Rae Woods (00:18): As I reflected on how I wanted to start our live recording of the Radio Advisory podcast, I actually wanted to go back to how we started our time together earlier this morning. We kicked off the summit by talking about a lot of challenges facing healthcare. We talked about the pressures, the pressures that have been building year after year, perhaps even decade after decade. We also talked about some of the market shocks, the things that are rightfully or not distracting our attention in this moment. And we started to talk about the strategic pivots, the pivots that our industry is making, the pivots that leaders are making in order to weather those market forces. In this conversation, in this live recording of our Radio Advisory podcast, I want to lean in to talking about those pivots. And I started thinking about who I wanted to bring to this conversation, and the answer frankly was obvious. (01:19): I wanted to talk about an organization, and I wanted to talk about a leader that is no stranger to taking bold action, to betting in frankly pretty significant ways, to guide their organization forward, to address these very market forces, while also keeping a relentless, I might even call it sacred, commitment to purpose. That is exactly why I've invited Paul Markovich to Radio Advisory. For those of you who don't know Paul, for more than a decade, he's served as president and CEO of Blue Shield of California, and as of January 1st of this year, he's now president and CEO of Ascendiun. Ascendiun is the new parent company that covers Blue Shield of California, it includes the clinical services arm, Altais, and it also includes the newly formed health services business, Stellarus. Let's all give a warm welcome and round of applause to Paul as we welcome him to the stage. (02:17): So, I want to admit, we like to do our homework at Radio Advisory, so of course I looked into Blue Shield of California, of course I looked into Ascendiun, but I tried to do my best to do a little bit of digging, the same kind of thing come up again and again, as people talked about Paul Markovich, the person, all good things, I promise. I heard things like, "He's a real one. He's a true believer. He's one of the good guys," and I have to believe that is because you actually helped shape and coin the mission of Blue Shield of California. Is that right? Paul Markovich (03:01): That is. Rae Woods (03:02): And the mission is to eagerly move towards a healthcare system that is worthy of family and friends, and sustainably affordable. It is rare for me to find a mission statement that is more than a plaque on the wall. And this one is specific, frankly, it's a little bit vulnerable, it addresses some of the challenges in our business, but it also talks about where we need to go next, some of the bold change that we're moving towards. And I think it's easy to assume that we can practice what we preach, but it's actually quite difficult to do in practice. So, how do you think about practically executing on that mission as a leader? Paul Markovich (03:39): First of all, I think one of the most important things you do, there's two really fundamental things you do when you're leading an organization, I think that probably 80% of the equation to being successful, the first one is picking the destination. Where are you going? And the second is getting the right people in the right roles. So, if you can be really clear on defining success, and you can get the right people in the right roles, most of the rest is rounding error. Like don't screw it up. I really focused a lot of energy on that, so one was of course the mission statement that you referred to, which we had one that looked a lot like everybody else's, that's a nonprofit, which was to ensure that all Californians had access to high quality healthcare at an affordable price. (04:22): For me, I'd been in the organization a long time, that was a bit like the Pledge of Allegiance, people would put their hand on their heart, but they really didn't know what indivisible meant. So, I wanted to come up with something that became an emotional litmus test. Each employee could say, am I helping to create a healthcare system that's worthy of our family and friends and sustainably affordable? If God forbid, one of my loved ones has to access the healthcare system, A, can they afford it? And then B, does it treat them the way I'd want my loved ones to be treated at their time of greatest need? That's the standard, and that's something that when you're doing your work, you can ask yourself that question, and pretty much know the answer. But then we also quantified it. Rae Woods (05:01): Tell me more. Paul Markovich (05:02): So, we said, affordable, we have what we call total cost of ownership, our average premium, our average out-of-pocket cost, divided by median income quality. We need to be in the 90th percentile on all our quality measures in a five-star plan. So, we have all these measures that say yes, isn't it wonderful to say we're here to create a healthcare system worthy of our family and friends, but what does that really mean? Rae Woods (05:23): Yes. Paul Markovich (05:25): Now we've done it numerically, and then it's like, okay, how do you make that happen? Well, it became pretty clear pretty quickly that trying to incrementally improve an irretrievably flawed system was never ever going to get you to an affordable system. And the only way to make healthcare more affordable is to improve the quality of health of people and improve the quality of care that they receive. One of the expressions that my team is familiar with is, I'll tell them all the time, math before English. Tell me first what you're trying to achieve in some numerical measurable number, I don't want to be coming here and arguing like it's impressionist art, whether or not we were successful. What are you trying to get done? And then, where are you on the roadmap? How close are you to being finished? Now, tell me why and what's up, but start with math. Rae Woods (06:16): Let's start with the math then here. Because I want to spend most of our conversation talking about how you and we can move towards that goal, that goal of affordability, making radical change to improve healthcare so that it is worthy of family and friends. But I think it's important in order to get there to ground us in the problem of the moment, and I actually want us to focus on health plans for a minute here. Paul Markovich (06:39): Okay. Rae Woods (06:39): Health plans are not in the best moment when it comes to their business. Paul Markovich (06:44): Are you sure about that? Rae Woods (06:45): How would you describe the state of health plans in 2025? Paul Markovich (06:48): No, no. Honestly, I tell my family and friends that thank goodness for Congress and cable companies or we'd be the least popular probably organizations in the country. We aren't popular, there's a whole lot of reasons for that, some of them well-earned and some of them probably undeserved. At the end of the day, here's the thing I love about working for health plan, and it's also the thing I get frustrated about with my colleagues. The health plans control the levers of the system. I'm a huge systems thinker, and systems believer, I think it was Demings who said, "A bad system beats a good person every time," and I see so many examples of that in healthcare. You've got really good people who want to do the right thing, but the system pushes them in a direction to do something that isn't necessarily the right thing, because that's their financial model, because that's how they need to make a living- Rae Woods (07:45): That's their incentive- Paul Markovich (07:45): ... because that's how the rules are. But the health plans really can determine, well, how do people get paid? What are the rules around whether they get paid? Health plans could figure out how to get rid of fax machines, they have not yet. I'm really on a mission. I have to say my second mission statement would be to retire fax machines before I retire. Rae Woods (08:06): That's one we can all get behind, right? Yeah. Paul Markovich (08:09): So, that to me is, the role that health plans have is they can set it up where you're paying people to do the right thing, you're simplifying, digitizing, and automating everything you possibly can and helping to drive a more productive and efficient system. You're truly personalizing care, so you can use the information that you have and the technology tools that are available to truly understand an individual and all the information that's available about their particular condition or conditions, and help them get to the right answer with their care provider. There's all kinds of things that health plans can do to really improve the system, and I'm just not seeing enough proactive, organized effort from health plans to do that. Rae Woods (08:49): Yes. I appreciate that you're saying that the span of control is actually quite high when you think about health plans, but there are headwinds facing them too. So, you named one significant headwind, which is public perception, which we should talk more about, but there are also very real business pressures, cost pressures, utilization pressures. If I reflect on the Blue Shield network alone, there are 31 Blues plans, I think in 2024, 8 had positive margins. Blue Shield of California was one of the lucky ones, with a positive margin of a whopping 1%. But seriously, that was good, I think the highest margin was a little bit over 3.5%, some were very in the red, I'm talking about -15, -19%. What are some of the business headwinds that we have to address in order to pull on the levers in our control to make healthcare better? Paul Markovich (09:39): Well, see, to me, these things are connected because the three things that need to happen in healthcare is we need to, as I said, simplify, digitize, automate everything we can, drive and improvement in productivity, number one. Number two, you have to tie pay to value. You have to tie the incentives to doing the right thing and improving quality. And number three, you have to personalize, truly personalize, the care. If you do these things, that's your best way of fighting the headwinds. So, I'll just give you an example, when we look at our underlying cost of healthcare trends, and this is a strongly, I think, supported hypothesis in our data, what's happened post-COVID is there was a snapback in hospitalization, but what really happened underneath is that hospitals and physicians were facing an existential financial crisis. Rae Woods (10:28): Correct. Paul Markovich (10:29): And they figured out how to get really good at maximizing the extraction of revenue out of every contract that they had with a health plan. Hospitals, I think refer to this as revenue cycle management, I think physicians do too. But there's always been a back and forth on this, but they got really, really, really good. Because when we look at our underlying data, we just happen... In California, we pay fee for service, we pay case rates like diagnostic related groups, we pay capitation... Pretty much any payment model you can imagine we have. Well, lo and behold, you look underneath, if we're paying fee for service, the actual trends are way above our projected trends in unit costs, imagine that. As it gets coded when it comes in. (11:12): Colonoscopies, every single other developed country in the world, 80+ % of people, anyone who's healthy just does a fit test. A home fecal test. Which is every bit as good preventive screening results as a colonoscopy does. We're flipped, we take a bunch of healthy people out of work for a day or two, anesthetize them, and do this really high risk intervention that could be done for a fraction of the price at home. Why? When I look at all of this, our trends are lowest in more capitated arrangements, second lowest with case rates, and through the roof with anything that's related to fee for service. So, unless and until you can move that model, I don't think health plans putting more fingers in