Stanley Feld M.D.,FACP,MACE

As I predicted, after the Practice Management Companies bought physicians practices, physicians’ productivity fell sharply, and collection dropped greatly. Overhead increased as the Physician Management Companies moved their bureaucratic machinery into the physicians’ office. The PMCs’ hiring practices came into conflict with physician hiring reflexes. Profit decreased even further. Most of the National Practice Management Companies went out of business. Many sold the practices back to the doctors at ten cents on the dollar and left town.

The Hospital systems were forced to sell the practices back to the physicians also. The consultants for the hospital systems had a plan. If the hospital system could not profit by owning the physicians practices, they could at least own the front office and back office management of the physicians practice and collect a fee.

You will recall hospital systems were pouring profits in expansion of their hospitals, as well as buying other failing hospitals. Their goal was to have greater control over their marketplace. The marketplace control should result in better negotiating power with the insurance industry and Medicare.

Physicians, in general, are lousy business men. I mentioned previously that physicians want to take care of patients. They do not want to be business managers nor deal with the complexity of managing large practices. The physicians permitted the hospital systems hold onto the billing and employment functions. The physicians were paid on the basis of salary plus productivity minus overhead. Most physicians had some ideas of the workings of the formula. However, most did not and do not know the components of the overhead structure. They also have little understanding of the percentage of collections. Again, the physicians were driven to work harder to increase productivity, but did not seem to be increasing income.

Presently, another layer of mistrust between hospital systems and physicians is developing. They are starting to question the hospital system’s ability to manage the practice and are starting to rebel against the multitude of practice rules imposed.

If only the hospital systems and physicians trusted each other. They could then promote the concept of delivering excellent care to patients and permit each others skills to implement this goal. This concept would go a long way to start repairing the healthcare system.

I think the tension between hospital systems and physicians serves as a potential firebox that can blow up the entire system.

Many single specialty practices merged in order to have negotiating power with the various hospital systems in their town as well as with the Managed Care Companies. Some of these mergers have been very successful. Most have not been effective. Merging cultural and personality differences between competing medical practices is a very difficult task. The development of efficient governance in large multi-office merged practices is extremely difficult. Information technology and systems development could help greatly but would require large expenditures of money. As practice revenue diminishes physicians are hesitant to make large capital outlays.

In any event, it is easy to see how the variety of tensions created could lead to the further dysfunction in the healthcare system.

Stanley Feld M.D.,FACP,MACE

The concept of buying physicians’ practices, have the physician produce revenue by working 12 hours a day and efficiently billing and efficiently collecting billing opened an opportunity for Managers with advanced information technology expertise and equipment. It also offered an opportunity to form national networks to negotiate better fees with the national insurance industries. This represents Price Transparency for negotiated fees from the insurance industry by large physician networks. These National Practice Management Companies could also have immense negotiating power because they controlled the labor force. The development of these Practice Management Companies along with hospital systems controlling their labor force through the IPA frightened the insurance industry. Their promise of reducing the cost to the employer healthcare benefit from 18% of gross revenue to 12% of gross revenue seemed to be fading as their negotiating position was threatened by coalescing groups of networks.

The industry of National Practice Management Companies grew quickly. The Professional Management Organizations (PMOs) had the same notion as the hospital system. If they put a powerful information technology system in place and bought physician practices, maintained the productivity of the workforce, and leveraged the ability of the information systems, they could increase the PMOs value. Once that was accomplished they could go public, and make millions from a hard working labor force (physicians and their practices). The attraction to the physicians was the cash and stock in the PMO obtained from selling their practice. Additionally, the practice debt was taken over, salaries were guaranteed with incentives and the complexity of practice management was gone. The physicians could also buy additional private stock in these startup PMOs. The hope was when the PMO went public the physicians would get an additional payout for their practice. This was supposed to represent additional incentive to make the Practice Management Organization successful. Remember, the physicians could not keep track of their collections and income was falling. Income was falling because of decreasing fees, increasing overhead and poor individual practice administration. The promise of the PMO was to fix all of this. Then the physician simply had to take care of his patients.

None of these management organizations foresaw the inevitable. Physicians were now paid employees for a larger company. The Physicians did not like the corporate rules applied or the restrictions on their freedom to make clinical judgments. No matter how hard they worked their income did not increase. Bilateral mistrust increased. The physicians’ productivity decreased partly because of reduced work hours, coffee breaks, and lunch hours, luxuries they did not enjoy previously. Physicians adopted a 9 am -5 pm schedules rather than a 6 am-9 pm schedule they maintained when they owned their own practice.

