Table of contents

        Abstract                                                                                         3

        Healthcare: Our Broken System                                                       4

        The Fix – The Options for change                                                    5

        Creating a new paradigm: The Medicare System and Reform              6

        The Effect on Stakeholders                                                              7

        The Medicare-Insurance Company Relationship                                 7

        Reform and the Patient                                                                     9

        Reform and the Physician                                                                 9

        Reform and Peer Relationships                                                         12

        The Hospital in the New Paradigm                                                    13

        Reform and Large Multi-specialty Groups                                          14

        Summary                                                                                         14

        About the Author                                                                              15
 
 
 
 
 
 
 
 
 
 

Abstract

The Medicare Circle of Health

Health Reform Plan

Healthcare: Our Broken System

This essay argues for a new operating system--a new paradigm--that will correct our broken health care system. This plan is not designed to determine which procedures will be covered or how diagnoses will be made. Rather, it describes a new method of interaction between Medicare, insurance companies, patients and physicians that will make the corrections in the American healthcare system that people want.

History

Inflation – including inflation in the cost of healthcare -- was a serious concern in the early 1980s. Corporate America decided that dramatically rising healthcare costs had to be brought under control. There was general agreement, and little or no opposition, to such an effort. Practices, such as Medicare’s usual and customary fee schedules, made it impossible to contain costs. (Doctors could and would bill whatever they felt was their "usual and customary charge." They could be reasonably sure of getting paid.)

Corporate America, active promoter of the highest standard of living in the world, took on the task of reorganizing healthcare to "bring it in line." They created HMOs and Managed Care Plans. The author, at the time, was on a board that organized an HMO. It looked like the answer – the only answer -- but over time it became apparent that the managed care model failed to meet the very needs of the patients it was designed to serve. The system is still broken and it needs to be fixed.
 
 

The Fix -- The Options for Change

This essay suggests that we have two options:

1. Dump the present system entirely and start over!

2. Keep what works and use the present system as a starting point of something new.

There is little reason to believe that an entirely new (and untested) healthcare system will work any better than what we currently have. This essay proposes the second option – that we keep the proven elements of the current system and build a more effective service paradigm from that point forward. What we should keep and how such a plan will affect those involved is discussed below.

What to keep

This essay assumes that HMOs-Managed Care Plans, have not solved our healthcare problems – either by controlling costs or providing adequate and appropriate care. In fact, they are making the situation worse. The old standard (fee for service) health insurance policies of the past are simply too costly to function for the vast majority of people today. On the other hand, although reform of Medicare may be somewhat controversial, the Medicare system has worked for the people it was designed to serve. The author would argue that present Medicare regulations should be adapted to fix our healthcare system.

Medicare originated as a government health insurance policy for all people over 65 who had paid into Social Security. Medicare began in 1965 and has been through a bruising 35 years of formation and reform. The elderly do not want to be without it. Congress is continually fine tuning it. Major presidential party candidates speak about changing it, but none talk outright of abandoning it. This being the case, it would appear that modifying Medicare regulations to provide insurance coverage for a larger part of the U.S. population may be the best way to solve our healthcare problems.

Prior to Medicare, doctors were not always able to collect for their services. In Medicare’s early days, they were paid their usual and customary charges. (The doctor determined the fee for his work, billed it and was paid.) While this worked initially, as one might expect, when the person deciding how much was "usual and customary" was the same person providing the service, costs began to creep up. Doctors knew they would be paid without question and with time costs rose out of sight. Eventually, this was fixed. Medicare matured and introduced fee schedules for procedures. Although there was controversy (and probably always will be) on what price is fair, fee schedules work.

For doctors or other service providers dissatisfied with the fee schedules, there are appeal processes. Ultimately, any service provider who does not like the system, can chose not to participate, but there is no halfway. Either you participate or not. In the case of a physician, this means he or she can practice medicine, but if the physician accepts Medicare payments, it becomes necessary to follow all Medicare regulations and fee schedules -- without exception.

As is often the case in programs where money is involved, fraud is an issue. Medicare is working diligently to eliminate fraud. While no one will be satisfied until it is completely eliminated, Medicare is very much at the forefront of this effort.

