Archive for Tom Emerick

Why Healthcare Costs Rise Faster Than General Inflation Part 2


By David Toomey and Tom Emerick

In the last blog post, we outlined the “complexity” of the network negotiation process and the challenging dynamics amongst the insurance companies, the providers, and the employers. The majority of employers have not seen financial data or interacted with providers enough to understand the quality and cost variation within a network. The big question looming is what to do around contract negotiations tied to network access, patient disruption, and costs.

David invited six to seven large self-insured employers in a market to delve deeper into the clinical care and cost variation analysis. The intent was to share performance data with the employers, so they could understand the positive financial impact by channeling members to higher value providers. Reports showed that within physician groups there was wide variation in physician performance – this took time for the employers to grasp since their businesses were focused on a consistent consumer experience—each cup of coffee was made the same way with the same ingredients. The use of claims data illustrates just one view of a providers’ performance, but it does not demonstrate their process of care or their ethics around medical appropriateness.

After a basic grounding in the data, the next step was to have the employers meet with the largest systems and physician groups, so the companies could get a sense of these suppliers’ “value” proposition beyond just claims based performance reports. The employers felt they were ready for the first meetings with a major health system we will call “the Provider”, and they outlined their capabilities and introduced their mission statement as well as their commitment to patients.

After the overview, the first employer question—“who is your customer?” The Provider’s response—“the patient, of course.” Second employer question—“who pays the bill?” The Provider responded with, “the insurance company”. In near unison, the employers responded that they were each self-insured, and they paid the bill. The Provider acknowledged the employers’ importance as well, and responded how they just introduced a new $3M phone system to make appointment scheduling more convenient for their employees, which would keep them at their jobs. A major airline executive had to contain his response: “you mean to tell me that you allocated $3M on a phone system from the dollars that I’ve funded for your services, when I’m faced with major layoffs! I’m done.” And from that one employer’s comment, one of the most rewarding journeys of David’s career began.

In the next employer meeting, the Provider provided the employers a clinical overview of their capabilities and their commitment to quality, and proudly touted their state of the art imaging machine as well as their Level 1 Trauma capabilities. The employers probed about the variation in care as seen in the claims based performance report, and all sides agreed that additional analysis was needed.

One employer then inquired about orthopedics and back pain, “can you walk me through your process for the treatment of back pain?”

The Provider mapped out the treatment for back pain – PCP visit, specialist consult, imaging appointment, specialist visit to review the image, physiatrist consult, and eventually a referral for up to 15 physical therapy (PT) visits. The research also found that PT was the recommended treatment 83% of the time. Meanwhile, the employers were paying for short-term disability, employee overtime to compensate for the disabled employee, and four to six weeks of unnecessary care while the employee suffered with pain. The employers expressed concern with this inefficient process of care.

The Provider realized that this treatment process was not well received by the employers. Rather than trying to develop a new process of care from the provider’s perspective, workgroups were formed including an employer representative, so the treatment of back pain could factor in the employer’s views since they ultimately paid the bill. After several meetings, the end state was developed – same day appointments with a physiatrist for back pain, and the standard PT treatment was less than 3 visits. The Provider was able to change their marketing message to promote same day appointments for back pain, while the employers also promoted the Provider’s enhanced treatment capabilities to their population.

The Provider took a risk as they were well paid for the prior treatment inefficiency, and their CFO struggled on the potential impact of lost revenue. The reality was that back pain treatment expenses were cut by 70+% due to the redeployment of excess resources, while their patient volume increased by 400%! This was a huge victory for the employers and their employees.

Due to the success of this workgroup, David developed other treatment workgroups, which had similar results. Employers were able to impact their healthcare costs, while creating free market competition with other providers, who had to change their process of care or risk losing additional patient revenue.

This kind of direct engagement by self-insured employers is one of the things employers need to do to start rolling back healthcare costs…not just holding health costs flat but rolling them back.

