Adam Russo, CEO of Phia Group, Vincent Esposito, CSO at S&S Healthcare, and Jerry Beinhaur, CEO of Apaly Health at Converge2Xcelerate Conference (Boston, MA)
- 63% of employees are self-funded
- S&S is cutting out commercial health plan middleman markup
- Adoption of blockchain technology can save healthcare industry $100-150 billion per year by 2025
Adam Russo – CEO/Co-Founder, Phia Group: 00:00
How’s everyone doing this morning? All right, great to be here. My name is Adam Russo. I’ll be moderating the session. My favorite word that I use every day with my little kids, disintermediation. Decentralized contract between employers and providers. It’s great to be here. We have a great panel up here with me. Not only two people that are very well respected in our industry but also two good friends of mine. My name is Adam Russo. I’m the CEO and co-founder of a company called the PHIA group located in Braintree, Massachusetts about 10 miles South of here and we are in the cost containment world representing self-funded employers. First question, many of you probably have is what is self-funding? Self-Funding is the insurance mechanism that over 100 million employers, employer lives use across the country to purchase health insurance benefits for their employees. So think of blue cross but instead of paying a premium, these employers are using a blue cross type entity to actually pay medical claims with their own money up to a certain level.
Adam Russo – CEO/Co-Founder, Phia Group: 00:57
It’s called self-funding. It is approximately 63% of all employers are self-funded in some fashion today up from 49% in the year in 1999. However, one of the big problems that we see in the cell phone industry is there’s always that middle man or middlemen, middle woman, whatever you want to call it, in between some aspect of the health assurance process of the system and that middleman is what’s keeping employer costs up. So one of the things we’re noticing now is that there’s a pattern using blockchain as an example of trying to eliminate that middleman and have employers work with providers and facilities directly with me. I have two people here that are very well respected. Vincent Esposito. You want to introduce yourself.
Vincent Esposito – CSO, S&S Healthcare Strategies: 01:42
Vincent Esposito here. I run the growth side and strategy of S&S Health where a health plan administrator out of Cincinnati, Ohio, been in business for 25 years. Generally speaking, we are the back office for a number of health plans that are used nationally. We currently do about a billion dollars a year in claims, but we’re processing and paying claims and building health plan solutions for employers. Thanks Vinny.
Jerry Beinhauer – CEO, Apaly Health: 02:15
I’m Dr. Jerry Beinahuer. I’m the founder of Apaly Health and we actually built a blockchain based system to address this exact problem that we’re talking about today, which is disintermediating the carriers from the relationship between employers and providers, so disintermediating them and enabling them to participate directly with each other here. Perfect.
Adam Russo – CEO/Co-Founder, Phia Group: 02:36
So folks, I’m going to just get right to it since we have 25 minutes really short because most employers today lease a network. I’m assuming most of you are aware that most employers leasing network, Etna, Cigna, Anthem, Blue Cross, currently from commercial insurers, a direct peer to peer contractual relationship does not exist between most employers and providers. You could have an employer on the second floor of an office building a doctor’s office on the first floor. They do not have relationship, nor can they have relationship on today’s current network environments. I’m going to go right to you, Vinny first, can you talk about this market and how the current structure between employers and providers is a major problem to the high cost of healthcare today?
Vincent Esposito – CSO, S&S Healthcare Strategies: 03:14
So when you think about leasing a network and many of you probably in this room are on one of those carrier networks. Many times what you don’t realize is you might be believing you’re getting a discount off of something. So 35%, 25%, whatever that number is, the reality of it is, is you don’t know where that number starts. And so that elevated unknown is a number that you have never been exposed to in your life. And what you’re seeing in the market today is this transition from brokers and health plan administrators really going from, Hey, I’m going to go sell that traditional carrier network all the way now to the brokers and the health plan administrators trying to actually direct contracts. So there’s an attempt now to say, Hey, let’s look at Medicare. We know everyone’s accepting Medicare. Let’s use Medicare pluses or as a rate.
