Responsibility Verses Control

7/27/2019 Responsibility Verses Control

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Responsibility verses Control: A Healthcare Review, Analysis, and Proposal

James J. Rice M.D., F.A.C.S. and Dennis W. Harris

Muskegon Surgical Associates, P.C.

1316 Mercy Drive

Muskegon, MI 49444

231.739.9461

Contact Email: [email protected]

12/12/2012

Abstract: Healthcare costs are accelerating faster than the gross domestic product (GDP) and

placing an increasing burden on the federal debt. We believe the essence of the problem to be a

reimbursement structure limiting patient responsibility and provider transparency, neither of

which has been addressed to date. Consequently, we propose patients be given virtual control of

the healthcare dollars while providers compete with quality and price. The argument patients will

save dollars instead of protecting their health only reinforces the point; simply invert the

financial incentive to accomplish whatever desirable process they might otherwise avoid. The

argument people do not think about finances when their life is at stake is refuted by the existence

of the previous argument. The idea that given knowledge the vast majority of patients are not

responsible enough to manage the healthcare dollars is about control not patient care. Further, we

advocate all funding of healthcare be via taxes to replace and reduce the total healthcare

premiums, provide ownership stock in the healthcare corporation owned by the people,

and decouple healthcare from employment which in turn hinders both employment and the GDP.

Our goal is equitable access and maximum quality while reducing total healthcare costs by 30%.

Summary Part I: Where Healthcare Has Been: The interval from World War II to the present is

an era of health insurance and accelerating healthcare costs. When both the receiver and provider

of a service are insulated from the cost, both the supply and demand are inflated. This is the

unintended consequence of health insurance. During this era, the attempt to oppose these forces


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was indirect through the bundling and controlled pricing to modify provider practice patterns.

The first time around, this was an easy target because at the beginning of this era, hospitals and

doctors essentially had their non-competitive charges reimbursed. Thus both the Diagnostic

Related Groups (DRGs) for hospitals and the resource-based relative value scale (RVUs) for

physicians had an initial effect. These government sponsored programs in turn inspired the

Health Maintenance Organization (HMO) in the private sector.

Summary Part II: Where Healthcare Is: The Congressional Budget Office (CBO) in its 2012

Long-Term Budget Outlook1 has two projections. The extended baseline scenario (current

laws) would reduce the federal debt and assumes the current laws will not change and the

extended alternative fiscal scenario (current policies) would increase the federal debt to

unsustainable levels and assumes the current laws are not politically sustainable. Healthcare

financing plays a major role in each scenario.

Summary Part III: Where Healthcare Is Heading: The Patient Protection and Affordable Care

Act2

(ACA) removes all limits and risks for healthcare from the consumer. It then constructs two

barriers in an attempt to limit the unlimited. These are Accountable Care (AC) and the

Independent Medicare Advisory Board (IMAB). The vocabulary is more sophisticated this time

around but in spite of a literature stating things will be different this time, AC is a variant of

managed care while the IMAB continues essentially unaccountable price controls. Each has a

history of initial success then failure. There are also private industry initiatives as in an

Organized System of Care (OSC) with similar incremental improvements and fundamental

defects. The problem is twofold. The reimbursements are to be bundled packets of zero sum wars

but most important is that none of these initiatives significantly address patient responsibility or


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provider competitiveness. Instead they continue attempts to control costs from central

committees which are incapable of optimizing dynamic complexities.

Summary Part IV: Where We Think Healthcare Should Head:

Healthcare is about love and love is about responsibility. Our proposal takes the concept of

respect for one another and the understanding that responsibility is fundamental to healthcare as

basic principles. These principles then generate the goals of equitable access, maximum quality,

and minimum cost and complexity. These goals guide our proposal abstracted above and

elaborated upon below.

Part I: Where Healthcare Has Been:

The recent era of our healthcare history began during World War II with two synergistic effects,

the gradual erosion of individual responsibility and the rise of health insurance. The Declaration

of Independence states We hold these truths to be self-evident, that all men are created equal,

that they are endowed by their Creator with certain unalienable Rights, that among these are

Life, Liberty and the pursuit of Happiness. These were followed by a Bill of Rights in 1791,

which were the first ten amendments to the United States Constitution. In this context, a right is

something intrinsic to the individual, something the government must not take away from the

individual.

On January 11, 1944, in his State of the Union Message to Congress, Franklin Roosevelt

introduced eight new rights in a second Bill of Rights. Among these was The right to

adequate medical care and the opportunity to achieve and enjoy good health. In this context, a

right is something extrinsic to the individual, something the government must give to the

individual.