Who suffered? The patient and the physician patient relationship suffered greatly.

What happened next?

Stanley Feld M.D.,FACP,MACE

Unfortunately, the relationships between hospitals and physicians have always been adversarial. However, when insurance carriers presented a dizzying array of fees for services, hospital systems stepped in and volunteered to “help” physicians form negotiating organizations called IPAs (Independent Physician Associations). I assume the hospital systems consultants told the administrations of the hospital systems that organizing was the only route to survival. It also seems that every hospital system organized its staff simultaneously.

These associations would negotiate fees for the physicians who practice at that hospital. The independent physicians could either opt in or out of the contract at their own free will. The fees for joining an Independent Practice Association (IPA) ranged from $1,000 to $10,000. What was strange to me was that in all of the IPAs I was involved, the hospital systems knew the physicians negotiated fees but the physicians never knew the deal the hospital made with the insurance company and their various managed care products. Nor did we know the fees they were getting for the services we ordered in the hospital. I always had the feeling the physicians were at a disadvantage. However, I did not have any proof. Most of the physicians were confused about the contracts. They could not keep up with the various prices the various Managed Care Companies (MCOs) were paying for their services. The physicians did not have sophisticated enough information systems to keep track of the changing fees. The physicians’ income was going down. It seemed that hospital systems’ net profit was increasing.

Hospitals increased expansion and renewal of their physical plants with the increase income. This increased profit could only occur if the hospital systems were getting a better deal from the insurance industry or Medicare than we were. In order to decrease costs, more services and procedures were paid for as outpatient services. Many of these workups and procedures could only previously be done in hospital at great expense. Complete workups for illness could easily be done as an outpatient in the physicians’ office at a much lower cost to the insurance company. The insurance industry was started paying for outpatient workups to reduce their costs.

Hospitals then went into the outpatient business in direct competitors to their staff physicians. However, independent practicing physicians on the hospital systems staff were hesitant to refer patients to the hospital owned and controlled staff. It was clear that one could workup and treat a patient as an outpatient cheaper than as and inpatient in the hospital. Presently hospital outpatient clinic workup is more costly than a workup in a physician’s office. Please note Dr Westbrook’s x-ray example.

Hospitals had very high brick and mortar investments. This investment was now being underutilization, as they continued to pour money into expansion and improvements to the structures. Hospital systems now became interested in buying physicians’ practices. The hospital systems viewed practicing physicians as a hard working labor force that could be very profitable to the hospital. Physicians had a difficult time keeping track of their collections and negotiated fees, while trying to practice medicine. With the hospitals’ “sophisticated” information systems that they paid millions for, collections by the hospitals seemed to be a no brainer to hospital administrators.

The hospital systems also saw that if they controlled physicians’ practices they would be in a more powerful negotiating position with the Managed Care Organizations. Many hospital systems bought physicians practices cash plus a guaranteed salary for 3 to 5 years. The hospital took over the debt and the administration of the practices.

What happened next was disastrous to all, patients, physicians, hospitals, insurance companies and the government. Everything seems to be going from bad to worse.

Stanley Feld M.D.,FACP,MACE

1. Physicians and hospitals bill their retail prices with every claim form. They receive and accept Medicare prices as published. They have also negotiated deeply discounted prices with the insurance companies which they accept. An uninsured person, like Denise, has only seen the providers’ retail price. She could negotiate that fee before the service was rendered if she had a choice of provider. She could negotiate the price after service was performed if she knew the discount fees that the providers accepted. This is the best that she could do at the moment. Once everyone can buy insurance on a level playing field she will do much better. I will explain how, in my view, the medical savings account should be set up to be affordable to everyone, profitable to everyone, and driven by free market forces with freedom of choice for everyone. The model will lead to less people uninsured. It will also lead to a decrease in healthcare costs, because of a reduction in chronic disease complication rate.

2. In my blog, a Simple Solution to the Problem of Price Transparency some readers had the impression that I was advocating Price Control. I am a firm believer than Price Controls do not work. Price Controls in my view only create bigger problems.