Why Healthcare Costs Rise Faster Than General Inflation Part 1

This is the first of a two-part series on why healthcare cost growth has historically been much higher that general inflation, by David Toomey and Tom Emerick.

If you want to truly understand why corporate health cost have risen faster than nearly everything else the past 40 years read this article. And then you can read the follow-up Part 2 soon to understand a way to impact this opportunity.

In 2001, David was managing large accounts for a major carrier/tpa when the largest hospital system in the market issued a termination notice to begin the negotiation process for a unit cost increase. This began a tumultuous series of negotiations that involved the local press. (When hospitals want a very high fee increase, as a tactic they sometimes start the process by terminating participation in a carrier’s network.) The fee increase was high single digits, above market, and highly inflationary for the area. This system was already paid a premium due to their large market presence, and the requested increase would put them that much farther above the market average of other facilities.

As usual when this happens, David moved quickly to engaged major self-insured clients, and educated them on the cost impact. Their feedback – hold firm as they could not absorb the increases. When asked what steps they would take if this major hospital was not in the network, many responded that they would just add another carrier option, so their employees would not be disrupted! There were no questions by employers on the quality of the hospital’s care or the commitment to process improvement. In short, while they realized they could not really afford the higher prices, they felt employee disruption, even a fairly minor disruption, trumps company profits and affordable payroll deductions. In turn that meant David had no leverage at all in negotiating with the hospital system.

As a result employer and employee health costs were ratcheted up in that market. Too bad, but this story is the norm. We’ve seen this same scenario continuously in our careers. Even if a hospital or clinic is used by less than 5-10% of a company’s employees, getting complaints from employees, even just a few, trumps corporate profits, shareholder returns, rising payroll deductions, restraining rising deductibles, and rising employee out-of-pocket health costs. Even though self-insured employers are the ultimate purchasers of healthcare, they usually just roll over when providers keep hiking their charges year after year.

In every market, by definition, half the providers are below average. While company benefit managers profess to want the best quality care for their employees, they willingly accept larger fee hikes from the worst providers. Why? A few employee complaints have also trumped deleting poor quality providers, ones with a high rate of harming patients. By “harming patients” we mean high rates of misdiagnoses, high rates of prescribing bad or suboptimal treatment plans, and high rates of infections, some of which are deadly.

Sally Welborn, head of benefits for Walmart Stores Inc., recently called for self-insured employers to take the lead in both reforming how providers and paid and making hard value-based purchasing decisions. The term “values” excludes providers with high rates of misdiagnosing patients and giving them profitable but unnecessary treatments.

Soon you can read Part 2 in this series on how employers can attain value from the provider community.

Guest Post by Sally Welborn: Part 2 Payments to providers need to be reformed—the time is now

This is a follow-up guest post by Sally Welborn, Senior Vice President of Benefits at Walmart Stores, Inc.


Part 2: Payments to providers need to be reformed—the time is now

The post I recently wrote generated many questions, mainly about my definition of “value” in healthcare purchasing.

My definition of value is the highest quality of care provided in the most efficient manner, i.e. not too much care, not too little care, delivered in a “lean”* way, and paid for in a mutually satisfying way.

Walmart’s Centers of Excellence Program (COE) is the closest model we have. In the COE program we have selected clinics and hospitals that do a superior job of diagnosing high-cost cases and providing the best treatment plan, not the treatment plan that generates the most profit to the provider, but the one that is best for the patients we send. This program has been very successful for Walmart, but especially for our associates (employees) and their covered family members.

In Walmart’s benefit plans a small number of covered lives account for huge share of our healthcare plan expenses. We also provide incentives for our associates and their covered family members to use our COEs.

Eliminating fee-for-service was a big part of my previous post. Walmart’s COEs are not paid fee-for-service, rather we have negotiated global fees, one flat fee for an episode of care for all surgery, testing, anesthesiology, hospital costs, etc.

This is an alternative to fee-for-service and is working quite well. I urge other self-insured companies to find similar ways to bypass fee-for-service payments. Again, the time act is now.