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The significance is that instead of the state being a guarantor of rights where a responsible people

control the state, the state becomes the determinant of rights which control the people. While the

right to adequate medical care has a benign veneer we are witnesses to the financial

consequences while it progressively erodes personal responsibility.

The second long term healthcare effect to develop during World War II was the rise of health

insurance. During the war, wage controls limited the competitiveness of industry for workers and

an expedient was to increase benefits such as health insurance. This inexorable link to

employment ultimately limits employment but there is a more ominous consequence. Once a

premium has been paid it is natural to maximize the return on investment by consuming the

product. The retort that people do not want to get sick is countered by the fact that everyone

needs healthcare. Moreover, since the provider of healthcare is reimbursed on production instead

of value, the patients and providers are incentivized to maximize both supply and demand.

Then in 1965 president Lyndon Johnson signed the Medicare amendment of the Social Security

Act which led to the creation of Medicare, Medicaid, and the State Childrens Health Insurance

Program (SCHIP) under the administration of the Centers for Medicare and Medicaid Services

(CMS). This completed the main components for the healthcare cost conundrum which we face

today.

For about ten years after its inception, Medicare compensated physicians3

on the basis of their

charges through reimbursement plus balance billing. In 1975 Medicare began its price control

system or the Medicare economic index (MEI) which is an estimation of physician costs and

placed a cap on physician fees. Since this grew too fast for congress, from 1984 to 1991 the fee

change was arbitrarily legislated. In 1992 physician payments were modified by RVUs. Here the


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attempt was to equalize physician paymentsbased on clinical practice measures rather than to

control costs. However, by 1998 the total physician payment rate was changed from the MEI to

the Sustainable Growth Rate (SGR) formula. This shifted reimbursement increases from a cost

estimate to something more complicated but roughly following the GDP. However because of

the volume and intensity of services, spending for physician services exceeded the SGR target

which because of compounding is much less than the MEI. The delay of the implementation of

the SGR each year has led to the looming 27% decrease in physician Medicare reimbursements

in 2012 and greater thereafter.

To control hospital costs from charges or cost the 1980s saw the institution of price controls

in the form of DRGs which is a bundled hospital payment based on a disease process to

encourage physicians to integrate care and be more efficient. Similarly private insurance

attempted to control their costs with payment structures and HMOs. In essence, these payments

are politically determined and there was an initial success because the payment structure was so

bloated. Of particular note are the failure and the persistence of the topdown method to control

price and integration of services.

It is instructive at this point to examine an example of healthcare billing and its consequences.

Consider the Evaluation and Management (E&M) codes developed around 1997 and

recommended to be abolished in 2002 by the same advisory committee. They remain in use

today and though they are much simpler than the DRGs, the effect is the same. The idea is to

model medical care and the status of a patient and then compensate accordingly. The payment

depends on the bullets or instances of patient care that have been recorded and it is natural to

shoot for the highest reimbursement. This game is facilitated by the Electronic Medical Record

(EMR) driving up costs the EMR was supposed to reduce and nearly obliterating any possibility


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of figuring out how the patient is doing, but that is not the point. More important, the

compensation is upside down. Instead of incentivizing maximum instances of care, the objective

should be to minimize the instances of care necessary to maximize the status of the patient. This

entails a different thinking and payment structure.

Part II: Where Healthcare Is:

Healthcare costs are accelerating faster than the GDP and accelerating faster than per capita

spending for other goods and services. In addition, our federal debt (Footnote 1) is now only

second to that at the end of World War II. Since none of the other budget items have the unique

combination of an aging population, advances in technology and innovation, while at the same

time beset with unacceptable levels of ineffective or inefficient care, this will be the most

difficult to correct. Moreover, we have inadvertently chosen to finance most of healthcare

through employment based health insurance and the taxes paid by the employed, which reduces

both employment and the GDP while exacerbating the problem.

The CBO in the 2012 Long-Term Budget Outlook gives two projections. The extended baseline

scenario assumes the current laws will not change and would reduce the federal debt from its

(Footnote 1) The United States gross debt is roughly 100% of the gross domestic product (Figure 1) while

the United States federal debt is about 70% of the GDP. The difference is the money in savings or owed

to ourselves such as the Social Security Trust Fund.

(Footnote 2) Unknown to most physicians, Medicaid is a curious match between federal and state funds.

The federal government pays between 50 and 83 percent, based a formula using the state per capita

income and the national per capita income, while each state pays the rest. It is this portion of the existing

Medicaid match that is producing threatened bankruptcy in some states. In Kentucky, the existing

Medicaid match is the second largest item in the states budget. The addition of 30 million individual to

this program over the years 2014-2017 will push more states toward bankruptcy. If the federal

government paid 100 percent of the new enrollees, the federal government would be pushed toward its

bankruptcy faster than the present rate.


