Episode 311- Can Hospitals Survive? Grumpy Old Men Take on Today's Healthcare System

Price caps make for great politics and terrible bedside reality when they ignore how hospitals actually survive. Nate Kaufman sits down with healthcare analyst and futurist Dr. Jeff Goldsmith for a blunt conversation about why “just cap hospital prices” can sound like reform while quietly setting up the next access crisis, especially for safety net hospitals and rural communities with heavy Medicare and Medicaid payer mix.

We dig into the “Rand fallacy,” the trap of treating hospital price transparency rankings as a proxy for sustainability or value. Jeff explains why a hospital can look like a bargain on paper and still close its doors, and why policy built on context-free datasets can mislead employers, voters, and regulators. From there, we get specific about what’s really pushing healthcare costs higher: administrative complexity, fragmented payment rules, revenue cycle overhead, and clinician time swallowed by documentation and electronic health record burdens, all layered on top of workforce shortages that make capacity harder to staff every year.

We also tackle the merger question: why would health systems pursue deals across 1,500 miles, what incentives are baked into the transaction industry, and what boards should demand before signing off. We close with practical policy takeaways on strengthening public health and primary care access, simplifying the healthcare transaction, and starting an honest national conversation about the future of employer-sponsored insurance.

Subscribe, share this conversation with a friend in healthcare, and leave a review with the biggest cost driver you think policymakers still misunderstand.

Transcript

Welcome To The Healthcare Bridge

Announcer 0:00

Welcome to season seven of the Common Bridge, hosted by Richard Helpie, a leading analyst, philanthropist, and entrepreneur. Now expanded with healthcare, education, finance, science, and world affairs bridges, the podcast, now in its seventh season, with an audience of over 7 million worldwide, explores issues in a fiercely nonpartisan way. Find us at the Common Bridge at Substack.com, YouTube, and wherever you listen to your favorite podcasts.

SPEAKER_02 0:32

This is Nate Kaufman with the Healthcare Bridge, part of Common Bridge Family of Podcasts. Our goal is to have unscripted, brutally honest conversations with thought leaders in the healthcare industry. Today I'm excited to chat again with my friend and colleague, Dr. Jeff Goldsmith, who is a noted lecturer, author, futurist, and he'll tell a little bit more about himself. One interesting fun fact is that Jeff and I combined have a hundred years of experience working in the healthcare field, thus, the meme of those two old puppets from the Muppets, kind of up there, grumpy old men talking about whatever. And today these grumpy old men are going to talk about healthcare. Welcome, Jeff Goldsmith.

Jeff Goldsmith’s Healthcare Origin Story

SPEAKER_03 1:26

Nay, it's uh good to be with you.

SPEAKER_02 1:28

So, for those who didn't hear our first podcast, why don't you give us a quick background about you know how you got here and also about your new book?

SPEAKER_03 1:38

Well, it's not not finished, but uh we can get to that. Yeah, I, you know, I um I'm a refugee from politics. I entered healthcare um from uh after grad school work with the governor of Illinois, um not incidentally on healthcare. And uh my my employer during that period of time for six weeks was none other than Lynn Schaefer, who went on to uh found uh Anthem. Um I entered healthcare in November 1, 1975. I went to work as the planning and government relations person for the Dean of Medicine at the University of Chicago, Spritzka School of Medicine, um, and evolved into what is today called the chief growth officer for the organization. So after that, you know, I taught in the business school of the University of Chicago. I did consulting for instant Young nationally, had a lot of really interesting clients, worked a lot in the West, uh particularly California and Oregon. Um, you know, and and for most of the last, oh, I don't know, that was, you know, beginning in 1975. That was 50 years ago, 51 years ago. Um, I've really been interested in in the science behind health care. Uh I'm I'm really uh fascinated by um what's going on, particularly right now in neuroimmunology. I can read the re read the papers and stuff. But I've had a broad, broad interest in the financing and politics and organization of care for most of that time.

Arnold Ventures And The Hospital Squeeze

SPEAKER_02 3:11

And one notable thing about you, Jeff, is that you wrote one of the first books about hospitals in I think 1981. Right. Called Can Hospitals Survive, and which is my first question. So right now there is a foundation funded by a billionaire, John Arnold and his wife, and they're doing, it seems to me, everything they can to uh prevent hospitals from surviving in the future. You wrote a number of articles about Arnold Ventures and their impact on healthcare policy. What's your impression?

