Michael J. Harris, MD
Northern Institute of Urology
4100 Park Forest Drive, Suite 200
Traverse City, MI 49684
Bureaucrats on the loose!
The present system for the delivery of medical services and products in the United States is becoming progressively less efficient. Bureaucratic burden and misaligned incentives exist in the present system. With the large fraction of the medical marketplace under the monolithic control of the Federal government, any resemblance of free-market dynamics is lost. Commercial insurance plans follow the Medicare model of price controls and limited choice. Costs are escalating, while quality and availability are declining out of proportion to other sectors of the U.S. economy. Physician and hospital finances are being strained to do more with less every year. The present situation is unsustainable. Recent expansion of the Medicare system to include prescription drug coverage adds to the shift of fiscal burden to future generations from those consuming products and services today.
Single payor systems and socialism are failures
While there is a segment of American society calling for government takeover and creation of a single payer system, no such system has ever been developed that prevents rationing and budgetary shortfalls. Canadian and European socialized medical systems are failing to meet consumer demand and cost containment, much less, maintaining the diversity of technological advancement present in the United States. Such a system is not consistent with American expectations, demands, or basic philosophy. No other industry in the United States has or would tolerate the bureaucratic intervention currently imposed upon medicine. Just imagine Lawcare, Mechanicare, Haircare or Vacationcare systems run by the government to meet their respective needs that every American has a right to the productivity of the best car mechanic, etc., that every other American desires. Medicine in America is in a crisis. Change from the present pre-morbid state is essential, but government takeover is definitely the wrong way to attempt medical system reform. In fact, the Founding Fathers of this country insisted that government stay out of the business of business in order to focus on protecting the citizens from force or fraud. The following discussion outlines market based reform that is good for patients and those who care for them.
What about the poor?
Americans are naturally generous in the assistance of those in need. Physicians, hospitals and the rest of the medical care delivery system have always taken care of the truly needy and could do so, more effectively, without the mandates of government. There is no government system that can meet the needs of the destitute without becoming either abusive or corrupt. Therefore, medical system reform should focus on making the system healthy so that we are better able to assist those that are truly in need of help.
First dollar coverage insurance coverage is a rip-off
Today, the patient/employee either receives medical insurance as a benefit of employment or goes without coverage. Individuals who buy their own insurance are a small minority of the medical insurance market. The present system of first dollar coverage type of medical insurance purchased in groups by employers to provide to employees as a benefit of employment is a large part of the problem and is encouraged by the tax code. Individuals that buy medical insurance generally do so with after-tax dollars, while employers buy insurance policies with pre-tax dollars. The employee does not have any input into the type of policy provided by his employer. The insurance premium paid wholly or in part by employers is increasing at about 20% yearly.
Whos in charge here?
Figure 1. The insurance company exerts the primary influence in the patients consumption of medical services and goods. The employer on behalf of the employee chooses the insurance company.
We do not pay a third party $100.00 for them to purchase $70.00 worth of groceries and then not have any voice in the selection of food items. We should not pay insurance premiums only to have the insurance company decide what doctor or medication to use and for what level of reimbursement that service or goods is valued. With employer-based insurance, if the employee leaves employment, he loses insurance coverage (unless they pay the exorbitant price for COBRA coverage). The resulting job lock creates an unnatural strain on the employer-employee relationship. Figure 1 illustrates the barrier that exists between patient and medical care when the insurance company is in control of the medical economy.
Empower the individual
In 2001, Northern Institute of Urology (NIU) discontinued the benefit of employer-provided insurance. Instead, a fixed dollar amount is available for the employee to spend on health related expenses in the form of a Section 105 plan or Health Reimbursement Arrangement (HRA). The employee uses this money to pay for his own health insurance or other related expense with pre-tax dollars. The money accumulates year after year if not spent. If the employee saves enough for non-covered surgery, he can spend these HRA dollars for that service. Some employees use part of this money to buy insurance, while others use the money to pay for a family-rider on the employer-provided insurance of their spouses employer. Because the employee is in control of his money, he has the greatest flexibility in how it is used. The employer benefits by providing a fixed and predetermined benefit package to the employees within a simple tax sheltered plan. The employer is therefore protected against the annual premium rate increases. The employee becomes the owner of the benefit dollars and has incentives to be a cost-conscious consumer of medical insurance and medical services. If the employee leaves that company, the money is paid to him, but taxed at his income tax rate. Figure 2 shows the appropriate relationships where the patient is in control of medical service consumption.
