Sunday, July 12, 2009


In the context of a discussion on another subject, long-time friend Bob Odean reminded me that in all my blogging, I had not been very forthcoming on my own views on solutions for health care reform.

Summarizing those views in a page or so may be presumptuous, but I’ll give it a try.

I would first recommend that steps be initiated on a national basis to consolidate the professional (i.e., physician) and institutional (i.e., hospital) components of health care into single entities. Mayo Clinic and Cleveland Clinic are examples of such entities. An early step would be the repeal of state laws prohibiting corporate practice of medicine, which prevent corporations from employing physicians, charging for their services, and keeping the money.

The second thing I would recommend is the creation of competitive relationships among the consolidated entities. That would mean breaking up some multi-hospital systems that now enjoy what amounts to monopoly status. It would also mean abolishing Certificate of Need programs that require health care organizations to obtain advance public certification that major construction projects facilities and equipment purchases are “needed” before they can be undertaken.

Third, I would recommend the system of reimbursement known in earlier times as global capitation. Health insurance companies would contract selectively with the consolidated entities with which they are able to negotiate the most favorable terms, and then pay these providers a negotiated fixed amount per subscriber per month. The consolidated entity would then provide or arrange for all the care needed by the subscriber.

The absence of accountability that has so long plagued health care would be resolved by the consolidation of physicians and hospitals into single entities with responsibility for all aspects of a patient’s care. Establishing competition among providers would make it possible to create economic incentives strong enough to cause providers to become serious about cost and quality. The current fee-for-service system adversely incentivizes providers to provide unnecessary care and is expensive to administer. Global capitation, properly designed, induces providers to provide effective care while conserving resources and is easily administered.

This arrangement would also clear the way to addressing the problem of the uninsured. As things now stand, providing coverage for the uninsured adds to the already too high cost of care and bequeaths a financial windfall on the already overfinanced providers who are now providing care to these people without direct reimbursement. In the arrangement proposed, providers who find themselves providing less uncompensated care as a result of universal coverage programs would have an incentive to improve their competitive position by reducing their rates accordingly.

While there would be many details to be worked out, I believe the arrangement I recommend could provide a practical basis for the development of a health care system that addresses the issues of our day.

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