62 – Kitty Roars w/ Goldilocks CPI, Guest Host gives Hospital Perspective, Dueling AI

Marcus: [00:00:00] If you enjoy this content, please take a moment to rate and review it. Your feedback will greatly impact our ability to reach more people. Thank you.

Vic: Welcome everyone to Health Further. Uh, Marcus is traveling, celebrating his 10 year wedding anniversary. And so we’re happy for him. And we have a great, uh, guest host today. Paul Kappelman, friend of mine. Uh, expert in healthcare is going to fill in, fill the, fill Marcus’s big shoes. Big shoes, for sure. So, welcome.

Vic: I’ll do my best. Yeah. Thanks for doing this. Appreciate it, man. My pleasure. It’s always fun to talk healthcare with you. Uh, so, Paul, I’m going to give a little bit of your background, but then I want to sort of talk through your experiences before we jump into the, we’ll do the normal, uh, Uh, kind of review of all the news, it’ll be good to get your perspective on, on things that’ll be different than what Marcus and I usually share, but you’re, you’ve been an operator in healthcare [00:01:00] for a long time in, in the hospital world, uh, a couple of different, well, you were, you were in nonprofits and then a for profit at Ardent.

Vic: And then you did, uh, a private equity backed fertility, uh, service called Ovation that you built up and had a really good exit. Uh, maybe 18 months ago, when was that? Just about a year ago. Yeah.

Paul Kappelman: May of last year.

Vic: Yeah. And then you’ve taken some time with family and things over the last little while, but um, talk to me about your experience.

Vic: What was it like operating inside big health systems and then running your own, uh, fertility? Right,

Paul Kappelman: so yeah, almost 30 years in health system operations, hard to believe I actually started working in hospitals when I was, uh, uh, 20 years old, so, you know, kind of found it in, in college and, and never looked back originally in hospitals and health systems.

Paul Kappelman: So I worked for, uh, a company called Tri, well, it all starts with HCA, right? So I actually did work for HCA in Louisiana when I was 22 years old and then [00:02:00] worked for a spinoff company called Triad. HCA when they sort of broke up into LikePoint. Triad was one of the spin offs. I was out in Arizona, um, just grew the system.

Paul Kappelman: It was a really good time to be in Arizona. Population boom, health care was underserved, and so we grew and grew and grew. Eventually I convinced him to give me a hundred million dollars and build a brand new hospital. So I was employee number one.

Vic: And you saw it like from the ground up. From the

Paul Kappelman: ground up.

Paul Kappelman: I was on a, in a trailer, uh, and, and hired employee number two. And then ultimately 400 employees and the hospital did really well.

Vic: Yeah.

Paul Kappelman: Um, and I was there for three and a half years and then community health systems bought Triad. So that was my exposure and beginning to come to Nashville. Yeah, right. So oh, yeah, I loved it and would Glad you came here.

Paul Kappelman: Yeah. Yeah, you know,

Vic: yeah

Paul Kappelman: all roads lead to Nashville.

Vic: Eventually. It just took me a little longer Yeah, so talk about what that’s like building a a health system culture, like from, from [00:03:00] scratch.

Paul Kappelman: Well, I know you guys have talked a lot about culture and health systems and challenging when you’re employee number one and the CEO, if the culture isn’t the way you want it, you have nobody to reign but the man in the mirror.

Paul Kappelman: So, um, I knew that and I was ambitious and maybe a little naive and went all in on culture, people first and service and quality. And, uh, it worked, by the way. It worked. So, because it worked, I, I, it was sort of a blueprint for me for the rest of my career, and whether I was at, at Arden or Ovation, the fertility company, um, or at LHP, which is a company I went to after Arizona, um, really, I believed in if you, if you do things right, You engage employees, make it a great place to work, uh, make it as great of an environment for doctors as possible, focus on patient outcomes and quality.

Paul Kappelman: The finances usually take care of themselves.

Vic: Yeah, so you, you really spent a lot of time in, in the intersection of operations, finance, and culture. Is that, is that fair? In, in health [00:04:00] systems. Right.

Paul Kappelman: Right. People talk about, you know, culture and strategy, and to me, you got to do both. You got to do both. So, yeah, culture trumps strategy is the saying, but I’m not sure about that.

Paul Kappelman: I think you can do both and be a disciplined operator. Not just financial operator, but disciplined on your quality and all of your metrics, all the pillars.

Vic: And so, um, Give us the, the CliffsNotes summary of Ovation, because it was a really big, you know, success. How, what, when you joined, what was the size, how, how’d you build it, and, uh, not the details of the outcome, but the general outcome.

Paul Kappelman: It was, uh, if you would ask me, uh, what I wanted to do after I was the Chief Operating Officer at Arden. Yeah. Um, I got here because Arden bought our company in Dallas that I was running. Yeah. Um, and I would have never said fertility. But. The opportunity got presented and I was fascinated by the science of it, how quickly it was moving.

Paul Kappelman: And then the company had great alignment as physicians were partners, and they were truly engaged in the business. [00:05:00] Had an incredible private equity partner and Morgan Stanley Capital partners that were very aligned. And when Doctors are aligned, the management team’s aligned, the, the board, the private equity sponsor, everybody’s moving in the same direction, you can have outsized outcomes.

Paul Kappelman: So, um, yeah, we grew the size of the company organically, uh, added some, a bunch of ancillary services that allowed us to grow, um, got the development function really going, and then did some things on Revenue cycle, managed care contracting, and on the expense side, and we had outside results. And, uh, had unsolicited offer from U.

Paul Kappelman: S. Fertility. And ended up getting a deal done in a pretty tough environment. Right. At a good, at a good price and at a good time. So it was a good exit for everybody.

Vic: Yeah, excellent. And then, you took some time off and, you know, for not great reasons, got to see the other side of healthcare. And sort of the personal, you know, Your wife got a really bad cancer and, uh, passed away as a really hard experience.

Vic: But talk about the [00:06:00] process of being an operator and, and helping doctors and patients, uh, through the care journey, but then be on the other side as a family. Not the patient, but the caregiver supporting the patient, you know, in a really hard situation.

Paul Kappelman: Yeah, um, first of all, it’s to think about, you know, the people who are out there who are dealing with their own health issues or loved one’s health issues, and they’re managing their own personal lives and stress related to that and have a job to do, regardless of what it is, it’s just a lot, it’s a lot.

Paul Kappelman: So I was fortunate. that, you know, the last, the end, I, I was able to take off time and I’m not sure how it had done it without that. So I was very fortunate that we did have the exit. Um, my, my wife had breast cancer, um, it was a very rare form of breast cancer. Yeah, the version of it or the type of it was really bad.

Paul Kappelman: Very rare. Um, Vanderbilt said since her passing they’ve had one case, uh, that come to tumor board. So it was very aggressive, did not respond very well to chemo. So, um, [00:07:00] we were treated, um, at Vanderbilt, Dr. Park and his team, and, um, I, I think that we’re probably tough critics. I mean, yeah, I’m a formal hospital administrator, so not the easiest person.

Paul Kappelman: I make sure people wash their hands in the room. I’m not afraid to challenge them on just about everything. And my wife would

Vic: Yeah, every, every husband is concerned, but you know what, you know exactly what to look for and what to ask. And you can, you can, uh, But in the right way,

Paul Kappelman: in the right way.

Vic: Yeah.

Paul Kappelman: And, um, but they were amazing, Vic.

Paul Kappelman: I mean, I, I came in a little bit of a, a critic and a cynic of Vanderbilt. Um, just cause they, you know, they were going through their epic conversion and there was a lot of chaos, but I have to tell you that the team there was unbelievable, the communication, um, having everybody on the same electronic medical system, the team approach.

Paul Kappelman: to the cancer care, hundreds and hundreds of appointments, maybe close to a thousand. The amount of time we were, we were late was like [00:08:00] one percent. Yeah. And they were just so compassionate and so communicative and responsive, I, I can’t say enough great things. And we were fortunate enough, you know, we live just south of town and we have the cancer center right in our neighborhood in Belle Meade.

Paul Kappelman: And that place is, it’s unbelievable, it’s a gem. So, um, I really In a bad situation. Dr. Park and his team did a good best. Yeah, and I think it’s important to recognize that because it is sometimes we talk about what’s wrong And we’re gonna talk about what’s wrong and I’m the first to talk about what’s wrong But that team of cancer care professionals are what’s right now.

Vic: Yeah. Yeah, and I think the maybe not 100 percent but a large percentage 90 95 percent of the people maybe more A really good people doing the best they can, certainly systems and incentives and the structures are challenging. We’ll talk about the news this week. Every week there’s news about challenging artifacts of the way the American system set up maybe are less than ideal.

Vic: But, uh, [00:09:00] But mostly the people are really passionate and work a ton of hours and trying to, trying to deliver care. It’s a call, it’s a calling. They, they get paid for it, but it’s also just their life’s work.

