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Thoughts on “Repeal and Replace”…

I am not the first to say this, but I am disappointed that given the opportunity to replace the “access” program represented by ACA/Obamacare with real reform, our friends in Washington have “punted” again! I guess the financial and other benefits provided by the American Hospital Association, American Medical Association and Blue Cross and Blue Shield Association ultimately outweigh doing the right thing.

I look at health benefit cost as a simple equation. It is, Unit Cost x Volume Of Services + Administrative Cost. A week ago, I shined a light on unit cost problems, represented by ridiculous (and calculated) billing by providers and useless PPO contracting. We also have issues with the volume of services.

Society Demands The “Best” Healthcare, With Little Regard To How We Pay For It

One of the primary drivers of volume is the fact that we are a nation of consumers who demand the “best” healthcare but push the responsibility for the cost of that care over to self-funded employers, the stop loss market and the health insurance companies. In the commercial health insurance market, self-insured or fully-insured, there is no “line” separating society’s responsibility from that offered by our “coverage”. That is very different from our approach to natural disasters or even man-made ones, where we expect “help” from the Government.

In healthcare, the term “best” is subjective, but it reflects expectations of leading-edge technology and continual innovations in treatment. Those expectations have driven ideas such as the emergence of personalized medicine and the exceptional growth of pharma products. ACA even created a fee to support healthcare research and innovation.

I think “best” also applies to efforts. During the debate surrounding ACA, we heard the political garbage about “death squads” ultimately deciding if there was a limit to how much treatment a patient should receive and what heroic interventions should be initiated.

Another variation of “best” in healthcare relates to information. This has bred “report cards” and transparency. Providers are now evaluated on Yelp and others like restaurants. My mom recently had a surgical procedure, and that day I heard an interesting new term used by healthcare providers in describing patients. They refer to some patients as “Googlers”. The definition they supplied as I picked myself off the floor laughing was “a patient who researches every possible diagnosis and treatment they might have, then looks to guide every aspect of their care”. Medical information comes at us at the speed of light every day…advertising for drugs; “comfortable” MRIs (if there is such a thing); ER waiting times on billboards; providers and lawyers competing for the highest volume of annoying advertisements.

Providers compete to be the “best” via advertising. Here locally in Tampa, we are inundated by advertising from two competing spinal surgery operations. One’s tagline in all advertising is “Get Relief!” The other calls itself “The World Leader in Advanced Spinal Surgery” and hosts a weekly 30-minute infomercial. Who knows if either is even close to the best. Neither operation seems interested in Medicare or most managed care networks. What is clear, is that the facilities and advertising budget suggest no shortage of patients willing to privately pay for the “best” care.

The final adaption of “best” in healthcare leading to cost in the system is our desire for the “best results”. Want to see what I mean? Ever wonder what would happen to drug prices if the manufacturers didn’t have to spend the final 50% of each advertisement on warnings and disclaimers? Ever have a provider tell you or a family member that they want to run their own test or x-ray? There is tremendous overutilization and cost in healthcare caused by defensive medicine. I really can’t blame the providers. The aggressive nature of the legal profession has expanded the basket of “avoidable errors” to include dissatisfaction and bad luck.

My Big Idea

So, how does our desire for “best” relate to “replacement” efforts in Washington? I want to focus on an idea I pushed unsuccessfully almost 20 years ago, when I lived in Connecticut. I believe the idea still works.

Currently, no matter what type of financing method is in place for commercial health benefits, there is a sharing of risk via layers of reinsurance. Each organization studies its risk and purchases coverage to protect themselves from excess losses. Self-Funded Plan Sponsors purchase stop loss insurance. Stop Loss insurers purchase reinsurance coverage. Providers who take risk via capitation purchase medical reinsurance. Even the major insurance companies purchase reinsurance.

