Crucial Challenges Facing Our Country Part I - Healthcare

Health Care Reform Done Right

By Barry-The-Engineer

Why can't we use common sense to address heath care problems and devise a government framework that maximizes free market potential? Our government has never and will never outperform commercial solutions; a bankrupt Social Security and Medicare system is proof positive of that. This is not to say that free markets automatically solve society’s problems. They obviously don’t! Right now our system benefits a few powerful small pockets of society (e.g. doctors, lawyers, insurance companies and pharmaceutical companies) at the expense of everyone else. It’s not fair, productive or sustainable and must be fixed!

About me - As an engineer for the past twenty five years I have been fortunate to work on some of the largest most technically challenging programs in the world. Many of these programs involved billions of dollars and hundreds of people. I was often brought in to analyze and solve critical issues in these goliaths, define overall architectures, coordinate and lead implementations, and clearly communicate challenges and solutions. As a problem solver it pains me to see our country flounder in its quest for a health care solution. I have therefore attempted to apply my skills at a solution by authoring this paper. I am admittedly not a health care expert, but I am trained and practiced in solving very large complex problems and there is no doubt that the collection of heath care issues and their interactions is complex. Similar to how I address other complex problems, my plan of attack was to decompose the large problem into smaller problems and establish an overall architecture in which a sound solution will emerge.

The graphic below illustrates key problems we face with the current system. The underlying causes of those problems are shown in the middle of the graphic. Proposed solutions that address the underlying causes appear at the bottom. This article first discusses the problems, then describes the causes and concludes with details on the proposed solutions. I’ve attempted to write in a straightforward style while also describing enough detail to establish a solid foundation. No doubt additional problems and details exist. It’s my hope that I’ve provided enough information so the reader will see a clear architecture in which we can build on. Your feedback is most welcome.

- Barry The Engineer

Problems with the Current System

1. The Uninsured/Lack of Coverage – A growing percentage of citizens don’t have coverage.
2. Costly – Coverage is extremely costly and costs have and will continue to escalate beyond the overall inflation rate.
3. Uncompetitive U.S. Corporations – The burden of health care cost has made U.S. based corporations uncompetitive since almost all other industrialized nations have socialized medicine. The consequences are less U.S. based jobs.
4. No Security – People with insurance today have no security. Even if you have great care today and are part of a large corporation the trend is to cost share larger portions of the burden with employees by increasing employee out of pocket expenses including establishing lower lifetime caps. This puts even this well covered group of citizens at financial risk. If you are not lucky enough to be employed by a large corporation and you get seriously ill you’re really in trouble. Insurance companies can’t drop you but can legally raise your rates all they want. Of course if you get laid-off your financial burdens from health care will likely skyrocket. Many people are trapped in jobs due to their health. New coverage is all but impossible for people with serious pre-existing conditions. Health care expense is one of the top reasons for personal bankruptcy.
5. Poor Quality – Although special interest groups and some well intentioned but misinformed individuals bombard you with rhetoric that we have the best health care in the world the fact of the matter is we don’t. We are not even close. We pay the most, our life expectancy is lower than the majority of first world industrialized nations and our survival rates for major health conditions and interventions is no better and often worse than many other first world countries. It is certainly true that if you have all the money and options in the world you can find some of the world’s best doctors and facilities in the U.S. and you can obtain world class health care. Unfortunately, the vast majority of citizens don’t have this luxury. They have constraints placed on them by their insurance policies and have limited budgets that can quickly get consumed by enormous health care cost.
6. Social Unrest – When more people feel happy it makes for a better society. Happy people spread their happiness and conversely sad people spread their sadness. When someone is denied a basic need, try telling someone with a chronic illness or a loved one with a chronic illness that health care is not a basic need; it generates great sadness and resentment. This works to degrade the overall quality of life everyone. I don’t know about you but I’d rather live in a society where people are happy as opposed to stressed out because they know that no matter what happens a basic functional safety net exists and people truly care about each other and not just their own self interests. Sadly, I can’t say our current system displays these attributes.
   

