Healthcare Inc.

Healthcare Inc. A Better Business Model

Abstract The history of healthcare in the United States has been a movement toward equitable access for all, with indirect payment for service. However, failures of the system, including uncontrolled cost, have made remodeling the system imperative. With no national consensus for present plans such as HR3200, we propose a sustainable model that is owned by citizens, funded by a flat tax paid by all, and provided in a competitive marketplace. The system includes individual control, incentives for responsible utilization by all, and cost control through prospective determination of the funding pool as a set percentage of the gross domestic product.

Healthcare Inc. Introduction

Attempts in the United States House of Representatives to launch healthcare reform (HR) bill 3200 are finding rough waters. Those who believe the present system provides well for their needs are disinclined to view reform favorably, whereas those who are dissatisfied with failures to receive appropriate care argue strenuously for reform. Regardless of satisfaction, there is rising concern about the juggernaut of increasing costs, presently approximately 18% of gross domestic product (GDP) and rising rapidly,1 and about the failure of HR 3200 to control those costs.

The main point of contention appears to be who will control the allocation of money and services not what will provide the greatest good to patients. Increasing complexity, cost, and population trends have made obsolete the open market, direct payment for service system that prevailed in the US until the 1930s. While reform opponents object to governments role in healthcare, the historic direction of healthcare reimbursement in the United States has been a progression toward equitable access (defined as equal among all), pooled populations to spread risk, and indirect payment for service. Until the 1960s, insurance

Healthcare Inc. companies redistributed wealth in providing healthcare. Since the inception of Medicare and Medicaid, the government has been doing the redistribution. Presently, 60% of healthcare costs are financed by taxes.

Although we are not economists, as a physician and as business people, we have studied systems, created our own business economies and innovations, and participated in a highly functioning state system to provide care to the uninsured. We have also listened to our patients and our colleagues, whose concerns are not well-represented in the proposals under consideration. And so we have spent many months imagining and discussing with physicians, politicians, and others ways to improve healthcare provision, patient and provider satisfaction, and the economic well-being of the nation. The plan presented here, a work in progress, is the outgrowth of that process.

Healthcare Inc.

This proposal outlines a new healthcare system business model that is sustainable and better serves patients than

Healthcare Inc. those currently on the table (HR 3200, insurance for all, and HR 676, Medicare for all). In the process, it creates better conditions for physicians and other health workers to provide care. Both altruistic and pragmatic, the plan uses a corporation model owned by the citizens of the United States in which each person has a vote. Citizens retain responsibility and control of individual funds, the government serves as a fiscal agent but does not control medical care, service providers compete for business, and costs are contained as a predetermined percentage of the GDP. We envision initially instituting the system at ten sites around the country, where the models would be evaluated for effectiveness and modified as appropriate.

Hallmarks of this system are: internally controlled costs equitable access maximum quality minimum complexity

To our knowledge, no other proposal has included the objective of minimum complexity nor developed the logical,

Healthcare Inc. not ideological, conclusion for government funding (not control) with citizen direction.

The key components of the system we propose (see EXHIBIT 1) are: A single payment (tax) system collected and disbursed through the government Fiscal, administrative, and quality-assurance decisions made by a state or regional health care board (SHCB), with trustees (medical providers, citizens, business people) elected by plan participants (taxpayers) Prospectively determined healthcare tax rate as a percentage of the GDP (e.g., 10%) in conjunction with utilization, determined by the SHCB Individually-directed virtual healthcare accounts that allow people to allocate their healthcare dollars (and receive dividends if the dollars are well-spent) Health service groups providing services as consultants of individual healthcare spending in a competitive marketplace

Healthcare Inc. Assumptions underlying the system are listed in EXHIBIT 2. A brief synopsis of some of the system features follows.

State or regional health fund, state or regional health reserve

This proposal finances all healthcare costs with a flat tax on individual income, sales, and services. All individuals are equal owners in the corporation, and in this system, a low-income earners return on investment actually is greater than a higher-income earners. Tax dollars designated for healthcare are held in a state or regional health fund (SHF), which is not accessible for other government uses.

Rate-setting and management. The SHF monies and those of the individual virtual funds from which each citizen directs his or her own healthcare spending and dividends are held, managed, and administered by a state or regional health reserve (SHR). Combining market-driven rate-setting with some controls, the SHR sets and limits the tax rate to a percentage of the GDP to maintain viability of the fund while developing an endowment to reduce future taxes. For this discussion, we will assume the target tax rate goal

Healthcare Inc. for healthcare to be 10% GDP, compared with the current 18%.

