Tag Archives: Bundled Pricing

Ten Ideas That Could Fix Healthcare

I’ve written a fair amount over the years about what is wrong with the American Health Care System from ethics to pricing, structure, incentives etc.  So, what needs to be done to fix it? In the end, is there a better way? Listed below are some of the ideas that I think would have a profound impact on lowering costs and improving quality.  None are new, but taken together they could be very powerful:

  1. Get rid of Fee For Service (FFS) medicine. Yes, its cliche but it needs to be gotten rid of and the best solutions are to move the risk to the providers, through global capitation or other bundled payments. Providers will need to put in the resources and expertise to manage this and work to drive the 30% of waste out of the system, thereby potentially making more profit than before.  This is one of the reasons why it is so important to continue the various bundled and capitated payment programs now being implemented by CMS and others.  Providers need to learn, and learn fast, no more sticking one’s toe in the water, take the dive. Another example of how bundled prices or capitation can save money.  If a hospital has a fixed bundled price for knee replacement, how hard is it to bill that?  You don’t need a bunch of billing clerks and others to be sure every item is on the bill the hospital submits, and on the payer side, they don’t need a bunch of people reviewing the hospital bill to re-price the $75 aspirin or remove the extra band aids that were not provided. Who cares whether the hospital used an additional band aid at that point if the service was appropriate and high quality.
  1. Revise the 80/85% Medical Loss Ratio (MLR) requirement.Let’s say you manufacture cars and sell each one for $10,000. Per the MLR rule, you would have to spend $8,500 (85% of your sale price) per car on all the parts and labor, excluding marketing and management. Your cost for marketing and management would come out of the remaining 15% and then whatever is left over is your profit. In this example assume marketing and administration are $1,000 (10%) leaving your profit at $500 (5%) per car. You as the manufacturer now negotiate lower prices on your supplies and it now costs you $8,000 to make the same car. According to the MLR rule, you can no longer charge $10,000 for your car, but can only charge $9,411.76 because the costs of parts and labor must make up 85% of your total charge; and unless your marketing and management fees were reduced, you now would only legally make $411.76 per car.

So why would you get more efficient?  In healthcare, the question is, why as a health plan would you want to improve the health of your members and seek to prevent illness, thereby reducing the 85% you paid for their medical care; ultimately reducing the 15% for other expenses and profit?  Current health plans want to get 15% of an ever-growing number, they want 15% of $10,500 the next year and on and on. This was a fundamental flaw in the ACA. I understand it was to ensure that health plans do not make money by denying services, but there is an upper and lower range to most quality measures not a fixed point and the same goes for healthcare services. Health Plans or those accepting the risk should have a range that their MLR must fall in and/or some way to benefit when they can show that their efforts improved the health of their members and thereby reduced costs.

  1. Target Medication Pricing and the Supply Chain.  We pay way too much and there are so many people in the middle of this that there are multiple opportunities. Here are two.  The first is to allow importation or other means to get access to cheaper medications.  Want to see prices drop fast, that’ll, do it.  We’ll reach a happy medium somewhere below what we pay now and what we allow developing countries to pay for the same medicines. At the same time, we need a new system of medication purchasing and distribution, an Amazon type system that gets rid of the many middlemen adding a piece of cost/profit at each touch point. Think also beyond the pharmacy:  Imagine a system where you go online and take the order direct from the manufacturer through Amazon with a drone delivering the medications to your door. In healthcare medications are one of the best “onion” examples, it just keeps adding layers to the service and each layer adds costs.  Just the fact that companies often hire consultants to review their PBMs who are supposedly getting them the best rate is all you need to know.  In fact, one major corporate chief medical officer told me verbatim “I’m sick of getting ripped off by my PBM.”
  1. Watch out for Aggregation to increase prices versus lower costs. Hospitals are rapidly embracing this philosophy, driven by the ACA, as they are buying up practices, opening free-standing ERs and the like.  It’s amazing to watch as these efforts more often than not increase admissions and costs.  I was at an American College of Healthcare Executives meeting where the panel topic was how hospitals would survive the move from inpatient to outpatient services. In a stunning show of honesty, two of the three senior hospital executives said they were not going to move to a more outpatient based approach and were in fact doing everything they could to increase admissions. They both claimed to have been so successful at pushing people into their hospitals that their inpatient census continued to rise and were at record levels.