Vincent Esposito – CSO, S&S Healthcare Strategies: 04:00
And let’s see how that compares to these carrier networks. And the reality of it is, is they’re significantly cheaper what’s being accepted as far as reimbursement at the provider level. And that disintermediation is occurring, but it’s on one off basis. There’s today really not a scalable platform that allows us to happen nationally. And so some of the things that my company is working on is building out these solutions with partner health systems and whatnot. But I know Jerry with, with blockchain, that sort of, that, that common denominator allows for significant efficiencies not only across the network as, as a national level, but also across health plans for employers.
Jerry Beinhauer – CEO, Apaly Health: 04:38
Yeah, I’ll come on that too. So I’m sure you guys might’ve read some of the stories out there about direct contracting between providers and employers. Disney did it with Orlando health GM and Henry Ford hospital. Walmart’s doing it across the country with their centers of excellence. Have you guys heard about that? So the interesting thing is what we saw is that they’re trying to do that today. The market is pushing the employers to do that, but they can only do it on a one to one basis. So even though Walmart might go to hospital and do a direct contract with Walmart and Oschner, that contract then is not, doesn’t apply to a thousand other employers like John Deere or home Depot or FedEx, they can’t use that same contract. So it’s really not a scalable way to change really the dynamic of healthcare. And that was part of the reason why we built that we help.
Vincent Esposito – CSO, S&S Healthcare Strategies: 05:26
I’d want to add to that too is, is many of what you read about direct contracting with day occurs at the large employer, jumbo employer size. It’s very difficult for a 70 life employer group to go in and work with Oschner and say, Hey, I’m going to pay you 140% of Medicare. So that size and scalability is still a factor. So you know, there’s a disadvantage to the small business of America right now.
Adam Russo – CEO/Co-Founder, Phia Group: 05:44
As an example, where my company is about 250 employees, we’re self-funded. Like I said in British Massachusetts, for us to go to every type of facility, every type of physician, every specialty practice, and try to make a direct contract on our with them would be virtually impossible. I mean, we do have a business to run and let’s say, all right, well don’t you use your health insurance broker for something like that? Well, our health insurance brokers, if anybody here is a broker or is in that world, would know the way brokers are paid, typically is a commission from the large insurance carriers. They are paid a commission to not actually reduce the overall cost of care or improve quality metrics. Their commission is based on premium. Therefore, as assurance rates continue to go up, they make more money. So they’re disincentivized to actually help employers reduce the cost of care. You would think it’d be the opposite, but that’s the current price that we have today. So based on that, how can blockchain change any of this?
Jerry Beinhauer – CEO, Apaly Health: 06:35
Yeah, so that was something that we looked at for a number of reasons. So when you think about different trading partners in the healthcare system, blockchain made a lot of sense for us because even though we’re talking about a direct contract, which is stay established, that relationship, there’s still a level of distrust. So when you’re talking about providers and employers that makes sense because we can help through the blockchain ecosystem, establish that trust without this third party in the middle. The other thing is these same employers need a lot of other stuff. So like, I know like John Bass is here, like, so Hashed Health works on a lot of different things with different types of infrastructure. With blockchain, a lot of the services that these employers need, telehealth, big one chronic care management, general health maintenance, all those solutions could all blend into this ecosystem to deliver services to those same employer clients. Today, if an employer is working through a carrier, like a Blue Cross or United, they’re kind of getting all those pieces, but it’s bundled together under this carrier’s brand and they don’t really have the ability to unbundle that and kind of bring in the best of class pieces to put their plan together.
Adam Russo – CEO/Co-Founder, Phia Group: 07:38
So as an example of that. Let’s say an MRI. If I were to on my own, go to a shields, you know on its own standing only facility, MRI facility directly through shields. If I went there right now, it would cost you about $500 for an MRI. If instead I decided to go to my doctor through the Blue Cross network at let’s just say Beth Israel or you know any of these other prestigious hospitals here in here in Boston and I were to go to her for an MRI based on my primary care physician. That same exact MRI is $5,000. I’m not sure if anybody here is aware of that, but when you get a 30% discount off the $5,000 MRI, you’re better off paying 100% of the $500 MRI. The only difference is you as an employee have no incentive, no reason to know that you could be getting a $500 MRI, same exact machine as the 5,000. But that is where this would make a big difference.
