Patients, health systems, and physicians are experiencing unprecedented financial distress, necessitating realistic strategies to help providers to succeed in this irrational market. In the latest Summit Series, Chief Strategy & Innovation Officer of BPD Sasha Boghosian interviewed Nate Kaufman, Managing Director of Kaufman Strategic Advisors, for his practical, striking advice on how healthcare organizations can survive. Read on for the top takeaways, “Nate’s 8.”

1/ People say healthcare is “local.” It’s not.

We’re all solving for the same equation: Revenue – Expenses = Survival (Or Better). Revenue has to exceed expenses, which are comprised of a number of variables, including staffing, supplies, and philanthropic care. Of late, expenses are increasing far greater than the increase in the rate of payments from all payors, meaning this very simple equation is becoming harder to balance.

Everyone says that we should focus on value. Unfortunately, the metrics used to-date are not an accurate reflection of true value, and the most reliable payment model continues to be fee for service, which we all know prioritizes “sick” care. But just because something sounds “innovative,” doesn’t mean it won’t backfire and be a financial disaster or burden your clinical workforce. Beware of advisors with unproven assumptions. Remember, if you torture data long enough, it will confess to anything. Let’s make sure we can differentiate viable solutions from too-good-to-be-true noise, and that what we’re doing makes us profitable.

2/ Greedenomics is the name of the game in managed care contracting.

What is the driving force in the health insurance and pharmaceutical industries? Greedenomics.

In 2023, for-profit insurance companies amassed $70.7 billion in profits, while patients, health systems, and physicians faced unprecedented financial distress. Between 2010 and 2023, insurers in profits surged by nearly $50 billion, while about 1 out of 3 healthcare dollars floats through either their insurance companies, their PBMs or other service offerings, e.g., Change Healthcare. Payors exploit loopholes and use vertical integration to bypass medical loss ratio requirements and maximize profits. And, most frustratingly for patients, denials and delays allow insurers to hold onto their dollars rather than covering necessary treatment.

Insurance companies have shifted the cost of covering care via increased co-payments and deductibles so much so that they’ve relieved themselves of the first-dollar responsibility. As a result, providers are forced to choose between playing the unpopular role of debt collector or writing off thousands of dollars’ worth of legitimate claims. Simply put, it’s no accident plan designs have evolved in this way.

Ultimately, greedy health insurance companies are driving up the cost of healthcare in our country.

3/ Government underfunding is a key driver of the healthcare crisis.

Every single day between now and 2030, 10,000 Americans become Medicare-eligible. If the government funding gap was bad before, it’s only going to get worse.

Part A, funded by payroll deductions, underpays hospitals, while Part B, funded by premiums, underpays providers. Changing this would require increasing premiums or taxes — so payors are better off blaming hospitals. For-profit health systems maintain a roughly 0% Medicare margin by managing their portfolios of facilities and services effectively, and if they can’t, they leave the market. Not only does this leave seniors with fewer provider options, but it also puts the onus of covering their care on not-for-profit and government payors.

4/ The “journey to value” is currently on a road to nowhere (good).

I call it a “value scam.” Since 2010, insurance company profits have skyrocketed from $20 billion to $70 billion. According to the MGMA Regulatory Burden Report 2023, 70% of physicians say Medicare Advantage has been unsuccessful. Medicare Advantage also pays critical-access hospitals 20-35% less than traditional Medicare for the same services, as noted by Scott Taylor of Ozarks Community Hospital. Moody’s reports that Medicare Advantage pays far less than traditional Medicare and is creating a financial crisis for many rural hospitals.

The way payors measure value with inconsistent, overly general metrics for quality and outcomes makes it difficult for providers to meet standards. Also, through their plan design, the payors have turned healthcare providers into debt collectors, with 57% of hospital bad debt from the self-pay component of insurance accounts.

People say we’re going from volume to value, but we’re really moving to who the hell knows what. Value should be measured by quality, service, and outcomes per dollar. Quality must be physician-measured, evidence-based, patient-centered, and collaborative. We treat healthcare like a commodity, but it isn’t. Doctors and hospitals are not commodities, and reducing them to mere price differences is malpractice, in my opinion. To say that all physicians and health systems are the same except for price is misleading the public. What good is a cheap misdiagnosis?

5/ The “disruptors” may become the disrupted or make things worse for patients.

The healthcare media often promotes value-based care and disruptors with little opposing opinion. A major law firm recently advised everyone to become a “payvider.” But disruptors and so-called “innovative strategies” often fail.

When it comes payviders for instance, from 2019 to 2024, Medicare Advantage’s market share grew by 4.8%, while nonprofits, including payviders, saw a decline. The top five Medicare Advantage plans have operating margins of 4.9%, whereas payviders have -1% for Medicare Advantage and 1.3% for commercial plans.

The trending hybrid model for doctors is also unsustainable. As Peter Drucker once said, “Culture eats strategy for breakfast.” An organization is either risk-based or fee-for-service, not both. I would stay in fee-for-service.

Is physician employment a “disruptive” strategy — or a flight to safety? The primary drivers for physicians seeking hospital employment:

1) Higher payment rates with payors

2) Payors’ regulatory and administrative processes

3) Improving access to costly resources

Our health systems need these doctors. If they leave the market or leave their practice, then we won’t have physicians to serve the hospital and patients.

“New and shiny” disruptors like Walgreens have also failed: after acquiring VillageMD and planning expansions, Walgreens announced clinic closures in Florida just two years later. In most markets in 2024, days of making money off of direct physician employment are over.

These aren’t disruptors. These are people that made a mistake or were misled by their “advisor.”

6/ Price transparency doesn’t work in healthcare.

Transparency is a dumb idea for reducing healthcare costs. The top 10% of healthcare spenders, who account for 86% of costs, are managing multiple chronic conditions with ongoing care needs. They’re spending $40,000 a year on healthcare, according to the 2019 Household Component of the Medical Expenditure Panel Survey. They’re not shopping around for healthcare; they're simply receiving necessary treatment. Price transparency won't influence their decisions, so the notion that it will encourage shopping is misguided.

7/ Independence is not a strategy — it’s an organization structure.

Independence in healthcare isn’t just about ownership, and it’s certainly not a strategy for survival. If you want to be independent, go for it. In fact, many small systems are attempting to stay independent to preserve autonomy, but you’ll still need a business strategy to ensure sustainability and create leverage in negotiations to demand better rates. To thrive, prioritize frontline efficiency, secure better funding for government subsidies, and crucially, develop a pricing strategy, potentially through integration with larger systems.

Consolidating systems should consider concerns about negative impacts like higher costs (there are few economies of scale), though failure to consolidate risks service closures and hospital shutdowns.

Ultimately, regardless of ownership structure, organizations must continually address viability and access to maintain operational stability.

8/ So, what should we do? Pray.

Consider the Serenity Prayer. Focus on what we can control. We have control over improving efficiencies, engaging frontline staff, supporting physicians, and securing necessary payments from the private sector.

I encourage you to analyze, forecast, criticize, pontificate, blame, show how smart you are with respect to internal stuff, external stuff, government stuff, trend stuff, cultural stuff, academic nonsense stuff, venture capital stuff, and so on.

We need to stop going after the latest shiny object and focus on solving the critical equation of Revenue – Expenses = Survival. If we can't solve this equation, our patients won’t get in to see us, and won’t receive the care they need. The answers come from the physicians and clinical care professionals on the front lines — we need to listen to them more.