give an example of that? The difference between those two kind of ideas?

• 10:45Speaker 02

  Yeah, so I'll give two, both a positive and negative. In Autism Arena, we had some people who came in with true, here's what you need to do in coverage, here's what you need to do in benefits. Here's a child or a mother that brings a personal side. Here's the data that if you do this, it actually has. And that actually led to a series of changes in our autism coverage and how we thought about autism. Even as a pediatrician, I knew some of this, but it was helpful to like push it forward. Let me give you the negative example. In drugs, unfortunately, we still have the pharma companies say it's the middlemen, the PBMs.

• 11:30Speaker 02

  You know, the hospitals say we can't possibly control it. I had to testify, and this is on YouTube, about Part B drugs paying for value. And I was called Chair of the Death Panels by a Senator. He literally was like, the death panels are real. And you, Dr. Conway, are Chair of the Death Panels. And I'm like, you gotta be kidding me.

• 11:48Speaker 03

  When's the next meeting?

• 11:49Speaker 02

  Yeah, it never happened. It wasn't the Chair. It didn't exist. But it was a good attack line. And we did some things that were pretty aggressive, so we probably drove a little too far. But that was a great example where we wanted to pay for value in drugs. And Democrats, Republicans, everyone was against it. Because the, and the short version is, the pharmaceutical lobby, combined with doctors that also had a vested interest in drug prices still going up, came against it.

• 12:20Speaker 03

  Can we stay on that topic for a second? Because I, you know, if there's one area in American society that is politically charged, it's healthcare. You alluded to the fact that, you know, Medicare Advantage is one area where there's actually some level of real bipartisan support. It seems like it's the one place where actually both the left and the right actually agree that there's a model that'll work. Why don't we define Medicare Advantage for our listeners who may not be as familiar?

• 12:42Speaker 02

  I love that you asked this question. So Medicare Advantage, essentially, instead of paying a fee-for-service traditional Medicare, you know, you just pay every provider that the person sees. You pay a health plan a capitated rate for care for a Medicare Advantage person for a year. And then those health plans actually control the cost and get better quality and outcomes. So most Medicare Advantage plans are $0 premium. And this is why I tell my mother to buy a Medicare Advantage plan. It's zero premium. You get enhanced benefits, things like dental, vision, et cetera, that you don't get in traditional Medicare, but they manage your care. So Medicare Advantage works. I said that in Republican administrations. I said it in Democratic administrations. Like, it is the right financial model, the right set of incentives. The only downside, if you will, is people say, well, was the network the same?

• 13:26Speaker 02

  Well, the network is not every doctor in America, but it is a very broad network of the vast majority of doctors in your area. But you're actually investing in managed care. So actually, to take the policy realm, when people talk about Medicare for All, I think most people that say that don't actually know what they're talking about. But if we defined it and said, could you have Medicare Advantage buy-in at 55? In the 55 to 64-year-old age group in the individual market, it's very expensive. So could you let people buy into Medicare Advantage? I think that's a legitimate policy debate.

• 13:56Speaker 05

  It's actually coming at a fascinating time because as we learn more about social determinants, the fact that we need to stock the fridge or have the bathroom rod differently, Medicare Advantage is a model where you can actually pay for it in a clear way, and that's been the interesting aspect of all this.

• 14:10Speaker 03

  Are there other areas that you think we can make real progress on in this environment?

• 14:15Speaker 02

  I actually think CMMI, the Innovation Center, delivery system reform. I've worked on it in Republican, Democratic administrations. It's bipartisan. Paying for value, changing the system, I think is bipartisan. Actually, social determinants, we actually did some research. We should probably call them something else. We actually call them now Opportunities for Health or Drivers of Health in North Carolina because we did research that like actually polls well in Republican and Democrats. Because people get it.

• 14:40Hanne Tidnam?

  Oh, so just a simple terminology change?