SPEAKER_03 3:51

Well, I mean, when I wrote my book in 19, really in 1979 and 1980, the industry was$80 billion. Now it's a trillion five. So it's the size of Indonesia economically. Um and I think the the operative question right now, not just for Arnold, but for you know, everybody else, the chairman of the Senate Finance Committee, the, you know, the Secretary of the Treasury is can we continue letting a trillion and a half dollar enterprise grow at 7 or 8% a year? And the answer is no. So there's a whole lot of different perspectives on what needs to be done to slow it down. I think the problem I have with Arnold Ventures and and uh Mark Miller, the person who's their healthcare expert, is um a lot of what they're talking about, what they want to do, is context-free. Uh, and I don't think a lot of those folks understand that if you do a lot of the stuff they're talking about, like rate caps uh as a percentage of Medicare, peeling back outpatient payment to uh, you know, essentially what doctors charge in their office, when you layer all that stuff on top of the trillion dollars in Medicaid cuts that we got out of the president's budget last year, you put a huge chunk of our health system into insolvency. So there's gotta be a happy medium somewhere between slowing down the rate of growth and cratering the system and creating a huge crisis of access to care. And I think that's that's where I kind of part company with the Arnold agenda.

The Rand Fallacy And A Hospital Closure

SPEAKER_02 5:22

So, you know, I actually call that the Rand fallacy because Rand publishes all these commercial rates about hospitals, and what they talk about is this hospital is in the 10th decile, which means it's got the highest rates, and and this hospital's in the first decile, which means it has the lowest rates, and their advice to employers is try to use this data to get the lowest rates. So, what happened was I actually did some research, and there's a hospital called Madeira Hospital. It's located outside of Fresno. Um, it served about 150,000 people, did about 720 births a year. And oh, by the way, it was it was 85% Medicare and Medicaid. And the good news is it was in the first decile of Rand. That means its prices were the lowest in the region. It was a bargain. It was a bargain. It was great. Employers should be rushing to them. Well, they couldn't rush to them because in 2023 the hospital had to close because it was insolvent. Right. When you sit there and look at hospital pricing without understanding what a the impact of those prices are on the overall sustainability of the hospital and its affiliated physicians, you're only looking at like one piece of the elephant. Right. Your thoughts?

SPEAKER_03 6:51

Well, I mean, I I I had a similar client, I had a client similar to Madera, Watsonville Hospital. Uh, they hired me after the Loma Prieta earthquake destroyed their facility about, you know, what do we replace it with, where do we put it, and all the rest of that. And and Watsonville had a very similar trajectory to Madeira. In fact, I think we are we've talked, you and I, about writing a paper about these two places. And what they had in common was not just that they were, you know, under in a weren't paid an adequate enough amount of money by commercial payers, and they didn't have very many of them to offset the losses that they were experiencing for Medicare and Medicaid, but they had a huge number of uninsured and in some cases not even legal resident um agricultural workers that they were taking care of because that was part of their community responsibility, and that wasn't included either. So the cost of that was 100% up, you know, 100% loss uh for every one of those folks that was admitted to the place. So, you know, at Brown University in Providence, Rhode Island, 2,500 miles away, you don't have any idea what the actual circumstances of the hospital are on the ground. And it's that lack of situational awareness that makes a lot of their advice so dangerous.

SPEAKER_02 8:03

It is dangerous if you look uh, but you know, you have to understand that Brown University and uh Dr. Whaley and a number of others there are publishing articles funded by Arnold Ventures on the benefits of capping hospital prices. Uh and I thought about the quote, uh, there's a famous quote, let's see if I have it right. It is difficult to get someone to understand something when their salary depends on not understanding it.

