Ep 13. Why Healthcare Markets Fail: MedPAC Chair Michael Chernew on Medicare's Future & Payment Reform

Michael Chernew is a distinguished Harvard economist, Chair of MedPAC, and leading healthcare policy expert with decades of experience in healthcare economics. In this episode, Michael provides a masterclass on why healthcare economics differs fundamentally from other markets, unpacking information asymmetry, moral hazard, and adverse selection in accessible terms. He reveals the surprising truth that Medicare Advantage plans cost the government approximately 20% more than traditional Medicare despite delivering care more efficiently, explains how these plans use this payment gap to finance enhanced benefits, and discusses the future challenges of healthcare payment reform. Michael shares breaking news about MedPAC's upcoming recommendation to partially tie physician payments to inflation after decades of declining purchasing power, explores the complexities of drug price negotiations, and offers insider insights into how Medicare policy decisions affecting billions of healthcare dollars are actually made.

Introduction to Dr. Michael Chernew

We have Dr. Michael Chernew who is a Harvard professor. He's an economist and he's the professor of healthcare policy at Harvard. And he also happens to be the chair of MedPAC which secretly behind the scenes is involved with billions of dollars worth of influence on healthcare spending.

Yeah, it's exciting. We'll have him here primarily wearing the hat of himself, Michael Chernew playing himself. But we'll obviously not be able to resist asking him some questions about MedPAC. So let's get right into it. Michael, you and I have met each other a couple times now. You came and spoke at my hospital system and we've been on calls talking about some alternative payment models. But I'd love to just hear maybe what got you into becoming a healthcare economist and maybe even the chair of MedPAC if you want to tell us that too.

Becoming a Health Economist

Well, I'll start with becoming a healthcare economist because I actually know the answer to that question. I went to graduate school and I was looking to do work in areas where economics was relevant, but there was also big social policy concerns. I wanted actually to do my dissertation work on homelessness but it's hard to get data on the homeless in general. And so an advisor of mine suggested I take a class in the business school with Alain Enthoven who was a very well known health economist and Alan Garber now the president of Harvard, but at the time was not.

And I found the issues in health economics really challenging because there's certainly the economics part of it, but the healthcare markets are much more complex than markets in general. And so it allows you to blend complicated analysis of markets with really important social issues. So that's how I got into health economics.

Appointment as MedPAC Chair

How I ended up becoming MedPAC chair is much more complicated because nobody knows like the GAO appoints you. I was appointed to MedPAC again, I'm not sure how or why. I had studied things like alternative payment models and Medicare spending growth and so that might have had something to do with it. But for whatever reason I got appointed in 2008, I served till 2014, I was vice chair between 2012 and 2014 and then I was off for six years. You get two three-year terms and then I was off and then I was reappointed as chair in 2020 and I'm about to start my sixth year, my last year of my chairmanship.

Gotcha. I'm curious, Michael. You mentioned that interest in health economics, is that a common point of interest among your colleagues? So you look at, okay, we could study this branch of economics where markets work well, there's rare market failures, maybe it's not that exciting, but healthcare is just rife with them. And so you can easily fill up years and years of study trying to sort out why healthcare markets are the way they are.

The Evolution of Health Economics

Healthcare at both the field of economics and health economics has changed a lot from when I was in graduate school, because if people can see me, I'm old. Economics is divided into subfields, as is medicine. And the typical subfields would be things like labor economics, public finance, economics, macroeconomics. And health was actually always a small part of economics. And in fact, typically people interested in health would do it from one of the standard economics fields. So you might come into health from the perspective of a labor economist. Actually, my PhD, I studied industrial organization, which is competition. That was sort of what I did. I did health, but there wasn't a field in health. The field was in industrial organization. And that's back when healthcare spending was less than 10% of GDP. And now that healthcare spending is pushing 20%, 18% of GDP, you've seen health, which was sort of a niche field back in the East, explode. There were certainly some very prominent people. My colleague here at Harvard, Joe Newhouse, was really a giant in the field. My colleague in graduate school, Victor Fuchs, was one of the co-founders of the field.

But the real founders of health economics were there. Ken Arrow wrote a seminal paper in 1963 in Health Economics. But the real growth came as healthcare spending began to grow. The interest in healthcare markets began to grow. And so now you see, I'm in a medical school, but you see really prominent health economists in business schools, in traditional economics departments, certainly in policy schools. When I was at Michigan—Go Blue—I was in the school of public health. So it's really the prominence of health care both as a policy issue and just general for people's well-being has grown. And so you've seen the field of health economics just explode.

Yeah, yeah. Maybe tying that along, you'd written an article in New England Journal a few years back talking about market forces. And with this evolution in how health care spending has grown, can you talk a little bit about why the economics with market forces for health care is different than other disciplines?

Market Forces and Distortions in Healthcare

Yeah, we don't have enough time to go through it completely, but I will do my best. So there's a few things that I think make health care unique. At the core, there's a bunch of information problems. It's very hard to observe the quality when you have a health problem. I mentioned to you when we were getting ready for this, my appendix burst. That's like the only time your appendix bursts. So it's not something you buy on a repeated basis. So it's really hard to know, and you have no idea how to treat a burst appendix. And it's risky. So the first thing is there's information problems. The second thing is there's a risk thing. You don't know at the beginning of the year you need it, but if you need it, it's going to be very expensive. And you certainly want to insure against that risk, which you do for other risks. You buy car insurance, you buy health insurance, but the set of things that can happen to your body is greater and more serious than the set of things that can happen to your house. Not knocking anything about houses, but it's sort of on a different scale.

And when you buy insurance, insurance by its nature distorts the market. So on one hand, when you buy insurance, that means when you get sick care is typically free. So even ignoring the information problem, it's hard to shop because you don't really have an incentive to shop. You don't really know what you need a bunch of things. So shopping is hard. And there's well known studies from the beginning of health economics on what economists call moral hazard, which basically says when you make care free people buy more care, some of it's good care, some of it's bad care, but they buy more care. We can have a long conversation about stories on moral hazard.

