Unsustainable Cost of Health care Benefits | Kelsey Hilbrich

Johnny: Thanks Thanks so much. Kelsey, can you start by just telling us a little bit about yourself and, what you do?

Kelsey: Yep. Sure thing. So, again, nice to meet you, Kelsey, Hilbrich. I'm a I'm a private equity professional. I've been in the industry.

I've been a boring finance wonk for about 10 years now, and I really dove into health care about 3 years ago now. And I actually spend most of my time investing in health care technology solutions. So I work for a middle market private equity firm. We're called FlexPoint Ford. We're based out of Chicago, and we really are focused on bringing efficiency to care.

So how can we do things that reduce take cost out of the system, which I think you'll you'll hear that theme a lot in today's conversation, which is that the costs have become unsustainable across, you know, the ecosystem of health care.

Johnny: Great. Thanks. So we wanna start at the 30,000 foot level. What are some of the trends you're seeing in health care today?

Kelsey: Yeah. So I think the as I'm sure all of you know and felt pretty intimately, the biggest thing that we've seen is just the effect of COVID, which just sent total shock waves through the entire health care ecosystem. You saw elective procedures basically collapse across the states for about a year. You saw, as a result, hospital operating margins went negative and pretty severely negative. And as a result of all of that, you've now seen cost inflation kind of trickle down all the way to the sort of employer level.

So you're seeing premiums on, you know, health insurance go up. I was just talking to our new head of HR, FlexPoint. We're an 80 person group. Our health care premiums are went up by 18% last year. And so, obviously, you know, I think it used to be that, you know, if you were a small medium business owner, you know, you would just kinda go through your your renewal with your broker.

Maybe you're getting hit by a 6 to 8% price increase every year. That double digit price increase has now meant that health care is probably, at least sort of on the macro level, your 2nd largest expense as you think about your p and l behind wages. And so I think that's put a lot of pressure on folks to figure out, okay. What can we do to sort of address that problem? So that's been I would say COVID and then the subsequent kinda cost increases have been really top of mind.

A couple of the other sort of key things that we've seen in the ecosystem, labor shortages are huge. You've seen nurses. There was just a huge wave of nurses that retired in COVID, understandably so. It was, you know, absolutely horrible what folks had to endure both in sort of, like, you know, nursing homes, independent living facilities, but then also in the hospital setting. And so those are people that have permanently left the workforce, and we already hadn't been sort of hiring or replacing enough folks, prior to COVID.

And so as a result, you know, the staffing shortages just mean there's an even sharper focus on the need for efficiency, whether it's in sort of your local doctor's office or whether it's in the hospital ecosystem. Like, everyone's looking for how can we bring software to bear, to relieve the pressure that we're feeling because we just don't have enough staff. So that's been another key theme. I would say couple of others just to hit. The first is the consumerization of health care.

So I think in a way that we hadn't seen prior to COVID, it kinda woke people up to the fact that, like, you know, hey. Health care is really important. Right? The way that my benefits are structured is important. The way that I access care is important.

You know, having we haven't had primary care physicians. Most people don't have a primary care physician in decades at this point. And so people have really been conscious of how do I get access to the care that I need sort of at the right place. There's still a huge inefficiency in getting to the right site of care. So you have people walking into urgent care or the emergency room with an ear infection.

That's just sort of continuing to spiral costs throughout the ecosystem. And so that's been another, I think, focus for folks is, like, how do I become an advocate in my care? How do I become a consumer of health care? And you've seen businesses respond accordingly. So Amazon obviously bought One Medical.

That's huge. Right? As a Prime member, as I'm sure at least I certainly am. I'm sure you all are too. You can now get access to, you know, 1 medical membership, and so that type of concierge medicine and actually having sort of direct access to a physician on telehealth or sort of being able to walk into a location, you'll hear about this later from from some of our other speakers.

Just that ability to kind of directly access and be a be a an advocate for yourself and your care. I think that's been another theme that we've seen. And then the last is, I think, the polarization of wellness. And so if you're if I live in New York City, and I'm you know, I think a lot of the kind of urban centers, there's been this intense focus on how can I biohack myself? Right?

So how can I, you know, analyze my sleep in the best way possible? You know, I've got a mattress that, like, heats me up and cools me down. You know, it's like all these different innovations and wellness. But at the same time, if we're one of the sickest countries in the world, you know, we've got you know, obesity is is skyrocketing. You know, people with diabetes are sky that that number is skyrocketing.