• 14:42Speaker 02

  In North Carolina, in the Medicaid transformation, they call them Opportunities for Health because people get it. Republican and Democrat. You're like, you should invest in food and housing and transportation. People are like, oh, I get that. And actually, people are willing to pay taxes for it, which is not common in America.

• 14:57Speaker 03

  If Opportunities for Health are, you know, better access to food, better access to transportation, et cetera. One of the big challenges that I think the healthcare system in the United States has is the ability to effectively coordinate care across silos.

• 15:11Speaker 02

  Yep.

• 15:12Speaker 03

  So now, if you're including food and housing, what is the connective tissue that enables us to actually coordinate this in an efficient way?

• 15:18Speaker 02

  Right now, it's a patchwork, if we're honest. We give you a clinical example. If I have a kid with an ear infection, I can click a button and send a Moxil into any pharmacy in the United States, like that. If I have a child with food insecurity who needs WIC, Program for Food.

• 15:37Speaker 02

  It's a whole long system to make sure it gets done. It's gotta be the same. So you need a system for the opportunities for health or social determinants health. It's the same. And so what we're trying to do in North Carolina right now with the state, we have a secretary of health who was our chief of staff at CMS at Medicare Medicaid, Dr. Mandy Cohen. We have a Medicaid managed care transformation going on. And we're actually going to try to screen for social determinants health for the entire 10 million people in the state. And then measure, do we address those determinants? So what's the referral patterns? How do we make that seamless, like writing a prescription? And then measure, do you close the gap? Did they actually get food? Did they get transportation? Did they get the housing they need?

• 16:20Speaker 02

  One of our board level metrics, which is a big debate in our company, is now food insecurity for the state for every person, not just our members, but the entire state. So we think we can bring down food insecurity by 20% for the entire state. For North Carolina, about 20% of the population is food insecure. And you have some counties where nine out of 10 kids are food insecure. They're hungry. The only meal they get is at school. So we're measuring for the whole state. We think we can move it by 20%. That's a big goal. I don't know if we can actually move it or not, to be honest, which was the debate. But I know if we don't commit, then we're never going to do it.

• 16:58Hanne Tidnam?

  What do you see as the places where technology has the opportunity to or is beginning to intervene in making those social determinant outcomes happen?

• 17:07Speaker 02

  We're looking at an array of partners that are sort of the data and analytics behind social determinants. So who can we partner with that is reliably, not just screening and identifying, because that's helpful, but what's the next step? So how are we going to actually close the gaps in these areas? Right now, the reality of social determinants and social services, it's like a cottage industry. So like, if you go to any state in America right now and you're like, tell me who in your state is food insecure right now, we can't do it. Tell me who needs transportation. I don't know. Tell me who needs housing. No idea. Because it's like these little cottage industry at every county. There's offices and clerks and it's like on paper.

• 17:48Hanne Tidnam?

  And they do what? Like make phone calls and poll people?

• 17:50Speaker 02

  Yeah, so and like there's CDC data that will measure, you know, on an annual basis, but that's, it is helpful because it does identify the problem, but it's not real time, like any other need, right? To actually change it, we're going to have to be able to identify the need at scale through technology and close the gaps at scale through technology. The short version of this is you got to build the connectivity, the push button system like we did in pharmacy. I mean, 20 years ago, I wrote scripts on paper. Now it's all electronic, you know? I never write a prescription anymore. I like click a button. In fact, my residents usually write it and I click a button to co-sign it. These social terminus have to become the same, where there's a network of providers, of entities

• 18:35Speaker 02

  out there addressing these needs. And we have a system that identifies the need and closes the gap and measures it.

• 18:41Speaker 05

  Like many things we've talked about here, like social determinants, for example, we've talked about a state, right? Healthcare is local. That's the phrase we have.

• 18:48Speaker 02

  Yeah.

• 18:48Speaker 05

  You talked about this, you know, the relationship you now have with Cambia is pretty stunning. And you have to think about a multi-state sort of strategy.

• 18:56Speaker 02

  Yep.

