How to instill real competition in health care, empower the patient, allow insurance companies to be insurance companies and save money for us all. What health care reform REALLY looks like.

How much does health care really cost?  Who knows, and that is part of the problem.

Under our so-called “system” Medicare pays what it likes, insurance companies negotiate what they will pay and what “participating” providers will accept, private payers receive entirely different substantially higher bills and physicians who consider themselves special (I was going to say greedy) accept no insurance plans and charge what they see as their value. Interestingly, this later group is often perceived as higher quality providers.  In my forty-eight years managing health benefit plans rarely did a patient perceive the doctor as charging too much, rather the insurer paid too little. “The doctor saved my life, my insurance should pay, “right, with someone else’s money.  If you yell and scream or sooth the savage beast, you can usually get a fee reduced even from a non- par doctor.

So how much does medical care cost, what are the profit margins, what incentives exist for a group of doctors to run an efficient business, invest in technology or be prudent but conservative in the care order?  As one doctor recently told me, “I can show you a list of scores of tests we can do, but let’s start with this one.”  Would I have known the difference if he had ordered ten tests?

I don’t know the answers, but I do know there is considerable room for improvement in all areas.

For starters let’s eliminate the practice of negotiating fees and the concept of participating doctors.  In its place each insurer determines what it will pay for a given service according to a fee schedule.   That then forms the basis for the premiums it charges. Consumers decide how much they want to spend on premiums and out-of-pocket for their care.  Doctors will quickly learn they are competing not only on quality (ha!), but cost because the patient will be on the hook for any amount not paid by the insurer. Doctors and hospitals who are most efficient and offer quality services will be able to attract more patients and still earn a fair profit. 

Real life example: Healthy baby born February 14, 2011 via C-section.  Hospital charge for the baby was $11,000 for four nights. Negotiated fee was $2,948.  Charge for the same stay for the mother was $28,450 and the negotiated fee was $8,498.    (visitor parking extra)

Insurers can adjust their payment schedule as they see fit balancing the need to have competitive premiums and to attract customers by providing meaningful coverage.  Insurers have the ability to sell their product in any state under uniform rules and requirements.

The concept of “participating provider” is gone. Insurance companies can operate efficiently anywhere because they no longer need a large base of subscribers in order to gain negotiating leverage with providers. They will save millions because the need to maintain networks is gone. Their ability to be efficient will dictate their ability to attract customers.   

Consumers will have 100 percent freedom to seek medical care from any provider unencumbered by their insurance.  If they don’t like the payments being made, they can switch carriers and pay a higher premium for higher payments. If they don’t want to pay higher premiums they find a lower cost provider (or pay more at the point of service)…remember, consumers (patients) can use any health care provider they like.  For advocates of consumer directed health care plans, this provides the ultimate test as to what control Americans want over their care and it’s cost. Consumers are in charge, but assume the responsibility to act prudently.

This is real competition because unlike today, both the health care providers and the insurers are competing for business from an empowered consumer. Initially there will be some shock for all parties, but gradually the ideas of pay for performance, accountability, personal responsibility and true competition will take hold.

Most important, the responsibility for managing health care costs shifts from the insurer to the provider and secondarily to the consumer…and no one comes between you and your doctor!  However, a greatly enhanced coordinated care management role for the primary care doctor would be highly desirable.

There is probably some old geezer like me who is saying, this is not a new idea, back in the 1960s health insurance paid via a fee schedule similar to this. Similar yes, but back then there were still participating doctors and hospitals and many plans paid hospitals with no coinsurance for the patient.  The patient was insulated from costs based on the decision as to which provider to use. 

For individuals needing assistance with health care costs, money will be placed in a form of Health Savings Account to help offset out-of-pocket costs relative to income level. These funds can be rolled from year to year if unused, but never returned to the individual or survivors.  The idea is to move from a defined benefit to a defined contribution model and thus maintain incentives to be prudent consumers as much as possible.  This is not perfect.  Health care will never be truly subject to market based consumerism. 

So to recap:

  1. Health insurance companies provide fixed fee schedules (including for hospital stays) which are reflected in the premiums charged, higher premiums for a plan the higher the fee schedule.  They are free to determine the fee payments based on any methodology they like.  The most efficient health insurers will be able to provide the best fee schedule for the lowest price.  Insurers are free to offer supplemental services such as case and disease management, etc.
  2. Health care providers set their prices as they see fit, there are no provider contracts, no networks, and no discounts.  If health care costs rise at unacceptable levels it is entirely the responsibility of the health care providers.  Investing in new equipment and new technology will have to be balanced with the additional value created and the competitive nature of their pricing.  Individual versus group practice will have to be re-evaluated.  Health care providers make more money by being efficient and by attracting patients based on their reputation for quality and the competitiveness of their fees.
  3. Consumers assess the fee schedules of an insurance company together with the premiums charged.  They also have the responsibility to seek health care providers whose fees come closest to the fee schedule they have selected.  Patients decide if perceived higher quality is worth a premium price. 

Transparency is the key to all of this.  That applies to reimbursements, to fees charged and most important to quality factors.  We must do a much better job of providing objective quality data to patients both for institutions and on individual health care providers.  Along these lines we must ban advertising by groups and hospitals that use unsubstantiated claims of high quality and better outcomes and replace it with hard facts accessible from an independent source. We must educate consumers/patients on appropriate health care, geographic variables and on comparative effectiveness.  In other words, tell the truth.  We must dispel the notions that more care is automatically better health care and that higher costs mean higher quality.

You want health care reform, here is what it looks like!


  1. Not getting to deep into the problem but the boy ws real sick and could not breath so we took him to the ER. Spent 3 hours sitting around about 5 minutes whith a nurse who gave him a some steriods and then 2 minuts with a Dr. who looked in to see if every thing was ok. We get a bill for $780 for this almost, $100 a minute are we crazy??? I’m sure we will get billed for sitting around for 3 hours too.


  2. You just placed me into the old gheezer category… I guess I should take off the rose colored glasses.

    At any rate, I agree with much of what you’ve suggested. In this social experiment, I wonder what doctors and hospitals will actually charge their patients. Most doctors don’t actually know what they are charging … I was amazed when I set up round table and asked the question. Only one is 12 knew what they were charging for routine office visits.

    At first hospitals would send out the $28,000 invoice in your example…then they would start to get lots of noise…I wonder what would happen to the ‘first to get ill’.

    Utilization would fall dramatically. I know that to be true. When we first instituted deductible and coinsurance plans, utilization dropped 28% the first year! There will be collection problems. I know, I got calls from hospitals that were none to kind.

    So, a subject for another column, given all your experience might be how to implement this process in a humane and skilled manner.


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