the dike, the proverbial dike, is necessarily going to make things a whole lot better. I think best-case scenario, get to neutral. And by the way, this is all the stuff that creates friction and a lack of popularity with health plans. Like, oh, let's do more prior authorization because of this. Rae Woods (12:12): Yep, yep. Paul Markovich (12:12): Isn't that a great idea? So, to me, yes, we're facing these headwinds, but that's a reason to embrace this shift, and frankly insist on the shift in order to make things better. Rae Woods (12:25): And you've embraced the shift by going a step further and expanding beyond just the health plan world. So, tell us about the new parent company. Tell us about Ascendiun. Paul Markovich (12:34): Well, Ascendiun is the parent company for, as you said, Blue Shield of California, Altais, which is a clinical services arm supporting physicians and adopting new technology, new payment models, and then Stellarus is newly formed as of January, and we've put our pharmacy initiative and all of our technology, kind of our major strategic initiatives and capabilities in this company, and now Blue Shield of California contracts with them for this. It used to be underneath and be a department or departments within Blue Shield, it's now a separate company that Blue Shield contracts with. But it gives an avenue for other plans. The general idea here is that we need more plans and more folks joining this cause, both for the just financial scale of it, but also it needs to be a more common practice in order to be sustained by the other players in the system, we can't just be out there single-handedly as a rebel. It's very difficult to get physicians, hospitals, pharmaceutical value chain to say, yeah, we'll just do that for you, Blue Shield of California, and then we'll just operate this way with the rest of the world. Rae Woods (13:38): Right. It gives you more span of control, right? If you think about where you started of what health plans can do, the responsibility that they have, it actually takes it a step further to expand outside of the bounds of just being the risk aggregator, just being the insurance arm. And to me, there are two things that this big move allows you to do. First, it's weather the near term. There are headwinds, there are business challenges, they're the ones that I know are keeping the folks in the room and listening at home up at night. But at the same time, there's also this long-term goal, there's this long-term vision that you are rightfully demanding of us, that we need to get to. (14:13): So, I want to talk about how this and some of the other big moves you've made help with that short term, long term. So, let's start with the short-term. I'm thinking about how everyone in this room is staring down the barrel of payment cuts, the policy environment is chaotic at best, utilization shifts, people are getting older and sicker, and we have folks that are younger and sicker. How does Ascendiun help you weather and defend against those near-term challenges? Paul Markovich (14:39): Yeah. Well, at the end of the day, we believe based on our experience with Blue Shield of California and just analysis that we've done about where the industry is right now, that we could help a health plan today cut their administrative costs by 30% or more, and their healthcare cost trend by 10%. 10 points below where it is now. Now, all of these things would take multiple years because you can't just snap your fingers and make them happen, but that's to me the headline. Rae Woods (15:08): But what's the how to get there? Paul Markovich (15:09): Well, again, here's what I'd say, is let's talk about the administrative piece first and this whole notion of being digital. Right now, Blue Shield of California, in part thanks to a law that was passed in California that requires the sharing of electronic medical record information from physicians and hospitals to the health plan, we now have a comprehensive digital health record for our members. They can get on their phone, and all the data from physicians, from different systems, some might be on Epic, some might be on Cerner, it doesn't really matter, all of that data comes in, including claims information, pharmacy, lab, we're adding other pieces of information that people I think often refer to as social determinants of health, but basically, you can get on your phone, real time, pull up your record. (15:55): There's a whole bunch of use cases associated with it. Now that you have a comprehensive real-time record, we can calculate quality scores in real time, we can identify care gap measures in real time. We don't have to do HEDIS pursuit, really expensive thing to do, we can figure out how to settle claims in real time, and not have any claims processors, or not have any revenue cycle management in the moment. So, all of these things and many more can be automated, and so that takes a lot of administrative costs out of your system- Rae Woods (16:25): Which is, by the way, not an AI solution, there's a lot of talk right now- Paul Markovich (16:27): There's not. Rae Woods (16:27): ... about how AI is going to unlock the administrative burden of either care delivery itself or the way that we run our businesses. This is a non-AI solution. Paul Markovich (16:36): That's true, that's true. And now, that doesn't mean when you start using artificial intelligence, on top of this, I think you get more benefits, and we can talk about what those are. But to me, getting our digital house in order saves a whole bunch of money, it also creates this, wait a second, I want to be a four-star plan. Well, if I know what the quality scores are in real time, and I can get into the physician's workflow, a care gap, right in the moment, hey, this would be a good time to do a retinal exam for your diabetic patient, as an example, then all of a sudden your ability to get quality up increases, and the potential revenue that comes with it, you can potentially get accurate risk adjustment in real time, that's audit