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Universal American Corporation (NYSE:UAM)

Goldman Sachs Healthcare Conference

June 12, 2013 6:20 p.m. ET

Executives

Richard Barasch – Chairman and CEO

Analysts

Matthew Borsch – Goldman Sachs

Operator

Matthew Borsch

Okay. So we're getting the go-ahead signal.

All right. So welcome to another afternoon session here at the Goldman Sachs 34th Annual Healthcare Research Conference.

Before we get started I just need to read a brief disclosure. We're required to make certain disclosures in public appearances about Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 1% or more ownership. I'm prepared to read disclosures for any issuer now or at the end of this call if anyone would like me to.

However, these disclosures are available in our most recent reports available to you as clients on our firm portals. In addition, updates to those disclosures are available by ticker on the firm's public website at www.gs.com. In addition, disclosure is available to research with respect to issuers if any mentioned here and are available through your investment representative. Finally, as always, views of non-Goldman Sachs personnel may not represent the company views.

All right. With that let me welcome Richard Barasch who is CEO of Universal American. Been to our conference for a number of years now and we're delighted to have him back. I think the, you know, the Medicare Advantage will clearly be something that's a focus to us and to many investors so we'll talk about that. That is the main driver of the business.

But it's not the only driver. I want to, you know, make sure that we touch on a couple of other things which is the growing ACO business, although it's not quite the ACO business in the way that we think about it when we hear about it from other managed care companies, and it's certainly something interesting that merits more attention. As well as maybe we'll talk a little bit about stock valuation and how to think about the tangible equity the company has which is, you know, a much more substantial portion of the current stock price than is we're normally accustomed to for managed care companies.

Actually, why don't we start in reverse order? What the hell.

Richard Barasch

Okay.

Matthew Borsch

So here is my question. We think about tangible equity and that, you know, I guess it's around -- your stock is at $9, tangible equity is around $7. Is one way of thinking about that, say if you were just to fly back and say, okay, we're shutting everything down today, assuming that your run-out was neutral on the remaining business, that mean you get $7 of share-back from liquidation?

Richard Barasch

That's what that would mean.

Matthew Borsch

Okay.

Richard Barasch

There are some tax things in there that are complicated.

Matthew Borsch

Right.

Richard Barasch

But there are tax assets, but those are totally supportable. So we're -- so I think your calculation is correct.

Matthew Borsch

Correct. Now is it fair to think about some of that -- some of that is, and this isn't taking away from anything we just said because what we, you know, $7 is $7, but some of that we can sort of think of as almost property, plants and equipment because it goes with the current operations of the business and some of that is truly excess capital.

Richard Barasch

I mean if you want to take the analogy, if you shut down the business, it wouldn't need that capital.

Matthew Borsch

Right.

Richard Barasch

And the difference is, if you have a plant and you shut down the manufacturing, you still own the plant, and you better sell it, and if it's not worth anything [inaudible] it's money. So I think there's a difference there in a liquidation scenario.

Matthew Borsch

Sure.

Richard Barasch

But your point is correct, out of that pile of capital, a certain amount of that supports our business because of capital requirements necessary to support, you know, sort of any financial business, banks, trust companies, etcetera. So if you then use, you know, a calculation like [350], RBC, you know, we still have, you know, 350-odd-million of excess capital.

Matthew Borsch

And sorry because I don't [put] the numbers -- how would that equate to the $7? How much of the $7 would that be?

Richard Barasch

About a half.

Matthew Borsch

About half. Okay.

Richard Barasch

Give or take, yeah.

Matthew Borsch

Sure, sure. We can talk in broad ranges here. Okay. All right, fantastic. That's certainly a good point to --

Richard Barasch

Yeah, it's a good start.

Matthew Borsch

Right, right.

Richard Barasch

Having money is better than not having money.

Matthew Borsch

Well, actually let me ask on that, which is certainly from an investor standpoint, that just proves that. You at various times had been pretty proactive in return on capital to shareholders and done special dividends. Is that -- I don’t know whether you recently -- most recently talked to that question.

Richard Barasch

We did a special dividend in November.

Matthew Borsch

Right.

Richard Barasch

Six months ago. So it's a long time ago.

