Medicare & Medicaid Explained. Digital Health Interviews: John Gorman

Welcome to our Digital Health Interviews series! We aim to support digital health startup founders by providing insights that could be beneficial for their companies. Additionally, we are delving into the US Healthcare System, gaining a better understanding through numerous interviews. Today, we’re focusing on the Medicaid/Medicare program, a key aspect of the US government’s healthcare initiatives. We’re excited to welcome our guest, John Gorman, to discuss this topic.

Guest Profile: John Gorman

John Gorman dedicated 34 years of his career to public service and entrepreneurship, starting as a press secretary for a Detroit congressman. He later worked under President Clinton to establish the first office within the Medicaid/Medicare agency, significantly impacting Medicare and Medicaid services. His early involvement in the 90s saw him manage programs that grew to represent a substantial portion of these services. Gorman founded Gorman Health Group, becoming a leading consulting and technology company in the Medicare Advantage and Medicaid Managed Care sectors. After 24 years, he sold the company, having developed it into a hub of expert consultants and innovative solutions for federal healthcare programs.

Following a brief retirement, Gorman launched Nightingale Partners, the first U.S. venture fund dedicated to addressing social determinants of health, focusing on investments that tackled issues like food security and healthcare accessibility for disadvantaged groups. After selling the fund in 2022, he shifted to advisory roles, serving on various boards and enjoying his work immensely.

Medicare & Medicaid: An Overview

Then we discussed the main topic of Medicare and Medicaid. John explained that Medicare in the U.S. is primarily for older Americans and those with disabilities, while Medicaid covers lower-income individuals, including the disabled. Gorman highlighted that Medicaid is a joint federal-state program, with each state having its unique approach. He described these programs as “two uniquely American screwed-up approaches to healthcare coverage,” acknowledging the challenges and the efforts to make the best of them. Currently, Medicare serves about 75 million people, and Medicaid about 90 million, with one in five Americans enrolled in Medicaid. These programs represent significant portions of the federal budget, second only to Social Security.

Insights on Dual Eligibles and Privatization Challenges

Over the past 30 years, there has been a shift towards privatization, with private companies increasingly contracted to serve beneficiaries. Gorman focused on the subset of individuals known as Dual Eligibles, who receive both Medicare and Medicaid benefits. These are primarily low-income seniors and severely disabled people, who are among the most vulnerable in the U.S. health system. Hundreds of billions of dollars are spent on these two programs, with over 50% of Medicare enrollees in Medicare Advantage and about three-quarters of Medicaid beneficiaries in Medicaid Managed Care. Despite the challenges inherent in the privatization of healthcare, such as profits sometimes coming at the expense of quality care, Gorman observed that these programs, when heavily regulated, can achieve significant social good. He concluded, “By regulating the hell out of these two programs you can achieve a pretty amazing social good.”

John observed that Americans favor having a variety of options, a need well-served by the private sector. He pointed out a stark contrast in Medicaid, where individuals are typically auto-assigned to an HMO or Health Plan. In contrast, Medicare Advantage emphasizes choice. Gorman highlighted, “Right now, the average Medicare beneficiary has over 40 choices of private plans.” More than 3000 private plans are operating in the U.S., offering a plethora of options and decisions for members regarding their coverage. While these plans share similarities in benefit designs, Gorman noted significant differences, especially concerning the social determinants of health, a topic he anticipated would be discussed further.

John discussed the eligibility criteria for Medicaid, noting that it usually revolves around multiples of the federal poverty limit. He observed that most states set the threshold at about 200% of poverty for qualification, with more liberal states offering broader eligibility. Conversely, states like Texas and Florida impose stricter requirements, necessitating lower income and vulnerability for qualification.

Gorman highlighted the effectiveness of the private option in Medicaid for managing rising costs and ensuring quality care. He stressed the importance of a system for measuring care quality, a feature he noted is absent in typical fee-for-service medical environments. In his view, “Managed Care is a system of care that enables us to keep longitudinal track of these members to ensure that we’re improving the quality of care that they get, especially as they age.”

Our guest also pointed out that Medicaid covers nearly one-third of children in the U.S. and is particularly focused on maternal and child health. He mentioned that while Medicare, a program for older Americans, does not require such benefits, both programs are designed with patient needs in mind.