Where the rubber hits the road
Figure 2: The patient is in charge of all insurance and treatment related decisions. He is similarly responsible for health-conscious behaviors and cost-effective consumption decisions.
To return to the NIU example, I was spending $864.00/month for an employer-provided PPO insurance policy with hospitalization, prescriptions and all the bells and whistles in 2001. The premium was going to increase to over $1000.00/month for 2002. I discontinued this plan and purchased a $20,000.00 deductible catastrophic plan for $90.00/month. I have been contributing $1000.00 of after-tax income to an investment account (with earnings taxed) since late 2001. That account had over $34,000.00 by January 2004. When consuming medical services, I negotiate for a cash-at-the-time-of-service price. Since there are no insurance claims to be filed, CPT coding is irrelevant. In fact, I specifically mention that I am not insured for the office care and do not want to pay for an army of coding, billing and collections clerks. As long as medical expenses are not catastrophic, I will continue to build a large saving. If my family accumulates medical expenses totaling over $20,000.00 during a 24-month period, the insurance coverage is activated and covers expenses up to $3.5 million per family member. In the meantime, the incentives for cost-conscious medical care consumption and healthy lifestyle are in place. The benefits of good behavior are clearly appreciated on the monthly investment reports. Some day I will need this money. If I lose my ability to earn an income for a while, the savings could be used to make insurance premiums. The policy is an individual plan and is not tied to my employer.
Health savings accounts are the best approach
Included in the Medicare Prescription Drug and Modernization Act, passed into law in December 2003, is a provision to liberalize the Archer Medical Savings Account (MSA) that was originally defined in the mid 1990s. The initial restrictions on MSAs severely crippled their widespread acceptance and versatility. Unfortunately, many congressmen continue to resist this concept as being good for only the healthy and wealthy. Despite that bias and inherent functional limitations, formerly uninsured persons obtained 75% of MSAs that were purchased. The newer version elaborated upon in the prescription drug legislation is titled Health Savings Accounts (HSA). To use an HSA, the individual must have insurance with a deductible of at least $1000.00 for an individual, but not higher than $10,000.00 for a family. The employee and/or employer may contribute up to 100% of their deductible annually with pre-tax dollars into an individually owned HSA investment account up to $2000.00 for individuals and $5150.00 for families. The earnings grow tax-sheltered and withdrawals for medical expenses are not subjected to taxation. Balances not spent, accumulate and may continue to grow, tax-sheltered. If the employee leaves that job, the account is portable and goes with him. The insurance premiums and any other approved medical service or goods can be paid for with the money accumulating in the account. While this legislation is an improvement over the Archer MSAs, less restrictive limits on the types of policies and savings would have been substantially better. The insurance premium savings are much greater with higher deductible plans. There is no good reason for the government to restrict the use of the HSAs to a narrow range of deductibles. Table 1 illustrates four hypothetical situations involving an individual or family with either an employee based PPO versus HSA.
Employer based PPO
Health Savings Account
|| $10.00 access copay
|| $10.00 access copay
|| $20,000.00 over 2 years
|| $20,000.00 over 2 years
| Premium saved
|| $2200.00 each year
|| $10,400.00 each year
|| Limited to PPO
|| Limited to PPO
| Typical annual Consumption
|| $100.00 in copays
|| $200.00 in copays
| Money spent by Dec 31
| Money left over on Dec 31
Table 1. The individual or family that self insures for incidental medical expenses and insures against catastrophic needs will always have a more favorable balance sheet on December 31 (figures are estimates). Relatively low consumption of services is shown. High consumption would be limited by the deductible in the HSA, but copays would add up in a PPO setting.
Employers should give pre-tax benefits, not insurance
By providing medical insurance as a benefit of employment, the employer gets involved in matters that it should avoid and creates difficult conflict-of-interest situations. The employer ought to offer a consistent benefit package that is fair and flexible. The employee is paid a wage or salary, pension and health savings account (HSA). The wage should be commensurate with the value of the service provided to the employer. The pension and HSA contributions by the employer are typically about 23-28% of salary and are driven by the supply and demand economics of available workers in a given position. The employee owns and manages his HSA and may contribute additional money as a pre-tax contribution (payroll deduction) to the HSA, and potentially to a pension as well. The employer is not involved in the employees use of the benefit package. The employer has control over the cost of the employees and the market forces determine whether the benefit package is competitive or not. Ultimately, free market forces with result in the most cost-effective labor force for industry.