The SHR determines the percentage of total funds to go into individual virtual accounts and a percentage to retain for other costs. In determining the rate for individual accounts, the SHR also considers utilization of services. In effect, the population votes on the tax rate with each service utilization.

Health Care Service Groups

Health Care Service Groups (HCSGs) are the competitive and innovation-introducing free-market components of the system. They might comprise providers, institutions, or both.

Individual Health Funds

Each person has a virtual individual health fund (IHF) account. Each year, funds are entered, determined in part by past medical history and in part on projected needs for end-of-life or other costly care. Individuals allocate funds to the service providers they select. In some cases,

Healthcare Inc. individuals may need or choose to have an HCSG manage their accounts. The service providers return a small percentage of that money to the administrative component, the State or regional Health Care Board, described below.

In this system, it is possible to reward individuals for judicious use of healthcare by issuing dividends as a taxfree payment in years in which an account balance remains at the end of the year. Another measure of judicious use is using evidence-based approaches where applicable and feasible. This approach shows clearly the connection between cost and utilization, and users will be able to influence health care service group providers in ways they are not able to now. There are no co-payments or deductibles, simplifying the system and again reducing administrative costs.

State or Regional Health Care Board (SHCB)

The SHCB is responsible for developing and overseeing the state or regional health plan and the Health Care Service Groups (HCSGs). It does not set prices but uses market driven pricing to determine whether prices are appropriate for a given locale. This allows providers to compete on

Healthcare Inc. quality and a guaranteed price (published at the SHCB site) and eliminates the present system of price controls (administrative pricing).

The SHCB may require HCSGs to correct deficiencies or meet standards, but it does not define the processes of the HCSG. Each HCSG would be responsible for assessing intervals of care, price, and quality of service and reporting their data to the SHB.

The SHCB is funded by administrative fees from providers in service groups, who are in turn funded by patientauthorized payments from the SHF.

Covered Services. The SHCB would also have the task of accumulating and disseminating available evidence on the effectiveness or desirability of care and the optimal times of delivery. Types of service are then submitted to the taxpayers for approval. In other words, the SHCB organizes but does not determine covered or types of service. This is the responsibility of the owners of the franchise.

Healthcare Inc.

Quality

The understanding of quality is incomplete, and only 20% of quality measures are evidence-based. The rest are culturally determined and variable. Clearly, utilization needs to include evidence-based medicine, but provider groups need to develop and compete with their own cultures of quality. Thus, both the SHB and individuals will make determinations of quality and choose HCSGs accordingly.

Limitations

We present this proposal to initiate discussion of a more radically redesigned healthcare system based on the stated assumptions. Accordingly, some ideas are more completely formulated than others. The exact method of electing or appointing members to the state or regional health care board, for example, is open to further consideration. Our proposal does not address malpractice reform or funding for medical education, important components of any healthcare system. While we imagine a schedule to bring healthcare

10

Healthcare Inc. providers on board over time, we have not developed a timeline or implementation plan.

The case for government fiduciary agency, not control

Given the objections from many sources to government involvement in any US healthcare system, it seems appropriate to address our decision to use government funding. Aside from the historic trend mentioned earlier, collecting taxes and distributing them from a central site to pay for healthcare reduces administrative costs and complexity. Creating a state or regional risk pool and removing variable circumstances such as place of employment as determinants of cost reduces inequalities in the present stratified health insurance system. As the government is charged with the responsibility to promote the general welfare of all the people and is subject to the will of voters, it is a more logical body to redistribute wealth than is an insurance company that is legally obligated to create profit for shareholders. Present day health insurance companies have a future role in a reformed healthcare system, but not in the collection and redistribution of income.

11

Healthcare Inc. But while the government is the rational single payment source for healthcare, it is not necessarily the best place to house service provision, assure quality, or determine which services to use for individuals. This proposal differs from others in transferring control of healthcare from the government to the people, while retaining the government as a financial agent and referee.

Acknowledgement Chris McLaughlin provided editorial assistance in developing this manuscript.

12

Healthcare Inc.

Reference

1. Centers for Medicare and Medicaid Services, US Department of Health & Human Services. National Health Expenditure Projections 2008-2018, Forecast summary and selected tables. Available from: http://www.cms.hhs.gov/NationalHealthExpendData/downlo ads/proj2008.pdf

13