DocPreneur: Meet Kermit. Impartial, evidence-based financial control to PPI spend.

Intro: 00:00

Rich Palarea: But I’ll tell you the one thing you guys did for us that was unexpected and transformational, you have us collaborating with our surgeons.

We’re no longer butting heads about this category; we’re actually sitting down and having meaningful conversations and they’re bringing savings ideas to us. And it’s all because you guys took a different approach to this, one that we didn’t really think of, because it wasn’t available to us.

We didn’t have the data, we couldn’t actually pull it together, we couldn’t inform it with the type of information you have, being experts in this category, and we couldn’t honor the surgeon because we never stood side by side with them in the operating room like you have.

You’ve earned the right to speak to them, and you’ve really made a connection here for us to collaborate. And that’s where this whole idea of collaboration on this category is real. We want to be able to offer that to every hospital who wants to try it in the United States. That’s our goal.

Michael Tetreault: Good morning DocPreneur nation. My name is Michael and you’re listening to the DocPreneur Leadership Podcast. And today our special guest that you just heard from and that you’re going to learn and hear more from is CEO of Kermit, Richard Palarea.

Kermit is an analytics platform that delivers insight into the fragmented spend category of physician preference items. Kermit equips supply chain managers, surgeons, and executives with real-time data on implantable medical device transactions, offering unprecedented visibility that’s saving hospitals millions of dollars.

We’re going to talk about physician ownership and ambulatory surgical centers, we’re going to talk about trends happening within that space and transforming this antiquated paper-based process of surgical billing and saving millions in the process that eventually trickles down to the patients as well.

So, I can’t wait to jump into this conversation with Rich. He is the CEO of Kermit and Kermit is a Baltimore-based Healthcare organization and he’s going to tell you more about it. Let’s get started.

Good morning DocPreneur’s, this is Michael and I am here with a special guest, CEO of Kermit, and here to learn more about that, though it’s not the green frog that we all know and love, but you’re listening to the DocPreneur Leadership Podcast, today our special guest is Rich Palarea, he is the CEO of Kermit, and I am going to let you describe what Kermit is because it’s pretty neat for doctors listening. So, go ahead and lean in, listen, and I think you’re really going to enjoy what Rich has to say.

Rich: Sure, thanks Mike, thanks for having me on.

Kermit is an interesting play; we’ve been around ten years and there really wasn’t another company like this when we decided to start this. I started this company, I already had another company at the time, I started this because two former orthopedic medical device reps, they were in charge of selling implants for Zimmer Biomet, a large global organization that produces many types of implants. They were on the orthopedic reconstruction side, so knees and hips and things like that.

They were introduced to me through a relationship that we both had, our attorney, and she heard the type of business they wanted to set up. They wanted to go back into hospitals that they had served for many years, and they were told to keep the margins high, and how to ostensibly, take money from the hospitals, they wanted to go back into those hospitals and take all of the information that they had about price points, about what was going on in the operating room, about waste, fraud, and abuse, and help hospitals save money in this area.

I already had a business doing this in a different industry, and she just encouraged us to get together and so we met, and I heard the story, and I fell in love with the idea, I sold the other business, and that was ten years ago.

So, Kermit does two main things. We have a piece of software that helps hospitals understand surgical billing for 23 different categories of surgeries, but one thing they all have in common is an implantable medical device. So, it could be cardiovascular surgery, where pacemakers and defibrillators and stents and leads are being placed, it could be, as I mentioned before, total joint reconstruction knee and hip, spine has a lot of this that’s involved, not just the metal in a spine surgery but there are pain management devices, that are alternatives to opiates, that can be implanted into a patient and manage pain. And like I said, 23 categories including very complex areas like biologics and things like that.

So, what we do is we help the hospitals understand the price points, kind of the street price, what’s the best price that you could possibly negotiate, as a supply chain manager, for this very costly area. And the way we do that is, we have negotiated many contracts, we understand in real time what the price points are, we understand what these manufacturers are looking to do in any corner of their earnings quarters if you will, what they’re looking to achieve from a sales standpoint, what the pressures are, etc.