Matthew Borsch

That's aged.

Richard Barasch

It's ancient history last year, nobody thinks about it. But, you know, the broader answer to the question obviously, you know, without getting into specifics, is that in the past, five or six years we've used all the tools.

Matthew Borsch

Right.

Richard Barasch

We bought back stock, we paid dividends, we acquired a company, we sold a company. And, you know, I think again what makes us a little bit unique I think in public companies in general is our willingness and actually enthusiasm to generate cash back to our shareholders.

Matthew Borsch

Great. Right.

Richard Barasch

We've sent back $17 to our shareholders in the last two-and-a-half years.

Matthew Borsch

Yeah.

Richard Barasch

I think that's even -- and the fact that we continue to be as well-capitalized as we are relative to our stock price I think is pretty interesting. You know, we run our business maybe a little bit differently than some other people do.

Matthew Borsch

Yeah. No, you do, and I think, you know, you are to be commended for it and I'll use this opportunity to apologize that the stock chart on the back of our recent report still doesn’t show the return of capital, but --

Richard Barasch

You know, none of the others do. In fact about six or eight months ago an old friend of mine called me up and said, Richard, I want to have lunch with you. Great, delighted to see him. He said, this must be -- these last two years must have been an awful struggle for you. You know, your stock has gone down so much. And I said, let me explain this to you. Let me, you know, it's reverse. I'm buying you lunch.

Matthew Borsch

Yeah. No, right. Absolutely. You know, that issue by the way has been raised and a couple of people are chewing on it. I don’t know how --

Richard Barasch

Again it's hard, you know, I think if it were regular dividends, you wouldn't make the adjustment.

Matthew Borsch

Right.

Richard Barasch

These have been -- and the one that obviously is the one that is -- [$14].

Matthew Borsch

Right. That was more than half the company --

Richard Barasch

I mean we -- that was -- we distributed more per share than the market cap of the company was when we signed the deal.

Matthew Borsch

Right. That's pretty impressive.

Well, let's segue over to the ACO business.

Richard Barasch

Okay. Saving the best for last, huh?

Matthew Borsch

Saving the best for last. No, but, you know, that is certainly an area of potential growth, real growth that merits more attention if you can do it, you know, it's a potentially big area, I don’t need to tell you.

Richard Barasch

Yeah. Basically it derives from the way we've run our Medicare Advantage business. The core of our Medicare Advantage business in Southeast Texas, Houston and Beaumont market, are granular gain-sharing arrangements with primary care physicians. So fundamentally underneath our HMO in Houston, our 20-odd what we call LPOs, local physician organizations, organized almost like little risk-bearing entities where we get the cap from the government, we take a piece for expenses, we pay them a primary care only cap which tends to be more than Medicare for starters, paying them a lot of money to do a lot of primary care. And then all the rest of the money goes into a pool, you know, it's a Part D carve-out because that's separate and it's -- area carve-out, not out of network, but an out-of-area carve-out.

Matthew Borsch

Got it.

Richard Barasch

And then rest of it is a pool that's split. It's a full gain share on a granular sort of 50-ish/50-ish basis, with some deals different than others.

And, you know, in our view this is a terrific model. You know, some of our peers and competitors, if you will, do 85 or some number cap deals where they just pass the money down. And, you know, those, you know, there's value in those deals. And I'm not criticizing them but we like it better when we're all on the same side. So rate cut comes like it did this year and everybody is dealing with the issues from the same perspective.

Matthew Borsch

Right.

Richard Barasch

And everybody sort of bands together to see what we can do and what sort of tools we have to take care of that. Long, long, long story made short is when the bill came out in '10, ACA, there's provision called Medicare Shared Savings, very importantly, program, not demo.

Matthew Borsch

Right.

Richard Barasch

So this is a -- I think that's a distinction that needs to get made because I think there's a view that this is a demo with a short lifespan and I think actually it's not. It's a, you know, [in the bill legislatively passed] program where it was set up to incent providers to save money while maintaining quality. Good news in Medicare is invariably higher quality costs less money.

Matthew Borsch

Yeah.

