a16z Podcast - a16z Podcast: How to Pay for Healthcare Based on Health

Episode Date: September 6, 2019

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. But there's also been a real dearth of seeing how that might work in action, or concrete models for how to implement it at scale. In this episode, CEO of Blue Cross Blue Shield North Carolina Patrick Conway dives deep into how exactly we can make the move towards this kind of healthcare a reality, in conversation with a16z's General Partner Jorge Conde, Venkat Mocherla and Hanne Tidnam.Conway—also a pediatrician, and formerly Deputy Administrator at the Centers for Medicare and Medicaid Services (CMS) and Director of the Center for Medicare and Medicaid Innovation (CMMI)—gets into what value-based care really means; different ideas for how payors can implement the shift away from fee-for-service and volume-based care towards outcomes; as well as the critical role social determinants (food insecurity, transportation, and more) play in our health—and how tech can be a driver of change. And finally, Conway shares thoughtful analysis from an insider’s point of view from the Hill on how to actually effect change in policy and regulation in healthcare to move the entire system in this direction.This podcast was recorded on April 10, 2019. As of September 25, 2019, Patrick Conway is no longer CEO and President of Blue Cross Blue Shield North Carolina.

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 slash disclosures. Hi, and welcome to the A16Z podcast. I'm Hannah. In this conversation, A16Z bio-general partner, Jorge Condi, market dev partner Venkat Motrilla, and myself talk all about driving value-based health care 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 CMI, 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, 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 health care 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 health care. 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? 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 health care became more expensive and you didn't want to pick 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. Oh, I didn't know that. Yeah, same in Washington. There's two blues plans. And then many states

like North Carolina, there's one. The brand of all 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. In health care innovation, all roads do ultimately lead to the payer. But as we talk about innovation, there are various sources of innovation that an insurance plan

could undertake to drive change. What are the big buckets of innovation that you think about? It's all about better care, lower cost, sexual 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 a state with 10 million people. I met a 75-year-old the other day.

we insured every day of our 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. So you talk a lot about social determinants. So let's break those down.

What are those? Yeah, I mean, so 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 health care system. You could debate whether it's social determinants or health care, but sort of primary care. So I understand intuitively quite a few of those, but transportation isn't immediately obvious.

Why is that a social determinant of health care? 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 a readmission because they actually couldn't get transportation to go to a doctor's appointment or go to whatever care they needed.

So they couldn't get there early enough, in other words, to avoid the prevention. 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.

Is that because it's indicative of their life, their socioeconomic status, or is it an actual cause? It's both. That's a great question. It is correlated with socioeconomic status, which is also at 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.

Right. So literally hard to go to the grocery store, hard to go to your doctor's appointment, all those things actually, yeah. The chance of them seeing their primary care doctor, eating right, is way lower. So we invest in care more in IORA in Medicare Advantage. They pick people up.

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 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. 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?

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. In all your free time? All my free time. 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 airquivate 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. 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 a pediatrician, so I said, first of all,

pretty good evidence preventing child abuse has huge, positive outcomes. I don't even understand the place where the question comes from. His point was the ROI. Yeah, but what's the ROI for stuff? Which is true. Most for-profit payers, United Sign, et cetera, including in our market, they're like 10 to 15% of the population, they have churned, they'll talk about social determinants, but in reality, they're going to invest in more near-term things because they know people are moving

and out, 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. So you have the benefit of being able to take a very long view on ROI because you do keep members in your plan. Exactly. And they're going to stay on for decades over a lifetime. One of the fascinating things to me in the example of, you know, food shortage or access to food,

in so many examples, if you look over the history of public health, for example, very, very simple interventions have had massive, massive beneficial impact. So obviously, vaccines. Yep. 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 oral rehydration therapy. Which is pennies, right? I worked on that in Nicaragua many years ago. Okay, so you've seen this.

This is incredible. Children that would die otherwise, you give them a couple pennies worth of electrolytes, right? 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? 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 thoughts. One is there are some countries, the U.S. doesn't do this, literally do inter-insurance 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 U.S. hasn't done that yet. I'm not sure politically will 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 launched, because it's still in the queue, was Medicare Advantage for a three to five-year cycle. Okay, so just extending that window would change behavior? 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.

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.