Paul Kappelman: Especially the oncology team. Yeah. I mean, that’s, uh, that’s tough. We are going to do a little bit of a remembrance this summer.

Paul Kappelman: And since the Bellamy Cancer Center has opened, they’ve lost 35 patients. Wow. And so I think about, you know, The toll that takes on those nurses and part of the reason that I plan on attending and it’s not going to be easy is because I want to make sure they know how much their personal connections mean and it’d be easy to stop doing that, getting those personal connections when you know you might lose somebody, but how important it is to the patients and their family members is It’s unbelievable.

Vic: Yeah, I mean, you, you could imagine a nurse getting a little calloused and like, I don’t want to get that close because a significant portion of these patients won’t survive. And that would really diminish the empathy and the care giving that they can give. And, and I haven’t [00:10:00] found that many nurses do that, but then it’s such a, uh, emotional toll on them too, that people don’t really recognize as much.

Vic: I think the nurses, especially the nurses, but nurses and doctors and all the caregivers are, I agree.

Paul Kappelman: And I found that because it’s such a calling that just that little great Outcome or great story or that? Thank you from a patient or loved one that may last some five years Yeah, that one. Thank you No, they think

Vic: about or they look back at or the taint on their wall or grab at hard moment Yeah,

Paul Kappelman: yeah, so I mean you just can’t say thank you So part of my message to be them is don’t don’t stop connecting the way you connected with us because I’ll be forever grateful

Vic: Yeah, so well, thanks for doing this.

Vic: We’re going to dive into the news. Yeah, I think it’ll be fun. So, okay, so we’re going to start on the economy. So this week on Wednesday, the CPI report came out. And for those listening, we have on the screen the inflation back to the [00:11:00] 60s. This month, which is for April, it was 3. 4, Is the headline, and then if you pull out Food and Energy 3.

Vic: 6, that was, uh, slightly better than expected. And, you know, of course, it’s still higher than the 2 that is the, uh, The feds target, but it seems, you know, reasonably stable now. And so it, it has come from people that are just listening. It’s come down from, you know, a year ago when it was up in the seven, eight.

Vic: Uh, it seems fairly stable at that three to three and a half. range. Do you watch the CPI? What, how do you think about the overall economy?

Paul Kappelman: It’s consistent. This is good news. Um, it, it feels consistent with what you hear when you’re talking to both professionals and colleagues and friends about what’s going on.

Paul Kappelman: I still think people are feeling it, uh, every day at the pump. Um, but this is solid and you just hope that we, you know, continues through the summer. So we could potentially see a little bit. A cut this [00:12:00] fall, maybe? I

Vic: mean, I think, um, this is what a soft landing probably looks like, right? So, like, I don’t know if we necessarily will hit it, but it looks, it seems like it’s come down dramatically and the economy hasn’t fallen out of bed.

Vic: I mean, it’s not really growing quickly, but it hasn’t, we’re not in a recession. And the

Paul Kappelman: market responded positively to the news. It’s, it’s a month and we had some shaky in the first quarter, but this is good.

Vic: Yeah. Yeah, that’s right. I think we’re all sort of getting. to be aware that we’re probably going to have inflation in the two to three and a half for a while.

Vic: A little bit of the new norm. Okay, and then Bank of America put out a report, uh, they call it a consumer checkpoint. They basically take all of their credit card data and then they, uh, try to do analysis on it. And I thought two of the, of the exhibits were pretty interesting. Uh, so we’ll link to the entire report, but exhibit one and two, we’re talking about credit card [00:13:00] spending across all categories, and it increased pretty significantly over the last month, which, you know, I think is a good sign.

Vic: People are spending, the consumer’s a big part of the economy. Uh, this is sort of indexed against last year’s average. So the hundred, uh, would be sort of like same as last year. We’re doing better. Services are really growing quickly, which is actually good, because that’s a big part of the U. S. economy.

Vic: And then, interestingly, in Exhibit 2, the lower income seem to be spending more. Now, that may be that they’re using their credit cards more, but it seems like they’re holding on, or, Which you would think could be

Paul Kappelman: counterintuitive given interest rates on credit cards, right? And we’re going to talk about that.

Paul Kappelman: Yeah, yeah. The next story.

Vic: Right, so the next story leads into the next one which is the New York Times had a story about high interest rates are really, uh, hurting the, the, you know, the lower thresholds of the consumer, the lower, uh, uh, Income levels, which, you know, [00:14:00] I took, I think it’s a good thing to talk about.

Vic: This story is fairly obvious, like if you have credit card debt and you don’t have a lot of assets that benefit from the stock market growing quickly, you don’t own a house. You are suffering. There’s inflation and high, high interest rates. So we keep watching this like K shaped economy. You’re

Paul Kappelman: not getting the benefits of the market increasing and you’re getting penalized because you have credit card debt and higher interest rates and it’s a tough hole to work out of.

Paul Kappelman: Question I have is whether an interest rate reduction is really going to make a difference to somebody who’s maxed out on their credit card debt, you know, is a hundred, two hundred basis points going to make the difference, but it certainly doesn’t hurt.

Vic: Yeah, I don’t know that, um, a couple rate cuts from the Fed are going to really matter.

Vic: It’s, it’s going to probably immediately, Pump up financial assets, um, but we, we need to try to get the economy going so that it, you know, kind of goes down to everyone. And I think [00:15:00] that sort of leads into the next story, which is all the, uh, meme stocks are back. I think this is kind of a, a, uh, reaction to people that feel like they’re missing out on the American dream.

Vic: And. Decide they’re gonna just try to to basically gamble and

Paul Kappelman: that was exactly my thoughts Why don’t you just get on DraftKings and yeah, you know pick the Knicks and I I don’t yeah I maybe that’s the reason why there’s I think

Vic: I think roaring kitty which is you know, the the lead meme Pumper, it’s a it’s a Twitter X Handle basically, I think his his basic philosophy is it’s better odds On, in the, in the public soccer market that it is in DraftKings.

Vic: If we gain momentum

Paul Kappelman: and get everybody talking about it, it will pump up

Vic: the traffic. Yeah, if the crowd all binds together and, so here’s GameStop, uh, for those of you listening, it’s the last, uh, three months of GameStop and it’s like, [00:16:00] You know, flat, flat, flat at 10. And then Roaring Kitty decided he came out in, um, early May, started to buy some and then went public this week.

Vic: And it went up to 50, almost 50. When was their real run? How many was that two years ago? Or is it? Yeah. Like in the pandemic, um, yeah, I just took this image. I don’t have it live, but like two years ago it went up to about 80. Um, and then back down again. So I don’t think anyone, including Roaring Kitty.

Vic: Thinks GameStop is a good business. They’re literally just like pumping it as a casino But it’s interesting because the short sellers got really burned last time, so I don’t know Anyway, I think that is like the general issue that people that don’t have huge amount of assets that they’ll maybe buy a crypto thing or they’ll buy GameStop or AMC is a meme stock.

Vic: Yeah, yeah Um, I don’t think it’s [00:17:00] good for the world, but I think it’s here to stay. Okay, and then shifting to, uh, the venture markets, Carta, which is the biggest, uh, custodian for venture assets, like not traded, uh, illiquid assets. They host, they custody maybe, uh, 70 percent of all the venture firms and private equity firms.

Vic: They aggregate all of their findings, uh, Into a quarterly report and so we’ll link the whole report, but I pulled out again a couple of slides here This is the total rounds and then also Cash raised in the venture community over the past several years back to 2018 And it’s just really amazing to see that the huge spike in 21 really peaking the end of 21 early 22 And now we’re back down.

Vic: I think really this just kind of the steady state that we’re in something like a thousand deals a quarter seems like roughly where we are a thousand to fifteen hundred. I would [00:18:00] have thought the Q1

Paul Kappelman: would have been a little more active. Um, and I, uh, I certainly hope that number goes up in Q2. You’d think it would, but it’s surprisingly flat these last three quarters.

Vic: Yeah. Yeah. I think we’re not, I don’t see us coming back to the 21, 22 and I’d like to. See it get to 1500 a quarter, uh, would be, I think, great. We could see that. Um, And so then we have, um, the valuations by round. So, you know, the seed round, A, B, C, these, as the companies get more mature, you go through these stages.

Vic: You know, it’s pretty telling. We’re sort of flattened out a little bit, but compared to the peak, every round is down except for the seed round.

Paul Kappelman: It’s consistent. I don’t know about what you’re seeing, but I work with. Private equity companies and looking at deals and, um, the past quarter we’ve looked at a lot of stuff with different [00:19:00] people, um, and either have passed or it’s been incredibly frothy and don’t make it to the second round.