The other issue is because it's an insurance market, you need to pool risk. And you do that in car insurance, you do it home insurance. And it is a little bit harder to pool risk in health care because people observe their health status in different ways. The insurance company can observe your house and what it's going to cost to replace. And they know whether you're in a flood zone or a fire zone a little better than they can observe your health. And so most products you buy, if you're buying a computer, the producer of the computer knows what it costs to make the computer. But if you buy health insurance, the health insurance company doesn't know exactly what it's going to cost to insure you because it depends on who buys it. Any of us three buy a computer, the cost of producing the computer is exactly the same. But if the three of us buy health insurance, the cost of the health insurance is very different in ways that are unobservable to the insurance company. And that means there's a tendency for insurance markets to kind of disintegrate as healthy people try and get away to cheaper premiums from where sick people might want to be. And that process is broadly known as adverse selection. And so that combination of information problems, particularly the inability to observe quality, inability to observe risk, combined with moral hazard distortions and adverse selection distortions make health insurance markets particularly complex.

I'm shocked. You summarized all of information asymmetry, price transparency, moral hazard, and I think a minute and a half. Impressive.

That was nice, to be honest. You know, the opposite of let's give credit where credit's due. Let's make sure blame goes where blame should go. You mentioned insurers not having, not understanding what something should be priced at. Or on the provider side, the vast majority of health systems in this country have no idea what their total cost of care is. So really nobody knows. You have both sides of the transaction basically unaware of what it costs to do something.

Right. Some of that's a core information problem. Some of that's sort of a management problem as well, you guys. That's right, but that's a separate issue. But yes, I agree. The original article I mentioned, Ken Arrow's article in 1963, which is a seminal article in the field, focused on information problems. And one of the focuses of his article was the importance of professionalism in medicine. And because you don't know what you're buying, you need to have physicians that are professionals, which, again, is unbelievably important. I know a lot of physicians, I work in a med school. And it is amazing how dedicated physicians are in terms of the hours they work, the care they have for their patients, their willingness to respond with portal messages. These days, there's even more burdens placed on physicians, but you need that level of professionalism because it's impossible to figure out how to compensate for all of that. Well, and again, we can have a longer conversation about that, but it's very hard to sort that out in ways that are different from a lot of other commodities or services that people buy.

I know we weren't probably going to get into this initially, but since you brought up moral hazard, I was curious on your thoughts about why do you think copays and high deductible healthcare plans did not help curb some of that moral hazard. And healthcare spending just has continued to grow.

Technology as a Driver of Healthcare Costs

Well, first of all, they did. There's forces that are driving up spending. New technology, new services, new drugs. When you charge people more, it is certainly true that they use less of that stuff. So it certainly does help slow spending, but it doesn't help slow spending as much as one would need to to offset the fact that technology has changed. So if you look at why healthcare spending now is more than healthcare spending was in pick your year 1980, it's not simply that we have the same technology and we're just using it more and more and more. And it's not that we're sicker, although we probably are sick. So we can have a conversation about obesity and a bunch of other behaviors. We actually smoke less. But anyway, those things all matter.

But the lion's share for why we spend more is because we can just do way more for people. If you look across the board, it is, sometimes you forget how remarkable modern medicine is and all the people that contributed to those advances where they can take things out laparoscopically, the chemotherapies, which I think you guys would know much better than I, are just remarkable. If you have a cancer diagnosis now in 2025, your outlook compared to what cancer diagnosis might have look like in 1980 is just remarkably different. And you can go disease by disease, putting in stents just across the board, seeing things that we take now as essential for medicine, things we take for granted that our parents or certainly our grandparents didn't have access to.

And that's wonderful. And I think most people would rather pay what we're paying now and getting the care we get now as opposed to paying what we paid then and getting the care you got then. The real question is, can we pay less now and still get the same level of quality? And that's harder.

Healthcare Market Consolidation

Especially as we have a broader, an entire healthcare system that has migrated towards extensive, you could almost call it end stage, maybe consolidation. I mean, maybe on the payer side close to the end game. Provider side is consolidated too, especially in certain markets, maybe a little less consolidated than the insurance side. But there's no way you're going to drive costs out of the system in a heavily consolidated market like healthcare is today. And as an aside, they've also consolidated with each other.

Sure, yeah, that's right. That's exactly right. It's also the case, again I'm happy to talk more about this, is provider markets are very local. You're not going to go that far from where you live to get care. For most things there may be some big ticket things. You can need a transplant, maybe you'll travel. But for most things, your primary care doctor or your basic set of services, they're going to kind of be close to where you live or where you work. Insurance markets tend to be much more national, particularly for large firms. So like when United is competing with CVS, they'll be competing broadly with each other. But your core point that we've had a lot of consolidation and consolidation distorts prices is in fact true. And it's true in complicated ways. And of course I mentioned I studied industrial organization. That's kind of the perspective I came at this whole field from. We certainly spend a lot of time now worrying about that type of consolidation and how it plays out and how to promote competition. I should note in most other countries they don't even have this orientation. I was just over in the UK, they don't think about competition in nearly the same way. There's some competition they worry about, but they're going to have a much more regulated model and market because of that. But we spend a lot of our time trying to get markets to work.

Understanding MedPAC's Role and Structure

Yes, we certainly do. Amar, what do you think? And Michael, we've gotten a great, I think, introduction to a number of topics, but perhaps it'd be a good time now to start to weave in some interest in MedPAC itself. And perhaps a good place to start there, Michael, would be, can you tell us, can you tell our listeners what is MedPAC really?

Yeah, I've been trying to explain this to my father, by the way, for at least five years. He seems uninterested. So I apologize to your listener, but MedPAC is an independent agency, federal agency that supports Congress and provides advice on Medicare payment. So MedPAC stands for the Medicare Payment Advisory Commission. And we do a lot of things. I'll tell you what they are in a minute, but there's 17 commissioners, including myself. We're appointed by the General Accounting Office or the Comptroller General. And we're typically chosen for expertise. So there's physicians, there's executives from hospitals, there's executives from health plans, there's people that are loosely described as consumer advocates. Right now we have someone who works for SHIP, which is a group that helps advise Medicare beneficiaries on choosing plans and stuff like that. And then there's academics and other policy people that are on the commission.

We meet eight times a year, seven in public. So basically we meet September through April, we take February off. The meetings are public, you can see them webcast. And we work towards two reports. In March we have a report that makes recommendations to Congress about updating the physician fee schedules, which is again I can explain what the physician fee schedules are, but Medicare runs, the traditional part of Medicare runs off a series of fee schedules like hospital payments, physician payments, et cetera, nursing home payments. And those fee schedules need to be updated, not service by service. Most of them have a general update number, it goes up by 2% and then the individual services get valued separately. And so we make recommendations about those updates. And that comes out in March along with some status chapters.