friendly. So, there's all kinds of things that you can do when you unwrap that, and it leads to much lower administrative costs, higher quality, and it becomes the basis for, you can calculate pay-for-value. (17:30): One of the problems with pay-for-value has been the latency in it. It's like, oh, why do we pay these physicians 12 to 18 months after they've done something of this thing? Because why? We're waiting for all the quality scores to show up. And it's just like, well, you're never going to change behavior, it's like, I don't remember what I was doing last year. And what good does it do me, I could have done something 12 months ago? Especially when you're doing, in some cases, they're doing retrospective assignment. I think it drives physicians crazy. It drives me crazy. Or you're telling me now that I had responsibility for this patient six months ago, and if I had been doing things differently, I would've gotten paid more. (18:08): Well, I'd love to have a time machine, but I don't. Here you are, you're getting into the ability to drive meaningful pay tied to value, and you're able to tie that in real time or near real time, this becomes very meaningful and scalable. So, that's the sort of thing that gets cost of healthcare down, quality improved, administrative cost down... That's a foundational example. Rae Woods (18:32): What strikes me about that example is that it's one that actually everyone in this room can start to make moves towards, it doesn't require a big vertically integrated company to start thinking about getting your digital house in order. I have to imagine that the combination of Blue Shield of California, plus Altais, plus Stellarus just allows you to have more of that span of control over more parts of the system so that the incentives are aligned, so that you're able to get the benefits of scale so that you can address these kind of headwinds directly. Allow me to complicate the story a little bit. Paul Markovich (19:05): Okay. Is healthcare complicated? I didn't realize. Rae Woods (19:08): I hear it is. Paul Markovich (19:09): Okay. Rae Woods (19:10): In California, it's interesting to me because you kind of don't have a choice but to get this right. Because now, in California, providers and plans have to keep spending growth below 3.5%. So, talk about having no choice but to address these headwinds. If you're in California, you've got a curb costs below 3.5%. My question is, how far away are you from that right now? Paul Markovich (19:37): Yeah. Oh, we're not very close. No. I would say that a lot of projections coming into 2025 were like eight to 9% cost of health rate trends- Rae Woods (19:47): Eight to 9% to get down to 3.5% is a big jump, how are you going to do that? Paul Markovich (19:49): Yeah. No, we're below that, but we're still not... We're probably going to be a point or two below that this year, we'll see. Hopefully even lower than that. But I think, I would even just go back a little further, when you look at the trends over several years, I think sometimes we get into the, well, what if it's six or seven, isn't that a success? It's like, this is on top of how much it costs already. Rae Woods (20:09): Yes. Paul Markovich (20:10): So, just to give you an example, between 2021 and 2024, so that three-year time period, our revenue per member for the individual line of business, so this is exchanges, people buying this on their own, increased 26%. Rae Woods (20:28): Wow. Paul Markovich (20:29): So, this is a little more than 8% per year price increases. So, 26% over three years. Our cost of healthcare went up 29% during that same timeframe. And now we're saying, well, what's the trend on top of that? Just to translate that into numbers, we're now over $900 in 2024, over $900 per member per month in our revenue, which means we've got people out there paying 11 on average, on average, $11,000 per year per person to get healthcare coverage, and now we're saying, well, how big is the trend on top of that? It's like, this thing is incredibly expensive. (21:14): So, to get there, it just comes back to the same things I've been talking about, you have to get everybody on the same side of the ledger, we need to be paying hospitals to keep people out of the hospital. We need to be paying physicians to figure out how to make sure that their patients are staying well, and that we're following the best care protocols that are potentially out there. We need to make sure that no players in the pharmacy distribution system are getting a piece of the cut of a price of a drug. Rae Woods (21:43): Yeah. Let's talk about that, let's talk about that. Because you're saying that you're not immune to these very serious pressures that are impacting the business, that are also problems that are showing up in real people's lives. And if I think about the challenging state that health plans are in, you already mentioned the public backlash problem. If I think about the levers that are known, and the perhaps I'll say easiest to pull on, to reduce costs, they tend to be the ones that are also the most hated. You already named it, prior authorization. So, as you go about trying to make some of these big moves, bring down spending growth, as one example, how do you think about balancing, where can I actually make a difference with how do I make sure I'm not pissing off my entire community? Paul Markovich (22:28): Well, I guess what I'd say is, first of all, we're going to have to piss some people off, there's just no way around it. If we're running around trying to keep everybody happy, then that's an absolute recipe for failure. I think for me, it's not that I'm looking to piss people off, it's that I am unafraid of doing that as long as it's for the cause. So, going back to the mission, going back to the numbers. So, I think you're going to see some real messiness right now, because I think you're going to see multiple major potential hospital and system, and even physician group terminations, and it won't just be over money, because there's always been that case and