Michael: So, for doctors listening, one of the topics that we want to cover today is, those doctors who are looking, you have entrepreneurial tendencies. You know that you’re driving down the road right now, you’re running on the treadmill or you’re taking a walk with the dog, or maybe it’s a cat, but typically it’s a dog, and you’re looking at ways to become a better entrepreneur.

And you have a background actually, your dad was a physician, we talked off the air, and tell us a little bit about how that experience has kind of led you into having a really unique perspective on how to work with doctors today.

Rich: Yeah, I always kid with my mother, you know she always used to tell me, “You ought to be a doctor, you ought to be a doctor.” My dad really never pushed me into it. But I tell her, this is the closest I will ever get to being a doctor mom, so I hope you’re happy with it.

So, my dad, Mike you’re right, he was a cardiologist in Long Beach California for 34-35 years. Great career loved his patients and was loved by his patients. He, unfortunately, passed away about 15 years ago now. But the one thing I’ll tell you, and I am not going to generalize all doctors, but I’ll tell you about it in my family, while he was a great caretaker of people, one of the best I’ve ever seen, he was a terrible businessman.

He just wasn’t able to keep up with the daily rigors of running a business and this was back when you had solo practitioners, you didn’t even have medical groups. He had his own office, he went to the hospital, made rounds, and saw patients there, he helped in surgery in different places where he had patients that went into surgery and that kind of a thing.

So, towards the end of his practice, I was between jobs, and I offered to come in and just help him run his front office. At the time we had what we called “The blue hair group.” There were three administrators that helped him in his office, I think the youngest of whom was 60 years old. They used IBM typewriters to type up patient statements and hand them to a patient when they left.

So, I brought him into the era of computers. We put electronic medical records in, and we managed the practice on one of the first electronic systems at the time. So, I had a little bit of insight into what it means to work on the business side of a small practice, interact with the patients, and I got to spend some time with my dad before he passed away which was such a blessing.

Rich: You know, I think there is no shortage of process improvement that can be deployed in healthcare. Even though we have electronic medical records, and I know that is probably a dirty word for many of our listeners, and I kind of agree with them, I mean, I dealt with a friend of mine who was an emergency room doc who says, these forms, these systems are built by software engineers, they’re not built by doctors. There’s no space to put what you see at 2 AM on a Saturday night in an emergency room, what you’re actually dealing with, into the form, there is just no space to put that in, there’s no category for it.

So, I get that, there’s a lot of room for process improvement. I think what I learned is, taking it slow is the best approach, and if you can make small improvements over a period of time, you’ll get doctors, I want to keep saying surgeons because that’s the market that we deal with, but doctors in general, physicians, who are interested in running a very efficient practice, because now they get to take home part of those profits.

They want to know how they can make things very lean and optimized. How can they use the latest technologies? What’s a shiny penny that they shouldn’t bother picking up implementing because they’re being bombarded with marketing messages every day, about how to run the practice and what’s the latest and greatest, and trying to weed all that stuff out is really tough.

So, I really like going to third parties, I think there are people out there, we’re a very niche focus, we help acute care settings and supply chains there that using and leveraging, and not being afraid of using and leveraging consultants, to help you to be better. It’s the responsibility of the business owner, the physician, in this case, to weed through that, but I think you need to have some really good advisors to help you with that because there’s just so much information it would take you forever, how would you even have time to care for patients.

Michael: Yeah, I mean, for those physicians listening I think a good way to summarize what he’s saying also is, the goal isn’t perfection, the goal is just simply, progress.

For those listening, I am not a physician, but I am a patient, and so is Rich, and we know what it’s like to sit on the other side of you.

So, the next question I have for you is, for the surgeons listening in particular, if they’re looking to improve their bottom line, what are some ways that they can do that? Where are some significant wins within your supply chain that you want to reference?

Rich: Well, I can speak directly to the purchase of implantable medical devices. So, we would be looking at only a segment of your listeners that would probably be involved in either, orthopedic surgery, spine surgery, cardiovascular surgery where implants are used, the cath lab, things like that, and this is the most exciting part, might be interested in starting with some ownership in an ambulatory surgical center or a specialty hospital.

