If you want to understand why anything happens in health care simply follow the dollars.
After having spent 35 years in the health care cost management field I am convinced that this is a true statement. The dollars influence and in some cases dictate hospital expansion, physician carrier choices, additional technology, administrative systems, insurance company plan designs, employer benefits and any other aspect of the health care field. This being the case, influencing the dollars will drive solutions to the industries problems.
As evidence of this, look at the expansion of PPO type plans over the past 20 years. Offering employees a benefit incentive to use one doctor or hospital over another has resulted in the largest change in buying habits ever recorded, with over 90% of today’s health care being provided through PPO type plans. Even HMO’s have re-packaged their services into PPO type plans.
There are three changes that can be made to the existing system that will reduce costs, significantly limit cost increases, improve quality, improve access, streamline administration and expand insurance coverage. All three changes are made in the private sector and require no government intervention or additional taxes.
1. Price Transparency:
Today we do not know the true cost of even the most routine procedure (normal deliveries). As a result of multiple PPO, HMO and government contracts the price has been distorted. In Milwaukee 38 procedures represent 65% of the dollars spent at the hospital. The price range of each procedure among Milwaukee hospitals is at least 100%, with 300% and 400% variances common. Each hospital should be required to disclose the average private sector revenue for the top 20 procedures. Because this is an average confidential contract pricing is not disclosed.
2. Change the PPO and HMO contracts:
In the mid 1990’s most hospitals were reimbursed a set dollar amount per day of hospital stay. As a result the cost increases for benefit plans in 1995 and 1996 was virtually “0” according to the Mercer study on health care costs. In the latter 1990’s competitive pressures and improved hospital negotiating skills resulted in a move to a percentage off billed charges. The control of the cost of health care was turned over to the providers. From the late 1990’s to about 2006 cost increases were in the low to mid teens each year. A return to fixed pricing is essential to controlling costs. Both hospitals and physicians should be reimbursed according to a fee schedule.
3. Change Benefit Plan Designs:
Price transparency and a change to schedules under contracts allow the designers of benefit plans to create plans that embrace the schedules. The cost of this service ranges from $1000 to $4,000. The benefit plan will pay $2,500. These are the providers who will accept this price or less.
4. Create Global Services:
Fixed pricing allows the formation of Global Services. Under these services all of the parts of a procedure are contained in a single contracted price. For example a Global surgery would include the surgeon’s fee, assistant surgeon (if necessary), anesthesia, radiologist, facility, drugs, tests and any other items required to provide that service. This is the way that health care is provided when benefits are not involved. Most cosmetic surgeries are presented to the patient set fees are patient (who is going to pay the bill) as a single fee with all the necessary parts included.
These four changes would result in an immediate cost reduction (fixed prices are used and providers have an incentive to control costs since it will increase their profits), improve quality (the main differentiation factor is now quality of care and patient satisfaction), improve access (if providers know they will be reimbursed they are more likely to offer services in areas they might otherwise ignore), streamline administration (more efficient administration increases profits) and expand insurance coverage (better priced insurance products can be afforded by more companies and individuals).
These changes can be implemented by the end of this year with no government intervention or expense. If consumers demand better benefit plans they will be delivered.
On the flip side the current proposal of a government sponsored “public plan” will increase Medicare taxes by 20% to 30% within two years.
The “public plan” is based on fees that Medicare has negotiated with hospitals, physicians and other health care providers. These rates are often 60% below billed charges and according to a recent study 20% to 30% below provider costs. The only reason that the provider community has been able to tolerate these low reimbursements is because they can increase their costs to the private sector. A study by the Lewin organization estimates that if the “public option” were offered 85% of the private sector would move to this option within two years because of the lower cost to companies and individuals. This would effectively kill private sector helath benefit plans.
If there is no private sector there is no one to whom costs can be shifted. Medicare would have to increase reimbursement to at least cost or hospitals and doctors would go out of business. This would require a 20% to 30% increase in Medicare reimbursements and a similar increase in Medicare taxes. It would also result in limitations on services available and probably result in hospitals and doctors opting out of the “public” plan with their services being available to only those who could afford to bay the bill.
We have the ability to control health care costs in a fashion that benefits patients, providers and payers. The question is do we have the resolve to implement the changes.
This article was contributed by Richard L. Blomquist, Esteemed Member of the HRS Advisory Board
Mr. Blomquist's Bio and Contact Info
Jessica Ollenburg - Monday, September 07, 2009
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With the trilogy control of Presidency, House and Senate by the Democrats, we have “thrown the keys” to a single party and allowed them to “fix it.”
For the good of our economy -- and quite frankly our wellness -- the backstabbing, blame-shifting and treasonous undermining of our leadership must cease. Please think twice before resorting to the same ol’ same ol’ belly-aching that has undermined hope and destroyed confident spending over the past 8 years.
We certainly must question the legitimacy of employee free choice actually existing within the proposed Employee Free Choice Act, and we must think globally, creating work ethic policies that allow the US the ability to compete globally while building positive relationships. Let's set an example of diplomacy and respectful disagreement in doing so. Perhaps we can understand that by regularly skewering the important leaders in our country, we jeopardize ability to attract top talent.
We can be empassioned without being destructive. We must discontinue behavior which has adversely affected new generations and created current economic downfalls. We can think twice before "bailing out" employers not likely to thrive and reinvest into our economy. We must stop blaming all CEOs for the greed of a few. We must remember and embrace "free enterprise." We must rreat the USA with appreciative inquiry.
Politically, let me be one of many to say passionately advise our current administration “You’ve got the keys, now FIX IT!” The world is watching with anticipation. Every citizen also has a role and a responsibility in "fixing it." It is most certainly a team effort!
