Spotlight Interview: Scott Ray, CEO, and Heath Potter, Senior Vice President, 6 Degrees Health

About Scott Ray, Chief Executive Officer, 6 Degrees Health

Scott is the founder of 6 Degrees Health and an experienced attorney, accountant, and business executive. He started his career as an accountant and lawyer for Arthur Andersen and KPMG. After leaving the traditional legal practice, he dedicated his career to healthcare, devoting seven years as an SVP and General Counsel for a national transplant Centers of Excellence (COE) network. Today, he collaboratively leads 6 Degrees Health in pursuit of bringing creative and effective cost containment strategies to market.

About Heath Potter, Senior Vice President, 6 Degrees Health

Heath has been involved in healthcare since 2004. As an industry expert, he actively participates in speaking engagements across the country. Prior to joining 6 Degrees Health, he led sales initiatives as Vice President of Sales & Development for a national Centers of Excellence (COE) network. In his role as Senior Vice President, Heath is responsible for all growth initiatives, business development, client relations, and strategic partnerships for 6 Degrees Health. Heath holds a business degree and an MBA from Washington State University, Carson College of Business.

About 6 Degrees Health

6 Degrees Health is a cost containment company with a group of experienced healthcare professionals that believes it takes a network of industry relationships to deliver optimal health plan solutions. 6 Degrees Health is built to bring equity and fairness back into the healthcare reimbursement equation. Our cost containment efforts utilize MediVI technology, which supports our solutions with objective, transparent and defensible data. Solutions include everything from provider market analyses, reasonable value claim reports, claim negotiations, and referenced based repricing.

Medical Travel Today (MTT): How did you start this company and what led you to this venture?

Scott Ray (SR): Heath Potter and I, along with some others in the company, were working in the Transplant Centers of Excellence world, and other specialty care networks for catastrophic solutions. It became apparent to me that there was a problem with the network model, both broad primary networks and specialty care networks. What I mean by that is the networks weren’t doing a good job of addressing the differences in financial outcomes between hospitals.

Just to give you a quick example, if I had a patient that needed a kidney transplant, and he was living in Winnemucca, Nevada, he would need to travel to get that service. The patient could go to Salt Lake, Utah or they could go to the San Francisco Bay area, both of which have very good hospitals with Centers of Excellence designations. They have excellent quality scores and they’re both in-network for most transplant networks.

From the user standpoint, they’re the same. But when you look at the cost data, they’re not the same. The cost of care in the Bay Area is multiples more than what it would cost to go to Utah — not to mention the fact that wait times are longer in the Bay area vs. Utah.

That was the genesis of 6Degrees, which is to bring both quality and price transparency to health plans. One of the primary vehicles to do that is eliminating a health plan network.

MTT: You obviously expanded beyond transplant procedures.

SR: I started the company in 2012, and the original business model was to get hospitals to build out of these narrow network-type concepts. But what I quickly realized is that hospitals really didn’t want to get off — what I refer to as — the PPO gravy train. And so, there was a flaw in my model.

Around 2014, we started hearing more about reference-based pricing and seeing more players in that space. I thought, “You know, this could be a good way to force a non-status quo conversation with hospitals.”

It’s one thing if you walk into a hospital and try to sell them on a narrow network concept … they often get stuck on thinking the deeper discounts will just lead to cannibalization of their business. But if I have a reference-based pricing plan without a network, now we are in a position to partner with select providers in a market and create a true win-win for the plan and provider, i.e., increase payment and volume to select providers. 

That’s a foundational item with our approach to reference-based pricing – we don’t really see reference-based pricing as the solution, rather we see it as a way to have a conversation with a hospital and start to develop strategic relationships and high-quality contracts with select providers in a market.

MTT: Your collaborative work then is with hospitals. Are they all acute care hospitals or are there any outpatient surgery centers involved?

SR: Yes, we work with both hospitals and surgery centers, as well as physician practices. There are two big provider issues that you run into with reference-based pricing.

One is the balance bill, which is created when patients walk into a hospital and sign a contract, typically without understanding the ramifications, that says something to the effect of, “I’m going to pay you whatever my insurance company doesn’t pay you.”

If you look across our whole book of business, the balance bill rate is between 3% to 4% for hospital bills, and less than 1% for physicians. Considering the claim volume, it’s a small percentage, but that 3% to 4% can cause a lot of pain for health plans if not handled appropriately.

The other big issue is access to care.

