Ep 15: With Dr Eric Bricker. How Hospitals Live or Die by Medicaid 'Tricks of the trade' Nobody Talks About

Dr. Eric Bricker, the powerhouse behind AHealthcareZ's 400+ healthcare finance videos with 100,000+ subscribers, joins Value Health Voices to decode the labyrinthine money flows that determine which hospitals succeed with Medicaid—and which avoid it entirely. This internal medicine physician and former co-founder of Compass Professional Health Services (which grew to 1.8M members across 2,000+ clients including T-Mobile and Southwest Airlines before being acquired) reveals the complex "scavenger hunt" that separates thriving hospital systems from struggling ones.

Discover why Medicaid isn't actually one program but 50+ different state systems with wildly different funding mechanisms. Dr. Bricker exposes how provider taxes, DSH payments, and state-directed payments create a $80 billion federal funding ecosystem—and why only sophisticated hospital systems with armies of consultants can navigate it successfully. You'll learn why California gets 50% federal matching while Mississippi receives 77%, how children's hospitals depend on Medicaid for half their revenue, and why some suburban systems can ignore Medicaid entirely while urban academic centers live or die by these payments.

Known for his viral whiteboard videos that deconstruct the US healthcare system, Dr. Bricker delivers essential insights every healthcare leader needs to understand the financial forces reshaping American healthcare. This eye-opening conversation explains why administrative complexity has become a competitive advantage—and what it means for patient care.

Subscribe to Value Health Voices for expert healthcare policy analysis. Check out Dr. Bricker's AHealthcareZ YouTube channel for his complete healthcare finance library.

Introduction to Medicaid Variability

Welcome back to the Value Health Voices podcast where we make health policy and healthcare finance accessible and maybe, if we're lucky, also entertaining. Today, Amar, I want our listeners to start off by imagining a program that is the health coverage of 1 in 4 Americans. Yet the functioning of this program and whether it's effective or not changes drastically depending on where a person lives, whatever their zip code is. And of course, we're talking about the Medicaid program.

Medicaid has been in the news constantly lately and it is not, as many people think, one thing. The word Medicaid is not one program, but instead many. One for every state. One for D.C. One for Puerto Rico.

Yeah, Anthony. And for physicians and healthcare leaders, understanding Medicaid means decoding its intricate funding flows, which can be very complicated. So we'll try to make sure to really get into that in this episode, exploring some of the loopholes that states and providers use and recognizing the creative workarounds that make this program tick.

Despite its reputation, and it has quite a reputation, Medicaid is not always a financial drain to hospitals. We'll cover why that is and how that works with a very special guest today who actually will be with us for two episodes. That guest is, of course, you can see him on the screen already, the incomparable Dr. Eric Bricker, who is a health policy and healthcare finance content generating machine. He joins us as we unravel all these complexities regarding how the funds flow from Medicaid. But I want to stop and make sure we focus ourselves not only on how the program works from a policy standpoint and how it affects hospitals, but also how it affects patients.

Introducing Dr. Eric Bricker

I have the distinguished privilege of introducing Dr. Eric Bricker. We have been big fans on this show and before for a couple years now for me and Anthony, I think even longer following you and your content. Dr. Bricker is an internal medicine physician and former co-founder and Chief Medical Officer of Compass Professional Health Services. He grew that from 1.8 million members across 2,000 clients including T-Mobile, Southwest Airlines, and a restaurant group.

He also is the founder of AHealthcareZ which provides 400-plus healthcare finance educational videos with over 100,000 subscribers and followers across YouTube and LinkedIn, which is how we came to find Dr. Bricker. He has a unique style of explaining his content in a very easy to follow format using a whiteboard in short segments. It's been one of the most educational, focused healthcare policy and healthcare finance platforms that I've ever witnessed.

Defining Medicaid and its Complexity

He's taught me a lot of things. So without further ado, let's get into it. Eric, Medicaid. Tell us how you would describe the program and who it's for.

Well, first off, thank you so much to you gentlemen for having me on. That was an incredibly gracious introduction. The key to happiness is low expectations. So everybody lower your expectations. And thank you to all of you listeners as well. Healthcare policy and healthcare finance is super boring. So we're gonna try to make it as interesting as possible.