In addition to the success of fee schedules, up-to-date administrative technology that will lower costs is available, if only physicians will avail themselves of it. This technology makes it possible to operate as virtually a paperless office. Medicare and private industry cooperated to develop this technology and both should be proud of how well it works.

With regard to fee schedules and administrative technology, Medicare works. It makes little sense to abandon these elements of the system. Rather, I would like to suggest that we use them to help fix our healthcare system. Yes, Medicare is "government." Yes, it involves government in peoples’ lives, but the crisis in healthcare is quickly approaching – if it has not already reached – a point at which government must be involved. Government can’t and shouldn’t be expected to solve all of our problems, in that regard it should be used sparingly. But, in terms of the crisis in healthcare, government intervention could be as effective as it has been in providing Public Safety, National Defense and Social Security nets for the aging. To those who would suggest that this is one more government encroachment, please read on before passing judgement. The system being proposed uses specific elements of Medicare administration sparingly to address the issue of 40 million uninsured Americans.

Creating a new paradigm: The Medicare System and Reform

New Medicare regulations required

New Medicare regulations will allow anyone (newborn to elderly) to own a Medicare insurance policy without age restriction. Under these proposed regulations, any and all citizens would be accepted into the plan during the first year following it’s inception (open enrollment--disabled or not--no questions asked). After the first year, there will be a six-month waiting period for those people who did not sign up initially. This would prevent people from signing up only after they become ill. In essence, 275 million Americans would be eligible for this insurance program--our entire population. The plan is completely voluntary. Every citizen must take the responsibility of enrolling in the plan. The healthcare options to be covered by the plan will be determined by legislative action. They may include drug payment or even entirely free coverage for all children up to eighteen years of age. (Details regarding what the plan should and should not cover are beyond the scope of this essay.) However, the author would suggest that when determined actuarily, insurance for all children up to eighteen years of age, based on 275 million people, is very inexpensive. Serious consideration should be given to absorbing the cost of children into the premiums so that all children up to age eighteen are automatically covered.

New Medicare regulations will allow insurance companies to buy and resell Medicare policies with the fixed provider fees of Medicare and without restriction to who can own them. The only exception would be the six-month waiting period following the first year open enrollment period. Insurance companies will buy batches of policies from Medicare starting in increments of 1000. The premiums to Medicare will have been established and the insurance company will start to put groups together from here.

The insurance companies will markup the wholesale government price to account for their profit and to pay for other amenities it thinks it can sell. The marketplace will drive price. How efficient the insurance company is will determine how many policies it sells. Due to competition, prices will drop until the level of profit is appropriate to the number of policies a company sells.

New Medicare regulations will require free competition among all licensed providers. No group will be able to impose non-compete provisions in its employee contracts to deter this. This must be done in order to keep competition at its peak and keep costs down.

New Medicare regulations will require participating hospitals to have an "open staff" (anyone licensed to perform procedures by Medicare will be allowed on staff).To guarantee free competition, this is an important feature and one easily worked out among physicians

New Medicare regulations will not allow provider lists or physician contracts with insurance companies. This is required to prevent the stifling of competition.

No other changes in regulations are needed.

Effect on Stakeholders

The Medicare-Insurance Company Relationship

Medicare will run actuarial studies on the 275 million people in the new "group" (people from birth to 100 years of age). Given the enormous size of such a data base, actuarial findings for premiums will be extremely accurate. The data needed to develop this database will be obtained from hospitals, present Medicare statistics and insurance companies.

Medicare will receive claims from individual providers (not insurance companies) just as it does currently. The present Medicare fee schedule will remain in affect as will procedures followed to determine those fees. Current Medicare fees are approximately 50% of what is considered usual and customary. Total collections in multi-specialty groups is now very close to 70%. This includes the usual and customary fees, HMO-Managed Care fees, and welfare payments. (Physicians’ obvious concerns with the difference between 50 and 70% will be addressed later in this essay.) This element of the plan should reap significant savings for the healthcare system.

