Steve Gordon: Welcome to the Unstoppable CEO Podcast. I’m your host, Steve Gordon, and I got to tell you, I’m really excited today. We’re talking with someone I’ve wanted to have on the show for a long time. She’s finally agreed to come on, and we’re going to be talking about an important issue. Today I’m talking with Allison De Paoli of De Paoli Prof Services.
She really helps employers, business owners, break apart their current health plan, and figure out how to make it work for them. Really, unlike anyone you’ve ever dealt with around healthcare, she’s got a very unique way of looking at a health plan and re-engineering it to eliminate anything that’s unnecessary, eliminate all the waste, and free up dollars so you can actually afford to provide a great health benefit, make you more competitive in the employment market, and do it and still be able to pay that bill. So Allison, really excited that you’re here. I’m so glad we finally got to talk about this. This is a huge issue for business owners, so thank you for being here.
Allison De Paoli: Thanks for having me, I’m really excited to be here today.
Steve Gordon: Set the stage for us. I mean, we’ve had so much change in healthcare over the last, gosh, even the last just five years, the last 10 years for sure. For everybody that hasn’t heard of you before, give them some background. How’d you get to this point, and what makes you so passionate about trying to solve this particular problem for people?
Allison De Paoli: I come from a family of entrepreneurs. Father, grandfather, uncles, cousins. We’ve all owned businesses of some variety. Some small, some larger mid-size kinds of businesses, and one thing that we all did pretty instinctively was take care of our employees. We inherently understood, as most employers do, that if you take good care of your employees, your employees will take good care of your customers.
Part of that was benefits, health insurance. In our different iterations of businesses, we paid 100% of the insurance cost for employees, their dependents, and that’s changed over time, and that’s caused some issues. There was something to an employee feeling valued, and being more valuable in the business. You have employees because you need them. You need them to run your business, so make an effort to make them as healthy and productive as possible.
What’s happened in the last 10 years is that insurance costs have gotten completely out of control. The typical response to that for a small or a mid-size employer is to sometimes absorb the cost, and sometimes pass the cost onto an employee. That pass-on may be in the form of premium, and it may be in the form of a higher out-of-pocket. Nine times out of the 10, if the employer absorbs the cost, there is no raise. You’ve got a whole host of issues here, right? There’s not one simple thing, there’s a whole host of things coming here.
I would argue that the back-breaking of the American middle class is not wage stagnation so much as it is health insurance cost increase. You can pretty well correlate how health insurance premiums have increased, and wages have stagnated. If you can get that under control, if you can make your health insurance spend a repeatable expense, predictable and repeatable, then you can get on with growing your business.
You need to recruit and retain the best talent that you can. You need to manage your forecasting as best as you can, and you need to do the right thing for your employee. If you can do that we your health spend, you can open a new division, hire another group of employees, start a new product line, whatever it is that you want to do with your business and not deal with this, because really, most employers don’t want to deal with this.
Steve Gordon: Yeah, no kidding. I fall into that camp. I can remember when we had lots of employees in my first business, and this is long before things got really complicated, that just give me headache even thinking about it. I know it’s a big issue for folks. Before we dive into the details of that though, I mean, this is a relatively new business that you’re in that you’ve created to deal with this.
Allison De Paoli: Yes.
Steve Gordon: You’ve been in this industry for a long time, but we’ve known each other for a few years, and I know you recognize that there was this better way of doing things. I applaud you for taking the brave step forward to make it real, but I know that that doesn’t come without its own challenges. What are some of the things that you’ve had to do over the last few years to really push through and make this a reality?
Allison De Paoli: I’m sure that I should say that I fought long and hard about it, and I did, and I should diagram the whole thing out, and create a complete plan, but the reality is I’m a kind of leap-before-I-look kind of girl. I took a look at what was happening, and I took a look at my clients, and I’ve always been very fortunate. I’ve really had lovely clients that I almost 100% enjoyed working with, and were really great business owners, and great HR staff, and just really lovely organizations.
I was looking at what was happening, and I’m thinking, “What is going on here? I could’ve done this 20 years ago a little bit better,” and started researching more and more things that were possible, and realized that I could be better, so I just did. I’m not sure that’s for everybody, but that worked for me.
