A New Semi-Public Option for Health Care Reform; From Bottom Up, Not Top Down

By Jonathan L. Fox, M.D., MBA

Can America’s great health care debate be resolved by promoting transparency and fairness for all stakeholders?  Perhaps, but for this to happen, health care reform must be approached from the bottom up, not top down.  As a physician, I propose the following original plan which views health care through the eyes of its end-users.

Suppose medical care providers such as myself were treated like any other businessperson in America.  Suppose we were paid when services were rendered; in other words, payment upon demand.  Since we then would not have to worry about accounts receivable, insurance denials, or collection accounts, our operational overhead would be reduced, as some estimate, by at least one-third.  Much of this cost savings could then be passed from our bottom line along to our patients, the medical care consumer.

But introducing free market economics into our health care system, which is currently heavily subsidized by our government, requires a new way of thinking. One intriguing approach is for Government to become the “payer on demand” for every citizen’s medical bills.

Think of a single payer entity that would function like a national electronic payment clearing network.  Like other major debit card companies, Government would process payment transactions and recoup its outlays at the end of each month, either directly from cardholders or indirectly from the medical plans in which they participate.

How would such a plan work in practice?  What would be its consequences, intended or otherwise?

Let’s imagine a typical health care consumer, named Ms. Patient, who seeks the performance of a medical service, such as a physical examination, from Dr. X.  Upon registering at Dr. X’s front desk, Ms. Patient produces her “HAA debit card” issued to her as part of a theoretical “Healthy Americans Act.”  Her HAA card is swiped and verified as active and legitimate. At the same time, it provides Doctor X with online access to Ms. Patient’s unique web page which contains up-to-date information concerning her health care insurance coverage, as well as a link to her “health information vault” or electronic health record (EHR).

At the end of Ms. Patient’s visit, Dr. X’s assistant plugs in the CPT code (Common Procedural Terminology) for services rendered and generates an itemized bill on the spot.   Both patient and doctor, as well as payer and insurance carrier, concurrently would be aware of the actual costs associated with Ms. Patient’s visit and the financial obligations toward it of each stakeholder.

Here’s where it gets interesting.  Under one possible scenario, Ms. Patient can elect to pay nothing at time of service.  Her medical care provider, Doctor X, still gets paid his entire contracted amount, including any co-pays and deductions, just like a merchant compensated by Visa or Mastercard for a consumer purchase.  There is no need for him to bill anyone, and so, in return for this significant saving of overhead expenses, he contractually agrees to accept a discounted fee for service. Everybody wins, including Ms. Patient, since service was provided at lower cost without worry about paying for it upfront.  (More concerning this later.)

Thus, at the time of the above payment transaction, Dr. X’s account is electronically credited by the Government agency, a single payer entity on a national scale.  Any existing policy would remain in force between Ms. Patient and her current medical insurance carrier, and it would create an obligation for her insurer to “reimburse” the single-payer agency to the extent of their client’s current policy provisions.

For example, let’s say Ms. Patient goes to Dr. X for a physical examination.  And let’s say Dr. X’s usual and customary fee is $150 for this service and, further, that Ms. Patient has a $30 deductible and $20 co-pay.  Now, under Ms. Patient’s existing medical insurance policy, Dr. X has agreed to accept a negotiated fee of $100.  So the “single payer” credits Doctor X’s account $100 as payment in full.  The payer then gets reimbursed $50 by Ms. Patient’s insurance company according to the terms of her policy.  Ms. Patient is still obligated to the “single payer” for the rest of the $100 fee, representing her deductible and co-pay amounts.

Ms. Patient’s remaining obligation might be satisfied in several possible ways.  One way would be to automatically debit a holding fund, such as a Health Savings Account.  Alternatively, if the single payer were to be the central government, Internal Revenue Service or Social Security Administration could be utilized.  If necessary, some social engineering could be accomplished at this stage.  For instance, if Ms. Patient’s taxable income was below a specific legislated threshold, corresponding subsidies might be provided in the form of reducing her remaining obligation.  Bankruptcies due to catastrophic medical obligations would be practically eliminated.

A possible long range goal of the “Healthy American Act” legislation might be universal health care coverage.  But as a first step, HAA debit cards would likely be issued only to uninsured adults and children.  In the long run, as the efficiencies of switching from paper to plastic are realized, many other citizens, if given the opportunity, will opt to participate.  Once they receive their HAA cards, they would still maintain their on-going relationships with their private insurance carriers, but through the synergies of the HAA program, they would experience lower premiums, fewer billing hassles, and better care through the tie-in with electronic health records.

One  “unintended” consequence of this plan would be to positively align the interests of all stakeholders.  Presumably, we health care providers would cheerfully pass along some of the savings from downsizing our billing and collection departments.  In addition to reducing fees, we would be encouraged to monitor our billing and utilization practices, since unlike today’s fragmented system, all the data from our coded services would be available to the “single payer.”  Practices that fell outside certain norms, so-called “outliers”, could be analyzed and assessed on a case-by-case basis.

For instance, if Dr. X charges Ms. Patient $250 instead of $150 for their encounter, claiming it is a particularly complicated examination, his statistical profile might fall outside the customary and usual norm of other physicians in his field, who seldom claim the higher fee.  A universal “single payer” would recognize that Dr. X’s billing practices “lie outside” the statistical norm.  Statistical “outliers” would be given incentives to conform to the payment norm, thereby resulting in lower costs to our entire health care system.

The primary responsibility of the “single payer” is to monitor the performance of health care providers under this plan.  All 1,300 medical insurance companies currently in business, on the other hand, would no longer be concerned with the day-to-day decisions of medical providers, such as Dr. X.  Their primary responsibility would be to focus on their insured client, the medical care consumer.  Just like casualty or automobile insurance companies, medical insurance companies would then be able to analyze the claim histories of their insured clients.  Each private insurer would have sufficient data to intelligently underwrite the utilization behavior among its client population.

Thus, under my “semi-public” plan, the interests of medical care providers, consumers, insurance companies and the “single-payer” entity would all be aligned in a universal effort to reduce health care consumption, inefficiencies and costs.

For the health care consumer, this system has built-in incentives for them to keep costs reasonable as well.  Remember, patients are still responsible for co-pays and deductibles.  And other incentives could be offered in the form of tax breaks and bonuses.  The important concept is that billing is transparent at the time and point of service, so consumers are empowered to make cost-efficient decisions.  Like any retail shop or restaurant, where costs are known before the sale is consummated, consumers tend to use their capitalistic discretion.  Even if some subsidies remain, true transparency of costs will enable doctor and patient to make wise and economical choices together.  The wedge between subsidized medical services and market forces will therefore be reduced.

In summary, the solution described above is a “semi-public” option that legislates the creation of a national electronic payment network in order to pay medical bills on demand through the widespread use of health care debit cards. It is a logical substitute for the current inefficient health care payment system and fits with the worldwide trend of switching transactions from paper to plastic. Most important, it aligns the interests of all stakeholders.  Unlike the current top down plans being advocated by various interests, this system is an entirely new paradigm of health care reform, approached from the standpoint of its end-users.  In other words, instead of from the top down, it is derived from the bottom up.