Richard Barasch

That's one of the nice things about what we do and why, you know, we go home at night feeling good about, you know, what we do not only as businessmen but as human beings, is that generally speaking you provide better primary care, it will be less expensive in the long run, because if you can deal with -- everything you can deal with in the office.

So for example, in our Houston operation, you know, it will allow POs, and that's a little some of them, our docs have night and weekend hours. And the reason they do that is because they know that is less expensive than if folks go into emergency rooms.

Matthew Borsch

Sure.

Richard Barasch

So, you know, if it's in the weekends where people who have COPD will head to the emergency room if they can -- have a problem.

So if you look inside this Medicare Shared Savings Program, it's fundamentally the same program. If the providers can save money off of a benchmark, they split the savings with the government. Very simple concept. Obviously the devil is in the details, you know, where the benchmarks are and how you trend forward and what are the exclusions. There's a lot of stuff around that. But the basic proposition is any population attributable to that provider group where money is saved on a year-over-year basis trending forward, it gets split between the government and the ACO 50/50 after a certain pretty small hurdle rate.

So we look at this and we say, gee, this is our business. This is what we've been doing with our docs in Houston. So we basically mounted an effort during the course of '11 and '12 and continuing on to talk to providers. And what's very interesting about this is we talked to not only primary providers, we also talked to more integrated systems.

Matthew Borsch

Yes.

Richard Barasch

CHO has been moving up the line to both community hospitals and some, you know, fairly large hospitals. And we have settled on primary care as the focus of this.

Matthew Borsch

Okay.

Richard Barasch

Taking the view that primary care folks have the most ability to do something that's very hard to do, which is increase their own utilization, so increase their own take on sort of fee-for-service side but reduce costs and the other aspects of it. And, you know, if my hospital friends were sitting here, I would basically say to them, if there's an ACO in your neighborhood, you're going to get fewer admissions from our group.

Matthew Borsch

Yeah. Unless you bought all the primary care doctors.

Richard Barasch

Well, because one of the reasons why they sign up with us is they don't want to be bought by the hospital.

Matthew Borsch

Right.

Richard Barasch

They want to operate independently. And this is a way for them to control their own destiny.

Matthew Borsch

Yeah.

Richard Barasch

And it works best in geographies where there are some hospital competition, you know, where you can kind of -- and because you can't really [forward] the unit costs because you're dealing with Medicare cost structure, you're really dealing with utilization.

Matthew Borsch

Yeah.

Richard Barasch

And a hospital can't give you a break on costs, but if the hospital was willing to be cooperative relative to [hospitalists], post-acute plans of care and that sort of thing, there's a huge amount of work that we can do. Again with hospitals we're truly not zero-sum but it's helpful to both. Because if that hospital is cooperative in a good way, [will scare] more folks.

So basically what we're able to do is, with these primary care groups, is teach them the techniques that we've learned in Houston how to save money, save waste. You know, Berwick just said something in an article a couple of days ago, a week or so ago, you know, pretty interesting. Everybody keeps coming back to a number likeness, sort of 30%, 35% waste in the system.

Matthew Borsch

Right.

Richard Barasch

You know, we certainly proved it in Houston, not only use, you know, HealthSpring has also -- it's been proven, you know, in this market with people like CareMore and so forth, you know, if you get the primary care guys engaged on this, you can start seeing them right now.

In our case, now getting from the general to the specific, you know, the issues that we're going to face are, you know, when does, you know, it takes a while for this to work.

Matthew Borsch

Yeah.

Richard Barasch

You know, if you whack a unit cost, you see that savings right away. This takes more time. What you have to do is change two sets of behavior, one on the physician side and one on, you know, the patient beneficiary side.

Matthew Borsch

Yeah.

Richard Barasch

And both of them are manners of education, you know, where by definition the docs that have signed up with us seem to want to do it, but they practice medicine a certain way, with front-office desk person, has a certain way of doing things. So getting them to shift, not simple.

Matthew Borsch

Right.

Richard Barasch

And then getting a member without financial incentives, I'm going to come back to this in a second when we get to MA, to change their behavior is an interesting thing as well.

Matthew Borsch

Right.

