By MATTHEW HOLT

I was invited on the Health Tech Talk Show by Kat McDavitt and Lisa Bari and I kinda ranted (go to 37.16 here) about why we don’t have primary care, and where we should find the money to fix it. I finally got around to writing it up. It’s a rant but a rant with a point!

We’re spending way too much money on stuff that is the wrong thing.

30 years ago, I was taught that we were going to have universal health care reform. And then we were going to have capitated at-risk entities. then below that, you have all these tech enabled services, which are going to make all this stuff work and it’s all going to be great, right?  

Go back, read your Advisory Board Company reports from 1994. It says all this.

But (deep breath here) — partly as a consequence of Obamacare & partly as a consequence of inertia in the system, and a lot because most people in health care actually work in public utilities or semi-public utilities because half the money comes from the government — instead of that, what we’ve got is this whole series of massive predominantly non-profit organizations which have made a fortune in the last decades. And they’ve stuck it all in hedge funds and now a bunch of them literally run actual hedge funds.

Ascension runs a hedge fund. They’ve got, depending who you believe, somewhere between 18 billion and 40 billion in their hedge fund. But even teeny guys are at it. There’s a hospital system in New Jersey called RWJ Barnabas. It’s around a 20 hospital system, with about $6 billion in revenue, and more than $2.5 billion in investments. I went and looked at their 990 (the tax form non-profits have to file). In a system like that–not a big player in the national scheme–how many people would you guess make more than a million dollars a year?

They actually put it on their 990 and they hope no one reads it, and no one does. The answer is 28 people – and another 14 make more than $750K a year. I don’t know who the 28^th person is but they must be doing really important stuff to be paid a million dollars a year. Their executive compensation is more than the payroll of the Oakland A’s.

On the one hand, you have these organizations which are professing to be the health system serving the community, with their mission statements and all the worthy people on their boards, and on the other they literally paying millions to their management teams.

Go look at any one of these small regional hospital systems. The 990s are stuffed with people who, if they’re not making a million, they’re making $750,000. The CEOs are all making $2m up to $10 million in some cases more. But it also goes down a long way. It’s like the 1980s scene with Michael Douglas as Gordon Gecko in Wall Street criticizing all the 35 vice presidents in whatever that company was all making $200K a year.

Meanwhile, these are the same organizations that appear in the news frequently for setting debt collectors onto their incredibly poor patients who owe them thousands or sometimes just hundreds of dollars. In one case ProPublica dug up it was their own employees who owed them for hospital bills they couldn’t pay and their employer was docking their wages — from $12 an hour employees.

Now despite the ACA hoping to change American health care, these hospital systems make all their money not by doing primary care, but by running their high intensity services — cardiology, neurology, orthopedics, general surgery and all the rest of it. They recruit superstar surgeons who keep the cash tills running—even if they came from doing quasi-fraudulent care down the street. And they’ve spent the last decade growing.

I used to think – and this was the intent of the ACOs under the ACA –that this would be sorted out by capitation and value-based care, but it just hasn’t happened. Hospital systems spent the last couple of decades growing by buying primary care doctors, running their practices at a loss and capturing all their referrals for the expensive procedural stuff. In fact there’s a term for this—they call it preventing leakage.

I’ve been looking at this for a while, and then the real crowning thing that pissed me off, the cherry on top of the sundae if you will, was the answer as to why do they have all this money in reserves, or in their hedge funds? Why does a small health system have $2 billion plus sitting in the stock market or sitting in cash? You know why? Well, presumably it’s there for a rainy day, right? When something bad happens, they have money and they can sustain themselves, to run their mission.

Well we had a rainy day starting in March, 2020. Inpatient and elective care got shut down under Covid and they all started losing massive amounts. What happened? They said, now we need a bailout. That was a huge part of the CARES Act.

The only two organizations I respected at that time were for-profit chain HCA and Kaiser Permanente who were given bailout money but  gave it back because they said they didn’t need it. But many more were like Commonspirit with 140 hospitals across the country, which got $1.5 billion. Hundreds of millions went to hundreds of these individual systems.

