I.  An Endless Debate

Providing low cost, high quality, readily accessible healthcare is a classic “wicked problem” – a complex challenge that never seems to go away and never seems to get fixed. Despite decades of debate, countless experiments, and nearly constant public policy focus…healthcare continues to cost too much, continues to be unsafe and/or suboptimal in quality, and continues to be out-of-reach either financially or logistically for too many people.

All that said, this is a problem that CAN be solved. In fact, the solutions are not as complicated as one might think.  But, it will require widespread political resolve, Pivot Politics^© collaboration[1], coordinated action across several political and economic sectors, and the ability to make long overdue, yet painful decisions.  But, perhaps even more importantly, it will require providers of healthcare to make personal – perhaps involuntary – sacrifices.  Just as workers in other industries – airline pilots, factory workers, taxi drivers, and more – sometimes suffer the effects of disruption in their industries, healthcare workers will face disruptive, and sometime painful, forces.  But, the longer healthcare providers resist inevitable changes, the harder those disruptions will be.

This not-so-short treatise is intended to be a concept document that outlines both why healthcare reform has failed to date and what reform must include in the future in order to be successful. This document is not intended to be a comprehensive step-by-step plan of action.  Nor is it intended to end all debate.  This document is written to provide both experts and novices a common platform for discussion and a compass by which proposals can be measured, compared, and judged.

Therefore, let the healthcare debate continue. But, let an end to the debate be within sight as well.

 

II.  An Upfront Caveat

Countless reform initiatives have been introduced over the past 30 years in the USA, the UK, and scores of other countries. Some of these initiatives have enjoyed moderate success and have led to meaningful improvement.  None of these initiatives have solved the problem once and for all.  There are certainly a host of challenges that contribute to this history of failure…

• Vying for Political Advantage: Whether it is promising to protect the NHS in England if the voters pass Brexit or the nearly decade long debate around Obamacare in the USA, politicians find healthcare to be a convenient whipping post by which to beat the opposition bloody. As a result, most serious reform initiatives are immediately undermined by minority political parties – for short term political gain, but to the long term detriment of our societies.

• The Devil We Know: Healthcare Reform is a classic example of the “Devil We DON’T Know”. And since we are talking issues of life and death, the public is slow to embrace theoretical change. Therefore, unless the public has had a first-hand experience of…
  • a loved one killed by the healthcare system;
  • a friend or neighbor who has suffered severe financial hardship because of healthcare bills;
  • or, a loved one forced to live in discomfort and pain waiting for care…

…the benefits of healthcare reform are all imaginary. It is, therefore, hard to build widespread public consensus and enthusiasm for reform.  Conversely, it is easy for opposition political parties to create scare tactics that favor the status quo.

• Fractured Provider Networks: The healthcare system is so insanely fractured – in virtually every country — that effective “reform” will always need to be a PACKAGE of multiple reforms dealing with issues as far flung as financial reserves for insurance companies; the scope of professional practice; guaranteed coverages for care; and more. This is where the age-old political reality takes hold – if it take more than 20 seconds to explain a proposal, you’ve lost your audience. So, once again, it becomes difficult to build public support and sympathy for reform. But, more importantly, the fractured nature of healthcare creates divisions within the healthcare sector itself – doctors vs. hospitals; primary care vs. specialty care; insurance vs. providers; and so on – which then results in an inability to build multi-factorial, yet logical reform initiatives. 

All that said, if we hope to transform healthcare for the better, the single biggest barrier that must be broken is the absolute unwillingness of healthcare sector itself to be fixed.   Healthcare is BIG business.  Healthcare professionals make BIG money.  The medical establishment is a BIG political force.  For those who are healthcare insiders – doctors, hospitals, medical staff unions, medical device companies, pharmaceutical companies, insurance companies, departments of health, and more — the status quo is a pot of gold at the end of a rainbow that they do not want to change.  Whether it is high salaries in the USA, generous NHS pensions in the UK, or status and position in Southeast Asia, the status quo of today’s healthcare sector is the goose that lays the golden egg – and thus, no one inside healthcare wants to kill the golden goose.

Yet, the economic prosperity of the healthcare sector comes at the expense of every other social priority and economic sector. In short, as healthcare devours an ever growing part of our international GDP,[2]  every other sector – education, housing, infrastructure, social support, and even discretionary spending – suffers.

Therefore, the healthcare reform debate is a classic tug-of-war between the nobles and the commoners, the landowners and the sharecroppers, the “haves” and the “have nots”. Those who gain from the present system will resist change and reform as long as they can;  those upon whose shoulders the burden of the current system rests are unable to force change.   In fact, it is remarkable how timid professional associations – hospitals, physician groups, healthcare unions – are when it comes to healthcare reform.  They ask for more money.  They propose minimal changes.  But, they rarely, if ever, recommend truly disruptive changes that could dramatically change healthcare for the better.