Richard Barasch

So we're in the early stages. You know, we're not even really a year into this. But we're actually quite optimistic about how this is going to work. And it's not going to work in all of our spots, not all the doctors are going to be engaged equally and, you know, it's like politics is local, healthcare is local, practice patterns. But, you know, it's, you know, [inaudible] healthcare world, it's one of many things that are all sort of driving toward the same which always is reducing cost.

Matthew Borsch

And when you sign up -- when primary care group signs up to the Medicare Shared Savings Program, it then encompasses all their medical volume.

Richard Barasch

Yes.

Matthew Borsch

Right. So automatic --

Richard Barasch

You know, no marketing, no enrollment. So yeah, you know, the pie isn't quite as big, but, you know, no capital requirements, you know, no need for a claims infrastructure or that sort of thing.

Matthew Borsch

And how did the economics work for you or how will --

Richard Barasch

Well, you know, we'll see. It's a work in progress. You know, what's so much fun about doing what I do and working in a company like Universal is, you know, we've got sort of two pretty -- want to call them stable -- one very stable one which we're going to talk about, we've got the money --

Matthew Borsch

Yeah.

Richard Barasch

-- and that's a good start. We've got the Medicare Advantage business that, you know, we certainly can discuss how much, how valuable, less valuable. You know, I consider to be a valuable business. And then we've got really two start-up businesses, one being the ACOs and the other being the Medicaid business. So, you know, it's kind of a fun combination of, you know, money, fairly mature business, and a couple of, you know, real entrepreneurial businesses.

Matthew Borsch

Right, absolutely.

Richard Barasch

And Universal American has got a history of doing that.

Matthew Borsch

Yeah. So let's segue now to Medicare Advantage. And let me actually ask you a question, so, close a little bit from your description on the Texas market. How many of your covered lives are under the types of arrangement you view as ideal?

Richard Barasch

Sixty thousand --

Matthew Borsch

Okay.

Richard Barasch

-- are in HMO with a good deal of gain sharing and medical management --

Matthew Borsch

Out of how many, I'm sorry?

Richard Barasch

Out of 130.

Matthew Borsch

Right, right, got it.

Richard Barasch

But I would put -- there's another 40, and this is, you know, this is one of the things that I say very often to people I talk to, is that it's not what you call the plan. There's plenty of HMOs out there that really don't do a lot of medical management.

Matthew Borsch

Right.

Richard Barasch

There's plenty of PPOs that do a lot of medical management. So the real issue is, how much medical management are you doing? How effective is your medical management as opposed to what's your call?

So we've got another 40,000 in New York where we are really going after medical management on a population basis.

Matthew Borsch

Right.

Richard Barasch

Where we have the docs engaged, it's better, no issue about that.

Matthew Borsch

Right.

Richard Barasch

So your expectations have to be a little bit different. When you don't have quite as much physician engagement, what if you can create member engagement which is I think where a lot of the plans are going? You know, what we're finding is that even if, you know, even if we don't have the doctors engaged, if you can get to the people with chronic conditions, you know, you can get 100% of them to come with you, if you can get some large percentage of them to get involved in your regimens, you will save money.

Matthew Borsch

Yeah.

Richard Barasch

And again the good news is, I should this differently, you will give them a better outcome and a better quality of life. And the very good news is when you do that you save a lot of money.

Matthew Borsch

Right, right. So, yeah, again --

Richard Barasch

It's really -- again the great part about what we do is that these are totally, you know, together.

Matthew Borsch

Once you get the patients to see it that way.

Richard Barasch

Once you get to see -- that's exactly right. So getting the engagement -- it's interesting, you know, there's been a lot of chatter about the home visits in Medicare Advantage. And, you know, there's an HCC aspect in this, but there's also a terrific medical management aspect in this.

Matthew Borsch

Yes.

Richard Barasch

And, you know, one of the things that CMS is trying to do, I think correctly, is, say, look, you know, if you're going to generate a code from that, you better generate some medical management work on the other side.

Matthew Borsch

Right.

Richard Barasch

That makes sense, right?

Matthew Borsch

Right.

Richard Barasch

And so what we're being incented to do, and we're being incented by every aspect of the program including the Stars program is to be incredibly proactive. You know, every nickel we spend on Stars has been to make our plan better.