And so you've got this kind of polarization of care, that I think in many ways actually echoes the sort of, you know, political ecosystem as well, right, where you kinda have the sort of the the you know, call I'll call it democratic demographic on the coast and then sort of a different demographic in the middle. I'm from Youngstown, Ohio. So when I go to Thanksgiving, obviously, sort of the restaurants that are there and the opportunities that are available for wellness, it looks really, really different than what that landscape looks like in New York. Although I will say, if folks here haven't been to Nourish Cafe, it's awesome. I highly recommend.

And so you're seeing that kinda trend in in sort of biohacking at the extreme. And then on the other extreme, folks just really not understanding, hey. How can I take care of myself? How can I, you know, make myself not chronically ill? So those are the those are the key trends that that at least I think, you know, I've seen at a high level.

Johnny: Yeah. That's great. Even if there is this bifurcation, I still love the fresh air that Columbia

Kelsey: Oh, tell me tell me about it. I will say, like, I think they're gonna discover soon that, like, you know, living in a city, like, permanently ruins your lungs or something. I have no doubt. So

Johnny: Great. Now for this next question, you can be completely honest since we discovered that there are no investors in the room. So what are investors thinking about focusing on and, like, keeping a close eye on these days?

Kelsey: Yeah. So I'll maybe I'll start with what we're not doing anymore, which I think is candidly probably a good thing. But, you know, there was I'm sure all of you have at least heard about it or seen the trend that investors were going in and buying up physician roll ups. So we were buying physician practices and then kind of rolling them up in a big machine. And the perspective was scale is good.

Right? And I guess in theory, sometimes maybe that works. You can get procurement savings by having bigger better negotiating leverage. In practice, like, I don't think that really worked. I think what you saw is in the 20 tens, interest rates were 0, And so there was a kind of interest rate multiple arbitrage play where you could finance these acquisitions with really, really cheap debt and then roll them up and then sell them to the next person.

And you had enough private equity money at a big scale to buy them for a bigger multiple than what you bought them for, and so that just created what I would call, you know, fake value creation. Like, there wasn't really any, efficiency that was generated by putting these different practices together. At least in my mind, that's gonna be a hot take. Please don't tell my boss I said that. But, but that's I think, you know, you you saw that succeed because interest rates were artificially low.

And now that you've got interest rates kind of in the you know, returning to what the historical average used to be, that play isn't working anymore. And so, you either if you're gonna do that, you're gonna put physician practices together. You really have to build a quality managed services organization. So what does that mean? It means we can do your billing for you successfully, right, if revenue cycle actually do that well.

We can, you know, give you software that'll do your patient intake more efficiently. It's actually generating value for these practices rather than just, like, smooshing them together. And to me, that's a great thing because I think that should be the objective of private equity is creating value. Right? There's that's the reason, at least for me, you know, in my in my idealistic self.

Like, that's why I got into the industry is, you know, it control gives you a chance to create value. So I'm I'm hoping that the that change in interest rates will spur real value creation real value creation. So that's maybe theme number 1. I would say theme number 2 is has to do with the staffing shortages. Like, I think last year, I maybe saw 25 different travel nurse staffing businesses, and, like, hospitals are sick and tired of dealing with travel nurse staffing businesses because they gouge them during the pandemic.

But I would say a lot of it's focused on clinical innovation that makes peep people more productive. So it goes back to this productivity. So I'm sure you've been to your doctor's office recently. Maybe you've seen that they're checking you in not with a clipboard anymore, but with an iPad. And why does that matter?

It matters because, first of all, it's saving that front desk person 2 or 3 or 5 minutes, but then it also matters because you're then creating a record that allows these, like, you know, whether it's a a hospital, whether it's your dentist, it actually allows them to collect money better in the future. Because one of the biggest issues that the system has been facing is revenue cycle management. So you'd be shocked at the amount of dropout that happens. I think the latest statistic I've seen is, like, only 40% of co pays ever really get paid and collected upon. And so there's just a tremendous lack of cash in the health care ecosystem.

And so a lot of people are turning to these innovations to try to solve that problem. So I would say, you know, software like or tech enabled service innovations to try to make the patient journey more efficient, that's been a a huge trend. And then I would say the last kinda big trend, and then I'll get into something that I think will resonate for folks that are, you know, deciding on health benefits. But but the last trend before I get there is just on the pharma side. And maybe one thing I would flag for folks, you know, the inflation reduction act was a really big deal, because it's the first time in the history of the United States, I believe, that we have ever done drug price capping here in the US.

And so that's something that Europe's done for a long time. It's something that's been done internationally for a long time. And but if you look at United States innovation, 90% of medical innovations and 90% of drug innovations come from the United States and are exported globally. Why is that? It's because our drug companies, are allowed to chase the profit motive.

