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What happens when a physician searches her own name online and gets redirected to a billionaire-backed corporate clinic she has no connection to? Stephanie Waggel, a physician and founder of Improve Medical Culture, explains how vertical integration in health care is quietly suffocating independent practices while most doctors and patients have no idea it is happening. Based on her KevinMD article, “The dangers of vertical integration in health care,” this conversation unpacks how a single corporate entity can own the insurance company, the pharmacy benefit manager, the drug distributor, the retail pharmacy, and the provider group all at once. Waggel breaks down why this consolidation drives up costs rather than lowering them, how private equity and venture capital firms pressure physician-owned practices into selling, and why the consumer ultimately loses when one entity controls pricing at every step. You’ll hear her compare health care models across the U.S., U.K., Canada, and Australia, learn why she believes pharmacists should own pharmacies and doctors should own clinics, and discover the community-based survival strategies independent practitioners are using to stay visible. If you care about the future of the doctor-patient relationship and the survival of independent medicine, this one deserves your attention.

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today we welcome Stephanie Waggel, physician and founder of Improve Medical Culture. Today’s KevinMD article is “The Dangers of Vertical Integration in Health Care.” Stephanie, welcome to the show.

Stephanie Waggel: Dr. Pho, I’m so excited to talk to you in real life, and thank you so much for having me on today. I’m really super excited.

Kevin Pho: Well, again, thank you so much for writing. Tell us briefly a little about yourself and why specifically did you decide to write this particular article in KevinMD?

Stephanie Waggel: Well, I’m talking about myself. I’m going to try to make it brief and geared towards why I wrote this in the first place. So I own a private practice. One is in Ashburn, Virginia. The other one is in Reston, Virginia. Of course, like every doctor today, there’s a little virtual going on there. I also own a concierge practice. That one is for managing pregnant women’s medications, because I actually have a research team, which is a subdivision of what you named earlier, which is Improve Medical Culture, which is my teaching program.

So under that, I have office assistants that learn how to do private practice. I have the research, which our current research project is maternal, fetal, and neonatal outcomes of various medications during pregnancy. I have a pre-med internship, and then I have a marketing internship. And this is going to become pertinent in a minute, I assure you.

So my Improve My PLC is a psychiatric clinic, but then I also own commercial real estate, mutually medical in nature. And then I have a social media marketing company too. So I own a whole bunch of companies, and that’s where we can kind of tie into why I actually started talking about vertical integration, because I’m not a policy expert. My area of expertise is psychiatry and pregnancy and medications, and I don’t claim to be a policy expert, but I felt like I kind of had to be because of recent changes in the infrastructure of owning these various businesses that I own.

I don’t want to say too easy, but it got along pretty fine for about 10 years. But I’m telling you, this year there were some changes, so I had to investigate the cause of these changes, and that’s when I encountered this vertical integration phenomenon. And I thought, well, I’m learning so much about it. I bet other people don’t even know. And I was like, well, let’s put it online so that other people do find out about it.

Kevin Pho: So tell us more about how these changes affected you and your company specifically, because you mentioned for the last 10 or so years, things have been going fine, and it sounds like suddenly things started to affect you. So specifically what kind of differences did you notice?

Stephanie Waggel: I want to make a, because I teach medical students, so I don’t want to come off too teachy, but that’s just kind of how I am. So on the left hand we have corporate medicine, what I call administratively focused medicine, and that’s your billionaires, and they have the arms of their company for the private equity, the venture capitalist stuff. And I will, because I’m a little teachy, define some of these things later. And then on this hand we have our physician owned or small practices, like a pharmacy that’s owned by an actual pharmacist or a doctor’s office that’s owned by an actual doctor. So we have these two main entities that I just want to distinguish one from each other.

On my YouTube channel, I actually have a video that talks about three main ways that people can run medical clinics. And one is to be a billionaire corporation and get access to all sorts of things, or to do it corruptly, where you don’t have to pay for licensure, which interestingly, if they get in trouble, it’s not like somebody can take their license away. And then the third way is the way I like to do it, which is having a lot of policies in place, but I feel now in this world, with the people over here, it’s becoming harder and harder to be an independent physician having a practice.

And so, like I said, it was good for many, many years. And then I actually have a very specific example of something that happened. As one does, I googled my name one day, and my name, Stephanie Waggel, literally on my birth certificate, my name, I don’t know anybody else of that name, it was coming up. And then you click on my name and it takes you to one of these large corporate billionaire type of clinics. And I’m like, really? And so what’s happening is that the type over here on this side, the corporate type, are apparently taking up all the internet space and making it not only so that the privately owned clinics can’t be found. It’s like you Google my name and their website comes up. So that was an interesting battle to fight.