I haven’t done this scientifically, but we know that in their “reserves” Ascension has got $40 billion, UPMC has got $12bn, Kaiser’s got a ton as well. A medium sized systems like that RWJBarnabas in New Jersey’s has $2.5 billion, and one in Minnesota called Essentia, which I’d never heard of until last week, has more than $600 million in its reserves. There is probably $250 to $350 billion sitting out there on the balance sheets of every non-profit hospital in America. And if you chuck in the health plans, it’s probably way more. There’s likely an Apple or Google size cash mountain sitting out there

If you started American health care from scratch what would you do? You would give everybody primary care. If you look at the people who actually have been moving the needle on controlling hypertension and managing diabetes, it’s all people with a primary care approach, who spend a lot more money on primary care than on later stage specialty care for the people who already are sick.

I heard a great talk from Bob Matthews who works with an inner-city medical group with a mostly low income African America population, helping them manage hypertension. The best at doing this in the state of California is of course Kaiser where 70% of people with hypertension are within official guidelines and are “under control”. The state average is below 40%. But with this tough population Matthews’ group was at 94%. We know how to do it properly, but we don’t spend any money on it.

So how much do we spend on FQHCs which are basically primary care for poor people. I asked ChatGPT and the answer is $38 billion.

If my guess is correct there’s $300 plus billion in these hospital reserves sitting there not doing anything other than buying Nvidia stock and yet it costs only $38 billion a year to run the FQHCs. You could add another $38 billion a year for probably ten years just by confiscating all the reserves and the hedge funds of the rich systems–which they don’t seem to be doing anything with!

I understand that this is America. You will see no finer example of regulatory capture than the AHA and every single hospital in every single congressional district making sure that there is no such thing as a real assault on their balance sheet. And if things go in the least wrong, you know, they have all these employees and they’re very important for the local economy and yada, yada. And changing that is unbelievably difficult in America.

Bu at some point it’ll have to change.

Bob Matthews, who I mentioned earlier, is from a company called MediSync, which supports a bunch of primary care groups. They essentially use intelligent machines, telling the doctors which drugs the people with hypertension should be on and how they should be treated, and help the primary care docs match the patients to the guidelines. If you actually do that, you have a much better chance of actually helping people avoid the problems of hypertension, diabetes et al. There’s a bunch of stuff you have to do. It requires proper patient outreach and yada, yada, yada. It’s not easy, but you can do it. And we have failed to do it because more than half the people in this country don’t have access to a primary care doctor.

I remember at Health 2.0 years ago I asked Marcus Osborn why Walmart got into health care delivery. He said that they surveyed Walmart shoppers, asking how many of them had a primary care doctor? And about 60% of them said they have one, 40% said they didn’t have one. Then they asked the 60% what the name of their primary care doctor was, and half of them didn’t know it. So not much of a relationship there! So at that point they said, hang on, perhaps we should be investing in primary care. And that’s why Walmart, Walgreens, CVS et al are now in the primary care business — because they think there’s an opportunity because the current incumbents have done it so poorly.

And why would the current incumbent big health systems bother to do what Bob Matthew’s groups did? Because all they’re interested in is getting the expensive people into their facilities to do expensive stuff to them in order to generate money, which then ends up in their hedge fund.

This is so screwed up.

We’re spending so much more than anybody else. We do need hospital systems. We do need intensive inpatient stuff. We need to figure out how to fix cancer. But we need to do less of it and we need to pay less for all the stuff we’re doing. We’re spending way too much, when we’re paying 10 times what everybody else in the world is paying for drugs. They call it the free market. But there isn’t one. There’s price fixing and price setting.

Every other country does price setting. And we do price fixing by the companies who make Ozempic and Humira, and stents and hospital beds and then of course by the systems that provide all these services.

We shouldn’t be putting up with this. And expecting a free market approach to get it right means that we’re relying on people who haven’t figured it out for years. Like employers.

Healthcare is a regulated market. Our primary payer is the fricking federal government, it’s not the free market. I’m trying to connect the fact we need to spend money in places it’s not being spent while there’s this obvious source of money sitting there being managed by hedge fund guys.