Why do they do this? The willingness of our society to have the “best” healthcare drives innovation and its related cost. Everyone has heard of the 20/80 rule…twenty percent of a covered population represent 80 percent of Plan cost. Now think about a 5/60 rule…five percent of the covered population represent 60 percent of Plan cost. These are the “catastrophic” claims that everyone involved with health benefits knows about…accidents, cancers, organ failure, premature infants, hemophilia and others.

The frequency of “catastrophic” claims has increased dramatically. The availability of “best care” and lack of price controls on that care has increased the maximum liability for these claims. Ten years ago, I saw my first $1 Million claim. It blew my mind. In 2016, I reviewed 18 claims exceeding $3 Million and heard about a claim where the provider billed $17 Million. Certainly, the elimination of maximum benefits by ACA without any offsetting financial controls did not help. Neither did its limits on out-of-pocket expenses which allow patients to pursue the best without financial implication.

If we are going to provide unlimited benefits and demand the “best” healthcare, we must formulate an equitable way to pay for it. For health benefits and/or health insurance, two solutions continually discussed are extremes… “you are on your own to figure out how to finance it and manage risk” and “we will just take it over and have national healthcare”. Each Sunday, the Pastor at our church focuses our attention on “The Big Idea”. My “Big Idea” involved pulling from both extremes. It involves 3 components, all of which are mandatory for the idea to work:

  1. Develop a national standard related to the definition of a “catastrophic” patient from a financial perspective. This would be the point at which the financial responsibility of an employer, stop loss carrier, managed care organization or insurance carrier would stop. The standard would apply to all expenses for the individual breaching the liability limit;

  2. Create a mechanism or “pool” for payments above the limit. The “pool” would be funded by a “premium” paid by the entities (described in bullet #1) who have had their liability limited; and

  3. Most importantly, use the legislative ability of the Government to establish a fair benchmark for reimbursement on claims exceeding the liability limit. The fair reimbursement would be calculated from “the first dollar” but the shift of financial risk begins at the liability limit.

Winners and Losers

Everyone always wants to know who are the winners and losers any new idea. As I see it, the patient and family are clearly winners, as they have comfort in knowing that a secure arrangement in place to cover their claims in the most emotional of times. In my last Blog on PPO alternatives I referred to provider appeals and collection efforts related to Reference-Based Reimbursement (RBR). Those involved with RBR will tell you that the most aggressive provider collection efforts occur on the highest dollar claims. That concern is eliminated.

Stop Loss and reinsurance entities could be winners or losers, with a reduction of liability but the need to “sharpen their pencils” and compete to offer coverage below the limit. Ultimately, they will need to underwrite the efforts the administrator and employer are making to control and reduce cost.

Employers and individuals purchasing coverage are clearly going to be winners based on lower costs. Administrators and Payers should be winners if their investments in cost control programs and risk management are recognized in a competitive underwriting environment.

The provider community will claim to be the biggest loser because they will no longer be able to play off the emotions of the sickest patients and their families to increase profits.

  • Hospitals do it by playing pricing games to utilize the outlier provisions in contracts to their advantage.

  • Oncologists do it by marking up their acquisition cost of infused chemotherapy drugs by hundreds if not thousands of percent, while also being paid for the infusion services.

  • Neonatologists do it by billing $1,500-$5,000 per encounter with a premature infant.

  • ER Doctors and Anesthesiologists do it because they refuse to contract and bill egregiously. Pharma does it by grossly overcharging for the drugs needed by the sickest patients.

Establishing “fair” reimbursement benchmarks should be a cooperative effort with the provider community and must take into consideration overall case mix, real cost vs. charge ratios and items which are “pass through” versus real operating cost.

I also believe we can “throw some bones” to the provider community by pursuing true tort reform and getting serious with rewards for quality and continuity of care. We could also pursue additional administrative simplification, and reflect reductions in overall cost with lower patient responsibility and related collection costs.

There are far smarter people than I who can determine the appropriate definition of a “catastrophic” patient from a financial perspective, and model the premium requirements to fund the “pool”. I would hope that there can be real discussion this time around.

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