In other words, the industry itself always pushes for changes that tinker at the edges, but that ultimately protect most of the status quo. Which leads us to the uncomfortable reality in this debate – if the definition of insanity is “doing the same thing…expecting a different result”, then healthcare reform needs to fundamentally change the things we do.  And that requires us to disrupt healthcare – to gore our own oxen and to kill our sacred cows.

So, an initial caveat – and one of the most important, primary litmus tests for ANY proposed healthcare reform initiative – should be this: Any reform initiative that essentially leaves today’s healthcare delivery and payment systems in place – offering marginal changes at the fringe – is little more than a wolf in sheep’s clothing. Toothless reforms that will delay real change in order to protect the status quo for those who have the most to lose.

This document attempts to cast those limitations aside – offering suggestions that will work rather than those which are popular; overtly disrupting those elements of today’s healthcare system that undermine long term success;  and endorsing no political party’s and no individual country’s system or philosophy as being superior.  In fact, if this paper makes everyone a bit agitated and uncomfortable, then maybe we are on the right track to real reform.

III.  Principles to Guide Our Decisions

As already said, dramatic reform that actually solves the triple problem of access, quality, and cost will require us to disrupt the healthcare world – “to gore our own oxen and to kill our sacred cows”. That said, disruption for the sake of disruption offers no value.  Therefore, Healthcare Reform needs to be driven by key principles that will guide our decisions, shape our public policy, and determine the final designs of our care systems.  Some of those key principles which guide the recommendations included in this document follow…

1. Competition is critical if we want a healthcare system that is innovative, responsive, and dynamic. Competition encourages the development of new therapies, promotes the redesign of care to embrace technology, elevates the importance of responsive service, and empowers patients to become an active part of their own care process. Conversely, the absence of healthy competition ultimately ends with rationing – doing less, limiting investment, restricting access, and prioritizing which diseases and which patients will receive care and which ones will be ignored. All that said, it is paramount to note that competition is not synonymous with private or for-profit healthcare – competition can be embedded in public and non-profit systems as well. And, more importantly, competition does not need to be a “zero sum game” – one provider wins while another loses. But, healthcare organizations do need a healthy “competitive” environment in order to be truly innovative. 
2. Consumer Driven Options are necessary to guarantee a healthcare system that provides customized, diverse, and flexible healthcare options. For too many decades – even centuries – patients have had care “done to them”. The norm has been for care to be designed for the convenience of providers – thus forcing patients to bend their preferences, their habits, their schedules, and their care journey to the whims of the healthcare system, rather than the system bending to the needs and desires of the patients. This results in a one-size-fits-all approach to healthcare. Consumers need the ability to access healthcare in different ways, at different times, to different intensities, with different levels of personal involvement, and with different levels of service. This is the only way that the healthcare system can offer services and care plans that are as diverse as are the patients who need care.
3. Universal Coverage is required for any society to be prosperous, competitive, and vibrant. Healthy citizens are also healthy and productive workers, healthy and involved parents, healthy and focused students, and healthy and happy pensioners[3]. Healthy citizens contribute to the prosperity of their communities, their employers, and their families. Conversely, sick or at risk citizens are a drain on a society – requiring expensive services and demanding the time and attention of care givers. Just as societies prosper when all children are educated, when all neighborhoods are safe, when all drinking water is clean, when communication networks are widespread, and when transportation systems are comprehensive…our societies will reach their fullest potential only if ALL citizens have access to safe, effective, and affordable healthcare. However, it must be noted that universal does not mean centralized or single payer. Universal is about guaranteed access to care, not about how that care is delivered, paid for, or provided. That said, universal care does imply some sort of mechanism to subsidize the cost of care for lower income individuals and to also mandate — either through taxes or by a legal requirement to be insured– that a broad base of citizens provide sufficient financial support to sustain the healthcare care system itself. The failure to subsidize care would doom some segments of the population to care denial, which most societies are unwilling to do.
4. Effective Regulation and Oversight is necessary to safeguard the public against abuse, negligence, neglect, and poor performance. Healthcare is an industry unlike any other when it comes to regulation and public oversight…
   • healthcare performance and outcomes are notoriously opaque…obscuring which providers are strong performers and which are not;
   • many healthcare professions are allowed to self-regulate…resulting in protectionist behavior rather than expectations of excellence;
   • many healthcare organizations are charitable non-profits with benevolent missions and good intentions…making it difficult to criticize their performance and even more difficult to add new demands and expectations for the care they provide;
   • the healthcare sector writ large is driven by a belief that healthcare needs are vastly different from one community to the next, from one hospital to the next, and even one department to the next…making care standardization and compliance with regulations something that the industry often resists rather than promotes;
   • and, because the healthcare system deals with life and death, miracles and tragedy, as well as hope and desperation, healthcare providers tend to be insulated from the patients they serve, wrapped in blankets of righteousness, deference, and even futility…generating a learned helplessness when it comes to improvement; fostering a reluctance to criticize outcomes from outside the industry; and, contributing to a quasi-paralysis where the healthcare sector is slow to innovate and slow to challenge the status quo.
     • For all of these reasons, healthcare regulation tends to revolve around infrastructure – environmental inspections; documentation (record keeping and procedure writing); and licensure (educational standards for doctors, nurses, etc). More specifically, the theory behind today’s regulatory environment is that a correct environment – proper facilities, educated staff, and proper governance – will generate high quality care. But, clearly, current healthcare outcomes betray the reality that this current regulatory environment is not working – patients are not kept safe and the public is not guaranteed highest possible quality of care. The answer is not to blindly repeal current regulations, but rather to regulate and oversee healthcare differently than it is regulated today. Future regulations need to be focused on true outcomes – the adoption of and adherence to best clinical evidence, patient convenience and service, population-wide health outcomes, quality of life outcomes for chronic patients, patient satisfaction with the care experience, rapid access to appropriate care, the absence of quality lapses, and so on. This will require both higher standards than exist today as well as different regulatory mechanisms. All that said, it should be noted that in a well-regulated environment, regulations do not kill an industry, but rather level the playing field to make sure that no sub-standard providers are allowed to continue unchecked.
5. Large Scale is important in order to achieve maximum efficiency, generate significant investment, and guarantee long term sustainability for the healthcare system. Few will argue that the healthcare system of the future will require advanced technologies, sophisticated data systems, high performing mobile applications, highly trained professionals, clockwork efficiency in operations, significant investment in infrastructure, and more. Developing these capabilities and technologies requires significant capital, unmatched expertise, and large-scale specialized staff. Yet, healthcare today is best described as a random patchwork of local, independent, small operators. Even the largest of healthcare systems is small in comparison to global or national competitors in other economic sectors; in fact, there are hundreds of independent healthcare organizations and 1000’s of stand-alone hospitals in the USA alone. And, somehow we expect each one of these small organizations to be technically, financially, and operationally advanced. We expect this of no other industry at this time. For example, there are only 3 major airline networks that cover the entire country and 5 to 10 other niche airlines; there are 4 or 5 cell phone networks covering the entire USA; a few pharmacy chain networks serve the entire country; and so on. Even in healthcare, the greatest scientific innovations – new devices, new drugs, new care protocols – are mostly driven by mega-sized organizations and companies. Therefore, significant scale – far fewer healthcare organizations, covering much larger or nation-wide geographies — needs to be promoted and encouraged. Note that small size does not create competition and large size does not squelch competition. Currently, most markets have only 2-4 major hospital competitors, and yet those competitors are localized to one or maybe a few markets. The key is to create larger scale organizations that gain scale across scores of markets and that compete against similarly sized peer organizations.