Literally, the former CEO of Ascension actually moved over to the hedge fund and is paying himself like $12 million bucks a year to manage the investment. I mean, good luck to him. No one’s stopping him. But at some point, we’ve got to say, why do we allow this?

Because technically half the money in hospitals comes from the government. At least 50% of their activity is a public utility. If RWJBarnabas was a pure government organization would there be 28 employees making a million bucks a year? I sincerely doubt it.

So let’s have a real evaluation of what money is available and lets take it from the organizations that shouldn’t have it and put it in the place where it’s needed.

Matthew Holt is the publisher of The Health Care Blog

The same day Walgreens announced its $5.2B investment in VillageMD to snag a majority stake in the growing primary care clinic, it ALSO revealed it had made a $300M investment in CareCentrix that scored 55% of that company and another opportunity to expand its reach beyond the pharmacy – this time into the home.

CareCentrix’s CEO John Driscoll takes us behind the deal, which lands Walgreens into the world of post-acute care (home nursing, hospital discharge recovery, home infusion, palliative care, etc.) which he describes as the “long-form sexy-cool” segment of the healthcare market that’s not only worth $75B annually now, but that’s also set for massive growth over the next 20 years.

Walgreens is clearly seeing the opportunity John’s seeing, particularly when it comes to positioning its pharmacies as “local health distribution and support centers” – hubs that leverage both the trust patients have in their pharmacists and the frequency with which they visit a Walgreens store compared to a doctor’s office or hospital. In the Walgreens Health strategy, what’s the vision for how CareCentrix and VillageMD will ultimately work together to take care of these regular Walgreens customers? Will post-acute care fair as well as primary care when it comes to a retail distribution channel? And, of course, we HAVE to go behind the scenes on the deal itself and ask John what we were all wondering: Why didn’t Walgreens just acquire both VillageMD and CareCentrix outright??

“Next-gen” healthcare might just be getting its start in primary care. So says Crossover Health’s CEO, Scott Shreeve, who laughingly channels Justin Timberlake and says he’s “bringing sexy back” to it too. With Walmart launching its own Healthcare Super Centers, Walgreens partnering with VillageMD in a $1-billion-dollar three-year deal, and some soaring post-IPO stock prices for OneMedical and Oak Street Health — it appears he’s onto something. And, hopefully, it’s something big that’s borne from Crossover’s recent partnership deal with Amazon. Will this be the tech giant’s next foray into healthcare? We’ve got the analysis on Amazon, Scott’s insider insights on what’s next for the primary care market, AND some phenomenal perspective on the “rise of the ‘Health Activist Employer’” as healthcare’s “most innovative payer.”

In less than one week, the Health 2.0 8th Annual Fall Conference will feature over 200 LIVE demos, 150 speakers, on over 60 panels and sessions focused on innovative solutions within health care technology.  Indu Subaiya, CEO & Co-Founder of Health 2.0 interviewed Adam Pellegrini, VP of Digital Health of Walgreens ahead of his appearance at the 8th Annual Health 2.0 Fall Conference. Adam will be participating in the Monday main stage panel “Consumer Tech and Wearables: Powering Healthy Lifestyles.” In this interview, Adam gives insight into Walgreens innovative API creating the seamless user experience.

Indu Subaiya: So you are leading up a number of very exciting initiatives at Walgreens in terms of digital health. Let’s begin by talking a bit about the API program and the developer ecosystem that you’ve built.

Adam Pellegrini: Absolutely. So Walgreens has been offering a very robust API program for quite some time – this idea that our stores in the online space should be really an omni-channel user experience.  If you think about our stores, our stores actually have a lot of partners that actually have products in the stores.

So really, our API program is really about partners. It’s about bringing and facilitating the digital ecosystem together via API.  So for us in the Health API space, it’s about how do we help all of these different apps leverage the ingredient technologies that Walgreens has created to create a seamless friction as user experience.

IS: You mentioned that the Health API has drawn a lot of members within the Health 2.0 community.  Can you tell us a little bit about some partners there and how this is then connected to your Balance Rewards program?

