In an effort to find a feasible solution to the health care crisis I posted my first diary,
Retired M.D. & HMO administrator speaks out, and met a wonderful reception, thanks to you.
I've also explained why a new universal health care system must have an independent administration in order to short circuit K Street. I've shown you the blueprint for just such an independent administration, and I've laid down the eight inviolable rules that ensure that health care system's success.
That's my plan, Health Security America, and it is building up a head of steam. Wisconsin's largest congressional district adopted our resolution modeled on Health Security America last weekend, and our effort is attracting quite a bit of media publicity--allies, too.
There's much more about the projected savings below.
I'm predicting a 50% savings in premiums, and today I want to show you where the savings come from. We will be looking at just one of the three major expenditure areas: physician and clinical services, and using my colleague still in practice as a case study. He's yoked into a big clinic practice, but what if he were to shrug off the yoke and run his own practice again?
Aside from physician and clinical services, the other two are the hospital and the patient, and will be treated separately.
If the idea of trimming administrative costs strikes you as dull, remember that the Health Security America plan is tantamount to your own business. What you end up with at the end of the month is due to your own efforts as owners of that business. You will have to be diligent and treat the special interests that solicit at your door as if the money is coming out of your pocket--because it is.
So, how do you carve savings out of physician and clinical services?
First of all, after I retired, I went into my own house call practice and did all my own administrative work, sans accountant, financial director, medical transcriptionist or any other administrative staff. It worked pretty well.
Then I took what I'd learned from my own house call practice and applied it to my colleague, Howard Thalacker, M.D., who was still working for the large clinic that I'd left. The results of that study were stunning.
Put yourself in the place of Dr. Thalacker, the person in the excerpt from my book Health Security America: Fixing the health care crisis Drift off for a minute--you've been making a fair salary in a large clinic system, seeing patients and letting others handle the paperwork. You work hours set by the administrators of your clinic, and practice according to their guidelines. A rather large portion of your billable hours goes straight to paying the administrative overhead. If you choose to leave that clinic, you are contractually bound not to practice within 25 miles of your old work site.
But under HSA, that has changed, suddenly. You now are given total autonomy and by necessity will have to administer your own practice. You will charge less in fees and your revenues for the same work done will drop 28% from one month ago, yet you take home more pay. You win, your patient wins, the nation wins.
If you want to see what is coming, doctors, buy the book. You will have a head start if all the doctors reading this are freed from their non-compete contracts and can go out on their own and basically fire all the staffers not contributing to the health of the nation. (I am so opinionated, but so be it.)
Saving of money in any plan of single payer and universal nature will have to happen. As we all know Medicare is going broke and we know that special interests are helping. (Part D of Medicare a most recent example). We all are advocating a "Medicare for all" approach in some fashion. In no way can we continue to spend twice what other nations spend--in return for less life expectancy. Or, put another way, over one third of a trillion dollars--338 billion dollars annually on physicians and clinical services.
This first savings plan on physicians and clinical services will save us $142 billion annually. Here it is:
PHYSICIANS AND CLINIC SERVICES
When people talk of health insurance premiums, they include physician bills and hospital costs. This is the traditional definition of "health insurance premiums." I have suggested the idea of slashing our health insurance premiums by fifty percent. If your insurance premium is now $1,000 per month, is it worth the battle to halve it to $500 per month? I think that most people would agree. I also stated earlier that everyone will have a responsibility to see that we do it, and part of that responsibility entails learning how the system works. This chapter and the two following it will take our system apart and put it back together.
The last statistics available to me are from 2003 and taken from the California Healthcare Foundation, published on the internet and available to all. I will not address the dental, nursing home or home care costs. I will address prescription drug costs, and, at this point in our health insurance history, coverage of those costs may or may not be included in the definition of health insurance as Americans understand the term. All of the decision making will be left to ordinary American citizens. Once this plan is put in place, if people don't like it, they can change it. They might think that the premiums are too high, and will have to think of ways to lower them. Health Security America starts us along this path of fiscal restraint. Everyone will have more responsibility put on him or her, including physicians and nurses, patients and hospitals. I have laid out the form of governance describing how the Health Security America Plan can be accomplished in the last three chapters. Now I am going to show you how it will actually function. I will give you facts and figures, and as we move along, present difficulties that will have to be addressed. There will be no free lunch. These ideas that I set down here will map the road to health security for all Americans.
THE STATISTICS*
In 2003 Americans spent:
- $556.6 billion on hospital care
- $398.44 billion on physician and clinical services
- $192.68 billion on prescriptions
- $1146.72 billion total (over one trillion dollars)*
I am going to show you a practice in a large clinic setting and adapt it to a new paradigm of management under HSA. The new paradigm, if adopted, will save $142.32 billion per year. Many of the numbers come from my 2003 research, titled "How We Practice Medicine."(See Appendix A, page 113) My partner of many years, Dr. Howard Thalacker, who still practices with the Midelfort Clinic, a part of the Mayo Health System, provided me with the raw data from his own practice for 2003. This study was originally done for a presentation at the Tri-County Medical Society to demonstrate the waste in large clinic administration and how we could fix it. It can be found in Appendix A in its entirety. I am going to extract its results here in layman's terms.
