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Not Really an Option

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.

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Dan SmithLarmaniusBarbaraEric Hadenticktockdoc Recent comment authors
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Dan Smith
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Dan Smith

Full-blown competition will only occur in the healthcare field if service provider contracts between the doctors/hospitals and insurance companies are eliminated. These contracts limit access, quality, competition and raise prices. Also these contracts make it harder for new insurance providers to enter a state since these contracts are used to build the insurance companies’ service provider network. A new insurance company would lack the network and find it difficult to recruit local providers who are already fully booked by established insurance carriers. The key is to eliminate the service provider contracts and require the doctors and hospitals to accept patients… Read more »

Larmanius
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Larmanius

gee…like the non-profit health networks are any better and keeping costs down than the for-profits? i live in MN, where all hosptials are under moratorium and are by law non-profit. everybody seem to keep building specialty hospitals and remodeling birthing centers and rooms just as much. the only problem is that as population shifts further and further into the suburbs, the only beneficiaries are formerly rural hospitals in absorbed towns, or crummy old established hosptials in the cities an hour away from where most people now live. nice. it’s almost like gov’t can’t help but cause distortions that eventually are… Read more »

Barbara
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Barbara

Gary you are right on.
I have been in the industry for years worked for a TPA, very large insurer, Physicians and hospitals.
Could the playing field be leveled? These examples were for the same facility.
Example: Medicare paid a ER visit and all testing @ $600. Private Insurance with a large membership paid the same hospital for and ER visit which also included all testing $1,550. An HMO negitated with the hospital for ER visits only and their contract rate was over $16,000 plus co-pay of $2,500.
How come the Private Insurance Companies are the bad guys?

Jerry
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ticktockdoc, I appreciate your perspective. At one time in my career, back in the mid-late 90’s, I sold Optimed criteria for the very purposes you’ve touched on. I support the concept, primarily as a way to protect patients from the risks associated with surgery when other forms of treatment may be viable, and I see cost-avoidance as a secondary feature. In any case, I suspect that we’ll see movement in this regard with Medicare/Medicaid as well in the coming years, along with other initiatives. My own clinical interest and focus is end of life care, again as a way to… Read more »

Eric Haden
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I believe this comment is head-on with what has been happening over the past several years. As we argue over the “Public Option” Plan I would like to remind people that almost every County has a “Public Option” for Health Care and many choose not to take it. It is called the County Hospital or the Free Clinic. Both are government run public options and the reason that only poor choose to go there is because they, unlike most of us reading this blog, have no other choice but to seek their care at these locations

ticktockdoc
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ticktockdoc

Jerry, **Personally, I’ve never seen anybody make a convincing case in favor of even having a for-profit health insurance industry. I’ve never seen anybody coherently describe what value the health insurance industry adds to the process…** As a physician i dislike having to get preauthorization for procedures or imaging studies. I dislike having to justify the use of anything other than generic drugs. While often helpful, disease management programs can often be irritating to deal with. Having said that, there is no question that these policies decrease health care costs for the insurance company and ultimately, for society at large.… Read more »

jd
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jd

Amen, brother Nissen! Your history is impeccable and your writing is incisive, but I would suggest that your prognostication falls into a common trap. You write: “And, if it’s anything like Medicaid or Medicare, that plan will dictate lower reimbursements through law than insurers can negotiate.” If a public plan comes into being that is able to use Medicare or Medicaid-like rates, and is somehow able to acquire a network large enough to attract a significant number of members away from private insurers, then that is a game-changer for how private insurers negotiate with providers. Right now, insurers are like… Read more »

J.D. Whitlock
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Once upon a time, when I was in school getting my MPH, I learned about Certificate of Need programs, and how they are supposed to restrain facility costs by reducing unnecessary building programs. Obviously they don’t work very well (and they only exist in 36 states). Maybe part of healthcare reform should be a federal CoN progam with some teeth to clamp down on hospitals’ build-the-Taj-Mahal-and-pass-on-the-costs-to-private-insurers business model.
Great piece Gary.

Gordon
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Gordon

Tell it like it is, Gary!

DJ
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DJ

Coming from a not-for-profit payer, I have to say this is an awesome post. Thanks Gary.

Ron
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Ron

bev M.D.,
No shame on you; folks like Bill McGuire stopped being docs long ago. One major medical center I worked for back in the ’90’s had a prominent oncologist as its CEO. I wondered what made a physician stop ministering to the sick and become a businessman…then I found out what his salary was. It was clear to me then that serving humanity was obviously not his top priority.

bev M.D.
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bev M.D.

The for-profit health insurance industry exists to make people like Bill McGuire, M.D. (United Health) his – what was it? 30 billion? – dollars, of course! I am ashamed to share the same letters after my name as he does. Or rather, HE should be ashamed.
This post doesn’t even pretend to be unbiased.

Jerry
Guest

Well, yeah. Of course hospital execs love the revenue stream they get from the insurance industry.
Some are even pretty open about it.
Personally, I’ve never seen anybody make a convincing case in favor of even having a for-profit health insurance industry. I’ve never seen anybody coherently describe what value the health insurance industry adds to the process, or how it’s participation benefits anybody besides, you know, the health insurance industry.
But maybe I’m just stupid.

spike
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spike

This is the best post on this blog in a month.

Tom from Ohio
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Tom from Ohio

This part of the equation is receiving even less discussion than singlepayer. We have to consider all the elements of the healthcare cost equation if we are to come up the best solution.