What we’re seeing are hospitals that will create barriers to access their elective services for a member that’s not part of the contracted network. One of the strategies that we’ve employed to combat that is a cash pay program.

If I have a patient show up at a problematic health system that creates problems for access, we have an avenue now where we can get that patient potentially lined up with a cash-up-front bundle deal for a knee replacement, for example.

The cash pay deal can happen at a competing health system, the original hospital selected by the patient, or potentially an ambulatory surgery center.

MTT:  Do you have an example of how you are bringing transparency to payers?

SR: We’ve developed a software platform called MediVI, which contains hundreds of thousands of CMS medical claims every year, hospital cost data, organ cost data and combines it into one system. When we look at what hospitals charge health plans for organs, for example, the cost may be for a living donor or a cadaver donor.

There are these intermediary entities called organ procurement organizations (OPOs), which are regulated entities because organ allocations are controlled by the federal government. They charge the recipient hospital a fee to facilitate the harvesting and allocation of the cadaveric organs.

Now I’ll give you a little stat that often blows people’s minds: The OPO fee for a kidney can be a fraction of what the hospital charges the health plan for the organ.  Hospitals routinely pay one price for the organ, and charge a much higher price to the health plan.

For example, if you look at a hospital in Portland, Oregon, you could see a hospital charging a plan $60,000 for a cadaveric kidney, close to what the OPO is charging. But then you get to other hospitals that are much more aggressive.  For example, I’ve seen a kidney charge in San Antonio that was over $400,000 just for the organ.

You get enormous variation across the country in how hospitals are marking up these organs that were donated for free. Under federal law, you can’t profit from the donation of organs, but some hospitals appear to be profiting on what they are charging health plans for organs.

So, we’re taking something that somebody donated out of the goodness of their heart, and it could end up being billed out at hundreds of thousands of dollars, far in excess of the provider’s actual cost.

MTT:  Many in the industry recognize this but it is an eye-opener to the rest of the world. Employers that are using these health-plan networks are not benefitting from transparency.  Can you talk about what the employer’s facing, and why they’re moving toward self-funding?

SR: The transparency issue has been a problem because the network contract with the hospital is proprietary and confidential. It’s important to look at a traditional employer and the way contracts work with a network- forgive me if I get overly technical.

A hospital contracts with a network, such as Blue Cross, Cigna, United, etc. The network then contracts with a third-party administrator (TPA) to allow that TPA’s clients access to the network. Then the TPA contracts with the individual self-funded health plan. In that chain of contracts, the employer group is agreeing to the terms of the network contract with the hospital, but the health plan typically never is allowed to see the contract terms between the network and provider.  So, they’re being bound to terms that they have no control over.

In reality, not all network contracts are bad. But far too often the typical contract and is based on a percentage of the gross bill charge, or has some outlier provision that is driven by billed charges. The problem with that is when you look at the way hospitals charge for services, you start to see why the system is broken.  This gets back to what our MediVI platform brings to the surface.  For example, we look at Medicare to billed ratios, meaning we’ll look at what Medicare would pay for a service, and then we will show what that hospital is charging as a multiple of that Medicare rate.

For example, Mayo Clinic, for inpatient care charges on average between three to four times what Medicare would pay them. If Medicare paid them $1,000 they’re going to be billing $3,000 to $4,000 when you are looking at averages.

So that’s not a high mark up in the hospital world, but you can get into some markets like Pittsburgh, for example, where the inpatient markup on average is over 15 times Medicare.

I’ve seen hospitals charging in excess of 25 times Medicare. So, you could have a hospital charging $50,000 for a spinal fusion and down the road, and another charging $400,000 for the same service in the same market.

This happens because there is no price transparency. The free market economy doesn’t control the pricing.

MTT:  Your company is positioned to serve the employer then?

SR: Yes, absolutely.

MTT:  Tell us about your client base and the size of the employer or its industry niche.  Give us a profile of your customer base.

SR: Most of the self-funded employers that are doing reference-based pricing are probably in the 100 to 1,000 employee range. We have clients as large as 5,000, and we’re seeing more and more medium to large sized employers going into this space.

Historically I would have said it tends to be more of the blue-collar type of employers, maybe manufacturing where margins are slim. I would see reference-based pricing being an option that an employer takes out of necessity because they’re faced with financial disaster over 10% to 15% trends on the traditional healthcare model.

For some, it was a last-ditch effort to save their health plan. But as referenced based pricing is getting traction and gaining popularity, we’re seeing more and more white-collar companies adopting the practice, and plans are seeing this as a way to take back control of their health plan.

