In our healthcare system, the “middleman” is not who you think
During my recent podcast interview with Jeff Deist, president of the Ludwig von Mises Institute, I remarked that third-party payers are not, in fact, intermediaries between doctors and patients. In reality, it is the physician who has become a “middleman” in the healthcare transaction or, as I argued, a subcontractor to the insurer.
Important as it is, this reality is not well recognized—not even by physicians—because when doctors took on this “role” in the late 1980’s, the process by which healthcare business was conducted did not seem to change in any visible way.
When health insurance was first introduced on a large scale in the 1940’s and 1950’s, a patient would see a doctor and pay the bill directly. The doctor would issue a receipt and the patient would submit the receipt to the insurance company for reimbursement. The insurance company was, in that sense, a financial intermediary since it would enable the patient to afford the care and see the doctor.
Overtime, as the cost of medical care began to rise rapidly, a practice evolved whereby physicians would take it upon themselves to submit the claim to the insurance company and would not require patients to pay upfront.
In that sense, doctors were making an advance to patients, and the money they received from insurers could still be considered a “reimbursement.” If the insurer did not pay, or only paid a portion of the bill, the physician could submit the remaining balance on the bill to the patient. The insurer was still a financial intermediary.
The situation changed fundamentally in the late 1980’s when contractual arrangements began to take effect between doctors and insurers.
Medicare abandoned the practice of paying doctors the “usual, customary, and reasonable fee,” but instead imposed a fee schedule and business rules that physicians were obligated to accept in toto.
Private insurance companies followed suit and began to formalize contractual agreements with physicians. These agreements would similarly tie payments for services according to a predetermined schedule of fees.
But these new contractual agreements—which are standard arrangements today—did not visibly alter the practice by which physicians would submit a claim to an insurer after a patient encounter. It continued to be the case that, for the most part, patients would not pay the total bill upfront¹ and that, subsequent to the visit or procedure, a physicians would submit a claim to the insurer.
Since that time, though, the money physicians receive after services are rendered can no longer be considered a “reimbursement.” In fact, that money is truly and simply apayment for a service the physician has provided according to the terms of his or her contract with the insurer.
And to see more clearly how that payment sanctions a sub-contractual relationship between doctors and insurers, consider the overall scheme of healthcare financing as it has been set up since the 1980’s:
In the case of private insurance, employers pay premiums to insurers in exchange for a promise to provide “healthcare benefits” to certain employees. In turn, private insurers hire doctors to enable them to fulfill that promise. The doctors are essentially subcontractors in the healthcare benefit enterprise and the subcontract is typically called a “provider agreement.”
In the case of government insurance, “society” funds the government in exchange for a promise to provide healthcare benefits to certain classes of citizens. In turn, the government hires doctors as subcontractors to enable them to fulfill that promise. The subcontract is called the Medicare (or Medicaid) provider agreement.
The foregoing should make it clear that the persistence of the term “reimbursement” conceals the nature of the relationship between insurer and doctor. The evolved relationship between insurer and doctors also explains why the term “healthcare benefits” and “health care” are frequently conflated:
A “healthcare benefit” is a vague promise to pay for actual healthcare services. But having healthcare benefits in no way guarantees that one will receive anything resembling true care, since the provider agreements do not specify, except in very rudimentary ways, what exactly can be considered “health care,” let alone “quality” health care.
It should be readily apparent that an arrangement where physicians operate as healthcare benefits subcontractors to insurers, and not as primary agents to the patient, is not healthy for anyone.
Michel Accad is a cardiologist based in San Francisco.
Hi, I work for a boca agency dealing with home health. We’ve been dealing with a subcontractor issue with nurses, as well. What do you think it means for the future of healthcare in the US?
Dave, your post sent me on a trip to Health Rosetta, The Zero Card, and EdisonHealth. I’d like to speak with you about an opportunity that would be small to start but could grow into a feather in the cap of TMNs. If nothing else, I promise you will find it interesting that a medical condition with a strong evidence base, that involves several million people by conservative estimate, that is invisible to mainstream medicine, and that incurs high costs from patients bouncing from one specialty silo to the next without results, can be diagnosed and treated with very little ambiguity. The problem is that there are not enough physicians who are certified to diagnose and treat the illness known as CIRS-WDB. See my slideshow on Slideshare by searching Berndtson Mold Toxicity. Employers can burn a lot of cash getting nowhere with this condition. I’m presenting at a national conference in Phoenix in a week and a half to help raise awareness about this shamefully neglected medical condition, the suffering it causes, and the widespread implications that it carries. Rick and James would find it interesting that there are so few doctors who know what to do with these patients and that the outcomes are excellent provided we can create the conditions required for patients to recover with treatment. I suspect that we could train and certify many physicians in this field who are eager to escape to something like a TMN model. Once word gets out, for years to come there will be high demand on the part of patients to learn if their chronic, medically unexplained conditions fit the case definition for CIRS-WDB.