Why do physicians sign contracts for less pay and more hassle?
Physicians contract with insurance companies to be considered a preferred provider. Proficiency and skill are not factors in signing physicians to a network, but rather, willingness to accept bureaucracy and reduced reimbursements for service are the criteria for participation in an insurance companys network of physicians. Medicare and insurance companies have been paying physicians less and less in order to reduce the cost of providing for the policyholders.
The government is out of control
The government run Medicare system has expanded since its inception in 1965. Today, the government determines what physicians are paid, how hospitals are reimbursed and what services patients may have covered for their illness. The book of regulations that dictate the language and process by which providers of medical care are paid for their goods and services is 130,000 pages long and changes monthly. This document is so complex that no one can accurately interpret the codes in a consistent manner. Medicare (and commercial plans) unilaterally defines the terms of the relationship, what services are available to their policyholders, reimbursement for services, method of reimbursement, and how the service is to be documented.
Medicare physicians are criminals
The system design is defective and ripe for corruption and abuse. As Medicare expenditures increase exponentially, the government has found a politically attractive method of recovering expenses. The government has created armies of Federal prosecutors whose job is to audit medical providers. Medicare may audit the physician at any time, regardless of the inconvenience imposed upon that physicians schedule and decide unilaterally and without reasonable contest or hearing, that the physician has misrepresented the service. The penalty assessed may be the physicians entire savings or more (including Federal prison). Since 95% of Federal prosecutions end in conviction mostly through plea bargains, the outlook is grim if the prosecutor decides to investigate ones practice. With the complexity of the present laws, it is not possible to practice medicine without breaking the law in some manner or another. Because the government collects $8.00 for every $1.00 spent auditing physicians and other contracted providers, more bounty hunters have been hired annually for each of the past several years. Yet, most physicians voluntarily sign these contracts and work under these unbelievable terms!
Contracting with third parties is unethical
By taking the patient out of the reimbursement equation, the patient-physician relationship is intruded upon to a degree that is not only unnatural, but also unethical. A close review of the Hippocratic Oath will reveal that such insurance contracts are inconsistent with the Oath. Physicians have a duty to the patient not the insurance company, but participation contracts dictate otherwise.
Cut office overhead by 75%
In my solo urology office (NIU) overhead was 45% when I participated with insurance companies and Medicare. By October 1, 2001, I discontinued all commercial contracts and opted out of Medicare. Our payment policy requires that patients pay at the time of service in the office and prepay elective surgery. My volume decreased by over 50% and has been steadily rebuilding. Without billing and collection activities, my office staff went from 3.3 full time equivalents (FTE) to 1.6 FTEs. My overhead has decreased 75% overall and is only 25% of practice income. My clinic load is under capacity; therefore a 20% increase in volume and income would not substantially increase overhead. With such low overhead, I can afford to take more vacation time or provide more uncompensated care. I have more time to spend with patients in the exam room listening to their symptoms and educating them on their disease. I now practice REAL MEDICINE!
Discontinue nonproductive activities
Any office function that does not specifically benefit patient care is no longer part of our office procedure manual. Patients pay for urologic care with quantitated outcomes, not bureaucracy. I am not at risk for coding audits, HIPAA compliance or any other non-sense because we do not contract to use CPT codes or transmit private health information.
Hospitals must stop gouging self-paying patients
Hospitals are masters at manipulating the coding game for maximal reimbursement. The patient that pays for his own hospital services is outrageously gouged for 3-4 times the amount paid by commercial insurance companies or Medicare. At our local hospital a woman who presents with cash to pay for a screening mammogram will be charged $118.00 for the hospital portion of that service. If that same patient presents with a Medicare card or a commercial insurance card, the hospital contract price is $38.00-$45.00 for the same screening mammogram. The third party contracts inflict billing and collection overhead, audit risk as well as other compliance bureaucracy, while the cash paying customer is inappropriately price-gouged. In no other market is the cash customer so badly mistreated.
