Responsibility verses Control: A Healthcare Review, Analysis, and Proposal James J. Rice M.D., F.A.C.S. and Dennis W.

Harris Muskegon Surgical Associates, P.C. 1316 Mercy Drive Muskegon, MI 49444 231.739.9461 Contact Email: dennis.harris@msapc.com 12/12/2012 Abstract: Healthcare costs are accelerating faster than the gross domestic product (GDP) and placing an increasing burden on the federal debt. We believe the essence of the problem to be a reimbursement structure limiting patient responsibility and provider transparency, neither of which has been addressed to date. Consequently, we propose patients be given virtual control of the healthcare dollars while providers compete with quality and price. The argument patients will save dollars instead of protecting their health only reinforces the point; simply invert the financial incentive to accomplish whatever desirable process they might otherwise avoid. The argument people do not think about finances when their life is at stake is refuted by the existence of the previous argument. The idea that given knowledge the vast majority of patients are not responsible enough to manage the healthcare dollars is about control not patient care. Further, we advocate all funding of healthcare be via taxes to replace and reduce the total healthcare premiums, provide ownership stock in the healthcare corporation owned by the people, and decouple healthcare from employment which in turn hinders both employment and the GDP. Our goal is equitable access and maximum quality while reducing total healthcare costs by 30%. Summary Part I: Where Healthcare Has Been: The interval from World War II to the present is an era of health insurance and accelerating healthcare costs. When both the receiver and provider of a service are insulated from the cost, both the supply and demand are inflated. This is the unintended consequence of health insurance. During this era, the attempt to oppose these forces
1

was indirect through the bundling and controlled pricing to modify provider practice patterns. The first time around, this was an easy target because at the beginning of this era, hospitals and doctors essentially had their non-competitive charges reimbursed. Thus both the Diagnostic Related Groups (DRGs) for hospitals and the resource-based relative value scale (RVUs) for physicians had an initial effect. These government sponsored programs in turn inspired the Health Maintenance Organization (HMO) in the private sector. Summary Part II: Where Healthcare Is: The Congressional Budget Office (CBO) in its 2012 Long-Term Budget Outlook1 has two projections. The extended baseline scenario (current laws) would reduce the federal debt and assumes the current laws will not change and the extended alternative fiscal scenario (current policies) would increase the federal debt to unsustainable levels and assumes the current laws are not politically sustainable. Healthcare financing plays a major role in each scenario. Summary Part III: Where Healthcare Is Heading: The Patient Protection and Affordable Care Act2 (ACA) removes all limits and risks for healthcare from the consumer. It then constructs two barriers in an attempt to limit the unlimited. These are Accountable Care (AC) and the Independent Medicare Advisory Board (IMAB). The vocabulary is more sophisticated this time around but in spite of a literature stating things will be different this time, AC is a variant of managed care while the IMAB continues essentially unaccountable price controls. Each has a history of initial success then failure. There are also private industry initiatives as in an Organized System of Care (OSC) with similar incremental improvements and fundamental defects. The problem is twofold. The reimbursements are to be bundled packets of zero sum wars but most important is that none of these initiatives significantly address patient responsibility or

provider competitiveness. Instead they continue attempts to control costs from central committees which are incapable of optimizing dynamic complexities. Summary Part IV: Where We Think Healthcare Should Head: Healthcare is about love and love is about responsibility. Our proposal takes the concept of respect for one another and the understanding that responsibility is fundamental to healthcare as basic principles. These principles then generate the goals of equitable access, maximum quality, and minimum cost and complexity. These goals guide our proposal abstracted above and elaborated upon below. Part I: Where Healthcare Has Been: The recent era of our healthcare history began during World War II with two synergistic effects, the gradual erosion of individual responsibility and the rise of health insurance. The Declaration of Independence states We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. These were followed by a Bill of Rights in 1791, which were the first ten amendments to the United States Constitution. In this context, a right is something intrinsic to the individual, something the government must not take away from the individual. On January 11, 1944, in his State of the Union Message to Congress, Franklin Roosevelt introduced eight new rights in a second Bill of Rights. Among these was The right to adequate medical care and the opportunity to achieve and enjoy good health. In this context, a right is something extrinsic to the individual, something the government must give to the individual.