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present 70 percent of GDP to 40 percent in 2050.

It would accomplish this by increasing taxes such

that revenues relative to GDP would reach post

WWII historic highs and reducing spending

except for Medicare, Medicaid (Footnote 2),

SCHIP, Social Security and interest. Included in

the reduced spending is a 27 percent decrease in

physician reimbursement which because the overhead stays about the same, translates into a

much higher decrease in physician salaries. The extended alternative fiscal scenario assumes

the current laws are not politically sustainable and would increase the federal debt from the

present 70 percent of GDP to more than 200 percent in 2050 by keeping taxes and spending

roughly at present rates.

Another proposal, that of Congressman Paul Ryan, was also evaluated by the CBO4. His

proposal reduces the federal debt from 70 percent of GDP to 10 percent in 2050 through a slight

increase in revenues while lowering income taxes and eliminating many deductions, slowing the

rate of Medicare increases, dramatically reducing Medicaid and SCHIP, keeping Social Security

as is, and dramatically reducing much of all other spending. His proposal for Medicare is to

gradually increase the eligibility age to 67 by 2033, change the reimbursements to vouchers to

purchase health insurance and slow the rate of Medicare growth by linking reimbursements to

the consumer price index. The most intriguing parallel between the ACA and Congressman Paul

Ryans proposal is an implicit philosophy based on faulty one-dimensional thinking; if you

reduce healthcare reimbursements you will also reduce total healthcare costs.

0

5

10

1520

25

2000 2004 2008 2012 2016

Trillions

Figure 1

US Gross Debt vs. GDP

Source: Data from UsDebtClock.org

US Gross

Debt

US GDP


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The rate of growth of Social Security spending relative to the GDP will increase from 5 to 6

percent of GDP over about twenty-five years and be much less than Medicare, Medicaid, and

SCHIP, which will increase from 5 to 10 percent of GDP over the same period. Both increase

because of an aging population (Figure 2), but Social Security increases are much smaller and

are more manageable because Social Security is not beset by changes in technology, innovation,

or inefficiencies. In that respect, the CBO

estimates the excess cost growth of the major

health care programs is 40 percent under the

extended baseline scenario - current laws and

48 percent under the extended alternative

fiscal scenario - current policies.

It is important to also include total costs of healthcare, not just that on the government books and

to note that the citizens (not governments) ultimately fund all the healthcare costs through taxes,

premiums, deductibles, copays, private pay and the no-pays absorbed by doctors and hospitals.

To calculate the total costs, the CBO notes that when considering the total expenditures for

healthcare, the federal government and the states pay 49 percent and private spending 51 percent.

Part III: Where Healthcare Is Heading:

Curiously, the ACA omits the word right but nonetheless resolves the lack of precision in

President Roosevelts phrase right to adequate medical care in Sec. 2711 No lifetime or

annual limits and Sec. 2702 Guaranteed availability of coverage. In other words, essentially

every citizen in the United States is to receive unlimited healthcare for life. This opens a

Pandoras Box.

0

10

20

30

40

2000 2010 2020 2030

Perce

nt

Figure 2

Population Age 65

Scource: Data from CBO

Population Age

65 or Older as aShare of the

Population Ages

20 to 64


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However before considering how the ACA attempts to limit the unlimited, there is a far reaching,

seldom discussed and easily dismissed effect of the ACA. A common denominator throughout

the healthcare reform literature is health insurance. In a fascinating demonstration of agility, the

ACA officially ends the substantive existence of health insurance while simultaneously

mandating its use. Insurance is compensation provided for an individual based on that

individuals risk and limited by contract. Without defined risks and limits, merely unlimited

premiums and unlimited payments remain. Without an internal structure, health insurance exists

in name only and this bill formally ends the lucrative health insurance era while beginning that of

government managed healthcare.

These observations might be dismissed as merely a question of semantics if the stakes were not

so high but more important is that a clear understanding of the meaning of a concept is critical

prior to the resolution of a problem. Every discussion about healthcare reform puts health

insurance as the foundation and if that foundation is not clearly understood, a solution will be

elusive. Once it is understood that health insurance is merely a method to collect and distribute

money for healthcare, it becomes clear that it might as well be done as efficiently as possible and

that multiple and overlapping administrations performing that function is not cost effective. This

is an argument for a single payer system as in Medicare for All or our proposal which is a

single payment system, both of which would dramatically reduce administrative costs.