This is actually a fascinating topic because the famous quote is culture, it's strategy for breakfast and policy, it's culture and strategy and in health care. And politics eats policy. And you're a physician who's spent a lot of time in D.C. and a public stage,

about you think the industry doesn't know about changing American health care policy that you wish all of us new around the table. One is everybody focuses on the hill like law. Law is important. We should focus on that. People often discount and don't realize regulation, CMS, Medicare and 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, like, have. 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. That unfortunately in DC is really uncommon. Can you give an example of that, the difference between those two kind of ideas? 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 the 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 push forward. Let me give you the negative example. In drugs, unfortunately, we still have the pharma

company say it's the middlemen, the PBMs, 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 I'm like, you've got to be kidding me. When's the next meeting? 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 short version is the pharmaceutical lobby combined with doctors that also had a vested interest.

and drug prices still going off, came against it. Can we stay on that topic for a second? Because if there's one area in American society that is politically charged, it's health care. You alluded to the fact that Medicare Advantage is one area where there's actually some level of real bipartisan support. It seems like it's the one place where both the left and the right

actually agree that there's a model that will work. Why don't we define Medicare Advantage for our listeners who may not be as familiar? I love that you ask 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 cap-dated rate to 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 in Democratic administrations. It is the right financial model, the right set of incentives. The only downside, if you will, is people say, was the network the same? 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 would 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 and the 55 to 64-year-old age group in the individual market, it's very expensive. So could you let people buy in to Medicare Advantage?

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

we can make real progress on in this environment? 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, change in the system, I think it's 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 actually polls well in Republican and Democrats. Because people get it. Just a simple terminology change. In North Carolina,

and the Medicaid transformation, they call them Opportunities for Health, because people get it. Public 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. If opportunities for health are

better access to food, better access to transportation, et cetera, one of the big challenges that I think the health care system in the United States has is the ability to effectively coordinate care across silos. 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?

Right now, it's a patchwork, if we're honest. Let me give you a clinical example. If I have a kid with an ear infection, I can click a button and send a moxillin to any pharmacy in the United States like that. If I have a child with food insecurity who needs WIC program for food, it's a whole long system to make sure it gets done. it's got to be the same. So you need a system for the opportunities for health

or social determinants health that'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 pattern? 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? Do they get the housing they eat?

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 ten kids are food insecure. They're hungry. The only meal they get is at school.

So we're measuring it with the whole state. We think we can move 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. 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? We're looking at a array of partners that are sort of the day-ed-in.

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, but 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. And they do what? Like make phone calls and poll people? Yeah.

And like there's CDC data that will measure, you know, on an annual basis. But that's, it is helpful because it identifies a 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've 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. 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 termination issues have to become the same, where there's a network of providers, of entities out there addressing these needs, and we have a system. that identifies the need and closes the gap and measures it.

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. You talked about this. The relationship you now have with Cambia is pretty stunning, and you have to think about a multi-state sort of strategy. What does that mean?

Because is health care just getting bigger? Can you talk us through what it means to be a multi-state organization versus thinking about North Carolina itself? Yeah, specifically. It gives you the benefits of scale. in terms of things like investing. We all invest in the same things, Blue Splint, Data 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. Born and raised in North Carolina, there were like governors, CEOs of companies in North Carolina there were like a thousand people he got like 49 gifts he announced that he and his wife were donating millions of dollars

to upstate his alma mater in her name my wife and I got in the car we were like wow that was awesome and also very scary we insure like 60, 70% people in the state

like for their lives so it's like a big deal so the beauty of this this relationship is you get the benefits of scale, but we will still be Blue Cross Blue Shield and North Carolina and regions of Oregon. That's important to the people in those states. I mean, I'm biased, but that's fundamentally different than a national payer. They'll talk about how they care about all the states, but it's not the same. You don't have the same connective tissue, if you will, to the states and communities you serve. 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. In the sort of pharmaceutical arena, I think, remains to be seen. I serve on the board of a pharmaceutical biotech company. 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 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 and 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. 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.

