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Private Sector Solution to Health Care Industry Problems

If you want to understand why anything happens in health care simply follow the dollars.

After having spent 35 years in the health care cost management field I am convinced that this is a true statement. The dollars influence and in some cases dictate hospital expansion, physician carrier choices, additional technology, administrative systems, insurance company plan designs, employer benefits and any other aspect of the health care field. This being the case, influencing the dollars will drive solutions to the industries problems.

As evidence of this, look at the expansion of PPO type plans over the past 20 years. Offering employees a benefit incentive to use one doctor or hospital over another has resulted in the largest change in buying habits ever recorded, with over 90% of today’s health care being provided through PPO type plans. Even HMO’s have re-packaged their services into PPO type plans.
There are three changes that can be made to the existing system that will reduce costs, significantly limit cost increases, improve quality, improve access, streamline administration and expand insurance coverage. All three changes are made in the private sector and require no government intervention or additional taxes.  

1. Price Transparency:

Today we do not know the true cost of even the most routine procedure (normal deliveries). As a result of multiple PPO, HMO and government contracts the price has been distorted. In Milwaukee 38 procedures represent 65% of the dollars spent at the hospital. The price range of each procedure among Milwaukee hospitals is at least 100%, with 300% and 400% variances common. Each hospital should be required to disclose the average private sector revenue for the top 20 procedures. Because this is an average confidential contract pricing is not disclosed.  

2. Change the PPO and HMO contracts:

In the mid 1990’s most hospitals were reimbursed a set dollar amount per day of hospital stay. As a result the cost increases for benefit plans in 1995 and 1996 was virtually “0” according to the Mercer study on health care costs. In the latter 1990’s competitive pressures and improved hospital negotiating skills resulted in a move to a percentage off billed charges. The control of the cost of health care was turned over to the providers. From the late 1990’s to about 2006 cost increases were in the low to mid teens each year. A return to fixed pricing is essential to controlling costs. Both hospitals and physicians should be reimbursed according to a fee schedule.

3. Change Benefit Plan Designs:

Price transparency and a change to schedules under contracts allow the designers of benefit plans to create plans that embrace the schedules. The cost of this service ranges from $1000 to $4,000. The benefit plan will pay $2,500. These are the providers who will accept this price or less.

4. Create Global Services:

Fixed pricing allows the formation of Global Services. Under these services all of the parts of a procedure are contained in a single contracted price. For example a Global surgery would include the surgeon’s fee, assistant surgeon (if necessary), anesthesia, radiologist, facility, drugs, tests and any other items required to provide that service. This is the way that health care is provided when benefits are not involved. Most cosmetic surgeries are presented to the patient set fees are patient (who is going to pay the bill) as a single fee with all the necessary parts included.
 
These four changes would result in an immediate cost reduction (fixed prices are used and providers have an incentive to control costs since it will increase their profits), improve quality (the main differentiation factor is now quality of care and patient satisfaction), improve access (if providers know they will be reimbursed they are more likely to offer services in areas they might otherwise ignore), streamline administration (more efficient administration increases profits) and expand insurance coverage (better priced insurance products can be afforded by more companies and individuals).
 
These changes can be implemented by the end of this year with no government intervention or expense. If consumers demand better benefit plans they will be delivered.
 
On the flip side the current proposal of a government sponsored “public plan” will increase Medicare taxes by 20% to 30% within two years.
 
The “public plan” is based on fees that Medicare has negotiated with hospitals, physicians and other health care providers. These rates are often 60% below billed charges and according to a recent study 20% to 30% below provider costs. The only reason that the provider community has been able to tolerate these low reimbursements is because they can increase their costs to the private sector. A study by the Lewin organization estimates that if the “public option” were offered 85% of the private sector would move to this option within two years because of the lower cost to companies and individuals. This would effectively kill private sector helath benefit plans.
 
If there is no private sector there is no one to whom costs can be shifted. Medicare would have to increase reimbursement to at least cost or hospitals and doctors would go out of business. This would require a 20% to 30% increase in Medicare reimbursements and a similar increase in Medicare taxes. It would also result in limitations on services available and probably result in hospitals and doctors opting out of the “public” plan with their services being available to only those who could afford to bay the bill.
  
We have the ability to control health care costs in a fashion that benefits patients, providers and payers. The question is do we have the resolve to implement the changes.

 

This article was contributed by Richard L. Blomquist, Esteemed Member of the HRS Advisory Board
Mr. Blomquist's Bio and Contact Info 

 

 

 

 

 

 


Jessica Ollenburg - Monday, September 07, 2009