Medicare Negotiates Like an Owner. Commercial Doesn’t.

Hey, welcome Back to the VBCA podcast. I'm Alex Yarijanian. Today's guest is Dr. Kumar Dharmarajan.

He's the co founder and chief medical officer of World Class Health. He's also a practicing cardiologist and geriatrician. He's a leader who has operated at the intersection of medicine quality measurement and Medicare Advantage executive leadership. He was previously the chief scientific and medical officer at Clover Health and helped scale one of the most.

This audience values execution. We don't do abstract conversations. Right. In this episode, we're going to break down Medicare Advantage contracting, AI and engagement strategies and then contrast that with the commercial market where employers are paying two to four times Medicare rates for identical procedures.

So let's get right into it. First, we're going to start the conversation in terms of contracting in the Medicare Advantage space. If you are looking to contract with a Medicare Advantage organization, let's say as a digital health solution or some kind of AI solution, what should you position in the market that you're hearing from your colleagues that they're looking for, whether it's in developing networks, whether it's in managing certain type of care, whether it's the annual re documentation?

Where are you seeing some of the biggest levers? Yeah, it's a great question. So I think the first question, first response is it depends. Right.

So I would say there's some more legacy Medicare Advantage companies that may be interested in AI in less innovative ways. Right. Versus companies that are more willing, again, I don't mean, I was about to say to take risks. I don't mean in a way that can harm members, but to do something more out of the box.

And so, you know, I think there are areas that we hear about sort of back end stuff around coding and documentation, around, you know, optimization or various internal processes. I think those are important, but they're less exciting. Right. So where I think AI can really create opportunity is on engagement, something we were just talking about.

A Medicare Advantage company may get 10, 15, only 20% of its target members into a program that they believe the member can benefit from. And so it's not about building better programs necessarily, but it's about maximizing impact with the programs that are there. And so I think that involves pulling on other types of data than what health plans have traditionally leveraged, building new engagement channels than they've historically leveraged, sharing data, bringing in data. Because I think that data infrastructure is such a key part of getting AI right to train and build right models, the right agents, et cetera, and So I think really on engagement and quality improvement, bringing it down to the doctor level level, that's something that most Medicare Advantage plans historically have not been able to do with significant impact.

But I think this is what the future holds. So what Dr. Kumar is really highlighting here is that if you're billing for Medicare Advantage, don't just pitch automation. Please, please don't.

Plans have plenty of programs, okay. The constraint isn't ideas, they have so many. Its member activation and physician level quality improvement. These things sound super boring and super long.

But engagement infrastructure, now that's the term or verbiage you should use. That sounds sexier. Engagement infrastructure is your leverage point. Say you have it.

When you come down to the virtual world, when you're contracting virtual organizations or largely virtual organizations in the Medicare Advantage space. How do you look at that in terms of clinical operational risk for a health plan? Yeah. So I think many health plans operate in settings with well to do or affluent plan members call that that's a market with really good payer mix.

I think many Medicare Advantage plans have historically not built products in places where they're plan members with greater socioeconomics challenges. Right. And so if you're operating in that space where access is an important issue, you have to think out of the box. Right.

So what can be done remotely via telehealth? At the other extreme, what can be done in the home? One of the things that I have significant experience with is how do you deliver care to the most vulnerable, sickest seniors, some of whom are frail, they're disabled, they can't leave their home, they have low social support. So how do you bring the care to them?

Because they're not actively seeking care. And when they're not actively seeking care because it's hard for one reason or another, maybe they're dementia and they can't leave the home easily. You've got to bring care to them otherwise they're going to have poor health outcomes, the costs are going to increase. No one's winning.

I think in Medicare Advantage where you own the full financial risk, there are a number of win, win, win opportunities where the patient can win, the plan member can win, the health plan can win by investing in resources that are not the typical in office resources, whether it's home based remote resources, supplemental benefits that support the needs of lower income populations. Those are the great opportunities that Medicare Advantage allows, unlike traditional Medicare. And it's part of what makes Medicare Advantage exciting is these flexib to deliver care in more tailored ways to the population and their needs.

What he is really getting at is this risk isn't virtual care. The risk is the sickest patients not getting care at all. Home based and remote models aren't about convenience. They're about preventing avoidable cost and deterioration.