Vincent Esposito – CSO, S&S Healthcare Strategies: 08:27
The, the, the time has come though where we’ve moved to a point where, I guess the last call it 10 years or so, we’ve been promoting this consumer driven health care, which is really just a higher deductible. And so the responsibility is becoming more and more on the member to start to learn this stuff. And by driving more and more tools and technology into the marketplace it will equip everyone and making better decisions over time. Right now we’re not there as an industry obviously. Cause what Adam just said, I’m sure most people didn’t even know that sort of differential exists. But I think we’re starting to see that tipping point in the marketplace for not only employers, but also the members are starting to say, Hey, what can I do differently to save money? Maybe I should be using telehealth for instance at you know, a $40 or maybe it’s in a capital or a primary capitated model or direct primary, etc. So I think that the, the cost paradigm shifting where more people are getting engaged in this topic as a problem and what people don’t realize is too often, for example, a nebulizer for asthma. If you were to buy a nebulize, it’s where your Blue Cross blue shield plan and you get a 30% discount, it costs you right now $300 for that nebulizer. The same exact one if you want to Amazon and had Amazon prime, I know this because we just literally bought one two days ago. It’s $29.95 free delivery in two days. It’s exact same nebulizer. However, the problem is most employees or their family members, what you guys call the dependence, what we call as industry to dependents are not aware of this. Putting the technology in their hands, allowing them to add this information will truly reduce the overall cost of care and improve quality.
Jerry Beinhauer – CEO, Apaly Health: 09:59
Absolutely. So that’s the other thing that we look about too in the network. So, so for us with Apaly Health, you know the biggest thing that we’re focused on is really that network piece and it was more than just a cost thing for us too. It was quality because you know, our belief is that quality can be driven from, you know, to me the network is kind of the foundational piece of all of the care that that, that the members, dependents and family members are receiving. If you can drive that quality down to the network level. And one of the best ways to do that is to empower the employer who has the plan to kind of have control over that. So we’ve kind of also built functionality in our system that enables the employer to kind of filter it. Any, any provider can join the Apaly platform and deliver their services, but the employers can filter that down based on quality and outcome metrics for each provider. So effectively they’re creating kind of their own high performance network on our platform to deliver services and care for their employees and their families.
Vincent Esposito – CSO, S&S Healthcare Strategies: 10:54
The other piece of this that I think’s important besides quality and cost is the experience, right? And so you know, Adam and I deal with reference based pricing every single day. I don’t know if any of you guys have been exposed to it, but reference based pricing essentially is an employer will lease a physician only network and then they’ll marry it for facilities with basically, Hey, we pay 140% and if they don’t cry about it, we just keep moving on. The problem with that is, and there are a lot of reference based pricing models that do work, but you need to layer in concierge services when you can get involved before the procedures occur, you need to make sure you’re getting sign off on proper 140%. It’s not something you can’t come back to me in eight months and say, Oh, I didn’t agree to this if you’re getting yours. So you know this stuff happens where these brokers might be promoting a different solution than a carrier network, but it creates absolute chaos for the member down the road. And so having direct contracting as the safest path to reducing that noise and making sure the experience that a high quality.
Adam Russo – CEO/Co-Founder, Phia Group: 11:38
And as an organization that pretty much works with every reference-based pricing company vendor that exists in the marketplace. I can tell you that reference based pricing will not be around five years from now. Every company that’s in the reference-based prices base is well aware of that because every time a reference-based pricing company has a provider that is willing to accept Medicare plus something 50 or whatever it might be that is now a direct contract. Once that direct contract is made, there is no more negotiation. There is no more advocacy. They have now on their own basically created a reference based pricing network. So our current network that we have in this country is built a percentage off bill charges, the new future network, we will be Medicare plus something, 40% 50% whatever might be. That is a direct contract. However, there are no tools. I repeat that there are no tools currently in the self-funded industry in that model that can handle how do we take that direct contract and multiply it across multiple employers, multiple facilities. And that’s where you are. Technology comes in.