SPEAKER_03 8:34

And you know, I I'm going to give my colleagues in academia the benefit of the doubt, is that they really don't, they really don't understand the circumstances under which the care is provided. And they also don't understand, other than in very broad terms, the financial options that hospitals have in those communities or markets. And I and I guess it's just that lack of situational awareness that that makes our stuff so dangerous. It's not like they're lying to us, it's they don't have all the facts. And the facts that they do present uh present a truly misleading picture of the operating reality of running a hospital in a community like you know, like Watsonville or the one that Madeira served. You know, I I have trouble. I mean, I've I've looked at at Arnold a lot. Arnold is a genius. Um he he he made his billions of dollars essentially um uh running a hedge fund that traded in energy uh futures and was an early master of the idea of arbitrage. You know, where are there differences in the value of an asset depending on where it was located? And I mean, if I could hire the guy to run my retirement plan, I'd do it. When I looked at what his foundation is doing, 85% of it I happen to really like. I really like his uh his work in scientific integrity. You know, can we really believe the research studies that uh a uh a research scientist is publishing? Are there conflicts of interest that are shading his or her um or her findings? I really like the stuff that he's doing in criminal justice, where he's he's he's going after absurdly long sentences and really badly managed parole, trying to get people back into society. I really like a lot of the stuff that he's doing in infrastructure. You guys have infrastructure in California that is actively dangerous, that's setting hundred, multi-hundred, thousand acre fires. Well, wouldn't it be ironic if the advice that he was giving to the hospital industry had the same effect on that industry as the regulators have had in the state of California and creating what is truly an unsafe public service? So I guess it's just, you know, it's just they don't know what they don't know about our field.

When Price Caps Become Policy

SPEAKER_02 10:51

You're giving them a little bit more credit than I am. I mean, I don't know anything about space travel. So I'm not gonna do it. You're smart enough to not do it, Nate. That's the whole point. These people are economists who don't understand the industry, who don't live where I live, and have to negotiate with doctors and health plans and understand all of the unfunded mandates. They're just creating this propaganda, in my opinion, that essentially encourages state regulators to take the popular position of controlling rates in states. What do you think about price caps and rate controls?

SPEAKER_03 11:34

Well, you probably don't know this about me, but when I was responsible for government affairs at the University of Chicago Medical Center, I came within an eyelash of getting a Maryland-style rate setting system put in in my state. I was the motivating factor behind it. Governor Thompson signed it into law. We got one of our trustees appointed as the chairman of the commission. A friend of mine from the legislature was appointed executive director. What on earth was I thinking? Well, what I was thinking is my interest, my institution was going bankrupt because it had 31% Medicaid. And I wanted to use the rate review system as a way of preventing them from cutting my Medicaid rates and had enough political clout in the state that we could put it in place and do it. And of course, we were looking at Maryland. Maryland had been in operation for three or four years. It was a system that was essentially de facto politically controlled by the two big teaching hospitals and by CareFirst, their big Blue Cross plan, which is sort of like the single payer in um in Maryland. So how cynical was I? I wanted rate review to put a floor under my rates and to try and get Medicare to pay me more, and in effect to cap the prices of suburban hospitals as part of the, you know, the deal to make all that happen. So, I mean, that was that was 40 years ago, Nate. I don't think all that much has changed. I mean, price controls are a reason why we get forest fires in California during the dry season. That is not a very good model for running a hospital system.

SPEAKER_02 13:15

Well, I mean, we already have price controls. We have Medicare has a price control and is paying 80 cents on the dollar of cost. Medicaid is a price control. My hospitals, 75% of their prices are controlled by the federal government.

SPEAKER_03 13:31

I don't see it as price controls at all. I I'm you and I are both Medicare beneficiaries. And to me, I think Medicare's job is to be a prudent purchaser of health services on behalf of us beneficiaries and the taxpayers. And if they can figure out a way to twist our arms into accepting 80% of cost as a way of, you know, of covering their their life, their obligations to us, you know, more power to them. The problem is if everybody does that, you don't have a hospital system. You don't have an ability to meet people's needs. So I mean, I I don't see Medicare, Medicare setting, you know, negotiating with the industry as price controls at all. It is, in effect, a market transaction by a very influential purchaser.

SPEAKER_02 14:19

Well, I guess we could disagree on that. Well, sure. We do all the time. In fact, daily. But the question I have for you, Dr. Goldsmith, is if you look at Maine, if you look at Indiana, if you look at uh California, what we're seeing is rate controls and price controls with absolutely basically personifying the Rand fallacy.

