Kermit CEO Rich Palarea share his company's approach to enabling hospitals and health systems to keep the cost of implantable medical devices under control.
Host David E. Williams is president of healthcare strategy consulting firm Health Business Group.
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David Williams: Patients get scared when they find out they need an implantable medical device like a pacemaker. That's understandable considering the risks of surgery and what it implies for their health. But did you know that hospitals get scared too? Implanted devices are pricey, and this spend category is notoriously difficult to manage in an era of super-tight hospital finances. Implantable devices could mean the difference between life and death for the hospital too.
Hi everyone. I'm David Williams, president of Strategy consulting firm, Health Business Group, and host of the Health Biz Podcast, a weekly show where I interview top healthcare leaders about their lives and careers.
My guest today is Rich Palarea. He is the CEO of Kermit, which focuses on enabling hospitals and health systems to keep the cost of implantable medical devices under control. If you enjoy this episode, please press that like button and subscribe. Rich, welcome to the Health Biz podcast.
Rich Palarea: Thanks, David. It's great to be here.
David: It's a great topic, so I'm really looking forward to getting into it.
But you're a great topic too. You've done a lot of interesting stuff in your life up till before this. So, we'll start with that. What was your upbringing like and any childhood influences that still stick with you today?
Rich: Well, it's interesting that I'm in healthcare now because my father was a cardiologist.
I grew up in Long Beach, California, where he practiced medicine. He came there from Guatemala Central America, actually. Everybody's got an uncle in the family who's not related to you. My dad moved from Central America to live with somebody in the States when he was very young. Was pretty smart, excelled in school, skipped a couple of grades, and was kind of a Doogie Houser story before that was a thing.
But I grew up in Long Beach, California. I think more my mother than my father wished that I would've gone into healthcare. My mom also worked in the hospital as a volunteer. That's where she met my father. But no, this is as close as I will ever come to being a doctor, and I hope my mom is proud.
So I think early influences likely were family members. I mean, I really looked up to my father. He worked long hours. There were times when he tried to get out and coach the baseball team with me or coach me in soccer and whatnot. He did a fairly good job, but that was scattered in between, going into the operating room and doing surgery and seeing his patients and I would say he probably was a doctor first.
He really cared for his patients. He's passed now, but really cared for his patients and really kind of showed me how to do things in an excellent way. I had an uncle who was very influential. My upbringing too, kind of got me into competitive yacht racing and sailing, which did a fair bit of that in high school.
Won a couple of national championships actually with my cousins. The two of those men really kind of shaped who I became as a young adult .
David: That sounds very exciting. I spent some time in Long Beach, but I've been to Guatemala too. It was a beautiful country. One of the striking things about it I remember was that they had, were using for long-distance bus transportation, retired school buses from the US. So, you'd see these yellow buses with, markings from all over the country that were being put out there.
It was striking not something they write about in the tour books, at least at the time I was there. So that's something. Okay, as you said, getting into healthcare and, after yacht racing and so on, you didn't just get right into healthcare either. It looked to me like early on, maybe the first thing you were doing, and the first thing I saw on your LinkedIn was a real estate appraisal business. Is that right?
Rich: Yeah. So, I went to San Diego State after high school. I graduated from San Diego State with a BS in business with a marketing emphasis. I didn't really know what I wanted to do. I was thinking at the time, and this is like late eighties, ad agencies were all the rage.
Everybody wanted to go work for Olga V or one of these big firms, and they told us, newly minted marketing degree holders that you're probably going to sweep the floors if you go there. Literally, that's what you'll do for a while. So kind of got my head around that and I was prepared to do that. Sent out resumes far and wide and then waited and waited and nobody answered. So I was going through, this will really date me.
David: So we're the same age by the way, so don't worry about that. So, it'll date you, but it'll date me as well. So, I guess, be careful what you say. But you didn't put a sort of a broom on your resume so they didn't know you like, like how many sweeps per minute you could do?
Rich: Professional sweeper? Yeah. Probably should have. But what I did do when the responses weren't coming back is I got out the newspaper. And I looked at the help Wanted ads. Do you remember those? Before LinkedIn and Monster and all these other places we go for jobs.
So, I was looking through the paper and found a job for a salesperson for a local real estate appraisal firm in Orange County, in the city of Orange, actually in southern California. And they were a small organization. They had about 15, 20 appraisers. They had two principles and they didn't have anybody who was winning the business.
