A Cautionary Tale for All Healthcare Providers
The advantage of healthcare insurance is that people can pool resources and spread financial risk associated with major medical expenses across entire populations to protect everyone. But let’s be clear. Healthcare insurance companies like Cigna, Anthem, Humana, etc., which are often called “the payers,” aren’t the actual payers. They are intermediaries.
Healthcare insurers receive payments from employers, individuals, and governments in the form of premiums, and then they pay part of that money to healthcare providers such as doctors, hospitals, PBMs (pharmacy benefits managers), and even some to doctors of physical therapy. Then, as expected, they keep some of that for themselves, ostensibly to cover overhead and, in some instances, to create profit.
When health insurance schemes first appeared on the scene back in the late 19th century, it was never envisioned that these financial intermediaries would someday assess the value of one treatment or diagnostic test over another based on their experience, and then base payment on the use of mere codes invented by these same intermediaries for billing and payment purposes.
But today, with the costs of employer-paid health insurance rising rapidly – up 78% since 2001 while wages have risen only 18% with a 17% increase in inflation – these financial intermediaries are under enormous pressure to justify their premium increases and misdirect much of the blame for these increase to healthcare providers.
Misdirection and a Shell Game?
To explain how these tactics of misdirection have come to affect the healthcare industry, let me focus on one segment of providers: physical therapists.
First, let’s consider this: Some of these financial intermediaries have established non-profit organizations that eventually convert to for-profit companies, either purposefully or by government fiat. Example: Blue Shield of California.
As it turns out, this conversion is actually a smart financial play! But the question becomes: is this just a kind of “shell game” intended to make top executives wealthy and shareholders of insurance company’s rich. If so, it seems to be working because top execs are being paid millions of dollars per year by squeezing providers and molesting their customers, the insured.
Second, there is huge incentive motivating industry lobbying. Private health insurance alone spent $961.7 billion in 2013, or 33% of total US national healthcare expenditure. Clearly, the healthcare insurance industry spends a lot of money on lobbying to make sure the interests of the industry are well served. They develop strong and powerful lobbying coalitions to ensure their interests – not those of the insured or of providers such as PTs.
Third, these financial intermediaries put forth a great deal of effort and resource to make certain no single provider or provider association becomes too focused or too strategic so as to jeopardize the interests of the intermediaries. And, in my opinion, when it comes to physical therapy professional associations, whether nationally or locally, this has been accomplished with maximum effectiveness.
Fourth, these same financial intermediaries incentivize and support the creation of secondary networks or middlemen that are used to reduce payer costs – not overall cost of care – by negotiating favorable fees from providers, selecting lowest cost providers, and by creating financial incentives for providers to practice more efficiently. This may sound good, but it turns out these networks can be wolves dressed in sheep’s clothing.
Most of the provider networks take what I call ‘the Walmart approach’, by offering tantalizing relationships with promises of gold and virility, then beating down those same providers, especially PTs, into submission with unnecessary administrative tasks and the fear that they will no longer have the patient volume needed to successfully run their practices if they don’t accept less and less in the amount of payments for their services. The problem with this approach: if you lose a just a little bit on every patient, you cannot make it up on volume.
The Cautionary Tale for All Healthcare Providers
Our current payment system puts every provider at every level at risk. Healthcare providers as a whole need only to pay attention to what has happened and is continuing to happen to members of the physical therapy industry to see what is possibly in store for them absent a major shift in payer structure. Payments for the PT services have declined from $124 to $54 per treatment and even less in some states!
If healthcare insurance intermediaries frustrate doctors, upset and confuse patients, bankrupt private practice owners, contribute to escalating costs, and provide few benefits that actually enable providers to practice better healthcare, a reasonable person might wonder, “How have they have maintained their central role in healthcare for so long?” The answer is: well-crafted and executed strategies, a laser focus, and lots of money on their part, and a lack of strategies, focus and money on the part of the provider communities.
All providers of healthcare services must realize that regardless of their practice areas or specialties, the interests of the neural surgeon are the same as those of the physical therapist, and the interests of the private practice providers are equal to those of the large healthcare conglomerates. What these financial intermediaries are doing to providers is not unlike the poisoned chalice. It looked right and it may have even seemed good when received, but it actually does great harm.
As PTs struggle to make sense of what is happening to them and what they can do about it, I believe we need to take a closer look at the reasons why healthcare costs in the US are so high and outcomes so relatively poor. As I type, the U.S. stands alone among the more highly advanced industrial economies in its reliance on private insurers to administer much of the healthcare payment system.
Outcomes Matter and Should Not Be Determined by the Intermediaries
If outcomes truly matter, how can we expect this insurance intermediary model to survive? The effects of reducing payments to providers and demanding they see more patients in less time, whether instituted directly or through network middlemen, while at the same time increasing premiums to employers and individuals does nothing to reduce the overall cost of healthcare, and certainly little if anything to improve healthcare outcomes. Critical things will get missed, fewer details will get documented, and the diagnosis and treatment codes for billing will become even more erroneous.
Sooner or later, the risks these intermediaries are creating for all facets of the healthcare system will become evident, and their inability to be able to continue to feed the monster of their own creation will become obvious to their shareholders.
This will make them more and more susceptible to competitive pressures, and proven healthcare outcome improvements driven by providers, governments, and consumers will eventually force their transformation, and possibly doom the health insurance intermediary model altogether.
Until then, healthcare costs will continue to rise with more of the costs being shifted to individuals as the financial intermediaries place further restrictions and burdens on providers, all in an effort to obviate coming clean about their inability to use data to establish the true costs and value of one treatment over another.
The true customers of healthcare providers, their patients, are those who should determine the value of a provider’s services, not intermediaries. Healthcare providers and their suppliers – such as the drug companies, PTs, imaging technology owners, etc. – must determine the degree to which the outcomes of an episode of healthcare were optimal or not. Determining what outcomes should be and what they actually turn out to be should be the purview of the providers.
Healthcare Providers Need to Wrest Control of Measuring Healthcare Results
The key will be for the healthcare providers to be able to understand what matters and actually contributes to desired and actual outcomes. Patient history, quality of life, duration of life, time to diagnosis, response to prescribed treatments, patient adherence, treatment efficacy, and functional outcomes are the base-line or the anti-to-play in these measurements.
If healthcare providers can make the shift toward taking more control over defining what outcomes mean and what it costs to achieve desired outcomes, then more providers might consider offering their own health plans. If all providers could see and understand the full patient picture, which includes financial as well as healthcare impacts, I believe they would be more likely to up us reduce or even eliminate the need for third-party billers and the payers.
Health Insurance companies, which got their start by assessing and assuming risk, have gone to great lengths in recent years to insulate themselves from as much risk as possible. But over the next 10 years, we could see a major shift to defined contribution health benefits plans, similar to the recent shift in retirement plans from defined benefit to defined contribution. I am not advocating any particular solution or strategy, just pointing out that things cannot and will not stay the same.
Today, because of poor customer service, high premiums, and constant pressure on payments to providers, and especially PTs, I believe we are now seeing that a disintermediation process has begun. With new approaches to determining and measuring outcomes through a greater reliance on data, this pot is about to boil over.
Even though the healthcare insurance industry currently has Wizard of Oz-like power, betting on their survival seems to me to be a losing hand – maybe not in the short term, but definitely in the medium to long term.