IV.  Nine Key Proposals 

In service to the five principles listed above, the following recommendations are offered as a master blueprint for healthcare reform – both in the USA and in any other industrialized country on the planet.[4] There is great flexibility as to how these recommendations could be implemented, but in combination these provisions should result in a sustainable, affordable, high quality healthcare system.

Provision #1: Capitate Care Payments

Capitation is the payment method by which providers[5] are paid in advance to provide all necessary health care for an entire group of patients – an entire community, all employees of a business, all patients with certain conditions, etc. If the patients within the group are kept healthy, well managed, and provided with cost effective treatment options then the provider prospers economically. If the patient group is poorly managed and costs escalate then the provider will suffer financial loss.

Over the years, there have been many derivatives, and many adulterations, of “capitation”.   For purposes of this discussion, capitation would include only those payment schemes which pay ONE (and only ONE) organization (insurer, clinic, hospital, HMO, etc.) for…

• The administration of care for ALL levels of acuity – preventive, primary, tertiary, etc.
• The provision of care in EVERY site – emergency, community, hospital, clinic, home are.
• The delivery of ALL modalities and types of care – surgery, pharmacy, behavioral, etc

Clearly safeguards are required to guarantee that care provided is high in quality and that providers do not exploit or abuse patients by denying care, making care inconvenient, limiting patient choice, and so on. In short, regulations would be required to make sure that capitation pays for outcomes not for rationing.  That said, when it has been well administered and managed, capitation is the ONLY payment mechanism that has been  shown to successfully…

• Encourage the design of care that will achieve best outcomes for what the public actually wants – good outcomes rather than just “doing thing”;
• Reward efficiency and innovation by allowing providers (the recipients of capitation) to keep profits;
• Provide payment for keeping patients healthy by making money available for all patients, not just those who are sick;
• Cap the costs that payers – businesses, government, individuals – must pay by setting the payment rates upfront.Any reform that shuns capitation in favor of complex alternatives – i.e., quality bonus calculations, shared savings rebates, financial penalties for poor performance, and so on – will be less effective in achieving high quality objectives and will invite exploitation, gaming, and risk shifting.

