This is Part 1 of a two-part explanation of the Only Fix for Healthcare that will Work. Part 2 will be up at 1:45AM Central tomorrow (if you’re an early riser, later for you if you sleep in!)
The moniker for the BIG noise in D.C. is “Healthcare.” All the noise is not really about “Healthcare” — it’s about Healthcare Finance. NO ONE is talking about it, and it’s the only thing that matters. American Healthcare is the BEST in the World! And what is happening in Washington now threatens that. How? Money drives everything that ever shows up in the Marketplace. And that includes Healthcare, which reportedly gobbles up 16-18% of our entire Gross Domestic Product. Mess around with the dollars in Healthcare and it will absolutely impact the quality we receive. What needs to be addressed is how the dollars are handled in Healthcare, and how they “should” be handled. Let’s do that.
Where do Healthcare dollars go? Hospitals, physicians, clinics, ambulance and other medical transportation providers, surgery centers, imaging centers, other outpatient treatment centers, pharmacies, Drug Companies, medical devices, and last but not least: insurance companies. Let’s look at each.
- Hospitals are the biggest dollar consumers: they set prices for procedures of all kinds, infrastructure costs (room charges, supplies and drugs used in hospitals, charges for equipment and miscellaneous expenses, etc.). They pretty much have a monopoly on what they charge consumers. Americans cannot shop for the best hospital prices: there are no window stickers to use to negotiate. Think about it: have you ever called and priced a heart procedure for the purpose of getting the best price? How about foot or brain surgery? No. When we check out, we get a bill that is priced as the hospital wants to price it. Hospitals in America make billions of dollars in profits, even those institutions who are technically not-for-profit entities. Profit is derived simply by computing revenue left after paying actual expenses. So to make billions, these hospitals charge far more than actual costs.)
- Second in the dollar consumer list are Physicians. Once again Americans cannot “doctor shop” easily to get the best deal for doctor care. Most often they are chosen by referrals from OTHER doctors, and usually for special reasons. And their pricing is usually directed by hospitals in which their patients receive care and/or insurance company contracts.
- Other providers find themselves typically in different pricing models than Hospitals or Doctors. Their pricing — with few exceptions — are determined by insurance companies through “fee schedules” or “policy exclusion or allowable rates.” Example: you’ve been hit by a car on a busy street. Can you call around to get the best price for that emergency ambulance transport that you need to save your life? Nope. And that ambulance that takes you to the closest trauma center will bill your insurance company some “rack rate” for the transport. But most policies have limits for certain procedures or the insurance companies will simply pay what they think is fair. The same holds true for most other types of providers.
- The 900-lb gorillas in the Healthcare Finance room are Insurance Companies. They are all two-part profit centers for their stockholders, members, and/or owners. How? Premiums + Investments. They charge policy holders premiums for coverage for health procedures. Premium pricing basis is a closely held secret and is handled pretty much like medical procedure pricing by Hospitals and Doctors. However, they are loosely based on mathematical probability factors assigned by internal personnel that assess the probability of each policy holder’s potential need for services and insurance company liability for treatment costs. Many factors weigh into that pricing: age and physical history of the insured, past and current medical conditions, geographical location, vocation, etc. But there is a significant gap between estimated costs to the insurers and the amount of premiums. The dollars that constitute that gap are invested by the insurance companies in many places: money market funds, stocks, bonds, loans, and others. Make no mistake, insurance companies are profitable. And we should NOT feel that their profits are evil. Insurance company profits are mostly distributed to stockholders, members, owners, re-invested in community programs, that all typically put most of those profits into the American economy. It’s part of the free market system that rules the U.S. economy.
- Pharmacy along with Outpatient Providers that typically include transportation, outpatient surgery centers, imaging, dental, and others are almost all covered by fee schedules for payment. (See “Fee Schedule” below)
- Drug Companies is another class of medical provider that consumes a large portion of healthcare revenue. Their justification for high prices is two-fold: research and development and testing new pharmaceutical products is extremely costly, and liability for unexpected effects of the drugs forces high prices to cover possible litigation.
The single objective of the Healthcare System overhaul in the United States should be this only: to bring down the costs of all medical care — including health insurance premiums — provide medical insurance coverage to the maximum number of Americans as possible, all with absolutely no negative impact on the quality of American Healthcare.