I have to think about it every once in a while, and I’ve pretty much blown up my existing business model. I think we’ve all done that on occasion. You just kind of have to decide you want to do something, and move forward. The reality is, I’m ungovernable, so there really wasn’t anybody who was going to stop me.
Steve Gordon: I love that. I think that a lot of people listening right now who own businesses who can relate to that last statement. I’ve never heard it expressed like that, but I love that, “I’m ungovernable.” I like to say, “I’m unemployable,” but I think you just took it to another level. I think there’s a lot of truth in that, and we all often know by gut when it’s time that we step up and make a radical change, but it’s not easy.
Allison De Paoli: No, it’s not easy. I really did blow up an existing business, so there was no safety net there.
Steve Gordon: Yeah, I remember as you were contemplating that, some of the challenges of making that decision. It’s scary.
Allison De Paoli: Yup.
Steve Gordon: I also know that you really believed in this new solution that you found for this problem.
Allison De Paoli: Some of the things that I do were previously available only to quite large employers, and the insurance industry in general has been slow to modernize, and to embrace a more digital way of life. Some of that is HIPAA and high tech. There’s compliance issues, there’s signature requirements. It’s a slower move, right? But I think now you’re going to start to see more change, and more ability for mid-size and smaller companies to do things that savvy … not all, but savvy, larger employers have been doing for some time. Now that Amazon’s entered the space, all bets are off.
Steve Gordon: That’s right. Health insurance will show up with … maybe they’ll bring with a drone a doctor. Drop them on your doorstep.
Allison De Paoli: Yup, drop them right in your yard.
Steve Gordon: Yeah. That’d be awesome. Well, you know, you’re kind of on the vanguard of this change.
Allison De Paoli: I am.
Steve Gordon: I know that that’s probably been met with some resistance by some of the partners that you’ve had to work with in the past.
Allison De Paoli: Yes. I hear a lot, “But what about the network?” What my head says is, “Who cares?” You got to have more than one conversation. You have to migrate people from one way of thinking to another, and I know you know that that takes a little bit of time sometimes, so people have to hear it a number of times, and really you have to show them how.
There are some areas that are easier to navigate than others. Everybody’s mad at the pharmacy industry. I don’t know anybody who isn’t mad at the pharmacy industry, so that’s sometimes a simpler conversation to have, and an easier place to start. Insurance companies are not getting a whole lot more respect than the pharmacy industry. Sometimes that’s earned, sometimes it’s not. Insurance companies, insurance is contract law. It’s not a benevolent issue, it’s contract law, so make sure your contracts are right.
Steve Gordon: It sounds like you’ve kind of taken on these big issues that have created probably a lot of uncertainty as you’ve started up this new business model. It almost sounds to me like you’ve gone after the areas that are probably the most painful first for people, and kind of worked knowing that that was going to be maybe the easier route to go, if there is an easier route, and you’ve kind of approached it that way, eating the elephant. Is that accurate?
Allison De Paoli: I think you have to approach it that way. I think to come in and say … okay, so first off, nobody likes to be told that they’re doing something wrong, okay, so that’s the first thing. The reality is that it’s not so much that employers are doing wrong, as it is that the right thing has evolved, so to come in and look at what is going on, and identify where the biggest problem is.
I’ve talked about a couple of hot button things, but you could have a completely separate issue, and identify where the best place is to start, and help them create a plan. Nobody does three to five year benefit planning anymore. We can do that. You can put people on a path where they’re starting out here, and they’re moving along the journey to control and predictability, and it may be something as simple as making a small adjustment to your existing fully insured plan, and then the next year taking the next step, and the next year taking the next step.
It may be that simple, or it may be a more pressing financial issue and it moves a little bit quicker. I think explaining all the pros and the cons and making sure that people understand, employers understand where the noise is going to come from, makes it simpler to manage.
Steve Gordon: I’m sitting here thinking about this approach, and we’re talking about it specifically as you’ve applied it, but everything you just described can be used by anybody that’s listening who if they’re going after, and a lot of people are right now, new changing segments of their market, where you’re having to deal with dramatic change, which is happening all around us, and you’re having to communicate that. You’re having to simplify it for people so that they can act on it, and a lot of times you’re having to move them out of some old habitual behaviors.