Medicaid is health insurance for low income folks. That could be a low income regular adult, like a middle aged person—I'm in my 40s. Or it could be a low income senior who actually is on Medicare. But then you can actually have Medicaid and Medicare. You can have both. And it's for kids too. I think by definition all kids are low income. They're living in low income families. It is an incredibly complex, multifaceted way of funding healthcare for these low income families and individuals. It's important for folks to understand whether you're a doc or another provider, like a physical therapist, or whether you work in hospital healthcare administration. I think it's a great topic. Thank you for choosing it.

Understanding the FMAP and Federal Matching

On a basic level for our listeners, and we're gonna start from 10,000ft before we get down into the weeds, the money comes from taxpayers, right? That's both federally funded and at the state level. Then those two money pools combine to fund Medicaid. So the question for you, Eric, is maybe you can tell us a little bit about the federal funds from the FMAP and what that means.

Medicaid is administered by each individual state or Washington D.C. or Puerto Rico territory. So there is not one Medicaid program. There are over 50 Medicaid programs. Now there are certain requirements that the federal government has for each one of those state programs. And that comes from CMS, which is the Centers for Medicare and Medicaid Services. It should be CMMS, but they figured that was too many M's, so it's just CMS.

Here the states have taxes, and it could be a variety of forms of taxes. There are some states that don't have any income tax, but then there's other states that do have income tax, and then there's property tax and sales tax. There are all different types of taxes. And then the federal government matches some of that tax revenue with federal revenue. Of course, the federal government is getting mostly income tax to be able to pay for that.

The amount of federal revenue or federal tax that's used to then match each individual state is not the same for every state. It varies depending upon the wealth of the state. So wealthier states don't get as big of a match from the federal government because they're like, "Look, you got gobs of money in that state," so the federal government doesn't give you as much. And then there are other states that don't have as much money, and so the federal government gives them a higher match.

That match can be anywhere from only 50% of what the state is actually funding in wealthy states like California. So California raises X amount of dollars from their own taxes to fund Medicaid, and then they get basically a 50% match approximately from the federal government. And then there are very poor states like Mississippi that get a much higher rate. That's like 77% from the federal government, and that is referred to as the Federal Medical Assistance Percentage or the FMAP. So when people are talking about the FMAP, it's like 50% in California, 77% in Mississippi, and Texas I think is like 61%. All sorts of places in between.

Provider Taxes and Funding Loopholes

We've been talking about Medicaid for about two minutes, and we already got into one of the largest sources of variation from state to state. You just covered how variable it can be. If we're going to talk about FMAP, then I think the next logical thing to get into is this concept of provider taxes, which is a concept that is foreign to many people unless they really understand the Medicaid program. That is a mechanism that effectively dials up or dials down the amount of federal monies that flow back to the state. Let's get into that.

This is a tricky subject that actually is really dominated by four states more so than anywhere else. They're big states: California, Michigan, Massachusetts, and the last big state is New York. You're talking very populous states where those individual state Medicaid programs have the ability to levy additional taxes to raise money for Medicaid. We talked about income tax or sales tax. Well, then you can actually tax organizations that are involved in the program. So it could be a tax on the managed care organizations or the providers themselves.

What happens is that the federal government will then, like we said in the FMAP, match that revenue. But this is where it becomes a little controversial. What these states have done is they said, "Hey look, we'll tax you managed care organizations and providers. Then the government will match 50% or 70% of that tax. And then we'll just use the money that we charged you in the tax plus the federal match to then pay you back."

And so that's where it's considered money laundering. It's like, "Yeah, just give me a dollar and then I'm going to give you back a dollar fifty." Oh, okay. I'll totally do that.

Recycling is a nicer way to put it, but yes, money laundering slash recycling, whatever you want to call it. I'm totally open to whatever vernacular you want to use. Interestingly, those four states of California, Michigan, New York, and Massachusetts account for like 95% of all of the recycling that happens nationwide. Any state could do this. It just happens to be that those states are the ones that do it the most.