Admin Complexity As The Real Cost

SPEAKER_03 14:46

Well, but Nate, look, the reason why this stuff is even being discussed right now is because people don't really have a good vision of what to do instead. And I have argued strongly in my recent writings that, you know, what price caps do is treat the symptoms of a problem. The real problem is why are the costs going up? Well, they're going up because the amount of administrative complexity that we've introduced into the healthcare system is completely unsustainable. And huge chunks of the cost of that CT scan or that uh operation or that emergency room visit are imposed by the government and by the fragmented payment system that we have. So we want the cost to go down. Capping the rates doesn't do it. It just puts the problem off to future years when the hospital begins falling apart. If we want the cost to go down, we've got to simplify the healthcare transaction. We've got to eliminate a lot of the wasted motion. We've got to, you know, why should a hospital spend 13% of its expenses on revenue cycle and another 5 or 6% on its information technology? That's a ridiculous expenditure. Why should hospitals be supporting 40% of the physicians in their communities? Well, the answer is because Medicare put them out of business by paying them far less than it costs to actually operate their practices. A lot of the problem that we have with the cost of care right now is the unintended consequence of poorly thought-through regulatory schemes that are damaging the industry. And if we really want cost stability, we've got to own the fact that we as a society created a lot of these problems and go in and fix them. That's what I think we need to do.

SPEAKER_02 16:26

Well, there's another component, and that is it has to do with the healthcare industry, it is somewhat unique. And I would say over 60 plus percent of our costs are people.

SPEAKER_03 16:36

Right.

SPEAKER_02 16:37

And a lot of those people are in short supply. And a lot of those people who are in short supply, I negotiate with. And when you negotiate with an anesthesiologist who is in short supply and has to be up every fourth night to come into the hospital for an emergency, or if you negotiate with a union who's looking for better wages for their employees, that's 60% of our cost is just going up. And then what happens is the union turns around and says, Well, hold on a second. Our premiums went up and our cost of healthcare went up. Well, guess why it went up. So I think you know, Scott Becker said it said it well. He said, you know, we have huge shortages. We have shortages of beds, we have shortages of specialists, we have shortages of primary care. We need to expand that capacity if we are going to have any chance of I'll call it health equity. That is, you and I, because we've been doing this long enough and have put a few bucks away, we'll find our care. We'll be able to buy our way in, okay? But a huge percent of the population will not be able to afford their care.

SPEAKER_03 17:51

And I really liked your conversation with Becker, and he kept coming back to the shortages over and over again. We're gonna make those shortages worse by strangling the, you know, essentially the core of the health system. We're gonna make those shortages worse. I mean, how do you reduce the cost of the people? Well, you make, I mean, a lot of those docs are coming out of medical school with 400 grand in debt. Why on earth are we continuing to charge tuition to people that are in scarce supply? When we could figure out a way to not have them have that 400 grand in debt, that's gonna alleviate a lot of the pressure right there. Plus, we created a lot of the shortage, Nate, by diverting half their time into typing, into fiddling with their electronic record to justify every single clinical decision that they make. What an absurd waste of their time. If they're spending only half their time taking care of us, that time is gonna be more expensive. And we created that expense by diverting half their time into justifying every single thing that they do. Managed care got completely out of control. And we are now in the midst of, I mean, you know, it's not just hospitals that are struggling right now. Pretty much all four of the major lines of business of our health insurers have turned brown at the same time. So it's not just them that are looking at, you know, like the concrete coming up to meet them. It's, you know, it's not just our friends in the care system that are looking at the concrete coming up to meet them. No, we did a lot of this to ourselves, Nate, and we've got to have the courage to own it and undo some of those things.

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SPEAKER_02 20:06

Well, when you say we, okay, first of all, just my take is that these uh insurance cartels, as I call them, are essentially claims processors masquerading as value creators. I mean, they didn't create any value.

