Mark Cuban’s advice for hospitals

Hospitals have many options to improve their finances — but many of them will be uncomfortable, said Mark Cuban.

The co-founder of Cost Plus Drugs testifies before legislatures on healthcare reform and regularly discusses ideas with political leaders, senior Trump administration officials and healthcare executives.

Cuban bluntly laid out a range of options for hospital leaders that could improve their finances during a recent podcast with The Healthcare Bridge hosted by hospital advisor Nate Kaufman. Here are some of his suggestions for ways hospitals can increase revenue or cut costs.

• Focus on variable cost for Medicaid. Cuban said even cut-rate Medicaid payments can contribute margin for nonrural hospitals with reasonable fixed costs. That financial payoff from Medicaid is especially relevant for hospitals with excess capacity.

• Cut consultants. Cuban said that hospitals with whom he talks spend multimillions of dollars on consultants. While those may be necessary in compliance and IT functions, hospitals could save money by hiring the necessary staff in other areas.

• Footprint expansion. Spending priorities should shift from building new facilities to increasing physician pay and cutting prices for patients. Such spending reprioritization can boost clinical outcomes and eliminate massive carrying costs from new facilities.

“One of my friends runs a hospital and he came to me and said, ‘We’re building this new pediatric hospital.’ “I’m like, can those kids work in the buildings you already have? So instead of building this new building with the money that was donated, why don’t you use that to reduce the costs available to patients? Why don’t you use that to pay doctors more?’”

• AI reviews of ASOs. Self-insured hospitals have an easy option now to drive costs out of the administrative services-only (ASO) contracts: AI. Cuban said that directing an AI program to review their contracts with ASOs and pharmacy benefit managers (PBMs) can provide quick insights.

“Just say, ‘Where are they ripping me off?’ You will find out within five minutes,” he said.

Those reviews can provide an optimized contract to eliminate provisions like spreading pricing or data blockages.

• Drop BUCAH ASOs. Cuban told hospitals that the national health insurance companies (Blue Cross Blue Shield, UnitedHealthcare, Cigna Healthcare, Aetna, Humana, known as BUCAH) providing ASO management services and PBMs are “ripping you off.” That criticism stemmed from their pervasive use of tactics like prior authorization and spread pricing.

Cuban said hospitals using such arrangements are saying, “You don’t trust your own doctors. You need an ASO to tell your members which doctors to go to, and you run a hospital.”

• Offer radically lower-cost options. If they chose to do so, hospitals could offer lower-cost, less luxurious options for patients. The example he used was hospital wards, which used to be common but have disappeared from U.S. hospitals.

 “You don’t see wards anymore. But I guarantee you, if you offered [them] to certain people, the cost of care would be 10% [of private room costs],’” Cuban said. And some patients would take that alternative.

Such radically reduced-cost alternatives are rejected by hospitals because they are concerned that it would adversely affect their brand in the market, he said.

• Direct contracting. Instead of launching health plans, hospitals and health systems have a massive revenue opportunity from directly contracting with local employers, Cuban said.

Such arrangements can reduce costs for employers while increasing revenue for health systems because their patients are sent to competitors by the ASOs.

“Why don’t you do a direct contract and why don’t you have people who know how to deal with all this stuff?” Cuban said about hospitals. “And you start with the biggest employer. Work it out. Then you work your way down to the other eight to 10 big employers, and by the time you’re done in a couple years.”

Hospitals can test direct contracts with their own employees to figure out how to structure them to ensure that such arrangements can cover their costs and provide a margin.

• Direct primary care. Health systems can compete with independent concierge practices by setting up their own capitated subscription arrangements to local employers and pricing them through the use of historical claims data.

• Carve-out deals. Short of full-fledged direct contracts, hospitals and health systems can set up carve-out arrangements with local employers, in which the hospital is contracted to provide specific services to otherwise insured employees.

“Everybody in the whole business world does that, except for hospitals and clinics and doctors and the like,” he said.

• Radical transparency. The best way to prevent local, state and federal policymakers from implementing aggressive cost-control measures, like hospital price caps, is for not-for-profit health systems to greatly increase their public financial disclosures.  

“Rate-control price setting comes because people don’t trust the source of care,” Cuban said. “Do you know anybody who trusts the economic side of healthcare at all? No, I don’t.”

The transparency Cuban described is far beyond federal and state price transparency requirements and would include general ledger entries, specific costs and average salaries for every employee category.

“Open it up, prove to everybody this is why you’re losing money. If you’re just blaming it on price-setting, you know you’re [getting nowhere] because you’re not giving us any valid data,” he said.

Why an organization resists such radical transparency is also informative. For instance, some may worry that others will learn that it pays large salaries to fundraisers, has multimillion-dollar contractor spending or has greatly increased costs from joining a group purchasing organization that was supposed to save it money.

• Target savings. Instead of across-the-board cuts common at some health systems, Cuban said they need to approach cost reductions more strategically. That could include reconsidering their presence in certain markets or standardizing surgical equipment, instead of cutting the salaries of all clinicians.

“It’s no different than any other business, no matter what they tell you. The outcomes are more important, but it’s still just a business,” Cuban said.