There’s this large migration or move right now for surgeons who have this capability to be able to own a piece of the business that they work in. Still practice in the hospital, still see some of the patients with maybe some higher comorbidities or risk, in those settings. But Medicare has really been pushing in their reimbursement models with things like bundled payments, and some of these other moves, to see these patients in an outpatient setting.

So, you have this large migration, you’ve got the market there, you have an aging population, more and more people are going to need hip and knee implants and things like that because they’re living longer, and Medicare is pushing to have it done in that setting. So, one, there’s a big opportunity for surgeons who want to get into the business ownership side of things and have a piece of the business themselves, rather than just the reimbursement that they get for performing the surgery.

Number two, now you have become a business owner. So welcome to the wonderful world of not just taking care of patients, but everything that is involved in running a business, especially profitability. I can speak to hospital supply chain for a moment and tell you that in a typical regional medical center, implantable medical devices account for 60% of the supply chain spend. That’s a huge number!

When you think about all the things supply chain is tasked with negotiating and contracting for including capital equipment, MRI, CT machines, lawn care, landscaping, food services, everything. So, these implants are very expensive, and now if you take this down to an ambulatory surgical setting, that’s one of the primary things you’re going to be buying. You don’t have food service; you don’t have landscaping and lawn care and those types of things.

So, now you have a bigger focus on this, you have to really become well versed on all these implants that you use on a daily basis, but also up to speed on what’s coming out on the market next year. Because the implant salesperson is going to make that new shiny thing very attractive to you, but your real question is ”Does it provide a better outcome for the patient, and at what cost? Do I have to pay more for it? Why?”.

So that’s what Kermit is doing, we’re demystifying that entire world, we’re taking that on, we’re negotiating those prices, we’re providing software for the paper-based billing process that is around today. And this is fascinating to me, Mike, that at the advent of mandated electronic medical records, we still have a paper-based process in many hospitals and specialty surgery centers for the purchase of these implants. A device rep stands in the operating room with the surgeon and tallies everything on a piece of paper, and then hands it in expecting to get reimbursed for that.

Rich: So, we have this large migration of these patients who were in an in-patient setting, meaning inside the hospital, coming in for hip and knee surgery, I keep saying hip and knee, that’s the most mature category, that’s the easiest to understand.

Typically, they will check into the hospital, they have their surgery, they stay at least one overnight and that’s an important concept for Medicare because that’s the billable marker, how many overnight stays you have, everything that is measured off of that.

So, we have a patient who checks in, and what we’re starting to see is, with the advent of different techniques, surgeons are becoming very adept at pain management, different approaches to the hip, anterior and posterior approaches, lower blood loss, and managing comorbidities on the front end. I have a lot of surgeons that I know that I referred somebody who needed a hip done to a surgeon friend of mine, both of these people were friends of mine, so I felt like I was putting each in good hands, and this surgeon would not operate on this friend of mine because she just needed to lose weight.

He told her if you want me to do this, you’re going to have to get your weight down because I want you to have the best outcome and I want to be able to do this in a short period of time. That’s what Medicare is looking for, they’re looking to reduce all costs and they don’t want to impact the quality of that outcome, in other words, they don’t want to have a readmission where we have to take that patient back into surgery for something to be fixed. That’s where the bundle payment comes in.

So, if a hospital or if a surgeon can actually achieve a lower cost, and not have the patient come back within 90 days for a readmission, that’s savings that the surgeon and the hospital drive together to be in that bundle, they get to keep a portion of that. That’s revolutionary, we have never had this way of sharing cost savings with the surgeon in a sanctioned way.

That’s where Medicare wants to go, not just with total joint reconstruction, but they have a bundle in cardiovascular, and they want to look at this across the board. This is the whole advent of value-based medicine, this is where we want to go, lower the cost, keep the outcome high, and it’s going to be good for everybody. Now we start to get into ownership of that dollar, that cost, surgeons become very interested in how to actually reduce the cost. Whereas they might not be so interested in it when the hospital is shouldering most of if not all of the cost, and the surgeon is showing up for their OR block and just operating and then leaving for the day.

