The Healthcare Framework That Already Exists.
Why is American Healthcare Still Broken?
Clip of Lawrence Thompson dropping a healthcare truth “bomb”.
Tune into the CLEARly Beneficial podcast with host Vincent Catalano. Listen to this episode on Buzzsprout, Substack, YouTube or your favorite podcast channel.
A conversation about the Healthcare Framework that already exists, and more with Peter Hayes, Lawrence Thompson and Vincent Catalano.
Peter Hayes turned 65 and expected sticker shock. What he got instead was a revelation.
The Anthem Blue Cross policy covering his wife and son had been running him about $700 a month, thanks to ACA subsidies. When those subsidies disappeared, the same carrier, the same plan, the same network sent him a new bill: $23,000 a year. The care hadn’t changed. The cost of delivering it hadn’t changed. Only the financing had.
“It’s just a desk bottle to drink,” he said. But the math wasn’t funny.
Hayes isn’t a consumer advocate or an outside observer. He spent 20 years managing Hannaford Supermarkets’ self-insured health plan, was appointed by two Maine governors to serve on healthcare reform commissions, and co-founded the Maine Health Management Coalition, which at its peak represented about 60% of the state’s commercial health plan lives. When Peter Hayes says the system is broken, he’s speaking from inside the machinery.
On a recent episode of the CLEARly Beneficial Podcast, Hayes joined Lawrence Thompson, founder and CEO of Benefit Systems Inc. and a 48-year veteran of the payer, TPA, and self-insurance industries, for a wide-ranging conversation about what it would actually take to fix American healthcare. Not tweak it. Fix it.
The conversation started with a simple question. If you could wave a magic wand, what would you change?
Start With Cost, Not Coverage
Larry Thompson didn’t hesitate.
“What we buy with insurance is too expensive. We don’t need to go into it. All of us have seen our costs are higher than any other nation. Our outcomes are terrible. We pay too much for healthcare, period.”
That’s the starting point. Not access. Not coverage mandates. Cost. Because until you fix what the care actually costs, every financing mechanism is just rearranging debt.
Thompson’s list of reforms on the payer and insurance side was direct: national licensing so carriers stop wrestling with 50 different state insurance departments, association health plans so small groups can pool purchasing power, a ban on insurance carriers owning any providers (“you’re having the fox watch the hen house”), and a mandate that savings from lower provider rates actually get passed on to consumers instead of pocketed.
Then came the two that generated the most heat.
We Already Have a Healthcare Framework. It’s a National PPO Called Medicare.
Thompson’s case for a healthcare framework already exists. Medicare as the pricing backbone of the entire commercial system is not a political argument. It’s a math argument.
Give carriers five years to price everything based on Medicare rates, geo-adjusted for local markets, with accommodations for pediatric and OB care that Medicare doesn’t cover. The model exists. The rate schedule exists. The infrastructure exists. What’s missing is the political will to use it.
“Three old guys who know that we can live at reasonable pricing,” Thompson said, gesturing at himself, Hayes, and Vincent on the call. The joke landed, but the point underneath it didn’t.
Hayes added a real-world illustration that’s hard to argue with. In Maine, a hospital in the northern part of the state performs knee replacements. Medicare reimburses that hospital $15,000 for the procedure. The same hospital, under a commercial contract, charges employers $75,000. Quality is not the variable. The pricing model is.
The Consolidated Appropriations Act is beginning to apply pressure here. For the first time, it creates personal fiduciary liability for plan sponsors, board members, and benefit managers who allow their plans to overpay when better pricing is demonstrably available. That’s a lever that hasn’t been fully pulled yet.
Pay Providers Faster and Watch What Happens
Thompson built an insurance company in another country. In that system, physicians receive payment in roughly eight and a half seconds from the time the patient leaves the office. Hospitals are paid within seven working days.
He’s been testing what that faster payment model would mean here. He interviewed 14 major medical practices across five states and asked them a simple question: if payment arrived in 24 to 48 hours, how much would they discount the cost of care? The answer was consistent. Thirty to 35 percent.
He’s working with six hospitals now. Same question, seven-day payment terms. They’re all at the table.
“I spoke to one hospital that told me they have 101 people in a department that do nothing but fight appeals, go after billing, and try to collect money,” Thompson said. “It’s insane.”
The administrative cost of not getting paid is enormous and largely invisible in the policy debate. One large orthopedic surgical group with more than 80 surgeons spends 28 cents of every dollar it collects on appeals. Carriers, meanwhile, save 4% to 6% through prior authorization. If you can get a 30% discount by paying faster, the math on prior authorization collapses.
Provider AI and insurer AI are now fighting each other on pre-authorization denials. Thompson’s response was blunt: all that’s changed is we’re using non-humans to do what humans did before. The outcome is the same. The needle isn’t moving.
The Singapore Story
Peter Hayes managed Hannaford’s self-insured plan when a union employee underwent three knee replacements in 18 months. Each one failed. The plan had paid over a million dollars.
Hayes didn’t wait for a fourth attempt. He put a benefit design in place: employees who chose to travel to Singapore for certain high-cost procedures would have 100% of costs covered, including travel for a spouse or partner. The total cost of a total knee replacement in Singapore, with a one-year warranty on the outcome, was approximately $10,000.
The Wall Street Journal covered the story. The day after it ran, Hayes received calls from hospitals across the country willing to match the price.
“Quality is not tied to price,” he said. “And the market will respond when you make it.”