So how do we do that? Let’s dive in.
Work Backwards
In most business systems in the private sector, profit is the driving force behind business operational structure. Profit in Healthcare is critical and necessary for multiple reasons. Healthcare needs to remain primarily in the private sector. Very few government health systems are effective or successful today. The American Healthcare System driven by the private sector worked well before the American version of Government Healthcare: Obamacare. Achieving the objectives above CAN be accomplished in the U.S. without a total government takeover, which would destroy what we have in today’s private/government partnership. The Government works well with its responsibilities for Medicare, Medicaid, and the Veterans Health System. There are issues there, but all can be corrected without total Government takeover. Instead of concentrating strictly on dollars, let’s begin by insuring the continuation of the critical piece of the system: Medical Treatment and work forward to Dollars.
Medical Treatment
It is impossible to discuss treatment without inclusion of Physicians — known for at least a century as critical technicians who (on the most part) garner amazing respect — primarily for the extensive education they must absorb, but also for the life saving procedures and treatment they provide us. Very few physicians prepare to fight for reimbursement for their services when entering the Healthcare System after their education. There is no competition for pricing so there are no limits for pricing with the same exceptions. (See “Fee Schedule” below) Physician reimbursement needs to be adjusted which will allow their concentration on continuation of the very best treatment of patients while developing new procedures, devices, and drugs through research and development. Follow through this process with me and you will see how we can accomplish this.
Medical Facility Treatment and Care
Hospitals house all that is necessary for physicians to do their jobs. The Hospital role is critical and also very costly. For most of their work, they set pricing. And their doing so is totally arbitrary. And because there is none (or very little) competition in the market, there are no limits for their pricing, with several exceptions. (See “Fee Schedule” below)
Insurance Company Pricing
There IS some pricing competition driven by the markets for policy premiums. Insurance companies are forced to compete for business. In addition, most states have Insurance Regulatory offices that have requirements for insurance companies’ pricing and are able to somewhat stabilize premium costs. However, deciding what to pay healthcare providers and facilities for specific services is almost solely determined by insurance companies with several exceptions. (See “Fee Schedule” below)
Outpatient, Medical Transportation, and Pharmacy Prescription Pricing
Pricing for these services are almost totally regulated by fee schedules. (See “Fee Schedule” below)
Drug Company Sales Pricing
This is another of the big consumers of healthcare dollars that goes largely unregulated. U.S. drug companies have pretty much run rough-shod in the marketplace, pricing their products with no limits or restrictions. There is very little competition in the marketplace because of the high costs of research and development and testing required for FDA approval for new products. Drug companies spare no expense to protect their product territory, often using lobbyists in D.C. to impact what little regulation they face in marketing their pharmaceutical products. (See “Lobbying” below)
Fee Schedule
There are approximately 150,000 different treatment codes for medical treatments today. These codes are devised and implemented by the CMS (Centers for Medicare and Medicaid Services) — the government agency charged with administrating U.S. Healthcare law as passed by Congress. Medicare and Medicaid (and some commercial insurance companies) each have a “Fee Schedule” that includes the dollars that are allowed by the government to be paid to providers for any of those approximate 150,000 different treatments “when” the provider prepares and submits an accurate and compliant bill to the specific insurance company CMS contracts with to process those claims. The “Fee Schedule” concept is the critical fix that must be implemented to fully repair our Healthcare finance structure.
Summary
In tomorrow’s offering, we will look closely at exactly how the “Fix” should use and what specific steps we must take to make this thing work. You will be surprised at the few steps that are necessary and how simple it would be to make them happen, IF we did not have the politics to navigate through to get there.
I hope after tomorrow you will be engaged in this “Fix” process so deeply you will share this plan with all you know — including specifically the lawmakers who represent you along with your friends, family members, and acquaintances. If Congress simply lets Obamacare fail or if they band aid a fix together that is nothing but “Obamacare Light,” American healthcare is doomed to fail. Maybe not us but our children and grandchildren will then be forced into a Central American-like healthcare system that will be drastically changed for the worse from American Healthcare of 8 years ago.