The solution is competitive pricing. If a physician or hospital has a better product at a higher price, they will not lose their market share. One needs only to look at Neiman Marcus. If the product is similar the higher price product has a problem. The impartial web site will give that practice or hospital the opportunity to defend his price and in fact, prove its value to the consumer. They could publish their qualifications as well as medical and financial outcomes on the site and differentiate their value from the average.

In order to get that information, the providers will have to have a functioning electronic medical record (EMR). They could then have the opportunity to link medical and financial outcomes to cost and prove their value to those who want the superior product. Presently, there is little motivation for physicians or hospitals to have an electronic medical record. There is little incentive to buy one because presently there is no reward for having an EMR. The only incentive is a government mandate. However, mandates never seem to work. In addition, with the reimbursement declining it is difficult for a physicians or hospitals to understand the value of EMRs to be motivated to make the capital outlay necessary to purchase an electronic medical record. Many times these EMRs take years to install and function properly. Another barrier is the pain of converting to an EMR. The providers are tied also to a never ending costly service contract. The service from the EMR provider sometimes does not solve the problems that arise. In the past, many of us have spent large sums on the false promise of a significant payback. The false hope inhibits us from making an additional large investment that might not work well.

I will go into these problems and my proposed solution in the near future. Presently, one can start to see the depth and breadth of the problems the healthcare system has faced and the dysfunctional responses of stakeholders to the immediate problems. Their responses simply served to create greater problems for the healthcare system. The new problems generate further problems.

Stanley Feld M.D.,FACP,MACE

In the late 1980’s, business said, “enough is enough”. We cannot afford to pay 18% of our gross revenue toward healthcare benefits. The insurance industry responded by asking a simple question. “How much can you afford?” The answer was 12-13% of our gross revenue would be tolerable.

The insurance industry’s immediate response was “no problem!” Managed Care was instantly born. Managed care was the nice term. Managed Care suggested that care would be managed so that patients would be healthier and health care costs would be reduced. Costs would go down because by managing care, complications of chronic disease would be avoided. However, in reality, Managed Care was simply the insurance industry managing cost. The insurance industry knew it could negotiate at least a 33% discount from the price shifted fees of the previous decade of healthcare system dysfunction.

The insurance industry knew that physicians and hospitals were accepting more than a 50% discount on their base retail prices for Medicare payment from the government. The insurance industry was the outsourced carrier (adjudicator of claims, and Administrative Service Organization) for Medicare . Even if they reduced payment by 50%, physicians and hospitals would be getting more than the Medicare was paying.

The math was as follows: As an example, if the original fee for service was $100 the government reduced the fee to $50. Employers’ insurance was paying a price shifted fee of $150. A 50% reduction was a fee of $75 or $25 more than the Medicare payment. The insurance companies also understand how disorganized the medical profession was from a business point of view. If insurance companies could not get adequate price concessions from hospitals they were certain they could get it from physicians. They also knew that physicians were afraid to lose their patients. Physicians would accept reduced fees to maintain their patient load because their capacity to see patients was being reduced by increased Medicare patient load and decreased reimbursement. This also meant that physicians had to see more patients per day to maintain their revenue.

You can start to see how distorted the system had become.

The new games then began!

Stanley Feld M.D.,FACP,MACE

My last few blogs dealt with Price Transparency. These posts were meant to describe the problem as well as offer a solution to the problem.

Denise, as an uninsured patient, was thrown into a situation where she was at a tremendous price disadvantage. The solution presented would provide her with price ranges that she could negotiate. However, when you are ill, you do not want to be forced to negotiate the price of your own care. If there was a Universal Medical Saving Account available to everyone, sold by insurance companies without eligibility or tax restrictions, the fees would have already been negotiated for Denise. Her decision making would be simplified. She would decide whether the insurance company was allowing too little or too much to be paid for a service with her MSA money. She should have the opportunity to express her impression of the quality of the service. If she was displeased with the service, she should be able to choose another insurance company, physician or hospital.

These simple principles would create a competitive marketplace in favor of the patient. The impartial web site would permit other patients to judge the quality of their care. The provider could defend the quality of his care to others in this transparent marketplace. One can begin to see that a Consumer Driven Healthcare System (CDHCS) could be effective by market forces determining cost and price. It could also be a good deal for the patient. An effective CDHCS could encourage a system of patient responsibility for his care. In turn, it could increase adherence rates to treatment and reduce complication rates of chronic illness. The result would be a decreasing cost of care to the healthcare system. I will, in future blogs, discuss the system of Consumer Driven Healthcare that would work.