Dr. Thalacker goes to work every day and every two weeks receives a check representing his salary and a stub showing contributions made to his retirement funds and social security. He does not concern himself with billings, clinic rent, malpractice insurance rates, hiring or firing, utility bills, supplies or even if the heating system or air conditioning system is working. Another person does all the administrative and maintenance work for him. Someone else also dictates his work and meeting schedules. As for clinic policy, Dr. Thalacker determines none of them--a board of directors does. A staff of clinic corporate officers, medical directors and middle management administrative personnel presents the policies to him. And even if he does not agree with them, the senior management exercises considerable influence over his practice guidelines. As an example, Dr. Thalacker is no longer allowed to dispense free samples of drugs to needy patients, as has been done in the past.
As a result, both Dr. Thalacker and his patients suffer some distress, but he has dutifully followed these and other orders. He has no alternative, such as breaking with the clinic because of practice and policy differences and starting a new practice of his own, taking care of patients in what he sees as an appropriate way. Why is a typical family practitioner such as Dr. Thalacker so bound to the large clinic's way of doing business? The answer is contractual obligations. Although he is technically free to leave the practice at any time, he is a de facto captive, and his continued livelihood hinges on staying put. He has signed a non-compete agreement with the clinic stating that if he does leave, he must practice 25 miles from his present practice for a period of no less than two years. The penalty for disagreement is no job. It is accepted in the medical profession that if one leaves for two years, one's patients will find other doctors. If one chooses to stay in the same location, one's patient base will have drained away by the time the non-compete clause expires.
Dr. Thalacker has accepted the fact he will not be required to administer his practice despite the very little effort it would demand of him. Instead, he need only go to work every day and follow orders from his superiors. He goes to his job daily and his only concern is practicing medicine as best he can under the administrative guidelines, receiving his check every two weeks. On the face of it, it may look like a fair trade-off, but the hidden cost is staggering. In fact, according to the Coalition for Wisconsin Health, administrators are "the most rapidly growing segment in the health care labor force. Between 1970 and 1996, the number of health administrators increased more than 20 fold while the number of physicians and other clinical personnel increased about 2 ½ fold."2 The money wasted using the current large clinic type of administration for a medical practice of two physicians in one office is $289,640 per year (34.7 percent of total revenues) or almost one third of a million dollars. One of the strengths of HSA is that it will use the money saved from unnecessary middlemen to lower health care costs nationwide for physicians and services 34.7 percent. That amounts to 142.32 billion dollars out of 398.44 billion per year spent on physicians and services--an enormous savings.
Where did I come up with the administrative costs of a two-physician office functioning as part of a large clinic amounting to almost a third of a million dollars? How are we going to save this huge amount of money to reduce HSA premiums? I have to admit that I had to cajole my former partner with a grilled sockeye salmon lunch to admit his W-2 earnings of $175,000 for 2003. That salary figure was crucial in demonstrating the method of savings. We are assuming a two physician medical practice, but this same method has worked for me in the past for all of thirteen years, with up to nine physicians in a practice using three buildings in three different communities.
The revenues of Dr. Thalacker's practice as well as that of a partner, using the present usual and customary billing methods combined with Medicare and Medicaid payments, amounted to $834,064 for one year. The expenses, if Dr. Thalacker and his partner were to administer their own medical practice, were determined by going out into the community and determining salaries, cost of buildings and equipment, insurance, utilities, building taxes and other typical costs. The numbers are accurate and the sources reliable. Dr. Thalacker and his partner, with the help of a lead person, would have to administer their own two-physician medical practice, and it would include hiring, firing and cross-training of employees, deciding whether to buy or rent a building, making sure that the utilities are maintained and paid for, hiring a financial consultant to run the clinic's retirement fund and, in essence, do just as any other business on main street Chetek, Wisconsin, does.
This stands in stark contrast to the way it is currently done for him, with a large clinic's managed practice administrative employees doing all of the aforementioned tasks. The total cost of running this two-man medical practice would be $194,424. If Dr. Thalacker and his partner each drew a salary of $175,000 and the expenses totaled $194,420, they would be left with $289,640 of surplus--again, a windfall of almost one third of a million dollars for two doctors. ($834,064-175,000-175,000-194,424=$289,640)
There is a place for skepticism, here. Why would the two doctors now administering their own clinic give back this surplus $289,640? This is the major strength of HSA. They will not give it back, because, under HSA, they will not receive that money in the first place. HSA will start paying Dr. Thalacker and his partner only the Medicare set fees for all the procedures. This will cause about a 28-percent reduction in revenues for the two doctors. Remember, initially, the Medicare set fee schedule will be the HSA fee schedule and can be changed at the will of citizens via the governance methods described in Part Two of this book. The physicians will still make a good living--most probably better than they are now with the large clinic doing all the administration. Their revenues under HSA would total $595,760, from which they would take $194,420 in expenses, leaving each of them with a $200,670 salary. This is more than the $175,000 they are now receiving, so the incentive to work as a physician remains intact, with the added incentive to manage one's own practice.