They had done it through the founders and they were looking to kind of expand. I answered the ad, went in, did the interview. I was one of three people that were hired onto a team, and I really excelled in that. Fast forward. Actually, what happened was this was George Bush won during his term, we had the savings and loan bailout situation that took place.
And a lot of our appraisals were being called into court. And this organization closed up its operations. And I had all these clients who are ordering appraisals, but I had no appraisers and I didn't appraise property.
So I said, you know what? I actually went to my dad. Remember he's sitting behind the desk at a medical practice, fairly conservative guy, and I said, dad, what do I do? I don't have a job anymore. I really loved working for this organization. I was making decent money. But I've got this opportunity. I've got all these clients who love me and all this work, but I don't have anybody to do it. Should I open my own practice?
He said, no. I think you ought to take the Sure bet, go work for somebody and get a paycheck. And went home that night and thought about it and I said, you know what I will be kicking myself for the rest of my life if I don't try this. So that was kind of my first foray into entrepreneurship.
I opened my own office and hired back a lot of the appraisers who I worked with previously. Managed all of the existing clients and grew that business too. And what I realized pretty early on was I was giving the lion share of the revenue to the appraisers and only keeping a small amount. And I had all the liability and exposure.
I decided to learn how to appraise property. And back then you didn't have to have a license in that kind. You just print a business card, and you were in business. So that's what I did, and I ran that business for probably a good six, seven years. And it was great. I mean, for somebody in their twenties, this thing was putting off a fair amount of cash and was really kind of a fun way to kind of get into business ownership.
David: No, that sounds good. And then from there I saw Direct Fit. What was that about?
Rich: Direct Fit was originally an organization called Integrated Partnerships which sounds like a diversity, equity, and inclusion play today.
But basically, it was a technical staffing company. They would go out and find, Organizations who wanted to hire help desk people l LAN and WAN engineers. This is really dating both of us now. Those kinds of folks and so they would go out and they'd have, they managed the clients, and they'd also recruit to find all the candidates and then they'd put them together.
The organization grew through venture-backed funding and it grew very quickly. Got to be a national-size firm. And it was acquired later by a larger company actually here in the mid-Atlantic that bought them, that really kind of owns the staffing game today. That organization, I was the marketing director there.
We were the first staffing company to come up with a model to video interview candidates and then use a matching algorithm inside the database so that somebody could go in and search for the person they wanted. Get back a list of people, see a five or six-minute snippet interview, and then say, I'd like to physically interview these, check them off, and send in the order.
It's a pretty slick application. Bandwidth was super expensive back then. We were way ahead of our time, and the one thing that we didn't actually calculate was, most really good technical people don't like to sit in front of a camera. So there was a kind of a cultural mismatch there, but it was acquired and it's actually still running today.
David: Well, as long as you're dating us Rich when you talk about LAN and WAN at the same time when people didn't have the money to invest in a LAN, they used to have a sneakernet. Do you remember that? Which means that you'd take your floppy disc. Five and a quarter at that time. Not the eight-inch, but not the three-and-a-half-inch either. And you would walk it from one computer to the next. That was absolutely the sneaker net as I recall.
They don't need to hire anybody to run that, I don't think. And then the next one I saw, is it AIM?
Rich: AIM International. So that organization was a very interesting one that was a trade association that was in the data management space originally, not data management. It was microfilm, microfiche way back then. I mean, that's a hundred year old organization out of DC and they would have a large trade show every year.
They'd bring together all the big companies who were using data and data management Kodak, IBM, all the people that you're thinking of. And then, They'd bring in all of the solution providers that wanted to do business with those organizations. People that did scanning like I said, microfilm.
By that time we were using the first instance of Microsoft SharePoint, so we were on enterprise content management back then. And AIM coined that phrase , ECM, enterprise content management still being used today. The interesting piece of that story was that we would do a trade show every year.
It was a big event and we'd collect all the booth money and all the extras and everything. And then we would operate during the year, publishing content, whatever, all year long. And we'd run that revenue down and then we'd have a trade show and it'd come back up and had the cycle.
And that was pretty common back then until the 9/11 attacks. And our trade show was going to be at the Javits Center that year in New York. In November. So here we are, September 11th and we're planning for this trade show this fall. And nobody's traveling, let alone going to New York City.