Paul Kappelman: I mean, so it’s kind of like one or the other. Either the company just needs to have an exit and they’re really not worth it. What they’re even thinking they’re worth and don’t end up doing a deal or the deal is just overly subscribed and don’t make a pass on it. So it’s, it’s, this is consistent. Does that mean

Vic: like a sort of a flight to quality, like, uh, teams that are very experienced or maybe, uh, you see the growth and the financials really trending well?

Vic: Yes. Because the Series D is not private equity, but it’s. Closer to private equity, maybe.

Paul Kappelman: Yeah, the closest, the

Vic: 150, 200 million, what was the, kind of the Series D? Yeah, it’s uh, they don’t have actual dollar amounts, but it’s that kind of uh, maybe you raise 50 to 100 million and you’ve been going for four, five, six years.

Vic: I’m not a private equity where there’s significant cash flow positive yet. It’s still growing. I

Paul Kappelman: think there’s two things, right? One is the, the, the quality of the company. [00:20:00] And two is sort of the valuations as they were doing add on deals, right? So that’s a lot of times in sort of the, the PPM rollup kind of stuff, some of the stuff that we’re looking at is.

Paul Kappelman: They’re buying stuff at really high multiples, and so at higher than what a sort of roll up company would sell for, they’re buying individual assets. So then they may have a quality management team, have a good strategy, good alignment, but just can’t get right on the valuation.

Vic: Well, and if you’re, um, if your comps in the public market are lower than your buying

Vic: That’s, that trend doesn’t work. I mean, eventually it has to all reconcile to the, whatever the public comps are. Cause that’s your, you’re either going to go public or you’re going to sell to a publicly backed company. I think. I mean, those, there aren’t many other options.

Paul Kappelman: It’ll be interesting to see what happens in the second and third quarter as companies.

Paul Kappelman: It’s one thing to sort of hear it and yes, valuations are [00:21:00] lower. Um, be Interesting to see what gets done at a reason, at what valuations in the next two quarters. I think it’ll really be, signify what’s going to happen in the next couple of years.

Vic: Yeah. Yeah, I, I think it’s starting, I think it’s healthy. I mean, I’m in more in the seed and A rounds in, Deals are getting done there.

Vic: It’s not, uh, frothy by any means, but, but there are transactions happening and for reasonable valuation. Okay, so we’re going to shift now to some individual deals. And so, uh, Glenn Tolman has a, I don’t think it’s that new, but he, he just raised his Series D 126 million for Transcarent, I think is how you say it.

Vic: He did, uh, Livongo. And had a lot of success with that. He’s using, you know, he, he is good at understanding the zeitgeist. So he’s doing an AI chatbot to bring transparency to healthcare consumers. [00:22:00] Um, he’s raised a ton of money at a real, at a 2. 2 billion valuation. Um, so what, what are your thoughts about a, uh, consumer focused tool to bring Almost like patient navigation and transparency to the patient population.

Paul Kappelman: And there’s a telehealth component. I had not heard of this company until you shared, shared the article. Um, you know, the, the, the Teladoc piece, I, in the telehealth sort of, it makes sense that the valuation has gone down. It’s a commodity now. I mean, it’s not that hard to do and all these EMRs are having it.

Paul Kappelman: Built into their electronic medical record. The patient navigation, don’t disagree with him on the problem. At all. Now you monetize, I don’t know.

Vic: He’s doing, Glenn Tolman’s made a lot, he’s made more money than I’ve made. So like he’s, he’s smart. And he has raised a lot of money, he’s in a series D. And it’s not clear to me what the, what the business model is.

Vic: [00:23:00] Which is, you know, different.

Paul Kappelman: Yeah, the patient navigation piece is something that it continues to be a problem through the whole health system and not just the insurance piece, but it is absolutely incredibly confusing. And I’m not sure if this is geared towards more of the front end on insurance or, hey, I have insurance, how do I navigate it?

Paul Kappelman: Um, both are problems.

Vic: I mean, I’m, I’m navigating right now and I, both of us, we understand how to communicate with payers and providers. I had, my son had a surgery evening, it was an elective thing, but. Um, you, of course, you have, you have to pay your co pay when you show up at the hospital. Um, and then I have co insurance, but we’ve paid our share and then now the anesthesiologist and the, the, uh, hospital system are chasing us and my insurer is going to resubmit the claim and just slow.

Vic: You know, so it’s, even if you know exactly what you’re supposed to pay and you know how to speak to everyone, [00:24:00] it’s still a slow and inefficient process. Yes, and, and sometimes purposefully so. Yeah,

Paul Kappelman: that’s right, that’s right. On both sides. They’re holding onto your money as long as they can, right? Yes, the, yeah, the

Vic: payer wants to delay it as long as possible.

Vic: And the providers are trying to like, just yell at me and send me text messages, so I’ll get sick and tired and just pay it to make them go away, even though I don’t owe it. So, um, if you really don’t understand it, it can be hard to navigate. Yeah, it’ll be interesting to check this out when we learn a little bit more about it.

Vic: And then Mistral, which is a European based AI, it’s an open source AI platform. That then is monetizing through services, kind of like Red Hat did. They just closed a new round, 600 million at a 6 billion valuation. So the, the value tripled in six months, which is incredible. I mean, maybe it’s worth it. I don’t know.

Vic: But that kind of growth, it seems pretty incredible. Crazy to me.

Paul Kappelman: I hadn’t heard about this company, [00:25:00] so thank you for sharing it. My mind just kept racing to how many crazy valuations there are going to be. And there’s going to be some incredible companies built out of this, but there’s also going to be some people left holding the bag because they.

Paul Kappelman: I had a crazy valuation just because it’s AI. Yeah, that’s right. I just couldn’t help stop thinking about.

Vic: Yeah, that’s right. And Mistro is an open source system. Yeah. So like, yes, it is convenient and a big European company. Europe has lots of privacy differences and so I think, I think they are, I think they Trying to structure themselves as the kinda the European platform as opposed to open AI and Google and other, other things here.

Vic: Uh, philanthropic. Those are all US companies, but I don’t know. I, I think 6 billion seems like a lot. Woo. We need a little bit of that in, uh, healthcare. . This was, uh, good. So a new well portfolio. I think it’s their [00:26:00] second fund. They just raised a second. Uh. 65 million fund dedicated to women’s health and so that, um, women’s health has been under a lot of attention, uh, with the Biden administration actually, you know, calling it out as a focused area and then also, of course, with all the Roe v.

Vic: Wade stuff and, and, uh, even some of the, um, in vitro has been, has been challenging. So I think it’s great to see, to see, uh, capital being deployed in this space. It’s a small fund, but I think it’ll be good. Okay, so we’re shifting over to payers now. CVS came out saying they’re going to focus on really profitability and that that might mean they could lose 10 percent of their Medicare members by next year.

Vic: We’ve been tracking this, like, uh, Medicare Advantage is getting harder and harder to, um, to be profitable now. You really have to be a CVS is is going to get more efficient, make sure they’re profitable. And if it [00:27:00] means they lose patient roles, they lose members, right? You can’t lose

Paul Kappelman: a dollar on every patient and make it up in volume.

Paul Kappelman: That’s the old saying we have in hospitals. And I think they’re understanding that, that they’ve, that they’ve got to get efficient, make it profitable, and then focus on growing the business once it’s profitable. It’s okay. If you lose, if you lose some beneficiaries, when. You’re losing money. You’ve got to get it efficient.

Paul Kappelman: Um, uh, this, this will be an interesting story to track as things tighten up on RISC RAF scores and the ability to make money on the top side. They’re going to have to get more efficient on the cost side.

Vic: Yeah, and I didn’t put it in here, but, um, the, there’s a new CEO at Humana, too, uh, Bruce Broussard is uh, stepping down.

Vic: I don’t know the new guy, um, but that’ll be interesting because he made his biggest pure play in the franchise. Yeah, they’re all in, right? Which is,

Paul Kappelman: which seemed like a good bet two years ago. Now it’s looking like, oh, maybe we should have kept some of the commercial side of it. [00:28:00] But absolutely, they’re going to have to figure out how to make money

Vic: because they’re, they’re all in.

Vic: Yeah. Yeah, I think Humana has enough scale, they can probably figure it out, but there’s a lot to figure out. And then this was a pretty interesting, uh, summary article, we’ll link to it, but Fierce Finance put through all of the payers in the Q1, sort of side by side. And, uh, United, of course, had the, uh, cyber attack, which sort of caused a, you know, a big loss.

Vic: But you can see that, uh, All the, all the payers are less profitable this year than they were last year. And Cigna really is, I think, has a good strategy to focus on the employer space only, commercial only. But that transition, I think, maybe shifted where they don’t, they don’t have as good a quarter right now.

Vic: I like Cigna in the long term. But they’re not great. And Elevance is the dark horse. They’ve done a good job sort of, uh, kind of copying the, the playbook. I forget what [00:29:00] their, uh, Optum like thing is called, but they have a, um, similar, kind of, uh, Similar strategy.

