Rethinking Healthcare with David Contorno

george grombacher 0:02
David turtle is a healthcare thought leader working to reduce healthcare spend and improve outcomes. He is the founder of E powered benefits. Welcome back to the show, David.

David Contorno 0:12
Thanks, George, happy to be here.

george grombacher 0:14
Tell us a little bit about your personal lives more about your work and why you do what you do.

David Contorno 0:20
Well, I have a wonderful partner in both life and business, her name is Emma. And we have four wonderful children. And they’re all growing up there between 12 and 17. And, you know, that’s the age when there’s a lot of responsibilities and a lot of changes and a lot of growth, hopefully. So it’s it’s fun to watch that. As far as professionally, I’ve been doing insurance since I was 12. I’m now 47. So 35 years, health insurance, specifically since I was 17. So 30 years with health insurance, but I’m sure as many both employers and employees can relate to, for the first 1516 years of my career, no client looked forward to meeting with me on their renewal, because I’m bringing in varying degrees of bad news. But what got really difficult for me was bringing that bad news to that employers employees a few weeks later, and I had this recognition well over a decade ago that I’m throwing out these plants that have out of pockets that are substantially higher than these employee savings accounts. And so if the insurance that I’m selling, because I originally got my roots in life insurance, and life insurance is meant to do one thing, and only one thing protect us from catastrophic financial loss. And if you think of every type of insurance we buy, that is our expectation of it, except health insurance. It’s the one thing that you know, 70 80% of Americans will go bankrupt when if they actually need to use it. And the statistics bear that out it’s medical debt is the number one cause of bankruptcy in the US, but nearly three quarters of those people had health insurance. So they’re paying all this money in premiums, and then still going bankrupt. And it’s just something that turns my stomach

george grombacher 1:58
30 years, you haven’t figured it out yet, David,

David Contorno 2:02
I figured out how to fix it. I haven’t figured out how to get everybody to mass adopt it. There’s one of the things that I hope we get to touch on today is that there’s a lot of backwards psychology in both healthcare and health insurance that makes it more challenging to scale the results scale, the solutions scale the benefits. And so, you know, there’s a lot I mean, even just this morning, I had a prospect call. And the employer was like, you know, we must have a large network of doctors. And I said, why? I said, when you buy your Geico, do you have a large network of mechanics that they tell you, you can go to know, when you buy your life insurance? Is there a network of mortuaries that you can die at? Like, you don’t? You don’t have to have a network like it’s absurd that we think it does. And that network is really probably the biggest culprit that prohibits us from really controlling costs and getting transparency in the health care space.

george grombacher 2:59
Why do people think that they need a big network,

David Contorno 3:03
because the carriers are really good at PR and marketing, and they’ve led them to believe that a bigger network is better. But I want you to think back with me for a minute to the history of networks, when networks first came out in the late 70s and early 80s. The network’s were very small. As a matter of fact, that was part of their selling pitch. They said to employers, hey, listen, we’re going to take a large volume of patients, and we’re going to funnel them to a small volume of doctors, which is going to give us reimbursement efficiencies, we’re going to say, well, you’re out of business, but you got to give us a better rate. Furthermore, they also had a gatekeeper so that you had to go to your primary care physician before you get a specialist. And the premise of that was to say, maybe you don’t need a specialist. Right? That was the whole point of that it wasn’t meant to be an inconvenience, it was meant to say, if your back hurts, and you go first to a back surgeon, you’ve kind of preordained back surgery being your most likely outcome. Whereas if you go to a primary care doctor, who by the way has the time to properly treat you, which is a big missing component today, then the likelihood of you needing that specialist goes down substantially. But this was before my time, but I have this this thread running in my brain where this broker came to the CFO of a company and said, Listen, I have this crazy idea called a network and he’s like, What do you mean, I can go to any doctor I want right now. What are you talking about a network and it was foreign to them at the time. But the broker said, but look at how much money you’re gonna save if you do this, and I imagined that CFO considering it and then coming back to him and saying, Okay, listen, the savings is pretty compelling. But my wife’s OBGYN is not in your network. And I can’t go home tonight if my wife can’t see her OB GYN so if you get that one doctor in the plan, I’ll move my whole company over to you. So that broker calls up that carrier exactly on the sales side and tells them the story and that carrier exec then calls their provider relations team and says we’re gonna get millions of dollars if you just get this one doctor in so get them in at any cost, it doesn’t matter. And instantly, this inflationary trend, which is what you need, you need to pay a lot of money to have a large network otherwise you don’t attract enough doctors started to occur. And then again in my head, but I’m pretty sure I’m close to the reality of it. A couple years later, the broker is in there, the HMOs running and the HR person comes in and says, you know, my employees really hate having to get a referral. So can you find us a plan where no referral is necessary. And so instantly, we completely devalue the two premises of the HMO, which was a small network and a clinical gatekeeper before going to a specialist. And what we have today is large networks with people able to go to specialists directly on their own. And this is part of why we have not only a lack of primary care, because it’s easy for us to skip over, but just inflating expenses that are skyrocketing.