I mentioned that Dr David Westbrock was correct when he stated that the insurance industry has subverted the Medical Saving Account product which is key to the Consumer Driven Healthcare movement. They have substituted an alteration in the original system called the Health Saving Account. This alteration serves the insurance industries’ vested interest and not the patients’. In the long run, the HSA will serve as a false hope to the Repair of the Healthcare System.

Next, I will return to the evolution of steps that have distorted the Healthcare System. They are a threat to destroy our medical care system.

Stanley Feld MD,FACP,MACE

Kinky Friedman, are you listening?

The fees paid to all physicians and hospitals for services and procedures should be published on the Internet by an impartial body. Alongside the multiple wholesale fees should be the providers’ retail fee schedule. This would create a system of complete fee transparency. Insurance companies negotiate fees with each provider. The fees of one provider might be different than the fees of another vendor. The posting of these prices on the internet could be required by each State Insurance Board before an insurance company could obtain a license to sell health insurance in each state for each insurance product. This would result in a transparent range of fees from retail to wholesale per insurance company and per provider. Justification for the range of fees could be explained on the web site. Only then would the prices and fees be transparent to the consumer. The consumer (patient) would have adequate information to make a decision to pick the provider of his choice.

Medicare has published fees on the Internet. Price Transparency in Medicare is the goal. However, it has to be simplified. The fees are difficult to figure out.

This is a simple process. It would create competitive pricing among insurance carriers, and providers. The format could be the same as C/Net for electronics purchases. Patients could also add their critique of their care. In High Noon, J.F. Rischard suggests we are merely at the onset of solving problems through the use of the internet. The patients (consumer), along with a little help from the government, can precipitate this change.

Even if the governor of each state required this posting of the insurance industry, it would have little impact on the uninsured. However, Price Transparency is essential if Consumer Driven Healthcare is going to fulfill its promise. It would be a very important step in Repairing the Healthcare System. It would get patient participation in decision making about their care.

Dr. Westbrock mentioned that the insurance industry has subverted the HSA concept. He is correct. The Health Saving Account concept in its original form was called Medical Savings Accounts (MSA). The original concept was designed to motivate the patients to be a price conscious of their medical care purchases. Price Transparency would be the vehicle they would use to choose. More of this is the future.

Please consider Price Transparency in light of my earlier statements. Presently, the healthcare system is broken because all of the stakeholders’ incentives are misaligned. Everyone has adjusted to protect his own vested interest at the expense of the patient, the most important stakeholder. Everyone is in pain at the present time because of the systems dysfunction. Everyone can adjust if the heat goes up slowly. The price simply goes up. Everyone will talk about the problems but no one seems to fix them as they should be fixed. The goal of this blog is to inform the patients and future patients of the problems and empower the patients and future patients to act through their local and state governments to create the necessary alignment. The goal is to serve all of the stakeholders’ vested interest. However, the patients and future patients have to get a good deal rather than a raw deal.

Price transparency should be on an impartial web site. The web site should be available for everyone who chose to subscribe free of charge. The patient should have the ability to judge the services of the insurance company and physicians. Physicians, insurances companies and other stakeholders should have the ability to reply if they chose to. A web site such as CNet would be great for this endeavor. The technology is available.

This is not rocket science. Insurance companies, physicians and hospitals have a data base they could download to the impartial site. They could be compelled to participate by each state. It is time to level the playing field for the patient and physician.

Kinky Freidman could make one tenet of his healthcare policy. He would be wildly applauded. As the new governor of the State of Texas he could require the Texas State Board of Insurance to demand this data. The action is neither a Democratic Party nor Republican Party action. It is a common sense action

Kinky’s claim is he is not owned by anyone except common sense. This seems like common sense to me.

Go for it Kinky!

Remember Price Transparency is only going to solve part of the problem. The rest of the solutions to Repairing the Healthcare System will follow.

Stanley Feld M.D.,FACP,MACE

Last August Aetna triumphantly announced “the first program of its kind to let consumers find out what they can expect to pay at the doctor’s office before going in for a visit. This means for the first time, consumers can better gauge their out of pocket health care expenses by having online access to the actual discounted rates for up to 25 of the most common office-based services offered by their own primary care or specialist physician. Aetna will publish “actual discounted rates specific to their health plan for office visits, diagnostic tests and minor procedures.”