The good news in the USA is that government already provides a foundation for capitated payments – Medicare Part C. Therefore, this payment mechanism is not foreign or novel – it is proven and could be expanded to replace traditional fee-for-service payments with relative ease.

Therefore, Healthcare reform should provide for full-risk, capitated payments to healthcare organizations (either provider-based or insurance company owned) that are then expected to keep their patients / customers healthy.

Provision #2: Require Personal Responsibility Via Mandatory Coverage

All philosophical debates aside, policy makers must answer a series of simple questions…

• Should a person be denied access to necessary healthcare simply because they are poor?
• Should a family be financially bankrupted by the costs of healthcare they incur?
• Should wealth determine the quality of healthcare to which a person has access?
• Should we let people become permanently disfigured, suffer lifetime disabilities, or die prematurely because they cannot afford or do not have access to the healthcare that they need?
• Should citizens who live in rural areas or troubled urban areas be denied access to quality care because of where they live?

Most of us believe that the right and ethical answer to these questions is “NO”. In fact, the laws of the USA says the same – for example, if someone needs Emergency Care,  a hospital must provide it regardless of ability to pay.  And, special reimbursement policies are in place to support care in hard-to-serve areas such as rural towns and some urban neighborhoods.  Which means that society has already determined that safe, effective healthcare should be available to citizens without respect to a person’s financial status.  But to provide this widespread care effectively and economically, there are only two ways to pay for this care that make sense…

• Provide healthcare as a public service to all citizens and pay for that care through taxation.
• Require all citizens to buy healthcare insurance[6]

Tax supported healthcare is easily understood. A government raises money via taxation and then creates a system that will provide healthcare to every citizen.

But, insurance is a bit more complex. Insurance is a risk-sharing platform – get lots of people to pay a modest amount for insurance and then insurance will pay the high costs of healthcare for those who are unlucky enough to get sick or be injured.   But, it only works when…

• There are a lot of people insured – in other words, the insurance pool is large;
• And, a lot of the insured people are healthy – in other words, costs across the pool will be manageable.

If an insurance pool is too small, then a few catastrophic claims can bankrupt the pool. If the insured people within the pool are too sick, then costs will spiral out-of-control for everyone.  Therefore, if a country is going to rely on insurance to pay for care – which is a perfectly workable system – then everyone must be insured. We need the healthy to be insured.  We need the young to be insured.  We need the masses to be insured.  This, therefore, requires a “Personal Responsibility Mandate” — a requirement that people purchase insurance.

And for those who decry the loss of “liberty” or “choice”, the answer is simple – the failure of one person to be responsible costs EVERYONE. Why?  Because an uninsured – or underinsured person – will eventually become a burden on the rest of the society…

• If a patient does not pay their healthcare bills, those costs are passed on to everyone else;
• If a patient does not care that they need, costs go up through lost productivity, workplace absences, and even the spread of disease;
• And if a patient declares bankruptcy because of healthcare debt, then everyone who has given them credit – from the small town general store to the credit card company or the local bank – will pay the price.

Therefore, the “liberty” to not buy insurance is a loss of “liberty” to the rest of society – all of society is being forced to pay for the individual’s refusal to be responsible.  Make no mistake – if a person makes a bad decision, it is not unreasonable to assume that he/she should pay the consequences of that bad choice. But, with healthcare, when a person decides to not buy insurance, it is everyone else that pays the price.

Therefore, healthcare reform measures must provide either government funding for all (universal payer) or an insurance mandate that makes everyone contribute to the greater good that is the healthcare system of the country.

Provision #3: Community Rating for Insurance

Without getting too technical – or even more long winded than this document already is – any insurance that is mandated must also be “community rated”.   There are essentially two ways to price an insurance policy…

• Individual Rating – Look at an insured person’s likelihood to use insurance and charge them enough to cover the costs of their future care. This spreads a person’s risk out across their lifetime. But, the person will essentially end up paying the full cost of their care – due to their genetics, where they live, their lifestyle choices, etc. As an example, a person with diabetes will pay much more for their insurance then someone without diabetes.

• Community Rating – Look at all the expected costs of care across an entire population and charge every member of the group about the same amount. So, the person without diabetes will end up paying a bit more, and the person with diabetes will not suffer excess cost because of their disease.

Any provision that allows insurance companies to escape community rating is an invitation for the insurance company to insure only those people who do not need insurance. It defeats the entire purpose of insurance.  It may be reasonable to allow a few, limited provisions and modification to community rating – for example, you could argue that smoking is a category that is controllable and could be reflected in higher rates for smokers.  But, in general, society wins only if the risk of insurance is spread as broadly as possible, and as evenly as possible, across all of society itself.

In short, reform measures should include some requirement of community rating and rate leveling.