george grombacher 5:48
So the original premise, smell network with gatekeeper is that is that good.

David Contorno 5:55
It depends on who the network is and who the gatekeeper is. Because even as HMO started to mature, the system started to pervert it. And let me explain to you what I mean by perverted. They are following the incentives in the system everybody does. And what that leads me to tell people is that a lot of people consider our health care system to be broken. It’s not broken, it’s actually working exactly as it was designed to work. It just wasn’t designed by doctors, employers or patients. So it’s not working well for those two entities. But I want to let everybody know that if you go to a traditional doctor, primary care or specialist, they have to choose at every encounter with every patient, to do what’s right for themselves financially, or to do what’s right for the patient. And that’s an order situation, and it’s not an end, or it’s an order situation, because that doctor is predominantly paid on two metrics, how fast they get you out of the office and on to the next patient, and how expensive of a treatment path they send you down. The more patients they see in a day, the more money they make, of course, the more patients they see in a day, the less time they spend per patient. And the more expensive a path they send you on, the more money they make, of course, the more expensive the path is ultimately more invasive, more risky, more expensive. And so the and that’s true across the entire spectrum brokers, if you’re an employer who’s listening to this, and you rely upon a broker, Most brokers are accustomed to commission and bonuses commission means as your rates go up, how much money they make also goes up. And bonuses mean the more business they funnel and keep with a particular carrier, the more money they these are very, very powerful inducements. And I would argue a lot of brokers or consultants don’t even realize that they’re influenced by doctors too, by the way, I get really frustrated with brokers and doctors claiming they’re not influenced by the incentives when the results that they perpetuate, are exactly the result that those incentives are meant to induce. So you’re either as a doctor or broker knowingly induced by these incentives, or unknowingly induced by these incentives. But to claim you’re not induced is really in my opinion against humanity. Like it’s contrary to human nature there, we’ve responded to financial incentives for millennia and will continue to do so in the foreseeable future. So if I could tell you what the one thing is that we do that’s most powerful, to allow employers to save 3040 50%. And to allow employees to save even more than that, is we at the minimal, remove those perverse incentives. And ideally, we flip them around and realign them when, whenever possible. So the best easiest example is how we’re paid. Our clients pay us a flat monthly fee, we’re prohibited from taking money from any component of their health plan in any capacity, because I believe that you work for whoever pays you. And if Blue Cross is paying you you work for Blue Cross, we take a flat fee. Plus, we arrange a bonus structure in which for most clients, the more we save them, the more we make, so we take a small piece of the savings. It’s miraculous charge when you align the incentives, how much more likely it is that those results are going to occur.

george grombacher 8:54
Miraculous amazing. I, when you say it like that, it seems so obvious we are we are all playing our role in these ordered games. And when we’re inside the box or inside the jar, we’re like, okay, here we are. But when you’re actually able to step outside of it for a minute, and trace back why things are the way that they are. It allows you to reshape the model and rethink the model, which is what you just described.