Jessica Ollenburg - Friday, November 28, 2008
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It is most certainly an organizational development question to determine the take home pay of top executives. We can similarly discuss the high compensation for entertainment celebrities and sports athletes. As CEOs can create jobs, impact work-life and stimulate the economy, we should safeguard salaries to CEOs proportionate to their results at such – as we need to attract top talent there!
While CEO “greed” is certainly alive and well, it finds many exceptions and is not necessarily a direct fallout of tax breaks. In fact, taxation needn’t have substantial impact on executive salaries at all. Wherever you find a greedy CEO, you find a CEO who will take whatever s/he can regardless of net profit impact. Compensation in any US company can be more a factor of supply, demand, job retention and market conditions than anything else.
Tax breaks are intended to lure corporate behavior likely to create net positive impact on the economy. These incentives are used to create jobs, stimulate economic spending and increase the many other taxation opportunities which fund our government. Tax breaks to “big oil companies” could be considered in exchange for actions that heal the economy, such as the lowering of fuel costs to the public. With proper structure and surrounding conditions, this tax break could provide a positive net economic impact. Additional discussion on this point is well summarized at this CNN article. While we need to avoid tax incentives as “currency” to special interest group and campaign fundraising, let’s keep the discussion focused on the “how” and “why” we propose tax breaks. Let's also consider the individual taxes paid on salaries, personal spending and economic impact of the personal investments of CEOs. Without that language, we haven’t enough information to comment.
As a CEO who does not practice greed, I think and behave like many CEOs who think as shareholders, and I choose to protect company value, the supporting team/infrastructure and my future as the CEO. CEOs are accountable to the shareholders. These strategies are the subject of board meetings and MBA programs. CEOs in large companies may have the shelf life of a pro football player, and if we want to attract top talent to these economy-driving opportunities, as a country we may choose to offer a large incentive package, again proportionate to results. Where publicly traded companies may wish to empower a “celebrity” CEO to drive shareholder confidence, CEOs must be lured from one high paying opportunity to a higher paying opportunity. Done well, this creates overall positive economic impact.
With the pyramid shape of a large company, competition abounds. Power and high compensation are fragile here as many others are grooming and gunning for your spot. If you don’t move up, you move out. Once at the top, it’s far too easy to get pushed off that pedestal. This may be career ending as experience isn’t entirely transferable and few companies wish to pay you for what you did for someone else.
If you don’t believe the disconnect between corporate taxes and CEO salary, then spend a little time researching the high CEO salaries of the many giant companies who post annual fiscal losses – yielding no income taxes paid to the government.
Anyone who has studied business in depth knows these principles to be true. The United States needs first and foremost a President who inspires confidence. It concerns me – no, disappoints me – that a political party would use lack of education as a weapon against the very sector of our population that it pledges to represent – and protect. Less education can be a fallout of less financial resources – the people the Democratic candidate, Barack Obama, professes to support. So why make such wittingly false claims to the people you represent? I love Democratic ideals and am a centrist at heart. I tend to agree with Republican fiscal policies. I tend to vote Republican because I believe in the foundation American principles of capitalism. I believe the answer lies neither at extreme left nor extreme right. I have specific ideals and blueprints for action. I support the working people. I support people who work as hard, and even not necessarily as hard, as I do. I refuse to support those who don’t do their best and look for a payout due to some sense of entitlement. There is no such entitlement. If you don’t believe me, look up “free enterprise,” the backbone of US principles in business.
Jessica Ollenburg - Saturday, September 27, 2008
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Suffering the adjudication of sometimes economically and ethically irresponsible state workers, it becomes more costly to appeal the wrongful award of benefits than to simply pay the wrongful benefits. This in turn erodes not only employee work ethic but also employer confidence in the “system.” A state neglectful in maintaining this confidence misses opportunities to attract and retain tax paying and job producing employers. The unemployment rate simply needn’t be as high as it is, and our economy allows for more gainful employment than currently experienced.
When we fail to hold employees accountable for their choices and reward them for unacceptable work ethic, we behave unpatriotically and simply don’t uphold the free enterprise values of the “working American.” When we award compensation to those who refuse to work, how do we simultaneously advocate that we support the working?
I can’t imagine a better cause than helping those who cannot help themselves. There is nothing more frustrating than being forced to help those who refuse to help themselves. We empower people who either cannot or will not make that distinction. As we look to political platforms that promise “change,” let’s move this need for change to the forefront. Society doesn’t seem to be getting smarter and doesn’t seem to be working harder. While to “work smart” is the goal, we need to focus on both words in that key phrase.
The upshot of awarding unemployment to those who should not qualify is the de-motivation of employers to even attempt to follow guidelines and suggestions of the unemployment compensation adjudicators. Employers understand the futility of attempting to work with standards that, if followed, would put them out of business or at a minimum, force the reduction of jobs offered.
The re-label from unemployment “compensation” to “insurance” is a complete misnomer. Too many are being “compensated” for items completely within their control. With 25 years of operations in the state of Wisconsin, I love my hometown state and have difficulty finding employers who do not support these statements. As HRS continues to expand our bases in Arizona, other states and other countries, data pours in as to why employers choose specific locations, the politics and legislation considered.
Growing up, I recall the joke “National welfare is a bus ticket to Milwaukee.” As a businessperson with clients in many states and countries, I assert this problem is not unique to Wisconsin and goes to the political roots in every state. Let’s please recognize that protecting jobs and protecting wages begins with protecting employers. Let’s also please redefine what “working” means and hold “workers” accountable to their “work.”
Jessica Ollenburg - Friday, September 19, 2008
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