And then in June we have a report, it'll come out in a few weeks, roughly June 15, give or take, where we talk about particular topics that extend beyond the update chapter. So for example, we have a recommendation about the physician fee schedule long term reform. We've had chapters on alternative payment models you've mentioned are in interest, things of that nature that comes out in June. In addition to those reports we make comments on proposed regulations. So CMS releases a bunch of proposed regulations for physician payment, hospital payment, Medicare Advantage payment. And so MedPAC writes comment letters just telling CMS what we think of whatever they're proposing.

And then the third thing we do is we give technical advice to Congress so someone from Congress can call up and say hey, we're thinking of changing how rural hospitals are paid. Can you look into this particular data issue? We spend a lot of time meeting with stakeholders so we try and make sure that the process is very transparent. And again I think the key thing to notice is we're nonpartisan and we're advisory, so we don't control anything. But you could look at a few things over time where, you know, our recommendations are seldom accepted, like literally. And often our recommendations are vague. But often the spirit of our recommendations find their ways into policy for a whole bunch of things. Rural emergency hospitals come to mind. So that's what MedPAC does.

The Impact of MedPAC Recommendations

No, that's, I mean, and that's... You brought me right to my next question which was what happens when your recommendation, after you make your recommendation, how often are they accepted? Since you're saying they're usually accepted but just in some kind of like more broad sense, can you talk a little bit more about that? Maybe can you give some examples, or rural?

The rural emergency hospital one is probably the easiest one that comes to mind, where we made a recommendation that... So the concern was access to care in rural areas, which is a big concern of MedPAC. And the payment models weren't well suited for small organizations. And so they made a recommendation that there should be a new class of provider card or rural emergency hospital where if they're sort of small enough, they classify. They could, for example, have just a standalone emergency department. And so they would then get paid under a different payment mechanism. So that would be one example, there's a few others. We'll see what happens. Some of these are very detailed policy issues.

Site Neutral Payment Policy

But to give you an example, there's an issue you may be familiar with called site neutral payment. And so what happens is if you need a service delivered and you get that service delivered in a physician office, there's a fee schedule for what that service would be paid. And if you get the same service delivered in a hospital outpatient department, there's actually two fee schedules that are used. One is used to pay for the physician labor portion of that and a little bit of practice expense for the physician. So that's the physician fee schedule, but there's a separate fee schedule called the outpatient fee schedule, which is used to pay the actual hospital. And if you add up the amount that is paid to the hospital and to the physician for hospital outpatient department delivered services, you get a number that is often considerably bigger than what will be paid if the same service was delivered in a physician office.

Michael, if I could just mention, just this podcast, episode eight of this podcast, we took a deep dive into site neutrality. So I just wanted to point that out for our listeners.

Thank you, Michael. So every, all your listeners should go back and listen to episode eight and then that will solve this. I'm not going to go into deep dive. The point is, MedPAC for a long time recommended that they address the site neutral problem. And they haven't completely, but they have a little bit. So, you know, they've made some site neutral changes. Some of it's grandfathered. There's still a recommendation to sort of do more in that space. So that's another example.

For a long time, physicians were paid in a system called the sustainable growth rate system. I'm not sure you needed MedPAC to say this, but we recommended getting rid of the sustainable growth rate model, which eventually they did. So there's a range of things like that where you can think through. Oh, Part D. If my MedPAC colleagues listen to this, I'm going to get in trouble for not mentioning this. We made recommendations about the redesign of the Part D program. Part D is the drug program in Medicare and they did redesign the Part D program recently and again, not exactly the way MedPAC sort of laid it out, but very much along the spirit of the way MedPAC laid it out. So for example, putting in an out of pocket maximum, changing some of the details of what the benefit package looks like in Part D. So that's another area where the MedPAC recommendations made it into policy. Although again, I think there's a lot of people saying these things. So MedPAC does a lot of these things. We're not the only voice saying things.

MedPAC's Congressional Role and Testimony

And you know, are your... because you said you're nonpartisan. But who are you advocating on behalf of?

We in some sense advocate on behalf of Congress. But what that really means is our mission is to make recommendations to ensure that Medicare beneficiaries have access to high quality care while maintaining sort of good fiscal stewardship of Medicare resources. So we often will look in areas where there's weaknesses in the payment system and make recommendations to sort of deal with those weaknesses.

I want to mention two things there. One, you know, the out of pocket maximum that you and of course other bodies as well advocated for the Part D program is a huge deal in the oncology space which as you know, Amar and I work in. There's not a month in my experience where I don't have a conversation about that many times with patients and how happy they are about it. And then you mentioned Congress so I wanted to bring up, and I don't know the answer to this so I'll ask it, but then make a comment as well, is what is the frequency with which you as MedPAC chair or a group of you from MedPAC have to testify in front of Congress? It happens on a yearly basis or more often than that, less often than that?

So I think I've been MedPAC chair for five years now. The first two were Covid. So that's a little complicated, I guess. I think I testified once virtually and then once in person over those five years. I go every year. So we have committees of jurisdiction without going through Ways and Means, Energy and Commerce in the House, Senate Finance in the Senate. And so we will meet with both the Republican and the Democratic staff of those committees as chair. The only two people that can speak on behalf of MedPAC are me and the Executive Director Paul Masi. So you can't just have a MedPAC commissioner go testify, although other MedPAC commissioners could testify. I should have said that the MedPAC roles are part time roles. So we're special government employees. So you're not, you know, if you work for CMS or somewhere, you would be a full time government employee. But we're advisory. The staff has considerable, much, much, much more regular contact with people on the Hill in terms of giving them technical advice. When there's a big issue coming up like site neutral or when they were looking to do Build Back Better if you remember that, different people on the Hill will ask people in MedPAC to help them scope out different policy issues because MedPAC, its strength is the staff and the analysts. So MedPAC's very strong in terms of reporting data. And so there's a lot of staff connection to the Hill and frankly a lot of staff connection to the staff at CMS sometimes.

Hospital Profitability and Medicare Margins

The thing I wanted to mention about a time MedPAC reported to Congress and perhaps it was actually in the testimony I believe it was that has generated so much interest over the years and maybe you know what I'm going to say, but there was one point where you all reported on a small percentage of US Hospitals or let's call it US Hospital systems that break even on Medicare. This was in one of your reports in some year, perhaps it was right before COVID. I've heard this quoted and misquoted and talked about so many times. Can you talk about this?