We actually the CEO of the organization got together with the board and they sold the show to Advanced Star. Who still runs it today. AIM shrunk down from over a hundred employees to just a core number of employees that produce content and are kind of thought leaders in the space.
David: And then PA and Associates, what was that?
Rich: That was my last company I started. I've exited that. I sold it to Prostar Logistics out of Salt Lake City. And that was a company that did spend management and cost reduction very similar to what we do here at Kermit. But we were doing it in the transportation space.
So parcel shippers, some of the largest parcel shippers in the nation will come to me, and I would demystify how FedEx, UPS and DHL construct those agreements, how they bill for them. You think you're going to spend $5 to get a package from A to B, and you get the bill and its $15 and you’re scratching your head why?
So we would negotiate better rates on behalf of those customers. We would take a portion of what we saved them as our fee. So it was pretty easy to put in front of a CFO, said, I love this. I'll take the bet. And then we would just bill them every time we would manage the data that would come in every month, we'd send them a bill for what they saved. A lot of backup behind that bill to show them exactly how the calculations worked. And they struck us a check for part of it. And they keep the rest.
David: Sounds good. Okay, so now I think I have an understanding of how you got up to where you are today, but the first question really has to be, is Kermit.
I mean, what kind of name is that? I mean it certainly brings certain characters to my mind, I guess both from our era, but why Kermit?
Rich: Well, let me give you the backstory that Connects PA and Associates to Kermit and then I'll give you the name and then it'll hit you.
I was running PA Associates. It was a lifestyle business. It was making a good income for me and my family. My wife had launched at that time an interior design firm. I started PA Associates for her 25 years prior. And then she, then we had kids, and she was done raising them and she's like, I want to go back in the workforce. But I don't want to do that boring thing anymore.
I'm really interested in, so she's got a successful design business. So I just ran it like a small business and I had no intention of selling it. Had an attorney at the time who was helping me with my business dealings. She was also representing two former med device reps in a potential non-compete as they were thinking about starting up their own business.
And she listened to the idea they had. And the idea was this, we used to work inside of hospitals. We stood inside of operating rooms, we're tendering devices to a doctor all day long. And we know these are overpriced. It's $5,000 for this knee component when I know down the street I just sold it to somebody for $3,000.
And so they kind of got tired of that whole sham and they said, you know what, if we came back to the hospital and told them, we know the street price of this stuff, we also know where the tricks and the traps are in the lack of transparency in the billing.
Why don't we come alongside you and help you reduce your costs in exchange for getting you savings we'd like to keep a portion of the fee as our piece. So they tell this to the attorney who then contacts me and says, you've got to meet these guys.
They want to do exactly what you're doing today in a different area, and you've got all the acumen, the software set up and the office and everything. Why don't you just go have coffee and meet? And so they came in on my office, told me this crazy tale about how they stood in the operating room and controlled the whole dance. And it wasn't my first foray into healthcare as I mentioned before, but I didn't really know anything about surgical utilization or any of this stuff.
David: Actually let's stop on that for just a second. I know you're going to get to the Kermit story, but just to emphasize, the salesmen are in the operating room, correct? That's weird, isn't it?
Rich: It is. I mean, for the average layperson to probably even some people listening right now who've had knee and hip surgery, thinking wait a minute, I was under anesthesia and somebody who's not part of the hospital staff. Was in the OR with me. Not just watching.
So, they're an active participant in ensuring, in a very important role, actually ensuring that the surgeon has what he or she needs in any eventuality. So if the surgeon gets in cuts the patient and decides wow we have osteoporosis in this bone. It didn't show up on the scans on the film.
I'm going to need a different style implant. That rep has to make sure they've got not only what the surgeon asked for, but all the backup stuff too. So they're carrying large amounts of material in that sterile processed, those trays are then wrapped and sent up to the floor where they meet this employee of the implant company and they kind of, they are very knowledgeable.
They know how to do the surgery of anybody in the room, the exception of the surgeon. They play a very important role to kind of bail surgeons out, let them know how to use different instrumentation, all that, but they're tendering medical devices into a sterile field, and there's no price tag on the box.
No surgeon doesn't really have a clue what these things cost. There have been many surveys that you can find out there in medical journals where they've asked surgeons, what do you think these things cost? And they're wild and all over the place. Nobody really understands. So no price tag on the box.
