In this fourth article about our uniquely American healthcare solution we will take a look at how the Fee-For-Service healthcare delivery model in place today and the prepaid healthcare model that we propose drive our healthcare system in dramatically different directions.
Health care is no different than any other business marketplace in the sense that it is a competition for revenue, played by a specific set of rules. The successful players, the winners, will be those who develop the most effective strategies or game plans within the context of the rules.
In healthcare, the rules are driven by the Fee-For-Service (FFS) model in which healthcare providers bill for services rendered to patients. Although many of the fees are paid by individuals, it is the institutional payers that govern; i.e., health insurance and managed care companies, and the federal government via Medicare. As the dominant players in the game, the private institutional payers invest huge sums to influence, via lobbying, healthcare policy. These entities have also created complicated procedures to determine which services will be reimbursed to whom, how much that reimbursement will be, and how claims will be processed? Providers must, then, develop strategies that attempt to maximize the reimbursement opportunities within the rules.
The FFS model rewards providers for providing medical, institutional, diagnostic and ancillary services to patients and the more services the provider can deliver the more revenue they can generate. Whether or not the patient is healthy or is getting the services they actually need may be important from a professional, ethical perspective but is irrelevant within the context of a zero sum, billing game in which payers and providers compete for a finite sum of revenue.
The health of a patient obviates the need for services, creating no billing opportunity for providers. In fact, healthy patients are worst thing that can happen to providers. Imagine what would happen to our healthcare system if, for just one month, not a single American became ill or injured, or required any kind of health-related service. It would be a cause of celebration for patients, who would be healthy, and for payers, who would enjoy uninterrupted revenue inflow with minimal outflow. For providers, the healthcare system would come crashing down on their heads and shoulders.
It is the FFS model that drives the cost of healthcare relentlessly upward, at a rate that out-paces inflation by a two- or three-to-one ration. The model also generates countless unnecessary medical procedures and services while discouraging preventive care (other than routine exams and diagnostics) or patient education. Of course, the system doesn’t dictate that providers ignore prevention and patient education it just doesn’t pay for such activity. As a result, every minute a provider allocates to unreimbursed preventive care or patient education is a minute for which no services will be billed or revenue generated.
One of the unique characteristics of the FFS model is that patient, the end recipient of care, is the decision-maker in neither the “what” nor the “how much” choices that are made. This unique arrangement has enormous ramifications on the system as a whole. Throughout the rest of the American economy, we rely on the forces of supply and demand to regulate the system with respect to cost, quality, and accountability. Under the FFS model, free-market forces are unable to exert influence over these essential components of our healthcare system.
Unlike any other part of our capitalist economy, the decision-maker in healthcare, within the context of the rules of the FFS game, are the providers and intermediate payers. Imagine a scenario in which the retail stores with which you do business, rather than you, determine what you will purchase in their store and how much you will pay. Without the checks and balances of free market forces in healthcare, we rely almost entirely on the ethics of the parties to insure that the best possible healthcare decisions are being made.
If we want to change the way the game is played we need to change the rules of the game. Think, for a moment, about what would happen in the game of basketball if points were awarded for passes rather than baskets. Everything would change. Until we change the FFS model we will not solve the problems of healthcare in America and will not have universal healthcare. Any healthcare reform initiative, whether the Obama Plan or a single-payer solution, will fall far short of meeting our expectation, even if they do succeed in improving access to healthcare.
What we advocate is a prepaid system in which primary care providers (PCPs) receive an actuarially determined monthly payment for each patient who selects that PCP as their doctor. The revenue must then be used, in the most effective and efficient way possible, to optimize the health of the patient. In this solution, the interests of patients and providers are parallel in that the interests of each are best served when the patients are healthy.
Health optimization means treating illness and injury when it occurs but it also means doing everything that can be done to prevent illness and injury. Such an approach changes the rules of the game.
First of all, the absence of middle men frees up anywhere from 25 to 40 percent of the $2.5 trillion per year that we spend on healthcare, depending on whose estimates we use. That is roughly $625 billion to $1 trillion more money flowing to actual providers of care than is the case today. Think about how this revenue could be used to extend care to every American, to enhancing preventive medicine and healthy lifestyles education, and in improving the quality of care provided.
Primary care providers will be free to allocate their time and resources to meeting the real needs of their patients, without pressure to bill for payment. This means totally restructuring the way they practice medicine. PCPs will be incented to provide many services themselves but will also need to develop a network of specialty, institutional, diagnostic, ancillary, and pharmaceutical providers to assist them in meeting the comprehensive health needs of their patient population.
This creates a number of advantages for both patients and providers:
- The overwhelming majority of the revenue will be used to serve patients,
- Medical care will be coordinated with all providers functioning as a team on the patient’s behalf, with the PCP in charge,
- PCPs can develop relationships with those providers in whom they have the most confidence and with whom they can negotiate the best deal,
- Free market forces will play a role in cost, quality, and accountability because specialty, institutional, diagnostic, ancillary, and pharmaceutical providers will have to earn the trust and confidence of the PCPs in their community.
- The only billing that will take place will be local, between the PCP and the providers with which they choose to do business. This will allow them to simplify the process as well as develop innovative business relationships,
- The creativity of a PCP in implementing preventive care and patient education will be rewarded as a result of a healthier patient population,
- Patients will be free to change primary care providers if they are dissatisfied with the quality of care they receive and, finally,
- Patients will be expected not only to participate in healthcare decision but, most importantly, will be required to accept responsibility for their own health.
One of the major concerns with the “great HMO experiment” of the seventies and eighties was that some HMOs and some providers, under the pressure of “full risk capitation,” chose to underutilize to avoid incurring the cost of extraordinary care. As with all human endeavors, there will, inevitably, be PCPs who will choose to sacrifice the best interests of their patients for short term financial gain like there are some who will perform unnecessary procedures to create billing opportunities.
Under our uniquely American healthcare plan, however, such choices are not just unethical or illegal rather they represent bad business decisions that serve the long-term best interests of neither patients nor providers. It is much like a restaurant owner who elects to cook with cheaper and lower quality ingredients in order to reduce costs. The payoff of such decisions is relatively small when compared with the risk of losing one’s customers.
In addition to simply being bad business, there are several things that are different within the context of our uniquely American healthcare solution, when compared with what so many of us remember from the seventies and eighties. The first is that there is more than enough money for PCPs to enjoy financial success even when confronted with expensive treatments for a portion of their patient populations. Second, the PCP cannot claim that such decisions are made in a distant corporate office, literally or figuratively with respect to their examination room. They must make the decision in full sight of their patients. The prudent PCP will involve the patient in the decision-making process. The final difference is that the patient is no longer powerless.
Imagine the consequences for a primary care physician who gains a reputation of sacrificing the well-being of his or her patients for short-term financial gain.
In our next article we will delve more deeply into this new paradigm with respect to the business of medicine.