Matthew Borsch

Right, right.

Richard Barasch

So, you know, that's, you know, so I think that there's -- I think there's a lot, you know, there's a lot, you know, sort of turning inside of the Medicare Advantage program that goes significantly beyond just the cost aspect of it.

Matthew Borsch

Right. Well, let me get into, and maybe just try to sketch a broad picture of where we see the challenge and let's see if I can make this relatively simple, and if I can I apologize in advance, but what we'd done in our latest exercise is to take the Medicare trustees figure for the whole program, okay. So now, you know, recognizing there's no average in Medicare Advantage, everything is local and different. But bear with me.

So we take essentially the average per capita national benchmark and we say again, you know, for the public companies that we've talked to, if we approximate an average of, you know, all-in factors excluding the industry fee, that's down about 4%. That may not be the case in your situation --

Richard Barasch

That's fair enough. Fair enough. That's right.

Matthew Borsch

-- 4%.

And then we say, okay, let's assume we've got secular sort of fee-for-service medical cost trend of about 4% but the plan is able to hold medical cost trend to zero. And so that sort of -- that's the medical management kicking for -- again this is all in 2014. And let's also assume that operating cost per capita are reduced by 5%. And when you make those assumptions, you start off with a plan let's say earning about 5.5% in pretax margin. And here's critical assumption, again this is an average, but you can take the rebate expenditure. First of all, if you assume that's a reasonable proxy for the Medicare value proposition, and maybe it is, maybe it isn't, but that's the objective measure that we use. Medicare trustees say that's about a little over $70 per member per month.

And you take that figure for 2013, then you say, okay, now that we have the medical and operating cost assumptions, we have the top line, we load in the industry fee which is not tax-deductible, then it comes down to a trade-off between essentially how much do you have to cut in, in that rebate expenditure and how much you're going to, if any, sacrifice on profit margin.

When we look at that and we come up with, you know, something like $25 out of that $70 that you need to cut, maybe a little bit more, and then a little bit more off of that, maybe $10, $15 further in 2015, because in '15 you have the industry fee goes up by more than [40%], you Star demo program expires, you've got another year of the benchmark phase-in, you've got, you know, the 25% remaining phase-in on the risk recalibration.

Now my personal opinion, I think that's too much. I think there's probably going to be some relief on 2015 provisions but that's going to be a story for early next year. And so it's not questioning the value of the Medicare Advantage Program but it's questioning whether that's too much disruption relative to investor expectations in the near term, even if it knocks some of the stock price below what is arguably the longer-term intrinsic value.

Richard Barasch

Okay. Just as Matt was speaking, I just was emailing my broker. I shorted Humana and Universal American. And by the way, everybody can join me for cocktail, it's on me, in about five minutes.

Look, the numbers, you know, they are what they are.

Matthew Borsch

Right.

Richard Barasch

I think though that some of your, and again without quibbling about your thesis, I think it is local though. I really do think. And I think the local nature of this does make a big difference.

Matthew Borsch

Yeah.

Richard Barasch

And I think that, you know, without getting into a lot of details, I spent the entire day fending off questions about what we did in our [inaudible] so I don’t want to give -- I don’t want to say anything, you know, [FDs] even in this venue. There is a huge difference between when you're bidding a place like Houston and a place like where you've got network private fee-for-service and private fee-for-service.

Matthew Borsch

Right.

Richard Barasch

And I think the levers that you used in each one of these -- in one of these cases [are different]. I think that where specifically I would -- so I think that that -- and it does make a big difference.

Matthew Borsch

Yeah.

Richard Barasch

So I think that's a good start. And you caveated that, but I would say that that's a big assume-I'm-right part of the category. That's number one.

Number two is I actually do believe that the medical management piece of this is going to be even better.

Matthew Borsch

Okay.

Richard Barasch

We are, you know, if we're an example, we have -- we've just -- we've ramped this up massively.

Matthew Borsch

Right, right.

Richard Barasch

And I think that -- I think we're not alone. I think the techniques available to do that are better. You know, you made an assumption of flat spend. You know, we've had years of negative trend.

Matthew Borsch

Right.