Medicare will assume all administrative costs of the plan associated with payment of claims. Medicare computers are Y2K compliant, which suggests that they are up-to-date. Making the accommodations required to process claims for the entire population should be a relatively minor expense. In fact, preparing the computer claims processing system to serve an expanded customer base should cause few additional complications, with the possible exception of fraud control. The author has experienced the current technology in operation, and is convinced that the added claims processing will create no extraordinary problems. The money is transferred electronically, and claims are edited electronically -- a convenient, efficient means of doing business. The system involves the same physicians as before. With Medicare administering the entire claims payment process, insurance companies will be able to rid themselves of vast administrative costs, financial complications and the risk of running Managed Care and HMO networks. These companies would then be free to concentrate their efforts on marketing and tailoring the Medicare policies they will resell with the special services (single rooms, cosmetic surgery, international coverage, etc.) they believe will attract customers. This system would make best use of the companies’ expertise in these areas.

Medicare will assume all responsibility for actuarial findings annually – this should be neutral as far as cost is concerned (actuarial findings on 275 million people should be highly accurate). As the insurance company collects the premiums, it reimburses Medicare only the agreed upon actuarial Medicare premium. The company retains that portion of the premium which represents the profit the company has been able to generate as a result of marketing and the accessory services with which they have enhanced the value of their policies. Because insurance companies will be competing on a national basis, competition should hold premiums to low, affordable levels.

In order for this plan to work, Medicare will assume responsibility for developing the extra procedure codes for age groups not previously admitted to the plan. (These are descriptions of procedures to which Medicare then attaches fees.) At present, Medicare contracts with the American Medical Association to define the procedures, a system that works well.

Insurance Companies will sell these plans on a competitive basis. Some plans will include "extras," such as private rooms or other amenities that they believe will make the plan more attractive to the consumer. At a minimum, each plan would include a base Medicare plan (everything that the current Medicare plan offers with no exceptions) but plans would be free to add as much as they believe consumers are willing to pay for. The insurance companies’ profits and losses would be determined by their efficiency in adapting to the system and by how attractive consumers find their accessorized plans.

Insurance companies will not assume losses (or gains) incurred from any discrepancy between actual claims made and the amount of provider fees Medicare collects. If provider claims are higher than what Medicare has received in premiums, Medicare will be responsible for the additional cost.

Insurance companies will assume losses or gains resulting from any accessory products sold. As is presently the situation, Medicare’s deductibles and co-pay will prevent over usage by patients.

Because Medicare has assumed the entire cost of claims payments, insurance companies will be able to shed themselves of enormous numbers of administrative staff and the costs that they represent.
 
 

Reform and the Patient

Admittedly, this plan will be both a blessing and a bane for physicians during the initial change over, depending upon where the physician is in the medical care hierarchy.

Physicians will be responsible for all their own records as they are now and will bill their own claims using the Medicare CPT and UCD-9 codes. (These are the procedure and diagnostic codes providers are required to submit for payment.). Since physicians will now be receiving only Medicare fees, they will be encouraged to use technology to cut costs. For example, by making use of billing software and claims software now offered by the Medicare processing companies. The author, who lives and works in Wisconsin, has found this technology highly reliable and very easy to use. A repeat patient can be billed in less than 1 minute. The support given by the Medicare processing company's employees (Wisconsin Physician’s Service-WPS) has been virtually flawless in the year the author has operated his independent, solo medical practice. If patient volume warrants and the physician is generating sufficient income, an employee could be hired to handle billing. However, with the physician responsible for the coding, it becomes rather impractical to hand the task off to someone else. Doing this relatively simple record keeping on his or her own, will save the physician a minimum of $25,000 (the typical cost of an employee) annually. At present, to set up such a system in his or her office, the physician is required to buy record keeping software (the author has developed such software, and software is available from a variety of other developers). Voice recognition software will most likely be available within the year, eliminating another barrier for the physician, since it will no longer be necessary to type in codes. Patient volume and how well technology is applied to increase the efficiency of the physician’s practice will determine the actual number of employees needed and the physician’s potential savings.

The physicians’ markets will not be restricted. They will have access to every person holding the new Medicare policy and not be excluded by provider panels, as is now the case. HMO’s and Managed Care Plans use provider panels to control physicians. A patient with a given policy is only allowed to choose a doctor from a list preapproved by the HMO-Managed Care, whether he or she likes the choices or not. Use of provider panels in effect make physicians employees of insurance companies, particularly if large numbers of people hold a company’s policy. When the physician and the insurance company disagree on issues of care, the insurance company is the ultimate decision maker. Disagreement can cost a physician his or her job. This is especially true if a particular HMO or Managed Care Plan is the major insurer in a particular geographical area. This reform plan, makes it possible for the doctor to build a practice as he sees fit and pursue new patients as energetically as he chooses. Patients with whom he has developed long term relationships will not be stripped of his services because his name does not appear on a predetermined list of physicians developed by the patient’s employer.