that will be the case, but for us, it's going to be about these structural things. Rae Woods (23:09): Yes. Paul Markovich (23:10): You know what? We're not doing this fee for service thing anymore. So, we may leave you out there in the cold for a while until you realize, yeah, that whole revenue cycle management thing where you're maximizing extraction, yeah, we're not playing that game anymore. We understand you need to make a profit- Rae Woods (23:27): Yeah, no margin, no mission. Paul Markovich (23:27): Yeah. And so, we need to help you be financially successful, but you need to be financially successful helping us bring cost down. Rae Woods (23:33): Which is perhaps the role of Stellarus. Paul Markovich (23:35): Yes, I would say Stellarus for sure. And I think Altais can do that too on the physician side. Rae Woods (23:40): Yes. Yes, exactly. I'm going to do a little bit of a stretch here. Paul Markovich (23:44): Okay. Rae Woods (23:44): I mentioned public backlash, there is perhaps a way that you found an option to thread the needle between pushing public backlash in a different direction while being able to bring costs down, and I'm talking about the move that you made last summer to, I'm going to use the word shatter, to shatter your PBM model. And say let's break it apart, there is no longer one sole PBM. Talk about a big bet that you made last year. PBM is also hugely unpopular, not sure what the net promoter score for them are. But that is a move that you made in the near term to help bring cost down. How is it going? Paul Markovich (24:18): I am going to split it into two pieces. I think overall it's going well, but there's two really broad pieces to this. The first is, how do you create this model of different players, folks like Amazon to do home delivery, and Abarca to do the claims processing- Rae Woods (24:33): Thinking about the different jobs you need different pharmaceutical players to do. Paul Markovich (24:36): Right. And there's literally 143 data connections that we needed to do, data integration points that we needed to have, to just administer the project. We spent about 100 million dollars putting together the administration of this, so it wasn't- Rae Woods (24:49): Talk about a bold bet. Paul Markovich (24:51): Yeah, it's not small, a board reminds me, it's not a small bet. So, there's that piece. And you have to make sure people actually get their prescriptions, and that they're satisfied with them, and there aren't mistakes being made, and that's not a small thing. So, we went live on January 1st, and we delivered on time, on budget, we've got really good service scores, it's going well. So, that administration piece is going well, and the first, I would say, 120, 130 million of savings we've banked, of the 500 million. Now, a big portion of the rest of it comes when you get direct contracts with pharmacy manufacturers for a net price. (25:33): We have a few, we announced, the big one that came out was with Fresenius Kabi on the Humira biosimilar. And so, Humira's net price at the time probably still is pretty close, net after rebates is about 2100 a month, all of the big three pharmacy benefit managers had their own biosimilars that were anywhere from 1100 to 1300, and Fresenius Kabi got us one for $525. So, this is the whole point. When you talk to the pharmacy benefit managers, they'll say, oh, well, look at these rebate savings that you get, and then it's like, yeah, and you're paying $2,100 and you could be getting a deal for 525, which is what we did. We need to do that a lot more than just with Fresenius Kabi and just with this drug, but it requires the pharmacy manufacturers to be willing to directly contract, where I said to them. In the case of Fresenius Kabi, we said, I don't want a rebate, I don't want fees, I just want negotiate a price, and when we get the drug, we pay you for the price... It's a radical concept. (26:35): You just pay for the drug that you have. And then we just pay administrative fee for a service that has nothing to do with the price of the drug with everybody else in the value. When you move to that model more broadly, you get up to that big savings amount, but it requires the pharmacy manufacturers to contract with you, and this comes back a little bit to what you were saying of, well, if you're a lone pioneer, how much can you get everybody to play with you? And there's also a number of things you need to solve because it's amazing to me getting into this how much the business models and the jobs of people, even in pharmacy manufacturers, are tied to rebates. And we found it out even when we found Abarca as our claims processor. There was literally not, at the time we were doing this selection, we couldn't find another claims processing system that could process a claim on a net price basis, they all process them with rebates, just because that's the way the world works. Rae Woods (27:31): It's [inaudible 00:27:31] just how complex the system is, and how frankly hard it is to practically make these bold bets when you can imagine them easily, why can't I just negotiate the price and pay that price? That seems simple, but it's actually incredibly complicated. Paul Markovich (27:43): Right. Rae Woods (27:43): My question is, this something that you also want to see others do? You said that things folks can do are get your digital house in order, move towards more value-based payment, reduce administrative costs... Is blowing up your PDM model something that you think others should do too? Paul Markovich (27:57): Absolutely. Well, here's the thing is, I think that business model is dead man walking, I can't even imagine five, six years from now, it's going to be the most common model. And the reason I say that is because it just makes no sense whatsoever. It's structurally inflationary, it's set up to just drive increased profit margins for the incumbents and the players in the middle. As a health plan, if you want to actually address these issues and all these financial pressures, you're not going to be able