Since unlimited healthcare contradicts the word Affordable in the title of the ACA there is

presumably something within the bill limiting the unlimited because it is absurd to believe both

propositions are true. One assumption is the enforcement of the SGR reducing physician

reimbursement 27% initially and more in the future. Because the SGR formula does not reduce

overhead, the decrease reduces physician salaries substantially more than 27% likely making


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physicians much less available. This in turn clarifies Subpart II Improving Coverage which

is correct in that ACA will improve coverage but not access and contradicts the patient

protection clause. While it may limit the federal debt it will also limit healthcare and in turn

increase total costs.

In addition to the SGR there are other reductions. If those reductions are not implemented or not

effective, the next barrier to the unlimited is the IMAB (sec. 3403) whose purpose is to

reduce the per capita rate of growth in Medicare spending in a most curious fashion. Its

advisory recommendations are compulsory unless Congress replaces them, under severe

limitations, with alternative equal size cuts. These advisory instructions are to include

recommendations regarding improvements to payment systems for providers of services and

suppliers who are not otherwise subject to the scope of the Boards recommendations The

IMAB has the ability to redefine healthcare payments as they desire and there are no appeals.

Their restrictions are to not include any recommendation to ration healthcare, raise revenues

or Medicare beneficiary premiums. Left unsaid, but obvious, is the only other option; restrict

payments to the providers and thus limit access.

Healthcare is to a large degree under price controls dictated by the CMS. The euphemism for

these price controls is Administrative Pricing which determines how much money goes where.

Commercial insurances then set their prices as a percentage of the CMS price. This has

similarities to the old Soviet style of government and its planned economy.

These one-dimensional price controls view healthcare costs as a system ofindependent nodes.

However the ACA does allow for a more complex pricing in AC for Medicare which is also

modeled as the OSC in the private sector. In these, healthcare is viewed as interdependent


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nodes, more of a recipe than individual ingredients. In a fee for service model each node receives

compensation without a link to the others. In AC the notion is to integrate the nodes and provide

bundles of compensation for the network. The providers in turn determine the distribution of the

payment.

On the surface, these are typical manufacturing ideas but the problem is with the execution.

Medicares administrative pricing5 is basically a linear control system (Figure 3) without

feedback. Moreover, in manufacturing as opposed to AC, each node controls its own pricing.

The feedback that does exist in healthcare is incidental and ineffective because the negative

feedback of the deficit and possible SGR is overwhelmed by the positive feedback of politics,

physician incentives and the legislated unlimited unaccountably of the patients. AC takes these

proven defects, bundles them together, and expects a different result. Throwing additional

resources at a failed attack is one of the tactics Sun Tzu advised against in The Art of War.

A function takes an input and generates an output while a feedback loop has the output of one

function as the input of the other and vice versa (Figure 4). A biologic system might have

thousands of these loops. Homeostasis or health is the stable state of these functions while

disease is an abnormal function and death ensues when a function is out of control and cannot be

compensated. Though the intentions are good, the AC will not succeed for many reasons but

primarily because it lacks sufficient feedback.

Since CMS and by extension other payers base their reimbursements on the DRG/RVU system

(Figure 5) it is necessary to understand its mechanics and its defects. The DRG/RVU is

generated by a coder who is bound by a controlled vocabulary reminiscent of 1984s Newspeak.

Since its implementation in 1992 and its initial success, the volume and intensity of services


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DRG/RVU Administrative PriceCMS

Figure 3

Pituitary Thyroid

Figure 4

TS

T3, T4

CoderDRG/RVU

Clinical

Data

Figure 5

DoctorDxClinical

Data

Figure 6

Rx

Providers Competitive PriceClinical

Data Plus

Figure 7

Tax Rate

Neuron

Cell BodyAxon

Dendrites

Figure 8

Neural

NetworkOut ut

Inputs

Figure 9

Vector Function

f(a,b,c,d,e) = xFigure 10


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has gradually increased but it is our opinion this is far more likely secondary to the learning and

computerization of Newspeak than it is to changes in the delivery of healthcare. However, the

fundamental problems with the DRG/RVU system are that the price controls are political in

nature, it retains its non-competitive heritage from the charge based era, and the basis of

payments by DRG/RVU is wide of the mark.

Besides the structure for the reimbursements, there is another difficulty with its foundation. The

DRG/RVU is a classification system for a state of or for a procedure performed upon the patient.

While there is some nibbling at the periphery with quality measures, this largely ignores the

appropriateness of care which should be the true metric of reimbursements. This in turn requires

individual, not population, decisions upon which AC depends.

Contrast the DRG/RVU payment with what happens when a physician sees a patient (Figure 6).