Paul Kappelman: They’re, they’re building it out. Right. And, um, yeah, I’ve, I’ve followed that a little bit and it definitely seems like a good playbook.

Paul Kappelman: I wonder when the change stuff will wash through United. I mean, it always takes longer than we think. I think it’s still significant.

Vic: It’s still ongoing. They, uh, they like allocated. I don’t know, a billion five or something, they already, they already kind of did a reserve for it, but yeah, they’ll keep, you know, yeah, but they may or may not have reserved appropriately for that.

Vic: Okay, then this was an interesting story. So United has invested over a billion dollars in housing for their members, which is interesting. And, and, uh, what are your thoughts about that? Have you seen that before? And is that what a, what a payer should be doing? Um,

Paul Kappelman: Great story and positive, long term focused.

Paul Kappelman: Um, there have been providers that have focused on what are called social determinants of health, right? [00:30:00] Food and transportation and housing. And so, the challenge with that, those oftentimes are incredibly long term investments. And they pay off when people’s long term health is improved because they can, um, So, I mean, the point of this is, how can you worry about getting to see your doctor or getting your prescriptions filled when you don’t know where you’re going to sleep at night?

Paul Kappelman: And this is a positive story. It’s great to see the United’s doing it, um, obviously in places where they have significant risk in Medicaid populations. Um, so I was impressed to see the amount of money and a little bit surprised that they were going this deep on housing. Um, seen some health systems do it, but not many.

Paul Kappelman: I think we will see more of it, both, you know, paybiders as well as payers, um, but they have to be invested in the long term success and health of their communities. Um, and it’s nice to see that United’s making that investment. I’m, Yeah, I’m a critic of United, so this is,

Vic: this is really [00:31:00] positive. I was surprised at the scale, you know, over a billion dollars in 31 states.

Vic: I mean, it’s a pretty widespread thing that I had totally missed. And so that’s why I wanted to bring it up. Kudos to them. This is great. Okay, so shifting over to the hospitals. This is your, uh, this is your core here. So the Wall Street Journal this week, Ran a story of hospitals refusing to do surgeries unless you pay up first and you and I were talking beforehand And you said this is not news This is not new it’s been you know Walser Journal found a couple patient and put together a story, but Um, health systems have been working hard to try to make sure they get the copay, get the up, the patient’s portion up front.

Paul Kappelman: A couple, couple thoughts here. Number one, um, with increasing deductibles, high deductible health plans, we’re not talking insignificant. Yeah. This is not 20, 20 bucks. It can be 5, 000, 10, 000. Yeah. And then you have co insurance. You might [00:32:00] have a Exactly. This could be losing money on the procedure or doing it for free if you don’t, you know, Collect up front, and that’s just increasing every year.

Paul Kappelman: It’s leveled off a little bit on these deductibles, but, you know, it used to be the deductibles were 1, 000, now it’s, you know, 5, 000. Right. So we’re, we’re, we’re talking real money here. Um, the often the funny thing for me is it, uh, The expectation that we pay our co pays when we go to see our doctor, like we’ve sort of gone that, like we do it.

Paul Kappelman: We just whip, whip out our wallets when we show up to the doctor. They’re not going to see us if we don’t have our co pay. Now the reason this is a little bit controversial is because. Not all these surgery procedures are quote unquote elective. Um, I think it’s absolutely reasonable to get payment up front for services because we know in the hospital industry that, that once you provide the service, your ability to collect goes down by 50%.

Paul Kappelman: Yeah. And it costs you a ton of money versus getting that cash up front. So, well, when I [00:33:00] walk

Vic: into an Apple store. They don’t let me take a laptop out with just a promise, well, just, you know, send me a bill, I’ll pay you later. That doesn’t happen. And no one gets mad at that, and yet, hospitals somehow have this quasi public service aspect that is, I think, unfair.

Vic: It is. As an operator, you had to navigate that, I’m sure. Well, yeah,

Paul Kappelman: right. If, unfortunately, right down the street, we will see homeless people outside of McDonald’s who are, who may not know where the next meal is coming from. They walk into McDonald’s. You’re not getting a free hammer.

Vic: Right. I

Paul Kappelman: mean, I

Vic: hate to say it They’re outside trying to figure out how they can get enough money to go buy it.

Vic: Buy it. And we all accept that McDonald’s is a business, they need to pay their workers, they gotta pay for the supplies. Hospitals are no different. They’re no different. Now, with that,

Paul Kappelman: with that said, I think that The hospitals that are doing, and surgery centers, they’re doing a good job of this. Hopefully, they’re working very closely with the patients and [00:34:00] coming up with a minimum so they’re not deferring care.

Paul Kappelman: And then maybe there’s a happy medium there, but setting the expectation that you should pay something up front and, and having the ability now to means test and to understand what people really can pay, and then working with them, getting to a point where you’re not going to defer care. I can say, you know, we had this.

Paul Kappelman: policy in place in most of the systems that I worked in and it was very rare that we ever deferred care. I mean it happened once a year.

Vic: You bring in, uh, a benefit support person or they, they help them get signed up for Medicaid. There,

Paul Kappelman: there’s charitable funding. There’s, there are things that you can do, but I think unfortunately a lot of times people sign up for their plan.

Paul Kappelman: Through worker through the exchange or wherever and they do not realize they don’t understand it They don’t understand the amount of patient exposure out of pocket exposure. They really have yeah that first

Vic: procedure of the

Paul Kappelman: year

Vic: It’s all you yeah, and then the Cohen’s people no one understands co insurance.

Vic: That is [00:35:00] like so after the deductible. Hey, I’m done, right? You still have to pay 20 percent 30 percent whatever it is and instead of Being mad at your employer or your plan. You just take it out on the health system. That’s right

Paul Kappelman: There’s a happy medium here, which is listen, you should set the expectation that you pay in advance You got to get money up front But there there’s a way to work with patients to make sure that you’re not deferring care and causing harm There is a way to do that.

Vic: And so then so there’s that story of the journal then this week as well same week Uh, a New York system in Rochester, Rochester Regional, is saying kind of the opposite. They’re not going to, uh, sick collections folks on patients any longer. Which is, um, another strategy, right? They’re gonna work with patients and they, I think, reading between the lines, they don’t want the negative PR.

Vic: They do want the positive PR Coming out [00:36:00] and saying that they’re not going to do this anymore.

Paul Kappelman: That’s where it gets to the point if you don’t collect it up front, collecting on the back end is, is really hard and yeah, very, very challenging PR and it hardly ever results in positive outcomes, so why even do it?

Paul Kappelman: Yeah, I don’t disagree.

Vic: It’s better off just to say we’re not doing it. Write it off. Because you’re not going to collect very much anyway and then focus on education, getting people signed up for Medicaid or whatever on the front end. And this is the kind of thing

Paul Kappelman: that gets you on the front page of your local newspaper and when you’ve got somebody who doesn’t have the means.

Paul Kappelman: So again, I really think the answer here is working with patients and meeting them where they are. And, and yes, you do often, you will find a patient that does have the means. And just doesn’t pay, but most of the time people want to pay their bills. And if you work with them on a payment plan and getting it to something what they can afford, I, I usually think there’s a positive outcome and then you don’t get the negative PR.

Paul Kappelman: So good, good for them. I don’t think it

Vic: really works. So let’s jump to common spirit. So, so we had several for profit [00:37:00] systems over the last few months report positive. HCA, Tenant, uh, seem to be doing pretty well. Um, They have higher volumes, they have higher acuity in their patient population, so they’re, they’re getting more revenue, and they’ve managed their, their costs, particularly their staffing costs are manageable.

Vic: So they’re, they were all profitable in beating earnings, and then Common Spirit came out yesterday, um, with a, you know, 360 million loss. And so, um, what, what, what is the difference between common spirit and the for profits, or is it unfair to compare them? Seems like a big disconnect between what we saw from the for profit providers in Cummins Pier.

Paul Kappelman: Yeah, they, they had good volumes, um, looks like a good payer mix, um, so good revenue, um, really operating costs are, are incredibly challenged. [00:38:00] So, um, I think the, the, the for profits benefited from some of the comps, right? Labor is better. It’s still not good and it’s still, A lot worse than sort of pre pandemic norms.

Paul Kappelman: But if you compare year over year, it looks, it looks really good. And we know in the public markets, sometimes what happens year over year is more important

Vic: than all numbers. Those I mean, the two I mentioned, HCA and Tenant, they’re really good investor relations and setting guidance where they They have a good understanding they can operate to it.

Paul Kappelman: And for those that I talked to in the, in the for profit health system industry, labor is better. It’s not, it’s, it’s still the number one problem, but it is better and it’s getting better kind of quarter over quarter, month over month, um, the, the contract labor usage is down, but it’s still More than double what it was sort of pre pandemic levels, and it was challenging then so back to your question on common spirit They don’t have the markets, but they do have some good [00:39:00] markets And I think this is a call that they’ve got to you know focus on efficiency They’ve got to leverage their scale.