David Contorno 9:25
Exactly and and really even more overt than that is AI in trying to impart the exact same decision making that people put into everything from buying a vacuum cleaner on Amazon to buying a home or car. It’s where is my value, but if you don’t know quality and you don’t know price in advance, there’s no way for you to assign value. So I’m not here and I try not to in our plans, be the one to say this is better for you. I try to educate them and say Here are your choices. And here’s why you might want to consider something different. And then we build financial incentives in our plans to do it. As a matter of fact, when, with all of our plans when members follow the clinically better track, which by the way, is almost always substantially less expensive, although not 100% of the time, but almost always, the plan pays 100%. And so like in the scope of an MRI, the doctor wants the MRI to be done at the hospital, because that’s where the highest cost is going to be. And that’s where the doctor makes the most amount of money. Hospital MRI could be 345 $6,000. Whereas we have direct contracts with independent imaging centers around the country, a lot of it through Dr. Kristen Dickerson from Green imaging. We’re paying four or five or $600 for that same MRI on the same MRI machine. So I asked that employer, I said, Would you rather your health plan pay 50% of $5,000. So 2500 bucks, plus your employee owes the other 50% 20 100 bucks. Or would you instead consider paying 100% of $500, which is an 80% reduction in your share and 100% reduction in the employee share and leave the employee only nothing. That’s that’s the type of metrics that we apply on prescriptions, on surgeries on imaging under old medical event, the math is such that the employer can pay intelligently 100% of healthcare costs and pay 4050 60% less than their share of those healthcare costs worth through a traditional plan. And let me tell you why the network is so damaging to reference what I said earlier. I speak to a lot of a lot of hospitals CFOs. And if I ask any one of them, tell me your major sources of revenue, they’re going to give me five major streams. Commercial is first and they bucket BlueCross, United Cigna and all of them into one bucket because they all pay about the same, there’s really no fundamental difference. One might be a little less than one thing a little more than the other. But they so all employer plans and all individual plans are considered commercial insurance. Then you have Medicare, Medicaid, cash pay patients, and charitable care. And the reason charitable care, by the way, is a revenue sources because that’s what gives them massive tax breaks. So it is a revenue source. If you then ask that CFO of those five main buckets of revenue, which one is the highest reimbursement rate, which one is the most profitable, they’re all going to tell you commercial. It’s so profitable, and so powerful that when hospital systems look to borrow money, maybe to build another building that they probably didn’t need to begin with. The bank will give them better terms, better interest rates, if their mix of commercial is higher than their Medicare Medicaid mix. And the higher that commercial goes, the more financially stable they’re considered to be. Because again, that’s the highest revenue most profitable reimbursement rates. So now let me transfer that into how that waterfalls down. That means that every single time an employee throws down their BlueCross BlueShield ID card at a hospital. They are contractually preordained, both themselves and their employers health plan to paying the literal highest cost ever paid in healthcare. So here’s my question. How can carriers claim to make health care more affordable, when you are literally obligated to pay the highest price, and I’d like everyone to know that while there is a starting price that’s higher than that. Nobody ever pays that starting price. It’s called chargemaster. It is never ever paid unless somebody is just knowingly stupid and just cuts a check. But it is not paid in healthcare. So when you throw down that ID card, you’re contractually obligated yourself to pay the highest price. And this is why between the way that I was paid by the large carriers and the the contractual cost obligations that I was required to put out there, when I sold those plans, they would put a lot of pressure on me as I started to change my path to bring value based performance based plans. And they were threatened to cut my contract. And back in the day, I had 60% of my revenue coming from UnitedHealthcare alone. So that would have been game changing as a business owner for the negative. And so I sold my agency. And when I started my current consulting firm, I said I’m not going to take any money from them ever. And to this day, we don’t get paid by our clients. And that’s it. And again, most of our clients are paying 4050 60% less on their second or third biggest spend. And I know that sounds fantastical, but I always say if you knew about healthcare, what I know about health care, you’d be disappointed in that because the statistics are that only 24 cents of every dollar goes to care. So I should be able to get you a 76% reduction. If are really good. I’m sorry, it’s only going to be 50 or 60%.

george grombacher 14:33
Well, it’s all about incremental improvement, David so you keep working away at it. Are you ever worried for your safety that you’re gonna be assassinated?