Well, this is an increasingly complicated topic. I will talk about it. So the data that MedPAC uses for its update recommendations, and there's a set of update criteria I'm happy to discuss, but one of them involves looking at the profitability in each sector. Physicians are hard because profitability in the physician sector is harder to measure. But in like the hospital sector facilities in general, like nursing homes, they typically have cost reports. Now the cost reports are complicated because the organizations themselves are complicated. We have an algorithm for trying to identify efficient hospitals which isn't the same as cheap hospitals because there's a quality metric and quality is hard to measure. So we could acknowledge that what we say is efficient isn't sort of some gold standard of efficiency, but we have a measure of figuring out what are hospitals that are efficient, which is basically low cost, high quality hospitals.

And according to a bunch of MedPAC criteria, over time the profitability of hospitals have dropped dramatically. So the average margin for hospitals now is in the negative, you know, double single, you know, like negative low teens, 12%, 13%, 11%, kind of for the average hospital. And then what we would call efficient hospitals, which again isn't necessarily the low cost ones. Their margins are actually also negative. There are some hospitals that don't make our efficient criteria but do actually have positive margins because the quality metrics or some of the other criteria don't play out. But it is. The Medicare payment rate to hospitals has become much more challenging for hospitals and our hospital recommendations. So I was on, I told you six years between 2008 and 14 recommendations were current law or less than current law, some version of that. And even when I started this term, our recommendations tend to be close to current law. Our recommendations for hospitals now involve a combination of a little bit more than current law, so a little bit above current law, and then some added payments to support what we call safety net hospitals and there's an algorithm for what that means. We call them Medicare safety net hospitals. But I think the challenge has been, and I think you may be pointing out, Anthony, that it has been very, very hard for hospitals to make money on Medicare. Now some of that is because their expenses are high and some of the reason their expenses are high is because commercial rates are high and they do a bunch of things. So we could have a longer conversation about the sort of responsiveness of cost to payment because if you lower payment, costs go down. But my general view is if you take all of that into account, and MedPAC's done some work, I've done some other work on this point where what ends up happening is hospitals that have really bad case mix, and by that I mean a lot of Medicare/Medicaid patients, they're much more likely to merge, they're much more likely to close, they're much less likely to invest in capital. So a lot of what hospital executives do now is they try and figure out how to invest in capital. A lot of medical specialties now require a lot of expensive capital. And so it is challenging, it is more challenging now to run a hospital in many ways than it might have been in say even the 90s.

Challenges in Pricing Technology and Services

Yes. Tying on your topic about capital costs, and you said technology you think is one of the main drivers for the rising Medicare costs. I'm a radiation oncologist. Anthony's a radiation oncologist. We have some of the highest capital costs and for our new tech. And one of the interesting things is when we try to get stuff valued, let's say proton therapy, which is massively expensive for those machines and for those vaults. And when we go through the CPT RUC process and those valuations go to CMS, inevitably what happens is they end up choosing to carrier price it because they say keeping it in the Medicare physician fee schedule will blow up budget neutrality and they won't be able to, it'll just ruin the whole relativity. And so if as a society we're going to continue to invest in some of this new technology that's, some of it proven to improve outcomes, how can we possibly do that in this kind of a framework with budget neutrality?

Yeah, so I'm going to give you my view. It's not a universal view. We operate our health care system with a series of fragmented fee schedules. And you've pointed out some of the particular challenges between the way we pay for work and the way we pay for expense and how that differs based on whether you're a hospital outpatient or not a hospital outpatient. And frankly, there's a different fee schedule for ambulatory surgery centers. One of the things that technology has done is it enabled services to move out of the hospital. That by and large is a good thing, but you still have to support the overall infrastructure of the hospital. Just because you can pull things out of the hospital doesn't mean you can get rid of the hospital. All of these fee schedules have, as you mentioned, basically a base rate, we'll call it the conversion factor. And then any given service is typically paid by a relative weight. So a certain service could be a 1.3 or a 2.5 or whatever it happens to be in that fee schedule. Getting that right is very challenging. In fact, our recommendation, this will come out in June, we've already voted on it, is the data that they're using is outdated. The way they allocate indirect practice expense is very challenging. There's a bunch of rules about how do you allocate the machine cost, which is sort of a fixed cost. There's a lot of challenges. One of the first issues I dealt with on MedPAC my first time around was how do you set a price for a service? Let's take a PET scanner or proton beam, whatever you want to take. This very capital intensive and in the center of Manhattan or for that matter, DC, it's getting used all the time. So it's easy to cover the average cost, but you want people in rural areas to have access to the same technology. But it's going to be used much less frequently. So how do you then cover the fixed cost? And there's a bunch of things that hold it together.

My general view, and this is really maybe the takeaway. It's like we're half an hour in and I finally get to the key takeaway. I personally believe that it is going to be increasingly challenging to manage our health care system through this set of fees. And it is certainly the case that there's a number of improvements we can make to the fee schedule. I mentioned site neutrality, some of the relative fee things. I think you mentioned the RUC. Luckily your listeners are sophisticated enough to know what the RUC is. But that's a set of AMA committees that help CMS set the relative prices for physician fees.

Episode 11 for everybody.

12. This is 13 your episode. I'm sorry.

Yes, yes, it's my fault. Numbers wrong.

I think you guys are doing a podcast. What you're really doing is you're slowly putting together a stealth course in health policy and health economics and eventually you'll just weave together all of your episodes to get to a syllabus. But in any case, you figured us out.

Alternative Payment Models vs. Fee-for-Service

Michael, there's been a lot of interest in what we call alternative payment models where you pay for a broader bundle of services. And my general belief is if we're going to succeed, particularly in Medicare, we need to be more efficient in how we deliver care. So let me make a digression which is true to brand. It is true that American health care is expensive because the prices are high in America. There's a very famous academic paper, "It's the Prices, Stupid." In Medicare, that is these two prices are high in Medicare, say, relative to other countries, but they're low relative to spending and they're relative to cost, and they're certainly low relative to commercial. And the problem in Medicare is not the prices, it's the efficiency of the way we deliver care. And there's a bunch of other admin cost things that all fit into that we can talk about admin costs that I think are also quite important. It's the volume and it's the growth in volume and it's the incentives that people have to efficiently use volume. And it's not simply substituting, say, X-ray when you could do a CT scan or not doing a CT scan when you don't need to do a CT scan or whatever that type of substitution is. It's also the site of care. If you can move something to a cheaper setting, then you can save a lot of money. You see a ton of that going on in post acute now, for example.

