Transforming American Health Care

In our attempt to transform health care finance and delivery,  lower costs, and improve access and quality we must achieve three important and basic goals.

1.      Insurance Reform:

o       Create new designs and incentives to make the individual health insurance  market work and make insurance affordable for every American.

o       Eliminate domestic mercantilism that has created power

      imbalances in the market place in order to level the playing field.

o       Design win-win incentives with checks and balances for all market participants that will serve as the rules of engagement to regulate a competitive market and prevent power imbalances and market dysfunction.

2.    Re-Define the physician-patient relationship

• Re-position the doctor – patient relationship as the focal point of the market.
• Re-establish physician care management. 
• Align the financial incentives of the doctor with those of the patient.
• Have the doctor give the patient various price options within the context of  appropriate care that will introduce appropriate competition.              
• Design incentives with checks and balances so that the physician may guide patient through the expensive, uncertain and complex health system with the patient’s best interest at heart to provide patient with quality care at lowest price. 

There are additional goals which must be met as well if we are to correct the many problems of our current health care finance and delivery sector that leads to inefficiency, injustice, bad incentives, market dysfunction and out of control cost growth.

We need to refocus the purpose of health insurance from its current function to avoid risk by denying healthcare coverage and care to individuals to rather  reduce the risk of loss to the patient, associated with the occurrence of certain events, namely sickness or injury.  This is accomplished by shifting the financial risk on to insurance companies. But we must allow the insurance carrier to manage this risk much more effectively.

High Risk Pools

What is best way to pay for Health Care?

Traditionally health care has been paid for in what we call a fee for procedure, third party payment. That is, the doctor sees the patient and then seeks payment not from the patient but rather a third party, the insurance company. The doctor does this by submitting a claim form to the insurance company with a diagnostic code and a procedure code that has been previously published in a book.  One of the reasons we have third party payment is that when it was first initiated, administrative costs were very low. Administrative costs include the cost of claims processing, marketing, underwriting, overhead, and profits. Unfortunately, administrative costs have risen dramatically over the years but especially overhead costs as health insurance has become more complex and providers and patients alike began to exploit the perverse incentives and moral hazard associated with third party payment, procedure driven system. This results in additional medical care that the patient demands because he is responding opportunistically to the lowered price of health care covered by insurance in a  procedure driven structure.

There is another way of paying for health care called contingent claims contract. In contingent claims contracts in which there is a lump sum payment to the patient with which to pay all costs associated with a particular insurable event, the administrative costs would include all of the above but also include additional costs for verifying illness, policing against fraud, and writing complex contingency contracts. Traditionally, these costs were thought to exceed the administrative costs associated with third party payment, fee for procedure until recently.

Dr. Lanzalotti has studied five years of historical data from patients  for each insurable event to determine how much effort is expended in the appropriate treatment of these patients to determine the value of this treatment for each insurable event.  Because the computerized protocols designed by Dr. Lanzalotti are based on real data from the treatment of actual patients with insurable diseases and conditions, and are severity rated, they are applicable to many patients with these same conditions and don’t require unique legal contracts. This means that a financing design utilizing lump sum payment from protocol based health insurance would have much lower costs than third party, fee for procedure insurance. These protocols also lower the traditionally higher costs associated with the individual health insurance market as opposed to the group insurance market.

Under protocol insurance the physician does not file a claim form to the insurance company as in third party payment, fee for procedure medicine. The communication between the physician and the insurance company is an electronic signal automatically generated by software from the doctor’s computer to the insurance company computer that does not require the doctor to file a specific claim. This mitigates against fraud by both the patient and doctor but allows the physician to implicitly verify that the patient has the disease that constitutes an insurable event. When a patient sees a doctor or other health care provider, the doctor or health care provider examines the patient and prepares a computerized medical workup which will be used to determine a dollar amount to be paid directly and electronically into the patient’s extended HSA asset account by the insurance carrier. Software that is part of this design evaluates the work-up and determines if there is a new insurable event. If there is, the software determines information about which established “protocol” and “complexity level” the patient’s condition corresponds to. An electronic transfer of this information from the provider’s office computer to the insurance carrier’s computer triggers a “lump sum payment” from the insurance carrier into the patient’s extended Health Savings Account.  The lump sum payment provides the patient with enough money to be able to pay for all anticipated expenses (at fair market value, ie the natural or factor price plus a reasonable profit) associated with treatment, e.g., doctor bills, hospital bills, pharmaceutical bills, surgery bills, and bills for any other necessary therapy. The lump sum payment made is determined by protocol and complexity level and appropriate course of treatment for a given condition. This insurance payment does not require a co-payment or deductible payment from the patient because it is used exclusively for necessary, high value, non-discretionary care not associated with moral hazard.  The patient then accesses this lump sum payment in his extended HSA asset account with a medical debit card  to pay for all health care goods and services required to treat the condition. These protocols can be used by all health plans and insurance carriers. They provide the efficiencies over the current system that a single payer system would but with the added advantages of a competitive market to further lower costs and improve quality.

By paying the lump sum payment directly into a patient’s expanded HSA asset account, instead of directly to the patient as cash, several advantages are achieved that move us further to our goal of patient driven market based health care. First of all, it separates the financing entity from the provision entity. It gives more power to the demand side (that is, money follows the patient). By paying the money into the account where it can only be accessed by an electronic debit card with electronic keys, the money can only be spent by the patient for health care or other designated purpose. It also gives the patient control over his entire health care dollar not just a deductible portion used for routine care as in current HSA designs. By having full control over all of the health care dollar, the patient can use market forces to help lower our very expensive hospital costs, a much more efficient method than our current managed care.

According to the RAND Health studies, the patient will be much more careful in spending what he perceives to be his own money instead of the insurance money as a third party payment. The lump sum payment serves as a budget for the doctor and patient to use to pay for all necessary care associated with a particular insurable event. The physician and other providers would be paid for those services that the physician ( as the policy holder’s disease treatment manager and broker ) deems medically necessary for treating each idiosyncratic patient/disease combination. This type of payment does not interfere with the physician's ability to diagnose, treat and bill his patients for his services. Competition as defined by the market institution with regard to the incentives with checks and balances and the rules of engagement in the market place will keep physician billing in check.

This plan balances the physician’s selling expensive procedures against the patient’s choice to spend money in his asset savings account, for which he may have other uses in the future. Its design provides cost sharing that will not penalize the sick and the poor while favoring the healthier and wealthier. Physicians will compete on how well they can provide the patient with quality care at the lowest price. Since the physician functions more as a broker of services rather than as a prix  fixe  purveyor of fragmented procedures, it is not necessary for there to be a large number of physicians engaged in a cut-throat competition. Therefore patients would not be at a disadvantage in a rural area in this paradigm. Most physicians would welcome a new system that would provide incentives to practice high quality medicine at the most reasonable price for the patient.

It also prevents third party rationing of care. If a price option chosen by the patient exceeds the lump sum insurance payment, there is additional tax free money in the account derived from the annual  or periodic contributions  into the account that grow tax free  that represent a premium savings from today’s more much higher priced insurance premium. The patient can use these funds which rolls over from year-to-year and is fully “portable,”  to pay help pay for his selected price option. Every American will have a health plan that they can afford, own and keep.

The unique element of this design is that it creates demand side incentives that balance protection of the patient from unforeseen medical care expenditures with stimulating cost conscious consumer choice. On the supply side the need for third party managed care is eliminated and, with it, all the distortions and cost inflation it has created in the healthcare market.