Image Source: PixabayI haven’t published anything here in a long, long time. I thought it would be fun to start up again. I wanted to give some stream-of-consciousness thoughts on how we can “fix” healthcare economics. Hopefully, I will make a lot of folks think and make a lot of folks in the industry think harder.Healthcare is a very simple industry made complicated.I’m not talking about the relentless search for better ways to care for patients. Whether it’s surgery robotics or better bandaids, the quest to improve care is vitally important.What I’m referring to is the complication of the industry in search of margin dollars. I won’t go down the list of who is trying to grab what and how. The starting point is “What Should it Look Like ?”Hypothetically, It should look like 1955 (I picked this year because of Back to the Future:). Patients go to providers for care. Providers provide that care. Patients get a bill and if they can afford it, they pay that bill. That’s it.The ONLY question in healthcare should be “How should care for people who can’t afford to pay for their care be paid?”Before we start that discussion, let’s do a very, very simple back-of-the-envelope discussion of the cost of healthcare in this country, but we will work backward to the amount of money needed to pay for care for people who can’t pay themselvesThe total cost of care by most estimates is around 5 Trillion dollars. How do we cut that number? The following is purely my opinion. But I don’t think I’m far off if we could get everyone in the industry to participate, which is unlikely, but not impossible. So call me a dreamer.
-
Bill of Materials – Instead we need to publish the Bill of Materials, at cost, for everything that is used when providing care. From consumables to doctors, nurses, or anything that is directly attributable to care, EXCEPT for items that are Capital Expenditures and overhead
- Any equipment, real estate, facilities, power, generators, personnel not providing care and their associated benefits will be segregated.
- Show the actual cost the hospital paid for the bandaids, the sterile water, the fully burdened benefits doctor, nurse, PT, and anything else that is used specifically for the care of that patient, rather than being shared.
- We will save how we deal with Cap Ex and Overhead for the end
- Gross Margins – Instead of providers including their gross margins in the pricing for consumables and direct costs, which creates a lot of distortions, like $20 aspirins, just have the provider show their margins. It is up to them what their mark-ups are, but the key here is that it’s really easy to compare the costs that hospitals pay for consumables, doctors, nurses, and therapists. Those are efficient markets for pricing. You can make a phone call and get real costs. Reducing the variance between providers to the markups they choose to charge makes the market far more efficient and competitive.
-
Publish Contracts
- Healthcare contracts with big providers are COMPLICATED. They aren’t just lists of terms and prices. They have equations in them that take a math major to begin to evaluate them. The only way these become simplified, and the only way the people paying for their care turn this into an efficient market is if those contracts are published for all to see
- All Payments are Cash Pay – The cost of administering and managing payments is astounding. Many estimates are 20 to 30 percent. Most of that is because of the never-ending battle between Insurance companies providers and patients to collect money We could add another 10 percent to account for fraud, overbilling and upcoding, and upcoding. Across 5 Trillion dollars. That’s real money.
- Cash Pay Reduces Pricing – Almost every single provider offers lower pricing for cash pay. Multiple studies have shown savings anywhere from 20 to 70 percent. It’s astounding how much additional cost is added to the system because of the complexity insurance companies introduce. Which makes perfect sense. If a provider can eliminate all the costs associated with collections and more by 20 to 30 percent, they can and should cost less for care
- Insurance Companies Remember, we are working backward as to who pays what patients can’t pay for. It will not include insurance companies
- 5 trillion – Saving on Overhead – Savings on CashPay
- 5,000,000,000,000 – ((.25+.25)x 5,000,000,000,000) = $2.5Trillion Savings and Cost.
- This is before accounting for savings we can get on pharmaceuticals by doing similar things.. It won’t be 50 percent, but it could be more than 20 percent
- In 99 percent of businesses in the world, companies mark up their costs to generate gross margin dollars to cover all their overhead. This industry should be no different. The change of course, and one of the hard parts of implementing any plan like this is getting providers, particularly big systems to go along.
- My guess, and this is a guess, is that one of the biggest problems that our country has, that other countries do not, is that there is a CapEx arms race. Every system wants to be bigger than the next. They want the latest “Machine that goes ping“, they want to spend a ton of money on branding to compete. On the good side of the arms race, again, just my opinion, is that it allows Doctors who are great at their jobs to earn a premium. I’m in the camp that Doctors and Nurses are vastly underpaid. This approach would hopefully move the margin from the owner to the actual care provider.
- I think that unless there is significant competition in a market, this inflates prices. All we have to do is look at facility fee trends and site-neutral issues to start to understand this.
- One other note. The starting number for total healthcare expenditures includes the current gross margins of providers. So while we are asking them to publish those numbers, we are not assuming they are going to go lower
- Who pays for the care patients can’t afford to pay themselves?
- First, we will assume that Medicare and Medicaid stay the same. No operational changes. We will be able to save money by going back to traditional Medicare across the board and using Third Party Administrators and Pass Through PBMs rather than the way it’s done now. But we will assume the amounts and programs generally stay the same. We federally spend 847b on Medicare and 570b on Medicaid. Subtract those numbers from 2.5T and we are down to about $1.1 Trillion for non-Medicare/caid spending
- What if employers pay what would have been their share of premiums to the feds, who can now just use Medicare payment processing to cover the cash pay bills from providers your employees use? And that money can also be used to cover the costs of the uninsured? (We took the total cost of care and divided it into the number of employees with insurance).
- Is it smarter to have employers give raises to replace what would have been their share of premiums, and let each individual pay more in taxes on their increased incomes and maybe a 1 or 2 percent premium, to cover the cost of care for the uninsured and contribute to medicare shortages? Then like above, providers would send the bill to Medicare which would pay them.
- Should the government get in the re-insurance business like they and states effectively are for flood and disaster insurance and let employers pay what would have been their insurance premiums into an HSA, and to the feds for reinsurance, and let employees use their HSA accounts up to their reinsurance amounts, with the employers paying amounts between the HSA and fed re-insurance?
- Do we let employers stop paying for insurance, and pay employees more? Leave it up to the employees to determine how to use that money. What if they can’t afford the bills?
- Just a reminder these options only work if the top changes are made.
More By This Author:Encouragement For Current College StudentsThe Brilliance of Yield Farming, Liquidity Providing and Valuing Crypto ProjectsThe Store Of Value Generation Is Kicking Your Ass And You Don’t Even Know It