Fire the administrators
Hospitals should eliminate their relationships with insurance companies and focus on patient care issues only. The cost of the real medical services associated with an overnight hospital stay following surgery is about one-half or one-third that that is typically charged. The cash flow of a lean and efficient hospital would be quite adequate if payment is routinely obtained at the time of elective services. If insurance contracts are made, the reimbursement should be the cash price plus a margin for the overhead associated with administering the billing and collection effort. Cash customers should not be underwriting this cost. The cost of a laparoscopic cholecystectomy or radical prostatectomy would be low enough that, in many cases, it would not trigger an insurance claim. In my local hospital, total charges for an overnight stay radical perineal prostatectomy is typically $5000-$6000. In a cost-efficient, cash-n-carry, outpatient surgery center, this should be in the $1500-$2500 range. Combined with surgeon, pathologist, anesthesiologist charges totaling under $4000.00, the treatment of localized prostate cancer becomes quite affordable.
Let drugs and durable medical goods compete like computers
Drugs, durable medical goods and some medical technologies are priced based upon false market influences. Medicare spent approximately $910 million dollars in 1998 to urologists for LHRH agonists. Urologists acquisition costs for LHRH agonists are typically 50-60% of the reimbursement for the same drug. For a man with metastatic prostate cancer, an outpatient orchiectomy costs about $2000.00 total (physician and facility) while the use of an LHRH agonist will cost nearly $40,000.00 if he lives for five more years. The therapeutic efficacy of an LHRH agonist is not superior to orchiectomy and in some cases, is inferior. When patients are not directly involved in determining the value of the service they receive, free market forces are not allowed to control such abuses. The home computer market has demonstrated the power of a competitive free-market in driving down cost and improving quality.
Patients can deal with physicians and insurance companies effectively
When patients buy high deductible insurance (with or without preventative exam coverage), they are naturally involved in the cost-effectiveness evaluation of medical care consumption. After the deductible is met, there should still be some method of cost sharing by the policyholder to maintain cost-efficient incentives. Patients that are exposed to cost-effective decision-making will always do a better job of controlling costs than an insurance companies mangled care policies. When combined with an HSA, the patient sees the cost of consumption and the benefits of frugality and healthy lifestyle. The insurance company should not be deciding which physician, drug or hospital that the patient purchases services or goods from. However, the insurance company may be an agent for information and education to assist the policyholder in his decision-making.
Sick people are more expensive to care for than healthy people
People with multiple medical problems will spend more money to manage their medical needs. Insurance underwriting will naturally cause high-volume consumers to pay more than low-volume consumers and some people may not be insurable. This is a fact of life. Individually owned insurance, obtained early in adult life, and maintained, is one protection against becoming uninsurable and uninsured.
Physicians should seize control of the medical profession
Physicians must return to the practice of purely private medicine to prevent further corruption of our honorable profession. Restoring the patient-physician relationship will drive the cost of care down and improve access, quality and cost-effectiveness. Patient control and free market forces in the medical care system is the most cost-efficient, sustainable system possible. The truly indigent will be cared for at no charge and preferably with the opportunity for providers of charity care to get a comparable tax deduction, like other charitable donations. Without the above reforms, however, no physician will be able to afford to provide uncompensated care.
The ultimate medical practice
In my cash and carry urology practice, annual overhead expenses to keep my office open are down from over $400,000.00 annually (until 2001) to less than $125,000.00 in 2003. The bank deposit on Tuesday evening is the money collected for urologic services rendered in Tuesdays clinic. Fridays deposit includes payment for services rendered in the Friday clinic and the next Mondays elective surgery schedule. Accounts receivable are almost non-existent, except for infrequent emergency non-Medicare hospital care. As long as I contract with Medicare beneficiaries and do not charge for emergency care rendered to Medicare beneficiaries when I am on call, HIPAA and CMA coding regulations do not apply to my office. Since urology is primarily an elective service, the cost of freedom (uncompensated emergency Medicare services while on E.R. backup call) is small. Other outpatient and elective-care oriented specialties would do well to cut their ties with third parties and return to the practice of purely private medicine.
Vacation time is more fun than working for peanuts
Ultimately, my leisure time interests compete with career for my time. If work is less satisfying or pays little, I am better off with my family, sailing, golfing or engaged in some other activity. The quality of my life, since instituting the above personal and professional changes in 2001, is unimaginably better. The same concept of satisfaction/reward efficiency dictates how many hours are spent in surgery, versus exploring new anchorages in the Great Lakes.