In your case, you’re dealing with a lot of risk. If you come to me as an employer, and I’ve got hundreds or thousands of employees, or even dozens of employees, and we’re now going to mess with their healthcare, not only do I look at that as a risky move, because it’s dealing with people’s health, but I know every one of my employees is going to look at that as a risky move. This is not a simple issue, but I love the way that you’ve approached it. I think that for me, that’s the lesson here for everybody in the way that you’ve approached it. Now, I want us to … Go ahead, I’m sorry.
Allison De Paoli: I think one of the things that people forget is that employees are stakeholders too. Employees are often left to the last part of the conversation, and I don’t think it’s necessarily the right place for them to be in the decision-making of what the strategy is, but the more you communicate it, the better it is.
I think the thing that employers forget, they forget two things. 80% of the working population has less than $1,000 to cover an unexpected expense, never mind a medical expense. The consequence to your health plan is that somebody doesn’t go to the doctor, or they’re afraid to go to the doctor when their symptom is relatively small, because they don’t have $1,000, or they run their budget so tightly that even a $30 medication is something that they won’t take, or they’ll share it with a family member, and the consequence to your plan is a $40,000 emergency room bill.
Okay, so that’s one thing that employers don’t hear enough. It is in their own best interest to make sure employees get care. The other thing is, employees have budgets too. If you tell them how to get the most out of every dollar, the majority, the vast majority, will do it, but you have to explain it a couple of times.
Steve Gordon: Yeah, I’m sure. Well, let’s take a quick break. We’re going to be bake with more from Allison, and we’re going to dive into some of the specific things that she does with her clients to really dig in and help them get the most from their health plan. We’ll be right back.
All right. All right, we’re back. I’m talking with Allison De Paoli, and Allison, let’s get into the nuts and bolts of this healthcare challenge.
Allison De Paoli: Sure.
Steve Gordon: If I’m one of your clients, and let’s say I’ve got, I don’t know, a couple dozen employees and you’re working with me, what are some of the things that we begin to look at differently about looking at maybe a typical health plan that somebody might have?
Allison De Paoli: Sure.
Steve Gordon: What questions do we ask?
Allison De Paoli: I want to understand what’s happening in your health plan now. Now, depending on who your insurance company is and the number of employees you have, that is sometimes a little simpler than others. For most states, an insurance is still reasonably regulated by the states. There are some things that are federally regulated, but there’s a fair amount of state regulation that is different per state. If you’ve got more than 100 lives, you should have access to your large claims and your pharmacy reporting, so I’m going to want to see that. That will tell us where you are now.
I’m going to want to look at that back for as far as I can. Normally I get one year, but if I can have two or three, it’s better. More data is a little bit better. You can do a little bit more trending and forecasting that way, so I’m going to want to look at the data. If I don’t have that, there are some other ways to get it. We can do some health questionnaires, and things like that, and understand where we are now. Then depending on where we are now, we’re going to look at where the first place is to control your cost, and we’re going to look for those in ways that employees don’t necessarily see.
All right, so we all love Amazon Prime. We love how stuff just shows up at our door. There’s a lot of logistics that go into that that we never see and we don’t care about. Same with your health plan. All right, so there’s a lot of back-end at administration that can happen to help you drive people to the right place to get care.
Once we figure out what’s going on and we see where the low-hanging fruit is, we’re going to pull that out first, and we’re going to do that as invisibly as we possibly can. Then we’re going to move along the cost-controlled journey until you are in complete control, and there are lots of tools to do that, you know what I mean? But tools are just tools, so sometimes you need a hammer, and sometimes you need a screw driver. It depends what’s in the wall. So you need to ID what’s in the wall, and that’s how we start.
Typically, pharmacy is an easy place to start, and I’m sure that most employers have heard that many times. I am most interested in looking at contracts, so I’m going to want to know what’s going on with your employees, and then I’m going to want to see your health insurance contract, your pharmacy contract, your contract for any other vendor that you have.
I’ve reviewed enough contracts now where 99.9 times out of 100, the vendors are responsible to each other. They are not responsible to the employer paying the bill. I had a health insurance company tell me the other day that their network discounts were proprietary, and would not be released to the employer, even though it was a self-funded plan, and the employer was footing the bill.