Drivers/Causes

1. Hyper Litigation – Lawsuits are out of control in this country, and nowhere is this more evident than in the cost of malpractice coverage. Moreover, no restrictions are placed on malpractice awards. This results in doctors practicing defensive medicine (i.e. conducting many unnecessary tests and procedures). This is a significant cost factor in today’s health care system.
2. Multi-legged Complex Payment Systems – Health care providers are faced with a mountain of complex procedures, forms and ever changing policies that they need to confront simply to receive payment. This results in doctors needing a fairly large back office and an extremely inefficient collection system.
3. Optional Coverage / Demand for Insurance Skewed to the Old and Sick – If you are unemployed or self-employed, or if your employer does not provide coverage or allows you to opt out, then the sicker and or older you are the more likely you are to obtain coverage. Conversely, the healthier and younger you are the more likely you will be to not obtain insurance. This skews the pool of insured to people with the greatest medical needs thus driving up cost.
4. Uninsured Get Coverage the Expensive Way – When an uninsured person walks into an emergency room to receive care, often for non-emergency conditions, the cost of care is much greater due to the high expenses associated with this specialized setting. These costs don’t simply come out of the hospital's profits – they are passed onto paying customers in the form of higher charges for services.
5. Tight Control of Health Care Supply – Aspiring doctors have to pay a small fortune to attend a tightly controlled number of university slots and then earn a large fortune in salary as practicing physicians. When supply is kept artificially below demand, high prices result. The AMA is controlling the supply of physicians in much the same way that OPEC controls the supply of oil.
6. Difficult or Impossible to Comparison Shop – American consumers are intelligent consumers. We know how to shop and compare goods, services and prices; we have a lifetime of experience with it. Unfortunately there is no easy way to obtain objective pertinent information about health care. For example, when selecting a school for our children we can compare standardized test results. However, when faced with a life threatening illness we can’t find out which hospital has the best survival rates for a specific procedure or what the statistics for various surgeons who could perform the procedure are. Additional useful statistics would include customer satisfaction ratings for insurance companies, hospitals, doctors overall, doctors when applying a particular procedure and if and how many times a doctor has been sued, settled or found guilty of malpractice. If consumers were armed with this type information and choice they could utilize the proven power of the purse to help optimize the system. Another factor complicating comparison shopping is the difference between insurance plans. Judging one plan against another is not an apples-to-apples easy comparison.
7. No Interstate Competition – Current law prevents someone living in one state from purchasing a health policy in another state. This stifles competition among insurance companies by closing rather than opening the marketplace.
8. Fraud – Fraud takes many forms. It spans the gambit and includes corrupt health care providers submitting exaggerated care claims to individuals seeking fraudulent malpractice awards.
9. Medicare/Inefficient Government Health Programs – Today Medicare reimburses at 91% and additional cuts are being contemplated. The program losses $65 billion per year as of 2008 and projections get worse as the country ages. This low reimbursement rate results in a reduction in service quality as doctors limit what they provide to Medicare patients. At the same time the program drives up the cost of insurance since doctors pass on part of the “Medicare loss” to other patients. Medicaid is even worse with only 41% of physicians accepting it.

Proposed Solution Framework

Although I’ve personally lived in another country that has a very successful socialized medical system, in my view our solution is not a U.S. government run health care system. I say this based of my first-hand experience with living with the “efficiencies” of various U.S. government bureaucracies. This is not to say that government has no role in the solution. Surely, the current solution of roll-the-dice survival-of-the-fittest-and-luckiest is clearly not working and destined to get worse. What we need is a blend of American capitalistic entrepreneurship and ingenuity with carefully crafted government policies, laws and infrastructure to optimize the system and ensure basic coverage for all, high quality care, low cost delivery and corporate U.S competitiveness. My proposed solution involves a series of measures all of which interact with each other and are necessary to establish a solid foundation for a better system.

The below graphic illustrates some key aspects of the proposed solution. A lot of noise has been made about automating medical records (which would be good and yield some benefits), but much larger foundational problems exist with our current health care architecture. Following the graphic each component of the solution is detailed.

Replace the “Employer Provides Health care System” with a Mandatory Consumer selected “Standardized Basic Plan”

This system would work as follows:

1. Every year consumers are given the option to switch plans during a universally defined selection period.
2. A “Standardized Basic Plan” is standardized by law with the exact same coverage and deductibles. This allows consumers to do apples-to-apples comparisons (more on that later).
3. A single price per insurer is provided for coverage for a year under the plan. This means young, old, healthy and sick all pay the same from that insurer. Preexisting conditions do not matter. Participating insurers do not have the option to reject you or charge you a different price then they charge everyone else. Coverage is country wide (all fifty states) and can be purchased regardless of which state you currently reside in. Insurers may restrict what doctors and facilities are covered for non emergency conditions when you are local (within a certain mileage) of their facilities. These attributes allow insurance companies to compete on price and quality and provides insurance to all.
4. Consumers can buy additional coverage beyond the standardized basic plan as supplemental packages at their own discretion – these packages can cover anything and are not regulated by the government.
5. Citizen’s that fail to register during the enrollment period are randomly assigned a provider for the year. The IRS is notified that the citizen failed to register and applies the fees for enrollment as a debit against the citizen’s taxes due. Citizens with income above a certain level are charged a penalty when this occurs to defer the extra logistic costs incurred by the government in this circumstance. The government is responsible for collecting the fees and any fines not the insurance or health care provider.
6. Enrollment is available over the internet and managed by a new government health care management computer system (called the www.hnet.gov system in this article)
7. The government provides a means tested scaled tax break up to a certain income level.
8. Citizens with income below a predefined poverty level can select coverage and the government will pay the bill directly.
9. This system would not only replace employer health benefits it would also replace Medicare and Veteran health benefits. One system for all reduces complexity. Premiums for veterans and the elderly would be covered by the government. Politicians have to drink their own bathwater – they are also required to enter the plan.
10. Under this system the insurance and health providers are commercial entities not government entities.
11. Note that this system removes the burden of health care from US companies, which increases their international competitiveness while at the same time provides citizens with guaranteed basic coverage that is independent of their health and employment status. It also provides the foundation to comparison shop and opens the marketplace to interstate competition.