In the fee for service system, I believe it's incredibly hard to get the prices right. In part for some of these services that are very high tech. There's an average cost that includes a fixed cost and a marginal cost. If you pay the average cost, which you might want to pay, that means it's profitable at the margin. So there's an incentive to do a lot more. It's hard to get that right. It's also hard if we're going to become efficient, I think we're going to have to rely more on certain types of technologies, large language models. There's a bunch of other asynchronous communications, portal messaging that I don't know how much that happens in your field. But in primary care, the doctors are answering messages from patients, odd hours of the night, remote patient monitoring services where there's not a clear start and stop of the service. And I think it's going to be really hard to get those services to work in the fee for service system. So the idea is to change the bundle of service to something that could be broader. It could be an episode, episode of radiation therapy. There was a model to do that. It could be an episode of cancer care, which means substituting between radiation and chemo or surgery, whatever it is. Those choices that you make there are complex.

Or it could be a broader, what I would call total cost of care model, where you're basically assigning to some entity a cost for a person and that entity gets to share in the savings if they can find more efficient ways to deliver care. And the core challenge is to make sure that they find efficiencies without sacrificing quality, which is a separate issue. But the key point is that fee for service can work and we can make fee for service better. But most places where fee for service work, they have wraparound structures to try and manage some of the pathologies of fee for service payment. And in the US alternative payment models do that. So do managed Medicare Advantage plans. Those are health plans that serve Medicare, where the health plan can do things. And all of those approaches to dealing with those dysfunctions have drawbacks. So people hate prior auth, for example.

Yeah, well, I know that you talked about a lot of things there in that last answer that I think hit on a lot of things. You've written a lot about, know a lot about whether it's low value care and the persistence of it, which I think we know that persists because of the fee for service system being the chassis of how we provide care in most settings in this country. Then you mentioned the radiation oncology case rate model, which the way it was designed originally failed, but now it's been introduced actually as a bill, actually not from CMMI, but it's currently a bill under review in Congress. And the final thing I wanted to mention, and we can come back to any of these that interest you, is Medicare Advantage, because I know you've written a lot about Medicare Advantage, talked a lot about it over the years. Years ago, perhaps around about the time that you wrote the article that Amar referred to, which is 2020, we were in a situation where Medicare Advantage was about 5 to 10% cheaper in comparison to traditional Medicare on a per beneficiary basis. Have we crossed that point that actually Medicare Advantage is more expensive than traditional on a per beneficiary basis at this point? Because this is the story that's being told more and more and I don't feel like I understand it.

Well, this is a topic I really want to talk about, but before I do, I want to say one thing about efficiency. One of the most influential set of studies ever in healthcare—like if you had to say, give me the most influential studies—one of them was done at Dartmouth, which I can see your degree in the background, Anthony. Oh, yes. It could be your wife's, it could be your kids, I don't know. My kid, how old do I look now? They're mine. There's two of them back there, actually. There you go. In any case, there was some seminal work by someone named Jack Wennberg and then there's a bunch of other people that have followed on, talking about geographic variation. So if you go across the country and look at basically very same similar patients, they get treated very differently. I mentioned to you that my appendix burst and I know how my appendix treated. It turns out that the way it gets treated in Boston is different, the way it gets treated in New York for a bunch. You know, there's a lot of this variation in practice pattern. Some of that fee for service contributes to. Some of it is just doctors practice differently, by the way, economists practice differently, bakers practice differently, people practice differently. We haven't been able, Jack Wennberg hasn't been able to find strong correlation between the places that use more care and better outcomes. So I think it's important for listeners to understand that more care is not always better care.

Physician Payment Updates and Inflation

And so back to Medicare Advantage and actually before you go jump to Medicare Advantage, Anthony, if you don't mind, I want to inject one question because it's on this topic. Then we move to Medicare Advantage. So you had talked about alternative payment models, issues with pricing. I know recently the AMA has tried to reprice with a new PPIS survey for pricing of indirect costs. They did, which has a lot of inaccuracies, a lot of poor survey respondents and everything like that. So I did want to talk to you a little bit about what were your thoughts around what is an accurate way to price costs whether they be indirect or direct expenses. And also going forward with alternative payment models, like one of the issues with the current payment system was we don't tie physician payments to the Medicare Economic Index. A lot of alternative payment models are looking to tie it to that, to tie it to inflation. What are your thoughts around both those?

Yeah, so this is going to, I do want to get to Medicare Advantage, but this will be a hopefully understandable if not concise answer. So first let me say accurate is not the way economics works. Economics works through supply and demand and the way you decide what the price would be is if there's not enough of something relative to demand, the price goes up. If there's too much of something relative to demand, the price goes down. That doesn't work well in healthcare because of all distortions to supply and demand. But you could imagine a way of pricing where you find services you think are in short supply, say primary care, behavioral health, and you would pay more for those services. And then you find services, well, I don't think right now there's a lot of services that are oversupply, but maybe and then you might change the prices for those set of things.

But the paradigm that we have, which is not a straight economics paradigm, is you price based on cost. And the challenge there has been, as you pointed out, maybe I said it before, is there's a difference between average cost and marginal cost. What I would say as MedPAC chair is we would try and pay average cost for an efficient provider to provide high quality care. That's what we would aspire to do. But it's hard to know exactly what that is and you end up getting swayed by access. So if people have access, then, for example, now in the debate, you say, well, we should pay more to physicians, we should pay more for hospitals. The response you're going to get is, why? What are we going to get if we pay more? Right? What are we buying for that extra money? Because, you know, right now we're dealing with a lot of complicated fiscal issues in this country.

And so in the case of physician fees, Amar, which you asked about explicitly, is the physician fee schedules has a long and tortured history where we started by paying usual customary charges. And that was clearly had incentives for inflation. So in order to deal with that, they put in place a system for a number of years. It was called the volume performance standards. And that morphed a little bit over time where they basically had a set of formulas where if volume went up, price would go down so that the total spending would be kind of held the same. And that failed because the formulas both had this ratchet effect where it kept getting worse and worse and worse. And it also failed because it was collective. So they were looking at overall volume and overall prices, but any one physician still had an incentive to do more stuff. So they got rid of that system and put in place something called the sustainable growth rate system, which was many things, but not sustainable.