Medicaid’s Role in Long-Term Care Funding

A significant aspect of Medicaid, as explained by Gorman, is its role in funding long-term care in the U.S. He remarked, “The only way to qualify for covered long-term care in the US is to spend all your assets, sell your house, and everything else to qualify for Medicaid so you can get the long-term care benefit.”

Entrepreneurial Opportunities in Healthcare

John explains that for someone aspiring to start a small business with care plans for patients, there’s no mandatory need to apply directly to federal authorities. Instead, one can develop solutions and sell them to private insurance companies that work with Medicare. However, if the aim is to provide care plans for traditional fee-for-service Medicare, then a proposal must be presented to the Centers for Medicare and Medicaid Services (CMS), which entails meeting various requirements. He notes that dealing with the federal government can be a slow process with considerable requirements, but once accepted, the potential financial rewards are significant, given the vast scale of federal programs.

Gorman also highlights the current shift in Medicare and Medicaid towards a value-based environment, where payment is linked to performance. He advises that companies, especially early-stage ones, should consider putting a portion of their fees at risk, based on meeting performance metrics. This approach, while affecting cash flow in the short term, can lead to substantial bonuses later for companies that excel in their performance measures. Gorman succinctly encapsulates this strategy: “Shoot the lights out and you do great on all of your performance measures, that means you’re getting a 20 to 25% bonus a year later.”

The Impact of Technology and High-Touch Services

John highlighted the limitations and benefits of technology in programs targeting elders and low-income individuals. He noted that while technology excels in identifying fraudulent activities and optimizing treatment plans for chronic diseases, it falls short in addressing the needs of older and lower-income populations. Gorman emphasized the importance of high-touch services, such as community health workers, in providing effective support. He pointed out that these workers, often unlicensed social workers familiar with the local community, play a crucial role in assisting individuals with challenges like transportation to medical appointments. Technology, according to Gorman, can guide where and with whom these workers should engage, but the most impactful services remain those that are hands-on and personal. Reflecting on his career, he underscored the entrepreneurial opportunities in these programs, stating, “Any entrepreneurship is always about identifying a need in the marketplace and then developing a cost-effective solution to address it.”

Telehealth and Remote Monitoring for Patient Care

Gorman strongly believes in the potential and staying power of telehealth, especially highlighted during the pandemic. He emphasizes how telehealth rapidly became a cornerstone of American healthcare, proving invaluable in extending healthcare providers' reach, particularly in mental and behavioral health. Gorman notes the significant role of telehealth in addressing the shortage of healthcare professionals like psychologists and psychiatrists in the U.S. He asserts, “Telehealth is a force multiplier, enabling providers to reach many more people online.” This, he believes, has been crucial in mitigating health professional shortages.

Furthermore, Gorman highlights the evolution and mainstream adoption of remote monitoring, especially for chronically ill patients. He points out how telehealth and remote monitoring have revolutionized patient care outside traditional healthcare settings, significantly benefiting patients with complex needs, such as the elderly with multiple comorbidities. He stresses the importance of telehealth in continuous patient monitoring, stating, “The ability to monitor these patients outside of the doctor’s office has been critically important in managing some of the most complex patients in the system.”

Advice for Digital Health Startup Founders

John offers several key pieces of advice for startup founders in digital health. Firstly, he emphasizes the importance of thoroughly understanding the patient market and the specific needs they have. Equally crucial is a deep comprehension of the engagement rules set by federal and state agencies, particularly for those planning to participate in these programs. As Gorman puts it, “The best way to keep your customers happy is to follow their rules.”

Additionally, he advises entrepreneurs to focus on identifying unmet needs in the market and ensuring that their product addresses these gaps effectively. This involves extensive research and preparation. Another vital point he makes is about making it easy for clients to say “yes” to your product, especially when it involves cutting-edge technology. Understanding the adoption curve in U.S. Healthcare and identifying early adopters quickly is crucial for the success of the product. Designing with the first adopters’ needs and business intelligence in mind is key to gaining traction in the market.

Our previous episode was with Ryan Vega: Vantiq — Digital Orchestration for the World of Software