Paul Kappelman: They have significant scale. They’re one of the biggest Systems in the

Vic: country,

Paul Kappelman: you’ve got a 140 and yeah, they’re they’re huge. Now they have nationwide scale. I don’t think they Operate as a single entity quite the way An hca or product does it’s sort of market by market and each market does a lot of what they want And that’s, it’s positive on the clinical side, and there’s autonomy.

Paul Kappelman: Why be big if you’re not going to leverage your scale on both the revenue side, and we’re going to talk about that on the payer side, but also on the operating expense side? You got to figure out ways to improve costs, supply chain, um, pharmacy costs, revenue cycle, all those things, staffing have to be managed tightly.

Paul Kappelman: I don’t know they do that across the entity.

Vic: Yeah. So they have. They don’t have the same [00:40:00] payer mix or, uh, ability to negotiate, although we’re gonna, the next story, they’re gonna start working on that. But, do you have visibility to how their operational efficiency is? Like, if you, uh, if you could compare kind of apples to apples, if HCA was this exact same size, 142 hospitals, or do they, do they have fewer, uh, levels of management?

Vic: Do they run more efficiently? Uh, I would think

Paul Kappelman: so, but I do not have inside baseball, but it’s a small, it’s a small industry and, and, you know, common spirit. Has a reputation for being big and you know challenging to navigate a little bit bureaucratic You know, we’re near as efficient as the poor props with that said HCA has Nashville and Denver and Dallas Yeah, yeah, they have great markets, you know, so that’s the the best strategy they ever have done is is They’re in great markets, but they’re also really good operators.

Paul Kappelman: Um, I think Common Spirit doesn’t have the luxury of exiting markets, um, where payer mixes. They, they [00:41:00] have, they’re mission driven, which is great. So they have, have to be more efficient, use their scale and size to drive efficiencies, not create bureaucracy layers.

Vic: Talk about that they don’t have the ability to exit markets in the framework of this, uh, this new story, which you, you brought, which is great, which is, uh, Common Spirit is, Taking a firm stance with payers, particularly with Anthem.

Vic: They are in a negotiation fight with Anthem. Over rates and the network and network pricing and all. Pretty typical fight. They walked away. And they walked away. And so, they maybe are willing to abandon markets. At least they have threatened that and they walked away temporarily.

Paul Kappelman: So, my belief is that, yes, you have to have a, a reasonable payer mix to, and the reason why I want to talk about, the reason why profits are important is not for profit’s sake, is you have to reinvest in these markets.

Paul Kappelman: I mean, you [00:42:00] have to reinvest in technology and operating room and staff. And so, that’s why profit’s important. Not, not, they’re not taking money out, but they have to be profitable so they can have the best facilities. I mean, just sustainable. Well, right. Just to pay their bills. Right. Right. But then.

Paul Kappelman: Hospitals, health systems are capital intensive, and if you want to have the latest and greatest, I want to go to some place that’s investing back in their system. So that’s why profits are important, and HCA does a good job of that, and the other four profits, you know, they do a good job of investing back in.

Paul Kappelman: So, I also believe that you got to get paid fairly. You cannot. Reinvest and be profitable if you’re not being paid fairly. So, um, in order to get paid fairly, sometimes you got to go to the mat. You got to be willing to walk. If you never walk away, you probably are not getting the maximum pay. Right. And my experience in working with, uh, with, you know, lots of not for profit partners is that’s very, very hard for them to even think about doing.

Paul Kappelman: Two things that maybe they haven’t done a great job of is one is leveraging their [00:43:00] regional size and scale. So example would be, are you taking all of your hospitals within a certain state or certain market where you have a payer who cross states and making sure they’re negotiating as one so that they have more relevance with the payer.

Paul Kappelman: That’s number one. And number two is

Vic: You can help me explain this, but there might be certain assets like a children’s hospital or life flight or a burn center or something that Correct. You have to have in the network, and that can be used to leverage negotiated network pricing, but you have to be willing to, to fight for it and, and, and yeah.

Vic: Take it, like put it on the table as we, if you don’t give us what we need to operate the whole system, then you can’t have access to this asset. That’s

Paul Kappelman: correct. And you would be surprised at, at, at. the sometimes lack of leveraging that scale and size that occurs. And I’ll give you an example. I’m not going to, it’s not common spirit.

Paul Kappelman: It’s not, but we don’t

Vic: need a name. We don’t need a name, but

Paul Kappelman: in significant presence with significant assets [00:44:00] in one state and it’s every man for himself. They do not come together. They don’t even bring the facilities together, the health systems together. Correct. Even today’s day and age. So, A, you got to do that.

Paul Kappelman: You have to But the payer’s doing that. I mean, the payer is negotiating. Right. Right. Of course they are. And, um, they’re leaving billions on the table by not doing it. So, you have to have relevance with the payers. You have to use what you bring to the table, whether that’s trauma or children’s hospital or just your number of facilities in a certain area.

Paul Kappelman: And then you have to be able to walk away, uh, or the payer needs to think you’re going to walk away. And every once in a while, you have to have a shot across the bow like this, that, yes, if we’re not going to get paid fairly, as painful it is for both of us, we’re going to walk away.

Vic: Yeah, so talk about what walking away means.

Vic: Because, I mean, we have some listeners that our health system Um, Common [00:45:00] Spirit, if someone comes to their emergency department, they still, they have to take care of them, even if they’re an Anthem, uh, member. And so they walk away and they don’t accept Anthem members, but for certain procedures, for any of the emergent, Things that they can’t really abandon it.

Vic: So they end up losing elective, which are kind of the higher margin, better

Paul Kappelman: areas. Yeah. It’s painful for the health system. It’s also painful for the payer too, right? Think about it. If you’re, if you live in a community and your local hospital is now at an added network and you have to change, you have to change providers, you have to change doctors because the doctor can no longer see you and you were going to have that surgery there, but you can’t have it done there.

Paul Kappelman: And blue cross has to send you a letter. Notifying you that everyone’s mad and they’re calling their HR department or they’re calling Blue Cross. And they call the hospital a lot too. What do you guys, um, so it’s, it is a very challenging situation, but if you don’t go, that’s really the [00:46:00] only lever that health systems have and providers have.

Paul Kappelman: And we’ll talk about that. The surprise billing piece of it, but it used to be that, yes, you had to take care of the Anthem patient in the ER, but you were no longer getting a discount, right? We don’t have a contract. Right. You can’t just pay me what you think you need. Right. I’m going to bill you my, my, my charge rate.

Paul Kappelman: Yeah. I think that stake’s worth 15. That’s what I’m going to pay you. Right. Now, the legislation has really made it hard for providers to be able to use that as a stick to say, Hey, that’s great. You’re going to take away all our elective patients, but you’re also not going to get that discount when you come into the ER that you negotiated, you’re going to pay full boat, full price.

Paul Kappelman: It, it, it’s, it’s challenging. So comments, it’s going to be painful for both parties and probably more painful for common spirit. But the alternative is. is getting paid unfairly and, and losing money on every patient. So, so if you,

Vic: let’s [00:47:00] leave common inspiration aside. If you, if you were on an executive team on, at a large nonprofit and you had a hundred markets and 30 or not, You, just the payer mix and the population lack of growth and just the, there are markets that are not going to be profitable.

Vic: Um, and you try to leave, there might be some markets where you’re the only significant health system there because the for profits have left those markets. And so what, what happens?

Paul Kappelman: It doesn’t often happen that you’re not able to, I mean, if you’re a sole community provider, typically you, you know, the, the, you, you have more of an ear with the insurance companies because they, they need you, right?

Paul Kappelman: Where it really becomes challenging in markets where Blue Cross or the, uh, a single payer is dominant. And there are markets where a single payer has, Alabama, Alabama, Blue, yeah, 80 percent market [00:48:00] share, whatever it is. Okay. So, um, and there’s plenty of hospitals and competition and. Their, their line is, hey, we’re gonna, we’re gonna pay you our blue fee schedule and you’re not gonna get more of that when everybody knows they pay different rates to different folks.

Paul Kappelman: So, um, it just, it all comes down to your relevance with the payer. Um, it’s, it’s not pretty when you, you have to go out and add a network. And by the way, it should be an absolute last resort for those that use it as a strategy. And maybe we may talk about that. I think that’s, it’s bad. It’s awful. It’s not fair to the patients.

Paul Kappelman: And that’s not a

Vic: strategy. The strategy should be, yeah, you should not be designed. We’re never going to be in network because we want to be, our network is

Paul Kappelman: our, is our strategy. Well, it’s, it’s, it doesn’t work anymore. It’s gone. Those, we’ve seen some bad news. Yes, the no surprise

Vic: stuff, uh,

Paul Kappelman: killed that. Those days are gone and, and, and that’s probably, that’s what it was intended for is those bad actors who were using at a network as a strategy, not taking away leverage of somebody who’s, you know, a good local [00:49:00] hospital who’s just trying to get paid fairly or a good local physician group who knows that the.

