The Healthcare Conundrum

This is something that I sent to Fred Thompson:

The conversation on healthcare in the United States is overly simplistic. I think that intrinsically all Americans wish healthcare to be available to all of its citizenry but they are also cognizant of what the true cost would be and what that would mean in order to fund such an inclusive Government run program.

So how to we execute the premise of all-inclusive healthcare, at the current level of quality without punitive taxation? As baby-boomers age and life expectancy continues to rise there will be greater units of healthcare production required, with fewer taxpayers and inflationary pressure. The problem with Americans is that we have already developed our level of expectation and will not accept the level and type of care often mentioned as available in Canada and the UK. It is similar quandary as evidenced by the introduction of prohibition; if it was never available the miss is whimsical, if you take away something that was there before the miss is tangible. More simply put, everyone wants to go to heaven with this issue but no one wants to die.

The only hope is to introduce efficiency and that means introducing incentives for those Doctors who practice it and exorcizing intermediate profit centers. It is a complex pathway but it is doable if policymakers are prepared to make several difficult choices. The major hurdles are as follows:

Malpractice Insurance: Driven by the lottery of litigation, these costs have become prohibitive and exponential. An insurance company is only marginally incentivized to fight much of the litigation those it insures are subjected to. It can pass through increased costs to those it insures in the next premium period. Additionally, corporations look to margin on revenue as a true measure of performance. If a premium is $100 and they seek a 15% profit margin, that means that $115 must be spread over a Doctors generated revenue. If the premium is raised to $200 the margin in dollars tracks so that what was a $15 profit margin now increases to $30 in tandem. Stemming this cost of doing business has to general areas of focus, increasing the barrier to entry for litigation and creating a type of mutual company for malpractice insurance in a way similar to Federal Flood Insurance.

Capricious Litigation: We have to create a cost for frivolity while not blocking consumers from a course of action. The first step would be to establish a boards of review that would have the right of recommendation in each state. This board should consist of Doctors, Lawyers and healthcare administration that could approach each case presented in a systemic fashion. Their portfolio would be to review the facts of the case as presented by both the complainant and defendant and do one of three things. Recommend the case to trial, reject the case for trial or using a table of injury, find reason to award. Companies offering disability and life insurance have for year’s allocated specific awards for specific injury; the loss of a leg is worth x, the loss of an arm y.



A litigant may still file against a defendant contrary to the boards recommendation but there would be consequences. Firstly, the report of the board could be evidenced in any subsequent trial. Secondly, if a litigant loses the case, which they contrarily file, they would have to pay the legal expenses of the defendant. While this system deals with frivolous or nuisance suits it does not yet deal with Doctors or providers who are serially incompetent.

Mistakes or Incompetence: There are true cases of malfeasance that need to be adjudicated. The AMA has been reluctant to single these sources out because of a general “circle the wagons” mentality against trial lawyers. The easiest way to address this is to make it costly to the group at large to tolerate Doctors or institutions that increase their cost of doing business. The “Federal Malpractice Insurance Mutual Fund” could exclude members that are found to not meet professional standards. Those Doctors or institutions excluded could seek private malpractice insurance and file for re-admittance after plans of corrections are instituted successfully.

The Ancillary Effect: There are two other factors that are not spoken to with any regularity. Because of the culture of fear that Doctors and institutions operate under they very, very often order rafts of tests and decline to make specific patient recommendations. They have become more like risk management executives and less like physicians and healthcare providers. Institutions and Doctors receive a direct economic benefit from this paranoia…..they raise the average healthcare ticket per patient which pays for the malpractice insurance that is bemoaned…..it is an ascending spiral.


Market Efficiency:

If the above reforms where instituted and the siege mentality lifted the next part of this problem could be addressed, the overall cost of medicine. There is currently no mechanism in place to reward those Doctors or institutions that provide quality care efficiently. We have tried the top down approach of HMO’s, Medicare and Medicaid, it does not work. More time is spent on trying to work the systems to get paid than on the true quality of patient care. We need to take a bottom up approach that develops a mean for care classification and financially rewards those Doctors or institutions that provide the best care for the lowest cost. The process is self-regulating due to the malpractice system above. The Doctors that provide the best care have lower premiums, the Doctors or institutions that provide the best most care receive a lower cost of doing business and an opportunity to receive a bonus for their efficiency.

There is more detail but this is the start.