The significance is that instead of the state being a guarantor of rights where a responsible people control the state, the state becomes the determinant of rights which control the people. While the right to adequate medical care has a benign veneer we are witnesses to the financial consequences while it progressively erodes personal responsibility. The second long term healthcare effect to develop during World War II was the rise of health insurance. During the war, wage controls limited the competitiveness of industry for workers and an expedient was to increase benefits such as health insurance. This inexorable link to employment ultimately limits employment but there is a more ominous consequence. Once a premium has been paid it is natural to maximize the return on investment by consuming the product. The retort that people do not want to get sick is countered by the fact that everyone needs healthcare. Moreover, since the provider of healthcare is reimbursed on production instead of value, the patients and providers are incentivized to maximize both supply and demand. Then in 1965 president Lyndon Johnson signed the Medicare amendment of the Social Security Act which led to the creation of Medicare, Medicaid, and the State Childrens Health Insurance Program (SCHIP) under the administration of the Centers for Medicare and Medicaid Services (CMS). This completed the main components for the healthcare cost conundrum which we face today. For about ten years after its inception, Medicare compensated physicians3 on the basis of their charges through reimbursement plus balance billing. In 1975 Medicare began its price control system or the Medicare economic index (MEI) which is an estimation of physician costs and placed a cap on physician fees. Since this grew too fast for congress, from 1984 to 1991 the fee change was arbitrarily legislated. In 1992 physician payments were modified by RVUs. Here the

attempt was to equalize physician payments based on clinical practice measures rather than to control costs. However, by 1998 the total physician payment rate was changed from the MEI to the Sustainable Growth Rate (SGR) formula. This shifted reimbursement increases from a cost estimate to something more complicated but roughly following the GDP. However because of the volume and intensity of services, spending for physician services exceeded the SGR target which because of compounding is much less than the MEI. The delay of the implementation of the SGR each year has led to the looming 27% decrease in physician Medicare reimbursements in 2012 and greater thereafter. To control hospital costs from charges or cost the 1980s saw the institution of price controls in the form of DRGs which is a bundled hospital payment based on a disease process to encourage physicians to integrate care and be more efficient. Similarly private insurance attempted to control their costs with payment structures and HMOs. In essence, these payments are politically determined and there was an initial success because the payment structure was so bloated. Of particular note are the failure and the persistence of the top down method to control price and integration of services. It is instructive at this point to examine an example of healthcare billing and its consequences. Consider the Evaluation and Management (E&M) codes developed around 1997 and recommended to be abolished in 2002 by the same advisory committee. They remain in use today and though they are much simpler than the DRGs, the effect is the same. The idea is to model medical care and the status of a patient and then compensate accordingly. The payment depends on the bullets or instances of patient care that have been recorded and it is natural to shoot for the highest reimbursement. This game is facilitated by the Electronic Medical Record (EMR) driving up costs the EMR was supposed to reduce and nearly obliterating any possibility
5

of figuring out how the patient is doing, but that is not the point. More important, the compensation is upside down. Instead of incentivizing maximum instances of care, the objective should be to minimize the instances of care necessary to maximize the status of the patient. This entails a different thinking and payment structure. Part II: Where Healthcare Is: Healthcare costs are accelerating faster than the GDP and accelerating faster than per capita spending for other goods and services. In addition, our federal debt (Footnote 1) is now only second to that at the end of World War II. Since none of the other budget items have the unique combination of an aging population, advances in technology and innovation, while at the same time beset with unacceptable levels of ineffective or inefficient care, this will be the most difficult to correct. Moreover, we have inadvertently chosen to finance most of healthcare through employment based health insurance and the taxes paid by the employed, which reduces both employment and the GDP while exacerbating the problem. The CBO in the 2012 Long-Term Budget Outlook gives two projections. The extended baseline scenario assumes the current laws will not change and would reduce the federal debt from its
(Footnote 1) The United States gross debt is roughly 100% of the gross domestic product (Figure 1) while the United States federal debt is about 70% of the GDP. The difference is the money in savings or owed to ourselves such as the Social Security Trust Fund. (Footnote 2) Unknown to most physicians, Medicaid is a curious match between federal and state funds. The federal government pays between 50 and 83 percent, based a formula using the state per capita income and the national per capita income, while each state pays the rest. It is this portion of the existing Medicaid match that is producing threatened bankruptcy in some states. In Kentucky, the existing Medicaid match is the second largest item in the states budget. The addition of 30 million individual to this program over the years 2014-2017 will push more states toward bankruptcy. If the federal government paid 100 percent of the new enrollees, the federal government would be pushed toward its bankruptcy faster than the present rate.