Paul Kappelman: You know, they’re getting paid below the average amount and they’re just trying to get paid fairly. They don’t, they don’t. So the intent was good, like a lot of things the government does, the intent was good, take away these bad actors, but it has some unintended consequences. Well, our

Vic: payer provider system sort of relies on that negotiation and the kind of the free market being able to work.

Vic: And I think what I’m seeing is that the, the payers are adding provider services. They’re delivering care in higher margin or more like, um, patient management, case management, patient, uh, care coordination sides. And they’re not adding things that are not really high margin. And the health systems haven’t been able to build as much strength on the Pay your side, like they could also start moving into underwriting care, but they haven’t been able to do that at

Paul Kappelman: scale.

Paul Kappelman: And they haven’t been [00:50:00] competitive on sort of the bread and butter outpatient stuff, whether that’s outpatient surgery, outpatient imaging, urgent care. And so you either got to build that and build it at a competitive price, or get paid really well for the services where They need you, like trauma, like intensive care, high end surgery, cancer care.

Paul Kappelman: Uh, you gotta do one of the two or both in order to make a margin. Yeah,

Vic: and too many of the, um, I don’t know the facts for Covenant Spirit, so I won’t tarnish them, but too many systems are not building L patients strong enough. They’re sort of just leveraging the inpatient ORs they have, and those are not as efficient.

Vic: They just don’t run the same. So if I want a new. I’d rather go to an outpatient, yeah.

Paul Kappelman: I had, I mean, as part of the health systems, I had outpatient imaging centers. We had ASE joint ventures with physicians. And, uh, I brought a lot of stuff from ASEs into the hospital world in my ASE partnerships. But [00:51:00] never could I get the turnover times in any single OR as good as I could get the, Turnover times in the ambulatory surgery center, or the physician

Vic: satisfaction.

Vic: It’s a cultural thing. I mean, it’s the same, it’s the same thing, place where you started. Like, if you start in a culture of an inpatient facility, the, the, just the thing of running an outpatient facility is a different

Paul Kappelman: animal. It’s a, it’s a different animal. So, there are ways to, I was surprised. It felt like there was quite a bit of momentum.

Paul Kappelman: kind of leading up to COVID on health systems, figuring out ways to do different kinds of creative partnerships. So they had the outpatient footprint and a lot of that got stalled. And I still think there’s, there’s work to be done there and opportunity there from an investment standpoint and partnership standpoint, because the footprints are not where they need to be.

Paul Kappelman: If you’re truly going to be, you know, a payvider or you’re going to be all things to a payer and take on risk, you have to have. That umbrella of services and maybe the way to do it is to partner. So I, I still think there’s [00:52:00] great opportunity, whether that’s outpatient imaging, urgent care services. We’ve seen health systems do partnerships there and still, believe it or not, in the ambulatory surgery.

Paul Kappelman: Yeah.

Vic: Well, we have too many inpatient rooms and not enough outpatient services, right? Nationwide. I think so. Um, okay. So. Let’s get into the, to the private equity FTC, uh, Federal Trade Commission has been attacking private equity on, on a lot of fronts, but certainly in healthcare and Wells Carson, uh, one in federal court, uh, federal does dismissed.

Vic: The case against Willis Carson, not against all of their partners, so U. S. Anesthesia Partners is still there, but they were, the case against them was dismissed. So this is related to the No Surprise Act and the out of network stuff. You have a lot more experience. What is your takeaway from this? Yeah, I don’t

Paul Kappelman: think USAP falls in the category of solid.

Paul Kappelman: I don’t know that they were ones, you know, they certainly use it as a [00:53:00] lever when, when needed, but you know, they were in network and that was not a strategy for them. But just like we talked about, they sort of

Vic: aggregated negotiating power, definitely, which, which is, which is, uh, Allowable business strategy, I think, it should

Paul Kappelman: be allowable.

Paul Kappelman: And we just talked about, um, you know, Blue Cross of Alabama have an 80 percent market share. They don’t see the FTC going after that. So, Wells Carson, good, good, good investors. Glad to see them off the hook in this. Hope USAP gets off the hook. They’re aggregating doctors. Doctors are choosing to join them because they believe in that there’s something good.

Paul Kappelman: And it’s not just, you know, revenue, um, and, and leverage that there’s something good about being part of something bigger and, you know, good for them for providing that. Doctors aren’t being forced to join USAP and hospitals aren’t being anesthesia

Vic: practices are commonly criticized because the patient doesn’t typically know who, who is being used or they don’t have that [00:54:00] option.

Vic: They’re picking their doctor, maybe they’re picking their, their facility. Right. Right. Right. And then they just get whoever they get. That was

Paul Kappelman: exactly the impetus for the no surprise. Yeah, right. And, um, as we talked about, I get it, right? I, I get the patient concern of getting a bill and being like, I have no idea why I’m paying it at a network.

Paul Kappelman: I had no choice there. That’s not fair. Right. At the same time, we just talked about, you know, you have a group of physicians who are trying to get paid fairly and the insurance company just, you know, You know, stiff arms them, what’s their recourse? They just either do nothing and just take it. So it, it, it’s a very challenging issue.

Paul Kappelman: I, I think the answer is the free market has to prevail. We can’t have government stepping in and trying to fix it. Um, and ultimately, I think the people who pay the bills have to vote with their feet and fix it, whether that’s the employers or the patients, but it’s really the employers. They’re the ones who really have to The

Vic: commercial market is really where there is a group of employers that [00:55:00] could They could push for change if they wanted to, but so far they haven’t really woken up.

Paul Kappelman: I, I would agree with that. I, I thought we were in a, a move, um, whether that was kind of a move to narrowing networks, right? Mm-Hmm, , they, they can vote with their feed. They can say, Hey, hospital system B, we don’t like your pricing. We’re gonna take you out of our network and we’re just gonna go to health system.

Paul Kappelman: A Yeah, they can do that. And they can also impact. What the patient, what their, their employees pay, incentivize healthy behaviors, penalize unhealthy behavior. And they can also actively manage their employees, like make interventions. So there are things they can do, but it, it just, maybe because benefit cost, health insurance cost kind of, leveled out.

Paul Kappelman: I think that’s going to change. Yeah. I, I, this year is 8%, 10 percent premium increases. That’s not sustainable.

Vic: Well, and I think the employment space is, I mean, it got really tight finding employees, COVID for health systems, but for [00:56:00] every business. And I feel like in. 2024, we’ve had a few layoffs, but mostly it’s just softened where it’s not that hard to find new employees.

Vic: And I think that that’s going to end up with the pendulum kind of swinging back to looking at benefit packages like on the table. Should we, should we reduce our exposure? Should we do a narrow network? Should we look at a center of excellence or? Well, any of

Paul Kappelman: the above. Uh, interesting, we saw that in the fertility industry, and it was a great thing for the growth of ovation, is that we saw employers adding fertility benefits.

Paul Kappelman: Yeah, right. To attract people. To attract. It’s a

Vic: huge, um, it’s a huge way to attract a, kind of a higher educated, higher income, um, higher talent employee base to offer

Paul Kappelman: fertility. It is slowed. But it’s slow. For just the reason you talked about is, I think that competitive dynamic is not what it was coming out of COVID.

Paul Kappelman: And so we saw that still positive. We’re still seeing employers pick up fertility benefits. It’s the right thing to do. But the

Vic: growth [00:57:00] rate has slowed. I think it was brilliant for you to You know, get out at the price and you know, um, because it’s going to be a, the growth is going to slow down. You can keep operating and they’ll do well with that.

Vic: It’s a great set of assets they acquired. It’ll be fine. But the growth is not going to be the same post. Um, you know, this kind of downturn in the economy. Yeah, I think you’re, I think you’re right, I think you’re right about that. Um, and so, this was kind of a surprising story. Kaiser Permanente built up to, uh, 57 billion in private equity assets.

Vic: So, you know, they’re a payvider, very well run, one of the best platforms, but is a non profit health system or health system slash insurance company supposed to be investing so much in private equity? I don’t know. And so, um, they are selling off a lot of it. They came out and announced [00:58:00] that. So they’re going to sell.

Vic: A little over three billion. I have, um, I work with people in the VC arm, which, you know, it’s the smaller of the two and they even are, are moving towards like really understanding how is this going to be effective in our operating business? How that 57 billion

Paul Kappelman: just private equity and the VCs on top of that or is that all?

Paul Kappelman: No, that’s inclusive. Yeah, that includes the venture. That’s a huge number. I had no idea. It’s a huge number. I would have never guessed

Vic: that. Right. And uh. Ascension has a pretty, and it’s not quite that big, but Ascension has a big, uh, private equity thing too. Kaiser is much more, um, in partnership with other funds, whereas Ascension is much more holding it directly.