to afford it. And so, I think it's just a question of time. It's also getting a lot of political pressure with all of the activities that are going on there. So, there could be a political solution, there could be a business solution. I'm not saying pharmacy benefit managers are going to disappear, what I'm saying is they're going to have to change their business model to something more along the lines of, be an insurer, I will charge you a premium, and I'm at risk completely for whatever the cost of your drug bills are for that year. (28:51): That's one business model. Another one would be more like a self-funded model in the health plan, hey, I'll rent you my network for an administrative fee, not for a piece of the price... We don't do that as health plans, we charge an administrative fee when we're renting out our network and our services to others. So, I do think that that is going to shift, I think others are going to have to move in that direction, and we're going to need others to move in that direction in order to get to the vast majority, if not all of the pricing with manufacturers to be on a net basis, we're going to need more of a movement, and that is where Stellarus can make a big difference. Rae Woods (30:33): It sounds like you're actually willing to do something that's quite radical, which is make the bet, invest the money, do the administrative work to get it right, and then let others draft off of your success. Because that actually comes back to the mission. If the mission is truly to make healthcare sustainably affordable, worthy of family and friends, you have actually failed at that mission if the only people who get that benefit are members of Blue Shield of California. Paul Markovich (31:00): You're right. Rae Woods (31:02): So, let's talk about long-term change. Paul Markovich (31:03): Okay. Rae Woods (31:05): There's some short-term headwinds, short-term bets that you've made, but if we want to get to this long-term vision, what needs to change? Where does the healthcare system need to be dismantled and rebuilt? Paul Markovich (31:16): Yeah. Well, I'd say that there's a number of things I would love to see happen, and by the way, I'm going to put these more in policy framework because I've been at this for a long time, I started with Blue Shield of California in 1995. I became the chief operating officer in, I want to say 2009, I think, and then... So, I was chief operating officer for four years and then CEO for 12 years. So, I've been having these conversations, and what I found is that the system has to change, the rules of the system have to change, but the players in the system, when they have headwinds, they're thinking, I can't think about anything bigger, I just need to buckle down and focus on what's in front of me. Rae Woods (31:56): I need to deal with this fire in front of me. Paul Markovich (31:56): And then when they're not dealing with the fire, there's too much complacency. I can talk about a shining city on a hill for a long time, it just doesn't inspire enough health plans, hospitals, physicians, pharmacy... It just, people don't move. Rae Woods (32:10): So, the burning platform is necessary. Paul Markovich (32:11): So, yes, the burning platform is necessary, which is, by the way, why we helped not just advocate for, but author this California office of affordability you mentioned, because it can create that top down pressure. Rae Woods (32:24): Despite knowing your own uphill battle. Paul Markovich (32:27): Oh, yeah. When I was talking to politicians about this, I said, how many times has somebody from a private company showed up and asked for more regulation? It just doesn't happen. Or more government intervention? But I actually think we need it because I just don't see it coming. So, for example, I think we should pass a law that says every American should have access to a comprehensive digital health record, and that's possible. Just mandate that all the data needs to get shared, mandate that the payers have to create this record, it's technically pretty straightforward to do in today's day and age, make it happen. It wouldn't even require a cost from the federal government, just pass the bill. Make every American have a digital health record. I would like to see pressure, I would like to see us as a society, at the federal level, at the state level, stop and say, enough, this is just not tolerable, we do not have the money. We are bankrupting our country. The average American can't afford the average premium without a subsidy, we can't afford that subsidy. (33:26): We are borrowing massive sums of money from foreign countries in order to keep shoveling money into Medicare, Medicaid, the exchanges, and there's no end in sight, and we've got to be able to say, you know what? Enough is enough, we should be expecting more from our system. So, therefore, we're not going to necessarily show up and do it as the government, but we're going to go tell you, you got to go do it, you got to create these records, you got to create pay-for-value models. I would love to see Medicare and Medicaid say, you can't be contracted with us unless you have a pay-for-value contract, we're getting out of the fee-per-service world. Just not going to do it. Rae Woods (34:02): So, you're talking about policy, so I want to go there for a moment, because the word that keeps coming up when we talk to health leaders about what's happening in health policy, the word that comes up is chaos. Even if I exclude policy and just think about the business and the economic environment, the word chaos keeps coming up. And I think what we're learning is there is a level of risk tolerance that the public is willing to swallow, and if we go over that level, there's backlash. So, think about some of the things that are happening with DOGE, with restructuring HHS, with the Silicon Valley, move fast and break things, where that falls short because we're talking about real people in healthcare. How do you think about both pushing for radical change while not going