Now, you and I may laugh at that. I just laughed at her and said, “Okay. I have another way to get data, but …” That is a fiduciary responsibility to the employer, so if the employee is contributing to the health plan, and an employee decides that the employer is not using their funds in an appropriate manner, they can call the DOL, and the DOL is going to come say, “Hi. Show us your contracts.” Just like what happened with 401(k) plans. So it’s already starting. Nobody’s gone to jail yet, but it’s starting. It’s a big problem for employers.
Steve Gordon: Well, I would imagine not too far behind that will be attorneys, and I’ve got lots of friends and some family members who are attorneys, so if you’re an attorney and listening to this, don’t take this personally, but there’s a business opportunity here for attorneys, and there will be firms that will look at that. I know that, because on the 401(k) side, you’ve already seen folks go after employees to take their employer to task for damages.
Allison De Paoli: Health and welfare plans are governed by the same rules as 401(k) plans with regard to employee contributions, so it’s coming.
Steve Gordon: Yeah, so this is not something … One of the reasons I wanted to have you on here, is because I think for everybody that’s listening that does have employees, and they’ve got this level of benefit, this isn’t just something that you’re providing any longer out of your own benevolence, or because you’re at a certain size, and the government’s forcing you to, it’s you’re now playing the big boy game. I mean, there’s reliability here, there’s tremendous cost, and that’s the one thing we most of the time we focus on, but there are many things you’ve got to be aware of and be looking at with this.
Allison De Paoli: Absolutely.
Steve Gordon: As you begin to dive into this data and you find some opportunities to maybe improve things, from a high level view, how do you fix this?
Allison De Paoli: There’s a couple of things. Employee communication is paramount, and there are some great tools now to communicate with employees that the employer doesn’t necessarily need to execute so you can communicate with employees, and make sure they’re getting what they need. What they need. I am a huge fan of 24 hour advocacy, and I am a huge fan of care management. Not medical management.
All health insurance plans have medical management, and I’ve reviewed contracts where the plan documents stated that X, Y, and Z procedures were going to be sent to centers of excellence, and never enforced. Okay, now when you go to a center of excellence, there’s two things that happen. One, you generally get the highest quality of care, which is the most paramount thing, but the second benefit of that is centers of excellence are usually in the bottom 25% of cost.
Steve Gordon: How is that?
Allison De Paoli: You’re laughing at me.
Steve Gordon: I am. You mean the best is the cheapest? When does that ever happen?
Allison De Paoli: Well, think of it this way. If you do a lot of something, you know how to do it, right? You know where all the little things that can catch people up are, so you do it efficiently. You want to make sure that you have all your tools, and you have a process for everything, and you know how to price for it, because you do a lot of it, and you’re efficient. It may take you an hour to do something, whereas somebody, a doctor, or a provider, or whomever who doesn’t do it very much, may take two, or three, or five hours, and they don’t know all the nitty-gritties, and you end up with some higher side effect rates.
Let me tell you a funny story that my care manager told me the other day. She was pre-certing a procedure for an employee, and she called the employee back and said, “You know, the facility that you’ve chosen is great, but this physician, he’s a great doctor, but he’s got a 26% complication and readmission rate. There are two other providers at this facility. One has a 1% readmission, and one has a 2% readmission. Would you consider going to either one of those?”
The response from the patient was, “Well, sure, but I chose the head of the department because I thought he was the best guy.” You got to look, right? Can you do that yourself? I can’t do that myself. Care management, true quality care management, will get your employee to the best place with the best provider. That will lower your cost 30, 50, sometimes 70%, and the best way to make that work is to incent your employee to do that.
Steve Gordon: Okay, that makes a lot of sense. In fact, I’m sitting here thinking, we’ve gone through something with a family member here recently, just to illustrate this point, and I don’t have a tremendous amount of confidence with the physicians that she’s seeing. It’s not that they aren’t good people or good doctors, I don’t think that they’ve seen this particular thing much, right?
Allison De Paoli: What she has.
Steve Gordon: So they’re going fishing, and when they go fishing, when doctors go fishing, they send you for all these tests, and because they don’t know, they haven’t seen it before … and again, it’s not that they’re incompetent, it’s not that they’re not good, they’re just outside their wheelhouse.
Allison De Paoli: Exactly.
