Hosted by Travis Tasset, the Value Talks podcast explores a range of topics that matter to people, including healthcare, leadership, and culture. In this episode, Travis and I discuss Vision and the role it plays in business, and my vision for healthcare and where I see the industry going.
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Transcript of Episode 2
Travis Tasset: Today, I’m sitting down with the chairman of Nueterra Capital, Dan Tasset, and our topic for conversation today is all about vision.
What about the role that it plays in business in terms of the private equity world that we’re in? What are we trying to do? What is our vision?
Dan Tasset: Well, I think the first question you have to ask is, if you’re in an industry, what does the future of the industry looks like? So, you’ve really got to ask yourself, what’s going to change, and what’s not going to change? There’s an interesting quote by Jeff Bezos, the Amazon CEO, he says, “I frequently get the question, what is going to change in the next 10 years?” and he said, “Well, that’s an interesting question,” and it’s a very common question, and he said, “Maybe a better question is what is not going to change? Because around that you can build a business strategy that is sustainable.”
So, I think before you really ask your question in business, what is the vision for your business, you better know what the future of the industry that the business resides in, what does the future of that look like? That creates an opportunity, but also, it’s a challenge because you have to be able to look forward and to say, “Where are things going,” and, “Where’s healthcare in general going?” Then you try and get out in front of it and then try to create a business strategy with a strong vision for your business that really is moving in the right direction
Shifts in the Healthcare Industry
Travis Tasset: Let’s go there. Our investments are primarily in the healthcare industry, so what is your view of where healthcare is going? Where do you see healthcare going? What are the common themes? In terms of shifts, we can think about the future in terms of shifts – some of them may be technological shifts, some of them may be societal, cultural shifts. What are the shifts that you see happening in healthcare? We can talk about either what’s changing, or like what you said, perhaps what’s not going to change as part of those shifts?
Dan Tasset: I’m big on just looking at general trends in society, and maybe studying trends in other industries that have been a reflection of where we as a world or a country are going, and taking that and saying, how does that apply to the industry, as you said, that most of our investments are in, which is in the healthcare space, which is approaching almost 20% of our gross domestic product as a country, the largest economy in the world, which is why we’re in that space, right? So, where is the healthcare industry going in the United States? As I look at other industry segments and what have they done and where are they going, I think the most significant change that’s occurred in other industry segments have been the consumerization of our whole economy, and I think that that is the major future trend, or driver of our strategy as an organization, is how will healthcare be consumerized? So, if you look at other industries, you look at the music industry and say, “Well, how has that changed? How has that been consumerized? What changed and what hasn’t changed in the music industry?” Okay, well, you don’t go to WalMart, you don’t go to Target, you don’t go to Barnes & Noble anymore and buy a CD, or very few of us do anyway. The songs are bought with the use of technology assisted applications and you’re able to buy not an album, you’re able to buy it song by song. So, you remember early on in the transformation of the music industry that there were a lot of music providers and musicians that said, “We’re not gonna play their game. We’re not selling a song for a dollar on iTunes, that’s not gonna happen.”
Bono, with U2, for example, resisted that and there was others that resisted it as well, and before you know it, within just a few years not only did they go along with the consumerization of the music industry and allowed consumers to buy through an app on their phone a song at a time, but they were actually on stage when Apple announced the iPhone 3 or 4. It shows you how quickly that they had to succumb to the consumerization of the music industry. The same thing’s happened in movies. I mean, Netflix, and you can go on and on. Same thing has happened with the consumerization I’ll call it of the taxi industry, you know, the onset of Uber and Lyft, and how that ended up being a better value for the consumer. Of course, the same thing’s happened with Amazon and consumer goods. All of those things have been built on improving the value delivered to the consumer of those goods and product. So, when we use the term “consumerization,” it means improving the value delivered to the consumer. So, in our case, the value delivered to the patient. What is missing, has been missing in healthcare that occurs in every other industry is that in other industries the consumer of music, the consumer of movies, the consumer of rides, the consumer of automobiles, the consumer of consumer goods, cares about not only how it makes them feel and the quality of the product, but they consider cost.