• 18:56Speaker 05

  What does that mean? You know, because is healthcare just getting bigger? Can you talk us through what it means to be a multi-state organization versus thinking about North Carolina itself?

• 19:05Speaker 02

  Yeah, specifically, it gives you the benefits of scale in terms of things like investing. We all invest in the same things, Bluesplains, data and analytics, customer experience, seamless platforms, technology. And now we'll do that together. We are combining because it will accelerate our pace of change for our customers. I'm not from North Carolina. I grew up in Texas. My second day, I went to the retirement party for Brad Wilson, the CEO retiring of Blue Cross North Carolina after 20 plus years. And born and raised in North Carolina. There were like governors, CEOs of companies in North Carolina. There were like thousand people. He got like 49 gifts. He announced that he and his wife were donating millions of dollars

• 19:48Speaker 02

  to App State, his alma mater in her name. My wife and I got in the car. We were like, wow.

• 19:56Speaker 02

  That was awesome and also very scary. We insure like 60, 70% of people in a state like for their lives. So it's like a big deal. So the beauty of this relationship is you get the benefits of scale, but we will still be Blue Cross Blue Shield of North Carolina and regions of Oregon. That's important to the people in those states. And I'm biased, but that's fundamentally different than a national payer. We're like, they'll talk about how they care about all the states, but it's not the same. Like you don't have the same connective tissue, if you will, to the states and communities you insure.

• 20:31Hanne Tidnam?

  What do you see as the consequences and the challenges coming with this big wave of consolidation that we're seeing this year in the industry across the board?

• 20:39Speaker 02

  In the sort of pharmaceutical arena, I think it remains to be seen. I serve on the board of a pharmaceutical biotech company. You know, I think the evidence is less clear. You could argue like consolidation can drive more research and development. In the tech arena, I think consolidation scale matters. I think in the payer area, within a state, there may be, you know, decreased competitiveness. But I think when payers like we are with Cambia partner across states, actually does drive value. I think it will lower costs, improve quality for customers. So I think, you know, in that arena, I can imagine investing in new companies and tech and those get bought by other companies. I think that actually has a much higher likelihood to drive value for the customer.

• 21:24Speaker 02

  On the flip side, if you dominate a market and you price set at an unsustainable price, that has negative effects and it's not a real market. I said publicly when Atrium was going to buy UNC and then it fell through, I'm not aware of any two hospital systems in America that have merged and costs went down for consumers.

• 21:46Speaker 03

  Was there any space in the healthcare system where costs have come down, period?

• 21:49Speaker 02

  Actually, let's talk about that. Blue Cross Blue Shield of North Carolina.

• 21:52Hanne Tidnam?

  What a shock.

• 21:53Speaker 02

  Lower. Individual premiums last year by almost 5%.

• 21:57Speaker 03

  And what drove that?

• 21:57Speaker 02

  Couple of things, mainly our value-based arrangements with providers. So we said, we got to bring costs down. We got to do this together. We were pretty aggressive about it. And one of our markets, actually, and it's publicly known, the Triangle area in North Carolina, UNC said they were willing to do that. And Duke said, not as much. So we put UNC in network and had Duke not in network. It lowered cost in that area by 21%. So I think, you know, this is a real issue. Affordability is a major issue in healthcare. Costs actually have to come down. I've said publicly, and I mean it, I want our premiums to be as close to zero as possible, and when possible, negative.

• 22:36Speaker 02

  I had a call yesterday with a health system CEO who said, well, I just need a X percent increase in addition to the value-based payment. And I was like, look, it's an and, we're going to do value-based payment. You're going to be responsible for total cost of care, quality and experience. And we're not doing fee-for-service increases because people can't pay more.

• 22:58Speaker 03

  So given sort of the structure of the industry and how hard it has been because a lot of the incentives in place, how hard it has been to drive down costs. One of the other big challenges, I think, is that innovation is expensive, right? And so if you're, you know, working in the technology space, how do you introduce new technology into a system that is actively trying to reduce spend, to actually take cost out of the system?