The $4,500 CT Scan Problem

SPEAKER_03 20:19

Well, but they would argue, they would argue that that that they got into the business that they're in to bargain with hospitals and doctors to keep the cost down. But you do that for 40 or 50 years, and it's not bloody obvious that there's a huge amount of waste left over to justify your continuing to take 10% or 15% off the top. So I think, you know, the like I grew up in Portland, Oregon. Portland, Oregon has had managed care since the 1950s, you know, so and it's a very conservative physician community. So the idea that there's a lot of waste and inappropriate care in that community just doesn't stand a lot to a lot of scrutiny. I think the same thing is true in large parts of California, in Minneapolis, you know, where we've got, you know, a very puzzling merger going on right now. Um, I, you know, it's the same thing. The original premise of those health plans was to try and encourage more conservative and evidence-based decision making. Well, 50 years on, I think you could argue mission accomplished. That's not what's driving uh the cost of care up right now. It's those shortages that Becker talked about in his interview with you that are the real problem. How do we do stuff that we don't make those shortages worse? How do we take intelligent steps to actually control the cost of care and make it affordable? Because frankly, Nate, it isn't. You know, charging somebody 4,500 bucks for a CT scan, give me a freaking break. That's not okay. Somebody like a close relative by chance? Yeah, I'm not gonna get into who it was exactly. Yeah, she had a$7,600 emergency room visit. It was completely unavoidable. She was in racking pain, uh, bleeding. Um, you know, I mean, there was nowhere else to go but the ED. And she ended up paying three grand of it herself. Thank you, Obamacare. Well, it's$3,500 of that$7,600 was a CT scan that went over the little dotted line between two um organ systems and got doubled as a result. That kind of stuff, Nate, I'm sorry, it isn't gonna stand. And it's and it's something that is putting the industry in trouble. I mean, you talk about affordability, you know, high-end pharma, especially pharma, and hospital care are the least affordable things that our health system does. We have to figure out how to do a better job of doing those things and bring the cost down.

SPEAKER_02 22:38

You talk about we. So, and you just mentioned a couple groups. Pharma is a we. The insurance companies, what they're doing in order to become more profitable is they're leaving patients stranded in markets where they can't make enough profits. Right. Um and skim, and they're skimming off of drugs either through PBMs or now what they're calling a group purchasing organizations.

SPEAKER_03 23:02

I mean, I think the voters are going to have a limited tolerance for blaming and finger pointing. They're going to want people to take ownership of this problem and fix it. And unfortunately, I don't see a lot of that mindset in this field right now. I'd like to see more of it.

SPEAKER_02 23:18

When you talk about fixing it, okay, so if the voters go, what are we seeing? We're seeing Arnold Ventures going out and saying, hey, price caps work and look at and they they don't really harm hospitals too bad and all this other stuff. I mean, who are the voters gonna listen to? I, you know, what I my challenge is if I try to explain when I when an insurance when I'm in a fight with an insurance company, the insurance company says it costs$4,500 for a CT scan that should cost$250. That's their bumper sticker.

SPEAKER_03 23:51

Well, and they're gonna pay$2,000.

SPEAKER_02 23:53

Yeah, my bumper sticker is. My bumper sticker is well, you don't understand healthcare. We've got Medicaid and underpaid, and Medicare doesn't pay enough, and da-da-da, and the bumper sticker is running around the car. So how is an average voter gonna understand which politician is coming up with the right solution?

SPEAKER_03 24:12

I honestly don't know. And all I can say is, you know, when I you know when uh, you know, the guy that I rely on for advice on all this stuff, believe it or not, is my doctor. You know, I mean, they're at, you know, they're on the factory floor, they see all the stuff that's happening to them. You know, I whenever I go in for a checkup, I always give him a checkup. He's 61 years old. I don't want him to retire because I have a funny feeling that when he does, I'm gonna have a great deal of difficulty finding someone to replace him. And I don't want to use Chat GPT as my physician. Thank you very much.

SPEAKER_02 24:44

Well, what you can do is uh do what I do, which is MD Squared, and because I I had to lock in a doctor for me and my wife, because you know, this whole idea of primary care, getting back to Scott Becker saying that's the solution. It's not the frickin' solution. We're gonna have 38,000 vacancies in primary care, especially in rural markets where the insurance companies have essentially starved these hospitals to the point where they cannot afford to recruit doctors.

SPEAKER_03 25:14

Well, maybe it's one of those things like the war in Iran where people just didn't listen until the guys in charge did something really stupid. Okay? I think we may be in a similar position in healthcare. I mean, Nate, no offense, but neither of us has an enormous audience. We don't have the ear of policymakers. We really don't. We've worked in the field for 50 years, and you know, we have our own biases and prejudices. We see what's going on in the industry, but I mean, you know, it it's it's it's how the care system affects ordinary citizens that's gonna determine what happens. And if they're as afraid of the bill that they get for visiting a healthcare provider as they are of the illness itself, guess what? They're gonna do something different than we are. And they're not and they're maybe not gonna listen to the right advice. I don't know how to fix that problem. I really don't.

