Startup Pitfalls and Healthcare Horror Stories: Introduction to Value-Based Care

Alex: 00:00:00

Good evening. Welcome back to the VBCA where we dig into the latest in healthcare and greatest in value based care.

In this episode, I wanted to share with you my thoughts on why starting a healthcare business might be a quicker path to frustration than sitting down with your extended family to have Thanksgiving dinner.

Now, let's first talk about healthcare startups. You've seen them. They're popping up faster than new streaming shows that no one has asked for.

And almost every one of them seem laser focused on this holy grail of healthcare called value based care. It's like they're on a quest for healthcare nirvana where doctors are heroes, patients get the care they deserve, and everything works like magic.

But here's a reality check. A lot of these startups don't have a clear path to get there. Value based care sounds amazing. In theory.

Doctors are paid for quality, not quantity, which means better care, lower costs, and happier patients. It's basically the healthcare version of a Disney movie, except instead of fairy dust, we have quality metrics and patient outcomes.

But the magic that makes it all work, that magic is called steady patient volume. And this is where many startups stumble. They sign a value based contract with a payer, a health plan. Great.

They assume patients will just flock to them on reputation or technology alone. Like you would call your wife and say, hey honey, this new clinic, this virtual clinic has signed a contract with UnitedHealthcare.

Let's all rush in and make an appointment. It doesn't really work like that.

If startups don't actively engage with their communities, market their services and build real connections, they'll find very quickly. They'll find themselves with an empty quote, waiting room and mounting expenses. You've got to attract patients.

I know, kind of sounds revolutionary, right? It's not enough to have a slick business model and a big vision and a nice technology platform. You need actual patients.

And remember, not just the imaginary ones in your investors pitch deck. There is a big difference, isn't there, between theoretical patients and real breathing ones? So how do you bring patients through the door?

Well, in my conversations with many experts, I'm hearing these recommendations. Partner with local organizations, schools, businesses, anyone who listens. Host a health fair, offer free screenings, give talks at community events.

If you're really committed, you can, I'm sure you can, find a local government interest group or community group that aligns with your mission. You get on their agenda and talk about what you care for. Talk about what you're doing.

Even if you're starting small, you have to really get some credibility built into your model, into your outreach plan. You have to build credibility and visibility.

Here's a pro tip.

Build referral networks.

Connect with primary care doctors, specialists, even chiropractors if you need to. Without these connections, your patient base will be as sparse as my interest in the latest TikTok trends. Here's where it gets even more interesting.

Startups that are all in on value based care often overlook something critical. Volume thresholds. Yes, payers require a certain patient volume before these contracts can make any sense.

They need real data to evaluate your outcomes. Otherwise your value based care plan is about as effective as a chocolate teapot. And then there's the balancing act.

Once you've built that patient base, you still have to maintain that quality. You have to now scale that quality. Have too many patients, quality can slip. Not enough patients, you won't even meet the threshold.

So there's a balancing act. If quality drops, you're back to square one. And no payer or health plan wants that. Not for their members and certainly not for their bottom line.

And you certainly don't want that. So what's the takeaway for healthcare startups eyeing those value based contracts?

By all means pursue them as if you would Pokemon, but with a heavy dose of reality. Start by building a solid patient base. Prioritize patient volume and patient acquisition above everything else and balance that volume with quality.

Because value based care without patience is like a joke without a punchline. And we all know how awkward that. Thanks for joining me tonight.

Healthcare can be complex, but with the right strategy, we can avoid some of the pitfalls. Until next time, stay informed, stay ambitious, and remember, don't put all your eggs in the value based basket.

Today we're introducing a new segment we're calling Tough Calls in Healthcare. We asked our listeners to send in their trickiest negotiation dilemmas and let me tell you, you all delivered.

I'll be reading through the cases myself and offering my best advice for those listening. Feel free to play along. Think about what you would do in these situations and let us know on social media or on the comments down below.

All right, let's dive into our first case. This is payer reimbursement dilemma. Okay, this one comes from a listener in the Midwest who's dealing with a real payer standoff. They write.

Hi Alex, I am the CFO of a mid sized hospital in the Midwest.