present 70 percent of GDP to 40 percent in 2050. It would accomplish this by increasing taxes such that revenues relative to GDP would reach post
Trillions 25 20 15 10 5 0

Figure 1 US Gross Debt vs. GDP

Source: Data from UsDebtClock.org

WWII historic highs and reducing spending except for Medicare, Medicaid (Footnote 2), SCHIP, Social Security and interest. Included in the reduced spending is a 27 percent decrease in

US Gross Debt US GDP

2000 2004 2008 2012 2016

physician reimbursement which because the overhead stays about the same, translates into a much higher decrease in physician salaries. The extended alternative fiscal scenario assumes the current laws are not politically sustainable and would increase the federal debt from the present 70 percent of GDP to more than 200 percent in 2050 by keeping taxes and spending roughly at present rates. Another proposal, that of Congressman Paul Ryan, was also evaluated by the CBO4. His proposal reduces the federal debt from 70 percent of GDP to 10 percent in 2050 through a slight increase in revenues while lowering income taxes and eliminating many deductions, slowing the rate of Medicare increases, dramatically reducing Medicaid and SCHIP, keeping Social Security as is, and dramatically reducing much of all other spending. His proposal for Medicare is to gradually increase the eligibility age to 67 by 2033, change the reimbursements to vouchers to purchase health insurance and slow the rate of Medicare growth by linking reimbursements to the consumer price index. The most intriguing parallel between the ACA and Congressman Paul Ryans proposal is an implicit philosophy based on faulty one-dimensional thinking; if you reduce healthcare reimbursements you will also reduce total healthcare costs.

The rate of growth of Social Security spending relative to the GDP will increase from 5 to 6 percent of GDP over about twenty-five years and be much less than Medicare, Medicaid, and SCHIP, which will increase from 5 to 10 percent of GDP over the same period. Both increase because of an aging population (Figure 2), but Social Security increases are much smaller and are more manageable because Social Security is not beset by changes in technology, innovation, or inefficiencies. In that respect, the CBO estimates the excess cost growth of the major health care programs is 40 percent under the extended baseline scenario - current laws and 48 percent under the extended alternative fiscal scenario - current policies.
Percent
40

Figure 2 Population Age 65

Scource: Data from CBO

30
20 10 0 2000 2010 2020 2030

Population Age 65 or Older as a Share of the Population Ages 20 to 64

It is important to also include total costs of healthcare, not just that on the government books and to note that the citizens (not governments) ultimately fund all the healthcare costs through taxes, premiums, deductibles, copays, private pay and the no-pays absorbed by doctors and hospitals. To calculate the total costs, the CBO notes that when considering the total expenditures for healthcare, the federal government and the states pay 49 percent and private spending 51 percent. Part III: Where Healthcare Is Heading: Curiously, the ACA omits the word right but nonetheless resolves the lack of precision in President Roosevelts phrase right to adequate medical care in Sec. 2711 No lifetime or annual limits and Sec. 2702 Guaranteed availability of coverage. In other words, essentially every citizen in the United States is to receive unlimited healthcare for life. This opens a Pandoras Box.

However before considering how the ACA attempts to limit the unlimited, there is a far reaching, seldom discussed and easily dismissed effect of the ACA. A common denominator throughout the healthcare reform literature is health insurance. In a fascinating demonstration of agility, the ACA officially ends the substantive existence of health insurance while simultaneously mandating its use. Insurance is compensation provided for an individual based on that individuals risk and limited by contract. Without defined risks and limits, merely unlimited premiums and unlimited payments remain. Without an internal structure, health insurance exists in name only and this bill formally ends the lucrative health insurance era while beginning that of government managed healthcare. These observations might be dismissed as merely a question of semantics if the stakes were not so high but more important is that a clear understanding of the meaning of a concept is critical prior to the resolution of a problem. Every discussion about healthcare reform puts health insurance as the foundation and if that foundation is not clearly understood, a solution will be elusive. Once it is understood that health insurance is merely a method to collect and distribute money for healthcare, it becomes clear that it might as well be done as efficiently as possible and that multiple and overlapping administrations performing that function is not cost effective. This is an argument for a single payer system as in Medicare for All or our proposal which is a single payment system, both of which would dramatically reduce administrative costs. Since unlimited healthcare contradicts the word Affordable in the title of the ACA there is presumably something within the bill limiting the unlimited because it is absurd to believe both propositions are true. One assumption is the enforcement of the SGR reducing physician reimbursement 27% initially and more in the future. Because the SGR formula does not reduce overhead, the decrease reduces physician salaries substantially more than 27% likely making
9