If you feel your company cannot successfully negotiate direct deals with first-class providers, like the ones we use, there are aggregators who can do that for you for fairly modest fees.


*lean definition: minimal waste and errors and maximal performance.

Payments to providers need to be reformed—the time is now

Sally Welborn wrote a good blog post in The Health Care Learning & Action Network calling on self-insured employers to take the lead in reforming health care purchasing. Sally is Senior Vice President of Benefits at Walmart Stores, Inc., and is responsible for the design and administration of benefits.

She writes, “Fixing the payment system can actually result in limiting the cost increases AND drive quality improvements.”

We can’t wait for carriers to fix the fee-for-service system. She writes:

  • Most are publicly traded and must consider their shareholders. The amount of money they make directly correlates to how much health care costs. The more it costs, the more they make from their customers…us.
  • Most consider their provider network to be a key competitive advantage. So by default they must consider the provider community a primary stakeholder they can’t ignore.
  • Many have a large volume of business with CMS/Medicare and must have systems and processes which support their largest payer.

“More importantly,” Sally says, “I urge you to consider what you [self-insured employers] can do to move your organization to smarter, value-based purchasing of health care.” 

If true reform is to occur, and such reform is quite overdue, self-insured employers will need to make it happen.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health”, is now available on Amazon.

Dangerous Hospitals Propped up by Medicare

According to an article in the WSJ (subscription required), Medicare is propping up some rural hospitals that are harming patients in a major way. The authors are Christopher Weaver, Anna Wilde Mathews, and Tom MCGinty. They have seen documents supporting this headline.

Medicare has deemed certain rural hospitals to be so-called “critical-access” hospitals at which Medicare pays for surgery and other care at higher reimbursement rates than other general care hospitals. Further, according to the this article, “Critical-access hospitals are exempted from federal rules that require most facilities to report quality measures, such as rates of surgical complications….”

Medicare pays such hospitals more money and waives the need for quality and outcomes reporting. What a deal.

Alas, it turns out such preferred Medicare hospitals have high death and complications rates. In short Medicare is providing incentives for “critical-access” hospitals to do more surgery while they are having high rates on patient harm. That’s about a broken model.

A Medicare spokesperson has admitted this needs to be changed.

Hat’s off to the authors of this article.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health“, is now available on Amazon.

No food is healthy. Not even kale.

That is the headline in a recent Washington Post article. Click here to read the full article. The author is Michael Ruhlman.

I admit when I first read that headline I did a double take. But when I read the article it is true.

The authors proposition is that some foods may be more nutritious than others, but that there is a huge difference between “healthy” and “nutritious”.

“ ‘Healthy’ is a bankrupt word,” Roxanne Sukol, preventive medicine specialist at the Cleveland Clinic, medical director of its Wellness Enterprise and a nutrition autodidact (“They didn’t teach us anything about nutrition in medical school”)….”  People are healthy (or not healthy) food is nutritious. Repeat, “healthy” is a bankrupt word…how true.

To call one food or another healthy is just marketing bunkum, or even phonus balonus, merely feeding people’s obsession to find a simple and easy way to be healthy. Having good health is much more complex than what foods you eat or…attention wellness vendors…what lab tests you have and when.

Further, what foods are or are not considered nutritious is highly malleable.  Eggs were considered little oval heart attack makers in the 70’s. Writes the author, “Now, of course, eggs have become such a cherished food that many people raise their own laying hens. Such examples of food confusion and misinformation abound.”

“Experts” regularly flip flop on the question of butter versus margarine.

Protein is good, yes? Who knows, maybe fried pork rinds, which are crammed full of protein, may one day be considered a nutritious snack.

Best advice? Eat a balanced diet and ignore “healthy” food labels. Eating tip: if you do not wake up hungry in the morning, you ate too much dinner the night before.

Again, at the risk of being excessively and repetitively redundant, “healthy” is a bankrupt word.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health“, is now available on Amazon.




Breaking News: Fed Issues New Diet Guidelines

With great fanfare the new Fed nutrition guidelines have arrived.