The projection here—now it depends upon who you talk to, everybody's got their slant and their spin on it—but this whole recycling potentially amounts to close to $80 billion over five years. A billion there, a billion here, it starts to add up. It's not like 80 billion a year, but it's about 80 billion over five years is what it's estimated that this recycling costs. The current "big beautiful bill," regardless of opinion of that, as of today's recording on 19 June 2025 has not passed. We don't know what's actually going to happen. But that recycling, laundering, whatever you want to call it is potentially not going to be allowed anymore depending upon what final legislation is passed.

So I wanted to summarize that. With the FMAP, you're saying richer states collect a higher match, poorer states with lower income levels collect a lower match, the minimum being 50%. So the majority funds to Medicaid are coming from the federal government, not from state taxes. And then these provider taxes, some of these states are using to increase their federal match even further because of this provider tax. They tax the provider and it goes right back to the providers in the end, right?

In theory. Again, what actually happens is you have 50 different Medicaid programs. So while that might be true in aggregate, I might take a dollar from Amar and a dollar from Anthony, but I might not give a dollar fifty back to Amar and $1.50 back to Anthony. I might only give a dollar ten back to Amar and a dollar ninety back to Anthony. This gets to the point of—and believe me, we are not going to dive into the details around this—the actual auditing of the Medicaid reimbursements in each individual state. That's kind of up to each individual state to determine how they divvy up the money and how it's paid and how it's audited. So there are huge amounts of inconsistency across America in terms of how that happens.

Disproportionate Share and State Directed Payments

Most of what we've been talking about so far is these inconsistencies, this variability at the state level. Let's dive even another level deeper into this introductory part to talk about two things. One, Disproportionate Share Hospital payments. We're going to cover that now. But as a corollary to that, I also want to talk about the so-called state directed payments. I actually learned recently that the state directed payments can, just like the disproportionate share payments, vary not only state by state, but vary down to the individual hospital level. And that blew me away. Let's get into that.

Managed Care Organizations and Administration

It's important to keep in mind that we're talking about people who are sick and needing medical care. The way that these people who are kids and low income adults—many of which are the moms taking care of the kids or pregnant women, and then seniors that are also very low income and get Medicare but also get Medicaid—is actually then administered through a health insurance company. Even though it's the state that is in charge of Medicaid, they have essentially outsourced the actual administration of Medicaid itself to a quote-unquote MCO, a managed care organization, or as everybody on the doctor in the hospital side likes to call it, a health insurance company.

If you have Medicaid, you actually have a card in your individual state, and typically it'll have some sort of branded name on it, but it's administered by like Blue Cross or United or Aetna or Cigna. There are a lot of other local health insurance plans that administer Medicaid. One of the big ones in Houston is called Harris Health, because Houston is in Harris County. So the most common Medicaid that you have in Houston is probably the Harris Health plan. So you would have a Harris Health plan. People are like, "I don't have Medicaid. I have the Harris Health plan. That's what my health insurance card says." Well, it actually is Medicaid.

About 70% of everybody on Medicaid actually gets their Medicaid through a health insurance company. And you as an individual on Medicaid, you actually have an open enrollment period, typically in the late fall, early winter, where you have a choice of these managed care organizations or MCOs that you can sign up for. Many of the people watching this are familiar with open enrollment where I get to choose the gold, silver, bronze plan for my health insurance. Well, in most states, you kind of have a choice in terms of which managed care organization you want to sign up for.

Those are the big populous states: California, Florida, Texas, Illinois. The less populous states like Alaska, Wyoming, South Dakota, they don't have a managed care organization doing it. It's actually the state itself. The doctor in the hospital sends a bill to the state Medicaid agency, and then the Medicaid agency reimburses them. That's called fee-for-service Medicaid. It's important to note that the majority of people that are getting their Medicaid are actually getting it through a health insurance company.

Negotiating Reimbursement Rates

That health insurance company is sitting down with the physician practice and the hospital and they're negotiating reimbursement contracts just like they would do for their commercially insured people that have their health insurance through their job or for a Medicare Advantage program. And this is where, let's just pick UnitedHealthcare or Blue Cross, they're sitting down with the hospital system of the physician group and they're like, "Hey, for an office visit for our commercially insured folks, for Medicare, we'll give you just, we'll just call it a 999-9210 visit of medium complexity. We'll give you 90 bucks." That's the Medicare reimbursement rate.