The implant comes out of the box. It's handed to a scrub tech who then gives it to the doctor, and it gets implanted and a barcode sticker label is peeled off of the box and affixed to a piece of paper. And that becomes the record of what gets billed. It's a piece of paper even today with all the technology we have and cloud-based, this and that and all this.
The rep writes down with a pen what they want to charge for that day, and then they march that piece of paper down the hallway to purchasing who doesn't really have any clinical understanding of why the surgeon used what they did and just has to look at the stuff and kind of site check it and say, it looks okay.
I'm going to go ahead and pay it. So the surgeon picks, the hospital pays the patient doesn't know. And we have this interesting thing that goes on where, one party kind of controls both sides of it. So that's what these guys were doing and that's why I was so fascinated by it.
But, as the story went on, it became kind of more and more exciting to me, so that I had to actually take a step back from that conversation and say, do I really want to try something different at this point in my career. I have a great business that's doing well. It's doing exactly what I needed to do.
But look, I mean, you rarely get an opportunity to really make a change. Really make a difference. In an area that's been going for a long time. And at that point, it's been 50 years.
David: All right. So I threw you, so you said you were going to explain, but then I asked another question in the middle of the question, which is something, a podcast is allowed to do or somebody of my age can do, but why Kermit? I still don't know that.
Rich: So, we landed our first two customers. We decided to go into business, obviously. That's what's going on now. We landed our first two customers and we decided this paper-based bill thing is really bizarre.
Why don't we endeavor to create a piece of software that will capture that paper bill, turn it into electronic information, tell the hospital what's okay to pay and what isn't, and then use all that transactional data as analytics to go back in and sit with a surgeon or the supply chain leader or the finance lead and say, here's what's really going on that you can't see.
Other opportunities for cost reduction exist. And we said this is tremendous. So, we raised a little bit of money, we built some software and the software now exists and we have to kind of push it out into the world. And we said, well, we need a name for the software.
So, I'm sitting around. At the time we had one employee that we had hired. So me, my two co-founders and one other employee, and the three of us, the three co-founders were sitting there saying, okay this feels like naming a band. Everybody just throws out crazy names. And I said, look, we could be doing this for a long time.
Let's put some parameters in. Let's just say, everything that's in the hospital right now is high stress. If we have any competitors at all it looks like government alphabet soup. It's all acronyms. It's all very stale. There's no personality to anything. And also this is a category that really supply chain doesn't understand, nor do they really want to, they don't want to deal with surgeons and tell them what to use.
Surgeons understand the clinical part of this, so they really don't like this category. They'd rather somebody come in and make it super easy. So I said, kind of keeping that as a theme, at the beginning, I think it's a Spielberg movie at the beginning of the movie where a kid sits on the edge of the moon and he cast a fish pole out, and the fly hits the water and ripples go out and the music plays.
It's nice and easy, I said that's the feeling, guys. That's the feeling. I watch the essence of the brand now go, right? And we started coming up with names. One of my co-founders said to me I said, childlike. I said, your childhood. Something that was easy. And he says, Kermit and the other, the two of us, look at him we just laughed him out of the room.
We're like, there's absolutely no way. Well, first of all, we'll never get a trademark on that. And how are we going to explain it to some buttoned up CFO in three piece? It's like, well, you guys were Kermit. You're what? Yeah. So, another five minutes went by Dave.
We threw lots of other names around and then we said, wait a minute. You might have something like, if we can pull that off, that's really what we want. We want to kind of set ourselves apart from everything else that's out there. And so we went with it, the attorney said nothing green, nothing with any frog imagery.
You'll get a note from Jim Henson's estate. And so we stayed away from that, but the name really stuck and it has produced pretty much the effect that we've wanted, which is a little bit of a reaction. A little bit of a smile. A little bit of people let their guard down, but we take what we do very seriously, even though we have a lot of fun, and I think our customers actually realize that.
David: So, I think I understand the unmet need. You've explained it well. So unique elements of the operating room and having the person who's doing sales, handing you something and then putting the sticker down and taking it into to cash it in at a high amount typically. Why had this not been addressed before?
I guess you, you kind of answered that too, in terms of purchasing managers, supply chain managers, they don't want to deal with this. They're not equipped to deal with it. Maybe they don't realize how big it is, but why hadn't it been addressed? I mean, it addressed, as you said in the transportation business. Why not here?
Rich: I think there are kind of three big themes there that the first is hospitals were dealing with bigger cost areas, they really needed to get under control. A lot of the stuff, if you just talk about surgery alone, a lot of the costs for many years had been in the post-acute care space.