That’s the value equation, value equals, in our industry, the clinical outcome, or the clinical quality, plus patient satisfaction, how it makes the patient feel, divided by the cost. That’s the value equation that has been missing in healthcare. So, the consumerization of healthcare is getting the patient, the consumer, getting the employee who is consuming healthcare for a self-funded employer, getting them to care about all components of the value equation, and I believe that is a major driver of the future of healthcare and where healthcare is going.
Travis Tasset: So what other drivers in addition to consumerism do you see as trends right now in healthcare?
Dan Tasset: Well, obviously, there’s a lot of drivers, and even consumerization, that driver breaks down into a lot of different subsets. But, the other major driver in healthcare, I believe, the future of healthcare is the way healthcare is delivered and the way it is paid for. The industry really kind of refers to it as payment reform, or advance payment models, or value-based care, or value-based reimbursement, you can go on and on with all kinds of definitions out there. But essentially, the two major drivers are consumerization and payment reform. So I’ll define for you how we talk about the payment reform piece. Right now, healthcare, if I were to equate it with the purchase of an automobile, healthcare is, because of a lot of different incentives, kind of perverse incentives frankly, across the various stakeholders in healthcare, healthcare is consumed and paid for in a really kind of a unique, and if I can be so bold as to say, a really kind of a nonsensical way. So, here’s how I’ll equate this to the purchase of an automobile. You wouldn’t think today about buying a body of a car, buying an engine, buying the tires, buying the seats, buying the steering wheel, the components, taking them to another place, and paying a fee to have those all assembled, and paying somebody to come to that place to assemble them. Then, if it broke down 30 days later, having it fixed would be on you, you would pay for that. You wouldn’t even consider that.
Travis Tasset: That would be crazy.
Dan Tasset: That would be crazy. But yet that’s what happens in healthcare. If you go in, as an example, to have a surgical procedure, you pay the hospital, you pay an anesthesia provider, you pay a surgeon, you pay physical therapy, you pay home health, you pay them all separately, and if it didn’t work, through no fault of your own, you have to pay to have it done again. There’s no warranty, there’s no guarantee that comes with any of it, and, no risk is put on the provider for the quality, the satisfaction, or the cost associated with it. That’s just messed up. It makes no sense. So, when we talk about the way healthcare is delivered, and paid for, payment reform as a major driver, here’s what I am suggesting that the industry is moving to: that you will pay one fee to have that same surgical procedure in the form of a bundle payment, it’ll be agreed to in advance, and that that bundle payment, the providers, together, will come together and decide who gets what of that overall fee, that overall charge, and you pay one fee and they have to figure out who divides it up. And, if there is an avoidable complication within a certain time frame following that surgical procedure, that is covered with a warranty or a guarantee. That’s the direction that healthcare is moving. And, by the way, that overall prospective, meaning in-advance, agreed-to bundle payment will be significantly less than the various components today, and that’s the direction healthcare is moving.
The Reality of Payment Reform
Travis Tasset: You know, it makes me think of the quote by Thomas Edison. We all realize that we need to dream big, but sometimes that has to be grounded in reality in terms of what’s possible, and the quote by Thomas Edison is, “Vision without execution is hallucination.” So, everything that you said, the consumerism, consumer empowerment from a patient standpoint, how healthcare is delivered, payment reform. Is that even a reality? And if so, how far out is that reality? Is it a five-year, 10-year, 15-year reality? What is realistic?
Dan Tasset: That is great question, Travis. I can remember being in an annual meeting, I don’t know where it was, but I can remember about three years ago talking about this, and as always, whenever you lecture, if you are very far out in front, you are always going to get a heckler or two, and maybe sometimes more. I remember when I was lecturing on the future of healthcare three years ago and talked about this very thing, that a well-respected orthopedic surgeon got up and basically challenged me and said that within his lifetime, my lifetime, he didn’t believe that we would see anything that I had just described to them. What’s interesting about that is within two years, Medicare starting talking and actually implementing a bundled payment initiative. It isn’t how I described it, it’s a little less than that, but it was still the fact they used the term bundled payment. So, it’s a great question. I’ve been met with skepticism before about whether or not this is really a reality or will even happen in the next 10 years, let alone my lifetime. There’s a quote, I do not remember who it is by, maybe you can look it up and let the listeners know, but they quote that I have referred to often in my life is this: “The world needs dreamers, and the world needs doers, but above all, the world needs dreamers who do,” and I like to pride ourselves on the fact that we have a very balanced organization of people who can imagine and as you know, there’s quotes about, “If you can imagine it, you can achieve it,” but our organization also includes people who can actually execute and get things done. So, back to your Thomas Edison quote, “Vision without execution is hallucination.” Well, let me tell you, we are executing. And in fact, we are doing, currently, prospective bundles with warranties, and they’re in orthopedic procedures like total joint, total hip replacement. We have a company specifically called Muve Health that specializes in the total hip, total knee replacement, and not only are we doing those under a prospective bundle payment, but we are also providing the 90-day avoidable complication warranty to go along with it, and in fact, recently are getting ready to announce the first prospective bundled payment warranty reinsurance program for the providers to assure that there is stability and consistency in the actual warranty and that the warranty is meaningful.