Steve Gordon: It’s perfectly clear to me now, costs mount up because they’re going to do all of these other things, because they don’t quite know where they’re looking for, whereas somebody who has dealt with this over, and over, and over again will be able to look at it, diagnosis it more efficiently, prescribe the right tests, and get to the bottom of it more quickly. So yeah, it makes complete sense.
Allison De Paoli: But who has the resources to do that, right?
Steve Gordon: No, how would you know?
Allison De Paoli: And how would you know?
Steve Gordon: Yeah. In fact, I’m sitting here thinking … exactly to your point. This family member saw what is believed to be the best doctor of that caliber, but it’s also the doctor that is really high up in the hospital hierarchy for that particular thing, right?
Allison De Paoli: Uh-huh (affirmative).
Steve Gordon: So you know, of course without the data, which is what I love what you just shared, is that there is a way to get the data. How do we get care management built into what we’re doing? How do we include that, and then incent our employees? How does all that work?
Allison De Paoli: We take a lot of people on the journey from either a fully insured or a self-insured health plan with a health insurance company, and let me explain a little bit about that. If you’re fully insured, you pay your bill to your insurance company, and they manage all the pieces of it, and you really don’t have any idea what is going on there. You just pay your bill for whatever it is, and you know what your premium is, and you know what your deductible and your co-payments are, and you know what your network is. You may get some reporting, you may not, depending on which company you’re with.
The reality is that a health insurance company does two things. They have a contract with the network, and they administer your claims. Everything else, they farm out. I work with employers who say, “Well, I’m self-insured,” but they’re self-insured with one of the large insurance companies. Really, the only cost containment strategy you have used when you’re self-insured with a large company is you pay them the fixed administrative cost, and you pay your claims. You’re managing your cashflow. You’re not guiding who gets … You’re not making sure that people get the best quality care, and you have no control over any contract.
Okay, and I’ve reviewed a contract not too long ago where the pharmacy benefit manager, which is your drugs, your prescriptions, they were responsible to give the rebates. They were obligated to give the rebates to the insurance company, not to the employer. The response from the insurance company was, “Well, we credit that back.” Well, how do you even know what it is? That’s the first thing.
We move people from this kind of opaque system over here into a TPA that has fiduciary responsibility to the employer, and only works with fiduciary partners, so the pharmacy benefit manager is fiduciary. Their responsibility is to the employer. If you have care management, they are responsible to the employer. If you’re using any other kind of cost containment tool, and that could be RBP, it could be direct contracting, it could be futures contracting, it could be reverse options, it could be any of those things, but all of those providers have fiduciary obligation to do the best thing for the employer and the employee.
Not the TPA, not any other company, not the broker, the employer and the employee. That’s where you can dig in and find solutions and creative ways to make things work. Direct contracts are great for hospitals. You know, everybody piles on the hospitals too. The hospitals are in a rough spot. They’ve got insurance companies on this side, and people on this other side, and there’s a pretty big chasm there.
Steve Gordon: Yeah, I’m sure there is. I would imagine with the direct contracts, they get a lot more control over the individual relationships they have. If an employer is going directly to them, they can look specifically at what the charges are going to be, and probably do better than what they’re going to do with insurance companies.
Allison De Paoli: They can. Then there’s a couple reasons for that. They know how much it cost them to do … let’s pick on knee replacements just because it’s an easy one to pick on, there are a lot of them. In my area, a knee replacement, there are some facilities that will do a direct contract for a knee replacement for $36,000. What it actually costs is all over the map. It may be 42, it may be 55, it may be 49, it may be 68, it may be 72, it may be 90, depending on where you are and what’s happening.
It should cost $36,000, so when a hospital contracts directly, there’s no bill, so there’s no administrative overhead. Well, there is a bill. “We did this, here you go.” There is payment terms arranged up front, so they’re generally paid in five to seven days. They don’t have to get any money from the employee, who probably doesn’t have it anyway, so all of that headache has been removed, and they know how many they’re going to get on an annual basis. It’s wonderful for a hospital’s budget, and to keep the physicians busy.
Steve Gordon: I’m sure.
Allison De Paoli: Physicians want to do what they went to school to do. They don’t want to fight with people.
Steve Gordon: Absolutely, yeah. I mean, and that’s the way they make money too.
Allison De Paoli: Absolutely.