Richard Barasch

So I think that's important. And even in places where we've got, you know, more of an indemnity-like product, we're making some headway, you know, with medical management, you know. And I think that -- so I think that, you know, you can't quarrel with what you're saying. And I think that none of the plans in Universal American have said that '14 or '15 are going to be easy.

Matthew Borsch

Yeah.

Richard Barasch

And they certainly won't, you know, they're not, you know, not going to be a walk in the pansies.

Matthew Borsch

Sure.

Richard Barasch

I have the luxury in my company, given my Board and my long-term very loyal shareholders, that I have the luxury of being able to look out longer than the one and two-year horizon. I think once we get past this [stuff], I think Medicare Advantage grows. I think it grows rapidly.

Matthew Borsch

Right.

Richard Barasch

I think the demographics [of non-Medicare Advantage], choice -- the other choice isn't a great choice either.

Matthew Borsch

No, it isn't, yeah.

Richard Barasch

In fact it's a pretty lousy choice. And, you know, we were one of the large sub-players until 10 years ago. You know, we still have a bunch of [inaudible] members. But I don’t think we're going to be sitting here talking about that stuff five or seven years.

Matthew Borsch

Yeah. It's not a great product, yeah.

Richard Barasch

And yeah. So you think about this from a marketing perspective and a perspective of if you rate, you know, middle class, lower middle class, senior who's been in managed care, what you get from these programs, non-monetarily, is pretty big.

Matthew Borsch

Right.

Richard Barasch

You know, all the chronic management stuff that we do that you get for free -- for free only this year, but --

Matthew Borsch

Because your incentives are aligned.

Richard Barasch

Yeah.

Matthew Borsch

Right.

Richard Barasch

And I think that -- I think what you're going to see, this is why I'm optimistic about healthcare in general, is this market has just erupted in creating incentives for businesses, profit and not-for-profit by the way, businesses, enterprises, to get in there and save money.

Matthew Borsch

Right.

Richard Barasch

[Inaudible].

Matthew Borsch

Yeah.

Richard Barasch

And it's really [torching] every level of conversation. One of the great things -- one of the reasons why I'm still, you know, pretty pumped up about, you know, [inaudible] truly, you know, selfishly from an intellectual perspective is the number and different types of conversations I get to have with people, unbelievably different ends of the spectrum.

Matthew Borsch

Sure.

Richard Barasch

You know, from down to the government to not-for-profits.

Matthew Borsch

Right.

Richard Barasch

About what we're going to do and how this is all going to look. And everybody is driving toward -- everybody, with one example, is driving toward the same issue.

Matthew Borsch

What's the one example?

Richard Barasch

Hospitals.

Matthew Borsch

Hospitals, right, yeah.

Richard Barasch

You know, they're --

Matthew Borsch

We don't hear about the Medicare Shared Savings Program --

Richard Barasch

They can't.

Matthew Borsch

Yeah.

Richard Barasch

All right. Here's -- I got a deal for you.

Matthew Borsch

Okay.

Richard Barasch

You're the CFO of a decent-sized hospital. You billed Medicare $1 billion last year. I have a deal for you, you bill Medicare $900 million, I'll give you $50 million on the back.

Matthew Borsch

Yeah, yeah. That puts a dilemma clearly, yeah.

Richard Barasch

It doesn’t work.

Matthew Borsch

Yeah.

Richard Barasch

Now --

Matthew Borsch

If 100 is going to go away, then you might --

Richard Barasch

But it's not. That only works if your own costs could [inaudible].

Matthew Borsch

Right.

Richard Barasch

Just pick a number. And, you know, if the MRI room is not as busy, your costs aren't going to be down. You know, if the beds aren't filled, you know, you still have to pay the bond issue.

Matthew Borsch

Yeah.

Richard Barasch

You know, etcetera and etcetera, etcetera.

I don’t know if you saw the Times this morning.

Matthew Borsch

I haven't yet. It's in my hotel room.

Richard Barasch

All right. Great article. First page of the business section, everybody has to read this article. It's about hospital mergers. And, you know, I can't tell you exactly where it was, but it was a location where a hospital bought another, testimony of the FTC was we're doing this so we can be more efficient. But then they what they really found is the guy was able to start jacking up costs to the [base].