While a physician makes a diagnosis the treatment can be very different with the same diagnosis

between doctors and even with the same doctor. The diagnosis or treatment is a rough indicator

of the appropriateness of care. Notably, the consequence is that the present coding systems

should not be the primary drivers of payment; rather it should be the degree to which the

appropriate care was rendered. This will take time to develop and the codes will remain for a

while but we feel they will eventually be replaced with natural language as they are currently

when talking with the patients and colleagues. The concept ofappropriateness of care is

necessarily fuzzy in the logical sense (Footnote 3) but it is also dependent on each individual

(Footnote 3) Boolean logic includes only the numbers 0 and 1. Fuzzy logic includes the numbers 0 and 1

and every number in-between. In addition, a bit of background is provided by a stylized neuron (Figure 8)

which combined with feed-back suggests our proposal (Figure 7). Computer science models the neuron

with neural networks (Figure 9) and both are instances of vector functions familiar to mathematicians

(Figure 10). Interestingly, the commonality of these structures goes even deeper than the graphics

suggest. Both the neuron and the computer are voltage regulated binary systems.


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patient, not a population. This individualization and competitiveness is what leads to the

schematic of our proposal (Figure 7) to be discussed in greater detail later. Next the idea within

the ACA is to take these reimbursements and for an AC to design a system for healthcare

delivery which is a complex process. The doctors and hospitals need to cooperate in a collegial

manner or the systems will function poorly. Initially the plan is for the providers and the

government to divide up the shared savings resulting from improved productivity without risk.

If and where there is already waste or payments are excessive, the doctors and hospitals win,

receiving a reward for past inefficiency and some collusion. Then it gets interesting.

Since CMS has under the present system failed in its task to align payments equitably, justly, and

financially sustainably (to be fair that task is impossible for a central committee), the next

attempt is to bundle the payments so that an Accountable Care Organization (ACO) receives a

lump sum and then that ACO presumably wisely and cooperatively divides up the payments

among themselves. In addition, since CMS has already demonstrated the inability to get the

payments correct there is no evidence they will succeed this time. Hence when that incorrect

payment goes to an ACO, it will be divided up in a zero sum game where one partner wins by

having another lose. The idea that incorrect payments sent into a group of highly knowledgeable,

competitive individuals for arbitrary division will result in harmony, decreased costs, and

increased quality is ridiculous. These internal zero sum wars will result in the mutual destruction

of most providers and patient care, and worst of all, poorer and less efficient care.

Often price controls artificially reduce supply and create a shortage because the payments are so

low that when the prices finally float, the pent-up demand drives up prices due to the shortage.

However, in the present circumstance of political pricing where the pricing is variable

across classes and the patient and doctor are insulated from the cost, it is the supply and


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the demand which are artificially inflated and poorly distributed. The doctors as

manufacturers in effect receive subsidies because they are not responsible for the total cost while

being compensated for production. When the prices are reduced, the physicians increase

productivity to make up the difference in compensation. This inflates the supply for the better

paying patients while discarding access for the poorer patients. Tying the physician and hospital

reimbursements together only makes sense if they have control over competitive pricing.

Concomitant with this the patient, having already paid for the service with a premium, does

not pay or pays a discount for the product at the time of service. This inflates demand.

The ACA introduces another war is peace vignette which is more ironic. In this Accountable

Care era the patients are not accountable. In the ACA Subtitle F Shared Responsibility for

Health Care and Part I Individual Responsibility deals with everyone buying health

insurance which the Supreme Court uncloaked as a tax. However in the ACA there is no limit or

risk. Thus for a discounted amount, there is an unlimited return. Moreover this completely

ignores any responsibility for ones health. The Supreme Court was never asked if it is

constitutional to get something for nothing but it is nonetheless a violation of the Second Law of

Thermodynamics. Since, as far as is known, this is not allowed anywhere in the universe, the

ACA cannot survive under its present formulation. In the meantime, instead of mandating

responsibility, in effect the ACA legislates the abolition of patient responsibility.

Part IV: Where We Think Healthcare Should Head:

Life and death, health and disease, love and respect, sorrow and loss, are only pieces of the great

healthcare endeavor. Governments and corporations fail to grasp healthcare because they are

outside of healthcare and consequently they are incapable of its experience. Throughout the


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world industrialized countries have government sponsored healthcare, some type of functionally

restrictive access model, half the cost, and better quality measures (Footnote 4) than the United

States. They also have the same problem with exponentially increasing costs relative to GDP.

Thus since the ACA is a similar top down system of controls it may have an initial success

because of the excesses in our system but it is headed for failure. The problem is to find an

optimum solution to access, cost, and quality. This is too complex for top down methods.