Then they'll also say, "And then listen, for our commercial folks that have insurance through the job, we'll pay 120. And then for our Medicaid folks, we'll pay you 60." And guess what? The physician group or the hospital can be like, "Okay, well, we'll take the 90 and we'll take the 120. But we don't want that 60 business. That's too low." And so the provider can refuse to take Medicaid. There's no requirement. There's no law that says you have to take Medicaid.

One of the real challenges for people that have Medicaid is because the managed care organizations typically set their reimbursement for Medicaid so low that the individual who is enrolled in that Medicaid plan can't get a doctor. So few doctors accept it. So what do they do? They end up just going to the emergency room because the emergency room has to take them. So it's very common for people on Medicaid to heavily rely on the ER for their care because there are so few physician practices and hospitals that accept Medicaid.

Just because you have Medicaid and health insurance, that does not mean you have access to medical care. That's an important distinction. The reason that that's important, and this relates to disproportionate share that you were talking about, is that all these people end up coming into the hospital. So these hospitals are like, "Aha, we have a disproportionate share of patients on Medicaid coming into our ER." And so we'll sign the contract that says maybe we'll get paid less than Medicare for these ER visits and these hospitalizations, and we'll take something because something's better than nothing. It's better for us to take Medicaid than if they are not insured. If we don't accept their insurance, they're essentially uninsured and we'll get nothing when they come in through our ER.

Allocating DSH Funds to Hospitals

Then disproportionate share is a pool of money that each state has that each state can then divvy up to the hospitals however they want. I'll give you an example. I went to the University of Illinois College of Medicine for medical school. The University of Illinois Hospital is a state owned hospital. The employees at the University of Illinois Hospital are state employees. The chair of the pulmonology department is a state employee. As a result of that, the University of Illinois Hospital sees more Medicaid patients than Northwestern, than the University of Chicago, than Rush. And those hospital systems are much bigger than the University of Illinois hospital system because the State of Illinois is like, "Well, it's our Medicaid program, it's our hospital. You better take our Medicaid people, you better see our folks."

Whereas those other hospital systems, I'm not gonna say anything bad about them, are like, "Well, we don't really want those Medicaid people because they don't really pay a lot." And this Disproportionate Share Hospital payments, DSH payments, is kind of a form of a supplemental payment that the states can use.

That's right. And I don't know what the exact financing is in Illinois, but Illinois will be like, "Okay, we got this pool of money and we're going to give most of it to the University of Illinois Hospital because they see so many of our Medicaid patients." But again, it's up to the state, each individual state, to decide what criteria they use. So the criteria in Illinois is different from the criteria in Ohio, different from the criteria in Maryland or New York. Just because a hospital is a disproportionate share hospital, that doesn't mean that they get the same and they use the same criteria from one state to the next.

State Directed Payments and Legislative Impact

I'll remind our listeners that with our guest, Dr. Eric Bricker, we're actually doing two episodes. This one about the Medicaid program as an intro and then two, how the current bill that's being debated in Congress would affect that program. The reason I'm bringing that up right now is because we've been talking about supplemental payments, disproportionate share hospital payments. But another one that's so interesting and that has been in the news so much right now because of the overhang and the impact of this proposed new law is this other concept called state directed payments. In many ways, it is similar to what we were just talking about because, as Dr. Bricker was just saying, the states have so much latitude to decide where this other special payment category actually goes within their state. Let's go through that now because it's very timely.

This is where each individual state can actually apply to CMS. Because CMS is footing a lot of the bill, they're like, "Okay, we want to give you latitude, but if you're going to come up with your own ideas as to how you want to uniquely pay for Medicaid services within your state, you need to get approval from us." Once CMS says okay, then each individual state can have specific ideas around that.

Those ideas can vary. They're highly controversial. In Arkansas, it's like, "Okay, our unique idea is that in order to get your Medicaid payments, if you're capable of working, you need to work. And if you don't work, then you're not going to get Medicaid." So if you're a patient and you go into the hospital and you could work but you're not working, then you don't get Medicaid in the hospital and the doctor doesn't get paid. Whereas if you're in another state and you're not working, it wouldn't matter because they got a different rule around that.