AP: GenieMD is actually one of our partner apps that leverage our Refill by Scan, our personal health app that goes on both Androids and iPhones.  And some of that could be really convenient and add a value to their app by embedding the API that we have for refilling prescriptions, the Refill by Scan.

So those, as well as Healthspek and PocketPharmacist, all of these different apps have adopted the Walgreens prescription API, and it basically added that ingredient to their own experience.  So for us, we are obviously very proud to be able to offer these APIs, but are very thankful that our partners have done very unique ways of building them into their own consumer experience.

IS: How does this then translate into the Balance Rewards program, because you’ve had tremendous traction and uptake with that and the partnerships specifically with Rare Gold device companies?

AP: Yeah, absolutely.  So the Balance Rewards Program, specifically what we call “Balance Rewards for healthy choices” is a program where we’re rewarding our customers with balance rewards points for getting fit, eating right, and managing their health.  We have opened up our Balance Rewards API to partners that have that same shared vision of getting people healthy and focusing on those same areas of getting fit, eating right, and managing  health.

So organizations like Fitbit, Withings, iHealth, MapMyFitness Lose It!, MyFitnessPal, RunKeeper, all of which work with Walgreens in multiple ways, found that this would be a nice ingredient for them to add to their own experience.  Frankly, it’s a great way of rewarding consumers no matter where they’re at along the healthy choices journey.

It was us providing something to our partners that we value, and it was also something that we know that we can reward our customers.  Even if it’s on other apps or other web properties, at the end of the day, the goal is to get folks happy and healthy.

So with that growing ecosystem of partners, we have seen a groundswell of consumers engaged in the program, earning points, and interestingly enough, very focused on the social aspects/online social networks where Balance Rewards for healthy choices allows them to come together and talk, share recipes and share tips and insights.The idea is rewarding those tiny habits, those small changes so that they can create their own personal victory.

IS: And you’re seeing some pretty strong numbers here, as well as both in terms of numbers of users, as well as that engagement level?

AP: Absolutely. The numbers keep growing and growing on a daily basis with regards to engagements.  We’ve seen over 1.8 million active users in the program.  We’ve given out over 3 billion points for healthy behaviors, and folks have logged over 200 million miles in the program. We’re seeing that engagement curve take up very sharply, and we’re seeing the numbers.  Frankly, a lot of our partners have seen it is the right thing to do because it’s really tackling those core pillars of primary prevention.   I think that’s something that we can all get behind and be proud of..

Engagement numbers are very powerful because often times, you wonder how long people will stay connected or stay active.  We believe that it’s the combination of rewards and  taking simple steps, the small changes towards being healthy, that really help folks tackle small victories.   I think that’s what has caused this momentum of adoption.

IS: Yeah, that’s great. There are really some big numbers there. Looking ahead at the future of the retail experience, how are you thinking the roles — like digital health, play in that?  Are you doing some interesting experimental work now with Google and others?  We’d love to hear your thoughts and kind of your visions for how Walgreens as a retailer incorporates the future of digital health.

AP: For us, we really want to make sure our omni-channel experience remains true – that our approach  supports a frictionless experience both online or offline.  It makes it effortless for customers to engage wherever, whenever and however they choose.  It seems like Google’s Project Tango, really, what we want to be able to do is show that just because you’re in a store doesn’t mean you can’t have a digital experience, or just because you’re online doesn’t mean you can’t have that same feeling of being able to interact with someone in the store.

So we believe that the future truly is a seamless experience both from online to offline and back to online again.  When where, if I’m in a store, I can see all the value that the online brings even if I’m in the store.  For example, perhaps there’s a flu shot campaign going on and I may not have even seen the sign, but now, I can get an alert or a notification to go back and get my flu shot.  I can look around and I can see this is where the glucometers are and go up to a glucometer, find out whether there were reviews on this glucometer.  Is it right for me?  Do I need all the features and functionalities?  And provide that in simple tidbits so that it can educate me while I’m looking at devices, and potentially connect to coaches that can actually say, “Yeah, that’s a good one and that fits your style.”