There will no longer be a need for the doctor to be part of a large group in order to gain or expand a practice. He may only need to unite with his peers for on-call availability. There will be a huge reduction in administrative personnel. Those physicians presently operating in large groups will have to justify the group’s continuation and the significant administrative costs they incur in billing, non-doctor administration etc. The practical physician will not allow this continued misappropriation of resources. Most of the real estate available for practices will become part of medical arts complexes (buildings where many independent physicians locate so that people are not inconvenienced by inter-building travel to see various specialists). Existing brick and mortar investments will not be wasted. Physicians will be forced to reorganize themselves, and the driving force will begin with the higher producing specialties.

Physicians will build relationships with their patients that are no longer disturbed by third parties, i.e. medical directors, marketers, insurance companies and others with little more than a business or regulatory interest in what happens in a patient’s healthcare. These relationships will not be forced. When they are successful, the doctor and patient are free to remain healthcare partners for a lifetime. If the relationship between a specific doctor and patient does not work, the patient is free to find another doctor. The present system simply does not recognize a "physician patient relationship." In the author’s opinion, such a relationship is similar to that which exists between the members of a family. You listen to your family and take their advice, knowing they have only your best interests at heart. A patient would only walk away from such a relationship if hurt and distrust had developed. This plan will enable the physician, over time, to develop a deep understanding of the patient, as well as an intellectual understanding of the patient’s health and needs. Such a relationship between doctor and patient cannot develop in "two visits." Inability to form such relationships, as is the case under our present HMO-Managed Care system, is damaging to healthcare. The author recognizes that this situation is more typical in rural areas, but it is nonetheless, a good model for care. With the changes in Medicare regulations proposed by the author, it can also become a valuable addition to the healthcare of urban patients.

The physician will now have an incentive to develop and market himself. He or she will become his or her own person again. Limits to what can be accomplished professionally will disappear. If the physician chooses to work evenings or Saturday hours, he can do so – it’s his decision, his choice.

The physician will be required to take a look at his administrative costs and ask some hard questions. For example, if a general surgeon grosses $1.3 million/yr. and receives $400,000 before taxes (the author is aware of such a scenario) he will have to do some serious thinking about where the money is going. The same will be true for the family doctor, who after a few years in practice grosses $300,000 and takes home $130,000 (before taxes). Where is the money going? Where is the "waste?" The physician, out of self-interest, will be the driving force that makes the new system work. Medicare is demanding nothing more than professional competency, honesty and a minimum of simple record keeping. Analysis will show that physician incomes will rise under this plan. Those entrenched in the current system may find this hard to accept, but those willing to move on to a new system will prosper. In the course of reorganization, every practicing physician will need to, or certainly should, ask the administrative people around him, "What do you do to contribute to my net income? Could I do this more cheaply and efficiently myself?"

On close examination, the physician will discover that his very large multi-specialty group incurs expenses and costs that adversely impact his own net income. He will be encouraged to make changes.

The physician will adjust his practice to smaller groups, or even a single independent practice that will revolve around call coverage. He will be independent and able to practice medicine according to his own values, without outside interference. The physician will be the driving force. While it will take effort, it will also yield rewards. The author believes that with basically all fees guaranteed by Medicare, and given the efficiencies to be reaped from the new practice design, the physician will be much better off financially. There will be a practical incentive to leave the large group. The physician, the person with the license to practice, will finally be making the ultimate decisions on how to organize his or her own practice. To allow this to happen will require the changes in Medicare regulations as called for in this plan

The physician retains the right to not participate in Medicare. By choosing to participate, the physician agrees to abide by all the rules of Medicare. To reiterate – participation is voluntary, both on the part of doctors and patients. The doctor is also free to revisit his decision on a yearly basis. If he no longer feels the system works for him, he is free to opt out and practice and bill as he wishes.
 