Likewise in Indiana, Indiana's like, "We're going to have co-pays. So even though these are low income people, we expect them to pony up some of the money when they go to an office visit. It might be five bucks, but we expect you to pay something." In other states, it could be completely zero out of pocket cost for the person to go to the doctor. But in Indiana, they do. So if you're a doctor in Indiana, you might be like, "Okay, well there's a barrier to access there because literally I told my patient that they needed to get a chest X-ray and it was gonna cost them five bucks. They didn't have five bucks. So here I am, I'm trying to treat their cough and I want to get a chest X-ray." In other states the doc's like, "Yeah, I got no problems getting chest X-rays. My patients don't have to pay co-pays at all."

Huge variability by state that actually changes not only eligibility criteria, but also clinical criteria that can impact access to patient care.

Medicaid Expansion vs. Non-Expansion States

These STPs, these state directed payments, and these DSH payments, the disproportionate share hospital payments, both are big sources of income for hospitals along with some other supplemental stuff such as the upper payment limits where they kind of mirror the rates for Medicare. These are all drivers for income to hospitals. But one of the things I think will also be important for our viewers to learn about is there's really two kinds of states out there. There are the expansion states and the non-expansion states. The amount of FMAP, the federal match that they get, can differ. If you're an expansion state, you can go up to 90% and the eligibility criteria can differ. So maybe you can talk a little bit about those two types of states.

Medicaid as a Revenue Source for Hospitals

A concept that I want to bring up is that not only does it vary state by state, but you said something very important just there, which is Medicaid represents a lot of money to the hospital. The short answer to that is: it depends. There are some hospital systems where it is a huge source of revenue, specifically children's hospitals. So 50% of all children in America get their health insurance through Medicaid. You better believe if you're a children's hospital, Medicaid policy and Medicaid payment is a huge deal for you.

If you are an urban medical center—a lot of academic medical centers are urban medical centers, whether it's the University of Maryland or Johns Hopkins in Baltimore or University Hospitals in Cleveland—somewhere around 30% of your revenue might come from Medicaid. But there are hospital systems that are largely in wealthy suburban areas where Medicaid is not a big deal. Like it's less than 10% of their revenue. I won't name any names, but these tend to be for publicly traded hospitals because if you're trying to make money through your hospital system, you do not want to be taking care of low income people who don't pay you very much. Medicaid policy for some hospital systems in America is actually not a big deal at all. And for other hospital systems, it's a huge deal.

You're 100% right. It actually kind of really splits it because the states who are expansion states, they're oftentimes the ones, because they've increased their eligibility criteria, that can get those higher federal fund matching. So the hospitals oftentimes can benefit in those states versus the non-expansion states. And there are hospitals that are thriving, both for-profit and not-for-profit hospitals, that shut down hospitals in parts of town that are poor.

Oh yeah, that's an old playbook. And Amar, what you were just talking about got me thinking too. This is going to be an area for deeper dive in the second episode. But it's so ironic that the states in this country that expanded, that are currently accessing and running the Medicare program in a more let's say cash rich environment, are those who are going to be especially hit hard by the bill if it ultimately passes. Those who pull down less federal funds in the current state will be substantially less impacted.

Disparities in Hospital Payments

I wanted to go back because there's no problem with citing specific examples, specific organizations. There are some interesting things to say, especially as it relates to the state directed payments. Dr. Bricker, you just mentioned Tennessee and you mentioned a couple publicly traded hospitals there. I was just reading that their state, just in May, the state of Tennessee was able to get a state directed payment of $3.2 billion. A lot of it will actually go to HCA. Another one from a different state that none of us have any association with, but is another interesting state directed payment that just got through was for the state of Washington. In that one, it gets even more interesting because the details of that state directed payment program show that the amount of reimbursement per Medicaid discharge at the UW Medical Center is $14,000 higher than any other hospital in the state. And the difference that is financed by the state directed payment program just was approved again in this gold rush to get all this stuff done and approved before the bill may be signed by the President.