We're renegotiating our contract with one of our largest payers and they've offered reimbursement rates that are significantly lower than our competitors. We presented them with data showing our quality outcomes and patient satisfaction score, but they've been holding firm.

We even suggested including value based care incentives, but nothing seems to move the needle. We're torn between accepting a bad deal or losing a major revenue source. What do you suggest we do? That's a tough spot.

Losing a major revenue source is daunting, but accepting low rates could be damaging in the long run. So here's what I suggest.

You're right to highlight quality outcomes and patient satisfaction, but consider bringing in a data, you know, dashboard or some figures on cost efficiency as well. Sometimes showing that you can deliver both quality and efficiency is the leverage you need. If they still won't budge, it's time to get direct.

Ask them how their offer compares to the rates they're paying other providers in your market. Payers sometimes assume you won't walk away from a deal, so challenging them on fairness could make them rethink their position.

And if you're truly at an impasse, consider the phased negotiation. So accept the current offer temporarily with a review period and performance based bonuses down the road.

This way you're not locked into a bad deal long term and can use data to reopen discussions with more leverage. And lastly, don't hesitate to bring in a third party consultant or some kind of objective arbitrator to assess market rates.

Payers don't like being called out on unfair rates when there is data to back it up. So stay firm and stay strategic.

Case 2 Unilateral Amendment Clause in peer contract okay, so next up, we have a primary care group facing a challenging contract clause they wrote.

Hi Alex, We're a primary care group negotiating with a major health plan and they've included a clause allowing them to unilaterally amend the contract within 30 days notice. We're worried that this could lead to unpredictable changes in reimbursement rates or covered services. What's the best way to handle this?

A unilateral amendment clause with just 30 days notice? That's a red flag.

It essentially gives the payer control to change the rules whenever they want, which could mean unpredictable swings in revenue or coverage terms. Here's my advice. Push. Push for a mutual amendment clause so that both parties must agree to any changes.

This gives you a bit more control and avoids kind of unpleasant surprises. And if the payer won't go for it, then negotiate for a longer notice period, like 90 days instead of 30.

Also build in a mandatory review process allowing you to raise objections to renegotiate before changes can take into effect. Another good idea is to introduce caps on certain provisions like reimbursement rate adjustments to limit financial impact.

Also ensure there is a termination clause that lets you exit the contract if changes become financially harmful. That way you have a safety net if things turn for the worst and if still, you know, are having an issue.

You can propose to allow for these unilateral changes to take place only to comply with law and nothing else. So essentially, any kind of materially impactful change would not be done unilaterally.

You would have to have a mutual agreement, unless it's a condition or a circumstance that the health plan has to comply with law, in which case, you know, you can agree for that unilateral provision to take control. All right, here's one from a rural hospital. They're dealing with a pay for performance push. They wrote.

Hi Alex, I manage a rural hospital and we're negotiating a new contract with one of our payers. They're pushing for a pay for performance model, but we're worried about meeting those metrics in our resource limited setting.

How can we negotiate a fair deal that takes our constraints into account? They ask. This is especially relevant for rural hospitals. Pay for performance models can be beneficial, but they need to be realistic. Right.

You first need to get paid for existence before you're paid for performance.

So first negotiate for adjusted quality metrics that reflect the unique challenges of a rural setting like staffing shortages and geographic barriers. Make sure you work that into the contract. They need you as a rural hospital, so do not get pushed over. Also consider a phased implementation.

This gives your hospital time that you need to make adjustments before committing to the full metrics. Another suggestion is to request financial support from the payer. Ask them to pay you upfront for certain implementation to get on a path to value.

Path to value is a great phrase you could use saying you don't want to be there yet, but you're going to play ball. And ask for them to give you upfront implementation funding.

If they want you to meet certain quality standards, they should provide resources such as funding for telemedicine or quality improvement programs. Any number of things you feel like you need. And finally, propose a shared savings model. Okay.

If you can reduce costs while maintaining high quality care, both you and the payer should benefit, not just the payer. Right this way. It's a true partnership with shared rewards. I hope that helps you.