So, there’ll be a press release coming out on that in a matter of days where we’ll make that announcement. And so we’re are not only having this dream about where healthcare is going, the consumerization and payment reform, how it’s provided, paid for, and consumed, but we’re actually doing it. Granted, it’s in a very small way, but we see this really stepping up pace across other orthopedic procedures as well as other surgical procedures and we see this being a very steep curve in terms of volume over the next couple of years. I expect, by 2020, that this could be as much as a third of all of the business that we do in terms of our surgical space and the companies we own that are in the surgical, episodic care, and diagnostic space. By the end of 2020, this could be as much as a third of the way in which we are actually getting paid to do what we are doing, taking on risk.
Travis Tasset: So, what does that mean, “prospective bundles,” and what is the whole point of that?
Dan Tasset: Here is where it’s really all based on. If you are a manufacturer of an automobile and you believe in the quality of your automobile, shouldn’t you then provide a warranty and a guarantee behind that? And shouldn’t you, as the manufacturer, carry the risk associated with that warranty? So, again, as I relate healthcare to other industries, if I’m a surgeon, and a surgical facility, and an anesthesia provider, and physical therapy, and a total joint implant company, and I believe in the quality of my surgeon, the facility, and the implant, then why shouldn’t I stand behind that product?
In other words, why shouldn’t the risk be transferred from the person who pays for it, whether it’s the patient paying the copay and deductible, or whether it’s the self-funded employer paying for the episode of care, or whether it’s an insurance company, shouldn’t that risk shift from them over to the provider of care? That is a significant element of payment reform, and consumerism for that matter. So, my answer to that is yes, the provider should take on the risk, that’s where the risk should be.
So I’m big believer and a lot of the providers today in the industry believe in downward pressure and reimbursement. They say, “Well, I’m a great surgeon, we do great work.” Well, if you believe in your work, then you should stand behind it. They say the insurance company doesn’t care about quality and I say they do care about quality. If you take risk and assume the risk and that is a reflection of the belief in your own quality, then they do care about it, because they are shifting risk over to you.
By the way, you can make more money by assuming that risk, not less. It’s not a race to the bottom, it’s a race to cutting out the inefficiencies. So, if you look back over the years, you probably can’t remember in your lifetime, but I remember in my lifetime where there was a very short warranty period on an automobile, and the notion, when I bought my first automobile, of there being a 50,000 five-year warranty was unheard of. It was inconceivable. But today, that’s common practice and many warranties are extended beyond that. Well, what’s happened there? It’s been consumerized. There’s been more risk shifted from the consumer over to the provider or the manufacturer of that automobile, and as a result of that, the quality has improved, and everyone wins. So, that’s the same thing as healthcare is happening, it’s going to happen, it’s happening fast, we’re doing it, and we’re promoting it and pushing it as fast as we can. No hallucination on this one, Thomas Edison, we’re actually getting it done.
Travis Tasset: Some of that change, like you said, is happening very fast, and at other times it’s a very slow gradual process, right? We know that one of the concepts we’ve often talked about is that change happens gradually then suddenly, and if we’re not prepared and if we’re not working at it gradually, incrementally, it may leave us behind. So, in order for that to happen in the healthcare space, there’s a lot of different stakeholders. What do all the different stakeholders need to do to make that happen?
I mean, we have payors, we have employers, we have employees, perhaps, individual patients themselves, we have state governments, we have hospitals, health systems, you talked a little bit about the provider and the physicians themselves. Walk me through some of the different stakeholders and what your perception is of what they need to be doing to help drive these changes that we all want desperately?