This does not help Denise at all with the fees she had experienced. She did not have Aetna insurance with the specific Aetna insurance plan that Aetna published fees for. Additionally, if she had access to the fees, she would be in no position to negotiate the fee with her vendor. How can the non insured get in a position to negotiate the fee? How did Aetna arrive at the fee to pay the vendor? Aetna announced this innovation in August 2005. Their goal was to try to capture the growing Health Savings Account Market in the Cincinnati area. The procedures and services were limited to the 25 most used by participating physicians. No expansion has occurred since August 2005, as far as I can tell. It does not apply to all their plans and one needs an identifying code and password to get the information published.

Is this price transparency? In my opinion, this is a smoke screen to appease a growing demand for price transparency. Some would say it is a great start. Aetna’s price transparency was announced in August 2005. It is now July 2006. We need price transparency for everyone. Their has to be built in negotiating power. The range of fee agreed on needs to be published. The reason for the range of fees needs to be understood by the consumer.

The AMA nailed it. However, their statement is so subtle that the main message can easily be missed. The AMA had a positive approach , “In support of consumer-directed healthcare and an end to the mystery of medical prices, the AMA today called on the health insurance industry to end efforts to conceal their pricing systems for medical services.”
The AMA goes on to say “ There is no legitimate rational behind health insurers refusal to provide their payment policies and actual costs to patients and physicians” It serves only as a means for the health insurance industry to avoid accountability.”

The key words in the preceding statement are the payment policies and actual costs of the insurance company. In other words, how does the insurance industry price their product to the consumer? How do they price their payments to the providers, the physicians and the hospitals? What are their actual costs in order to service the product they sell to the consumer? How do they calculate these costs? Do they calculate the cost by factoring in multimillion dollar salaries to executives? For patients and potential patients this is information it would be nice to know.

The AMA goes on to say “insurance industry does not provide patients with an entire picture of insurers pricing. Patients are being provided with incomplete and selective information” This is the information that would represent true price transparency.

I received this stunning note from a fellow endocrinologist, Dr David Westbrock from Columbus Ohio. Dr. Westbrock has run for congress twice to defend patients’ and physicians’ rights. He almost won the second time. You will hear more from Dr. Westbrock in the future. However, this was an immediate reply to the price transparency issue.

Stanley,

Dave Westbrock

Physicians as well as patients have problems with price transparency.
Next the Simple Solution to Price Transparency

Stanley Feld M.D.,FACP,MACE

Many of you were shocked at the discrimination of pricing Denise experienced. In fact, Denise was not aware of the wide pricing range until she experienced it. I think most readers are not aware of the range of pricing for procedures.

When a physician sends you for a test that you discover is overpriced compared to the same test at other facilities who do you get angry at? The answer is the physician. What does that do to the physician-patient relationship? The patient should not be angry at the physician because I think most physicians do not know the differences in pricing between facilities.

Denise’s letter is one of many examples of the broken Healthcare system. It illustrates unfair pricing to a primary stakeholder with no insurance. The average consumer (patient) would never know it unless he experiences it as Denise did. However, the mechanics of pricing is totally logical to me as I trace the causes of the dysfunctional Healthcare System.

For physicians, it is essential that the approach to a patient’s illness is not to put a patch on a symptom and hope it goes away. Our job is to find the underlying cause of the problem, and fix it. Only then will the symptoms be relieved. Treating the symptom works short term, but you usually end up with other symptoms, or complications that are worse in the long term. Sometimes, the complications of chronic disease are non repairable.

We can all understand Denise’s pain and frustration. Is the solution to treat the symptom? Not if we are going to have a long lasting effect. We must treat the source rather than the symptom in order to repair the Healthcare system. First, we must understand the historical sources of the problem.
I submit that price transparency is an important patch to treat a bad situation. Everyone has now jumped on the need for price transparency. Aetna has announced its prices will be transparent. The AMA has called for price transparency as has the government. In the past, physicians were told that “they said” price transparency was an antitrust violation. I will have more to say about “they” in the future.
Price transparency is essential, but it alone is not going to cure the problems of the Healthcare system. Multiple other defects must be understood and cured simultaneously. The changes must have enforceable teeth, and apply to all the stakeholders. Price transparency should be directed to the primary stakeholder, the patient. The other stakeholders’ vested interests will fall into line with a simplified cost effective system as a result. Unfortunately, the only one who can force this change is the consumer and the exercise of “People Power”.