• 23:23Speaker 02

  Many new technologies and companies display their technology, but don't actually think about total cost of care. So I think if you build that link, so, you know, they're often like, this is a new shiny object, it's a new thing, AI. And you're like, what does it do like specifically for total cost of care? And they're like, well, I don't know, but you'll get data and AI and machine learning. And you're like, once again. What does it do for total cost of care?

• 23:51Hanne Tidnam?

  Is that because they're expecting you to connect those dots?

• 23:54Speaker 02

  And we can to a degree, but connective tissue has to go to the outcomes. What's the total cost of care and quality outcomes? It can't just be for the sake of like, I'm the next new shiny object.

• 24:04Speaker 03

  So if I'm a technology entrepreneur, I have a shiny new technology. I think it can be impactful. It's somewhere in the continuum of care. But the challenge I have is I have to manage the jujitsu of, let's say, for example, trying to sell something into the provider when really I need you as the payer to help me drive the provider's behavior to incorporate my technology.

• 24:26Speaker 02

  My hypothesis is for these companies, you've got to focus on what is your actual problem you're going to solve. This general, I've got a lot of insights for payers and providers and you tell me, payer and provider, what I can do because I'm like super smart and I got a lot of data people and I'll figure it, you know? That's not very compelling. And so what I would tell companies is focus on like the niche area you're actually going to address around quality and total cost of care and drive that through the system. I have so many people that pitch me like, pay me $3 per member per month payment and I'll drive amazing quality and total costs.

• 25:09Speaker 02

  I'm like, well, you're willing to put that at risk that you paid zero if it doesn't happen? They're like, oh no, not willing to do that. And you're like, well, there you have it. They have to drive to a level of fidelity that they know the problem they're going to solve and they're willing to put their money on the line, that they're confident that they're going to solve it. And we have some joint accountability for that.

• 25:31Speaker 05

  Is that the same way you assess? Because that's for, let's say, a software technology with like AI, but for new therapies, for example, that can cure diseases? How do you think about that? What's the filter set there?

• 25:41Speaker 02

  We're not there yet in the US, but it should be the same. Right? So I met with a new therapy company the other day that's groundbreaking therapies, gene therapies that like, they're probably going to cost a million plus. And I was actually trying to help them on like, you gotta think about the financial mechanism because on the therapeutic areas, we should pay for value. It should be the same mechanism of return. I think unfortunately, in the current environment, it's often a yes/no decision. And on the therapeutic area, they want a yes, and on the payer's side, they want a no, because it's very costly. And we've got to get to a more nuanced answer.

• 26:16Speaker 03

  One of the proposals that's been put out there is a netflixication of medicine, right? Because if you get the gene therapy theoretically, if it's pay-for-dose, that thing is going to continue to dose over the rest of your life, right? What have we treated a gene therapy patient as having a pre-existing condition? In other words, if that patient were to move from Plan A to Plan B, one of their pre-existing conditions is that they have a gene therapy, and therefore, there's an added cost of X dollars per year to cover that patient.

• 26:45Speaker 02

  I think that's smart. I think there's a number of ways to solve this, which we haven't figured out. I think the subscription model is one way. I think pre-existing conditions are like it's in the risk adjustment model is another way. I don't know if there is an answer, but I do think the current environment, where it's a million dollars, I don't want to pay for it.

• 27:06Speaker 03

  That's not sustainable.

• 27:07Speaker 02

  So I'm going to try to push it off, is not sustainable. Actually, I'll give you a real example. In North Carolina, we have a business that employs hemophiliacs. Every national payer somehow figured out how not to insure them, because they knew they employ the hemophiliacs. We insure them. It literally drives our small business segment 2% higher for everyone else, because hemophiliacs are really expensive. We don't cut them off. On some level, if you cut them off, it'll make it cheaper for everybody else. But that's not who we are. There should be some model that accounts. Like, risk on the extremes, our risk adjustment models don't capture. Subscription models, I think, would start to capture. On these very high-end curative therapies, in some cases,

• 27:50Speaker 02

  we have to think about a financing model that's more long-term.

