Published: Thursday, 19 October 2017 07:00
I put this in my category of Economics rather the Obamacare because this is more of an economic plan than a plan to repeal/replace the ACA (although that clusterfuck should be taken out into the woods and buried alive).
This is a relatively simple plan, however it will be far from an easy plan to bring to life. There will be pain for many in the short term. But, like resetting a dislocated joint without anesthesia, once the initial great pain is over, the relief will be great and lead to a better quality of life. This is also not the exact or final version. However the overall concept needs to happen this way or it will fail.
I believe every person has the right to choose whom they want for all of the products and services they use every day. I believe they have the right to not necessarily act in their own best interests as well. Mistakes are how we learn and improve ourselves. Government should exercise restraint so it does not interfere with that process.
The free market and its incentive to drive costs down and quality up will be the major lever in every aspect of this plan. Insurance companies, drug companies, medical device providers and healthcare providers will have a constant pressure on them to keep prices and premiums down and services up.
The first step is to get government all the way out of healthcare. Medicare, Medicaid and the VA can be just like (and compete with) the private insurance companies. Every time the government gets involved with a private industry and starts subsidizing this or that aspect, the prices go through the roof because it becomes a third party-payer. There is you, the company that provides the good or service you seek, then the government. When the government pays for you, it does not care about the price or the quality of the good or service rendered to you. When that happens, prices skyrocket and quality tanks.
The second step is to get employers out of healthcare as well. Employers only started offering healthcare as a job benefit when there were wage freezes during WWII. This extra benefit helped companies lure talent to them. So, if the employer no longer has to subsidize the health insurance plan, they can just raise the pay rate of the employees commensurate with what they contribute now, or just pay it to the employees as a line on their paycheck for income.
Step three, healthcare ought to be available nationally. Because right now, if you change jobs or move to another area, your healthcare plan may not service that area.
Before I get into my idea, let’s talk about the present system so you know how things are done now. I worked for UnitedHealthcare for 5 years and was acquaintances with the two people who negotiated the contracts with providers. I also interacted frequently with the admin staff who handled the paperwork.
A healthcare provider (HCP), if they want to accept insurance from one or more insurance companies (IC) has to negotiate a contract with each insurance company. Each IC will charge different rates for the same service. IC A will pay the HCP $100 for a service 1 and $80 for service 2. IC B will pay $92 for service 1 and $98 for service 2. Each IC also has their own paperwork and procedures to submit charges. For medium-to-large HCP’s this requires at least one full-time administrative person per IC to process and track the claims to make sure they are filled out properly, correct any errors and make sure the HCP gets paid. The IC likewise has a veritable army of staff to process the HCP paperwork.
Hospitals in particular have multiple price structures. A few years ago I got to spend 5 days in the ICU and 7 days in a regular room because I choked on my own cooking and the ER doctor almost killed me trying to get it out. The “book” price (i.e. list price) for my stay was just over $125,000. Because I had insurance, $102,000 of that “disappeared” due to negotiated prices with my IC. My IC paid about $21,000 and I paid the balance.
The present system is a purposefully confusing mish-mash of prices, most of which are hidden from the consumer/patient. Even if you pay your HCP cash up front, what you pay is not necessarily what the IC pays.
So here is my idea. It’s so simple it’s actually frightening, mostly for the people who like to overcharge you.
The first step is IC’s tell you plainly and up front when and how much they will pay for services. Think a menu board at McDonald’s. The services are already detailed using the ICD-10 codes currently used to bill goods and services. Prices could be indexed according to the cost of living by zip code.
The second step is the HCP will also have a menu board for how much they charge for services.
First of all, all of this applies to non-emergency care. Emergency care, believe it or not, only accounts for 6% of medical spending. While it would be similar, I haven’t thought through the particulars for that side yet.
The actual execution of this new system goes like this:
1. You discover you have a need for medical services.
2. You select a HCP to perform those services. You consider your choices based on your priorities and criteria, using the variables of cost, quality and accessibility. You shouldn’t have to choose based on if they are “in network” or not.
3. You visit said HCP and have those services performed.
4. At the end of the visit you are handed a bill, detailed by ICD-10 codes.
5. Depending on your financial situation, you can pay it now or later.
6. You send said bill to the IC, who then reimburses you according to the plan you have purchased (deductibles, co-pays, etc.).
That’s it! What are your advantages? You choose your HCP, based on your priorities of price vs. quality, not a bureaucrat of either the IC or governmental kind.