too far over the line? Paul Markovich (34:43): I love the idea of saying, let's create the math before English, let's create the objective and the goal, let's agree on it, and then give the industry two things. One, the accountability to hit that goal, but two, they can figure out the means to get there. And that's where you get into the, well, wait a second, even with this office of affordability, which is getting a lot of backlash, particularly from hospitals in California, but is that you're not actually cutting healthcare costs. Rae Woods (35:14): You're curbing spending growth. Paul Markovich (35:15): You're actually curbing the future projected increases in healthcare. You're not even reducing it. And people are freaking out over my future increase should be more than that. Rae Woods (35:30): I know they're freaking out, they're telling me they're freaking out. Paul Markovich (35:35): So, to me, it's like, hey, why don't we just and say, you know what? Figure it out. You guys need to figure this out, because we can't be in a situation where... We're going to hit a social political tipping point, we're going to hit a fiscal crisis of some sort in this country. And at that point, right now, healthcare is the budget, you cannot solve this fiscal crisis without getting healthcare costs under control, there's just no other way to do it. So, the sooner we sort of all agree with that, and I keep telling my colleagues in health plans, and then the delivery side, it's like, guys, the money just isn't there. Every time you go lobby for something, it's just pay us more, that's the best answer for this. That is not the right answer, we have to figure out how to make sure you're financially viable, how to make sure we're delivering quality of healthcare, and use fewer resources in doing it. Rae Woods (36:25): The word that's coming to mind for me as we're having this conversation is calibration, right? How do I calibrate the level of risk tolerance? How do I calibrate the level of investment I'm willing to make as an organization to push us forward? How do I calibrate that? And getting that right, knowing how much to turn up the temperature on your own business, on your own community, on your own partners is actually incredibly difficult to do in practice. So, if we've got this North star, if you've got ways that you say, here's how we need to rebuild the system, how does that translate into the practical moves that you want to see others make, particularly others that are in a financially insecure place? I'm thinking about that Blues plan with the -19% margin. Paul Markovich (37:08): Yeah. And yeah, I understand they are judgment calls, Rae, you're absolutely right. Okay, we can stop and say, hey, hospital system, X, Y and Z, we need you to move to this new payment model, but if we're negotiating six of these at the same time, if we terminate all of them at the same time, we might not have a network that's approved by the regulator. So, that's a real practical potential constraint. If you're facing a huge loss and trying to figure out how to turn it around, it's easy to say, why don't you make this strategic long-term investment in your company? But it's very difficult to do in circumstances like that. So, those practical realities are there for all of us, to me, what we aren't doing enough of is we're just not trying hard enough or taking enough accountability for the system. (37:50): Just tell you a quick story, I sit in these forums all the time with other CEOs from other healthcare companies, and this happened to be a forum where it was health plans, and physician groups, and some private companies, entrepreneurs, hospital systems, and we were talking about the Office of Affordability targets, and they said, what did I think? I said, I think it's great. The whole point of this is to get us working together and figuring out ways to make this system more efficient and work together for everybody. And they were like, oh, it just isn't going to work, and here's all the reasons why it's not going to work. And I said, well, hang on a second, we haven't even made an attempt yet, all I've heard you guys talk about is why this thing is so awful. Rae Woods (38:30): Yeah, stop interrogating the problem. Paul Markovich (38:32): Yeah. Why don't we do this? Why don't we just try? Don't we just owe it to ourselves to just try? And I literally had a CEO said, no. Rae Woods (38:40): Wow. Paul Markovich (38:41): No, I already know it's not going to work. That, to me, is not acceptable. It should not be acceptable to us as a society, and I think what you're getting back in a lot of these situations is, I don't even want to try. I don't want to try to make the shift, I'm worried about the risks it poses for my organization to potentially take this thing on, or move to a new payment model, or something else. Now, for us, I think we can help. For example, hey, this is a really big shift to go from fee-for-service to this kind of more per-member budgeted amount, why don't we create some safety nets for you? Why don't we create some reinsurance for you? Why don't we make sure that we make some guarantees in the first couple of years so that there's a path for you. And we can do this together, it doesn't have to be all in one fell swoop, it doesn't have to- Rae Woods (39:25): Again, you're calibrating. You're constantly calibrating how much am I turning up the heat? How much are the rest of my business willing to take? But it strikes me as I'm having this conversation with you that you personally seem to have a high risk tolerance. You're willing to make that bet, you're willing to do the swing for the fences. I have to ask, what makes you nervous about this? Paul Markovich (39:45): Well, the thing is, Rae, the reason I have such a high risk tolerance, it's not just me, our entire family of organizations does, our board does, is that we see ourselves going over a cliff. This industry, when we hit that social-political tipping point, and that fiscal crisis that potentially triggers it, and says, oh