David Contorno 14:41
Occasionally, I’m more surprised that I haven’t gotten the cease and desist letter from any one of their lawyers. But at the end of the day, you can’t see synthesist the truth and all I put up there as the truth and I’ll give you one that should be the most damning one for employers to understand and very few of them do and this is sometimes the lightbulb moment but A lot of employers, especially in finance erroneously think that if a carrier negotiates better reimbursement rates for carrier denies claims, that they get to retain the difference between what premium they collected and what expenses they paid out. And that’s the way most businesses work. If you, if you lower your underlying expenses, your profit goes up. But that’s not the way health insurance works. There’s a provision of the Affordable Care Act called the medical loss ratio provision, and it says that they’re able to retain 15, or 20% of every dollar depends on the size of the employer, but most are the 15. So let’s stick with that for the example. So if you send them $100,000, they have to spend 85,000 of that on the health of the employees and their family members. So they get to retain 15,000. Right in that example, well, the only way for them to do more next year, which is what their shareholders demand is for premium to go up. And the only way for premium to go up is for those claims to go up. What most people don’t understand is that if United Healthcare were to exercise the muscle that they absolutely have, and demand reimbursement rates across the country that were cut in half, let’s say their revenue and their profit would also be cut in half. And as a publicly traded company, their only true legal and fiduciary responsibility is not to the members on their plan, not to the patients, not to the doctors and not to the employers, it’s to the shareholders. And they have to deliver as much shareholder value as possible. So they literally couldn’t do that. Even if they thought to do what’s more damning in my opinion, though, is that Medicare works differently, they do get to retain the difference between what they’re paid by the government and what they spend on medical care. And if you listen to United Healthcare investor calls, and you know what to listen for, you’ll hear on the Medicare side claims are down and therefore profit is up and on the commercial side claims are up and therefore profit is up. So United demonstrates every day that they could lower health care costs for employers and employees, but they don’t, because it doesn’t suit them.

george grombacher 17:04
So how does it I don’t know if the term is untether? How does a broker untether themselves from the current city? System? And how does how does? How does a company how does the offer of of health insurance?

David Contorno 17:19
Yeah, as a broker, it’s not easy, especially if you’re established broker, especially if your agency ownership, because you literally have to change your entire business model. And for the employers out there that are thinking, hey, my broker is a really good guy. Okay, that may be true. But I want you to think about this for a second. For most businesses, as a broker, when I was a traditional broker, I had no inventory on the shelves that could spoil or depreciate, I had no accounts receivable, because I got paid by the carriers and employers are going to pay their health insurance bill before they pay their electricity. If if money’s tight, I got a 10 to 15% pay raise every single year because your rates went up 10 to 15%. And all I had to do was show up a couple times a year with the spreadsheet, it was the easiest, sweetest gig of any business sector that I can think of what I do today is a lot harder. So it’s it’s a hard conversation to have with brokers to say, change your business model and then get into a model that’s more difficult. That’s not easy. Some are doing it, because it’s the right thing. But there’s also a way to monetize that, as I mentioned, how we’re paid, we get pretty hefty bonuses from our clients when we lower costs. And again, it’s a small piece of what we save them, so they have no problem sending it to us. But I’m making double or triple or quadruple and our successful clients. Whereas the only way for me to make double, triple or quadruple in the past was on the unsuccessful clients on the ones that got the big rate increases and the big cost increase. So that’s, it’s, I can show them a way to combine doing what they know is right with the financial incentives. But it’s hard to live in both worlds simultaneously. And it’s really hard to disconnect from that IV drip of commissions and bonuses. I know I did it. It’s not easy. As far as employers go. The employers that say yes to us, the quickest and really are the most successful are the ones that understand it’s a rigged system. They don’t mean they may not understand how or why. But they can just look at the last 40 years of owning their business. What has health insurance done at least nine years at a 10 If not 40 years at a 40 They’ve gotten worse benefits with more cost. And if they then take the next step to say, well, let me look at the stock price of these insurance companies. And compare that you would clearly see the cost going up equals more profit because almost point for point, the average increase in health insurance in a year almost matches the increase in revenue and profit that the carriers deliver. So they need to first of all understand that they’re in a system that they’re never going to win. I mean, listen, this is true in most things, but it’s really true and health insurance hoping it doesn’t get more expensive is not an effective strategy, okay? It’s not, it’s it hasn’t done anything for you yet. And it’s nothing to aim for in the future. So that’s number one, you need to understand you’re never going to win. And if you want to win, if you want your employees to win, then you need to, you need to, you need to fire them. The other thing that they need to be able to do in their head from that point is say, Wait a second, we combine the words healthcare and health insurance as though they’re one in the same. But we’re not talking about changing health care. I mean, I sincerely hope there’s not a single doctor in this country or this world that alters their medical advice based on the ID card, you showed the front desk person 20 minutes ago when you walked in. So if you’re gonna get the same advice, but now have an ID card that no longer has Blue Cross or United or Cigna and you’re gonna wind up paying a lot less money. And furthermore, create a pathway where the employee is going to pay less money only if and when they get better care, which results in better outcomes, you’ve realigned a lot of those incentives. And so with our plans, we generally get employers to the point and it only takes two or three years to where they can afford to pay 100% of the premium. So nothing coming out of the employee’s paycheck, and still paying less than they were when they were only paying 60 or 75% of it. And then HR gets to say, hey, we have nothing coming out of our paycheck for health insurance if you come to work at ACME Corp, but you can also get care medications with nothing out of your pocket. Now the statistic is that about 67%, two thirds of a person’s decision on where to work, is based on the health insurance. So if that’s your message, nothing out of your paycheck and nothing out of your pocket. How much are you? How much better Are you gonna be able to attract and retain talent, and I know the labor markets loosened up some but it’s still pretty tight. And there’s still a lot of competition, maybe it’s less to get people but still the same, if not more to get good people. And when you take care of your people, when you say we’re not going to tolerate the system abusing you anymore, even though they don’t often recognize they’re being abused. That’s the type of paternal or maternal employer that really buys into our plan.