Dan Tasset: Well, number one, I think we all have to agree on a common goal, or a common purpose, and I think that common goal is to improve the value delivered to the patient. That should be all of our goal. I don’t care whether it’s an insurance company, a hospital, doctor, federal government, state government, that should be our common goal, because everybody wins in that case. Improve the value delivered to the patient. Again, value equals clinical outcome plus patient satisfaction, patient experience, divided by cost. If we’re all headed towards that direction as a goal, then I think the answer to your question is a lot simpler. So with that in mind, let’s talk about what those stakeholders need to do. Again, there’s a macro-level discussion that everybody needs to be concerned about in addition to delivering value to the patient or improving value to the patient, and that is, they need to support these major drivers. We need to support payment reform consumerism.
I just had a discussion with an employee the other day and he reminded me that just a few years ago he called a hospital to find out what the cost was going to be for a certain surgical procedure for one of his kids. The hospital told him that they weren’t allowed to share that information by virtue of agreement that they had with an insurance company, that he would have to call the insurance company. He called the insurance company, and the insurance company said they’re not able to share that information because of an agreement they had with the hospital.
So, essentially, no transparency of cost whatsoever, and so, he couldn’t even make a determination. How can one be a consumer, as I said, the definition of a true consumer is one who cares about clinical outcome plus patient experience, but also cares about cost. How could he be consumer of healthcare when there is no transparency of cost? So, number one, we all have to buy into, “Consumerization of healthcare is good,” because if we can get the patient to care about cost, as well as the numerator that I discussed with you, then it’s going to be transformative in healthcare. What we’re working on is to get all those stakeholders to help the employee, to help the insurance member, to help the patient care about cost. What does that mean? That means, in an employer’s case as a stakeholder, raise copays and deductibles so the patient, the employee needs to care about cost. Then, make sure there is transparency of copays and deductibles, percent of copay, and you can’t have transparency of copay if you don’t know what the overall cost of an episode of care or any other healthcare cost is.
So, everybody has to agree, the government, the hospital, the doctor, that we need to have consumerization number one, we need to encourage the patient to care about cost, and we need to be transparent on what they’re actually paying for. That would be number one. Number two on my list is all of those stakeholders – again, employers, employees, the government, the insurance companies, everybody – needs to be working towards setting the stage for a competitive landscape. In other words, let’s not try to protect the status quo with anti-competitive government legislation, with anti-competitive practices, trying to control primary care so they get all the patient referrals and whatever that might be, but everybody needs to agree that competition’s not bad, and that is a dramatic departure from the way currently healthcare is being delivered in this country.
Travis Tasset: In what ways do you not see that happening? What’s not happening?
Dan Tasset: I’ll give you several examples. Right now, there is a law in half the states across the country called Certificate of Need Law
Travis Tasset: CON laws.
Dan Tasset: CON laws, have to demonstrate that there is a need. Every study that has been done will tell you that even in our old fee-for-service world, which is where healthcare has been, it is anti-competitive and increases cost, decreases patient satisfaction, decreases patient outcomes.
Travis Tasset: Decreases the value to the patient.
Dan Tasset: Decreases the value. You could make an argument, and their argument for CON laws – and everybody knows it’s just, they’re anti-competitive, it’s just to protect the status quo – whoever the healthcare providers are in those respective states control the Certificate of Need boards and it’s anti-competitive. They could make an argument, it’s not a good one, they could make an argument in a fee-for-service world that maybe more healthcare causes more utilization. But in the value world, or in an advanced payment model under prospective bundles, so forth, it doesn’t hold water. So, we need to have the state governments to do away with Certificate of Need laws. We need to have the federal government force the states, if they’re going to get any subsidy regarding the Medicare or Medicaid population in those states, they need to force the states to have the laws regarding Certificate of Need go away, period, end of discussion. That’s one.
You can go on and on, you can go right now and look at the Affordable Care Act and there is a provision in the Affordable Care Act, commonly known as Obamacare, that doesn’t allow a physician to own a hospital. That was all lobbied by the American Hospital and Federation of Hospitals to get that provision put in there. It’s anti-competitive. Hospitals can employ and own physician practices, but a physician can’t own a hospital. It does not make any sense. It’s anti-competitive and it doesn’t allow for providers to compete based on delivering value to the consumer.