Words such as control and management classify centrally planned healthcare systems. We

suggest words such as respect and responsibility to classify a distributed method to optimize

access, cost, and quality. Such a dramatic difference in philosophy develops a dramatically

different healthcare system. This philosophy then suggests the healthcare objectives which we

believe are equitable access, maximum quality, and minimum cost and complexity. This

philosophy in turn guides the selection of the routes to those objectives. The values 1) equitable

access, 2) maximum quality, 3) minimum cost, and 4) minimum complexity, are not

independent. In fact, they are highly and mutually dependent. Most proposals advocate some at

the expense of another. The design of a solution must take all these relationships into

consideration.

The word responsibility implies both accountability and action so that someone is accountable

for what is done or is not done. This should apply to both patients and providers. In addition,

there must be some measure of accountability for comparison and goal purposes. Accordingly,

(Footnote 4) We believe much of the poor quality frequently reported is likely due to our

heterogeneous population; the countries with best results for medical care are very homogenous.

Nonetheless there is still a great deal we need to improve.


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we propose patients and providers be responsible for the cost and quality of healthcare. To

accomplish this, patients need to control the healthcare dollars while the providers compete

through quality and price.

The objection that some patients will save dollars instead of obtaining needed healthcare is

actually an argument for the patients controlling the money. Simply give the patients a credit

instead of debit for the behavior one wishes to modify. The objection that patients do not shop

for healthcare is refuted by existence of the initial objection. The objection patients will not

choose wisely is dependent upon a philosophy that suggests patents are not responsible and

therefore must be controlled. This self-perpetuating stance is why we are in trouble today.

What we envision is that every person would have a dynamically allocated virtual budget based

on their medical conditions. Their performance determines whether their individual budget

generates a profit or loss. A percentage of a profit could be returned to them while a deficit

would not incur a penalty which is similar to the present circumstances. They in turn purchase

services from the providers based on price and quality with a swipe of their card. This single

payment system could eliminate the present deductibles, co-pays, no-pays, insurance, co-

insurance, no-insurance, balanced billing, collections, subsidies, and bad debt. While we do not

have the capability to generate hard numbers, we estimate this first step would reduce total

healthcare expenditures by 10%.

Healthcare funding would be through taxes and we propose a flat tax on income, sales, and

services. While resolving the tax fairness debate is beyond our abilities we have chosen these flat

taxes because of their relative simplicity and their inclusiveness. We feel responsibility means

everyone must own the healthcare business and thus pay for it. If you have personally earned


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and own something, it has more value and meaning. A flat tax is more difficult for someone to

pay if they do not have much disposable income but under this proposal there is a greater return

on the investment for those who pay less, the elimination of classes of care, and the fact that the

bonuses to be paid are based on performance, not the amount of tax the individual paid.

Whatever the final feed-back tax structure, the idea is to define an individuals economic

footprint and propose that as their relative proportion ofthe healthcare premium for their

insurance.

Our goal is to achieve equitable access along with equitable burden. We feel equitable ownership

is important to controlling costs. These funds should be sequestered only for healthcare and out

of the reach of government for other uses. Similarly, no one would be forced to participate in or

fund this proposal as long as they can demonstrate funding for and participation in a credible

alternative. Any taxes paid for this proposal would be applied to an alternate health plan if the

individual desires.

The rate of the tax would be set to cover expenses plus the possible additions of an endowment

for future expenses so that next generation does not bear the burden for most of the cost of their

parents. The rates must be competitive and each state or region would be expected to participate

with its own administration and tax rate. This does not preclude running our plan at the federal

level but we tend to see this implemented at the level of the states.

The providers in turn would need to develop competitive products and sell them based on price

and quality. The idea is not so much for the patients to shop for services but to have the providers

compete. For instance, in an emergency situation, the patient will go to the nearest emergency

room without regard to the price. However the emergency room will know its performance


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relative to its peers and justify its costs and quality. Moreover, the patients will have this

information for future elective services.

Our plan does not offer basic levels for everyone and higher levels for those who can afford it.

There are not different levels of insurance or coverage. However, any plan should recognize that

some relatively well to do families will pay personally extra fees for concierge services or for

uniquely skilled physicians. In this case we apply a median sticker price to pay for the service

for most patients but allow that to be the first dollars for an appropriate concierge service if the

individual desires to pay additional last dollars. In these cases, the first dollars only apply to

services accessible to everyone.

Many communities border state lines and a long established referral pattern will for some time

determine choice of doctor and facility. We foresee that a state based coverage would provide a

major portion of expenses in a neighboring state but that the individual patient could have to pay

something additional or possibly less, similar to the above first dollars. As a concept, state based

care would make states competitive while federally based care would make regions competitive.