So really–we see digital enabling the store.  We see the store being that critical answer point for all of our consumers, and making sure when they leave the store, we can still give them a great experience no matter where they are.

IS: That’s really exciting and we look forward to learning a lot more about everything that you’re doing at Walgreens.  All of the initiatives sound really, really interesting and already quite successful.  So we look forward to having an update from you in a few weeks.  Thank you so much for sharing time with us.

AP: Well, thank you very much.  We’re very excited to participatein Health 2.0.

All eyes are on the hullaballoo created by the challenges at Healthcare.gov and several of the states’ public insurance exchanges.  Yet all the while, like in a magic show, attention has been diverted from the real action going on elsewhere.  Quietly and in a relatively drama-free way, the private health insurance exchanges are busily taking over the world of insurance and, in my opinion, portend a radical set of changes in how our health insurance system operates.

Several years back, a number of companies began building private health insurance exchanges to initially help companies offload the incredible burden of retiree benefits.  Companies such as Extend Health (now owned by Towers Watson), Senior Educators (now owned by Aon), and several others provided a way for large employers to get themselves out of the business (and balance sheet liability) of providing group benefits for retirees, instead providing them with money to purchase their own individual health policies through then small, now large companies.  The private exchanges went about the business of building websites that work, call centers that buzz and a wide array of insurance product offerings at various prices.  Now, several years later, hundreds of thousands and possibly millions of individuals are out there shopping their little hearts out, choosing their own plans, and dealing with the consequences of high deductibles and the like.

These various private exchanges are now poised and ready to begin serving active employees in 2014 as guaranteed issue (the requirement that all can be insured and no one turned away) goes into effect as a result of the Affordable Care Act.  And lest you think this is a small marketplace, you are wrong.  In 2008 there were about 120 million total employed workers and just over half of these worked for companies of 500 employees and above (39 million worked for companies with 5000 employees or more).  In other words, we are talking about nearly half of American adults and that doesn’t even include the dependents they bring along into their insurance plan.

Interestingly, such large US employers as Walgreens and Petco and DineEquity (parent company of Applebee’s Neighborhood Grill & Bar® and IHOP® restaurants) are all-in on the private exchange program, committing to transfer all of their employees from group plans to the exchange to purchase individual plans come January 2014.  The exchanges of Towers, Aon, Mercer, Buck Consultants and a plethora of others are alive and well and open for business at exactly the time when employers are trying to figure out how fast they can reasonably get out of the middle of health insurance administration and run for the hills.

Yes, there is much discussion (I think it may actually be wishing) about how companies will never do this en masse—that employee group benefits are too important a tool for employee recruitment and retention.  But I don’t really believe this is a lasting consideration for most companies.  A study from consulting firm Oliver Wymansuggested that “20% to 30% of the marketplace would gravitate to a private exchange over the next three to five years without any bias by size of employer.”  They also found that around 50% of all employers would switch to private health insurance exchanges if they could realize 10% savings; more than 20% of employers would move employees to exchanges even if there were zero savings.  If that last statistic doesn’t suggest that HR departments are putting on their track shoes and getting ready to run, I don’t know what does.

I have to believe that while the mass migration to private exchanges may start slowly, it will pick up speed faster than Apolo Ono in winter.  There are a few reasons why I believe this to be the case, including the giant hassle and expense of being the health benefits administrator of record.  Being out of the benefits administration business means less overhead cost, less drama as employees come to you when they want something covered, less lawyers to keep up with HR regulation.  On a positive note, transitioning to an exchange can also be a real positive for employees, opening up far more plan choices to them, enabling plan customization for special populations (e.g., disease-focused plans or regional-focused plans), even creating overall cost-savings in some cases.

But most importantly, transitioning to the private exchange means employers have the ability to fix their annual health benefit costs at a known and predictable amount that they control.  They will give employees an allowance to purchase health plans and each year can choose to raise the contribution by a fixed, amount.  If they are smart they will peg that increase at or near the consumer price index (CPI).  CPI has been rising a few percentage points a year (e.g., it rose 1.7% in 2012) while health insurance costs have been rising 3-5 times faster.