Vic: So it’s just interesting to see these nonprofits have built up a, you know, significant balance sheet, obviously. And I think there’s, depending on who wins the election, there’s some, I guess, living in Nashville, there’s always some discussion about, should there be property taxes, or should there be other, you know, [00:59:00] Things for nonprofits when you see this this kind of scale.

Paul Kappelman: Yeah, the Ascension model is is interesting You know, they’ve got the relationship with Tower Brooks. Yeah Sort of the rinse and repeat. Let’s take a company that works inside of Ascension revenue cycle Which is our one is a revenue cycle. Let’s build it Let’s bring in outside customers outside of Ascension, you know, take it public.

Paul Kappelman: And they’ve done that for a revenue cycle. They’ve done it for biomedical engineering. The company’s called Trimetics, a little different approach. And, you know, they probably look at it and say, Hey, we, we have significant control in those investments, and that may be a difference here, but they’ve done quite well with those investments, whether it should be allowed or not allowed, whew, that’s a, that’s a deep rabbit hole.

Paul Kappelman: I’m not sure we got the time. Yeah,

Vic: I, I don’t. I don’t know, but, um, building up a balance sheet to keep the nonprofit sustainable, clearly they should be able to do that. But there’s a level where [01:00:00] it seems like a lot. Um, yeah, we probably won’t solve that right now. Um, okay, so we’re gonna shift now to, we talked about the first, uh, really cures in sickle cell, uh, last week in gene editing where, where, uh, patients are being cured now.

Vic: And there’s a story in Forbes about sort of how this is beginning to, uh, extend to other diseases like Huntington’s disease and, uh, and, uh, I wanted to get your thoughts about it because it obviously. It is a huge impact to someone’s, uh, life, to their, to their life experience, if they have one of these rare genetic diseases, it can be really difficult, it’s really debilitating, very expensive, if we can cure them, um, Transcribed That sounds wonderful.

Vic: It is wonderful. But some of these, some of these, uh, the example they [01:01:00] give is, is a, it’s a million dollars per patient to cure them. Now they are, they’re curing someone of Huntington’s disease. Which is an expensive and terrible disease. I don’t know exactly where it is, but it’s in here. Um, what, our reimbursement system is not designed for that.

Paul Kappelman: Yeah, I, I follow this and I can’t stay, say I’ve truly understand the science even though I’ve read a ton about it. It’s, it’s, it’s truly amazing what is happening and you were hoping that we were, you know, sometime in the next decade, certainly in my lifetime, that we’d see significant advancement we have, and I was excited to read this, and then I got to the million and had to take a, had to do a double take, like, is that really possible?

Paul Kappelman: We’re talking, like, per patient? Um, yeah, either the cost has to come down drastically, or you just don’t see how this gets widespread use,

Vic: so. Well, if you have, let me just Huntington’s [01:02:00] disease, you’re very expensive as a, as a patient for either the federal government in Medicare. Or maybe for an employer, and that’s going to be expensive for years until the patient dies.

Vic: He might spend more than a million dollars. You probably would spend more than a million dollars over the life, but we don’t have the infrastructure. Maybe the federal government would be okay and Medicaid, but for an employer, they’re going to spend all that money in one year, and then that person, it’s probably the parent of the, of a person with Huntington’s disease, they’re, they’re going to go on to somewhere else.

Vic: And we just don’t have the, it’s not designed for that.

Paul Kappelman: Yeah. The question is in a, in a country, Canada, socialized medicine, what would they do? Where does the Where does the price point come in where it makes sense to invest in this, um, I mean, Huntington’s is a, is a terrible disease and death sentence and [01:03:00] you think there’s not, you would do anything you could and pay any price, but if you’re not able to do that and someone else is footing the bill, what’s the equation where there’s a return on investment?

Paul Kappelman: I don’t know. Yeah. So it’s sort of the same thing with the, the GOP ones, right? I mean, it’s just sort of the same question is where. Does that ROI come in for this expensive

Vic: drug? Yeah, the difference in, I think, in genetic treatments versus GLP 1 is, you pretty much are on Wigovi or any of the GLP 1s for life.

Vic: You might pay per, um, but you’re going to be paying that, and if you change jobs, your new employer will be paying that. This is a one time, very expensive one time thing, and that’s where our system is just not, we’re just not designed for that.

Paul Kappelman: Yeah, it’s a fix. It’s a cure. You don’t have it any longer. You live your happy, healthy life.

Paul Kappelman: I agree. It’ll be interesting to follow

Vic: this. Okay, so now we’re going to move to the AI fund. [01:04:00] Every week, I mean, um, there’s just massive changes in AI. I always think on Sunday, Monday, Well, maybe it’ll be a slow week, and it’s not. And so the Wall Street Journal had this story about a flood of fake scientific journals.

Vic: Wiley, which is a big publisher of journals, just shut nine, closed 19 titles, 19 journals. Um, they say they told the journal that 11, 000 papers were compromised. And so how do you think about that as, as an operator? A peer reviewed scientific journal used to be the gold standard. It’s the source of truth, right?

Vic: Yeah,

Paul Kappelman: right. I mean, yeah. And certainly, we did a ton of work and research in the fertility space, and yeah, I mean, you relied on that. It’s scary. It’s disappointing and scary that, you know, but this is kind of what we’re dealing with is all the great use cases we’re going to see for AI. Yeah. That [01:05:00] where patients are getting better care more efficiently and we’re all get, there’s going to be these stories where it’s being used for bad and, and secondly, I didn’t know the industry was that big, uh, the, the amount, but yeah,

Vic: 11, 000 papers and scary.

Vic: And then, um, the general pointed me to this site, which tracks the retractions. And so they, they have a listing of, uh, published papers. That they have found to have used ChatGPP, uh, for part or all of it. Um, and just, like, for people that are watching or listening, I’m going to scroll through. There’s over 90.

Vic: I mean, it’s not like one or two. Like, there’s a ton of them, and they’re all in 2023. They’re all, like, right now being put out. And it makes me question the whole thing. Like, yes, they’ve found these ones, but there’s more coming out all the time, I’m sure, right? Yeah, it’s prolific. I mean, so like we, we, [01:06:00] we worry like my high, I have a high schooler, you have high schoolers that the high schools are worried about how can we keep kids from cheating on some English paper and yet at our most, most important research institutions, they’re They’re doing the same thing.

Vic: It’s, it’s a little bit crazy. Okay, so, OpenAI, uh, and Google both had announcements, uh, this week, but, the more interesting thing to me, and we’ll cover that in a minute, but what’s interesting is that, um, Ilya Syskyver, I’m not sure I said that right, but, uh, the chief scientist, uh, at OpenAI, who was at the core of Sam Altman getting fired and then rehired was hired.

Vic: In November, almost exactly six months ago, he has left open AI. And so I think this is all the same story. There was some falling out. What’s that? It’s going to be a movie. Yeah, it’s movie one day [01:07:00] after, um, after OpenAI has done whatever it’s going to do, they’ll come back kind of like Facebook, the movie, like 10 years later, they’ll do.

Vic: Yeah, there’s a whole backstory. I don’t know what it is, but Ilya has moved on. He really was the reason that a lot of the talent went to OpenAI. Um, and I don’t know what the backstory is, but it seems like you wouldn’t leave the best platform unless there was some major, major difference. We don’t know where he’s going.

Vic: No, he hasn’t said where he’s going. Um, Okay, so then, uh, that’s sort of the, the negative news out of OpenAI, but they, they had a release on, I guess it was Tuesday, and then Google had their big show on Wednesday, and they kind of front, front, ran in front of, uh, the Google booth. Thing, and they released a new model called GPT four.

Vic: Oh, Oh, stands for Omni because it, it works across audio, [01:08:00] vision, and text all simultaneously. So they’re using the phone’s camera. When you give him permission, so it’s not always on, but, and it can use the camera to look around the room and, and understand where it is. And then the, in the demo, he has two phones, um, both with.

Vic: OpenAI’s GPT 4 0 on it, and he’s gonna, he asked them to like, sing a duet right now, and, um, whether it’s great singing or poor singing is immaterial, but it sounds like two humans, uh, trying to just like, make up a song and sing, and so I’m gonna play it just cause it’s, um, It’s hard for me to say it sounds like two regular humans talking through this without just playing it.

Vic: It’s not that long, so.

Demo Host: I just sing a song about what just transpired.

AI Voice: Oh, in a room with a stylish view. A person stood in [01:09:00] sleek black and light hue. Engage with us, so, so direct. And

Demo Host: can you just, can you, uh, alternate lines? Mm

AI Voice: hmm. Mm hmm. Person with style and speed, person with style and sleek. With a playful moment right in the midst, in the room.

AI Voice: In a room where modern lights peak.

Demo Host: Only one line at a time and then stop.