But that’s just one example. There’s so much going on that is making it nearly impossible for physician owned private practices to continue operating, and I feel like, so I did say I was going to give some definitions. Over here we have the branches with the private equity. So private equity, they have money, and then they come and they buy an already established physician practice. And I feel that there is an incentive to pressure the physician to sell their practice in the first place, because like I said, it wasn’t so bad before. Now it’s really tough, and so what are you going to do besides sell? And they’re like, yeah, we want to buy it.

And then venture capitalists, I like to think of it as an adventure because they kind of get into more risky stuff, but they’re still trying to buy new doctors who open up new practices and stuff. So they’re making it very hard for the physician owned practices on this side to operate, and then they just buy them. And so that’s why I started investigating what is going on here.

Kevin Pho: So you talk about the dangers of vertical integration. As it relates to both patients and physicians, why are they so dangerous?

Stephanie Waggel: Well, the vertical integration process is that the same owner owns things many steps of the way. So it’s not just like these two Williams brothers go and they own a whole bunch of companies under their name. They of course have corporations that own corporations that own corporations, so that you can’t directly see. But it’s essentially the same group that owns every part. That’s why it’s vertical.

So in the car industry, it would be like one group owns the manufacturers of the cars. They sell the cars, they own the car dealerships. They own the bank that gives you the loan to buy the car. They own the auto body shop, and they own all the car parts. And so whenever things are integrated in that fashion, it doesn’t make it very fair for the consumer, because all the prices and everything is controlled by one entity.

And so you may think, isn’t that illegal? There are antitrust laws, and I must explain that the word trust here isn’t like somebody’s honest or not, it’s a group that holds assets for another group. They made this illegal when it was having to do with oil and things many, many years ago, when one group having the assets to many in the industry. So it’s essentially a monopoly. They become illegal when they start impacting the other people. So I don’t understand. They’re clearly impacting me in very definable parameters here. So I am not a lawyer, so I don’t know how the vertical integration is legal.

But from the car analogy to actual health care, they have the insurance, then they have the PBMs, and then they have these GPOs for bulk purchases. And then they have of course the drug manufacturer, and then they have the distributor, and then they own a mail pharmacy, and then they own a retail pharmacy. And then they own the providers, and it’s like, why is one person owning all of those things in health care? That can’t make for a very fair market.

And specifically, there aren’t things in this linear chain here that I don’t think need to exist in the first place. So pharmacy benefit managers haven’t been around for a while. And I guess the idea is OK, but it’s more like, if you have a meeting between yourself and yourself, and you hire yourself to mediate the meeting, why does that need to be a thing? And so I feel that not only are individual, so on this left hand here, this corporate entity, the big guys, the billionaires, not only are they owning things every step of the way, but they’re actually inventing new businesses to insert into this. And it’s just like, do they really need to own every single thing?

Kevin Pho: I think there’s a certain amount of irony, because way back when, when there was debate on the Affordable Care Act, I remember those supporters lauding the Mayo Clinic and saying places like the Mayo Clinic should be a model that we should aspire to. And I think the philosophy was that if one entity controlled more facets of the health care system, it would be easier to lower costs and make that switch to a more value-based care model. But in fact, I think the opposite has happened, right? Because if you have that one person or that one entity owning so many facets of the health care system, and they’re incentivized by a for-profit paradigm, that’s actually going to increase cost. So I think that the supporters’ support for those large integrated medical systems now, it’s coming back to bite them.

Stephanie Waggel: Right. So you had to play devil’s advocate there for a second, and of course at some point someone must have thought it was a good idea. But it kind of reminds me about whenever the powers that be justify these ridiculous 28 hour shifts that residents have to do by saying, oh yeah, it’s great for continuity of care, whatever. I feel like that’s just some kind of canned response that probably isn’t the actual reason why these things came to be in the first place. So I understand maybe the initial idea behind it, but clearly it’s not working.

Kevin Pho: I find it also ironic that sometimes people to the left of the political spectrum were the ones who initially supported it, but now you have senators like Senator Warren proposing legislation to in fact disband vertical integration in health care. So there is a certain amount of irony there. In your article, one of your proposed solutions is to separate the entities and let professionals run their own parts of the system. So tell me what the realistic first step would be to make something like that happen.

Stephanie Waggel: Oh my gosh. Well, I was able to tell you that that would be, I should go be a lawyer, so I don’t like to find these problems and then not at least propose a solution. And so, I think I have an interesting perspective because I’ve worked in health care in many different countries that had different systems, so I want to say that you can’t just take one country’s health care system and stick it onto the U.S., because that’s just not how things work.