Veteran physicians will remember what it once was to be in charge of one's professional life, and newer physicians who have always labored for large clinics will be pleasantly surprised under HSA. If they were to set out on their own under the new system, no one would try to dictate to Dr. Thalacker and his partner whom to hire or how many. Certainly there will always be differences between medical offices; some doctors would choose to do things such as giving their own injections rather than hire someone to do this. Some doctors will choose to dictate notes into their computers and send the file to India at the end of the day and have it returned the next morning ready to be put in an electronic file or printed out, depending on the needs of the practice. I have chosen not to include dollar savings for this type of detail, since details will vary from office to office, and each physician will have to make his or her own decisions. And all of these decisions easily fall within the realm of expertise of a new physician. If he or she feels they are not, then someone will have to take on those duties for a cut of the profit. But most essentially, it is the physician's choice and responsibility; no remote CEO or accountant pulls the strings.
The new paradigm of clinic practice is the same one I was a part of for thirteen years, ending in 1978. Its methods are tried and have proved effective. There is nothing to indicate that the same format will not work again. As I said, this paradigm won't be new for the older physicians reading this, but it will be for the new physicians. Newly graduated physicians are going to have to look out for their own business, taking some extra time to learn, if the topic is a new one. When one's vital interests are at stake, running a business is not that hard, and common sense is all they will really need.
The newly trained physician has to find a place to practice medicine. It takes physicians about eighteen months to ferret out a pleasant location in which to work and raise a family, and usually is concurrent with the last 18 months of his or her training. Indeed, there will be locations like the Chetek I encountered in 1965, where an established physician may want to add another partner. If the two parties can come to an agreement, they will be able to work together. There will be no non-compete agreements signed, since prohibition of non-compete clauses is one of eight inviolable rules of Health Security America. This same new physician might decide that he or she wants to be the absolute decision maker and start up a fresh practice, building his patient base over time. Starting up solo will be no problem, since he or she will be on staff at the local hospital unhandicapped by an exclusive closed staff policy--again one of the eight core rules of HSA. The new physician will have to find a building, hire employees, buy supplies and equipment, and find start-up funds to work with. Although medical practice start-up is essentially no different than that of any other business, most banks are exceptionally eager for the physician's patronage, since his or her chance of success is high, and the risk to the lender is thought to be low.
Dr. Thalacker and his partner will have to change the way their practice is administered, and will have to negotiate with owners of his clinic building in order to rent space. If renting falls through, they will simply find their own building. HSA legislation will give them the authority to do so, rendering the non-compete contract unenforceable for anyone accepting HSA payments. One of the eight rules states that physicians who accept HSA payments for work done will not be allowed to have a non-compete agreement with an employer. Clinics accepting HSA payments will not be able to make non-compete agreements with employees. Neutralizing the non-compete catch-22 will enable Dr. Thalacker and his partner to leave the large clinic practice and administer their own. And what is more, I am sure they will want to leave, since the large clinic administration costs will further shrink their new revenue stream, already 28 percent less than what it is right now.
At first glance, the paradigm shift seems drastic, but really is not. The real estate consists of a special-use building (this means only one type of use for the building allows the building to have significant value--in this case a medical building), and the owners will either sell it to a group of doctors or rent them space in it, since there is no other feasible use for the building. Not without extensive remodeling, that is, and of course this is not typically a cost-effective use of resources in a town of 2,000 people. There will be no waste. I suppose that administrators will have to look for work, but so do the employees at General Motors who are losing their jobs, thanks to high health care costs.
Another welcome change will be the reinfusion of vigor into the medical societies described in Chapter 3. Long atrophied, medical societies will resume the functions that large clinics long ago seized (or left derelict): practice guidelines, peer review, credentialing, ethics, and many other functions.
Health Security America legislation will open the gates for all this to happen immediately on its passage through Congress. Is saving 142 billion dollars a year worth the change to physicians' lives? I think so. I am not worried about physicians handling the change; they will do fine. Their education is broad enough for them to be able to make the segue with minimal upset. I know that citizens governing HSA will ensure that the savings will go a long way toward helping the ten million uninsured American children to secure coverage.
Stay tuned for information on how we can achieve great savings in the areas of hospital and patient expenditures.