In short: eat less sugar, salt, and fat, but eat more vegetables.

How profound. Who knew?  I ask you, who knew? Uh oh, my grandmother beat this announcement by 75 years or more.

Thank heaven for new Fed nutrition guidelines.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health“, is now available on Amazon.

Search for the Elusive Elixir of Life

Dear Readers of Cracking Health Costs,

This blog is known for pithy posts. That’s my style, in part because I’m a terrible typist. I’ve posted about 680 articles so far. The following post is by far the longest. I hope you take the time to read it to the end.

Here’s the executive summary: Most disease and health spending is age-related. As we age we get infirmities ranging from dementia to cancer to vascular disease. Nothing can prevent aging. Period. For millennia mankind has been been on a futile search to prevent aging. 

Search for the Elusive Elixir of Life

For 3500 or more years mankind has been searching for the mythological Elixir of Life, the fountain of youth, the philosophers stone, pool of nectar, etc, that will defeat aging and extend life, if not achieve immortality.

According to Wiki, “The elixir of life, also known as the elixir of immortality and sometimes equated with the philosopher’s stone, is a mythical potion that, when drunk from a certain cup at a certain time, supposedly grants the drinker eternal life and/or eternal youth.”

All around the globe from 400 BCE alchemists, from India to China to Europe,  were seeking the elixir of life. Many thought gold was an essential ingredient of such an elixir.

The Fountain of Youth, also known as the water of life, was part of the search for the elixir of life. That search was in full throttle during the crusades, and was carried to the New World by Spanish explorers, the most famous of whom was Ponce De Leon in the 1500’s. Even the Mayans had legends about waters of eternal youth.

The search for the elixir of life didn’t end there.

In the 19th century in the US many believed that bathing in special springs had healing powers. During that era people flocked to Eureka Springs, Hot Springs, Healing Springs, and many many more. So called healing spas are still very popular today.

“Snake oil” salesmen were peddling various cure-alls and panaceas into the 20th century. A search on the internet will reveal a large number of “promising” balms and salves, some of which actually worked for minor scrapes and burns.

If you’re over 60 or so you may recall Carters Little Liver Pills. It was advertised to treat biliousness and other ailments. The FTC made them drop the word liver from the name. Carters Little Pills are still sold but as a laxative.

If you watched the Lawrence Welk show, you saw ads for Serutan, which is “natures” spelled backwards. It’s a “vegetable hydrogel”.

Today the search for an elixir of life, by various names, is still in high gear and salesmen for that notion are abundant today.

People today are still pursuing the same version of living longer and healthier lives by pursuing a mix of vitamins, supplements, wellness, incentives, education, exams, tests, etc., that will push the time of their death out a few years.

But, alas, the human body and its organs simply wear out over time. No insurance plan, wellness plan, patient education program, or prevention combination, can defeat the inevitable. As we age our bodies just wear out. For example, the reason brain aneurysms and strokes occur in the elderly is that blood vessels get thinner and more fragile with age. The same applies to other vascular diseases. Joint diseases are common as we age. Why? Joints just wear out over time. Dementia is usually related to aging. The list goes on and on.

According to NIH data all cancer rates begin to skyrocket at about age 65. That is partially the effect of age-related diminishing immune systems. Our immune systems wear out as we age.

Companies are paying huge dollars to elixir of life promoters today when all the facts show it just doesn’t work as advertised. Such companies’ intentions are good, even noble, but doomed to fail. Lesson: whatever you want and seek, someone will find away to sell it to you.

We are all going to have a mortal illness someday unless we die sooner from something else like an auto accident. My grandfather died at age 99. Every organ in his body was failing. His kidneys were failing, as was his vascular system, his brain, and his liver, etc. Why? He simply outlived his body. I’ve known a number of good people who in the end died a miserable terrible death  after years in nursing homes. I wouldn’t wish that on my worst enemy.