physicians much less available. This in turn clarifies Subpart II Improving Coverage which is correct in that ACA will improve coverage but not access and contradicts the patient protection clause. While it may limit the federal debt it will also limit healthcare and in turn increase total costs. In addition to the SGR there are other reductions. If those reductions are not implemented or not effective, the next barrier to the unlimited is the IMAB (sec. 3403) whose purpose is to reduce the per capita rate of growth in Medicare spending in a most curious fashion. Its advisory recommendations are compulsory unless Congress replaces them, under severe limitations, with alternative equal size cuts. These advisory instructions are to include recommendations regarding improvements to payment systems for providers of services and suppliers who are not otherwise subject to the scope of the Boards recommendations The IMAB has the ability to redefine healthcare payments as they desire and there are no appeals. Their restrictions are to not include any recommendation to ration healthcare, raise revenues or Medicare beneficiary premiums. Left unsaid, but obvious, is the only other option; restrict payments to the providers and thus limit access. Healthcare is to a large degree under price controls dictated by the CMS. The euphemism for these price controls is Administrative Pricing which determines how much money goes where. Commercial insurances then set their prices as a percentage of the CMS price. This has similarities to the old Soviet style of government and its planned economy. These one-dimensional price controls view healthcare costs as a system of independent nodes. However the ACA does allow for a more complex pricing in AC for Medicare which is also modeled as the OSC in the private sector. In these, healthcare is viewed as interdependent

10

nodes, more of a recipe than individual ingredients. In a fee for service model each node receives compensation without a link to the others. In AC the notion is to integrate the nodes and provide bundles of compensation for the network. The providers in turn determine the distribution of the payment. On the surface, these are typical manufacturing ideas but the problem is with the execution. Medicares administrative pricing5 is basically a linear control system (Figure 3) without feedback. Moreover, in manufacturing as opposed to AC, each node controls its own pricing. The feedback that does exist in healthcare is incidental and ineffective because the negative feedback of the deficit and possible SGR is overwhelmed by the positive feedback of politics, physician incentives and the legislated unlimited unaccountably of the patients. AC takes these proven defects, bundles them together, and expects a different result. Throwing additional resources at a failed attack is one of the tactics Sun Tzu advised against in The Art of War. A function takes an input and generates an output while a feedback loop has the output of one function as the input of the other and vice versa (Figure 4). A biologic system might have thousands of these loops. Homeostasis or health is the stable state of these functions while disease is an abnormal function and death ensues when a function is out of control and cannot be compensated. Though the intentions are good, the AC will not succeed for many reasons but primarily because it lacks sufficient feedback. Since CMS and by extension other payers base their reimbursements on the DRG/RVU system (Figure 5) it is necessary to understand its mechanics and its defects. The DRG/RVU is generated by a coder who is bound by a controlled vocabulary reminiscent of 1984s Newspeak. Since its implementation in 1992 and its initial success, the volume and intensity of services