So the point is pretty straightforward. If high risk members can't access care, costs go up. Bridging care into the home isn't innovation for innovation sake. It's just smart risk management.

So speak more plainly, but speak directly to the concerns of your customer. In this instance, the health plan. I feel like those supplemental benefits are really underutilized, right? Why do you think that is?

You need the right benefits in place and you have to help the plan members utilize those benefits. So one could have strong supplemental benefits, but they're underutilized. So for example, many Medicare Advantage plans have benefits around exercise or gym memberships and things like that, but the uptake is quite low, right? So to the extent that the plan doesn't just want to offer a benefit, but believes that physical activity is good for its plan members and healthcare outcomes, it can't just build something.

It has to develop the engagement mechanisms that are more technology forward now, over time, we're in a world of AI and agentic AI and previously engagement and always engagement is challenging and can be expensive. I think we've reached the point in time where engagement can be done better, cheaper with AI as an ally than it was historically. Right? Both figuring out the right communication channel for every patient, the right way of connecting when that conversation is happening, with the right empathy.

And again, it's all in the best interests of the plan members. So I think engagement is a key part of any benefit design. It goes hand in hand because just building the best, you know, mousetrap doesn't mean that it's going to be used, Right? My listeners know this is where the economics show up is the economics that show up right here.

Because underutilized supplemental benefits aren't neutral. They represent unrealized quality improvement, you guys, and potentially missed star rating opportunities. Engagement isn't just experience, it's revenue protection. It's revenue protection.

That's how the health plans are looking at it, revenue protection. And that's how you have to look at it. So we've talked about Medicare Advantage and how Medicare Advantage aligns incentives around who holds the bag, the risk bag. So now let's talk about how that contrasts with the commercial market where those incentives look so different.

This does make a structural difference. I want to talk a little bit about commercial health care and preventable spend. You know, you brought some very interesting points last time you and I had a conversation and you cited that some employers are paying two to four times Medicare rates for the exact same procedure, which was mind blowing. Can you speak a little bit about this?

Yes. Employers are paying premium prices in a market with weak transparency. So if a patient goes to a hospital and let's say has an elective knee replacement procedure, what Medicare will pay? Let's say it's $15,000 for an inpatient procedure.

A commercial payer can pay 30, 45, $60,000 for the same procedure from the same physician in the same hospital. And why is this? Yeah, it's a great question. Well, commercial prices are first negotiated.

They're not regulated. So government payers can regulate rates versus commercial payers are negotiating those rates with payers with hospitals. And in addition, hospitals are basically cost shifting because they may not feel like they're getting sufficient rates from Medicare or Medicaid, basically the government programs and saying they have to charge these rates to commercial payers. And so commercial payers are paying it.

I think the other thing that's poorly understood is Medicare, it basically owns the financial risk, the Medicare program, so it's going to negotiate hard. Medicare Advantage companies, when I ran one, also own the financial risk we would negotiate hard. Most payers that are working with the large self insured employers, and I want to let your audience know, it's a big part of US Health insurance. It's about one half of all health insurance in the US comes through an employer.

Those carriers and third party administrators working on behalf of large self insured employers, they don't own financial risks, they are just administering a health care benefit. And so when you have Medicare and Medicare Advantage companies pushing hard when they own the whole medical loss ratio, the financial risk in the Medicare space or the Medicaid space, but then in the commercial space, just acting as a third party administrator, it's not surprising that they're going to push harder in Medicare where they own the risk, then in the commercial space where they don't own the risk.

Remember, it's the employer that owns the risk and they're just relying on that TPA to negotiate rates. Right. So there's not the same financial alignment. And I think that makes a huge difference in where we've landed in terms of pricing.

So the core issue here is incentive structure. In Medicare Advantage plans negotiate like owners of risk in commercial self insured markets, many administrators negotiate without downside expense exposure. That's the difference. That difference alone explains the price disparity thank you for tuning in to the vbca podcast and I hope you enjoyed this conversation.

We will continue the dialogue with Dr. Kumar in our next episode. You know, I have a vision and a dream that we can become the basically Airbnb for specialty care across the world with a standardized data set. I know that we can become that global marketplace of vetted providers to support people all over the world, whether they live in the US or elsewhere.