Universal healthcare. Single-payer healthcare. Medicare for all. Medicaid expansion. The Affordable Care Act. These are all solutions that have been proposed to cure our healthcare finance crisis.
Has anyone wondered, however, whether or not we’re answering the right question?
In my current role, I teach medical students, PA students, nursing students. I even teach martial arts students! The element that is universal in my approach to their education is this: in order to learn effectively, we must ask the right questions. And the most important question to ask is “WHY?” I have observed that many of our educational institutions today no longer teach us how to think – they simply teach us what to think.
I propose that in order to find the solutions to our healthcare problems, we must first understand the underlying problem. In order to do that, we must ask the “WHY” of healthcare finance. Our journey to the “WHY” must begin with the “how.”
As in “how did we get here?”
A history lesson is in order, then.
I have been a witness to this healthcare revolution (devolution is perhaps more accurate) almost since its insidious beginnings. I started in healthcare at the age of 10. No, not Doogie Howser MD. My father is a retired physiatrist, and I started my career scrubbing toilets and emptying trash cans in his office back in 19-forgotten. Over the years, I progressed through every role in the physician office, and now I own and operate my own practice as a subspecialty surgeon. I’ve literally done everything there is to do in a doctor’s office. And at the age of 14, I was my dad’s billing manager. Can you imagine that? Was it because I was some kind of Super Genius? I wasn’t any type of math whiz. Healthcare finance was simply… simpler.
“I started in healthcare at the age of 10. No, not Doogie Howser MD. My father is a retired physiatrist, and I started my career scrubbing toilets/emptying trash cans in his office back in 19-forgotten.”
Now let’s back up. What was going on in the world way back then that set us on this path?
In the early days of my dad’s practice, it was uncommon for his patients to have health insurance. As a matter of fact, it was uncommon for most of the doctors that we knew to come across health insurance that covered their patients’ outpatient visits.
It was typical for patients to walk into their doctor’s office and see a sign that said that payment was due at the end of the visit and the cost of the visit laid out very clearly for the patient to see, typically around $20 or so. Patients would come in, they would receive their care, and they would pay for their service on the way out the door. Simple. Transparent. Affordable.
Patients (of my father's) would come in, they would receive their care, and they would pay for their service on the way out the door. Simple. Transparent. Affordable. Click To Tweet
So what changed?
At the time, many employers were having difficulty retaining good talent.
Typically, you might think that offering higher wages would be a great way to attract and retain good talent. Back in those days, however, inflation was well into the double digits and it was difficult, if not impossible, for those wages to go up enough to be a great incentive for that talent that employers were trying to retain. Additionally, there was a big push from the government to control wages as a means of trying to control inflation.
As a result, many employers began to offer “fringe benefits” as an alternative means of incentivizing people to join the company and stay with the company. Among those benefits was “Major Medical” health insurance. Just like any other insurance product, this major medical health insurance was intended to cover events that met two criteria: unexpected and catastrophically expensive.
In order to better illustrate this, let’s step back from Healthcare and think about insurance in a different arena.
Think about your car insurance.
If a tree falls on your car, it’s covered.
If your car falls into a sinkhole in your driveway, it’s covered.
If lightning strikes your car, it’s covered.
On the other hand, when you need an oil change, your insurance doesn’t cover that.
When you need new wiper blades for your car, your insurance doesn’t cover that either.
When it’s time to fill up your gas tank, your insurance isn’t responsible for that.
Car insurance was intended to cover events that were both unexpected and catastrophically expensive. You expect that you’re going to need to change your wiper blades at some point, and it should be relatively affordable, so your insurance product isn’t intended to cover that. And if your insurance product was expected to cover it, then what would that cost you as the end user?
In other words, by adding in a “middle man,” we add another layer of cost. That person has a family to feed, and has bills to pay as well. By adding that person into the process, we’ve added another layer of complexity and another layer of cost. It shouldn’t be surprising, then, that by adding another person into the process, we increase the cost of the bottom line for the person who’s ultimately paying for the service.
By adding in a 'middle man,' we add another layer of cost. That person has a family to feed, & bills to pay as well. By adding that person into the process, we've added another layer of complexity & another layer of cost. Click To Tweet
That’s only one piece of the puzzle, however.
Let’s go back to our history lesson.
As the billing manager for my father’s practice, my task was simple. All I had to do was write in the ledger what the cost of the visit was, and then in the next column write in the amount that the patient had paid, and then finally in the far right column, write in the final balance.
Not much different than balancing a checkbook, a task that any high schooler should be able to accomplish with ease.
As more of my father’s patients started to receive health care benefits from their employers, however, we started to see a trend. Initially, these patients had the major medical insurance products that covered hospitalizations and other catastrophically expensive events.
If we think about this from the employer standpoint, we start to see the beginnings of an arms race in employee recruiting and retention.
Employer A would offer major medical insurance. In order to try to attract potential recruits away from Employer A, Employer B would offer the same coverage, but also add in the cost of an annual physical. Employer A would, in turn, up the ante by offering all the same benefits offered by Employer B, but would also include lab work.
You can see this escalation benefits leading to a situation in which more and more features were being added to the product that was being offered to the recruits.