Jerry Beinhauer – CEO, Apaly Health: 12:53
Exactly. And so that’s the interesting thing for me about this too is you know, there’s, I mean we could sit here while we are spending all day talking about problems and health care, right? But like for this, for us it was kind of a real, like very specific real world problem that we could address with our solution and you know, with blockchain and could we do it without blockchain? Probably. But I think using a blockchain technology platform seemed to make a lot more sense. You know, because for the reasons I mentioned before, but you know, this is a truly a disintermediation case when you think about having that carrier in the middle today, which is the vast majority of the time, this is what’s happening. And by removing them from being in the middleman and establishing that direct peer to peer relationship, it’s cutting costs on average nationally, it’s about 300 billion a year to the cost of employer healthcare that’s added just by the carrier getting in the middle. So it’s a huge amount of money we’re talking about.
Vincent Esposito – CSO, S&S Healthcare Strategies: 13:48
I just going to say the carrier is uniquely positioned to not pay the provider timely and to charge you whatever they want. And they also make money by holding the float of the capital. So don’t forget, by not paying the provider, they’re making money by just reviewing claims.
Adam Russo – CEO/Co-Founder, Phia Group: 14:06
So prompt pay laws, prompt pay is defined as 30 days. Yep. Prompt. And that’s amazing. They have 30 days still under the new existing laws to do whatever they want with that money.
Jerry Beinhauer – CEO, Apaly Health: 14:15
I’m also a doctor and you know, and I have a hospitalist, they weren’t of any physicians or medical practice. How long does it take you guys to get paid? From a commercial carrier? Pretty fast. See, a lot of times I’ve seen, you know, 30-45.
Adam Russo – CEO/Co-Founder, Phia Group: 14:33
That’s the current laws. Clean claims, especially average hospital’s reimbursed in 67 days and the average hospital runs on 69 days cash. So let me give you the country, let me give you an example of how blockchain could change everything. So everyone here has been the situation or knows about the situation. Has a fem member, you need a hip replacement surgery. Do you know someone that my uncle, you know, he has both hips replaced? I mean the guy like 60 it’s amazing. Very expensive man. Bottom line is, here’s the bottom line. How does it happen? Now he goes to his physician who refers them to a doctor. He has no idea what that physician is going to cost him. He has no idea of the quality of the surgeon that’s going to be performing the surgery. None. All he knows. Just like all of you is that somebody told him to go to that guy or that woman. That’s it. Under blockchain, here’s a difference. You now will know the price. Not that, not that bill charge, not the discount, the actual cost for a surgery. You will know the grade based on the quality metrics from CMS, Medicare, Medicaid, leapfrog, what’s the other one? Deal walk. All these other organizations. You can look at the quality of the of the physician, not the facility. Under our current system. You are well aware of the fact that when you go to mass general and you’re paying for a hip replacement surgery, it’s the same price. If you’re a blue cross, regardless of which surgeon actually performs a surgery, there are a surgeons, B surgeons and F surgeons. Every facility has doctors who are F’s, C’s and A’s. So when you go there and you want to have Dr. Smith, are you not aware of the fact, but with blockchain you will be on your phone.
Adam Russo – CEO/Co-Founder, Phia Group: 16:08
I want to see Dr. Smith when he’s at mass general on Monday, Tuesday or Wednesday. He’s 75,000 paid. On Thursday and Friday he has a Cape house, so he leaves on Wednesday, goes to the Cape and on Thursday and Friday he performs one surgery on Thursday, one on Friday at Cape Cod hospital. I’m making it up. That same surgery, same surgeon is now 25,000 so you now know that you can schedule that surgery on Thursday in the Cape and say $50,000 for your employer. Why would the employee care? Because they have a high deductible health plan while the employee kid, because now more employers on the cell phone situation are incentivizing their employees to actually become consumers of healthcare for the first time. However, the problem that we have as an industry is the technology currently is not widespread, where that employee or the employer can actually see the quality and the cost of any particular facility or any physician anywhere in the country. And that’s what this enables us.