But I would say out of all the countries, the no, in my opinion, would be when I worked in the U.K., because that is what’s called socialized medicine. So that’s not to be confused with universal health care. The socialized medicine is run by the government. I think that that would actually have the same problem as the vertical integration, because it’s still one entity controlling the whole thing. So I don’t think that’s a solution. I think it’s just different people doing the same thing.

Now, universal health care of itself, everybody having insurance and access to health care is a good thing. However, in Canada, they do that, but the individual physicians can’t actually open up their own sort of clinics and charge what they want or do out of pocket stuff. So I feel like that’s better, but we’re still not there. Australia, on the other hand, has coverage for everybody, but they still can get private care if they want to, and doctors there still can have private practices and have more freedom. So I’m not saying that we should just take Australia’s health care ideas and apply them to the United States. But I’m saying if we had to pick one, I think that that’s a pretty good choice.

So not having any billionaire or the government or any particular one person in charge of everything, I think is going to need to be what happens. But how to break that up, that is a very good question, because how are you going to tell these billionaire corporations to break it up, and then how are you going to prove that they didn’t? Because what I was talking about earlier is that you can own a company that owns a company that owns a company that owns a company, and it’s impossible to actually find out who. They do that on purpose so that you don’t actually know.

So one key obstacle is going to be, let’s say they say that they did break it up. How do we know that they really did? I think what we could do is a test, and every individual business within the health care system, whoever is in charge of it, has to take a test. So if you have a clinic, you give them a test about running a clinic, and if they’re truly a doctor, then they should know. And if you have a pharmacist, you give them a test, a pharmacy test, and see if they know anything about it. Because I truly believe that pharmacists should own pharmacies. And if you think, name a pharmacy, you’re going to name the big guys, right? You’re not going to name your local pharmacist.

So maybe if they do get broken up, in order to prove that they’re truly not all the same person, they have to pass some sort of test. And then I’m fine with the insurance people just staying in insurance, but they don’t need to be the middlemen. And they don’t need to be dabbling in all these other things. So how to convince them to do it, I suppose you could just make it illegal to do it, but I’m not sure how. That might take a while.

Kevin Pho: So tell me, in this changing environment where you mentioned private equity a few times, where you have certain big players gobbling up different facets of the health care system, how are you, a private practitioner with several businesses, how are you adapting to this new landscape?

Stephanie Waggel: Oh my gosh, so actually, by talking to other business owners, because now that you Google my name and you can’t find my actual business anymore, and I’m number 452 on the results, you have to actually go and be seen in real life with other people, more in person networking. Because that’s one thing that these billionaire corporations can’t do, is they can’t show up to your Chamber of Commerce meetings. They can’t be, frank, like, I really emphasize that I’m a part of the community, and my kids go to school around here, and you can actually find me. Whereas some of the people that work for these big corporations, you don’t even know their real names, right?

So in order to try to survive now, you have to actually do face-to-face networking. And my team, we go out to schools, and we hold all sorts of events. We do things with the local sheriff’s office, and we have all kinds of community interaction and discussion panels and things like that. And that’s things that the billionaire corporations typically don’t think to do, because it’s like, oh, the community, who cares about them? So that’s one of the strategies that independent physicians that own clinics are now doing, because I guess that’s just one field that the corporate entities haven’t, they haven’t started sending, I guess, hired actors to go out into communities and pretend like they actually know what’s going on locally.

Kevin Pho: We’re talking to Stephanie Waggel, physician and founder of Improve Medical Culture. Today’s KevinMD article is “The Dangers of Vertical Integration in Health Care.” Stephanie, let’s end with some take-home messages you want to leave with the KevinMD audience.

Stephanie Waggel: Oh wow. So you might think all this kind of stuff is, you probably were a little bit boring, venture capitalists and stuff like that. Well, I think science is neat, but now I’m into law. But this is actually important for everybody. Doctors obviously, because things are getting more and more difficult for us to act independently. But the doctors are going to leave. There’s already a physician shortage. People are going to have to wait longer. People aren’t going to get personalized care. It’s going to be more like an assembly line and more just like a number driven factory than the olden, the olden days 10 years ago, when you go and you can actually talk to your doctor. And people are going to lose the ability to actually have a decent conversation with their doctor, if they can even find a doctor in the first place.

Kevin Pho: Stephanie, thank you so much for sharing your perspective and insight, and thanks again for coming on to the show.

Stephanie Waggel: I’m super excited. Thank you so much.