 

Reform and Peer Review Relationships

Although Peer Review is technically in place, it has been in disuse for almost fifteen years, following the merger mania of physicians and the advent of HMO –Managed Care. Local medical societies successfully managed peer review thirty years ago when independent practice was the paradigm. It can work again.
 
 

Peer Review in 1965

Roughly thirty five years ago, a physician was very much alone in starting a medical practice, unless he joined a small group. (There were large groups then, as well, but not nearly of today’s magnitude). The place a doctor first went after renting his office was the County Medical Society. Here he located people of his age, interests and knowledge of the medical community. He, of course, had his credentials checked, and was graciously welcomed into the Society. This Society, if in a rural area, could encompass two or three counties. People were friendly, some more than others, but the physician found a niche. It was rare that he missed Society meetings.

No matter how extensive his training, he often had to ask his peers for help-- this was a "given" and did not imply failure. In the author’s experience, a family doctor could well have instructed a general surgeon on tonsillectomies, for example. Difficult deliveries and other medical risks were discussed and other physicians, willing to give hands-on help, were always available. Physicians were expected to offer help in any field they felt they could be of assistance. It was expected a physician would ask for help when it was needed. Although unspoken, this was a very strict assumption of all physicians practicing in a particular area. A new physician virtually never performed a significant procedure (surgery, complicated delivery etc.) without an experienced person looking over his shoulder, until the more experienced individual was certain that the new physician was entirely qualified. It was not assumed that ‘training’ and ‘expertise’ were equivalent. The new doctor had to prove his expertise.

Occasionally, an unprepared physician would come to the area and try a procedure for which he was not fully experienced. The Society would step in to stop such situations. Society members would often deal with the situation in a face-to-face meeting among members. The Medical Board of Licensure was a final and effective step, used only to police those situations where more gentle methods failed. The peer review system had teeth. There were occasional gaps, but it proved, in the author’s opinion, to be very effective, and covered the peer review issue very well. It’s effectiveness was certainly as successful as the system used by today’s Large Group Practice. Many times, this less formal peer review worked even better.

Peer Review In 2000

If the physician with a specialty is to become part of a large multi-specialty clinic, he or she is most likely brought in by a professional recruiter who presents his credentials to the group. The physician is given an office. His or her hours are established for him. And, ancillary help is hired for him. It is assumed that he is fully experienced in the procedures he will perform, even though he will be the only specialist of this type in his given area. Who looks over his shoulder the first time he does a procedure, or in more complicated procedures? Usually, no one. Indeed, in such cases peer review is failing. Generally, however, peer review works in large clinics if there is more than one specialist doing the same procedures. To be sure, both the 1965 brand of peer review and the year 2000 peer review could benefit from improvement. But, to the point -- with a new paradigm of independent practice, the system established years ago will work for peer review just as effectively as it had in the past.

Peer Review will return to the Medical Society where it belongs and to a system that has been proven to function.
 
 

The Hospital in the New Paradigm

The hospital will generally remain the same. If anything, it will now be able to function to its fullest. The hospital will no longer compete with clinics and duplicate services. Hospitals have relationships with Medicare that have been 35 years in the making. The fee structure, fraud control, and, most of all, a working relationship is in place. Little change will be required.

Very expensive and underutilized equipment, being duplicated in both the hospital and clinic, will now be located in the hospital. For example, ultra sound and radiology equipment. Such equipment should be in use as much as possible, to maximize efficiency and amortize costs. As for maintaining investments in the latest equipment, that becomes practical and highly affordable as the level of use rises. The equipment manufacturers can push the technology envelope and still reap increased sales dollars. An area can provide those consumers who need it with the most up-to-date equipment and best trained technicians to run these machines, if more of these procedures and tests are done in the hospital. This plan makes the hospital more efficient and makes the doctor’s office more affordable.

One change required will be the end of "closed staffs." (the practice of excluding qualified physicians from a hospital staff) This exclusion occurs only because the physicians are not part of the HMO or Managed care plan that owns or controls the hospital. Under the new plan, any hospital that receives Medicare reimbursement must allow any doctor qualified to perform procedures or admit patients granted by his license to do so. In geographic areas with limited hospital availability, "closed staff" exclusions can stifle competition and diminish quality medical care. This change will keep competition at its peak.
 