Now here we have surgeons who own the entire cost, and they own the profitability. I think this is going to be a big trend as Medicare tries to push more of these types of surgeries to an outpatient setting. We have already seen the rise and the growth of ambulatory surgical centers, you have a lot of private equity firms getting involved to bankroll multiple hospital ASC groups, and we still have a lot of opportunities for surgeons to own their own small ASC, couple of operating rooms, couple of partners, couple of administrators and run this at scale and do quite well actually if you can keep the cost down.

Michael: So that leads me to a question that I was trying to jot down some keywords for myself to remember, I think for physicians who are considering ownership, considering this entrepreneurship, this investment.

They’re pitched ideas to invest all the time, they feel taken advantage of they’ve been burned they’ve lost money. One doctor we interviewed recently said it’s like golden handcuffs, we get strapped to bad ideas.

For those physicians considering ownership within ambulatory surgical centers or within these hospital settings that you’re talking about, is this going to help patients? How is this going to improve patient costs?

Because hospitals are in the media setting, which I work in, hospitals are always the ones that are getting the negative representation from a public relations standpoint. Oh, it’s the hospital because I went into surgery and got a 55K bill. So, by being a physician owner, I am getting down to the question here, and taking some entrepreneurial steps to be a physician owner, is this going to help with hospital costs in the future? Is it already doing that? And how does that eventually trickle down to patients?

Rich: I think that’s a great question. It’s not just in healthcare, you can think of this model in many places. Any place that you as the owner/operator have control over the cost, you have control over the delivery and the quality of whatever it is you’re putting out into the marketplace.

So, there is always going to be a better experience, if you think about going to the big box stores, and we can all buy TV’s for a very thin margin. And if you’re just buying the TV and you know exactly what you want, fine go buy it at the big box store. Think about that as the hospital, you’re going to get a meal, you’re going to get a place to sleep, that kind of a thing.

If you want more of an experience, you would probably end up going to a small electronics store that’s going to hold your hand, and show you all the high-end products, tailor it to you, do a custom install for you and then train you on how to use all this stuff. That’s more what I kind of think you will end up getting, and I think this is an interesting tie into the marketplace, Mike, that you’re in because this whole idea of concierge medicine is this idea that we can provide better care, more care that’s in tune with the patient because the doctor can spend more time with the patient and not feel like they’re under pressure to just crank through the visit just to mark things off and get paid.

I think this is the, and I think about my dad when I think about this, this is the essence of what it means to be a physician. You want to care for your patients, you want to fix every ailment, and I think having control of that delivery mechanism is going to be a big part of why patients who end up going to these types of environments for their shoulder, for their sports medicine injury, hopefully for their knee or their hip, and things advance to a place where we can do that reliably and safely, will end up having a better experience because the surgeon will be in control of the delivery of that and also the cost side of things too.

Michael: Now I want to move to another topic, the growth of Kermit, the workings of Kermit.

Kermit is bringing visibility and savings to these surgical costs. My son just went in twice last year, I went in maybe a year before. I was whittling, at my doctor’s recommendation, using it as stress relief, and I sliced open my hand like you wouldn’t believe. I even felt so bad for the nurses after four hours they were finally able to get my hand sewn up, I said I feel so bad, I am willing to clean up all these blood spurts, you should not have to do this.

But when we go in for surgery, an example is my son twice last year on his arm, we have no idea. What you’re saying also is the physicians who are using those instruments and trays have no idea. So, how are you bringing visibility and savings to surgical costs there at Kermit? Maybe a success story!

Rich: You’re saying you had no idea what the cost was going to be for the patient? Yes, you’re entirely right. If we were going to set this up today as business owners, you would never architect a process like this.

You have a salesperson managing those trays in the operating room with the surgeon, there’s no price tag on the box for these implants. Why are they standing there? They’re there for one reason, to ensure the surgeon has the instrumentation and the implants they need.

If something is not revealed on the X-Ray, and the surgeon gets into the patient and discovers that this patient has osteoporosis and we need a different style of implant, that rep better be ready to rescue that surgeon with another tray that they have at the ready.