So skilled nursing and all this other stuff. And Medicare came in, changed all the rules for reimbursement and said, if these costs are out of control and they don't match at all, you have such variance, wide variance across the nation for the same services. You need to get a handle on this. So they kind of squeeze on that part of the balloon.
Hospitals concentrated on that. They looked at revenue cycle. That was a big deal. They looked at electronic medical records. It was mandated by the government to put this stuff in and everybody got, government cheese basically to do that.
So this kind of flew under the radar, but it was a very high cost amount, but it just was just under the radar of most CFOs. The second piece of this is that anybody who had tried to do this in the past tried to pull data from enterprise systems. So if you think about the scenario I gave you this paper bill gets spot checked, it gets committed to the data stream, somebody pays an inflated amount, and that data, which is now bad data, sits up in the enterprise system, a Deloitte or any of those types of firms come in and they pull down this bolus of data and they start to analyze it and they go, wow, you have so much overspend when you really, you don't. What's happening is you have cost avoidance that's not taking place because you're spending more than you need to. Nobody's managing the contracts.
So you've got to collect the data in the operating room and that's hard to do. You've got patient care going on, you've got a ballet of lots of coordination with nurses and techs and the surgeon, and you don't need another piece of equipment in there where somebody's having to type stuff in.
And then probably the third piece, the more nefarious piece was you've got a lot of very large organizations, publicly traded organizations with powerful lobbying arms protecting interests. And for a long time, we've had, this 510K FDA approval process for implants, I think patients would be shocked to find out.
There's a movie, a documentary on this called The Bleeding Edge. Out on Netflix. It's fascinating treaties on this whole thing where not every implant comes before the FDA on its own merits to be evaluated. It's based on what they call a predicate device or something that was approved earlier.
And so think about this for a moment, David. You've got a implant company like Stryker, for example, comes to market with something brand new. They want to charge a premium for it, but they go to the FDA and say, no, it's substantially equivalent to what we released 20 years ago. We want you to give us the approval on that, and then they go to market and say, it's radically different than what we had 20 years ago. We want a premium on price. Which is it? You can't have both. So that was the angle we wanted to take was, is it A or is it B?
And if it's not A then these devices all have to be categorized. Based on what they do. And then we have to put a price cap on those, and everybody should pay the same amount for those devices. That's how it works in other countries. Where they have implant registries and lots of transparency. But in the US we have lots of other interests and people with their hands in the pie, and that's why you have an opportunity like this.
David: Well, if nothing else, maybe it'll help the regulatory consultants as the device makers decide they better at least get a PMA so that they can say it's somewhat innovative.
So you mentioned and I think you had the right group of co-founders because you had people that have been in the room knew what was going on and then you had the experience running the business side of things in a similar space. You talked about starting there with having the one employee.
How have you grown the business? What does it take to actually get it established and then to grow it?
Rich: Yeah so a lot of the activities, because we really didn't have any foil defense against, we had no competitors when we started this at all. So we had to kind of pioneer on our own and it was a lot of uncharted water we were sailing through and we just as founders decided that we needed to do every job in the organization, so we had a real understanding of what that looked like.
Whether it was analyzing these paper bills coming through, or reading and understanding contracts or negotiating against the vendors, or even building the software sales, marketing, finance, HR. I mean, I've done all of those jobs here. When we felt like we had kind of perfected something and got it in a version one and had a couple of hospitals using it with real surgeries and real patients' lives and real dollars flowing through then we said okay, how do we step back and scale this now?
And we've put in place, I think pretty much every senior manager that we need here to do that. But we are a unique animal. We're one part consulting services, which is the subject matter expertise we deliver. And one part software company, one part technology.
It's hard for, folks in the private equity world to understand what that looks like. They either want you to be pure software or pure services. But we're starting to find now today, and it's kind of emerged in the past 10 years that these technology enabled services, which is what Kermit really is. Is its own category.
And there are investors who come in and want to look for those types of businesses because they tend to be very sticky. It's easier to keep your software there when you have people providing value around it. So we've managed to hire strategic advisors who sit side by side with our clients and inform the data that comes out, the reports that come out of Kermit, they find additional savings opportunities. And these are very, these are highly paid, well-versed individuals. They're former hospital CEOs. Former VPs of supply chain for implant reps. Just a real interesting smattering of experience in that group. So, we're at 30 people now. We think that's pretty much where we need to be to scale nationally.