11

Figure 3

DRG/RVU

CMS

Administrative Price

Figure 4

Pituitary

TS H T3, T4

Thyroid

Figure 5

Clinical Data

Coder

DRG/RVU

Figure 6

Clinical Data

Doctor

Dx Rx

Figure 7

Clinical Data Plus

Providers
Tax Rate

Competitive Price

Figure 8

Dendrites

Neuron Cell Body

Axon

Figure 9

Inputs

Neural Network
Figure 10 Vector Function

Output

f(a,b,c,d,e) = x

12

has gradually increased but it is our opinion this is far more likely secondary to the learning and computerization of Newspeak than it is to changes in the delivery of healthcare. However, the fundamental problems with the DRG/RVU system are that the price controls are political in nature, it retains its non-competitive heritage from the charge based era, and the basis of payments by DRG/RVU is wide of the mark. Besides the structure for the reimbursements, there is another difficulty with its foundation. The DRG/RVU is a classification system for a state of or for a procedure performed upon the patient. While there is some nibbling at the periphery with quality measures, this largely ignores the appropriateness of care which should be the true metric of reimbursements. This in turn requires individual, not population, decisions upon which AC depends. Contrast the DRG/RVU payment with what happens when a physician sees a patient (Figure 6). While a physician makes a diagnosis the treatment can be very different with the same diagnosis between doctors and even with the same doctor. The diagnosis or treatment is a rough indicator of the appropriateness of care. Notably, the consequence is that the present coding systems should not be the primary drivers of payment; rather it should be the degree to which the appropriate care was rendered. This will take time to develop and the codes will remain for a while but we feel they will eventually be replaced with natural language as they are currently when talking with the patients and colleagues. The concept of appropriateness of care is necessarily fuzzy in the logical sense (Footnote 3) but it is also dependent on each individual
(Footnote 3) Boolean logic includes only the numbers 0 and 1. Fuzzy logic includes the numbers 0 and 1 and every number in-between. In addition, a bit of background is provided by a stylized neuron (Figure 8) which combined with feed-back suggests our proposal (Figure 7). Computer science models the neuron with neural networks (Figure 9) and both are instances of vector functions familiar to mathematicians (Figure 10). Interestingly, the commonality of these structures goes even deeper than the graphics suggest. Both the neuron and the computer are voltage regulated binary systems. 13

patient, not a population. This individualization and competitiveness is what leads to the schematic of our proposal (Figure 7) to be discussed in greater detail later. Next the idea within the ACA is to take these reimbursements and for an AC to design a system for healthcare delivery which is a complex process. The doctors and hospitals need to cooperate in a collegial manner or the systems will function poorly. Initially the plan is for the providers and the government to divide up the shared savings resulting from improved productivity without risk. If and where there is already waste or payments are excessive, the doctors and hospitals win, receiving a reward for past inefficiency and some collusion. Then it gets interesting. Since CMS has under the present system failed in its task to align payments equitably, justly, and financially sustainably (to be fair that task is impossible for a central committee), the next attempt is to bundle the payments so that an Accountable Care Organization (ACO) receives a lump sum and then that ACO presumably wisely and cooperatively divides up the payments among themselves. In addition, since CMS has already demonstrated the inability to get the payments correct there is no evidence they will succeed this time. Hence when that incorrect payment goes to an ACO, it will be divided up in a zero sum game where one partner wins by having another lose. The idea that incorrect payments sent into a group of highly knowledgeable, competitive individuals for arbitrary division will result in harmony, decreased costs, and increased quality is ridiculous. These internal zero sum wars will result in the mutual destruction of most providers and patient care, and worst of all, poorer and less efficient care. Often price controls artificially reduce supply and create a shortage because the payments are so low that when the prices finally float, the pent-up demand drives up prices due to the shortage. However, in the present circumstance of political pricing where the pricing is variable across classes and the patient and doctor are insulated from the cost, it is the supply and
14

the demand which are artificially inflated and poorly distributed. The doctors as manufacturers in effect receive subsidies because they are not responsible for the total cost while being compensated for production. When the prices are reduced, the physicians increase productivity to make up the difference in compensation. This inflates the supply for the better paying patients while discarding access for the poorer patients. Tying the physician and hospital reimbursements together only makes sense if they have control over competitive pricing. Concomitant with this the patient, having already paid for the service with a premium, does not pay or pays a discount for the product at the time of service. This inflates demand. The ACA introduces another war is peace vignette which is more ironic. In this Accountable Care era the patients are not accountable. In the ACA Subtitle F Shared Responsibility for Health Care and Part I Individual Responsibility deals with everyone buying health insurance which the Supreme Court uncloaked as a tax. However in the ACA there is no limit or risk. Thus for a discounted amount, there is an unlimited return. Moreover this completely ignores any responsibility for ones health. The Supreme Court was never asked if it is constitutional to get something for nothing but it is nonetheless a violation of the Second Law of Thermodynamics. Since, as far as is known, this is not allowed anywhere in the universe, the ACA cannot survive under its present formulation. In the meantime, instead of mandating responsibility, in effect the ACA legislates the abolition of patient responsibility. Part IV: Where We Think Healthcare Should Head: Life and death, health and disease, love and respect, sorrow and loss, are only pieces of the great healthcare endeavor. Governments and corporations fail to grasp healthcare because they are outside of healthcare and consequently they are incapable of its experience. Throughout the