To tie that together with Amar's question, the Medicaid reimbursement itself is not a monolith and it has different tranches, if you will. It has different subsegments of populations. To encourage states to expand Medicaid, the Affordable Care Act said if you expand Medicaid coverage, in other words, you raise the income requirement in your state—a lot of times it used to be 100% of the federal level, now it's 138, 140% of the federal poverty level—that for those folks that are newly eligible for Medicaid because you raised the income level, we will match. We will give you federal funds that are greater than what we give to the rest of the Medicaid population. And that's where this 90% comes in. So you might be in a state like California where it's only 50%. But if you expanded Medicaid like they did in California, for all of those people that became newly eligible for Medicaid, the federal government will match at 90%, not at 50%. That's huge.

That is huge for them. This came about from the Affordable Care Act. It was really a political thing where some states chose to expand their med populations. Historically, Medicaid covers pregnant people and children and people with very low incomes. But this expansion, in addition to what you said Dr. Bricker about 138% of poverty level, allowed people who are low income adults without children, who are above the threshold for the ACA to get coverage but normally wouldn't qualify. It allowed that whole population to now get insurance through the Medicaid program.

What I would add at this point is that while we're talking about these very large chunks of money, I will say that anytime you get money that is centrally concentrated, how it is distributed is often done in a political nature based upon lobbying efforts by the actual insurance companies and their managed care organizations and also the hospitals and the physician groups themselves. So, right, wrong or indifferent, the University of Washington in your example might be like, "That payment to us is 100% justified." And you could go across town to Virginia Mason, and Virginia Mason could be like, "That payment to the University of Washington is 100% unjustified."

So what is "fair" is in the eye of the beholder. This is my own opinion: anytime you hear anybody, when they're discussing money being handed out by a government program, and you hear the word "fair," you immediately need to know that that term fair is 100% subjective. There is no universal definition of fair. Just be very careful whenever you hear it because anytime you hear the word fair, just know that probably has some sort of spin associated with it.

Is Medicaid a Money Loser?

So in everything that we've been talking about so far, I think there are a few takeaways we can give. Dr. Bricker, you correct me if my summary is off the mark. We've established pretty well that there is not the possibility of the blanket statement that Medicaid is a money loser for hospitals. In fact, it is a complex, highly complex funding system that brings in federal money, uses a host of creative state financing tools that we've covered from provider taxes to state directed payments, and that if you play that game in the "right way," that it could bring in huge sums of money to healthcare providers and actually not be a money loser, but really carry and drive fairly high operating margins for these systems.

Exactly. In some states. And it even varies by specific contract. Because I said 70% is through the managed care organization. It even varies by the specific contract with the managed care organization. I'll give you a specific example. In New York, there is one of their MCOs that has very high reimbursements for laboratory services. And so the physician groups have figured that out and they're like, "Yeah, you only want to give me like 30 bucks for an office visit. That's fine, whatever. I'm going to lose money on the office visit. But oh boy, when I order the labs, I'm going to make a ton of money on the labs."

Prior Authorization and Access to Care

Funny thing about you making this comment right now is I didn't even mention what the next segment was going to be about. But what you just said actually leads directly into that. What I want us to do is to take a moment, try to make it even more real. Try to understand the mentality of different key hospital figures as it relates to how they think about Medicaid. A few that come to mind for me are both Amar and I are oncologists, so we could talk about it from the perspective of oncology leaders. I think we certainly should talk about it from the perspective of hospital CFOs, and then perhaps finally the perspective of the medical groups that really rely predominantly on professional fees.

Excellent topic. When it comes to cancer care, again because 70% of folks are getting it through a managed care organization, those managed care organizations have what is the nemesis of every single doctor and hospital in America. And that nemesis is called prior authorization. Just know that if you have Medicaid and it's through a managed care organization, just like if you had Medicare Advantage or just like if you had an HMO or some other PPO plan through your job, you would have prior authorization.

That is: "Hey, I want to do a certain number of radiation treatments for this person's breast cancer or prostate cancer. Or I want to administer chemo or we need to do a lumpectomy for breast cancer or we need to do a hemicolectomy for colon cancer." You need to get permission in the form of a prior authorization from the managed care organization. The number one largest managed care organization for Medicaid nationwide is a company that most people have never heard of before. It's called Centene. What in the world is Centene?