So, they’re providing a very important service, I don’t want to disparage that, that is where we all came from. My two co-founders were medical device reps, that’s the role that they played. However, because of this lack of transparency, because this is an opaque kind of thing, there’s no price tag on the box, surgeons typically don’t know what things cost, and if I am the surgeon and I need to bail out and go to a different style of implant and that salesperson has it at the ready, I am not going to ask what does it cost? I have to provide the best outcome for the patient, so I am going to grab it I am going to implant it and we will get the patient on their way.

There’s a big push in the United States right now, I think there’s actually a legal mandate, for hospitals to publish their chargemaster, which is what they’re going to charge a third party or Medicare for anything that is sold to a patient.

It’s a bit facetious to think that you or I as a patient could go online to our local hospital, which we can, download the chargemaster, and make heads or tails of it. I don’t know how the government expects this to be an advancement. I get what they’re trying to do, what they’re trying to do is really good actually. They want to demystify all of this and say if I am going to walk into BestBuy and buy a tv and I know the model and I know the make, I know what it’s going to cost. I don’t get it home and then get a bill later for 7X what I thought it was going to cost me. But that’s exactly how surgery works in the United States.

So, one of the things we’re doing at Kermit is, we are not only reducing the price, trying to get the best price for all of these different implants, over 500K skews in the universe of products that we manage inside of our database. But we are also trying to create what we call spend management, long-term, lasting spend management.

Many hospitals will negotiate their price down to a point and it’s a very difficult environment to be in. They’re dealing with surgeons who are saying, “You can’t change that, I need that special thing”. But then supply chain will say it costs too much. We need your help surgeons go talk to the rep, then surgeons say they can’t talk to the rep because they played golf with them last week. It’s a really interesting situation that goes on there.

So, they’re embattled and need to save money. Their operating rooms have been closed for a period of time during covid, they’re really in a tough place right now. But once they get this done, the last thing they want to do is linger there. Once they get those contracts signed and the new pricing in place, it could take them upwards of six months to a year sometimes to go through these negotiations in just one category, they will high-five and leave the table and say let’s go back to the work that we really love.

And when they do that, they leave a void that is filled immediately by the sales rep and the distributorship who sells these implants, and they know how they’re going to make that money back. So, what Kermit is doing is not only negotiating a better price on behalf of the hospital, and we only get paid if we save them money so it’s a real easy thing for them to sign up for, it’s all performance based.

But we also have purpose-built software, the first of its kind in this category, that manages the implant billing in 23 different categories. We adjudicate that billing, looking for waste, fraud, and abuse, and tell the hospital what’s okay to pay in every one of those transactions.

So, were automating all of that, which today is a paper-based process. We’re digitizing that and then we’re unlocking all of that data that’s locked inside of a piece of paper, inside of dashboards, analytics, ways for the surgeon to understand, ok I made that change on Mrs. Jones and I can actually see the impact of the cost it brought. Did she have a different outcome? That’s up to me to decide as the caregiver.

So, they can start to manage and manipulate these different items at different costs to bring their own price down without impacting their quality. That’s really a golden moment that has defied quantification for a long time, we have never been able to see that, and now we can with the capture of these devices and the analytics we provide.

Michael: That’s amazing.

As we come in for a landing, we have two more questions for Rich Palarea. Visit Kermitppi.com. We will put Rich’s contact information and his bio and how to get in touch with Kermit in the show notes below.

The second to last question is, what now do you want doctors to think, feel, and do? What are their next steps? Maybe it’s hospital administrators, maybe it’s the CFO who’s listening at the hospital, about 15% of our listeners are administrators in the C-Suite. What are their next steps or actions?

Rich: Thank you for asking, I think it’s super important to reduce costs. I think that’s a mission that everybody can get behind. How you do it, and do you use a third party? That’s trickier.

I think if we have hospital CFO’s listening to this I would say, look at this category, 23 different categories of implants. They’re all very expensive. Your supply chain is probably going to tell you they have a very good handle on it. We use a group purchasing organization like Premier or Vizient, we get the best price. And I think you have to ask the question; how do you know? How do you know you have the best price? What are you comparing that to?