And the sustainable growth rate system got rid of some of the dysfunction of the formulas and the volume performance standards, but kept the collective nature of payment. And so what happened was volume went up faster than projected. They were supposed to cut price, but they didn't want to cut price. So they delayed the cuts. And eventually they were calling for a 20% cut that wasn't going to work. So they replaced that with a system that is now commonly called MACRA or MIPS. And the key point there is MACRA or MIPS got rid of the called for 20% cut, but it set physician fees in particular rising essentially flat for a long period of time, less than sub 1% inflation in physician fees. And it layered on top of that this performance bonus of MIPS. But it was budget neutral, so you only got paid more if someone else got paid less. And when inflation was roughly 2%, we went through a period of low inflation. You were slowly eating away at the purchasing power of physicians, and there was some pressure. And then when inflation really spiked, you were more rapidly eating away at the purchasing power physicians. Over the past roughly two decades, two decades plus, inflation adjusted physician fees have fallen again, ballpark, 30%, 25, 30%, some number like that, which is frustrating for physicians. Now, to be clear, volume has gone up, physicians have consolidated. So their incomes have been somewhat rising because they're making more money on commercial. There's been coding things that go on. They, if you look at the mix of services that are coded, it is complex as opposed to not complex, you see more of those type of services. But nevertheless it is a concern to have physician fees falling on a forever basis relative to inflation.

And so you mentioned in your question the MEI, that stands for the Medicare Economic Index, that's basically the measure of inflation that we use. And over the past 20 years, 15 years, fees have risen at about 1 percentage point less than that. And over that time, access has remained stable. Part of that I think is the professionalism of physicians. Part of that's because physicians are making more money, say on commercial, so they still are going to serve their Medicare patients. But I think the commission believes that that is not really a long run sustainable physician fee schedule trajectory. So we made a recommendation, it'll get published in June. We voted on it a few weeks ago in April where we recommended that they put in place in the physician fee schedule update a factor that reflects part of inflation. And the reason we didn't go for all of inflation is because it doesn't seem like you need all of inflation to keep access. But we were trying to basically say flat doesn't seem like it's going to work. So just to get some more stability going forward and to avoid some of the fights that we've had around the physician fee schedule, and you may be familiar with the fights that are going on now with the fee schedule, some inflation adjustment built in would matter. And I'm going to move to Medicare Advantage in a minute. But there's an alternative way of dealing with this, alternative payment models which enable physicians to capture the efficiency savings or the delivery system to capture the efficiency savings that are generated in ways that the fee for service system doesn't. And my general view of alternative payment models in a nutshell is when money gets tight—and money will get tight—physicians or providers in general should want to control the money. So we'll see how that plays out. But that's my pitch for alternative payment models.

I like it, I like your pitch. And breaking news also on our podcast. Having it tied to inflation. A lot of physicians...

Well that just to be clear that that's only breaking news for the people who didn't watch the vote on our April MedPAC. That's like nobody. We get about 300, 400 people that watch. So for the other people, it's breaking news.

The Economics of Medicare Advantage

But anyhow, Anthony, do you want to repeat the Medicare Advantage question just for our listeners?

Sure, we can do that. And as we do that, I just wanted to say this episode has turned into a greatest hits review of Value Health Voices because that last commentary was related and covered deeply in episode five of this podcast. But the question I asked about Medicare Advantage is that we've seen so much growth in it as a share of how seniors are covered. And there was a time where on a per beneficiary basis there was a strong savings compared to the traditional program. And just within the past year or two, we've heard, well, actually if we factor it all in and the total cost of Medicare Advantage, it actually might be costing us more than the traditional program. Can you ground us in what's actually going on?

Sure. So there's first for folks, Medicare Advantage is the portion of the Medicare program that is managed by private plans. So you would enroll in a plan run by United or Humana or your local blues plan and they would provide you coverage for medical, hospital, physician services and in many cases drugs would be wrapped into what you were buying. And first, just a little bit on the semantics when you talk about the cost. One way to think about it is the cost of the healthcare services that are delivered. And Medicare Advantage plans can deliver services for less than is happening in Medicare. They, in that sense, they're more efficient. You could debate how much. I'm going to throw out a number. 10%, you could convince me it's 5%, you could convince me it's 15%. They do that in a number of ways. They do it through prior authorization type programs, they do it through network design, they do it through beneficiary engagement in a bunch of different ways, trying to steer you to cheaper places than outpatient, not inpatient services or standalone ASCs as opposed to hospitals that are cheaper.

So they deliver the care for less. And in that sense, Anthony, you're right, Medicare Advantage is less expensive. However, Medicare Advantage is also paid more. And in fact, it's never been the case that if you look at the money that we give Medicare Advantage plans that they ever cost the government less. They delivered care for less, but they got paid more than fee for service and they've always been paid more than fee for service. And what happens is they take that gap. A portion of that gap is used to support benefits. So lower cost sharing, lower premium, and now you can get vision, dental, hearing, transportation services. And a bunch of things like that happened very recently is the magnitude of the gap between what Medicare pays Medicare Advantage plans and what the beneficiaries would have spent had they been in fee for service has grown tremendously. So MedPAC estimates now it's roughly 20%. So just to be clear, if you look right now, the plans are probably delivering care, and we could debate the numbers—5, 10% cheaper, maybe more, 15% cheaper. There's different plans, so there's heterogeneity. Not every MA plan is the same, but let's just pick a round number. 10% cheaper, but they're getting paid 20% more. And that gap is being used to finance much better benefits for Medicare beneficiaries.

And so the concern has been that as Medicare Advantage grows, and now it's over half of eligible beneficiaries. And until through 2024 it was rising, 2025 has been rising flat. So we'll see how it plays out. But we now Medicare Advantage was designed essentially to be a small part of a basically fee for service Medicare program. And now it turns out it's the majority of the program. And in some markets, Puerto Rico, it's over 90%. But in some markets, you're still pushing 70, 80% of people are in Medicare Advantage plans. And those plans, they control the network. They put your care through prior auth, all of which help them save money. But you can imagine if you're a patient, the frustration you feel with prior auth, if you're a physician, the frustration you feel with prior auth, the administrative burden associated with a whole bunch of things that they do, the complexity of figuring out who's in your network, all of those things come along with this Medicare Advantage plans. As it's grown, it has become ground zero for Medicare reform. Certainly, if you want to save money in Medicare, it is going to be hard to save money in Medicare by lowering physician fees, in part because physician fees are been rising so slowly. It's going to be hard to save money in Medicare by lowering hospital fees because as I mentioned, most hospital Medicare margins now on average are negative, I don't know, 11%, 12%, it changes, but it's in that range. Even the efficient ones have, by our efficient criteria have relatively less but still negative margins, negative 2%, for example, for an efficient hospital by MedPAC's definition.

