Musings of a Philadelphia Physician who has served the community for six decades

Return to Home

Related Topics

Obamacare: Examination and Response
An appraisal of the Affordable Care Act and-- with some guesswork-- its tricky politics. Then, a way to capture major new revenue, even paying down existing Medicare debt, without raising premiums or harming quality care. Then, an offering of reforms even more basic, but more incremental. Finally, the briefest of statements about the basic premise.


Right Angle Club: 2014
New topic 2013-11-19 20:22:11 description

(1) Obamacare: Spare Parts for a Book
Maybe these should have been included, but it was decided to leave them out.

Health Savings Accounts, Regular, and Lifetime
We explain the distinction between Health Savings Accounts, Flexible Spending Accounts, and Lifetime Health Savings Accounts. Sometimes abbreviated as HSA, FSA, and L-HSA. Congress should make it easier to switch between them. All three are superior to "pay as you go", health insurance now in common use, only slightly modified by Obamacare. It's like term life insurance compared to whole-life. (

Indemnity and Payment by Diagnosis: Fair Prices For Healthcare

In America, the closest thing to an oriental bazaar is the auto showroom, where a salesman will spend an hour evading the price question, knowing some customers will eventually buy a car rather than spend unlimited time shopping. Lack of price transparency favors the merchant, so prices are higher. It probably does follow that healthcare prices would be lower if prices were more widely advertised and therefore, more standard.

But healthcare also varies in quality and effectiveness, so prices need to be flexible enough to compensate. Even eminent practitioners therefore squirm at the idea of price transparency. Flexible pricing is in fact a useful thing, without it prices do rise, but not as much as supposed, and not without some justification. The practitioner is tangled in a web of comparisons, with his colleagues, with clinics and institutional salaries, with memories of other prices for nearly the same thing, with all the other alternatives available to a customer who can walk around and shop. Under the circumstances, the patients generally want to have a fond relationship with a doctor they can trust to know what the market is saying, and trust him to make the best guess about what his own services are worth. Therefore, a physician is a fiduciary, expected to put the patient's interest ahead of his own. Insurance is not a fiduciary:Our modern third-partysystem systematically replaces trust with: standard prices, blind faith in low prices as always better than higher ones, and determination that medical quality had better always be top-notch, or else we will sue.

{top quote}
Competitive market solutions are never an even match, once someone takes away your clothes. {bottom quote}
Our system of third-party payment has firmly fixed its goal on a single price for the same service, no matter what its quality may be. By its very nature, a remote third-party payer cannot judge which person wasted the doctor's time, which doctor took extra care, which offices are shabby and which are unnecessarily plush. A surgeon leaves his showroom office empty most of the time he is in the operating room, while a dermatologist barely moves his feet for eight hours in the office; both of them are paid uniform rates. Any effort to modify the price in response to variables, is only listened to, if the outcome is to lower the price. The industry term for this process is "service benefits". A physical exam is a physical exam, a history is a history, a gastrectomy is a gastrectomy. Oh, yeah? If you believe that, said the Duke of Wellington, you will believe anything.

The best way to handle the situation is to pay, in part, by indemnity. In effect, indemnity makes the promise to pay $800 for a gastrectomy. If the surgeon thinks he is worth more than that, it must be agreed to by the patient in advance, and paid out-of-pocket. Not paid in advance, agreed to in advance, with the implicit understanding it can be reduced by sincere dispute, after the fact, and without recourse before the fact. Back at the beginning of the system, this feature was bargained away. I cannot resist telling the story of my father-in-law's advice to me, doctor to doctor, at the time of my wedding. "Never let your wife keep your books," said he. "To you, the patient is a poor old devil down on his luck. To your wife, he just represents a steak dinner, if she can collect the bill." Our third-party payment system has succeeded in projecting the image of protecting the patient against voracious "providers of care", just the reverse of their natural postures, and something my father in law never dreamed of. It's very simple: basic payment by indemnity, extras by negotiated patient supplement. Since consumer representatives are so intransigent about "give-backs", it might at well include a COLA on the basic, and otherwise put inflation into the patient supplement.

{top quote}
It's very simple: basic payment by indemnity, extras by negotiated patient supplement {bottom quote}
At this point, we should probably pause and notice that the imperfect DRG system for inpatients, has nevertheless proved to be an extremely effective rationing tool. It quite effectively put an end to relying on the bed patient to be unable to walk away. In a little research project of mine, the eighteenth century patients were in the hospital bed for exactly the same reason they are today: they couldn't walk, or couldn't be allowed to walk. Competitive market solutions are never an even match, once someone takes away your clothes. If the DRG system could be improved by substituting a better coding system (SNODO recommended), it would answer every objection except one. That objection is the relentless instinct of Society organized as institutions to squeeze payments and quality, once the helpless patient is out of sight of visitors.

At present, DRG is mainly forcing patients out who were once enticed into the hospital by the previous payment system. Once that backlog is exhausted, the DRG pressure will start to hurt, since all rationing systems lead to shortages. Like the Volstead Act, this government mandate was successful in its original purpose, but the unintended consequences were worse. When DRG starts to hurt, a new coding system had better be ready. Because the resultant growth of hospital outpatient services has been so extreme, it will cause a bigger bubble to burst unless attention is given to service benefits inflating the cost of outpatient care. To repeat, the cure for medical cost inflation is not to apply rationing, it is to improve the payment methodology so that rationing is unnecessary. The current repetitious chorus denouncing fee for service, is just a cry of desperation from people too unimaginative to devise any substitute more sophisticated than salaried rationing. The problem here is not fee for service, it is service benefits. And the problem lies, not with the provider, but with the carefree beneficiary -- carefree because he is insured. And furthermore the solution is not salaried practitioners bossed by salaried politicians, it is a hybrid of indemnity with basic pricing. Under Health Savings Accounts, we bring the public into power over its own affairs. The remaining problem is to let the individual control his own monster, by making waste and luxury his affair, not an affair of the public at large. A good beginning would be to forbid the use of collection agencies, forcing the institution to confront its irate customers.


Please Let Us Know What You Think

(HTML tags provide better formatting)

Because of robot spam we ask you to confirm your comment: we will send you an email containing a link to click. We apologize for this inconvenience but this ensures the quality of the comments. (Your email will not be displayed.)
Thank you.