So, one, if the patient cares about cost, the overall value proposition, and we develop a landscape to allow providers to compete for the patient, what are you going to end up with? You’re going to end up like every other industry. You’re going to end up with better product at a lower cost. End of discussion, period.
The Importance of Innovation in Healthcare
Travis Tasset: So, it is access, but we’re being clear that it’s not just access to healthcare in general, it’s access to the best quality, the lowest cost, the best value, and right now those barriers are preventing that competition which will drive the value. What other drivers do you see in addition to the competition? What does that competition do, what does that create?
Dan Tasset: I generally refer to consumerization and payment reform as major drivers in the healthcare industry, and I refer to consumerization, competition, and the third is innovation as a basic fundamental foundation on which we need all stakeholders in healthcare need to be working towards the common goal of value to the patient. To answer your question, that is the long answer. The short answer is innovation.
Travis Tasset: Competition breeds innovation.
Dan Tasset: I firmly believe competition breeds innovation. It goes like this: If every stakeholder works towards having the patient care about clinical quality, experience, and cost, and number two, we then allow providers to compete for those patients, then the innovation will come out. The innovators, the entrepreneurs, the capital, will all come forward and we’ll see not only innovation in clinical platforms, innovation in new therapies, new treatment options, and we’ve had a lot of innovation there already, but we’re going to see innovation on, “how do we be more efficient?” How do we improve the patient satisfaction?
What technology can we use to make our whole delivery system more efficient? How can we end up with a higher value delivered to the consumer? You see bits and pieces of that innovation coming out today. You see it within our company. We have innovative technologies are coming that will educate the patient on how much their copay and deductible could be decreased or saved if they would move into a higher value network of surgical care, does that calculation for them, and the innovation technology and enabled innovation that implemented inside an employee workforce, through a smartphone app, to enable them to be able to find a lower-cost generic drug compared to name-brand, to be able to – “How do I shop for a higher value episode of care? How will it lower my copay and deductible? What’s the clinical outcome? What’s the transparency of cost?” All of that is all technology enabled, so already, even with the stifled competition across the country, we see the innovation coming out. If our federal government, state government, the American Hospital Association would truly embrace competition we would see innovators come out of the woodwork like we’ve never seen them before. And it would ultimately end up in a more efficient, lower-cost healthcare system, higher quality than what we currently have.
Travis Tasset: To close this out, I want to share a quote and then get your thoughts on something that we’ve talked a lot about and it’s been a common theme throughout this episode today. This is another JFK quote about change, and the quote is, “Change is the law of life, and those who look only to the past, or present, are certain to miss the future.” We’ve talked often about embracing change, and I just would love to get your closing thoughts on the importance and the need to embrace change.
Dan Tasset: Well, here we go again, I am going to go back to Jeff Bezos with Amazon, and one of the things that he likes, I’ve heard some of his quotes, and a lot of things they’ve done, and well-respected because of how innovative they have been, but he likes to refer to, I think they even call the location of their Amazon office, Day One, he refers to everything as ‘Day One’ because day two, it’s the first day of becoming stagnant, irrelevant. So, in our organization, it’s just human nature to resist change or to be skeptical of change or to not want to embrace change.
But in our organization, and all the companies that we own, we constantly refer, to change equals good. So, if we’re not doing something different, we’re not changing, we’re not advancing, then you should be worried. When you hear we’re announcing another change, you should be saying thumbs up and every day is day one. Particularly in the industry that we’re in, which has been stagnant for so many years regarding almost every aspect and that is why we have the runaway cost, that is why it’s stifling the US economy.
We just have to view every day as Day One, every day as change, and every day we embrace change, and every day we look for some other reason to say we are going to do something different and better, and constantly look to the future.
Travis Tasset: Well said. I just want to say thank you for your time today, and I look forward to talking again.
Dan Tasset: Thank you, Travis.
Travis Tasset: Please give us your feedback: what you liked, what you didn’t like, or if there is a topic you would like to hear more about or for us to focus on, please let us know. You can send an email to valuetalks@nueterra.com. In addition, we’re on anchor.fm. You can download the Anchor app or go to anchor.fm/valuetalks. On Apple Podcasts, search for “Value Talks.”