Our last case today comes from someone on the payer side pushing for bundle payment rates or bundle payment models. Hi Alex, I work for a national health insurance plan and we're pushing for more bundled payments in our negotiations with providers.

However, many hospitals are pushing back, arguing that bundle payments put too much risk on them, especially for complex cases. How can we create a win win arrangement? Oh, great question.

Bundled payments can of course help control costs, but hospitals are right to be cautious about the risk, right to balance things out. Start with risk adjustment.

Ensure your models are adjusted for high complexity cases so hospitals don't feel penalized for taking on more challenging patients. Also, offer stop loss provisions. I've seen that work well.

So offer stop loss provision that caps the hospital's financial risk in extreme cases where costs far exceed the bundle payment amount. This should keep the financial burden reasonable for hospitals.

And don't forget, if you have any opportunity to extend shared savings to the hospital, the hospital would be happy to. Presumably happy to hear that.

You know, if a hospital manages to cut these costs while maintaining quality, they definitely should get a share of the savings, right? This aligns their incentives with your goals. Another kind of one last tip here. Consider piloting the model on a smaller scale first. Right.

By testing the bundle payment model in a kind of pilot and a controlled way, you can gather data, make adjustments, and then expand it on both sides once both sides are comfortable. I hope that was helpful, guys. Remember, if you're dealing with a tricky payer contract negotiation or any contracting dilemma, send them our way.

Would love to tackle them on the show and it would help more people than you might realize. Welcome back to the VBCA podcast. Before we wrap up today's episode, we're introducing a new segment called should this really Be Happening?

Where we highlight some of the most bizarre, frustrating and most unbelievable interactions in the healthcare world. These are stories that make you scratch your head and ask.

Jasmine: 00:13:46

Seriously love this segment, Alex. The healthcare system is full of amazing people, but sometimes the processes are broken and it just, it feels like a scary movie.

And today we've got a few of them to discuss. So are we ready for the first one?

Alex: 00:14:02

I'm so ready.

Jasmine: 00:14:03

All right, let's go.

Alex: 00:14:04

So the first one here is we're calling the baby with a $18,000 nap. Imagine this. You're on a vacation in San Francisco for whichever reason, and your 8 month old baby is sitting on a hotel bed and then falls off it.

No blood, no obvious injury, but the baby's crying a lot and you're worried.

So naturally, if you take the baby to the hospital to be safe, as you should, after they check him out and kind of do the vitals and See what's going on with the kid. They say he's totally fine and you're happy. All you have to do is give him some formula, and the baby takes a brief nap. That seems harmless, right?

Jasmine: 00:14:46

To me, that. No, no big deal so far.

Alex: 00:14:48

I mean, sounds like a good afternoon to me. Some nap, some baby formula. Well, now, two years later, the parents get a bill. Wait for it. A bill for $18,836, to be exact.

Two years later, you get a bill.

Jasmine: 00:15:10

Okay.

Alex: 00:15:10

And most of it was for a trauma response fee. And I'm gonna put that in air, in quotations, because that's what it was. Trauma response fee, as the hospital called it.

And that fee itself was $15,666, even though the baby wasn't actually treated for trauma because there was no trauma. He napped, had a bottle of formula, and was fine. Can you believe that?

Jasmine: 00:15:36

That's outrageous. They charged nearly $16,000, if I'm hearing you right, Just because they may have needed a trauma team, but they didn't need one.

Alex: 00:15:49

Definitely not.

Jasmine: 00:15:50

I see why this is called. Should this really be happening?

Alex: 00:15:54

Definitely not. The hospital eventually waived a fee, but only after parents went through the stress of fighting that bill.

It's a perfect example of how arbitrary these trauma fees can be, and they're more widespread than you'd imagine. So the takeaway from this is fight the bills, you guys.

Jasmine: 00:16:15

It's a lot of work, but I think, yeah, it's the only course of action.

Alex: 00:16:21

So how about story two? Are you ready for this?

Jasmine: 00:16:23

So story two is the non emergency emergency. A woman felt severe pain in her lower abdomen, so she was worried that she had appendicitis.