Now, how does that fit into the rest of this discussion?
As my father’s practice started to see more patients whose employer-sponsored health insurance covered more and more types of visits, we started to have patients coming in whose health insurance would cover the cost of his specialty physician visit.
At first, this felt like a great benefit to the patient as well as to the practice. Patients would pay the doctor’s bill at the time of the visit, just as they had in the past, and then take the receipt from the doctor and submit that to their insurance company for reimbursement. Employers were covering the cost of their employee visits, and the patients saw a very real benefit in their own wallets.
Eventually, however, some patients started to come to my father, asking if he could provide the receipt in advance. Once the patients were reimbursed by the insurance company, the patients would endorse the check from the insurance company to my father’s practice. Thankfully, most of these patients were people of integrity, and it usually worked out. There were, however, enough patients who would simply not pay the bill at the time of the visit, and then keep the check for themselves once the insurance company paid it. That started to have a negative impact on my father’s ability to continue to run the practice.
There were, however, enough patients who would simply not pay the bill at the time of the visit, and then keep the check for themselves once the insurance company paid it. That started to have a negative impact on my father’s ability to continue to run the practice.
It was at this point that insurance companies were having patients fill out forms that standardized the way in which they could get reimbursed for their health care expenses.
On those forms, there was a small section with a checkbox and space for the patient’s signature – the “Assignment of Benefits” section.
At the time, it was a little-known box on the form that my dad learned about from one of his colleagues.
By checking this box, and signing in the appropriate section, the patient would agree that the insurance company should pay the doctor directly, rather than reimbursing the patient, and the patient would no longer have to pay the doctor upfront and wait for reimbursement from the insurance company. This was a great way for my father to ensure the patients weren’t going to run with the money that they owed him. It was also, seemingly, a benefit to the patients, since the patient did not have to worry about having the money on hand to pay for the doctor’s visit at the time of the visit.
At the time, it seemed like a great solution. What we did not realize, however, was that this introduced an element of opacity in the healthcare process which would ultimately come back to bite us.
At the time, it (insurance reimbursing physician directly) seemed like a great solution. What we did not realize, however, was that this introduced an element of opacity in the healthcare process which would ultimately come back to bite… Click To Tweet
Most doctors, in my experience, were fairly honest about their fees and would continue to charge the affordable fees that they had in the past.
Doctors kept the fees low, trying very hard not to adversely impact the patient’s budget, and the patients would benefit by getting a reimbursement from their insurance companies.
Patients had the opportunity to judge the value of the care they received because they had the two elements necessary to weigh the value proposition: cost and quality. Once the patient was no longer involved in the payment model, however, it introduced an opportunity for some unscrupulous doctors, practices, and hospitals to raise their fees unbeknownst to the patients.
An unethical minority of physicians and hospitals started to think ”We are not hurting anyone, since the patient doesn’t have to pay for this any longer, so why shouldn’t we make a little more money in the process.” What they failed to recognize, however, was that ultimately it did hurt the patients, because the insurance company that was paying the bill was in turn being paid by the employer, and every penny that the employer paid to the insurance company blunted the rise in wages that might otherwise have resulted.
Ultimately, the price gouging of the insurance company did, in the long run, lead to price gouging of the patient.
As the insurance companies began to see their bottom lines eroding, they started developing mechanisms to ensure that physicians and hospitals weren’t taking advantage of them, introducing extra steps to protect their assets. The abuses of the few were starting to affect the many, since these mechanisms were put in place universally, and not just targeted at the bad actors.
Physicians and hospitals, in turn, began to hire people to figure out how to jump through those hoops set up by the insurance companies, and thus ensued a different, but related, arms race. As those physicians and hospitals hired more people to ensure that the claims got paid, the physicians and hospitals needed to be paid more in order to be able to employ the teams that they had hired to ensure that they got paid in the first place. Bigger team, more cost, higher bills. Insurance companies hired more people to process the bigger claims sent to them by the healthcare industry, and hired others to develop new ways to minimize how much they had to pay out.
Physicians and hospitals, in turn, began to hire people to figure out how to jump through those hoops set up by the insurance companies, and thus ensued a different, but related, arms race. Click To Tweet
This, combined with the evolving view of health insurance as the rich uncle who would pay for just about anything, seemingly at no cost to the nephew, led to skyrocketing insurance premiums needed to cover the costs of the additional services.
To return to the auto insurance analogy, we now expect our health insurance to cover the cost of the equivalent of oil changes and wiper blades.
It should come as no surprise, then, that the cost has gone up exponentially, since we’re no longer paying for just the wiper blades and the person installing them, but also the company that inserts itself as the mechanism for paying for it.
The fact that the patients no longer had any connection to what the services cost had a devastating impact on affordability. If the patient doesn’t feel the cost of the service at the time of the service, the understanding of the value of the service is diminished, or lost altogether.
Ultimately, as we consider which solutions we should pursue to restore affordability and fairness to healthcare, we must ask ourselves why these problems exist in the first place, and how we got to this point. History is a valuable and often under-appreciated teacher. Only by addressing the underlying assumptions and causes can we find a path that aligns the incentives with the desired outcomes.