By GARY NISSEN

To: Executives leading U.S. Hospitals

The public option appears to back in the national dialogue and I’m wondering how concerned you all are about that.

After all, many of you have been quite successful at minimizing the appearance of true profit by growing your cost structure on the backs of private insurers, right?

Thinking back over the last ten to fifteen years, many things have changed.

First, you began to demonize the insurers, complaining about denials, telling you how to practice medicine, not paying your bills quickly, and generally not supporting your ability to practice medicine as you see fit. Some of your claims were fair, but many were not. However, fair or not, these complaints were heard loudly and clearly by the public. And now there is nearly absolute distrust of the insurance industry.

Then, Medicaid and Medicare tightened their reimbursements so you could only profit if you were efficient. And, to be honest, you had to be very efficient to make money on Medicare and/or Medicaid. So you decided that you’d be better off making money off of the private insurance companies. You could make up the losses incurred in Medicare and Medicaid through the private insurers by raising rates and then demanding higher reimbursements. If an insurer said no, you could take your rhetoric to the public, and inevitably the public would back you and essentially force the insurer to accept your demands.

Then, you purchased other hospitals and physicians offices (thus, eliminating competition), built new facilities in the suburbs, increased private rooms and birthing suites, added the latest technology (whether medically necessary or not), and turned your medical facilities into elegant, fashionable destinations. Sometimes you even added valet parking. All of these things helped you attract and keep the private insured people that you need to drive your profits.

Did you notice that all of these things drove up the cost of health care? Consequently, insurers had to raise their rates to keep up with your reimbursement demands. Which caused more people to not have insurance through their employer. Which caused you to serve more uninsured. Which drove up the cost of health care.

As this cycle continued, the public lost all trust in the insurance industry. The public (and the media) have not yet begun to connect the dots between your spending and the significant uptick in the cost of insurance to employers. Today, few insurers can truly control costs because they cannot exclude expensive hospitals or physicians, and they’re often not successful at negotiating fair rates with you.

So now we’re again considering a government-based alternative to commercial insurance. And, if it’s anything like Medicaid or Medicare, that plan will dictate lower reimbursements through law than insurers can negotiate. Once that’s available, many people will switch to the government option, because it costs less.

And so I wonder, where will your profits come from then?

– Gary Nissen, Health Care Analytics Zealot and CEO at Health Plus Technologies.

Gary Nissen is CEO at Health Plus Technologies. Gary has been involved in analytics for managed healthcare since 1989 as a software developer, project manager, independent consultant, and software vendor.