15

world industrialized countries have government sponsored healthcare, some type of functionally restrictive access model, half the cost, and better quality measures (Footnote 4) than the United States. They also have the same problem with exponentially increasing costs relative to GDP. Thus since the ACA is a similar top down system of controls it may have an initial success because of the excesses in our system but it is headed for failure. The problem is to find an optimum solution to access, cost, and quality. This is too complex for top down methods. Words such as control and management classify centrally planned healthcare systems. We suggest words such as respect and responsibility to classify a distributed method to optimize access, cost, and quality. Such a dramatic difference in philosophy develops a dramatically different healthcare system. This philosophy then suggests the healthcare objectives which we believe are equitable access, maximum quality, and minimum cost and complexity. This philosophy in turn guides the selection of the routes to those objectives. The values 1) equitable access, 2) maximum quality, 3) minimum cost, and 4) minimum complexity, are not independent. In fact, they are highly and mutually dependent. Most proposals advocate some at the expense of another. The design of a solution must take all these relationships into consideration. The word responsibility implies both accountability and action so that someone is accountable for what is done or is not done. This should apply to both patients and providers. In addition, there must be some measure of accountability for comparison and goal purposes. Accordingly,
(Footnote 4) We believe much of the poor quality frequently reported is likely due to our heterogeneous population; the countries with best results for medical care are very homogenous. Nonetheless there is still a great deal we need to improve.

16

we propose patients and providers be responsible for the cost and quality of healthcare. To accomplish this, patients need to control the healthcare dollars while the providers compete through quality and price. The objection that some patients will save dollars instead of obtaining needed healthcare is actually an argument for the patients controlling the money. Simply give the patients a credit instead of debit for the behavior one wishes to modify. The objection that patients do not shop for healthcare is refuted by existence of the initial objection. The objection patients will not choose wisely is dependent upon a philosophy that suggests patents are not responsible and therefore must be controlled. This self-perpetuating stance is why we are in trouble today. What we envision is that every person would have a dynamically allocated virtual budget based on their medical conditions. Their performance determines whether their individual budget generates a profit or loss. A percentage of a profit could be returned to them while a deficit would not incur a penalty which is similar to the present circumstances. They in turn purchase services from the providers based on price and quality with a swipe of their card. This single payment system could eliminate the present deductibles, co-pays, no-pays, insurance, coinsurance, no-insurance, balanced billing, collections, subsidies, and bad debt. While we do not have the capability to generate hard numbers, we estimate this first step would reduce total healthcare expenditures by 10%. Healthcare funding would be through taxes and we propose a flat tax on income, sales, and services. While resolving the tax fairness debate is beyond our abilities we have chosen these flat taxes because of their relative simplicity and their inclusiveness. We feel responsibility means everyone must own the healthcare business and thus pay for it. If you have personally earned

17

and own something, it has more value and meaning. A flat tax is more difficult for someone to pay if they do not have much disposable income but under this proposal there is a greater return on the investment for those who pay less, the elimination of classes of care, and the fact that the bonuses to be paid are based on performance, not the amount of tax the individual paid. Whatever the final feed-back tax structure, the idea is to define an individuals economic footprint and propose that as their relative proportion of the healthcare premium for their insurance. Our goal is to achieve equitable access along with equitable burden. We feel equitable ownership is important to controlling costs. These funds should be sequestered only for healthcare and out of the reach of government for other uses. Similarly, no one would be forced to participate in or fund this proposal as long as they can demonstrate funding for and participation in a credible alternative. Any taxes paid for this proposal would be applied to an alternate health plan if the individual desires. The rate of the tax would be set to cover expenses plus the possible additions of an endowment for future expenses so that next generation does not bear the burden for most of the cost of their parents. The rates must be competitive and each state or region would be expected to participate with its own administration and tax rate. This does not preclude running our plan at the federal level but we tend to see this implemented at the level of the states. The providers in turn would need to develop competitive products and sell them based on price and quality. The idea is not so much for the patients to shop for services but to have the providers compete. For instance, in an emergency situation, the patient will go to the nearest emergency room without regard to the price. However the emergency room will know its performance