Provision #4: Insurance Premium Subsidies

For some individuals and families, an insurance mandate would be a crushing financial burden. The so-called working poor or under-employed already struggle to pay for housing, food, and other essentials. Asking these families to pay for healthcare insurance without some form of subsidy and support would be an unrealistic expectation. Therefore, financial assistance will be required in order to help low income individuals purchase their mandated insurance coverage. That assistance could take many forms with three of the most commonly suggested options being the following…

• Tax Credits – Tax credits could be paid to low income individuals to subsidize insurance.   Even for families who owe no taxes at the end of the year, a rebate could be provided to account for these credits. This option would impose slightly tighter controls on who might get the subsidy, but it would also impose barriers to access by forcing families to “pay now and be reimbursed latter”.
• Direct Subsidies – Similar to Food Stamps or the WIC program that provide nutritional support for low income families, direct payment vouchers for healthcare insurance could be provided to low income families. This option would reinforce the mainstream private insurance system.
• Medicare Buy-In Programs – Low income families could be invited to “buy in” to Medicare coverage at subsidized rates. This option would create very little bureaucracy since the Medicare program already exists and is already highly effective in providing necessary coverage for large populations.

Let’s confront the downsides to this provision. Regardless of how subsidies are provided, there will be a large political constituency opposed to this idea of “handouts” and “government give-aways”. Arguments will be made that the recipients of these programs should simply work harder, get another job, or forego other expenses in order to pay for healthcare. It will be said that individuals should be responsible and should be expected to pay their own way, with the government staying out of healthcare. These arguments DO have merit. And – as with every government program – there will be some who benefit who should not, either by way of loopholes in the government program or even outright fraud. But, this is true of every government policy ever enacted…

• There are families who claim home interest tax deductions on houses they cannot afford when other hard working families pay off their mortgages by saving and working harder;
• There are corporations that reduce their tax burden by expensing the costs of lavish offices, fancy dinners, and executive perks, while under-paying their employees who then need public assistance;
• There are food stamp recipients who squander their benefits on unhealthy food and luxuries rather than on healthy foods needed by their children.

But, the imperfections of public policy design and administration do not negate the positive results that can be achieved by those policies and programs in the first place. The benefits of providing good healthcare for all citizens have already been outlined.  Which returns us to the original question as to whether subsidies are necessary or whether this should be a burden carried by each family without subsidy.  There are two unique situations with healthcare that suggest the subsidy is necessary…

• Fifty Years of Neglect – The healthcare system in the USA has been spiraling out of control since the 1960’s. With the USA spending nearly 17% of GDP on healthcare, the problem of costs in the USA is far worse than any other country. The USA has, therefore, dug itself into the proverbial hole and we are now trying to climb out of that abyss through healthcare reform. To expect low income families to immediately be able to pay these over-inflated prices – that no one else on the entire planet suffers to the same degree – is unreasonable and unrealistic. Thus, a subsidy for part of the population is needed and justified.
• Globalization – The merits of globalization could be debated nonstop for an entire lifetime without ever being resolved. The simple truth is that with globalization there are winners and losers. And, to be honest, one of the losers will always be high income countries. Globalization is a massive human phenomenon by which the entire world eventually becomes a level playing field. Poor countries get richer and can buy goods and services from wealthy countries. Wealthy countries can sell their products in more markets, but prices are lower, which translates into lower wages at the bottom of the economic scale. For the healthcare debate it means that there will be a segment of the population that remains persistently under-paid for the foreseeable future and are, therefore, unable to fully afford the cost of their own healthcare. We could bury our head in the sand and say that it is not true, but in a service economy it is undeniable that a large segment of the population will need some help paying for their care in the highest priced healthcare market on the planet.

Therefore, whether you want to call it compassion for the vulnerable or a correction to an imperfect market, healthcare reform measures will need to provide some form of subsidy for low income individuals in order to guarantee widespread healthcare coverage without causing undue hardship for those lower income individuals.

Provision #5: Enact Interstate Licensing of Healthcare Professionals, Institutions, and Insurance     

One of the key strengths of the U.S. economy has always been labor and currency mobility – the ability for jobs and money to flow across state lines for commercial purposes.  If one area of the country becomes depressed, people can move to where there are jobs.  If it is cheaper to produce something in one state, factories can be moved.  And, therefore, the U.S. constitution gives interstate commerce regulatory authority to the federal government, not the states.

Unfortunately, healthcare providers are licensed locally by the states. And insurance products are authorized by state law.  Therefore and sadly, in a world of internet, video communication, and same-day delivery…healthcare has been unable to modernize.  Hospitals cannot use doctors for video appointments in other states – or other countries.  A pharmacy center in one state cannot be used to write prescriptions and fill those prescriptions in other states.  Even the electronic transfer of medical information is sometimes hindered between states.

No one should take the curtailment of state’s authority lightly.  But, this needs to change as part of any reform measure.  Patients in any part of the country should have access to the best providers and the best services – regardless of which state those service might be generated.  Therefore, the federal government needs to provide for a national licensure of doctors, nurses, and insurance – allowing patients to buy services and receive services wherever they want across the country, and allowing insurance providers to compete nationwide.  Imagine if the internet was regulated by every state – it would never have become the economic force that it is today.  Healthcare needs some of the same advantages – the ability to provide service without respect to 50 geographical limitations.