When you transfer your employees to an exchange, this basically becomes not your problem, thus marking the end of sucking up unpredictable rate increases for years and watching it eat into profits.  By fixing healthcare costs at a lower rate of growth than in the past, employers realize real savings to their bottom line, particularly when they have challenging growth years.    WalMart, for instance, as I wrote about HERE, went through 9 quarters of flat sales while healthcare costs rose 9% per year during that period.  As healthcare costs rise faster than sales, margins (profits) get eaten alive.  When a company can predict its healthcare costs and as its margins become better and more predictable, there is an improvement in a company’s bottom line and therefore, likely, it’s stock price.  When one guy’s stock price improves, his competitors have to take notice and act accordingly or suffer the wrath of the market.  In the end, I think this need to “keep up with the Joneses” may be the biggest accelerant under the private exchange flame.

So who absorbs that increase in healthcare costs if the employers cap theirs?  Yes, indeed, the employee, who is now experiencing pretty dramatic increases in out of pocket costs.  The hope is, of course, that some of the major changes underway in the healthcare system (ACOs, pay for performance, preventive services, yadda yadda) will help alleviate the build up of that pressure.  But as they say, hope is not a strategy.  Thus, employees, aka healthcare consumers, must take a serious look at how they consume healthcare and start to play a role in managing their own costs and the behaviors that drive them.  No doubt this will take a while, but it may well be just the kindling needed to drive more consumer accountability.  Ironic, isn’t it, that Applebees might lower their healthcare costs by using exchanges and, accidentally, cause a reduction in sales of their Riblets Platter (calories: 1720-2100; sodium: 3130-4850 mg). We can already see consumer engagement rising, even though in microscopic amounts, where consumers have access to price transparency information:  who wouldn’t choose a $1000 ultrasound when the alternative down the road is twice as expensive and where information on quality is largely absent?

It is interesting to note that early indicators show that people joining exchanges definitely price shop. Aon found that 42% percent of employee populations from three companies participating in Aon Hewitt’s Corporate Health Exchange chose less expensive coverage than they had previously, 26% selected richer coverage and 32% went with a plan that was comparable to what they had, according to this article in HIX.   It will be interesting to see how much this price shopping translates to more accountable or at least more cost-aware consumer behavior.

One of the most significant changes in the healthcare system, one which I have written about before but which is becoming of greater and greater urgency as exchanges proliferate, is the imperative for insurers selling products on the exchanges to learn how to market to and serve consumers.  Until the exchanges, virtually all insurance was sold to employers in business-to-business mode.  Now carriers have to figure out how to differentiate themselves on websites and via marketing where the guy listening is you and me.  With insurance carriers loved just about as much as cable companies (aka, not), this is no mean feat.

There was a NY Times article last week about how culturally dour Russian service workers, such as waiters and flight attendants, have had to go through a pretty significant amount of “charm school” to get good at serving consumers in their newer capitalist system.  I can imagine that the next class to enroll will be the US insurance carriers.   Health insurers are going to have to get good at consumer acquisition and, more importantly, retention, if Aon’s data is any indication:  they found that nearly 80% of the more than 100,000 U.S. employees enrolled in plans through their exchange chose a different plan for 2013 than they had in 2012 – with more opting for cheaper coverage than better benefits.

One discussion I haven’t seen anywhere yet is the impact that all of this exchange upheaval will have on the health/wellness/prevention market, particularly as it pertains to small companies selling products to payers and employers.  It has long been true that health insurers want to see a return on investment of no more than 1-2 years when they invest in programs that profess to reduce costs.  Why? Because they don’t have those enrollees for very long, usually a couple of years, and they want to realize the return from spending money on weight loss and smoking cessation and disease management and all the rest.   If health plan members are switching every year, and if insurers are required to spend 80% of all premiums on care, not administration (as they are as a result of the ACA), will they keep investing in these programs?

