reconstructhealthcare

The Business of Medicine in a Relationship-Driven System

The primary care physician (PCP), regardless of the legal structure in which she works, will function as an independent businessperson and will be accountable to her patient/customers.  Within reasonable limits and guidelines, a patient/customer who is unhappy with the care provided will be free to take his or her business elsewhere.  As we have discussed, this is a component that is delicate but critical to the success of our uniquely American healthcare solution and to true healthcare reform and universal healthcare.  The freedom to exercise a consumer’s right to purchase is a powerful force that will reward physicians who provide high quality healthcare and penalize those who do not. 

PCPs who are already affiliated with a group or hospital-based practice will continue as a part of that business entity.  The manner in which the medical practice is structured and the way its physicians are compensated within that structure will alter neither the flow of capitation revenue nor the scope of responsibility the PCP bears for her patients.  The market is driven by the perceived attractiveness of the PCP’s practice to the consumer/patient who must select a specific PCP.

There will be no restrictions on the freedom of physicians to link with other physicians, with hospitals, or other business entities.  These affiliations and joint ventures are expected to enhance the provider’s ability to deliver comprehensive healthcare to her patients in the most cost-effective manner.  Physician entrepreneurship is viewed as a good thing.  As long as effective incentives are in place, we can rely on market forces to drive quality, cost, and accountability.  We want a system in which all physicians must compete for their share of the patient market.

The world in which the PCP will practice will be irrevocably altered.  No longer will the PCP need to be concerned with the idiosyncrasies of a large number of health insurance carriers and managed-care companies.  No longer will the financial success of a practice be determined by the density of its appointment calendar or by the effectiveness of its billing and collections system.

The PCP will be free to practice the kind of medicine she wants, utilizing the resources for which she is willing to pay, but with this freedom comes responsibility and accountability for the quality of healthcare she provides.  The absence of the health insurance and managed-care industries does not minimize this accountability.  The efforts of these parasite entities to control or influence the quantity or quality of care were ineffectual and, more often than not, functioned as an impediment to quality.  Physicians will continue, however, to be accountable to their patients as well as to their peers.  The customer/supplier relationship between the PCP and the specialist community and other ancillary providers, hospitals and other institutional providers will elevate the importance of peer review. 

The business relationship between the PCP and his specialist subcontractors will require that the PCP assess the value and quality of the subcontractor’s work.  When the PCP is not happy with that quality of medical care and is unable to resolve her concerns through interaction and negotiation with the specialist, she will have the option of deleting that specialist from her list of subcontractors.  We would anticipate that, as is the case in the current healthcare system, only in extreme situations would a physician bring a colleague’s perceived poor quality to the attention of the medical society or hospital staff committee.  The PCP will not hesitate, however, to drop a specialist from her subcontractor panel if she loses confidence in that colleague’s ability.

Given the working relationship between the PCP and the specialist, the latter will also be in position to observe the quality of medical care practiced by the PCP.  Here, again, we anticipate little change in a specialist’s reluctance to report a primary care colleague’s questionable practices unless they are extraordinary.  The specialist may be quick, however, to disassociate himself from a colleague, although one would hope that an effort to resolve the concern through discussion and/or education would be the first step.  In any event, this ability or power to choose with whom one does business can and will have a powerful influence on the quality of medical care provide under this uniquely American healthcare reform.

The PCP’s accountability to her patients is paramount to the success of our solution.  If a patient is dissatisfied to the point that his concerns cannot be resolved through discussions with his doctor or the physician’s staff, the patient is free to leave and when they do so they will be taking their portion of the PCP’s revenue stream with them.  While the loss of an isolated patient, here and there, may seem insignificant to the PCP, should patient discontent grow the resulting exodus could easily deplete a PCP’s patient list.  Besides the fact that developing a reputation as a PCP that cannot retain patients would be devastating, the PCP’s business is in jeopardy whenever revenues are routinely inadequate to cover operating expenses, not to mention the cost of purchasing care for their patients.  In this respect, a medical practice is no different than any other business.

In light of this issue of the PCP’s accountability to the patient, the prudent physician will want to place development of patient relationships near the top of her priority list.  She will take a little more time to get to know her patients and will find it advantageous to discuss her clinical decisions with the patient.  In an ever-increasing percentage of cases, the patient may well participate in the decision-making process.  One of the keys to the success of this uniquely American solution is a patient’s willingness to accept responsibility for his or her own health and, effectively, become a partner with the physician in the health optimization process.  This is what we mean when we talk about transforming healthcare from a transaction-driven system to one that is relationship driven.  Think about the impact a patient’s buy-in to a treatment protocol will have on medical malpractice liability.

In our next article we will discuss the primacy of primary care.

The Fee-For-Service / Prepaid Care Dichotomy

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.

Healthcare Legislation a Boon to the Health Insurance Industry!

Someone pointed out to me that the healthcare legislation before congress will create a windfall for the health insurance industry.  The individual went on to say that this legislation, which is health insurance reform and not healthcare reform legislation, will guarantee the health insurance industry 30 million new customers.

 

As I thought about this, it occurred to me that this legislation also gives the insurance industry an unofficial carte blanche to reduce reimbursement to providers for healthcare services.

 

The biggest boon to the insurance industry, however, is that this new legislation further obscures the truth that the insurance industry is the problem with the American healthcare system and not the solution. 

 

While true healthcare reform advocates will continue to advocate, the response they will get from legislators is that “we have done our job, we have fixed the problem!”

 

Unfortunately, nothing could be further from the truth.  We can hope, of course, that this new legislation will, indeed, increase access to healthcare, thus reducing the number of Americans who are unable to get access to healthcare.

 

What is significant, however, is what the legislation does not do.  It does not change the fundamental rules of the game which are driven by the fee-for-service (FFS) process.  It is this fee-for-service process that drives the cost of healthcare ever higher, precluding the influence of free market forces on healthcare prices.  It is the FFS model that creates disincentives for preventive care and patient education about healthy lifestyles.  It is the FFS model that creates an environment, unlike what we find in private industry, in which new technology increases rather than reduces costs and thus does not increase overall value.

 

It may well turn out, for reasons that have nothing to do with the fears of American conservatives, that this legislation will set the American healthcare reform movement back for at least another quarter of a century.

 

The fourth article in our series about our uniquely American healthcare solution will be posted on or about January 11th.  It will discuss the fee-for-service/prepaid care dichotomy.