Another factor driving up costs in the US has been the creation of the emergency phone number system of dialing 911 and having a life-saving trained team show up at your door in few minutes. The dial 911 system saves live no doubt, but there have been unintended health cost consequences too. If one survives a heart attack the average cost is about $250k. Because of the 911 phone system some 80 year olds are surviving three heart attacks in 9 months just to die from the fourth one, adding $750k to their last 12 months. Now they are even putting ventricular assist devices to keep people like that alive for one more day at a cost of $900k.

I’m not making a comment on the morality of deferring and elderly person’s death for 9 months at a cost of $750k to $2M. But we need to have an adult conversation in American about how we are going to pay for all this. By any measurement Medicare and Social Security are both totally unsustainable unless huge changes are made that will impact everyone. Beware of proposed changes that promote intergenerational rivalries.

This chart shows death rates by age (source WIKI). When people hit about age 50 the death and sickness rates begin to skyrocket.

This chart shows leading causes of death (source WIKI). See the strong correlation to aging and heart disease. People are simply outliving their hearts and blood vessels. In 1900 people rarely died of heart disease because they didn’t live long enough to develop chronic conditions. Most of the chronic diseases we worry about are simply a consequence of aging. They are irreversible. Like the Hydra of Greek mythology, if you defeat one chronic condition, three others will pop up in its place.

The third chart shows health spending by age (source Incidental Economist), again correlating disease to aging. That will always be that way until someone comes up with a way to prevent aging or finds an “elixir of life”. That chart also illustrates the massive wasteful spending on end-of-life care in the US compared to peer countries.

People in born in the US today can expect to die along a bell curve centering on age 80.  If we all do everything we can possibly do to be healthier for all of our lives there will be slightly fewer deaths around ages 78 or 79. (A great source of information on This topic is Nortin Hadler’s The Last Well Person: How to Stay Well Despite the Health-Care System available on Amazon.)

In any case if you are able to add a year to your life it will be added to the end of your life. For most people that will mean another year in a nursing home, in assisted living, or as an invalid at home. (For a Washington Post article on just how nasty nursing homes can be click here. Again, I would not wish that on my worst enemy.) People sometimes tell me about someone who was more or less healthy and independent at age 90. For every person like that there are a hundred in nursing homes or dementia units.

Most people retiring today don’t have enough in savings to support themselves for more than a few years, let alone enough to pay for assisted living and/or nursing homes when they are elderly and frail. Medicaid nursing home budgets are likewise unsustainable. Don’t count on that. For many people living a year or two longer will simply mean being a burden to your children for another year or two, both financially and emotionally.

What about your children’s lives? Do you really want them to have to look after you well into their 60’s. At that age they should be concentrating on their own welfare.

As people age into their 80’s and 90’s, many become demanding in an irrational way. Some people age 55 and up are relieved when their elderly parents pass away, but often with feelings of guilt. Most people have witnessed this in their own families.

Someday researchers may discover a way to delay the effects of aging. Personally I believe such is the province of science fiction. If that ever happens, God help us. That would be very destructive to mankind.

Imagine our world populated by a billion or more centenarians. Imagine a nation with an average age of 65. Imagine yourself at age 90 with a 120 year old parent or two. Who will look after whom? Will 70 year old children or their 45 year old children be able to look after and support such parents, grandparents, and great grandparents? The news from Asia is that many young people are no longer willing to support their centenarian parents or grandparents today, let alone great-grandparents.

What should we all do then? Simple. Spend less time wringing your hands over which illness will get you in the end, rather make the most of the time you have. Worry will never add a day to your life.

The Romans had a blessing: May you live well and die suddenly.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health”, is now available on Amazon.

Worst Doctors of 2015

This list came to me via email and I thought it was too good not to post. The origin of this is a Medscape article  written by Lisa Pevtzow, Deborah Flapan, Fredy Perojo, and Darbe Rotach. Please read the Medscape article in full. It’s a gem. The Medscape article shows pictures of these offenders.

A summary is below.