We have clients such as engineering firms, law firms, software companies and others classified as white collar enterprises.   We are definitely seeing the mix of industries change from what was traditionally manufacturing.

MTT: Would you ever recommend hospitals or systems outside the U.S.?

SR: I wouldn’t say that we recommend. We certainly can facilitate access to those, if needed.

For example, we do hold some contracts with facilities for certain elective procedures outside of the U.S. To be honest, we don’t see much utilization because there’s plenty of options domestically for facilities that can offer these services at an affordable price.

The pricing that you can get at some of these ASCs is very competitive with foreign hospitals. So why take the risk of traveling abroad when you can get those services domestically?

MTT: Would you mind telling me which countries or which areas regionally you have looked at?

SR: I’ve toured a facility in the Grand Caymans. And we’ve had some clients send patients down there, mostly for Rx drugs.

We typically don’t get directly involved in that solution, but we have partners that offer this solution for managing those high-cost drugs, it is a viable option if you have an aggressive health plan that is an outside-the-box thinker.

There are ways to save even when you consider the travel costs and incentivizing your members, i.e., the plan can still save money despite the transaction costs.

We control drugs costs for our RBP plans that show up our claims. But once they get into the PBM realm, then it’s beyond our control.

MTT: Where do you see the future of your business going? Are you going to be working with associations, employers? How do you see that association business going?

SR: We’ve had some that are in the association space and have wanted to use us as the backbone to a solution. I don’t claim to be anywhere close to an expert on association health plans.

From what I do know, there was a lot of hope built into them with what the Trump administration was doing, but probably not the right person to get into the details on the plan, other than we’re happy to service them.

MTT: And where do you see your business expansion, your footprint growing? Is it the national employer market?

SR:  In terms of employer size, we’re seeing a lot of growth in that thousand plus area. In terms of areas of the country, an area that we’re growing really fast — which is a little surprising to me — is on the West coast.

We’re based out of Portland, Oregon, but historically, our footprint naturally followed where self-funding is really popular. It’s been a little surprising since I think the Northwest market isn’t overly aggressive in terms of hospital pricing relative to Texas, for example, or California or Florida.

It may just be because we’re in this region, but that has been a big growth area for us recently.

MTT: What is the appetite for travel? Are people willing to travel 400 miles, 100 miles, around the corner?

SR: I think that it’s all about incentives.

A lot of folks are financially driven, and we’ve seen a case study from a few years ago where we had a broker in Eastern Idaho who struck a deal with a rural hospital, a small critical access hospital. At first, the hospital was concerned about doing an aggressive deal because they just assumed that they were getting the business of the local employers

When the data was presented to them, it was clear that much of the volume was leaking to competing hospitals. I can’t even remember what the percentage was, but it was less than half, I think, of the total plan volume that was going to the hometown hospital.

So long story short: they did the deal. The plan put incentives in place for patients to go to the hometown hospital, and the utilization change in 12 months was amazing.

Heath Potter (HP): 67 percent to be exact. This was a pretty substantial change in utilization patterns just by incentivizing patients to go to one hospital over the other.

MTT: Do you perceive that the health plans are threatened or concerned about this direct-to-employer contracting?

SR: Yes. I don’t know how concerned, but I think it must be on their radar now.

That is a big question in terms of what the response will be from the large carriers. We’ve seen some of them acquiring TPAs as part of a strategy to diversify and make sure that they are part of this trend.

I think that it’s a very complicated problem from a network’s perspective because if I’m a large network, it’s hard for me to go out there and offer a narrow network option, i.e., I’m going to upset those who don’t get included in the narrow option, which may have ramifications for my broader network option.

I think they’re in a challenging situation, and I’d be foolish to try and predict what their response is going to be. Overall, when you look at the total volume of plans deciding to get away from the traditional model, I think it’s safe to say it’s a fraction or a very small number. But it’s certainly a growing trend.

RBP is what everybody wants to talk about, and we are seeing substantial growth. In our company alone, we saw a 300% growth rate in 2019, driven mostly by reference-based pricing.

MTT: One more thing. What do you think of the election, the politics? Is that going to impact what you’re doing? Medicare for All?

SR: I’m certainly not the expert on the topic, but I think that it’s safe to say that you can’t vaporize an industry of this caliber with a government option.

The data that I have seen suggests that the government programs are growing, and the commercial market is shrinking. I don’t have any reasons to believe that that’s going to change.

From a hospital perspective, that is part of the problem because hospitals look to the commercial market to fuel their profits.

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