18

relative to its peers and justify its costs and quality. Moreover, the patients will have this information for future elective services. Our plan does not offer basic levels for everyone and higher levels for those who can afford it. There are not different levels of insurance or coverage. However, any plan should recognize that some relatively well to do families will pay personally extra fees for concierge services or for uniquely skilled physicians. In this case we apply a median sticker price to pay for the service for most patients but allow that to be the first dollars for an appropriate concierge service if the individual desires to pay additional last dollars. In these cases, the first dollars only apply to services accessible to everyone. Many communities border state lines and a long established referral pattern will for some time determine choice of doctor and facility. We foresee that a state based coverage would provide a major portion of expenses in a neighboring state but that the individual patient could have to pay something additional or possibly less, similar to the above first dollars. As a concept, state based care would make states competitive while federally based care would make regions competitive. The ACA continues the employment link to healthcare funding and third party payments. In addition, while not traditionally thought of as being employer based, Medicare and Medicaid, are also linked to employment through payroll taxes plus income taxes. What exists now is not an insurance model but a third party payment model largely funded by employers and their employees. Consequently, the present workers fund most of healthcare which in turn inhibits employment. Of course former workers paid their share but since it is a defined benefit instead of a defined contribution type, the unfunded liabilities are not sustainable particularly given the aging population and improvements in technology and innovation (Figure 11). Thus, the effect of

19

the value equitable access suggests proportional funding by which everyone

Figure 11 Medicare vs. Social Security Liabilities

Source: Data from UsDebtClock.org 150 Medicare + Drug Liability Social Security Liability 2012 2016

participates, over time, and owns healthcare with the decoupling of healthcare from employment though this would probably include some grandfather clauses.
Trillions 100 50 0

One advantage of employer based health insurance is the control employers have over their employees to incentivize health. As noted above, any incentive can be part of our proposal though we advocate the carrot instead of the stick. The next consideration is quality. Every healthcare proposal claims this as a goal. Ultimately we see an appropriateness of care based on the individuals personalized treatment but for now take a more traditional approach. Evidence based processes need surveillance and outcomes need to be reported along with patient satisfaction. For example, risk adjusted death rates for elective operations have been somewhat helpful in the last two decades with two separate effects: Embarrassing some doctors and hospitals into abandoning procedures with overtly poorer outcomes than their neighbors. Encouraging improved performance and frequent reassessment of those performances against regional norms or a competing doctor or hospital. The key to physician acceptance of these processes is honest risk adjustment while the key to patient acceptance is adequate information. Clearly physicians, hospitals, and patients need to participate in these processes. There is also another piece of information is missing. We propose

20

a public listing of the doctors that treat other doctors and doctors that treat nurses for this summarizes a great deal of information not otherwise available to the public. The present system considers pricing to be a top down management problem. In fact, pricing is a complex optimization problem requiring constant feedback not amenable to any group of experts or special interests to allocate appropriately. More sensible is for the publication of the provider determined prices along with the above quality data. Doctors and hospitals need to eliminate preposterous charges from the equation and emphasize their honest cost and return on investments. We must also consider geography and a unique multitude of circumstances (other than cost and quality) that will influence patients final decisions. Once the patients have control of the money, and a budget, they determine the services they receive putting the providers in a competitive environment which minimizes cost. Every individual would have a virtual budget. There would be reports perhaps each quarter with each patients costs, comparison to peers, the overall financial viability, and tax rates. Of course, avoiding evidence based care counts against any possible bonus (Footnote 5). The overall tax rate is adjusted up and down to maintain solvency. This is a pay for performance for the patients, as well as the providers. For instance, if a patient smokes or has appendicitis, they receive a bonus if they come in under budget but there is no direct penalty for failing to make
(Footnote 5) Evidence based medicine is a useful concept and in its best form should be promulgated. In fact, the evidence changes from year to year. One major reason is correlation is not causation and as a consequence there cannot be a weight or amount of the effect. Tight glucose control in ICU patients: tight 2001, looser 2009 B-blockade in elective surgery: bad, now good Post-menopausal estrogen replacement: good, bad, good Screening mammography: when to begin and how often Prostate specific antigen: gospel or discarded Colonoscopy: when to begin and how often 21