Centene is the largest Medicaid managed care company in America and it's based out of St. Louis. They actually own gobs of subsidiary Medicaid managed care companies in individual states that are not called Centene. So you wouldn't even know. In Illinois it's not called Centene. In Michigan it's not called Centene. It has a completely different name. But the company is owned by Centene. It doesn't have to be Centene—it could be Blue Cross, United, it could be the Harris Health plan. They all have prior authorization.

Those prior authorizations involve "doctors" at the managed care organization that may or may not be specialists. In the case of radiation oncology, that doctor may or may not be a radiation oncologist. And they may say, "Look, we actually don't think that this person needs to have radiation, or we only think that they need to have a certain number of radiation treatments." And you could be like, "That's ridiculous." And they're like, "I really don't care about your opinion. We're not paying for it."

So when you have Medicaid through a managed care organization and you need cancer care, again, having health insurance does not mean you have access to health care. Those are two very different things that should not be conflated. You gotta go through the prior authorization rigmarole. And again, for the low income population that oftentimes does not have very high educational levels, that oftentimes is speaking English as a second language, that is hugely hard for them to advocate for themselves. Think about how much the doctor has to do. The patient has to do a lot too to get through that prior authorization process. So it's hugely problematic. Unless you're in Wyoming or South Dakota or Alaska where it's fee-for-service and they don't have prior authorization.

That's a great point. We go through this all the time, Anthony. We're trying to get these prior authorizations and we've had some past episodes about Medicare Advantage prior authorizations as well as other forms of utilization management that these insurers are using to kind of ration some of this care as a way of cost containment. Oncology leaders, we're very sensitive to that because it's very hard to invest in new technology. First of all, your patients aren't getting the care they need, but you're also not getting reimbursed at the correct rates to be able to invest in new technology. I think that that's one of the issues that I see as an oncology leader.

To round out conversation on this, and this is one of the reasons we have this podcast and put out content, is what we're trying to give our listeners and our viewers is a full perspective of all the pieces on the chessboard. From an oncology standpoint, while we have this difficulty with obviously Medicaid paying less for the clinical service, and we have all this utilization management rigmarole, the prior auth rigmarole that gets in the way, and back end denials which erode our margins. At the same time, you take the good with the bad because it is these low income patients that enable our centers to have access to the 340B Drug Purchasing Program, which is a countervailing force that injects cash. We're not going to go through that program today, but the point is that yes, there are these things that retard our ability to take care of patients and retard our ability to get paid, and then for those same patients, it enables other sources of funds. It's just an interesting reality to our very complex healthcare system.

The Revenue Scavenger Hunt

That actually is a perfect segue to if you're wearing the hospital system CFO hat. Because if you are trying to bring in revenue to a hospital system or to a large multi-specialty group, as the chief financial officer, you bringing in that revenue is essentially a scavenger hunt. It is not like running a restaurant where the customers come in, they order a meal, they pay for a meal. It's pretty simple. Or it's not like teenagers at a restaurant where the teenager comes into the restaurant, they order a meal and their parents pay for their credit card. Teenagers have third party payments. Restaurants don't have some sort of complex business model that requires this scavenger hunt. We have Sonics down here in the South. I would argue that the major customer of a Sonic in the south is a teenager. So Sonic has third party payment from the kid's parents.

But in healthcare, it is a scavenger hunt. So therefore what that CFO is doing is they are scavenging in every way possible for all these different sources of revenue. It could be in the form of these disproportionate share payments. It could be in the form of the actual revenue for taking care of the Medicaid patients and then billing the MCO for that. It could also then be, "Hey, we didn't even talk about what are called the upper payment limit sort of additional payments." The fact that Medicaid is paying less than Medicare. The hospital can go back and ask, "Could you kind of pay us the difference between Medicaid and Medicare?" and the state says, "Oh sure, we'll write you a check." So there's another part of the scavenger hunt for the UPL.