Well at least they were honest (in front of a friendly audience). Going back to number one, if they have a fixed price (capitation) for the person or population, they’ll figure out once and for all that the hospital is a cost center and reducing beds, not building more, while allowing services to occur through the lowest cost point in their network is the key to profitability. And yes, maybe constructing less gorgeous and elaborate facilities might lower costs as well. Here’s another classic hospital aggregation approach to increase costs, acquire the oncology doctors and then stop providing infusion services in the clinic. Why?  Because hospitals can charge 2-4 times as much when the infusion is completed in a hospital outpatient or inpatient facility versus the doctor’s office.

  1. Sell healthcare services on eBay or Amazon.I spoke with eBay years ago about this concept, but they were not interested.  Why they wouldn’t want a piece of the $3.2 trillion healthcare market is beyond me, but hey perhaps Amazon? My dream is to go online and schedule my MRI at 3 am for $150 or $200 because the radiologist has an open slot and I am paying out-of-pocket. Sure, I know, what about quality? Well vet the places, provide real outcomes and quality data and publish it.
  1. Narrow the networks based on quality and price.  Most people say they hate narrow networks, and of course when done based solely on price, I hate them too.  But I experienced a narrow network in action long before they came into the lexicon.  As a child, I was a frequent visitor to the ER, I broke a lot of bones and had a few other stitches and scrapes. My father was a Professor of Medicine.  I can’t tell you how many times he narrowed my network and told the physician who was walking in to see me that they would not be treating me. He knew all the doctors, the good and the bad.  I healed up well, thanks to him.  I also experienced issues with poor quality during his later years with Lewy Body Dementia and other ailments. There were more than a few times I wish I could have thrown the doctors out who were suddenly assigned to treat him because he was now covered by a Hospitalist and some specialist he had never seen. They nearly killed him a few times.  As in any field quality varies.
  1. Allow Medicare and Medicaid the flexibility to send patients outside of the United States.  As an add-on to number 2, why not save billions by flying surgical patients or those with Hepatitis C out of the country to get much cheaper services or drugs?  I’m sure after a few flights, the providers and manufacturers will come running back with lower rates. And while we’re at it, how about the prisons, there are a lot of Hepatitis C patients now incarcerated who should be getting treated.

We need to look at issues like Hep C from the patient side. Because of the high costs of the drugs in the United States, there are hundreds of thousands of people who are not getting access to the treatment. Is that good?

  1. Don’t let Congress be bought. Not sure how to do this except through an election, or changing the rules of lobbying while remaining within constitutional bounds, which is well out of my wheelhouse. The healthcare industry uses Congress to protect their interests at the expense of average Americans who are now burdened with excessive costs and poor outcomes compared to other developed countries.
  1. Send Crooks to JailHealthcare has a fair amount of fraud, and you know what, its perpetrated by people, people who hide behind corporations.  Typically, the corporation settles, without admitting guilt of course, pays a fine and moves on.  But what about the people who directed the corporation to do this stuff? If we sent more people to jail, we’d reduce the fraud. Recently, there have been more announcements by the DOJ holding  individuals personally accountable; so it seems this is moving in the right direction.
  1. Invest in our communities and social services. These phrases have become mantras now:
    1. healthcare only accounts for 20% of your health;
    2. your zip code is one of the best indicators of your health status;
    3. how you live determines how you die,

We must invest more in the areas that impact health like community, safety, schools, parks, access to housing and food, but, and it’s an important but, we have to hold the organizations that we fund accountable, too many of them exist to exist and offer limited value. Much of this funding could come from savings in healthcare costs. Together can create healthy communities for all our community members.

These ten ideas are but a start and I am certain that there are many other good and viable ideas for fixing our healthcare system. It’s time we got serious and began implementing more of them.

What are your thoughts and ideas?

AccountableHealth_Logo_ICON-registered-new

Advertisements

4 Comments

Filed under Healthcare Costs