their budget. At present, the number of employer insured people who are accepting higher deductible health insurance plan is increasing rapidly; by so doing the employed individual significantly lessens his or her current monthly premium. The idea for a budget is to make all the dollars competitive, not just the first dollars as in the high deductible plans. It is our estimation that this competitive step will save an addition 20% in total healthcare costs. Ultimately the competition is for the patients but the effect is not so much that the patients shop for the best deal but that the providers compete against each other. Patients with emergencies will typically go to the closest emergency room without consideration of the cost. However each emergency room would know its costs relative to others and this is where competition will be the most intense. Moreover, when the patient receives the invoice, competitors prices and quality will be listed which will influence future elective decisions. This information would be published and annually updated in a uniform format at an independent website. Under this method, the collaboration envisioned by Accountable Care would leave the zero-sum arena and become cooperative and competitive because the doctors and hospitals would form their own alliances and effectively compete. For example a patient with obesity, diabetes, chronic back pain and hypertension has a routine appendectomy for appendicitis. The price is the sticker price or average for appendectomies. This covers the cost of the surgery, the anesthesia, the hospital, and sixty days of care including complications related to the appendicitis. His card is swiped and there is a lump sum transfer of funds from his virtual account to the providers who have previously determined their competitive price. In later conversations with his primary care physician, the physician explains that if had he gone to a hospital thirty miles away the cost would have been $500 less and he would have received a $25 bonus, hardly worth the trip but he consequently gives the hospital a less than
22

perfect score on his evaluation (quality = evidence + outcomes + evaluations). On the other hand, the physician explains, there are evidence-based and discretionary expenditures also influencing his bonus relative to his obesity, diabetes, back pain and hypertension. Consequently he gives his back pain a longer trial of non-operative management but ultimately selects a competing hospital for his back surgery with excellent quality and at a substantial discount. The previous patient has a dynamic virtual account for which he receives a regular accounting of his expenses, expenditures and total projected healthcare costs compared to his peers and the population as a whole along with the amount of taxes which he has paid. At the same time, the primary care doctor, the physical therapist, the back surgeon, and the hospital come up with a competitive price and product agreeable to all. Likely the organization will be around primary care with specialty support. Since the outcomes of care are linked to all the providers, this will lead to a cooperative arrangement, innovation, and elimination of waste because other groups are doing the same. Here the patient replaces the government or a corporation in transferring the funds and indirectly setting the price and to some degree his own tax rate. More importantly, the patient, doctors, and hospital can all win. There must of course be some losers and some winners but you win by trying to win, not by trying to have someone else lose. An implicit theme running through the AC structure is that physicians have the knowledge and thus physicians should be managing patients. A problem here is the physician is the consultant, not the receiver of, the service. Physicians do not control the patients; it is nearer the other way around. ACOs are designed to address waste within the system but not address the system waste. Clearly organizations like AC are an improvement and nothing should happen without a physicians order, but more important is that nothing happens without a patients authorization. Physicians orders are in the final sense subservient to the patient. Healthcare is ultimately the
23

patients responsibility. After front loading the system with illness, ACOs attempt to manage the patients back to health. The continued subsidies for sickness and central control will lead to the demise of AC and its obituary will read something like a Picketts Charge for managed care. Without personal accountability, healthcare will never control costs without limiting access. This will further erode the physicians position as patient advocate. In addition, since most reimbursement follows Medicares lead, essentially all healthcare reimbursements and consequences, except for self-paid concierge services, will ultimately follow the same path. Our proposal is less complex and more transparent than the present system. A walk through todays complex environment inundates you with the artificial complexities of control. This is not an argument against regulation but it an argument against control. Regulation is the referee. It levels the playing field. Furthermore, we are all patients. It is we, the patients, who should control the system, not the other way around. We believe that if we, the patients whose money it is in the first place, have control of the money and the information, we will succeed. There are going to be dramatic changes. We have two choices. We act responsibly or we are controlled by events which may include the deterioration of American medicine or possibly our economy. In either case, it is going to be dramatic. Tweaking an old broken system and expecting a new result is wishful thinking. A new system must be designed. We know healthcare is based on respect for one another and responsibility. We propose that foundation be used to develop a sustainable healthcare solution with equitable access, maximum quality, minimal cost and minimal complexity.

24

1. CBOs 2012 Long-Term Budget Outlook: http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-LongTerm_Budget_Outlook_2.pdf 2. The Patient Protection and Affordable Care Act: http://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf 3. Sustainable Growth Rate Formula for Setting Medicares Physician Payment Rates: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/75xx/doc7542/09-07-sgr-brief.pdf 4. Spending specified by Congressman Paul Ryan evaluated by the CBO: http://cbo.gov/sites/default/files/cbofiles/attachments/03-20-Ryan_Specified_Paths_2.pdf 5. Medicare DRG/RVU Summary: http://amcp.org/WorkArea/DownloadAsset.aspx?id=11164

25