1) In July, Farid Fata, MD, was sentenced to 45 years in prison in Detroit for administering excessive or unnecessary chemotherapy to 543 patients. Some of them he deliberately misdiagnosed with cancer. In addition to enduring needless chemotherapy, the patients suffered anguish at the possibility of death. The massive criminal scheme netted at least $17 million from Medicare and private insurers.

2) Ophthalmologist David Ming Pon, MD, was found guilty in October of cheating Medicare by pretending to perform procedures on patients who did not need them. A federal jury convicted Dr. Pon on 20 counts of healthcare fraud. The scam netted Dr Pon more than $7 million, according to the Department of Justice.

3) Joseph Mogan III, MD, was sentenced to about 8 years in prison in March for operating two “pill mills” in suburban New Orleans, Louisiana. He gave out illegal prescriptions for narcotics and other controlled substances on a cash-and-carry basis. Dr. Mogan might have received a longer sentence had he not previously testified against a former New Orleans police officer who gave advice on how to operate under the radar of law enforcement. Prosecutors said the officer helped Dr Mogan and his co-operator Tiffany Miller because Miller provided sexual favors and thousands of dollars in cash.

4) Dr Aria Sabit pleaded guilty in a federal district court in Detroit, Michigan, in May to conspiring to receive kickbacks from a medical technology company. In 2010, Apex Medical Technologies, which distributes spinal surgery instruments, told the surgeon that if he invested $5000 in the company and used its hardware, he would share in the revenue. Ultimately, he received $439,000 from his investment. Dr Sabit also pleaded guilty to stealing $11 million in insurance proceeds after billing Medicare, Medicaid, and private insurers.


5) A Virginia jury awarded a patient $500,000 in June after an anesthesiologist made mocking and derogatory comments, which the patient accidentally recorded on a cellphone while he was sedated. The case inflamed the public after The Washington Post first reported the story. The recording captured anesthesiologist Tiffany Ingham, MD, commenting on the patient’s penis and making fun of him. The surgical team also entered a fake diagnosis of hemorrhoids into his medical record.

6)  A former researcher at Iowa State University was sentenced to 57 months in prison in July for systematically falsifying data to make an experimental HIV vaccine look effective. The researcher, Dong Pyou Han, PhD, was supposed to inject rabbits with a vaccine and test their sera for HIV antibodies. Dr Han not only gave the head of the lab false test results about the vaccine, but he also injected the rabbits with human antibodies.

7) The Washington Medical Quality Assurance Commissions suspended the license of Arthur Zilberstein, MD, in June for sexting from the operating room. The commission said Dr Zilberstein “compromised patient safety due to his preoccupation with sexual matters” during surgery. He was charged with exchanging sexually explicit texts during surgeries when he was the responsible anesthesiologist, improperly accessing medical-record imaging for sexual gratification, and having sexual encounters in his office.

8) An Ohio cardiologist was convicted in September of billing Medicare and other insurers for $7.2 million in unnecessary tests and procedures. Dr Harold Persaud put lives at risk by performing stent insertions, catheterizations, imaging tests, and referrals for coronary artery bypass graft surgery that were not medically warranted, according to prosecutors.

Alas such patient mistreatment and fraud is not that rare, as readers of this blog know.

Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health“, is now available on Amazon.

Genetic Testing: The New Frontier of Wellness Madness a guest post by Al Lewis

Al is a good friend and co-author of Cracking Health Costs, the book. He’s also one of the smartest men I know. This is from his popular blog called They Said What? Al’s company,, has just announced a relationship with Harvard Health Publications. Go Al. Further,this article is being tweeted all over the internet and is his most popular posting ever.


Genetic Testing: The New Frontier of Wellness Madness?

Did we call this one or what? Finally a real news outlet — the Wall Street Journal — reports on the same shock-and-awe that we experienced when we heard that Aetna was collecting employee DNA…and then making up savings figures. George Orwell never would have guessed that Big Brother would be in the private sector, but then again George Orwell wasn’t insured by Aetna.

You can read about it here.

And if that isn’t enough, here is the prequel.