We've merged beyond the Mid-Atlantic where we started to a larger national base of customers and have a national sales team, including some partnerships that are pretty interesting that help us cover the nation. But we only operate within the US today.
David: The pandemic has had an impact on a lot of different areas.
One of them is certainly related to hospitals and surgery and particularly elective surgeries, some of which are going to fit there. What has been the impact with the Pandemic on the spaces that you deal with?
Rich: Well, it's primarily that area you talked about. I mean, you remember these hospitals did not know what to expect when we heard we have this coronavirus and we don't know how fast it's going to spread, so let's hunker down, let's put tents in our parking lots to triage people.
Let's close the operating rooms. They really didn't know what was going to happen. And neither did I, as right as a CEO of kind of a nimble company, I thought, okay, it looks like people are sending people home. Let's at least participate in that. We already had a very robust telecommuting policy.
We were kind of in the office part-time anyway. So that was very easy to adapt to. What we didn't expect, David was, we looked at ourselves each other and we said, well, the hospitals won't let us back in to have meetings there, and they're closing their doors. But surely, they won't stop operating.
Wow. Were we wrong about that? So here's this model where we only get paid when hospitals do surgery and save money, and we bill them for a portion of the savings, and all of a sudden that just dries up. It was a very tense time. A couple of the things we did as leadership here, we pledged every employee, even the ones that were hired just two weeks prior to the pandemic breaking.
We were not going to let anybody go. We would avail ourselves of any programs money that's available, anything we can, including dipping into our own cash reserves to keep everybody on payroll. And I'm very proud of the fact that we didn't let anybody go during what amounted to almost two full years of no revenue coming in.
So we got a very loyal, dedicated team here at Kermit, and I think that's one of the reasons why we treat them well. The other thing was that we had to kind of back up and look at all the assets we had created and was there another use for the software? Could we do something else that didn't require surgery to happen.
And one of the things we found was we've built this kind of unique little piece inside the software, just a little feature that parses all the FDA recalls that come out. And it matches them against the catalog number of an implant and the lot, the range of lot numbers that have been recalled.
And so we can tell a hospital in real time, you've implanted a med device that now has an active recall. And what level is the recall? Is it urgent? Are people's lives at risk? And we can give the hospital a list of those patients by name. There's nobody else who's doing recall management in the United States today that does that.
And the reason why is they have all the device information, but they don't have the patient information. We have both. So we tried to turn this around very quickly and we looked at maybe a possible B to C kind of business. We could offer anybody who's had surgery, a registration in our database and a lifetime of alerts where we would tell them if something got recalled.
And we were kind of spinning up that idea when the pandemic broke and we kind of got back to normal. So, we shelved that. But boy, was it a bit of a moment there for us.
David: We hear a lot about value-based care and as you, you talked about how surgery stopped, you stopped getting paid and that was the case for fee for service.
Some that were in, I'm not saying in your business, but some that were in kind of value-based arrangements with the global capitation or getting paid not based on volume, but based on just based on the population, ended up doing pretty well. Do implantables fit in to value-based care? And how would that affect your business, if so?
Rich: Yeah, they do. So, under previous administrations the Medicare passed a bundle payment for knee and hip. They expanded that later to cardiovascular surgery in certain areas of cardiovascular. And what they did was just like we talked about with the post-acute care piece of it they started to squeeze the balloon on the intraoperative part.
The implantables. And they said, how can you have a knee replacement that costs $9,000 in one hospital, $19,000 in another, and $59,000. In another, we've got to get this to, something in the middle. And if everybody can manage to get their price there, we'll let the hospital keep a portion of what they save, and they even sanctioned that fee splitting with their surgeons.
So up until that point, you had to have the OIG involved in any kind of a gain sharing type of thing, and it was very onerous to draft those agreements. Now, governments coming back and saying surgeons, you participate in hospitals, you participate, and you run your healthcare system like every other business in the US where you're conscious about your cost and you also have great outcomes.
So if a patient came back for any kind of readmission, they would say, all bets are off. We're not letting you keep any of that money. Within that first episode of care, within like 60, 90 days, we were going to take it away. So, they released the bundle. It got a lot of traction in the very beginning, but they released it in kind of these different MSAs, so certain pockets of the nation were compelled to participate while others weren't.