Universal Claim Form
All claims are routed through the www.hnet.gov system to the citizen’s selected insurance provider and all payments to the health care provider from the insurance company are routed back through the system. This yields the following benefits:

1. The www.hnet.gov system has a single standardized form for all claims. The form is completed over the internet using a web browser. This drastically reduces the back office requirements of health care providers.
2. The system tracks how quick insurers pay health care providers, sniffs for suspicious fraudulent activity and alerts appropriate authorities if suspicious activities are detected.
3. Insurers that fail to provide timely payment are warned, then fined, then excluded from participating in the future.

Standardized Metrics Are Collected and Available to Consumers

All health care providers are required to enter results of every surgical procedure into the www.hnet.gov database. This is required prior to the system allowing payment to flow from insurer to provider. The government conducts routine audits of gathered statistics to ensure no one is cooking the books. Penalties for fraudulent statistics reporting are made severe including removal of the provider as a qualified provider for standardized care. Patients are encouraged to enter satisfaction ratings on each procedure, insurer, doctor, and health facility. This is similar to what occurs on ebay with a seller’s satisfaction rating. All of these metrics are made available to consumers over the internet using their web browsers.

Tort Reform

Legal system changes include the following:

1. Fixed amounts for malpractice per condition are established by law. Juries and judges decide on guilt or innocence not on awards. These limits must be low to keep costs down. Should max out on say $2M for death (indexed by inflation after enactment).
2. Enforced penalties and disclosure for proven malpractice including a three strikes and loss of license rule. AMA and other special interest parties do not get to decide.
3. All malpractice litigation results, including settlements, are recorded in the www.hnet.gov system and available for query from anyone over the internet. No closed settlements.
4. Sue-Lose-Pay - Anyone that brings an unsuccessful malpractice case is automatically required to pay all legal costs and loss of wages resulting from the proceedings to the accused. This measure will drastically reduce frivolous cases. It works in other countries. Note that by law when a lawyer takes a case on a contingency basis they are on the hook for these costs when the case is lost.
5. Penalties for fraudulent claims are made severe with a minimal of ten years imprisonment with no chance of parole and loss of license to practice in the health care industry.
   
   

Increase Supply of Doctors and Lower Medical School Costs

The government needs to encourage an increase in the number of medical degrees offered at U.S. Universities. It also needs to help decrease the cost of medical school. If the AMA or other special interests have any authority in this area that authority needs to be removed or drastically curtailed by law. Schools need to be offered incentives such as favorable ratings to receive government research grants based on their ability to graduate a large number of medical students at a reasonable cost per degree. Doctors are required to donate a portion of their time training other doctors as a requirement for receiving and keeping a license to practice medicine.

More Details

In this proposal Veterans and the elderly get a credit towards the average cost of all providers. If they select an insurance provider that charges less than the average plan they get the plan for free and get a tax credit for half the savings (the other half of the savings stays in the government funds for its use). Low-income are on a similar plan that is scaled out based on AGI. People who fail to register lose the opportunity to select a provider for that year. They also lose the opportunity for any tax credit. Note that no out-of-pocket insurance cost is charged to Veterans, elderly or the very poor unless they select a plan that is more expensive than the average insurance provider. In that case they need to pay the difference between the average plan and the selected plan.

The basic standardized plan needs to be crafted to get consumers to balance/trade their desire to seek care against the cost of the care. Deductibles are one likely solution. Another issue not currently addressed by this article is prescription medicine. My initial thoughts are that you establish an approved drug list covered under the basic plan thus encouraging insurance companies to put pressure on pharmaceutical companies to keep the cost of drugs contained. I believe a world market in these drugs also needs to be part of the plan and severe anti-trust penalties need to be vigorously applied against pharmaceutical companies that attempt to curtail other countries from trade in these drugs with the US. Yet another issue is finding ways to get doctors to favor outcome over volume. I believe that cost comparison along with the metric collection features of the program outlined provides some basis for this. Potentially other incentives can be crafted.

In Summary

I know it sounds complex but it’s my experience that anything that can be described in less than ten pages is very implementable! To me the current plans being considered by our government don’t appear methodical, holistic or balanced. They focus on some issues while ignoring many others. This appears to be driven by politicians’ friends and foes as opposed to some over arching discipline. Current plans put way too much faith in government run entities over commercial frameworks. Government has a crucial role in the solution but it should not be the be-all and end-all solution provider.

I’ve attempted to present a methodical approach that identifies problems, traces them to root causes and addresses those root causes with common sense solutions. I hope this stirs up some productive conversation and debate. This issue is too important to leave to politicians' back rooms. Your comments are most welcome

If you enjoyed this article please let me know. If I get favorable feedback I will continue these analysis briefs on other crucial issues.

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Thanks for reading,

Barry The Engineer