• 27:53Speaker 03

  Yeah, I would say I'm an optimist. My assumption is that the innovation will force the business model change.

• 27:58Speaker 02

  I hope so.

• 27:59Speaker 03

  You're considered a thought leader on driving towards value-based care.

• 28:04Speaker 03

  So I would love to get your take on where we are in the journey to go from fee to service to true value-based care, what's working, what's not working, and what should give us cause to be optimistic that we're going to get there?

• 28:17Speaker 02

  So public payers and then private. One, on public payers on value-based care. When I started running the CMS Innovation Center for Medicare and Medicaid, we had 0% of payments and alternative payment models where the provider is accountable, the doctor, the hospital, for quality total cost of care. Over a course of four years, we went to over 30% of payments, over $200 billion, and over 200,000 signed provider agreements with doctors, hospitals across America. It was the biggest shift in Medicare payment history. On the public side, and that continues, it's at 36% now, I think it'll keep going up. There's no going back, it's a short answer.

• 29:01Speaker 02

  On the private payer side, we have 87% of our payments in Blue Cross North Carolina tied to value today, but what we're engaging on is a much deeper value-based payment system, which is joint accountability with doctors and hospitals for quality, total cost of care and experience, including two-sided risk, meaning full arrangements. We think within less than nine months, we'll have over half of our payments in those kind of full-risk arrangements. There's no payer in the country that has accomplished that. So if we do it, it's a model for the nation. And then there's good evidence from Medicare and private payers, when you do that, it

• 29:43Speaker 02

  has a much higher likelihood to lead to better quality and lower cost because the hospital, the doctor, the payer are all aligned on behalf of the patient, and you're no longer paying a fee-for-service, you know, volume payment system.

• 29:56Speaker 03

  As we shift from fee-for-service to value-based care, has there been a study done on how that impacts the top line for doctors themselves?

• 30:06Speaker 02

  There is some work on this. So, short version is, as we shift to value-based care, independent physician groups actually have done the best, not tied to a hospital. Even better if they're larger, which might be a major question, or organized. And then next best was health systems, and least successful on average, hospital-led ACOs. So I think... We do have some evidence on sort of who's successful. In advanced primary care models, which we're actually investing in, their compensation for primary care does go up, including down to like the provider level. We're OK with that.

• 30:41Speaker 03

  Is that because they're doing more of the coordination?

• 30:42Speaker 02

  There's actually pretty good evidence on this. Most payers spend about 6% on primary care. We in Blue Cross North Carolina spend about 8%. We have a goal to be 10-plus percent. There's actually evidence from UK and other international systems. If you spend 10-plus percent on primary care, you get better health outcomes at a lower cost.

• 31:01Speaker 03

  Because the primary care physician becomes the front door of the system as opposed to...

• 31:05Speaker 02

  Yeah, and you're actually investing in like care management. A person in our system with a substance use disorder is five to six times the cost. You treat that disorder, you bring down the cost, and it's better outcomes. Any mental and behavioral health condition, three times the cost. So we're focusing on how you integrate and treat mental and behavioral health conditions because you'll get better health outcomes at a lower cost.

• 31:25Hanne Tidnam?

  What about the role of employers, which has been getting some press lately in terms of rising cost crisis looming? What's the role there, especially in value-based care?

• 31:33Speaker 02

  Employers need to step up. And let me describe that. The Amazon Berkshire Hathaway JP Morgan thing, I interact with them some. One of the CEOs, without naming who, was like, "Well, I really want to drive change, but I don't want to disrupt any of my employees." To which I said, "I hate to tell you, lofty CEO, but I know the healthcare system, and you will not drive change if you don't want to disrupt any of your employees." So employers have to step up. Unfortunately, and it baffles my mind on some level, they focus on the administrative fee and like, you know, "I'm self-funded, I'm going to like, you know, whoever gave me a million dollars back on the administrative fee?" And you're like, your healthcare costs are like 500 million.