Was there any space in the health care system where costs have come down, period? Actually, let's talk about that. Blue Cross, New Zealand, North Carolina. What a shock. Lowered individual premiums last year by almost 5%. And what drove that? A couple 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, in this is publicly known,

the triangle arrow 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 health care. 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. 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. I was like, look, it's an and. We're going to do value-based payment. You're going to be responsible total cost of care, quality, and experience, and we're not doing fee-for-service increases because people can't pay more. 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 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? 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 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? Is that because they're expecting you to connect those dots? And we can to a degree, but connective tissue has to go to the outcomes. What's the total cost to care and quality outcomes? It can't just be for the sake of like I'm the next new shiny object. 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 jihitsu 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. 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 month. member per month payment. And I'll drive amazing quality until cost. I'm like, well, are you 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. Is that the same way you assess? Because that's for, let's say, a software, our technology with AI, but for new therapies, for example, that can cure diseases, how do you think about that? What's the filter set there? We're not there yet in the U.S., 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, the program costs a million plus, and I was actually trying to help them on, like, you know, 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 side they want to know because it's very costly and we've got to get to a more nuanced answer. One of the proposals that's been put out there is a Netflix occasion of medicine, right?

Because if you get the gene therapy theoretically if it's paid for a 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.

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.

That's not sustainable. So I'm going to try to push it off. It's 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 employed 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 it counts. Like risk on the extremes, our risk adjustment models don't capture subscription models I think it would start to capture. On these very high-end curative therapies in some cases, we have to think about a financing model that's more long-term.

I would say I'm an optimist. My assumption is that the innovation will force the business model change. I hope so. You're considered a thought leader on driving towards value-based care. So I would love to get your take on where we are in the journey to going from fee to service to true value-based care, what's working, what's not working,

and what should give us cost to be optimistic that we're going to get there. So we have 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 zero percent 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. 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, so meaning full arrangements. We think within less, less than nine months, we'll have over half our payments and those kind of full risk arrangements. There is 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 for Medicare and private payers. When you do that, it is 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. 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 the doctors themselves? 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 have made a measure 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 okay with that. Is that because they're doing more of the coordination? There's actually pretty good evidence on this. Most payers spend about 6% on primary care. We in Blue Cross North Carolina spent about 8%. We have a goal to be 10 plus percent. There's actually evidence from U.K.

and other international health systems, if you spend 10 plus percent on primary care, you get better health outcomes at a lower cost. Because the primary care physician becomes the front door to the system as opposed to... Yeah, and you're actually investing in 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 behavioral conditions because you'll get better health outcomes at a lower cost. 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? Employers need to step up. And let me describe that. The Amazon, Berkshire Hathaway, J.P. 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 health care 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, 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 health care costs are like $500 million. Seriously, and the whole broker game around self-funded is on the spreadsheet with the administrative fee. and can you get a better deal. We actually have started on employers. We guarantee medical trend. I learned by going to a meeting, 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 got to 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.

I was like, I'm done. I will guarantee you we'll beat that price on the administrative fee because this is like ridiculous 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 because we've got actuaries your cost are going to go down and your quality experience will be better. Every business is a healthcare business at the end of the day. 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 very disappointing, actually. The fact that the employer has to even step up to manage their employees' health care, that's an accident of history in the United States. So do you think with all of the other changes that are happening in health care, will that employer mandate ever change?

or is that just set in stone so we do need the employers to step up? I mean, no, this gets sold to Medicare for all another 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

because 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 health care 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 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 talk about the Amazon, Bershaw-Hathaway, J.P. Morgan thing. what I say internally, is the part you should think about that. Those are people that are angry.

The costs are too high. The quality is uneven. And experience often sucks. And so we got to focus on that. We've got to get the costs under control. Quality's got to be reliable. And the experience should be better. 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 feels like it's the disruption part. So it's, yeah, I mean, as opposed to other industries, I think healthcare has had a challenge and that 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. So you've served in government, you've been a practicing physician, you're running, obviously, an extraordinarily large insurer. Are you optimistic? I am, or I wouldn't do this work.

We've got to do better. I don't know why I always want to do health care, but it's what I want to do forever. And I was initially going to do international health care. And then I realized, like, I did this project with saved 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. I was just like, oh, my God, like the system is so broken.

I'm not sure I can fix this system. In the U.S., we have enough money to fix our health care system. We just got to get it done. I'm optimistic. We can do it. What a powerful call to action. Thank you so much for joining us on the A16Z podcast. Thank you.