Right? They're allowed to chase the blockbuster drug motive. And and so that'll it basically allows pharma companies to run a venture capital model where they'll invest in 10 drugs. 9 of them will fail, so they'll have the cost from those 9, but that 10th will subsidize the remaining 9. And so when you start to cap drug prices, what does that look like in terms of our ability to really try trial and error all these things?

Right? And so to have the, you know, the profits from that 10th success to subsidize the remaining 9, you know, there's a reason that we're one of the most innovative economies. Right? There are downsides to capitalism for sure, but that's the upside, right, is that it incentivizes us to kinda push for growth. And so what does that mean for pharma companies?

Pharma companies are looking for efficiency generators. Right? They're looking for same thing as as doctors' offices. Right? They're like, how do I take cost out of the system?

So that manifests in 2 ways. The first is, how do I automate my clinical trials? So how do I get patients in the funnel that are better suited to a particular clinical trial? Like, how do I make all of that automatic rather than kinda pen and paper? I I'm sure for those of you who have had any exposure to health care, you know we're, like, 15 years behind, any other industry in terms of our adoption of of technology.

It's of course, because we're, you know, it's a risk averse industry. We've got human lives at stake, but I think people are now more galvanized than ever to really kind of adopt tech. And so then, you know, the the final way is just drugs to market, so commercialization. So how do we get drugs from kind of, you know, FDA approval out into making people aware of them? Obviously, we don't have a problem with that.

I think GLP one uptake, so Ozempic and the like, happened pretty quickly. But but that's another area that pharma companies are looking for efficiencies. And, again, it's all about cost takeout. How do we get cost reduced, which will, I think, feed into this final topic of conversation.

Johnny: Yeah. So since we have so many owner operators and, people in businesses today, like, what are the changers for small, medium sized businesses?

Kelsey: Yeah. And I think, you know, Brian will talk about this in in his presentation. There have been some really cool innovations for smaller businesses, smaller and medium sized businesses over the last 10 to 15 years. I think if you were to roll back the clock to 2010, there were almost no small and medium sized businesses that were doing something called self funding, right, which is basically where instead of asking an insurance company to bear your risk and paying them a premium for it, you decide to bear your own risk. And there are pros and cons to this.

Right? Everything like, everything in life, it's a spectrum. I would say, you know, obviously, if you have you can have a really, really expensive patient. I, for example, you know, if you have an autoimmune disease, that that employee can be really, really expensive, and so you have to weigh the costs of having enough liquidity to cover that, right, versus kind of the incremental cost that you're gonna be paying to an insurance company. But I think for the first time and I and and there are 2 key drivers in my mind that have led to this increase in self funding for the small and medium business.

I think the first is there's been a huge increase in insurance innovation. So in insurance companies, there's an oligopoly. Right? We they're called the BUCAHs. So it's, you know, the the Blues plans, United, you know, sing Cigna, Centene, like, all those.

Those are the bookas. And because there's been this oligopoly, they've kind of driven premiums up, like, almost at will over the last kind of 20 years or so. And, basically, there's been a fragmentation that's happened recently where, there there are now smaller insurance companies that are saying, hey. We'll give you stop loss funding, or we'll give you level funding. So we'll fund, like, a portion of your risk, We don't have to fund all of your risk.

And so the that creativity and kind of structuring has has led to a a better opportunity for smaller businesses to kind of, you know, take their destiny into their own hands as it were, and and Brian will talk all about this. I think the second thing is I'll call it, like, data and transparency. You know, they're each of your employees, when they go to the doctor, they generate a claim. So it's called claims data. And, like, you you can access that on a de identified basis, obviously, for HIPAA reasons, but you can access that data.

And so the more that you can kinda educate yourself about, okay, what does my population need? The more that you can tailor a bespoke solution to your employees, so you're not paying you're not paying United the $15,000 per employee just that, like, subsidizes the rest of the economy. You're creating a bespoke solution for your employee set. And we now have kind of the data and the analytics and the it's it's really a technology benefit to my mind that allow you to do that. I mean, look.

There are again, I'm I don't this is not a commercial for self funding. There are definitely pros and cons. You know, I think as you start to get more creative with this stuff, you can see member abrasion go up. So, for example, if you're telling people, you can't go to your favorite doctor, you have to, like, go to this doctor, That can really piss people off. Right?

And so especially in this competitive, you know, labor environment, that's obviously consideration. But but something's gotta give. And I think as I as I step back and I look at the small and and medium sized kind of business ecosystem, I think the the to my mind, one of the biggest drivers of this cost inflation in health care is that we just have sight of care inefficiency. So people are going to the wrong place for the wrong types of care, and what that's leading to is worse quality, which then is leading to higher cost down the road. Right?