Jerry Beinhauer – CEO, Apaly Health: 17:03
Yeah. And that’s sort of one of the pieces that’s been missing too. And I felt this or my family felt that I’m, my wife had a brain tumor a few years back and I’m a physician and you know, I deal with a lot of docs and we were trying to find one. Of course I want to go to the best brain surgeon there is and we search all over the country. I’m doing Google searches. I don’t know if any you guys had to do this and I realize that too at the time there was really no way to truly effectively find who is the best posterior brain surgeon, you know, in the country. And it was, it was hell for us to try to find one. We ended up finding a guy in Tampa that really fit the bill. So that’s even some of them when we talk about experience for the patients, which are the plan members of these self-funded plans for them to be able to through our provider directory, actually look at, you know, not only who are the A, C and F doctors, you know, which ones did the most procedures for posterior brain tumors last year. You know, when you look at, you know, other patient surveys ratings to see how they do it, you know, maybe he’s a great surgeon but he has terrible bedside manner. That might not matter to some people if he’s the best surgeon and we’re all, he can be a jerk as long as you can do a great good thinker. My wife brain tumor. So a lot of that stuff is missing. And I think, you know, when you look at kind of creating infrastructure to help capture all that data and present it to the user, that forms the experience.
Adam Russo – CEO/Co-Founder, Phia Group: 18:19
Yup. No, I completely agree. I mean I think the reason why the status folk could TIG is to stay the way it is because you as consumers, even the employers have no idea that they, they can’t relate the expense of healthcare with any other normal expense that they have. So if you’re a CFO at any employer, you just assume that your health insurance expense expenditures will go up by 5, 6, 7% every year. That’s what you assume I meet. I work with many captains I’ve worked with. Many of them are 350,000 employers nationwide. Employers feel that they’re helpless when it comes to doing anything about the healthcare expense with this type of technology and work with companies like what Vinny does and what Jerry does, you can actually reduce your healthcare expenditure by 20% within two years and add better benefits to your employees.
Adam Russo – CEO/Co-Founder, Phia Group: 19:03
Let me give you an example. Is anybody here have a child under the age of 10? Anybody? Okay? Is a couple of us, right? I got four under the age of 6. That’s why I’m here. I love telling people that. You realize that right now you have more information. When you Google searched the television you wanted to buy for your living room reviews, pricing, commentary, anything you want to know about the manufacturer, anything about the big screen TV you have in your living room. You have more information on that, on your fingertip, on Amazon than you do about the pediatrician. That right now is taking care of your child. That’s just reality. And the reason it’s that way and no one’s made a big deal about it is because it’s always been that way. In the HMO model and the commercial carrier model, they want you to assume that every provider and every facility in that book, the preferred provider organizations is already vetted.
Adam Russo – CEO/Co-Founder, Phia Group: (19:54):
They’re the best, the only reason why they’re called preferred providers because they paid a willing to accept what they are paying them. That’s the only reason that they’re in that book. The credentialing is a joke. So this is a way for us to really change the paradigm. And what I could tell you folks is, you know when they say it’s disrupting, I hate that word, disrupting. It’s really a revolution. 2% of employers are now changing. 2% of employers are no longer, we’re one of them. What we pay for healthcare, I’m going to tell you so you can understand. No deductible, no copay and generics, no copay for office visits. Every employee gets their own direct primary care doctor. For myself, my wife and four kids, we pay $448 a month in health insurance. You cannot do that working with a normal, typical carrier, you can only do that by having that technology on your phone.
Adam Russo – CEO/Co-Founder, Phia Group: 20:45
Being able to look at this, have an incentive to actually care about the cost of care and technology that your company has and the work that you guys are doing. That’s what we did. Yeah. I went out and direct content. Every single blockchain was right. I was the original blockchain before, and that’s the problem is most employers though don’t have all their employees located in one area. Right? So when I had a direct primary care doctor, I was able to find two. One in Braintree went to Holbrook, fine. But if you have offices all over the country, you can’t do that just by pick up the phone and making direct contracts. You did that. Blockchain technology you have.
Vincent Esposito – CSO, S&S Healthcare Strategies: 21:24
The scalability is really what separates us plus the security aspect of it as well. I mean, the security component of, of blockchain with that brings to the table. I mean just as a health plan administrator, the amount of money that we’ve invest in protecting everyone’s PHI and everything associated with that is unbelievable. And blockchain eliminates all of that in a big way.