The pendulum is starting to swing back (albeit too slowly). The Transparent Medical Network https://www.linkedin.com/pulse/health-rosetta-transparent-medical-network-dave-chase is a means of re-establishing a closer connection between doctors and individuals. It also recognizes that insurers have little motivation to rein in costs. The TMN lets the provider establish a fair market price if one removes the brain damage associated with utilization review, pre-auths, co-pays, deductibles, patient accounts receivable, etc. Provider is happy with that and naturally the employer and employee is also happy as they get a fair deal. In markets where this has established itself, there are some surgical hospitals that earn 70% of their revenue outside of the nightmarish (for all) claims/billing process. It takes employers and doctors with a backbone to buck (recent) tradition but’s entirely doable. See how a small manufacturer did it here – http://www.forbes.com/sites/davechase/2015/10/21/harvardberkeley-economists-have-no-idea-how-hard-it-is-to-be-a-healthcare-consumer/. Collectively, employers are the biggest chunk of healthcare spending and they are unfettered if they have conviction. Hopefully it will then spread from there.
Did we become easy prey because too many members of the profession took unfair advantage of the indemnity model? I’m told that back then a doctor could pee on the leg of an insurer representative and call it medically necessary. So the profession as a whole was perceived as a key driver of health care cost inflation. Mostly untrue but certainly a convenient storyline for the health insurance lobby. If only we had stood up for the principle of balancing the interests of the patient with the interests of the franchise – we might still be an autonomous profession. Instead, we became pawns in a health care reform transformation that divides physicians into regional teams of subcontractors whose managers are under pressure to trim costs to the bone because the general contractor sets the caps on lump sums in advance and bundled episodes of care. The new model stars physicians and health care executives as puppets on strings controlled by richly advantaged corporations and budget-stressed Medicare and Medicaid. When your independent practice is threatened by such externalities, you look for ways to join a regional team because it seems the money is moving in that direction, and it is, for now.
Perhaps the ACO movement will prove to be a welcome success. Perhaps it will reconcile the tension between the need to improve population health statistics and the need to provide sanctuary for the mechanics of healing – both at the lowest possible cost. I’m rooting for those who are pouring their passions into these grand challenge. But I worry for patients, especially those with medically unexplained chronic health problems that persist despite the regions best evidence-based care.
Research in proteomics, genomics, transcriptomics, and systems biology is poised to change the way we diagnosis and treat chronic disease, even change the way we think about something as fundamental as inflammation, allowing us to be far more effective . I hope the general contractors and their regional team managers won’t stand in our way. What’s our strategy if they do?
Nice post Michel. You have succinctly explained the anatomy of pathology. Similar trends can be seen in the rise of the firm, rise of corporations, and rise of fractional reserve banking.
In all of this it is easy to forget that many doctors and many patients gained something from the system that is now so despised.
I find it hard to believe that physicians were passive bird watchers. From what I have seen, many physicians are frightened of markets.
You can’t have your guild and eat it.
Thank you, Saurabh. Yes, you are right, the guild is guilty 🙂
Provider agreements were the tools used to co-opt the medical profession. Narrow networks? The tool used to put physician subcontracts out to bid. Payments for value based on performance as defined by the general contractor, not the end-users in search of health benefits. From professionals to subcontractors in a generation. A slow-motion, hostile takeover disguised as an evidence-based quality improvement/cost reduction program. The only players without leverage in the sector being physicians and their patients. The discounting of medical complexity brought about by the ACOs’ needs to minimize expenses. Doctors subcontracted by insurers, their roles defined by employers, leaving patients to wonder whatever happened to the doctors who gave them their fullest attention. Cookbook protocols that ignore biochemical individuality. Face-to-face time yielding to face-to-device time. Treating the record rather than the patient. Predatory MOC requirements. Insurers controlling their cash flow spigots based on definitions of medical necessity with a lopsided regard for reductionism. No room left for the mechanics of healing. ACOs as managers for subcontractor physician teams. How did our profession become such easy prey? So much for patient-centered, consumer driven health care. Once upon a time, children, our country let doctors be doctors. Maybe we’ll live to see that again.
Thank you for your provocative insight, Dr. Accad.
Thank you, Keith. Yes, we were co-opted but, having gotten used to the easy income from third parties, the medical profession bears some responsibility in letting itself be entangled in this arrangement. I showed elsewhere how, as a profession, we put ourselves first–ahead of our patients–for decades before insurance even became a reality. http://alertandoriented.com/an-economic-history-of-the-american-health-care-system-part-1/
I agree, excellent.
The old indemnity insurance, which you describe, could do a lot of good if it came back: patients would receive the claim money first and they might or might not pay the doctor his full charge, depending on the perceived quality of the service. This is why nobody (except the patient) likes it–neither the doc or the insurer. This makes the doctor-patient relationship very respectful and considerate. Also, having this money stream pass through the patient, makes the him become aware of charges and costs, so he can become a better shopper. We need the patient to become a dominant voice again.
Thank you, Dr. Palmer. Part of what you describe is making a come back in the form of “cost sharing ministries” which, though small, seem to be attracting more members. The cost sharing ministries have the added advantage of avoiding moral hazard altogether, which the old indemnity insurance did not do significantly, even with a 20% co-pay.
Excellent Dr. Accad.
Thank you, Perry!