The ACA continues the employment link to healthcare funding and third party payments. In

addition, while not traditionally thought of as being employer based, Medicare and Medicaid, are

also linked to employment through payroll taxes plus income taxes. What exists now is not an

insurance model but a third party payment model largely funded by employers and their

employees. Consequently, the present workers fund most of healthcare which in turn inhibits

employment. Of course former workers paid their share but since it is a defined benefit instead of

a defined contribution type, the unfunded liabilities are not sustainable particularly given the

aging population and improvements in technology and innovation (Figure 11). Thus, the effect of


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the value equitable access suggests

proportional funding by which everyone

participates, over time, and owns healthcare

with the decoupling of healthcare from

employment though this would probably

include some grandfather clauses.

One advantage of employer based health insurance is the control employers have over their

employees to incentivize health. As noted above, any incentive can be part of our proposal

though we advocate the carrot instead of the stick.

The next consideration is quality. Every healthcare proposal claims this as a goal. Ultimately we

see an appropriateness of care based on the individuals personalized treatment but for now

take a more traditional approach. Evidence based processes need surveillance and outcomes need

to be reported along with patient satisfaction. For example, risk adjusted death rates for elective

operations have been somewhat helpful in the last two decades with two separate effects:

Embarrassing some doctors and hospitals into abandoning procedures with overtly pooreroutcomes than their neighbors.

Encouraging improved performance and frequent reassessment of those performancesagainst regional norms or a competing doctor or hospital.

The key to physician acceptance of these processes is honest risk adjustment while the key to

patient acceptance is adequate information. Clearly physicians, hospitals, and patients need to

participate in these processes. There is also another piece of information is missing. We propose

0

50

100

150

2012 2016

Trillion

s

Figure 11

Medicare vs. Social Security Liabilities

Source: Data from UsDebtClock.org

Medicare +

Drug Liability

Social

Security

Liability


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a public listing of the doctors that treat other doctors and doctors that treat nurses for this

summarizes a great deal of information not otherwise available to the public.

The present system considers pricing to be a top down management problem. In fact, pricing is a

complex optimization problem requiring constant feedback not amenable to any group of experts

or special interests to allocate appropriately. More sensible is for the publication of the provider

determined prices along with the above quality data. Doctors and hospitals need to eliminate

preposterous charges from the equation and emphasize their honest cost and return on

investments. We must also consider geography and a unique multitude of circumstances (other

than cost and quality) that will influencepatients final decisions. Once the patients have control

of the money, and a budget, they determine the services they receive putting the providers in a

competitive environment which minimizes cost.

Every individual would have a virtual budget. There would be reports perhaps each quarter with

each patients costs, comparison to peers, the overall financial viability, and tax rates. Of course,

avoiding evidence based care counts against any possible bonus (Footnote 5). The overall tax

rate is adjusted up and down to maintain solvency. This is a pay for performance for the

patients, as well as the providers. For instance, if a patient smokes or has appendicitis, they

receive a bonus if they come in under budget but there is no direct penalty for failing to make

(Footnote 5) Evidence based medicine is a useful concept and in its best form should be promulgated. In

fact, the evidence changes from year to year. One major reason is correlation is not causation and as a

consequence there cannot be a weight or amount of the effect.

Tight glucose control in ICU patients: tight 2001, looser 2009 B-blockade in elective surgery: bad, now good Post-menopausal estrogen replacement: good, bad, good Screening mammography: when to begin and how often Prostate specific antigen: gospel or discarded Colonoscopy: when to begin and how often


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their budget. At present, the number of employer insured people who are accepting higher

deductible health insurance plan is increasing rapidly; by so doing the employed individual

significantly lessens his or her current monthly premium. The idea for a budget is to make all

the dollars competitive, not just the first dollars as in the high deductible plans. It is our

estimation that this competitive step will save an addition 20% in total healthcare costs.

Ultimately the competition is for the patients but the effect is not so much that the patients shop

for the best deal but that the providers compete against each other. Patients with emergencies

will typically go to the closest emergency room without consideration of the cost. However each

emergency room would know its costs relative to others and this is where competition will be the

most intense. Moreover, when the patient receives the invoice, competitors prices and quality

will be listed which will influence future elective decisions. This information would be published

and annually updated in a uniform format at an independent website. Under this method, the

collaboration envisioned by Accountable Care would leave the zero-sum arena and become

cooperative and competitive because the doctors and hospitals would form their own alliances

and effectively compete.

For example a patient with obesity, diabetes, chronic back pain and hypertension has a routine

appendectomy for appendicitis. The price is the sticker price or average for appendectomies.