Adam Russo – CEO/Co-Founder, Phia Group: 21:38
Can you explain, we have a couple of minutes how that blockchain technology works. So let’s just say you know, you have a direct contract made with a particular facility, how does that affect and help other employers, other cell phone employers have access to that? What does this technology do?
Jerry Beinhauer – CEO, Apaly Health: 21:54
So far at the basic level, some of everybody here knows about blockchain. I presumed so one of the things to start off, kind of the foundational thing is, is we realized too that in healthcare it’s kind of tough because of the rules under HIPAA PHI protection and all that. First of all, it needed to be a system that was designed primarily between training partners that are in the healthcare space. So with HIPAA business associate agreements, even if I took your data, if I’m a covered entity, like your doctor and I have information claims or you know, information related to you, that’s PHI. Even if I encrypt that then and that exists on a server, a node on a blockchain network, I’m still responsible for that. And theoretically I would need to enter into a business associate agreement. If this was an open system like what Bitcoin uses, that would be a problem.
Jerry Beinhauer – CEO, Apaly Health: 22:38
So it is more of a trading partner network. But being able to have that as a distributed ecosystem where trading partners can host nodes, can participate in the ecosystem, it kind of creates this system so that everyone can benefit from what we’re creating. For us, I kind of view it as like the railroad tracks that we’ve created with the blockchain system. And our train on that track for us is a direct contracting piece, but all the other services that can be delivered to those same players can put people to put their train on that track as well. So that’s when we built into that, you know, the pieces that are kind of the foundational framework, like identity verification, the security piece. In the last business I was in, you know, we were involved in kind of with some of the topics that were brought up as far as, you know, data aggregation, interoperability.
Jerry Beinhauer – CEO, Apaly Health: 23:26
And the problem, I believe that, you know, the healthcare data is going to stay at rest. We’re going to use just API. APIs, you know, our system we designed to, to be able to support kind of a, an API library or a master patient index to help so that anyone can actually grant access to their information through that library and that index on the fly to any of those other trains that might need it. So I think, you know, in general, you know, there’s added security, interoperability can play into that. And then also the transparency like you’re talking about based on within this ecosystem and trading part is to be able to know and immutably store the information so they can be looked up, you know, make sure that there’s, that there’s no impropriety between those partners.
Adam Russo – CEO/Co-Founder, Phia Group: 24:10
And one of the things, I don’t know if many of you realize, but the opportunity within the healthcare space from a technology standpoint is immense. Literally, we’re still in the 1980s when it comes to healthcare and health insurance. Let me give you an example. In the 30 seconds we have left, most hospitals that we negotiate with require us because of PHI and HIPAA, to use the fax machine, we have to fax documents to the hospital. You can’t even email them. So I mean literally fax machines are only in existence because the hospitals and the billing companies that the hospitals use it is the only way they will accept any direct agreements, conversation, etc.. Oh, your patient authorization fax to us. Why can I email it? Because the fax machine is HIPAA compliant. I’m like, so the same fax machine that Joe in accounting is printing something to is the same exact fax machine that you’re having PHI come in for different patients constantly all day. Anyone can just grab the fact that she didn’t steal someone’s PHI. I mean, we all know that that’s, we all work in an office that has the hat of fax machine, but this is the current status quo. And the reason it’s that way it’s not changing is because the carriers and their brokers that work for them don’t want to change. We’re hoping to break into that with the 2% we have now in the coming years to come. Any final thoughts, Vinny?
Vincent Esposito – CSO, S&S Healthcare Strategies: 25:06
I just appreciate everyone’s time. You know, I think this is a really thoughtful conversation. There’s a lot to dissect through this. But it’s going to take a lot of us doing a lot of things to make them make the changes, so appreciate your commitment to it.
Jerry Beinhauer – CEO, Apaly Health: 25:39
Same here. I don’t know if anybody had any questions for us. I know that time be around.
Adam Russo – CEO/Co-Founder, Phia Group: 25:46
Well thank you everyone for your time. Appreciate it.