SPEAKER_02 26:05

You mentioned something a little earlier about Minnesota and uh recent announcement, a hospital system in Northern California, a fairly progressive, dominant system uh in Northern California, San Francisco area, has decided to merge with a hospital system in Minneapolis, which is 1,585 miles away. Right. I, as I said, have been in the business 50 years, other than somebody trying to create their own reality and then hiring some broker to create some Excel spreadsheet to justify the relationship. Can you, given your vast experience, come up with a rationale for this merger?

SPEAKER_03 26:55

You know, I I Sutter was a client. I mean, I've got a 40-plus year memory of Sutter. It's a fine health system. Um, you know, and a lot of my friends uh in my space were Minneapolis people. George Halverson, who ran Group Health, you know, healthcare partners in in Minneapolis. Um, I mean, Jim Rice, who's the you know, strategy person for Health Central, which became a part of Alina. I know both these systems really well. But you know, like we were talking about earlier, what do these two markets have in common? They've had managed care in them for 50 years. And what has managed care done? It's burned down the hospital rate structure to the point where there isn't any cash flow. Uh, it's it's a miracle that Sutter was in a degree of financial distress similar to what Alina is in now, five or six years ago, they turned it around. Uh, so it's not like they don't understand what it is like to operate in a an environment where managed care has been around for 50 years. But, you know, there are no economies of scale or coordination in the hospital business. And there are even less economies of scale and coordination when the two main nodes of it are 1,500 miles apart. I don't know a single person in this field that isn't scratching their head over this merger.

SPEAKER_02 28:12

I raised that issue, by the way, in LinkedIn, and I was shocked I got 90, 90,000 views. Uh because merger? About the merger. I can't I can't figure it out. I just I don't I mean, one of the things well, let me just mention one thing that Mark Cuban said. Uh see, I'm tying, if you notice, I'm tying these things. Yeah, yeah. So Mark Cuban made the comment that one of the things there's an incentive right now for health systems to get bigger, because when you get bigger, executive comp goes up.

SPEAKER_03 28:44

Right.

SPEAKER_02 28:45

And I'm not saying that that was the only reason, but it sure is not a demotivator for trying to get bigger.

SPEAKER_03 28:51

It's a big reason. And I think the comp of those folks in a lineup will probably between double and triple as a result of the deal. Um, I mean, to me, again, remember what we got? We got a bunch of frightened people who are out there saying, well, how is this going to affect us? And my thing to boards and CEOs that are compilating a deal like this is if you can't explain in English, in a paragraph, how what you're doing is going to make the life of your patients and the doctors and nurses that take care of them better, you have no, you have no basis for doing it. And that's the issue. If all they get is a bunch of mumbling and buzzwords, they're gonna go, and that's the reason why I can't afford my care. So it raises a lot of questions. I mean, I'm not anti-merger and I'm not anti-systems. I mean, we've got a great system here in Virginia, Innova. They've stuck to their knitting and they've stayed in Metro, D.C. There's a great system in Georgia called Piedmont that has been given multiple opportunities to, you know, to uh to expand, to grow, you know, into Indiana or North Carolina or whatever it is, they said no, we're gonna stay here in Georgia and and do the best we can. So it's not like all mergers are bad, but the ones where you know you're creating an entity that doesn't make any sense to an ordinary citizen, and then going and complaining when people begin criticizing it, that's gonna be kind of hard. I don't think they've got an antitrust problem, you know. So it's not gonna be antitrust that stops them. I think what's gonna stop them is the local politics in Minneapolis. You may remember a year or two ago the other big system that's been struggling in uh in uh Minneapolis for years, Fairview, tried to merge with, I think it was Sanford Health, and a revolution inside the community saying we don't want our care system to be controlled by somebody that's hundreds of miles away. I think that very same thing is probably gonna happen here. I don't assume that it's a done deal at all.

SPEAKER_02 31:01

I came up with a uh I have these strategic, you know, this advice about when you're considering a strategy for boards, because I worry that there are great boards, there are good boards, and then there are boards that are kind of can get and all of them even don't know understand the nuances that we do. I mean, if you want me to convince a board of anything, I can do it. You know, I can, well, you have to understand managed care and this and that and the other thing. So what if a CEO has an idea, and I'm not saying this happened with in the case of uh Sutter, but CEO comes up with an idea, then they hire their friend consultant to come in to support the idea, and then everybody gets all juiced up. One of the questions that I want boards to ask is have we received a second opinion from a contrarian?