What if you could get that information and it didn’t cost you anything, just to take a look. I think the value of a good leader, a good CFO, a good CEO in a hospital setting, is letting their staff explore every opportunity they have, to look at third parties, to look at software, to look at different ways of doing things. To not hold them accountable, I think it’s a real disservice for a C-level person to go into supply chain group and say, we’re holding you accountable to keep your costs down.

We are asking them to negotiate capital equipment, and protective equipment in the midst of a pandemic, and implants. They can’t be experts in everything. The leadership has to be able to say, go look far and wide. Go look for the most innovative things that are out there and look for value.

I think Kermit provides a lot of value, in that, we don’t charge for our services unless we save money. We will even let them use the software for free, if they allow us to help them negotiate their implant costs, were that bullish about it. I think for the surgeon there is a message there too. That this negotiation that has to take place maybe every year or every two years in the hospital, it doesn’t have to be adversarial.

The Kermit approach is to actually create a collaborative environment between the surgeon, the supply chain professional, and the finance office, by putting real data in the center of all three of those parties.

Something that speaks to the surgeon, they can see all the implants they put into Mrs. Jones, and they will remember, I did waste that screw, but I looked at the rep and I told them you’re not charging me for that wasted screw, right? And the rep said don’t worry doc I got it. And boom they log into Kermit, and they see that the rep charged for that screw. I can’t wait to get back in the OR and have a little chat with my rep. Providing all these insights, and I think there is this misnomer that the surgeon doesn’t really care about cost. It couldn’t be further from the truth.

When we developed Kermit with all the analytics and the dashboard, I really thought that surgeons would have zero interest in this, they’re actually some of the first that want to go in there and take a look at what’s really going on. And we have the tale of the tape because we are collecting everything in the operating room. We aren’t sifting things from the electronic medical records and the enterprise system trying to stitch it all together after the fact and have it make sense to a surgeon. There is a problem in doing that and there is a way for surgeons to poke holes in that data, and rightfully so, many times it’s wrong. So, we are collecting in the OR and that’s one of the things that really sets us apart.

Michael: That is really encouraging from a patient perspective. This is one of those golden nugget moments where I think patients don’t get to hear this type of information unless you get to interview experts like yourself, that understand that surgeons do care about cost, and obviously, they care about the patients. I have never met a doctor who doesn’t have incredible empathy for the people that they serve.

But sometimes we do think it gets taken for granted. Let’s throw everything out and you do get billed extra for these two that were left on the tray or left in the OR.

Our final question for Rich is, we ask this of all of our guests, it’s one where usually the answer is, ugh which story do I choose? If you were to hand over the keys to the business to someone else, tonight, tomorrow, what is one of those testimonial moments that is like, this is why we do this?

Rich: Yeah, Mike. There is such an emphasis on cost reduction in what we do, we like to tout the big savings numbers. On average we can save the hospital 30% on any one of their categories or implant categories and these tend to be big numbers.

There is a large academic medical system in the state of Maryland here that we helped. We saved them 55M dollars in a period of four years, that’s real transformational money. But more than any of the savings, I go back to a CFO of a hospital in Annapolis, Maryland, who was our second client and is still a client today nine years later, we were having dinner after a successful cost reduction effort in knee and hip and then they said this was great were going to give you spine. And then they said that was fantastic let’s do cardiovascular. And here we are nine years later we have gone through all of the different offerings that they have.

And I said, Bob, I hope you’re pleased with the savings. You took a risk on us, we were a young organization at the time, and you took a shot and I am really thankful that you kind of let us build Kermit in your midst, isn’t it fantastic the amount of money we have saved you? We saved this organization somewhere around 40-50M dollars.

He said, Rich, the savings are great, But I’ll tell you the one thing you guys did for us that was unexpected and transformational, you have us collaborating with our surgeons. We’re no longer butting heads about this category; we’re actually sitting down and having meaningful conversations and they’re bringing savings ideas to us.

And it’s all because you guys took a different approach to this, one that we didn’t really think of, because it wasn’t available to us. We didn’t have the data, we couldn’t actually pull it together, we couldn’t inform it with the type of information you have, being experts in this category, and we couldn’t honor the surgeon because we never stood side by side with them in the operating room like you have.

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