As you know, that can be life threatening if you don't immediately get care for it. Right. So she rushed to the emergency room, and they let her know, actually, you don't have appendicitis. You're having pain from your ovarian cysts.

Which she didn't know she had.

Alex: 00:16:47

Wow. So that must have given her some room to breathe. Right? She avoided an emergency surgery.

Jasmine: 00:16:54

Not exactly.

So the insurer stated that because her emergency ended up not being an emergency, after they, you know, gave her the diagnosis, they denied her claims, and she ended up with a $12,000 bill.

Alex: 00:17:10

Wow.

So she has all the symptoms of an emergency, but because she can't diagnose herself and is trying to be saved, so goes in the er, which is what you're advised to do.

Jasmine: 00:17:21

Right.

Alex: 00:17:21

She ends up with a huge bill.

Jasmine: 00:17:24

It's very stressful. To think about because you want to make the best choice for your health.

But then if there's going to be concerns that, well, this is a standard practice and it might be a nothing burger that I'm going to Pay, you know, $10,000 for, is it worth it?

Alex: 00:17:38

So next one is a real head scratcher. Good thing I have a lot of room to scratch.

Life saving treatment apparently not necessary on Deidre O'Reilly Son had a life threatening allergic reaction and was rushed to the emergency room. Doctors saved him with epinephrine and steroids, but the family's insurance company denied the claim.

Jasmine: 00:18:01

Wait, but it was an emergency treatment and they denied the claim. How? How could they justify that?

Alex: 00:18:08

Well, they claimed that the treatment wasn't medically necessary. I mean, how is saving someone from an allergic reaction not medically necessary? And to make it even more ridiculous, Deidre is a physician herself.

She knows exactly what her son needed.

Jasmine: 00:18:27

That is unbelievable. How can they even argue against emergency life saving treatment?

I mean, so both, I guess, from this story and the last one, so both emergency and non emergency treatments can be denied. That's extremely frustrating.

Alex: 00:18:43

It really is the kind of denial that makes you wonder if they're even reading the charts. Well, insurance is processing these claims. She's still fighting the bill.

We send her thoughts and prayers, but the appeal process has been a nightmare. Is what she's reporting understandable? So this should really not be happening. Story four, the algorithm that denies everything. Oh, that sounds fun.

So this last one is both absurd and kind of scary.

A major insurer, Cigna, was found using an automated system called PXDX that allowed medical reviewers to process, get this, 50 patient charts in 10 seconds.

Jasmine: 00:19:27

50 charts in 10 seconds. That's some very fast processing. So I would love to see the error rate.

Alex: 00:19:35

No, you're not wrong. Patients were getting denied for basic things like asthma, inhalers, heart medications. It was all about speed, not actual medical need.

The automation did save them billions, probably, but it leaves patients struggling to get essential care.

Jasmine: 00:19:55

So I would imagine then the system would flag these or it would require like a manual review of an issue.

Alex: 00:20:03

Well, actually, this story is from a lawsuit. And the lawsuit against Cigna essentially implies that the software was circumventing the physician reviews to make these denials.

So the answer to your question is yeah, we'd imagine. But the way that the software was designed, it was designed to kind of short circuit that system and bypass physician review.

Jasmine: 00:20:27

I just feel like people shouldn't have to fight so hard for things that they need to stay healthy. Of course that's wild to me or to, you know, not have their doctor be able to weigh in on this as well.

Alex: 00:20:42

Yeah, these automated systems might be making things worse for patients, not better. So keep an eye out. That's something to watch.

Jasmine: 00:20:53

Well that wraps up another edition of should this really be happening. And as frustrating and absurd as these stories are, they remind us why we need to keep pushing for change in the healthcare system. Right.

And if any of you have your own ridiculous stories we want to hear them.

Alex: 00:21:11

Yes, send us your stories. Maybe your crazy healthcare experience will make it to our next segment.

You can find us on social media or email us@storiesbcapod.com and remember if something makes you go should this really be happening? It probably shouldn't.

Jasmine: 00:21:31

So true. Alex. Thank you for tuning in everyone and we will see you next time for more healthcare madness.

Alex: 00:21:37

Absolutely.