SPEAKER_03 31:51

Nate, the problem is that there's very little market for saying don't do this deal. And there's an enormous market for doing the deal, which is that the typical, you know, like$25 billion merger would probably have a 5% transaction cost. What's the transaction cost? Well, it's the deal broker that brought the parties together, it's the lawyers that have to draft up all the deals, it's the bankers that have to redo the debt, it's the systems integrators that have to get all their different versions of Epic to uh instances of Epic to talk to one another. There is an industry that is rolling up these health systems. And, you know, I mean, it's the American way. You know, uh there's all this, and but but at the end of the day, if the if the combination of those entities isn't creating measurable value for patients, for the clinicians that are on the factory floor doing all the hard work, it's a waste of everybody's time and money. Absolutely. Like I said, there are some mergers that meet that test that bring capabilities and perspectives and talent that wasn't there with the entity before it merged. So it's not like all of these deals are bad, but the ones where you're just scratching your head and going, well, where is the value being created exactly, other than in, you know, jacking up C-suite comp, those are the ones that are really creating trouble for the industry. And the industry is not in a position to do a lot of stupid things right now.

SPEAKER_02 33:22

Right. And and another system that I work with, which I think is a great model, is Hartford. They basically have stuck to their knitting in Connecticut. And again, when I think about my advice, I'm the guy there that's the contrarian. I'd say I get listened to about 50% of the time, but I gotta give Jeff Flax credit. At least he listens to me and listens to both sides before he makes a decision.

SPEAKER_03 33:47

I've had a slightly bitterer experience, which is I've been called in as an advocate by legacy managements to argue against doing a merger but remaining independent. I've been, you know, I wrote a book 40, some odd years ago called Can Hospitals Survive? So it isn't, you know, it's it's not exactly mystifying that I begin getting a lot of calls from people that are worried about their hospitals surviving. I probably have worked with 15 institutions over of that 40 years, and I've lost almost all of them. And it's been it's been immensely frustrating. You know, the last one was Virginia Mason in Seattle, which I had a 35 or 40 year relationship with. That was an incredibly bitter experience. I didn't want them to be um to lose their independence because I thought there was something really unique to what they they and their clinicians were doing, and now they're a part of common spirit. I mean, God love them. Um but it's a completely different institution and it's lost, it's lost something in that process. So I'm not entirely objective about this, Nate. It isn't a business proposition at all. I haven't made a ton of money advising people to not do deals. But, you know, compared to like a billion and a half dollar, you know, market opportunity for bringing places together. I mean, I'm just, you know, I might as well be throwing pebbles at somebody's Gulf Stream.

Policy Advice Safety Net And Simplification

SPEAKER_02 35:07

You're absolutely right. So uh let's talk, uh let's kind of close this up with a couple things. First, advice for policy, for advice for the nation. So advice for health care policy people, advice for uh health, let's start there. Do you have any advice for them on how we can make this system better right now?

SPEAKER_03 35:29

Well, I mean, the way you don't make it better is by savaging the safety net that's there in communities to keep people out of the hospital. So if you want, if you want healthcare costs to not rise at 8 or 10% a year, you don't take apart your public health system, you don't tell people not to get vaccinated, you know, you make sure that they can get access to primary care services when they need them. Um, you you have community health centers that don't have long waiting lists. Um, you know, you create pathways that patients can follow before they become patients that keep them out of the emergency room. I think that's the single most important thing that we can do. We have skimped on our social safety net. And and the politics has moved in the direction of blaming people for getting sick. You know, we got to stop blaming people and start helping them and helping them before they show up in the emergency room and and need a$4,500 CT scan. I think that's the biggest one. But I think the other piece is, you know, we need to be asking questions like, you know, if if if employer-based insurance is, you know, not affordable, are we really gonna be able to continue doing this? Are we gonna be able to charge five or six hundred percent of Medicare to a dwindling number of people that are paying the bill? I think it's pretty clear we're gonna need to begin the conversation now about what replaces employer-based insurance. It's gonna be a very contentious and difficult conversation. It's gonna take probably a decade to figure it out, but we need to start now because I don't think it's gonna be viable for all that much longer. And then the administrative complexity, it's related to the previous one, is if you've got five or six different systems for paying for care, and you've got a thousand payers, each with their own data requirements and needs, that's gonna end up imposing costs on your doctor and on the hospital that they work in that really isn't sustainable. We've got to take out a lot of that absurd complexity and give the doctors that take care of us a day a week back to actually take care of us and listen to our problems. We do those things, and and and healthcare is gonna be more affordable at the end of the day than it is now.