This covers the cost of the surgery, the anesthesia, the hospital, and sixty days of care including

complications related to the appendicitis. His card is swiped and there is a lump sum transfer of

funds from his virtual account to the providers who have previously determined their competitive

price. In later conversations with his primary care physician, the physician explains that if had he

gone to a hospital thirty miles away the cost would have been $500 less and he would have

received a $25 bonus, hardly worth the trip but he consequently gives the hospital a less than


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perfect score on his evaluation (quality = evidence + outcomes + evaluations). On the other hand,

the physician explains, there are evidence-based and discretionary expenditures also influencing

his bonus relative to his obesity, diabetes, back pain and hypertension. Consequently he gives his

back pain a longer trial of non-operative management but ultimately selects a competing hospital

for his back surgery with excellent quality and at a substantial discount.

The previous patient has a dynamic virtual account for which he receives a regular accounting of

his expenses, expenditures and total projected healthcare costs compared to his peers and the

population as a whole along with the amount of taxes which he has paid. At the same time, the

primary care doctor, the physical therapist, the back surgeon, and the hospital come up with a

competitive price and product agreeable to all. Likely the organization will be around primary

care with specialty support. Since the outcomes of care are linked to all the providers, this will

lead to a cooperative arrangement, innovation, and elimination of waste because other groups are

doing the same. Here the patient replaces the government or a corporation in transferring the

funds and indirectly setting the price and to some degree his own tax rate. More importantly, the

patient, doctors, and hospital can all win. There must of course be some losers and some winners

but you win by trying to win, not by trying to have someone else lose.

An implicit theme running through the AC structure is that physicians have the knowledge and

thus physicians should be managing patients. A problem here is the physician is the consultant,

not the receiver of, the service. Physicians do not control the patients; it is nearer the other way

around. ACOs are designed to address waste within the system but not address the system waste.

Clearly organizations like AC are an improvement and nothing should happen without a

physicians order, but more important is that nothing happens without a patients authorization.

Physicians orders are in the final sense subservient to the patient. Healthcare is ultimately the


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patients responsibility. After front loading the system with illness, ACOs attempt to manage the

patients back to health. The continued subsidies for sickness and central control will lead to the

demise of AC and its obituary will read something like a Picketts Charge for managed care.

Without personal accountability, healthcare will never control costs without limiting access. This

will further erode the physiciansposition as patient advocate. In addition, since most

reimbursement follows Medicares lead, essentially all healthcare reimbursements and

consequences, except for self-paid concierge services, will ultimately follow the same path.

Our proposal is less complex and more transparent than the present system. A walk through

todays complex environment inundates you with the artificial complexities of control. This is

not an argument against regulation but it an argument against control. Regulation is the referee.

It levels the playing field. Furthermore, we are all patients. It is we, the patients, who should

control the system, not the other way around. We believe that if we, the patients whose money it

is in the first place, have control of the money and the information, we will succeed.

There are going to be dramatic changes. We have two choices. We act responsibly or we are

controlled by events which may include the deterioration of American medicine or possibly our

economy. In either case, it is going to be dramatic. Tweaking an old broken system and

expecting a new result is wishful thinking. A new system must be designed. We know healthcare

is based on respect for one another and responsibility. We propose that foundation be used to

develop a sustainable healthcare solution with equitable access, maximum quality, minimal cost

and minimal complexity.


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1. CBOs 2012 Long-Term Budget Outlook:

http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-

Term_Budget_Outlook_2.pdf

2. The Patient Protection and Affordable Care Act:

http://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf

3. Sustainable Growth Rate Formula for Setting Medicares Physician Payment Rates:

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/75xx/doc7542/09-07-sgr-brief.pdf

4. Spending specified by Congressman Paul Ryan evaluated by the CBO:

http://cbo.gov/sites/default/files/cbofiles/attachments/03-20-Ryan_Specified_Paths_2.pdf

5. Medicare DRG/RVU Summary:

http://amcp.org/WorkArea/DownloadAsset.aspx?id=11164
http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdfhttp://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/75xx/doc7542/09-07-sgr-brief.pdfhttp://cbo.gov/sites/default/files/cbofiles/attachments/03-20-Ryan_Specified_Paths_2.pdfhttp://amcp.org/WorkArea/DownloadAsset.aspx?id=11164http://amcp.org/WorkArea/DownloadAsset.aspx?id=11164http://amcp.org/WorkArea/DownloadAsset.aspx?id=11164http://cbo.gov/sites/default/files/cbofiles/attachments/03-20-Ryan_Specified_Paths_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/75xx/doc7542/09-07-sgr-brief.pdfhttp://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdfhttp://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdf

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Responsibility Verses Control