• 32:18Speaker 02

  Seriously? And the whole broker game around self-funded is on the spreadsheet with the administrative fee. Can you get a better deal? We actually have started on employers. We guarantee medical trend. I learned by going to meetings. So I went to our sales meeting. I was a big employer. We were like, "We will hit 15 to 30 million of savings." And they said, "Well, you know, United just gave us like a million dollars back on the administrative fee, so the broker told us to go with United." I was like, you gotta be kidding me. I just told you 15 to 30. They're like, yeah, but like, we don't know. Like, they guaranteed us on the administrative fee. So I was like, I'm done. I will guarantee you we'll beat that price on the administrative fee. Cause this is like ridiculous.

• 33:01Speaker 02

  And like, will you switch to us? And they switched. And we've now done that multiple times. I think we have to make it simple for them. So you've got to get to a place where you're like, okay, you don't believe our fancy math? Fine. We promise and we'll guarantee it with our financing. Cause we've got actuaries. Your costs are gonna go down and your quality experience will be better.

• 33:22Speaker 05

  Every business is a healthcare business at the end of the day.

• 33:24Speaker 02

  It's amazing. It's such a big cost stream for them, but they downgrade it to the benefits person below this chief people officer who's like, I don't know, like my broker told me to do X. It's like very disappointing, actually.

• 33:39Speaker 03

  The fact that the employer has to even step up to manage their employees' healthcare, that's an accident of history in the United States. So do you think with all of the other changes that are happening in healthcare, will that employer mandate ever change? Or is that just set in stone? So we do need the employers to step up?

• 33:58Speaker 02

  I mean, no, this gets old of Medicare for all and other debate. I think our current political environment is people like their employer based insurance. Could we evolve to more of a Germany type system or some system where you have like private and public payers competing? We could. But in the near term, I think there's a low political reality that like, we'll move away from the employer based coverage. Cause you've got 150 million plus Americans that have that coverage and like it. And if we learn one thing from the Affordable Care Act, people care about healthcare and they don't want to be disrupted in a major way. And so this gets to the challenge, like, how do you innovate and help people, but also

• 34:41Speaker 02

  in something so personal, also make sure they feel they have that safety net, they have that care they need? I don't think our health system realizes how quick we need to change. We talked about the Amazon, Berkshire Hathaway, JP Morgan thing, what I say internally. There's a part you should think about that. Those are people that are angry.

• 35:01Speaker 02

  The costs are too high, the quality is uneven, and experience often sucks. And so we got to focus on that. We got to get the costs under control. Quality's got to be reliable. And experience should be better.

• 35:13Hanne Tidnam?

  But why does it have to happen faster than we think? Because I think we all know those problems, but we think things, you know, it's sort of where it feels like.

• 35:20Speaker 02

  It's the disruption part. So it's, yeah, I mean, as opposed to other industries, I think healthcare has had a challenge in that like, it's even more status quo driven than a lot of industries of like, there's such fear of disruption and could something bad happen? My opinion, I don't think we fully recognize the urgency at which individuals and families in America want change.

• 35:43Speaker 03

  So you've served in government. You've been a practicing physician. You're running, obviously, an extraordinarily large insurer. Are you optimistic?

• 35:51Speaker 02

  I am, or I wouldn't do this work. We got to do better. I don't know why I always wanted to do healthcare, but it's what I wanted to do forever. And I was initially going to do international healthcare. And then I realized like, I did this project with Save Kids Lives with oral rehydration therapy. And I was in a family's house and they were like, we have nine kids, only one of them goes to school because that's all we can afford. And I was just like, oh, my God. Like, the system is so broken. I'm not sure I can fix this system. In the US, we have enough money to fix our healthcare system. We just got to get it done. And so I'm optimistic we can do it.

• 36:26Hanne Tidnam?

  What a powerful call to action. Thank you so much for joining us on the A16Z podcast.

• 36:30Speaker 02

  Thank you.