SPEAKER_02 37:39

So, my biggest thing is for policymakers and politicians to stop talking to each other and to stop talking to the pinnacles of healthcare, the CEOs and the deans and people like that, and start talking to people like my son, who's a VP of operations and is knee deep in running a hospital and dealing with the multiple problems that happen every day, or talking to me about what it's like to negotiate contracts with hospital-based physicians. And if you don't have those physicians, you shut your hospital down. And so, how do you come up with a fair deal? The nuances that exist in what I call the gutter of healthcare, the policy people and the politicians are totally oblivious to those things.

SPEAKER_03 38:26

But they also don't want to make a mistake and they don't want to be, they do not want to have their names on a disaster. And unfortunately, I think we're gonna have some disasters before people wake up and begin asking the kinds of questions you've been asking. Um, I think, you know, I hate to say it, but you know, I think we're gonna need uh some people to launch missiles and then watch what happens when they land on people's lives. And I think it's just, you know, I wish there were a more efficient way of learning what not to do. But I think we're, you know, we're at the point where people are gonna, you know, they're they're gonna begin acting impulsively and they're gonna begin doing things that they're gonna regret later. I mean, I I can tell you, I I adore my doctor. And I am grateful to the hospitals that saved my life. If it wasn't for our hospital system, I wouldn't be here on the other end of this conversation. I'd be dead, or I'd be in a wheelchair because I'd lost the use of my legs or had, you know, my my spine shut down. So I mean, the hospital system and the young people that took care of me during these crises saved my life. I'm not objective. I don't want them to be put out of business. I want them to be able to help me the next time I have a terrible problem, as opposed to saying, oh, we'll be with you in six months. That's what I want. I'm selfish. Uh I'm sorry, but that's what I want.

SPEAKER_02 39:49

No, I would agree with you. I think that's that's exactly the point. You know, people say everybody hates hospitals until you need them. And then you want the most expensive CT scanner, and then you want the robotic surgery, and then you want the neurosurgeons that specialize in spine.

Hospitals Are Not Commodities Truth Matters

SPEAKER_03 40:07

Nate, I just want people to tell me the truth. That's what I want. Maybe that's unrealistic, but that's what I want. I want people to tell me the truth. And that's that goes for the CEOs that are talking about all these deals that they want to do. Tell me the truth. Tell me why you're really doing this.

SPEAKER_02 40:24

And the last point I'm gonna make, and then I'll give you the final word. The last point I'm gonna make is hospitals and physicians are not commodities. I love my doctor so much that we named her dog after them.

SPEAKER_03 40:36

I mean that isn't necessarily a good thing, Nate. Yeah.

SPEAKER_02 40:40

Good boy. Geez, what's the matter with you? But I mean, the point is that I mean, if you go to the right doctor and the right hospital for the right reasons, you know, and it's not a matter of cheap, it's not a matter of shopping based on price, it's a matter of shopping based on competency. And that is one of the things that I hope over time is that certain hospitals specialize more in certain areas and others specialize in other areas rather than saying, well, we have to be everything to everybody because you just can't afford to do that. You have the last word.

SPEAKER_03 41:19

I don't know. Like I said, I mean, I just want I I want my caregivers and I want the people that they work for and in and with to tell me the truth. That's what I want. I want truth. Truth's the solution here. And, you know, it things can be infinitely complicated. This is the most complicated product in our economy. It's the scariest um, you know, thing that happens to us is, you know, illness. Um we we really need, we really need a higher level of honesty and integrity from everybody who participates in that system, including the people that study it and make our laws that affect it. If we can get that kind of honesty, I think we're gonna be in a better spot than we are now.

SPEAKER_02 42:00

Well, I hope the listeners of this podcast believe that we gave them the truth and that we were brutally honest. And if they ever have any questions, they can reach out to you or me, and we're happy to discuss this in more detail. This is what we have done all our lives, and this is all we know. And this is Nate Kaufman uh with the Healthcare Bridge, thanking Dr. Jeff Goldsmith. Any uh thanks for uh taking another hour out of your day and uh chatting with me and having a spirited conversation.

SPEAKER_03 42:32

Nate, it was fun, as always. All right, have a good one. Stay out of trouble.

Announcer 42:38

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