That said, there is no reason that parallel (not duplicative) licensure could not be provided.  Just as there are state-chartered banks and federally-chartered banks, you could have state licensed providers and federally licensed providers.  But, the flow of healthcare commerce needs to be unencumbered and healthcare needs to become a truly interstate industry – immune from undue state regulation that denies patients the access to the best care options.

To achieve best outcomes, healthcare reform needs to include measures that make it easier for providers, insurers, and patients to conduct their healthcare business across state lines – allowing patients to seek and receive the best services at the best prices wherever in the nation (or world) they might be located.

Provision #6: Financial Solvency Requirements for Providers      

Healthcare is an expensive business.  To provide highest quality healthcare in today’s modern world providers need advanced diagnostic equipment, high tech data systems, highly paid professional staff, efficient facilities, and more.  Plus, in a capitated world, healthcare organizations need to be financially stable enough to suffer unexpected expenses.  These requirements are not just true for hospitals;  they are true for physician clinics as well.

In other words, healthcare is an industry that requires a lot of money to get started, good cash flow to keep working, and financial reserves to be stable.  Therefore, just like a bank or an insurance company, only the well-financed should be licensed and paid to provide care.  This reality does not get much press or discussion, but a sustainable healthcare system requires providers and stakeholders who can afford to provide the care that the public deserves.  This means that the Norman Rockwell picture of healthcare – a small town physician with a black bag and a stethoscope around his neck – is no longer practical.  And, it is NOT the picture of quality.   BEST quality care can no longer be provided as a cottage industry – “Mom & Pop” businesses providing healthcare.  Good healthcare requires technology, management savvy, and sophisticated data.  Size and financial solvency matter.

Therefore, comprehensive reform should include financial worthiness parameters for providers.  Only those organizations large enough to pay for the sophisticated equipment, sustain the financial reserves, and pay necessary staff should be allowed to contract with Medicare and Medicaid.  Likewise, only financially solvent organizations should be licensed as insurance providers or as “capitated providers”.  If an organization is not financially well positioned, it should not be licensed to provide care.

No delusion as to what this means.  Doctors would need to be part of larger organizations – probably health systems.  Small hospitals would need to affiliate with larger ones.  Continued contraction in the number of providers would result.  And, of course, this concept is controversial because it threatens our belief that healthcare is only about you and your doctor;  it threatens the perception that fantastic healthcare can be provided in every local neighborhood clinic and hospital.

But, the reality cannot be denied.  When it comes to healthcare outcomes, innovation, financial solvency, or other metrics – critical mass (size) is important and necessary.  Healthcare reform should recognize this either overtly – through licensing requirements – or covertly through payment mechanisms and service requirements.

Reform measures must begin to demand that providers not only possess clinical care competencies.  Reform measures must also demand that providers have the financial heft, solvency, and reserves to withstand the financial burdens and unexpected costs that are common in the healthcare industry.

Provision #7: Quality and Reporting Regulations Without Set Profit Limits

Healthcare is a SELFLESS endeavor – the noble work of saving lives, helping the vulnerable, connecting with humans, showing compassion, and being heroic when necessary to help someone in need.  Healthcare is,  however, also a SELFISH endeavor – a high profit, highly competitive economic titan that generates trillions in revenue and makes millionaires of many providers.

These two realities are in conflict with one another.  From a somewhat liberal point of view this elevates the potential for abuse to near certainty and thus demands regulatory oversight to watch for and eradicate abuse.   From a more conservative point of view this creates a market flaw – profits potentially maximized by lowering quality and even denying access to the product which a consumer has purchased.

The answer is SMART regulation.  Similar to other high risk and highly important industries – the usual suspects of airlines, nuclear energy, banking, and so on – healthcare outcomes need to be defined, monitored, inspected, and enforced.  Constant oversight must be a routine cost of doing business and healthcare organizations should become ever more transparent in reporting and being held accountable for good, safe, consumer friendly outcomes.  Violations need to be corrected.  Abuses need to be fervently punished.

But, a good regulatory environment should have limits and qualifiers…

• Profits NOT Regulated – It has been common for public policy makers to limit healthcare profits as a form of regulation. The idea is that healthcare SHOULD be spending money and that if an organization’s expenses are too low – thus profit too high – that the organization is failing to provide care.  This is misguided.  It is also rooted in the traditional view of healthcare quality that more activity is better — more surgeries;  more appointments;  more medications; and so on.   It is currently estimated that as much as 50% of all healthcare expenditures represent waste – inefficiencies, overpriced services, and errors.   With healthcare now believed to be the #3 killer of Americans every year – via error, inappropriate treatment, etc. — then high quality care would squeeze a massive amount of expenditures out of the system.  This would result in high profits for a truly high quality organization.  Thus, profits should not be limited and high quality organizations should be rewarded.  It is other regulations – that focus on health outcomes that should determine profits to be appropriately earned.