And so the opportunities for savings are going to be in Medicare Advantage. But the challenge there is if you cut Medicare Advantage payments, some of those added benefits will go away. And so the key question is how much? Last factual point. For a long time, basically through 2016, 17, 15, in that ballpark, Medicare Advantage plans were giving beneficiaries ballpark $80, $90 a month worth of added benefits. Now, depending on which type of Medicare Advantage plan you're in, you're pushing $188 for conventional plans. If you're in what's called a special needs plan, you're up to $211 a month in extra benefits. There's again variation across plans, but the added benefits that Medicare Advantage plans have been able to offer has skyrocketed since the period a few years before COVID. So again, to be clear, the Medicare Advantage program is costing the Medicare program more. You're getting more benefits, but it's costing it from a pure dollar amount. It's costing the Medicare even though it is still delivering care probably more efficiently. And that extra, the efficiency plus the payment contributes to a bunch of added benefits.

Thank you for summarizing that because it is not always easy to keep track of what people are saying when they're saying, oh, the program is more expensive. No, it's less expensive. But yes, from the government's perspective, they're clearly paying more than on a per beneficiary basis than a traditional program.

And they wouldn't in fee for service. And they're getting more because in fee for service, you have to buy your own Medicare supplemental plan. If you want that kind of coverage, you have to do a bunch of things. Medicare Advantage gives you a lot of, not all, but a lot of that benefit for substantially, substantially less.

Geographic Variation in Medicare Advantage

Yes. And you know, you mentioned about Puerto Rico being the 90% Medicare Advantage. I would love to know and maybe you know this, Michael, what is the geography in the United States where Medicare Advantage penetration is at the lowest? I have a guess, but I don't know to be true. I think Maryland is up there where I practice. We are one of the lowest.

That's right. Maryland has Maryland is very different for a bunch of other reasons. So I can't answer your question, so I'm glad Mark can. But yes, Maryland is low. There's some other places that are typically high. Minneapolis, I think Pittsburgh's quite high. I'm from Pittsburgh and I just haven't, you know, I should probably know that.

I'm going to throw out a guess and it's informed by a hospital system's behavior. And the guess I'm going to throw out is San Diego County. And the reason I throw that out is because the Scripps Health said in one stroke of a pen, all Medicare Advantage, we're done. We're not taking it, we're good. So they fired all the, they stopped taking all the plans. And so my supposition is that their penetration in that market must be low to make that not a particularly courageous action. But I could be wrong.

Yeah. You know what? After this podcast, you know what you'll have? Episode I don't know, we're episode 13 now we're starting lucky 13, episode 15 or whatever, episode 14. We'll get into that exact issue.

Future Outlook and System Simplification

Well, I know we're coming up on the hour, so I did want to ask you what are your thoughts, Michael? Where do you see happening in 2026? What do you think is going to happen? What's the drivers?

So I'm not going to predict what's going to happen because I have no idea what Congress is going to do and the trade offs they will make and how they will deal with some of the fiscal and other issues in the Medicare program. I will say that I don't think in the sort of short term and maybe even intermediate term, three to five years, we're going to see another round of really dramatic healthcare reform type changes. I think what we need to think about how to do is two things. One is we need to simplify the system because there's just a lot of frustration with the American health care system. It is so complicated, so administratively burdensome. When you hear some of the things that go on, we haven't talked a lot about drugs, but when you hear a lot of things that are going on in the distribution of prescription drug markets and other things, the choices people have to make in the Medicare Advantage program, the stability of the networks, prior stuff. It's just really, really hard for people. And I think there's a tension between whether we make these things better with technology. We have new large language models. There's a lot of hope for technology to come in and sort of be the white knight to help us solve these problems, not just the medical technology, but just to make things simpler versus the extent to which we put different regulatory reforms in place, standardized benefits, for example, or other things. So I think we need to simplify things.

Drug Price Negotiation and Innovation

Let me ask you a little more specific question then. What do you think is the likelihood of being able to negotiate on drug pricing going forward?

Well, I'm sure they're going to be able to negotiate on drug pricing because they can already negotiate on price. The interesting thing is we will see what this administration does in terms of negotiation. I don't have a particular sense of what they will do there. Obviously, when the Part D program reform was put in place and the IRA is really what this was, the Inflation Reduction Act, which gave the authority to negotiate on prices, there was a lot of belief that the government could negotiate. There's some guardrails around what to negotiate. We can debate how strong those guardrails are. But there is a tension in the drug space between negotiating on the prices and supporting innovation. There's tension between the fact that we pay different for drugs than they pay in other countries. So there's sort of an international equity kind of concern. And if your question is, what's the likelihood we'll be able to negotiate on price? I'm 100% sure we'll be able to negotiate on price. If your question is, how strict do I think they will be on the price negotiation? And that is a really complicated question. I just simply don't have the answer.

Yeah, I guess I was thinking more like you said, along the lines of comparing us to other countries if we can, because I know the administration has commented on that many times, trying to negotiate prices similar to what some of the others.

Or simply. I mean, negotiations are a complicated word. Right. They could pass a law that says you have to give us the same price as they get in Canada or the UK or wherever it is now. Of course, it's not clear that our prices would go down, their prices would go up, and maybe we meet in the middle. So there's a question of how it plays out. But you hear that all the time. The concern, which I think is a legitimate concern, is, and I think that you know this being in the cancer field, the advances we've made in cancer treatment are just remarkable. And I could have a podcast, I could bring you on and ask you about the cancer advances. But it's really remarkable for people that have had a whole range of different cancers and that innovation has been spawned by the fact that drugs are very profitable. And so the question is, can we induce the same amount of innovation for less money? The one thing that's clear is there's a relationship between profitability and innovation. There's a lot of, you know, I'm here in Boston and Cambridge, we do a lot of things. There is a relationship between the capital that is devoted to the pharmaceutical stuff and other research. Like at Harvard Med School, we do a lot of work in cancer. And there's a lot of people, not me, real scientists study ways to treat cancer. There's a lot of labs that make advances all the time. And I think sometimes we don't fully appreciate how hard and how complex that innovation is.