my God... For example, foreign countries aren't lending us money anymore, our interest rates are skyrocketing. What do we need to do? Well, you're starting to look like Greece was back in their financial crisis, you got to cut your budget, you have to cut your outlays. How are you going to do that? You can't do it without cutting into healthcare. You have to. And when that happens, and you're this unpopular... By the way, not just health plans, but everyone in the industry. Rae Woods (40:28): Everyone. Paul Markovich (40:28): There's not going to be a lot of sympathy, especially if you haven't been leaning in and trying to solve the problem. So, the question's going to be for all the players in the system, are you part of the solution or are you part of the problem? And if you spent decades just not really doing much of anything, other than defending the status quo and explaining why it's so expensive, good luck. You could find yourself, I would say, marginalized if not eliminated from the equation when that happens. There's no predicting what happens in that situation. So, for us, status quo is the riskiest thing for us, and trying these other things make sense. I do think what we try to do is also pilot things before we just put them at scale. And so, there's reasonable ways to manage these risks, I've explained some of them before, but testing things out, trying things out, providing some safety net coverage for the people that are taking on risk, all these things can help us move to a new system, but the fact is, we just in general move too slowly. Rae Woods (41:27): And it seems that Ascendiun will also help you help others take risks, move forward. Like I said, you'll be at the front of the pack, but you can draft off of Ascendiun's success- Paul Markovich (41:39): That's the goal. Rae Woods (41:39): ... Blue Shield of California's success. Paul Markovich (41:40): That is the goal. Rae Woods (41:41): If that's the case, what is your central message to the health leaders in this room, the health leaders who are listening at home, as they're also trying to figure out, how do I calibrate? How do I move my business forward when there is no guarantee of success, and there are no easy answers? Paul Markovich (41:58): Well, I honestly think that the question you should be asking yourself and helping your organization ask is, how are we making the healthcare system better? That's a different question than how are we making our company better or more successful? But what is it that you are doing to improve the healthcare system? Because whatever business model you have right now, it's not going to be sustainable in the long term unless the system itself is sustainable. And so, we all have to say, wait a second, let's look in the mirror here, in order to really preserve the long-term viability of the organization that I'm a part of, or the practice that I'm a part of, we need to have a system that's sustainable and it's not right now. So, what are you doing to help make that happen? And what can you do to help make that happen? And that needs to be a really important part of the dialogue. And then of course, once you figure out what that looks like, as I said earlier, try. Rae Woods (42:57): Try. Final question, do you have this high of a risk tolerance in your personal life too? Paul Markovich (43:04): Oh gosh. Rae Woods (43:04): Are you skydiving tomorrow? Paul Markovich (43:07): No. No, I do play hockey regularly. I've been playing, I grew up in North Dakota, so I'm- Rae Woods (43:11): So, maybe you've just taken one too many hits to the head. Paul Markovich (43:13): ... playing hockey. Yeah, I've been accused of that before, for sure. I've accused of being an idealist, I've been accused of being dropped when I was young on my head. But I am not a gambler, I don't go to Las Vegas, I'm not really interested in that sort of thing. Rae Woods (43:27): You just truly believe in this mission. Paul Markovich (43:30): I was fortunate enough to win a Rhodes Scholarship, and when I was being interviewed for that, and they were going through the process, they said, look, Cecil Rhodes set up his trust and he wanted to give this scholarship to people who would fight the world's fight. So, the question I got is, "What is the world's fight to you?" And what that crystallized for me in that moment is I always felt that, hey, one of the things we have in common here is we're all mortal, we're only here for a certain period of time, I feel we all have an obligation to try to leave this world better than what we found it... Even in some small way, being a good parent, whatever that happens to be. But I think for those of us that have a modicum of leadership ability, and I count myself amongst them, we have a particular obligation to try to leave the world a better place. (44:11): So, I've always felt like work is a vocation, and what I want to do is how can I make a difference in the world? How can I fight the world's fight? I can't remember how I answered the question, I clearly answered it well enough because they ended up giving me the scholarship, but it stayed with me until I looked at healthcare as a consultant, and I was being asked to join this group that was consulting on healthcare, and I thought, this is a messed up system. And we're all human, if we haven't used the system yet, at some point, we're going to need to. So, if you can improve this system, you can really impact everybody's life. And so, it's just been in my blood since then, and I think this articulation of the mission for our organization is really my professional mission. Rae Woods (44:57): Well, Paul, thank you so much for coming on Radio Advisory, this was great. Paul Markovich (45:00): It's been my pleasure. Rae Woods (45:35): New episodes drop every Tuesday. If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Abby Burns, Chloe Bakst, and Atticus Raasch. The episode was edited by Katy Anderson, with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Leanne Elston and Erin Collins. We'll see you next week.