And furthermore, if employers are going to be getting out of the health benefits business, will they also turn away from these purchases?  I see a billion little companies trying to sell a variety of niche wellness, prevention and care management programs directly to employers and I am wondering if they have a future if employers want to forget about this topic entirely.  I imagine that some employers will see the provision of these programs as key to employee recruitment and retention, but not because it lowers cost.  Rather they will look for meaningful perks–and they may be unrelated to health–that make employees happy to come to work.  Instead of smoking cessation it might be ping-pong tables in the lunch room or time off to do charity work or free ice cream on Fridays; after all, they don’t have to care that much about whether the ice cream leads to worsening health if they have capped their costs.

Yes, I know, employers are worried about absenteeism and productivity and all that jazz, but those things are incredibly hard to measure and even harder to correlate with specific initiatives on the health front.  Thus, should all those health and wellness entrepreneurs be worried?  Maybe so.  I would love to hear from employers on this or see the Pacific Business Group on Health study this potential phenomenon.  I think this could become a real objection for investors looking at all of these little companies; one has to wonder whether their market will still be there 5-10 years from now when it is time to exit or whether the marketplace of purchasers will have declined precipitously.

Many of those entrepreneurs will say that the solution is building direct-to-consumer products.  I have to say that answer makes me wince.  Perhaps I am too much the cynic after all these years watching healthcare costs fiddle while consumers burn.  It is definitely possible that the rise in exchange purchasing, alongside its companion effect, the rise in high deductible health plans, will drive better consumer purchasing behavior and increased health accountability; as I noted above, I genuinely believe it will have some impact.  But will consumers ever really invest large quantities of their own cold hard cash in preventive health products on a big enough basis to sustain all those aspiring wellness entrepreneurs?  Perhaps if they have money left after that yummy platter of Riblets.

Lisa Suennen is a founding partner of Psilos Group Managers. She blogs at Venture Valkryie, where this post originally appeared.

Walgreens has been ordered to pay $1.44 million in a lawsuit brought against it for a violation of the Health Insurance Portability and Accountability Act (HIPAA) by one of its pharmacist employees.  While this may not sound like a big deal, this case represents only the second time HIPAA has been successfully used this way in court and it could have serious repercussions on the health care system.

The story begins when a Walgreens pharmacist looked up the medical records of her husband’s ex-girlfriend, whom she suspected gave her husband an STD. Apparently she found what she was looking for and told her husband about it, who then sent a text message to his ex and informed her that he knew all about her results.

The ex did not appreciate this, and told the Walgreens pharmacy about what happened.  At some point after that, the pharmacist accessed the ex’s medical records again, and eventually the ex filed a lawsuit against Walgreens, claiming it was responsible for the HIPAA violation because it failed to properly educate and supervise its employee.

Walgreens argued what the pharmacist did fell outside of her job duties and therefore it was not responsible for the breach.  The judge and jury disagreed, and the jury decided Walgreens was responsible for 80% of the damages owed the plaintiff (so I guess that means the total judgement for the plaintiff was $1.8 million). Walgreens has already said it will appeal.

As I said above, it may not sound like a big deal, but it potentially is.

Although HIPAA has a mechanism by which health care providers can be subject to federal civil and criminal penalties for violations, conventional legal wisdom says HIPAA does not allow for a “private cause of action”, meaning a private individual cannot sue a health care provider for breaching their medical privacy.

Or at least that’s how HIPAA used to be interpreted, before Neal Eggeson, the enterprising young attorney who successfully argued the only two cases in which HIPAA has been used in this fashion, came along.

Mr. Eggeson, who specializes in privacy law and medical malpractice, in an interview with Lawyers.com, said “10 years into the HIPAA privacy rule, I should not be the only attorney in the country doing this type of work.”

But, recently, a pathologist reader who is also an attorney wrote me and said the manner in which HIPAA was used in the Walgreens case was actually not novel after all.

The reader also stated he believes there will likely be a lot more of these HIPAA-type privacy lawsuits “as more and more plaintiff attorneys realize pharmacies, hospitals, and other health organizations are vulnerable and have deep pockets.”