And it created this interesting situation that I'm not sure even the government understood, which was during the previous 10 years, health systems grew by acquisition. And so what they had was a mishmash of, let's say they had 40 hospitals, 10 of them were part of the bundle. Two were in an optional category. One was in a demonstration state like Maryland, and the rest didn't have to participate.
It made it very difficult for them to figure out all this stuff out. So, they just said, this is crazy. We can't figure it out. You've got to slow this whole march from fee for service to value-based medicine. And they were successful in doing that.
It's mostly around hospitals to kind of shut that down. So we haven't really seen the Golden era of how value-based is going to really shake out with implantables and surgery, but make no mistake the blueprint is there and if Medicare pulls it off, private payers will want to go that way too.
And it makes complete sense for the self-insured, for the employer to do that. I mean, they're already dictating where their employees go to get knee surgery, hip surgery, and they're making direct deals with providers. So I think that's a very interesting thing that's happening.
David: Well it sounds like a great business and I wish you the very best.
With that, I want to turn for a minute to a couple of other things. I see you've got a podcast of your own, so I appreciate having a fellow podcaster on the podcast. What's the focus there and how's that podcast going?
Rich: Yeah, it's been an interesting journey. It's called Healing the Hospital, and the whole idea is, we're not talking about the direct area that Kermit participates in.
It's really just a thought leadership piece to get hospital leaders in front of the marketplace. There just aren't enough voices right now talking about the urgent things in healthcare the staffing shortage, the fact that nurses walked off the job during Covid and for all the reasons we know about.
We saw it all on tv, but they're being hired back as contract workers at three and four times their salaries. Healthcare is just broken. I have a client of mine who is a senior vice president of a health system and he said, we will need to fundamentally rethink how we deliver healthcare.
It's not sustainable anymore the way we're doing it, posting these huge losses, and we saved them $55 million in four years. So it wasn't an in insignificant amount of money we helped with. But even then, we can't overcome or stem the tide of what's going on.
So Healing the Hospital is about interviewing people we call Hospital Healers. They're basically the kind of people that you and I know who when they turn over a rock and they see a problem, they don't put the rock back and pretend it wasn't there. And they walk away. They can't sleep at night because it bothers them so much. So the types of people we've had on the show, have been fascinating people that have been at the helm of hospitals during the pandemic and had to figure that out.
One of my guests was at the helm. She was the chief nursing officer during the pandemic, but also endured a really nasty cyber-attack. That involved some ransomware. And the FBI said it was, if you're going to be attacked by anybody, these were the nastiest of the nasties, worldwide.
We've got a good group of guests lined up. We've got surgeons who perform spine surgery ready to come in and talk about, is surgeon preference really a thing or where does that come from? Just really fascinating people, so that's been fun.
Gives me a little way to kind of stretch my legs in some other areas that I really enjoy.
David: That sounds great. Have you had a chance to read any good books lately?
Rich: That's all I do, I feel like and in fairness to read, I mean, we can put that in air quotes these days.
I do a lot of audible. So I'm spending time in the car or on an airplane. That's all I'm doing. There's no music. Although I love music, I'm listening to audio books. So yeah, I've got a handful that I've absolutely love recently. Henry Cloud wrote one called the Power of the Other, which is a fascinating book on leadership and how to kind of put the right people around you that can make you better.
There was one called own Your Past, change Your Future, just like what it sounds like. By Dr. John Delaney. And that was really cool. I'm now reading one called 75 Hard by Andy Frisella and his mentor wrote one called The Power of One More by Ed Millet. And both of those kind of go hand in hand there about just taking the next step in your own personal journey with fitness and reading and discipline and just being a better person.
But the one that really transformed my thinking, it was about, it was kind of last fall, last September was Jason Redmond's book. And he was a former Navy Seal who had basically half of his arm and half of his face blown off. In the Mid East. And he wrote one called the Trident. The subtitle is the Forging and Reforging of a Navy Seal.
And it's just an amazing book. And if anybody is out there who's just really honored by what the military has done and is fascinated by that whole world, I think you really enjoy it.
David: Thanks for sharing all those Books. Well, Rich, it's been a joy to have you on the HealthBiz Podcast.
Rich Palarea, CEO of Kermit, we've been talking about implantable medical devices and keeping those costs under control. Thanks so much for being a guest today on the Healthbiz podcast.
Rich: I really enjoyed it. Thanks so much for having me, David.
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