As a nation, we have developed a dysfunctional competition model unique to health care that does not provide the leverage needed to drive down costs. It is known as the “Insurance Company Model” as described by Christy Ford Chapin, author of “Ensuring America’s Health.” This model has been adopted by all commercial insurance companies like Blue Cross Blue Shield, Aetna, Cigna and United Healthcare. The model has been adopted by Medicare and Medicaid, the two single largest health insurance operations in the country. The dysfunction is caused because there is no direct financial purchasing relationship between the users of our health care system and the health care providers.
If a patient has their insurance coverage through Medicare, Medicaid, Individually or through their employer, the patient can check into a hospital without knowing or caring about the cost and someone else (the insurance company) pays the bill. The consumer has no incentive to hold the hospital accountable for quality or cost of care, therefore they do not. I do not believe there is any other service provided where the purchaser does not know what it is going to cost up front nor have the ability and knowledge to evaluate the quality of the service provided.
Furthermore, if you asked the hospital what their cost is for a particular procedure like an appendectomy or knee replacement they probably cannot tell you. They know how much the insurance companies pay them but they cannot detail the cost. Would General Motors, Intel or Boeing price a product without knowing what their fixed and variable costs are? No. Nevertheless, that is the current cost accounting condition (or lack thereof) of the health care delivery system.
In summary, the patient does not know what a procedure is going to cost, if someone else is going to pay for it and the people delivering the service do not know what it costs. No wonder we are in our current situation spending 19 percent of GDP on health care (more accurately named “sick care”).
There has been debate for years about the efficacy of a single payer system, i.e., “Medicare for all” versus the multiple payer system we have now. A single payer system could have an impact by lowering administrative costs primarily because there would only be one set of administrative rules and guidelines. However, we would still have the insurance company model in place and the big savings would not be realized: stopping over-utilization in the delivery of care.
Consumers have been neutralized, their ability to hold the health care system accountable for cost and quality denied. Instead the health insurance companies have been tasked to do this. Their response has been to develop networks of physicians and hospitals and to apply increasing pressure on them to discount fees in exchange for the promise of patient referrals. Insurers institute administrative controls like preauthorization, utilization management and restriction of drug formularies to hold down costs.
Health insurance plans have developed ever-larger deductibles and co-payment systems to hold down premiums. Plans have been designed to drive patients to lower cost providers. However, none of these initiatives has had a significant impact on cost or quality. Why? Insurance companies do not know how to manage the care of a patient. Only physicians can manage care!
This problem can be solved and it is going to be very disruptive. Here is how I see a delivery system that solves the problem:
• Physician groups led by primary care doctors will compete directly for members. These groups will take responsibility for the health condition of their patients. Chronic disease consumes 84 percent of health care dollars spent. Management of these diseases is in the primary care wheelhouse with consultation from specialists in the same group.
• Insurance companies are going to change their model. Currently they are compensated to pay claims and provide all of the administrative services that are used to try to hold down costs. These administrative services will be embedded in the physician groups and will be managed from the inside-out versus outside-in, making them much more efficient. Insurance companies will become comprehensive data warehouses tasked to get the right information to the right person at the right time to make the right decision for the care of a patient. Insurance companies will be a service provider to physician groups paid by physician groups.
• Physician groups will contract with hospitals to use their inpatient facilities. These inpatient facilities will compete on price and quality. To this end they will have to determine the true cost of their services so they can charge appropriately and compete.
• Patient engagement will become the responsibility of the physician groups. The purpose of engagement will be to get compliance with care plans. Patients will also be educated on identifying quality care delivery as well as healthy lifestyles. The care team embedded in the physician group will have health coaches for all and care coordinators for high-risk patients.
• Patients will know the cost of care. Cost will be transparent at the physician level as well as the hospital and ancillary provider level. Cost-benefit decisions can be made. Quality measures will be transparent.
• Monetary incentives reward patients who actively participate in their health and wellness plans up to and including full reimbursement for the patient’s portion of full coverage
We have to bring the consumer back into the purchasing decision. Insurance companies need to become disseminators of information. Physician groups can use insurance company sales forces to help market themselves to the patient population. Physician groups will start taking responsibility for the health status of their patients providing 24/7, 365 service. It is going to be a rough transition but I think it can be done. I believe a pilot project will soon be in the offing in South Carolina to test this premise.
James H. Suddeth Jr. is former chair of Palmetto Health Richland and vice chair of Palmetto Health.