So, like, if I go to let's say I have a knee problem and I go to an orthopedic surgeon that specializes in, ACL tears, but really my my meniscus is what's hurt. And then I have to go back into the you know, and it just, like, creates this flywheel that's lower quality and higher cost. And so the more and there are companies now that are providing transparency around this cost and and sort of quality mix. And so taking your destiny into your own hands, like, really understanding this can help be a huge cost savings. And so there are things like and and there's a bunch of innovations, and we can talk about it in more detail.

You know? And and you can if you find a if you find a broker that's innovative, right, that person should know where to get all of these resources. But things like centers of excellence or, you know, cost containment for ESRD, end stage renal disease can be one of the biggest drivers of catastrophic claims. And so if you can get those people, you can prevent someone from crash landing into dialysis in the hospital and can get them to a real, like, dialysis center instead. That can save 100 of 1,000 of dollars.

And so there are meaningful ways to guide your employee populations and deliver care that is custom built for them. So, for example, if you're paying United, you're paying them for a nationwide PPO. But if your company is based in Colombia and your your people don't travel a ton and really just need treatment in Colombia, why not create a direct contract with the sites of care here in Colombia? Then you're not subsidizing a nationwide plan. So there's we we've gone to this massive sort of aggregation at scale, and there's kind of a core there's a, like, a reactionary, almost fragmentation that's happening that I think in many ways, will allow us to kinda get people to the right place for the care that they're seeking.

And I'm sure I missed a lot of themes in there, but but that was that's just, like, a a takeaway to my mind that's

Johnny: That's great. Thanks so much. Let's open it up. What questions you have? Yep.

Kelsey: Yeah. Yeah. It's a great question, and it's it's it's really case specific because I would say auto adjudication is, like, that was the that was the, like, key fad. I don't know. Brian, keep me honest.

5, 8 years ago, something like that. And so you saw that kind of sweep into the market, and I would say the auto adjudication rate where, like, a claim is not being touched by a human and therefore just kind of, you know, being settled immediately. Like, that rate used to be 30, 20, 30%. I would say for most TPAs at this point, if you're going through a TPA, so, like, outside of kind of the traditional booka, you know, umbrella, Like, it should now be in the 60, 70%, and there are some people that are saying they can get it up into the 90, 95%. So I think it's really just the the thing is a lot of people claim that they can auto adjudicate, but then if you really get under the hood and you and you look at the process by which a claim is flowing through the ecosystem, it's higher touch than you think it is.

But I would say it's not unreasonable if someone's telling you we can get that up to 60, 70%. Yeah. I've seen it go both ways. I would say in that instance, like, I I don't know that the savings from that are gonna be that significant. That's my personal opinion.

Like, that's kind of a gamification thing. Like, I've seen I've seen both arguments. So I've seen the, we're gonna auto adjudicate. Therefore, we have fewer people touching this. Therefore, we reduce your administrative overhead.

Option 1. Option 2, you know, the claims are being recorded incorrectly. We're gonna question the coding, like, all that kind of thing, and we're gonna get you savings that way. At the end of the day, if you just step back, like, what is the durable way that you can genuinely save yourself money and create value? It's getting people to the sites of care that are a fit for them.

So, like, I that too, I've seen that gamified, like, on both sides, and I'm sure that there are like, I forget what the exact statistic is. The fraud, waste, and abuse statistic for health care is massive. It's insane. But, like, I yes. You can save money that way.

But if you think about, at least to me, what's gonna create enduring system value, it's getting your people to the right side of care. So I'd almost focus on things like, you know, centers of ex like, getting people to the right treatment place for surgery. Like, whatever that structure looks like for your employee group, that's where I would look first. And then I I I I'm sure there are low hanging fruit examples of this, but over time, I think the way you're really gonna save yourself money is is, of course, 100 100%. And there's, I mean, it's it's fascinating because, like, in this you know, I I started really digging into this ecosystem 3 years ago, and the number of solutions that have spawned in the last 3 years, like, the innovation in this industry is immense.

And so to me, the person I'm looking for, like, if I'm in your shoes, is who's staying on top of that? Like, who's asking the questions? How does this work? Like, who has no you'll go to some brokers, and they're like, I'm not giving you your claims data. Right?

Who's saying, of course, here's your claims data. Let's look at it together. Let's find people that can analyze it and see the savings and, like, run it through whatever their various, you know, sort of solution sets are. That's the person I, personally, I would be looking to do business with.

Johnny: I know we have a lot of other questions. We're gonna have to keep moving on, but thanks so much, Kelsey. Yeah.

Kelsey: Thank you.

Johnny: Give Kelsey a round of applause. Thanks.

This transcript was generated with Transistor AI