 

Reform and Large Multi-specialty Groups

Presently, when a clinic reaches a certain size, physicians become salaried, or at least partially so and they expand into the area of Managed Care and HMOs. This is where the most serious administrative abuses take hold. The group begins to incur salaries of $175,000 to $275,000 per year for additional administrative personnel. The group’s relationship with the HMOs and Managed Care organizations gain prominence and physician’s productivity, as it relates to the bottom line, becomes the subject of monthly evaluation. Administrators, who are not doctors, often need doctors for advice. Consulting doctors are hired and very shortly costs begin to fall out of balance with income. Each HMO and Managed Care plan requires several professionals with M.D. credentials to make decisions for the HMO and administrative costs begin to balloon.

This helps explain how the surgeon who grosses $1,300,000 takes home a salary of $400,000. If he carefully considered the situation, the surgeon would certainly ask, "Why is 69% of my earnings going to administration and overhead?" It is the author’s opinion that the surgeon’s $400,000 salary could only go up under the new Medicare plan (Med-Ops) as described. At the same time, total healthcare costs for the country will fall. Government will have a strong incentive to allow this change to occur, because their costs remain the same. (Remember, total income for the multi-specialty group is based on Medicare fees of 50% of "usual and customary fees-private fees." Med-Ops does not increase those fees.) Med-Ops becomes a win-win as multi-specialty groups, as they now exist, are dissolved and the massive administrative costs they incur are slashed. The real estate which these groups now occupy will not be wasted, since it can be used for medical arts buildings as discussed earlier and rent charged, as the market demands. It is time to use technology as every other industry today is doing, to reduce and cut healthcare’s administrative expenses

Summary

Through five simple adjustments to Medicare regulations: Medicare will provide fee schedules and administrative help and allow insurance corporations to sell private, voluntary insurance policies that will cover all of our citizens. Insurance companies will no longer have to be involved in making healthcare decisions. These same changes in Medicare regulations will restore the competitive spirit to our physicians, even as they make it possible for hospitals to better control costs. Through the use of the newest administrative computer technology, administrative costs will be dramatically reduced both for physicians and the government. The bond between patient and physician will be restored. It will no longer matter where in the United States a patient lives. That patient, and the 40 million Americans who are presently uninsured, will now have the opportunity to obtain the insurance they need for the healthcare they need. Patient privacy will become a non-issue. The question – "Does it serve the patient first?" -- will be answered affirmatively, if Med-Ops becomes the new healthcare insurance paradigm.

About the Author

Dr. Bannister began a solo, independent medical practice in Chetek, Wisconsin, 35 years ago (in 1965, the same year Medicare was initiated). In the first 13 years of his practice he led a growing group of physicians that in 1978 consisted of 7 physicians and 13 employees in three communities. He continued his Family Practice in Chetek until April 30, 1997, when he retired. He currrently specializes in making house calls in his community. He started this independent practice June 1, 1999, after 2-1/2 years of retirement

In the late seventies when it appeared that larger practices would be the future of medicine, Dr. Bannister led his group into a merger with the Midelfort Clinic in Eau Claire, WI. Today this clinic has more than 180 physicians. Dr. Bannister served for 8 years on the clinic’s Board of Directors, resigning this position in 1988. During his years on the board the Midelfort HMO was formed and he was very well versed in its operation. The HMO is currently part of the Valley Health Plan of Eau Claire, WI.

In 1992 Dr. Bannister’s group merged with the Mayo Clinic of Rochester, MN and it remains part of the Mayo Clinic today. In 1997 conflicts with the HMO and the large clinic, and managed care’s interference into the practice of medicine prompted him to retire after 33 years in the same location.

He presently continues his new independent practice, caring primarily for the elderly. Dr. Bannister also holds a faculty rank of Assistant Clinical Professor in The Department of Family Practice at the Medical College of Wisconsin. He is a member of Wisconsin State and County Medical Societies as well as the American Academy of Home Call Physicians. A Life Member of the American Academy of Family Physicians, he was first certified as a Diplomate of the American Board of Family Practice in 1972.

His office is at 2374 1-1/2 Ave, Chetek, WI 54728. Phone 715-237-2597, fredb@citizens-tel.net
Website http://www.citizens-tel.net/~fredb
ã1/1/2001