• Payees the Subject of Regulation – It would be easiest to place the burden of regulatory compliance on those organizations that get paid for delivering care. If capitation – payment for population health outcomes – is the right method of payment, this would mean that most regulations would fall on the shoulders of those capitated organizations.   Clearly there can and should be sub-regulations on individual providers – licensure for doctors, standards for laboratories, calibration regulations for equipment, and so on.  But, the regulations for health outcomes – good disease management, rapid response to diagnosis, consolidated care planning, and so on – should be focused upon those organizations which accept capitated payments and thus are responsible for coordinating the entire healthcare continuum.  Note:  This is one of the flaws with managed care in the 1990’s – there was a major disconnect between payee and provider.   Good regulations can overcome that flaw.

• Size Again Matters — As already mentioned, organizations in a transformed healthcare organization need to be large enough to shoulder the burdens of high quality, high tech, data-driven healthcare. And, large enough to make a serious effort towards compliance.  Therefore, it is expected that doctors, small clinics, small care sites, and even small hospitals would need to provide care under a higher level umbrella – a large health system, managed care group, etc.

Although final regulations will necessarily be vetted through the government’s traditional rule-making processes, reform measures should include provisions and mandates for enacting both comprehensive and rigorous regulations that are needed to guarantee highest level, no exceptions, care quality.

Provision #8: Create a Quaternary Care Reinsurance Market

In order to lower the barriers to entry, a healthcare re-insurance pool for highest end care must be available to capitated healthcare organizations.  The re-insurance pool would simply pay healthcare organizations when they incur CATASTROPHIC and UNEXPECTED expenses.

There has been a great deal of rhetoric in the insurance market about “high risk pools” – taking so-called “high risk patients” out of the traditional insurance market and placing them in special risk pools often subsidized with government or industry support.  For insurance companies this allows them to jettison risk and insure only those people who are likely to not need the healthcare system.  In short, typical high risk pools are all about allowing insurance companies to NOT cover healthcare losses and NOT do what they are designed – and paid — to do!  Somewhat like allowing a fire insurance company to cover fire damage only for swimming pools!

In a transformed healthcare world, high risk pools are not the answer.  The better answer is to create an environment where insurance risk pools are viable in the first place.   As implied earlier, a viable risk pool must be LARGE and BALANCED.   Lots of people insured;  and a good cross section of the population covered – healthy, sick, young, old, etc.  Large, balanced insurance pools become viable for two reasons…

• Predictability – Larger data sets are always more predictable and certain. If an organization insures a lot of people, who represent a cross section of the entire population, then the healthcare costs that will be incurred for that population becomes highly predictable and certain.  Thus, insurance can be correctly priced and premiums should remain relatively stable.

• Security – Likewise, larger pools are less risky. With a large number of patient lives covered, the unexpected anomaly – a single high cost patient – will have a relatively small impact on the financial stability of the entire pool.  In other words, a large insurance pool can absorb the shock of unexpected costs.

That said, it is still practical and advisable to provide some risk avoidance protection for capitated providers – protection against unexpectedly high costs.  In other industries, this is the role of RE-INSURANCE – insurance companies being insured by other insurance companies.  Re-insurance companies pay only when truly unexpected losses are incurred – resulting from catastrophes, incredibly bad luck, and so on.  For healthcare this would be coverage for two potential factors…

• Risk Pool Imbalance – If, in fact, an insurance pool does not represent the population at large, and much larger than expected losses are incurred, re-insurance could be designed to soften those losses.
• Quaternary Care – If costs for a SINGLE patient are to be excluded from the responsibility of a capitated provider or insurer it should NOT be for high frequency (even if higher cost) disease management such as COPD[7], CHF[8], diabetes, and so on.  These chronic diseases are the nature of health and healthcare today, and insurance pools should not be given relief for these common maladies.  The only single-patient expenses that should be re-insured would be for quaternary[9] care patients – heart transplants, complex lifelong cancers, etc.

Whether encouraged or directly provided by government, creating a re-insurance market would help to lower the barriers to entry for capitated providers and would increase the number of organizations able to take capitated risk payments.  It would also help to increase the coverage area (rural areas, etc.) where insurance coverage is likely to be provided.  And, although it would not eliminate the need for organizations to be large, it would reduce the ultimate size requirements for an organization to be viable.

In summary, healthcare reforms should recognize the need to highest level risk spreading and should include measures for providers and/or insurers to spread catastrophic level risks beyond the confines of their own risk portfolios.

Provision #9: Pay for the 80/20’s Twenty

The final provision of healthcare reform that is necessary is a set of escape clauses that can address “The Final Five”.   The often quoted Pareto Principle states that 80% of an outcome is the result of just 20% of causes;  for example, 80% of profit for most businesses come from just 20% of customers.  Other statisticians have gone even further, insisting that it is the final 5% of a problem that takes as much or more effort to fix as solving the first 95%.

