Stanley Feld M.D,FACP,MACE
Last week I heard a lecture about Accountable Care Organizations by a physician leader working for one of the major hospital systems.
His discussion made me realize that large physician organizations and hospitals are spending lots of time solving problems of quality medical care. In my opinion quality medical care has not been adequately defined.
A working definition right now is to decrease hospital stays, efficient medical care for a disease at lower cost, avoidance of medical errors in the hospital, and avoidance of hospital acquired infections.
These are important goals. They must be attached to monetary incentives. Many of these problems can be solved now. The solution demands the development of processes of care. An important question is how much money will process improvement save? I estimate that this process improvement could save an estimated 7 to 10% of the healthcare dollar.
The real question should be focused on how to repair the healthcare system by decreasing costs while improving the health of Americans.
This problem is not only about hospitals and medical practices reimbursement. It is about problems created by all the stakeholders. It is about aligning all the stakeholders’ incentives. The solutions to the healthcare system’s dysfunction must be initiated at the same time. You cannot try to fix one problem because it will result in a problem getting worse in another area.
The key to the solutions is to incentivize consumers of healthcare to control their health and be in charge of their healthcare dollars. Consumers can force secondary stakeholders to adjust swiftly to their demands and make them compete for consumers’ healthcare dollars.
Consumers must have incentive. They should be able to keep anything they do not spend of the first $7500 dollars of healthcare coverage. In our present healthcare system consumers do not control their healthcare dollars. They get first dollar coverage with variable deductible expenses. If the deductible is too high they will avoid necessary care and medications.
Society should not want that to happen because patients will get sicker and cost more to treat. Third party payers control the healthcare dollar. This control has contributed to increase the cost of healthcare. .
Some claim the only incentive consumers (patients) should need is to maintain their health. This claim has turned out not to be true.
Where do all the healthcare dollars go?
1. 65% of each healthcare dollar goes to the healthcare insurance industry for overhead for administrative services and insurance reserves whether it is private or government insurance.
2. Only 35% of the healthcare dollar is actually spent on medical care.
3. 80% of the healthcare dollars spent for medical care is spent by 20% of the people.
4. Most of those 20% have chronic diseases.
6. Some claim there is 40% waste in the healthcare system due to uncoordinated care and duplication of care.
Let us follow the healthcare dollars with consumers being in control of their healthcare dollar.
If a moderate size company of 67 employees were willing to pay $15,000 dollars per employee for healthcare insurance it would cost $1,000,000 dollars. If the employer did not provide healthcare insurance the government penalty ($2,000 per employee) would be $134,000 dollars. This would represent a savings to this moderate sized company of $866,000 dollars per year. It would be the logical path to take. The formula I propose will work for the individual buying insurance.
Assume employers were willing to buy healthcare insurance for their employees. They would put $7,500 per year in a trust for each employee. The employee would be responsible for his healthcare dollars. The fees would be pre-negotiated fees by the government as the healthcare insurance industry does presently with physicians and hospitals. Hospitals and physicians might even want to compete among each other for the consumers’ dollars.
A new equation for driving healthcare costs would be born.
There would not be a 65% overhead for administrative services for the first $7500 dollars because the healthcare insurance industry would not be administering the first $7500 dollars. The savings would be $4875 dollars.
Patients and physicians would have an additional $4875 dollars working toward direct medical care. The 65% overhead for administrative services for the remaining $7,500 of high deductible coverage could remain the same. The high deductible insurance would provide first dollar coverage after $7,500. The risk to the healthcare insurance industry would be less and so its insurance reserves could be less.
The government pays the same amount for administrative services to the healthcare insurance industry. The government could use the same formula for Medicare and Medicaid.
Consumers would have a monetary incentive to decrease their risk of getting sick (preventing obesity and increasing exercise). If consumers drove the healthcare system the consumption of snack foods and fast foods would decrease with proper education. Those fast food companies would be forced to sell healthy food to stay in business. Consumer would be driven by monetary incentives to stay healthy.
The onset of chronic disease would decrease. The complications of chronic disease would also decrease.
If a patient had a chronic disease at the onset of this new system and controlled their disease well in order to avoid acute and chronic complications of the chronic disease the healthcare system could reward them with a bonus at the end of the year. They would avoid costly hospitalizations.
Consumers would demand and pay to be properly educated to avoid complications of their chronic disease
An added benefit is that there would be less doctor visits and hospitalizations. This would increase healthcare capacity. It would enable the country to provide care for the entire population rather that force the healthcare system to absorb additional patients and create shortages resulting in rationing and decreasing access to care.
When people are motive by monetary incentives they are innovative. Innovation stimulates efficiency and decreases costs. It is important to have consumers be responsible for themselves and not dependent on the government.