And so certainly in the area of cancer has been a lot of the other things, liquid biopsy type stuff, things that I think you guys will know much better than me, but also neurological things like Alzheimer's drugs, what we're going to do with the GLP-1s, all these things. It's remarkable the advances we've made. And it's unfortunate that innovation does respond to financial incentives, but that doesn't mean that the innovators get a blank check. They can charge whatever they want. So it's this balance. And of course, a lot of what you're talking about is how we interact with other countries for who's going to pay. What's really happening is the US is financing a lot of global innovation and I think we'd rather have that innovation versus not. But the incentives about how you deal with that internationally is very hard. I suspect as cost pressures rise, there'll be more effort to manage drug prices and drug distribution. There's also a lot of inefficiencies in the drug distribution process that we haven't gotten into. The way that rebates work, there's good economic reasons why you have rebates, but I think there's a lot of frustration and other sort of pathologies that arise because of that system.

The 340B Program and System Fragmentation

I was going to say it would be amazing to have you back to dive into 340B, but then, I mean, it's possible someone might disappear us after. And that's so sensitive to health systems. Bottom line, we don't even know if it's going to be present.

We're doing some work on 340B. I will say one thing and you guys can edit me out at the end, but I will say one thing about this. 340B exemplifies a lot of what happens in the American healthcare system. For those people that aren't familiar, 340B is a system by which organizations can purchase drugs at a low price and get reimbursed at a higher price, essentially. And in order to qualify for that program, you have to meet some criteria for serving low income individuals, sort of in a nutshell. It's essentially a way of forcing the drug companies to sell at a low price and then the providers get reimbursed at a high price and that gap can help support them. And it's sort of an off the books way of supporting providers that are serving low income populations. It's a tax on the manufacturers and it is expanded in a whole bunch of ways, much of which I would argue been unintended. There's now a bunch of community contract pharmacies that work in a bunch of ways because obviously you would want to qualify for this. It's not clear it's a particularly well targeted thing. And so the key thing is the American health care system struggles, MedPAC struggles with how to target support for entities that really need the support without overpaying entities that don't. The basic issue of targeting, and as we move forward and as we're worried about payment—and if you look at the MedPAC hospital recommendation or the MedPAC physician recommendation, we have payment updates recommended. I mentioned above current law, above basically the flat physician fee, but in addition to that there's add ons. So for example, if you look at what we've said for physicians, we're very worried about the primary care workforce. And so our recommendation is not just to pay a little bit higher than we are now both in 2026 and on an ongoing basis, but also to target some money towards primary care, largely because we perceive there's a potential for a primary care shortage. And so we also have a little bit extra for specialists, by the way, if they're serving low income populations. But I think the challenge that the American healthcare system is going to face is how to build these payment models in a way that encourage efficiency. So we mentioned alternative payment models, I think I can't remember that episode 11, 12, 5 whatever it was, your episode on alternative payment models. Who did it? Who was your alternative payment model? I love talking about alternative payment models but we need systems that occur in efficiency and target resources to the places that maintain access to make sure that people, for example in rural America, have access to care that they need. To make sure that people in low income areas have access to care that they need and do it in a way that doesn't involve paying everybody more. It's not that we don't want to pay everybody more, but again there's a real fiscal constraint. So if you're in a fiscal constraint, the way you have to deal with that is you really have to be efficient in your payment targeting. And I think MedPAC has some related recommendations. But it will be an ongoing challenge for the American healthcare system.

And I think when you bring up a good point that because everything's so fragmented and anytime a solution, really good solution is created to a problem, there's ways to spin it to kind of make it work for some systems that maybe are trying to take advantage of it a little bit.

There's a lot of examples of how we've sort of patched together the healthcare system to get money. If you just look at the programs we have for supporting rural hospitals, we have the Critical Access Hospital program, we have the Sole Community Hospital program, we have the Medicare Dependent Hospital Program. In the rural space you can classify as rural, then unclassify as rural if you're a rural referral center. If you look at the rules we have around the wage indices—and wage indices are very important, but there's a lot of MedPAC's done some work on the rules for how the wage indices work—it's just a... Being MedPAC chair is a tremendous honor and I don't want to be too critical of the American healthcare system. Although I think finding problems with the American healthcare system is sometimes like shooting fish in a barrel. It's just there's so many nooks and crannies of dysfunction and the problem is when you pull the string of one of them to try and fix it, you then have to figure out, oh, how are we going to compensate? Because it turns out that that program which wasn't working, wasn't really well designed, but it was filling a need and so if you just get rid of it. One of just say one of the MedPAC recommendations was in rural areas, people were being charged out of pocket a percentage of the charges. Charges are much higher than the cost. So you could pay quite a lot if you went to a rural hospital. Now a lot of times people have coverage so their insurer was paying. But you read a recommendation to make it the cost sharing as a percentage of payment to sort of balance the rural-urban issues. But you could talk about, we haven't and so you can have me on back, we can talk about the quality measurement programs. MIPS is the physician one which MedPAC has recommended getting rid of. There's a lot of problems with the Medicare Advantage quality program, which is called the Quality Bonus Program. People know it as Stars. You know, I've gone over time. You'll edit me down to time. You could pick any given area. The fragmentation of people that live in nursing homes between Medicare and Medicaid, payment for long term institutionalized populations. I could just go on as long as you want.

Conclusion

Well, this is the reason that we created this podcast and this is the reason we wanted to have you on, because we knew that it would be a high impact, rapid review of some of these issues. And so we really thank you for that.

Yeah, we thank you and we definitely will, I'm sure, invite you back for a deep dive on some specific topics since I'm sure this will intrigue a lot of our listeners to hear more from you.

So absolutely have me back anytime. Anthony and Amar, it's been great talking with you. I really do appreciate it and I'll thank your listeners, the ones that made it through. It really is important and I will say MedPAC's quite open to thoughts. So if you want to send thoughts to MedPAC.

All right. We'll absolutely include that in the show notes. Thanks again, Michael. Yeah, thank you, Michael. And to our listeners. We also will have another episode after this with our guest, Tricia Neuman, who is the executive director of the program on Medicare policy for the Kaiser Family Foundation. So stay tuned to that. Looking forward to that as well. I'm honored to be included in something Tricia's going to be on. All right, thank you, Michael.