Let’s say you need a regular office visit. The IC will reimburse you $90 for the visit. You have narrowed your options to HCP A or HCP B. A is a mediocre doctor skills-wise, but is very communicative and friendly. He charges $100 for this visit. B is a great doctor in the skills department, however his bedside manner is lacking at best. Your questions are either ignored or answered tersely. You get more information from his nurse than you do from the doctor. He charges $80 for his services.
Your choice (and not someone else’s) is which doctor you partake the services from. You can choose a great doctor who treats you as your symptoms, confident that he is methodical in his methods, complete in his diagnosis and treatment regimen, or go with a less-capable doctor who does good (but not outstanding) diagnosis and treatment and treats you as a person rather than your symptoms. This is your choice to either pay an extra $10 with HCP A, or pocket $10 and see HCP B.
But where do the market forces come in? Before you walk in the door.
Because the doctor has one set price for each service, they save on payroll by not having extra staff to deal with the IC’s. This lowers the HCP’s payroll costs and their prices can come down accordingly from less overhead. They also have market forces holding their costs down because no business wants to be on the high end of a price range of standardized services without offering additional services to make the higher price justifiable. If you have three gas stations relatively close to each other (physically and price-wise) and one of them sells gas for 20 cents a gallon less than the other two, which one will you stop at? Probably the cheaper one, unless you know it is a low-quality fuel that gives your vehicle trouble. Of course, if one offers a full-service experience (pumps the fuel for you, wash your windows, check the air in the tires, check the oil, etc.) they could probably charge 20 cents more a gallon than the others and people would pay the higher price for the services.
The same concept will apply to the IC’s and other medical-related industries, such as pharmaceuticals and medical devices. They will have to deal with market forces. If pharmaceutical company decides to overcharge on a product (e.g. the 1,000% price hike of epi-pens), they will suddenly find themselves with a lot less customers, who will seek cheaper alternatives, or use it less often. Our seniors on Medicare are faced with these choices today when they fall into that “donut hole” of coverage. There would also be new companies which would have the incentive to bring a new product to market that is just as effective and a lot cheaper.
These market forces foster competition in providing goods and services with more value and quality for the same or lower price. We see that every day right now. HCP's who are of poor quality, overcharge for their services and all that bad stuff would be quickly run out of business because word gets around quickly today on various referral sites and social media on both good and bad companies.
Here is an example of how the free market delivers better products or services for the same or lower price. My first car was a base 1963 Dodge Dart. It was a “slant-6”-cylinder motor, manual “three on the tree” transmission, hand-crank windows, no A/C, no airbags and lap belts. The base model cost $2,385 back then, which in today’s dollars works out to be $19,136. A base 2016 Dodge Dart costs about $22,190, with a V-6 engine, automatic transmission, electric windows, A/C, three-point seat belts, airbags, and a whole bunch of other features that in 1963 would be considered luxury features, if they were available in any vehicle at all. Not to mention the 2016 Dart is a lot more comfortable. Yes, today’s Dart is more expensive than the older one, but not by a large margin, which is more than offset by improvements in safety, comfort and convenience.
But, you ask, what if the patient doesn’t pay the bill and pockets all the money? Then their physical pain will translate to a legal pain. The amount of medical bills covered by insurance, reimbursed to the patient but not paid to the doctor would be like student loans, not able to be discharged under bankruptcy.
Do I have any evidence that this model will work? I sure do! The Surgery Center of Oklahoma is one of several practices that accept cash only. The Ocean Surgery Center is another. SCO has one facility and performs over 25 surgeries a day, using a "cash, one payment, up front and no insurance accepted" model. Their prices are published on their website, are soup-to-nuts (all pre-operation consulting/testing, the surgery itself, overnight post-op stay and followup care) and their prices are 50% and more off hospital prices for the same services. Time has an article on SCO and "direct primary care" where you pay a monthly fee to your PCP for all your care offered there. Business Insider has separate articles on SCO and Direct Primary Care. I think DPC is a great start, however what do you do when you need services outside your PCP's office? Hence, my idea above.
This will not be an overnight process. In all actions economic, once the change happens there will be a 6-18 month period of “fluctuation” while the market adjusts to the new conditions and everyone sorts out the changes and their ramifications. Prices and components of services will jump and fall in price. But like that dislocated shoulder, once that initial pain and the echoes of resetting the dislocation have passed, the healing can truly begin.