Matthew Borsch

Right.

Richard Barasch

Because he had more market control.

Matthew Borsch

Right.

Richard Barasch

Is that a good thing or bad thing? Pretty bad.

Matthew Borsch

Yeah.

Richard Barasch

And, you know, I think that, you know, my optimism about healthcare costs is tempered only by the possibility that there's going to be more hospital consolidations. And the good thing, you know, what's also interesting is in the markets where there's a lot of Medicare Advantage that does very well, Miami, L.A., San Francisco, Houston, there are vibrant competitive hospital --

Matthew Borsch

And that's not going to change, you couldn't -- yeah. Right.

Richard Barasch

So, you know, but, you know, I also make a very crude, you know, sort of distinction when my investor friends ask me what I think about healthcare. I said, okay, the question you got to ask before you even go to the next step, are you cost or are you helping to save cost? If you're cost, you've got problems. If you're in the world of saving costs, it's going to be a wonderful world for the next x number of years.

Matthew Borsch

Let me ask a little bit different but maybe getting down a little granular, but as you look at the practices that you've worked with in successful markets, how important has been technology, whether it's, you know, deployment of electronic medical records or --

Richard Barasch

It's a mixed bag.

Matthew Borsch

Okay.

Richard Barasch

It's a mixed bag. You know, most big practices have some sort of an EMR. I would say that the number of people who like their EMRs is very small. You know, they use them, you know, it's, you know, these systems were originally built as enterprise systems without much connection to the rest of the world and connectivity issue was a, excuse me, is a real problem.

Matthew Borsch

Yeah.

Richard Barasch

Is a real problem.

There's another -- but the real benefit of technology from our perspective is gathering the data about these people external and internal, EMRs plus what we get from claims, plus what we get from all the other sources. And, you know, I love reading all this stuff, how everybody is data mining and finding out data. But one of the key issues for us is we need to know [what's performed] on the hospital, even an HMO shouldn't always know.

Matthew Borsch

Yeah.

Richard Barasch

But if you know somebody is in the hospital, you can intervene well.

Matthew Borsch

Right.

Richard Barasch

And it's another -- it's a data point. And, you know, what we're able to do is --

Matthew Borsch

Well, how do you get that information? Okay.

Richard Barasch

It's one of the, you know, it's a mystery. But it's not easy. Actually easy is once you kind of figure it out, what's kind of an interesting thing is spreading this out and you now have all this data around about who's more expensive. You know, this lawsuit that just got -- this injunction that got lifted last week, I don’t know if you saw this, CMS had been enjoying for 25 years from --

Matthew Borsch

Yeah, right. Yeah.

Richard Barasch

You know, this got a little bit notoriety. This is big.

Matthew Borsch

Just so it's clear to the audience, this was -- that for 25 years the, correct me, I may get this wrong, Richard, but the data had to be de-identified and now you can see the Medicare claims --

Richard Barasch

-- by physician.

Matthew Borsch

By physician, right, not by -- not by hospital. But now you can see it tie back to the specific practitioner.

Richard Barasch

One of the things we're doing in our ACOs is people taking orthopedics, primary care always refers to orthopedics. Somebody comes in, it's with a sprained ankle. You can look pretty easily now and see which orthopedist are using MRIs.

Matthew Borsch

Yeah.

Richard Barasch

Because if, you know, hey, you know, if there's no specifics and this guy says, put ice on it and come back in a week if it still hurts, and this guy says, go right to the MRI room, it's a huge difference. This guy is doing shoulder replacements on 90-year-olds and this guy isn't, you know, all of this is legal, it's all --

Matthew Borsch

The key differences in practice patterns --

Richard Barasch

Huge difference in practice patterns.

Matthew Borsch

Yeah.

We're running out of time so we have to wrap it up. Richard, thank you very much for coming in again.

Richard Barasch

Thanks, Matt.

Even though we don't always agree, I appreciate the dialogue.

Matthew Borsch

Absolutely. Likewise. Thank you.

Question-and-Answer Session

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Source: Universal American Presents at Goldman Sachs Healthcare Conference - Transcript

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