Steve Gordon: Yeah. It’s funny, any time you pull the curtain back on something that is so shrouded in fog and mystery, it all becomes really clear how it can work, but for a long time, at least in the United States, there has been this fog around the whole process.
Allison De Paoli: Absolutely.
Steve Gordon: I don’t think the changes that we’ve been through the last five or 10 years have helped that in much of any way, and you may have a different opinion.
Allison De Paoli: Well, so I have a personal opinion, and I have a business opinion. I think that people should have access to care. That’s Allison’s opinion. As a business owner, there are some constraints on that, right?
Steve Gordon: Mm-hmm (affirmative).
Allison De Paoli: Everybody has constraints, so we need to figure out the best way to do that, but just allowing this runaway cost … I had a conversation with a vendor not too long ago, and there was some conversation about what the price was, and if there was a discount available, and then he just made an offhand comment about, “Well, you know, we’ll just offer this discount and we’ll raise the price.” What do you think is happening in our system today? A discount. A discount of what? You know? So a discount off-
Steve Gordon: Is it anything?
Allison De Paoli: Exactly. If it should cost $100 but the chargemaster says it’s $500 and you get a 50% discount, you’re still overpaying.
Steve Gordon: Right.
Allison De Paoli: So, get at what something should actually cost, and there’s more and more tools available to do that as we go.
Steve Gordon: Well, and this is one area that has been more or less immune from the forces of the market.
Allison De Paoli: Yes.
Steve Gordon: The argument has been that, well, there needs to be access to care. I think it’s very hard for any caring human being to deny that there needs to be access to care, right?
Allison De Paoli: Correct. It can’t just be-
Steve Gordon: That isn’t the issue.
Allison De Paoli: Right.
Steve Gordon: The issue is we have this system that has none of the operating principles of the rest of our society.
Allison De Paoli: Absolutely.
Steve Gordon: Worse, we don’t have any transparency into it, which means we don’t really know what’s happening there, all we know is that the bill keeps going up, and up, and up, and to a point that it becomes unsustainable to give everybody access, because the price keeps going up, and we don’t know why.
Allison De Paoli: It already is unsustainable.
Steve Gordon: Yeah. I’m really glad we’ve had this conversation. What have we left out? If there was anything that you wanted to get across to someone listening right now that we haven’t covered, what would it be?
Allison De Paoli: The most important thing for an employer to do is get data. I don’t care what size you are, get data. If that means you do some surveying, some confidential surveying of your employees to understand what’s happening with your advisor, do that. Get your data. Understand where you are.
Then there’s old expression that says that, “Sunshine is the best disinfectant.” So talk with your advisor about what you can do to understand more effectively what is going on in your health plan, and how it works. If you’re not getting an answer that you like, go find somebody else. I don’t mean to be unduly harsh there, but there are people.
I am not the only person in the United States doing this. There are other people who understand that this is not sustainable, and can help you get to the point where it is sustainable for you. Do those two things. We’ve created a landing page for you. So De Paoli Prof Services, Unstoppable CEO.
There’s an eBook on there. It’s called Instant EBITDA. We’ve been pretty successful with pulling 10, 20, 30% out of a health spend first year, so that money goes right to your bottom line, so Instant EBITDA, Five Steps to Gain Control Over Your Healthcare Spend. It’s a quick read. It’ll give you an idea of where you should be looking and what questions you should be asking.
There’s a video on there that explains some things in more detail, and then I’m happy to talk to anybody for a few minutes. There’s a link to my schedule on there. If I can help provide some direction or some support, I’m happy to do that.
Steve Gordon: Wonderful, thank you. That’s really generous. It’s DePaoliprofservices.com/unstoppableceo, and De Paoli is spelled D-E-P-A-O-L-I. If that was all too much for you or if you’re driving, that’s okay. It’s going to be on our website. There will be a link to it, and you’ll be able to find it there with this episode.
Definitely go check out that resource if you’ve got a business or you’re providing healthcare, go get the eBook, and go read it. I think it will be eye-opening for you, and so highly recommend that you do that. Allison, thanks for investing some time with me today, this has been great, long overdue, and I think really needed for everybody that’s listening, so I appreciate your time.
Allison De Paoli: I really enjoyed our conversation. Thanks for having me.