george grombacher 22:04
It’s all super compelling. David, thank you so much for coming back on companies that are interested in learning more about this and for brokers and anybody else, how can they get in touch with you? How can they connect?

David Contorno 22:15
Yeah, so we half of our business today is mentoring and teaching. And so yes, I work with employers directly. But a large part of my day is partnering with brokers and consultants around the country and helping them build this type of plan for their clients so that they can then learn how to do it and not need me anymore. That’s the goal is to get them where they want to be. So brokers and consultants are a client of ours, just like employers are. We teach how to do it either by just partnering with them in a mentorship capacity. But we also have a annual conference that we put on where we bring together about 300, brokers and consultants about 50 to 75 doctors. And by the way, anyone who’s a broker consultant listening to this, have you ever been to an insurance conference where there was a doctor and be willing to bet it’s pretty rare, if not ever, but yet, we’re talking healthcare and we don’t have clinicians at these conferences. So we have an entire track for doctors that help them understand our plans better. And then the rest are the plan partners, the TPAs and the PBM, the medical managers that help our plans run. So that’s a great place to come. See the energy and the environment of people who are fighting back against the cartel like Carl Schuessler says, but I think it’s accurate. And then we have a course that we put out that’s been validated by the validation Institute, you can take it in person or online, we teach it at the conferences, better effect. So those are good ways. And then I’m pretty vocal and visible on LinkedIn. And since I’m not getting any money from the carriers, I often love tagging the CEOs of the carriers as I post up indicting things or stories or articles from around the web. So LinkedIn is another great way to get in touch with me, you can message me through there. And of course, you can always go to my website at powered benefits.com. And one of the things you’ll see that I don’t know of a single other consultant in the country that does this is that we post our fees right on our website, you want to know what we’re gonna pay. It’s right out there, I’d be willing to bet 95% of employers have no idea how much their broker is making, even though it’s required now under law to disclose that. It’s not being enforced and it’s not being done.

george grombacher 24:19
Excellent. Well, if you enjoyed as much as I did show David your appreciation and share today’s show with a friend who also appreciates good ideas, go to E powered benefits.com. And check out everything that David is working on. If you are broker and or a consultant, check out those great resources and find out if the mentor learning programs are a good fit, check out the annual conference, check out the course. Follow David on LinkedIn and connect with him there and check out his posts where he pokes the bear every once in a while. Thanks again,

David Contorno 24:50
David. Thanks, George.

george grombacher 24:52
And until next time, remember, do your part by doing your best

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