And then these hospitals through the special 340B pharmacy program, the hospital pharmacy can be almost like another aspect of the scavenger hunt. So if you're a hospital CFO, your job is to have all these different tentacles out to try to maximize the scavenger hunt. This is incredibly important for physicians to understand because individual physician practices historically have not had the staff or the expertise to effectively execute that scavenger hunt. As an independent physician group, they have seen their reimbursement go down while the hospital system has been able to maintain or even increase their revenue because they're so much better at the scavenger hunt. Then when the individual physician practice is hurting, the hospital system says, "We will buy you because we can perform the scavenger hunt and you cannot." That is part of the reason why there are many fewer independent physician practices and they are now owned by hospital systems.

Market Consolidation and Administrative Costs

I would even add to that, Eric, that it's not even all hospital systems that can play this. It's the large hospital systems that can afford the administrative staff to play the scavenger hunt. Some of these smaller hospital systems, whether they're one or two hospitals or in rural areas, they don't have the staffing. They can't play that game. So they're not able to maximize their revenues the same way. So they're also then being bought out by the larger hospital systems who can play that game. It's not just the provider groups.

And Eric, I want to get your thoughts. I want to leave our listeners at the end of this first episode with two key things, and one of them you covered beautifully. You actually made me aware of this book, which I have read and I have advised many people to read that explains this dynamic beautifully. It's a novel that also in detail speaks about the economics of the US Healthcare system, and it's called The Hospital: Life, Death, and Dollars in a Small American Town. It explains beautifully what Amar was just saying. Our listeners, if you are in the market for a summer read, find that, because it talks about this in a beautiful way.

The Business of Administrative Friction

What I would add to that is that there is an entire ecosystem of revenue cycle consultants that these hospital systems actually hire to show them how to play the scavenger hunt. I used to work for one of those companies. So a big reason why these larger hospital systems are able to more effectively play the scavenger hunt than the smaller and medium sized hospital systems is because they have the money to pay consultants tens of millions of dollars for consulting engagements to show them how to more effectively play the scavenger hunt. Whereas the small and the medium sized hospital is like, "We don't know how to do it. We don't even have the money to hire consultants to show us how to do it." And the largest consulting firms in America make gobs of money doing this.

It's a fact of our system that so much administrative expense is required to succeed in the game. I don't know if it's winning the game, but in any case, stay in business. That's what you're describing.

That's right. And to your point, all of this friction around reimbursement is literally money that is being taken away from patient care. There's an opportunity cost. Every single dollar that is spent on this administration—whether it's internal administration within the hospital, external administration within the insurance carrier, or consulting administration—all of that money is money that could have been spent on patient care, and it is not.

Those people making that administrative money—that is an existential threat for them. They will not let go of that friction. That friction is their business. That friction is their mortgage payment, and they're paying for their kids' college. So we cannot lament that friction because lamenting will not make it go away. Because those people, that is their livelihood, and they will fight tooth and nail to keep as much of that friction as humanly possible.

So just know that if you're a physician and you're just like, "Well, I just want to be a doctor and I want to see patients," okay? There are people who are actively creating and solving friction that takes money out of your pocket and takes money out of the pocket of patients. Which is why what you're doing, Amar and Anthony, is so important. Because the age of "I just want to be a doctor and I just want to see patients" is over. You as a physician and your patients are going to suffer unless you do something about this. The age of passivity, where you can just be like, "Well, I hope somebody else solves this," forget about it. No one is coming to save you.

I don't mean to be alarmist, but if you think it's bad now... listen, everybody thought it was bad in 2004 when I graduated from medical school. Every single doctor I talked to in 2004 said, "Whatever you do, don't become a doctor because it's so bad." And that was 21 years ago.

It's kind of ironic. It's worse today than it was then. It's dating me. I graduated in 2005. So we're not too far off. Actually, I think you did an episode of one of your videos about this, almost 40% of the money is going to the middleman.

Conclusion and Future Outlook

When we drew this episode up, what we had in mind to conclude was really what you just did there, Dr. Bricker, going through a high level view of connecting the dots to the various aspects of the system. So I think we can end the first episode there. We're going to have you back, and our next episode is going to come out a week to two weeks after this first one. We're going to talk about in detail the budget reconciliation bill and all the impact that it's going to have on the Medicaid program. So we thank you very much for joining us for episode one, and we can't wait to have you back for episode two.

Thanks, everybody. Appreciate it.

Thank you, Eric.