AI Voice: In a room where modern lights peak.

AI Voice: A surprise guest with a playful streak.

Demo Host: That was not really singing. Do, do, do the singing voice again please.

Vic: So I found it really interesting that I can imagine you and I sitting in a room with one other person and I would be that second phone, like kind of half ass singing, not really wanting to [01:10:00] do it. It’s, it’s very human like, so it’s, I understand that it is not human cognition, that it is faking what it sounds like to sing as a human, but it’s very, it’s very realistic, it sounds very lifelike.

Paul Kappelman: I went to the health, the healthcare, kind of, what does this mean, and, and A, sort of the, Ambient listening, watching what’s going on in the healthcare setting, digesting that, documenting that, making, you know, quality, taking everything in, and then sort of the remote patient monitoring, remote patient engagement, particularly the visual side of it was pretty remarkable, so, and, but that tells me it’s just, it’s just not that far away.

Paul Kappelman: We’re, we’re, we’re there.

Vic: Oh yeah, it is, um, it’s, it’s ready from a, uh, Intelligent, artificial intelligence, processing, speed, I mean, the latency is [01:11:00] undetectable to me, like it, it is, maybe there’s microseconds, but it’s fast enough that it’s responding like a phone call would be with another human, to me. So, anyway, that was OpenAI.

Vic: They, they jumped in front of the, um, you know, booked for a long time Google event. Um, and I, I pulled this from, um, the Wall Street Journal because Marcus was saying last week that we, he felt like it was like the movie Her, like the technology had grown to the point, uh, where it’s, it’s, you could have a relationship with the AI and the Wall Street Journal had the exact same quote.

Vic: So, uh, This reporter clearly listens to the show, right? Mark, we all know Marcus is prescient, right? And that’s, that’s no new, new news. Yeah. So what we can, uh, let’s go to last week’s where he talked

Marcus: about this. That is the movie her, just so we’re clear. So if you want to like get an immersive, emotional experience of like, what that is [01:12:00] like, just pop on her because they did a fantastic job of predicting where we were going to be.

Marcus: I tell you what, they nailed it. And we’re. We’re pretty much there. The device looks like the rabbit R1 and it’s a voice based GPT. Yeah, totally. It’s crazy how, how well they, they, they nailed it in that movie. Yeah.

Vic: So obviously, uh, you can see last week he was talking about this and the wall street journal, uh, we’re happy to, uh, help feed you information.

Vic: So it’s, um, as you said, it’s fully functional. It can, it can be text, visual, audio. And just kind of chatting and building a relationship with people now. Yeah,

Paul Kappelman: I mean, clearly given the, what the impact we’re dealing with in healthcare, it’s going to take longer for this to be adopted. Um, but it’s exciting to know that We’re not talking years really, I mean, it’s, it’s in our future and there’ll be some, some really exciting pilots of, of this [01:13:00] in the healthcare setting and, and what’s most exciting to me, I mean, there’s applications in the hospital, in the clinic and what happens at home when nobody else is watching to, to think about what the impact could be if somebody watching now that’s also scary, but it, yeah.

Vic: Yeah, I mean, I think about home health, like, the patient could benefit from someone being there a lot more than they are. And then the home health worker, there’s a lot of data entry and a lot of, uh, keying in what the vitals were and recording what, what services you did that you could, you know, You could be empowered and not have to do all

Paul Kappelman: of that work.

Paul Kappelman: Yeah, and if it was being supervised and, and piloted by somebody who’s experienced in license, who’s operating at the highest part of their license, but is doing all that stuff kind of behind the scenes and patients getting care, it could be incredible.

Vic: Um, okay. So then Google, uh, the next day, it’s a 12 minute video, so I’m not going to play it, but we’ll put it in the show notes, but they came out and [01:14:00] dropped all kinds of new releases.

Vic: So they have a new model that is more powerful. It incorporates a vision like the can’t using the camera, just like open AI had done the day before. Um, but also they are now embedding their AI tool, which is called Gemini. Okay. Bye. into all their main search

Paul Kappelman: page. So you can have a choice you will use if you’re going into Google and you’re searching, you’re basically going to get Gemini.

Vic: Yeah, so next. Wednesday, I think, across the entire U. S., Google decides if a search is, um, complex and has several parts to it, it will give you the answer using A. I. And the links are now down below, but it just says, Paul wants to know where to go eat in Phoenix, and it’ll recommend a couple restaurants. It does not give you links to a whole bunch of [01:15:00] things.

Vic: And so, That is, I mean, it’s the biggest search engine by far, right? It’s, it’s almost the, not the only search engine, but they have 90 percent market share. I don’t know what that does to the internet, right? So if you start just giving the answers, it’s wonderful for the user, but the people that are writing reviews about restaurants in Phoenix and building that content that the AI is using, they’re not going to get traffic.

Vic: They’re not going to get ads to their, they’re not going to get the clicks. And so, I don’t know how the model works. Like, Google makes money from the, the AdWords. So, they’re, they are cannibalizing their own business. Which I give them credit for, um, because someone’s gonna do it. But I don’t know what the, not even long term, like a 6 month, 12 month effect.

Vic: [01:16:00] Yes, right in order to

Paul Kappelman: keep up with open AI right and people are migrating It’s almost like they have to do it. Yes.

Vic: Yeah. Yeah, they have to do it and it’s going to change the way that Content is created because there’s not a it’s not gonna be the same kind of monetization Well, I,

Paul Kappelman: it’s funny, I hadn’t thought about it in that context.

Paul Kappelman: Now it makes sense because I wasn’t sure what to take away from this. But there are times when you’ll go to chat GPT and times where you use Google and Google doesn’t want you going away from Google. Yeah. Right. And I, I did it the other day where I was like, this is a perfect conversation with Chatuchak.

Paul Kappelman: Yeah.

Vic: I can ask. Right. It’s more, it’s like a little more hard to put in, in five words in a search bar and I just want the answer. I don’t want to go do a bunch of, uh, reading up on things. I need a black and white answer. That’s it. Okay. And then they both are negotiating with Apple. Yeah. to Apple’s going to pick one [01:17:00] of them to be the AI tool.

Vic: I think beneath Siri. So Siri is is a is on every Apple phone, but it’s it’s not very good quality is it’s almost useless. Um, and I think Apple at their developer day, which is like in a month is going to pick one of these two platforms. My, my prediction is that they’re going to go with open, um, they’re going to open AI, GPT is going to be their partner, but not with Microsoft.

Vic: I think, I think, I think Sam almost going to do a direct deal outside of the Microsoft, but I have no inside information on this, my guess. Interesting. But they’re, they’re, Apple has been public about their negotiating with both OpenAI and Google right now. Yeah, so then the, the other things they rolled out were, uh, Gems.

Vic: So that’s kind of interesting, it’s not in this story, but they rolled out, um, this is the search story. Gems are, are their brand, one of the things that bothers me about [01:18:00] Google is they have too many brands. Like, yesterday they announced four new brands, and I don’t want to remember all these brands. But GEMS is their internal brand for an agent, which is like a instance of an AI that would be trained and really good at one particular thing.

Vic: So in the next couple weeks, if you have their Google Advanced, it’s like 20 bucks a month, which I have, but I haven’t been, they’re going to release this ability to make agents Where, like I want to do a health, a health care coach that just sits there and I can ask it health care questions. It knows my interests, it knows my situation, but you can do a, a strength training coach or you want to learn Spanish.

Vic: So they’re like little pieces of Gemini that are tailored to you. Just to one particular use case. And then you, when you go to it, it’s just talking about that. Have you calculated all of your subscriptions yet? Or you don’t even want to know the [01:19:00] answer to that.

Paul Kappelman: Yeah.

Vic: I keep up with it. It’s about 350 a month, a month.

Vic: Okay. Yeah. But

Paul Kappelman: eventually you’re going to trim that back. Once you figure out a whole

Vic: bunch of them, many of them are. They’re all 10, 20, uh, Nothing’s going to

Paul Kappelman: break the bank, but yeah, you don’t need all of them. At some point, you’re going to figure out which are the best, but that’s going to change. I mean, that’s,

Vic: yeah, it changes.

Vic: You know, I add new ones all the time. I added an 8 one two weeks ago. That seems more powerful than a 200 one that I added two weeks ago. Six months ago, just because it has, you know, changing so fast. So, uh, that’s all the stories we have. So Paul, thanks for doing this. Any other comments or things that we didn’t cover that

Paul Kappelman: we should enjoy the show.

Paul Kappelman: Thank you for having me. Um, it’s been, it’s been fun to hang out. It was always fun to talk riff on healthcare stuff. And it’s even more fun when Marcus

Vic: is here. So, yeah, we need to have you back as a guest and go deep into something around health systems or maybe your next project or whatever you want to talk about anytime.

Vic: So thank you. Okay. Thanks, Paul. Appreciate [01:20:00] it.