In healthcare, this final calculation seems to have merit with common estimates concluding that it takes nearly 60% of our healthcare spending to provide care for between 1% and 5% of the elderly population  But, this rule of thumb also implies that providing high quality, low cost, easy access care for 95% of the population will be relatively easy;  and that providing best care for the Final Five Percent will be very hard.  In  a world where we want to leave no one behind this provides a particularly challenging dilemma – do we make massive efforts to fix healthcare for that Final Five or do we give up and satisfy ourselves with providing great healthcare for just the 95%?

The right answer is somewhere in the middle of these two extreme alternatives.  Public policy should be crafted with the intent of fixing healthcare for a majority – the 95% — of the population for which the solutions are relatively straight forward.  Then, for the Final Five, exceptions should be made.  For example, when it comes to providing healthcare for our most difficult population groups – very remote towns and villages, the urban homeless, Indian Reservations, and so on – we should enact special exception policies that simply buy solutions to the problem.  And, it is likely that those exceptions will need to be paid for through general taxation.  These exceptions will probably be very costly on a per person basis, but the overall expenses will be low when compared to the entire cost of the nation’s entire healthcare system.

Providing extra resources for exceptional situations is not unlike current public policy – whether that be funding for critical access hospitals in rural areas or for Indian Health Service facilities for native populations.  But, there is little to be gained by spending huge efforts to design complex programs to address these populations.  And it is not worth the political debate to worry excessively about these population segments – we should simply spend the extra resources necessary to provide care for the Final Five and resolve that mainline public policy will always be a bit imperfect – designed for the 95%.

In addition to comprehensive reforms, a total healthcare reform package should specifically allocate resources for addressing the care needs of highly unique populations – avoiding the temptation to hope that other reforms will somehow magically be sufficient to deliver care both for the majority of citizens and for the ultra small minority population segments that are highly difficult to reach and support. 

V.  Conclusion 

Early in his administration, President Trump is quoted as saying, “Who knew that healthcare could be so complicated?” Yet, the debates around healthcare reform – both in the hallways of the capitol in Washington and in the coffee shops of the country – have been painfully simplistic.  Wildly generalized comments have been made by both sides of the debate, ranging from Bernie Sanders simple demand that we should just offer “Medicare for All” to the Republican mantra that we should simply “Repeal and Replace Obamacare”.  Both arguments sugar coat the importance and the complexity of this discussion.

• The “Medicare for All” argument ignores the fact that universal payment systems do not tend to work in countries with more than 20,000,000 people. Most large countries with “universal coverage” struggle with quality and end up with a two-tiered health system for the poor versus the wealthy. And if a politician wants to use Medicare’s own success as an example that it can be done, he or she must recognize that Medicare works in the USA because it is cross subsidized by higher paying privately insured populations.

• The “Repeal and Replace” argument is even weaker with policy makers ignoring how complicated the healthcare market is. Furthermore, many of the R&R politicians overlook the fact that relying on a bundle of financial incentives alone will never get a country to universal coverage or high cost – there will always be other, competing incentives that will derail even the best of intentions.

It is hoped that this opinion document accomplishes two simple goals. First, that it encourages substantive and meaningful debate.   And secondly, that those who read this document recognize that Reform must be much more comprehensive that current debates allow.  If we accomplish those two tasks, then this document will have done its work.  And – far beyond the reaches of this document – if the country can engage in a deeper, more meaningful debate about comprehensive reform…then there is hope we can achieve it!

[1] See related article… Pivot Politics: Overcoming Public Discontent with Our “Political Status Quo” by Michael Wagner. Pivot Politics© is a copyrighted term Northstar, LLC: Consulting.

[2] GDP: Gross Domestic Product;  the sum of all economic productivity and activity within a country.

[3] Pensioners, retirees, elderly, etc.

[4] Recommendations in this document apply directly to the USA, but are applicable and can easily be adapted for other countries as well.

[5] “Provider” would include a wide variety of stakeholders. A provider could be an insurance company, an HMO, a physician clinic, a hospital, etc.  Different types of organizations can be “providers”.  But, with capitation it is the organization that GETS the money that is also the organization held responsible for high quality and effective outcomes.

[6] In lieu of insurance, a person could also demonstrate an ability to pay for high cost, catastrophic care from their own personal assets – in short prove financial capacity to pay without insurance.

[7] COPD—Chronic Obstructive Pulmonary Disease…diseases that make it hard to breathe.

[8] CHF – Congestive Heart Failure…a progressive deterioration of the heart muscle’s ability to pump blood.

[9][9] Primary care includes visits to the family doctor, immunizations, check-ups, and so on. Secondary care is provided by specialists – heart doctors, pulmonologists, etc.  Tertiary care is in-patient hospital care.  Quaternary care is very specialized, high end, rare care for the most uncommon of conditions.