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!