After I received the reader’s email, I reached out to Neal Eggeson, the lawyer who successfully argued the Walgreens case and asked him for clarification regarding his case and how he used HIPAA.  He was kind enough to respond.

My reader’s thoughts on the article are below, followed by Mr. Eggeson’s. Many thanks to both of them for helping me understand both this case and how HIPAA is being used in civil lawsuits better.

The reader:

“As a multiple personality professional, I have a great amount of respect for HIPAA, its use as a shield for privacy data, and its use as a sword in litigation.  As such, even though the federal HIPAA statutes may not have a specific private right of action, I believe pathologists and other health care providers should recognize that breach of privacy litigation, both health care related and non-health care related, has been around for many years as a private (common law, sometimes statutory law) right of action.

What plaintiffs commonly have been doing in recent years is to use a HIPAA violation as the underlying predicate offense in their breach of privacy, defamation, negligence, breach of fiduciary duty, or other likewise suit.  Since HIPAA does not have a private right of action, common folks like you and I cannot use HIPAA directly in a privacy lawsuit, only the government can sue with HIPAA (civilly and criminally I might mention).  What private citizens have been doing, though, is proving to the court that if a HIPAA violation occurred, then this violation serves as a breach of duty by the health care professional in negligence cases, fiduciary duty cases, and straight forward violation of privacy cases.

…Doe v. Quest in the Missouri Supreme Court, where the court allowed a breach of fiduciary claim to stand verses Quest after their phelebotomist wrongly faxed HIV results without the express permission of Mr. Doe.  This case used overtones of HIPAA and similar state privacy laws, like state HIV privacy laws, as the underlying predicate (underlying wrong) in the suit.  Additionally, I easily found three other cases where HIPAA violations were used as the underlying predicate for private rights of action in state law privacy violation claims.

The first is a federal case (attached) from the Eastern District of Missouri by Judge Stephen Limbaugh (he is either the brother or cousin of El Rushbo), I.S v Washington Univ (E.D. Mo 2011).  In this case, Judge Limbaugh recognized that there was no individual private right of action under HIPAA, but that under Missouri law, HIPAA could be used to provide a standard of care from which to judge a defendant’s actions, and that HIPAA could also be used to establish a legal duty of care.  States vary in their laws, so every state may not agree with Missouri state law, but many do.

Second, in a 2006 state court case (attached), the North Carolina Court of Appeals allowed HIPAA to be used to demonstrate the standard of care element in a psychiatric privacy case where the plaintiff sued for negligent infliction of emotional distress.  If one can use HIPAA as the standard of care and show HIPAA was violated, then the next logical step is that the health care professional breached a duty owed to the plaintiff by violating the standard of care.  After that, all that remains is proving damages.

Finally, in a more recent West Virginia Supreme Court case, a case that cites many underlying cases from other states in a survey of the law, the Court found that HIPAA does not preempt state laws and that HIPAA may be used as the basis of a negligence claim (used as the standard of care to which a breach of duty is judged). See R. K. v St. Mary’s Med Ctr, (2012) attached.

I hope you find this discussion interesting.  HIPAA is a very complex and tricky set of laws and regulations, and I fear litigating HIPAA will become the next new cottage industry for plaintiff attorneys. The more pathologists and physicians know about HIPAA, the better.”

Mr. Eggeson:

Your reader is correct that the lawsuit itself was grounded in common law principles (negligence, professional malpractice, and invasion of privacy).  The reason HIPAA experts are getting excited about the case is that in arguing that Walgreen was negligent and that the pharmacist committed professional malpractice, I used HIPAA to establish the standard of care.  Though it might seem a semantic distinction, it is actually quite important from a legal standpoint; I did not sue Walgreen for violating HIPAA, I sued Walgreen for negligence, but I used HIPAA to prove that Walgreen was negligent.  Similarly, I did not sue the pharmacist for violating HIPAA, I sued her for professional malpractice, but I used HIPAA to prove that what she did fell below the commonly-accepted standard for privacy protection.

The Pathology Blawgger is a surgical pathologist. He is the author of The Pathology Blawg, where earlier verions of this post originally appeared.