That’s not a radical idea. It’s the basic logic of competitive markets applied to a sector that has spent decades insulating itself from them. Hayes has reached a conclusion that surprised even him.
“I have come to the conclusion that we have allowed so much vertical integration and it’s too big to fail. Market forces now will not work because 90% of health system markets are highly concentrated. They’re no longer competitive markets. They own the market.”
His prescription: legislative and regulatory intervention, modeled on how the country handles monopolies and utilities. Eight states have already implemented hospital rate growth caps. It can be done. Washington may be too captured by political contributions to move, Hayes said plainly, but state legislatures are not.
The $82 Billion Black Box
Peter Hayes saved one for last.
The 340B federal drug purchasing program, which allows qualifying hospitals to buy prescription drugs at steep discounts, was designed to help safety-net hospitals stretch those savings toward vulnerable populations. The intent was that the difference would flow back to low-income patients and community benefit programs.
What it has become is something else.
“It’s turned into an $82 billion revenue stream for hospitals and eligible providers. Minnesota has shown there is absolutely no evidence that those monies are being used for the community good.”
Hayes tried to get Maine’s legislature to require hospitals to at least document how 340B dollars were being used. The hospitals blocked it.
Thompson works with hospitals today and confirmed the picture. The program’s original purpose and its current function are, in his words, completely different things. Hospitals are using 340B markups to finance losses elsewhere in their operations. The money goes into the coffer. No one tracks where it comes out.
Tax-exempt status compounds the problem. In Hayes’ town of Scarborough, Maine, a hospital facility serving all of Southern Maine would owe five to seven million dollars in real estate taxes if it weren’t tax-exempt. The residents of Scarborough pay those taxes instead, subsidizing care that benefits a much wider community.
Brokers. Let’s Go There.
Thirty-eight years ago, Thompson wrote a paper arguing that healthcare brokers should be paid like every other professional advisor: flat fee.
He’s still saying it.
“Your CPA does not get paid as a percentage of how much tax you paid. He gets paid a flat fee. Your attorney gets paid a flat fee. If we really consider ourselves to be these magnificent, brilliant advisors that we all say we are, why aren’t we being paid like that?”
Vincent didn’t pull the punch either.
“I am so fed up with the brokerage community right now. They all think they’re legends in their own minds, bringing in self-motivated solutions that just line their pockets. The smart brokers, the ones who are up-and-comers, they should be going after that client who is paying the existing incumbent half a million dollars in commissions and come in with a flat fee arrangement.”
Vincent analyzed Form 5500 data for every employer in California. Three years ago, the median broker compensation per employee per year was $400. Some brokers were charging two, three, and four times that. Most CFOs and CEOs had no idea.
The Consolidated Appropriations Act created fiduciary responsibility for those employers. The question is whether anyone is forcing them to use it.
The Framework Exists
National licensing. Association health plans. Medicare as the pricing backbone. Banning carrier ownership of providers. Faster payment in exchange for lower rates. Hospital rate growth caps. Accountability for 340B dollars. Flat-fee broker compensation.
None of this is theoretical. Most of it already exists somewhere in some form. Eight states have rate caps. Medicare pricing is already a model. The CAA fiduciary framework is already law. Direct-payment models are already working in other countries.
The question, as Vincent put it at the close of the conversation, is not whether the framework exists. It’s whether anyone with power has the will to use it.
The premiums are not slowing down. Someone has to figure it out.
About Peter Hayes
Peter Hayes recently retired as president and CEO of the Healthcare Purchaser Alliance of Maine, and is formerly a principal of Healthcare Solutions and Director of Associate Health and Wellness at Hannaford Supermarkets. Recognized as a national thought leader in strategic benefit design for more than 25 years, he has been appointed by two different Maine governors to serve on healthcare reform commissions and is a co-founder of the Maine Health Management Coalition. He has served on advisory boards for Express Scripts, DFINITY Health, and others, and has been involved in national organizations including the Center for Health Innovation, Care Focused Purchasing, and Leapfrog.
About Lawrence Thompson
Lawrence Thompson is the founder and CEO of Benefit Systems Inc., a healthcare consulting and solutions firm he launched in 2002. With nearly five decades in the industry, his career spans payer, TPA, reinsurance, stop-loss, and consulting, including serving as President of Pomco, Inc., one of the largest independent TPAs in the US (which he sold to UnitedHealth in 2017), Chief Commercial Officer of HealthNow New York overseeing $2.8 billion in annual P&L, and Chief Strategy and Revenue Officer at Advanced Medical Pricing Solutions. He founded and grew his own TPA in California and Arizona to 120,000 members before selling it in 2001, and has been a licensed broker since 1978. He is a past Chairman of the Self Insurance Institute of America and spent more than 20 years lobbying on Capitol Hill for the self-insurance industry.
About Vincent Catalano & CLEAR Healthcare Solutions
Vincent Catalano is the founder and CEO of CLEAR Healthcare Solutions and host of The CLEARly Beneficial Podcast. With over 23 years of experience in employee benefits and insurance brokerage, including time at Arthur J. Gallagher, Catalano founded CLEAR Healthcare Solutions to provide independent, unbiased healthcare benefits consulting. His unique position outside corporate constraints allows him to have frank conversations about healthcare issues that others can’t address. New episodes release weekly on Tuesdays at 8 a.m. across all major platforms. Learn more at www.clearhcs.com or read more on the blog.
Disclaimer: The information provided in this podcast is for educational and informational purposes only and should not be construed as legal, financial or professional advice. Listeners should consult with qualified professionals regarding their specific situations.
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