The U.S.

Healthcare System
By Timothy M. Ameredes

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TABLE OF CONTENTS

OVERVIEW ................................................................................................................ 3 MAJOR TRENDS ....................................................................................................... 3 1. 2. 3. 4. 5. 6. 7. 8. Healthcare Delivery System ............................................................................ 3 Insurance Regulation ...................................................................................... 4 Provider Regulation......................................................................................... 4 HIPPA Regulation ........................................................................................... 5 The Uninsured ................................................................................................ 5 The Pharmaceutical Industry .......................................................................... 6 Health and Human Service (Federal) .............................................................. 7 CBO Report- National Spending on Healthcare by Source ............................. 8

BASIC PROVIDER/PAYER SYSTEMS 1. 2. 3. 4. 5. 6. Provider Healthcare Delivery System 1- Traditional ...................................... 10 Provider Healthcare Delivery System 2- Hospital .......................................... 11 Provider Healthcare Delivery System3- Managed Care ................................ 12 Payer Model 1- Employer .............................................................................. 13 Payer Model 2- Traditional............................................................................. 14 RHIO- Regional Health Information Organization (HIO) ................................ 15

CONCLUSIONS ....................................................................................................... 16 STRATEGIC HEALTHCARE RESTRUCTING PROPOSAL .................................... 19 1. Proposed Market Restructuring- Provider View ............................................. 21 2. Proposed Market Restructuring- Payer View ................................................. 22 3. Proposed Market Restructuring- Patient View ............................................... 23 FULL SCALE DIAGRAMS ........................................................................................ 24 REFERENCES ......................................................................................................... 31 ABOUT THE AUTHOR ............................................................................................. 31

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OVERVIEW This analysis will identify the benefits and problems with the current healthcare provider and payer systems in the United States. It will also provide a roadmap to a restructured model. Fragmentation and redundant cost layering in both systems are the primary reasons why any new health insurance initiative will not contain skyrocketing costs nor significantly improve healthcare for all Americans. The bottom line is that both provider and payer systems in the United States, as a whole, are extremely cumbersome/inefficient, are structured into a poor service delivery model and the once claimed status of best in class health system in the world is now a myth. To understand where the provider and payer systems are today, one has to look at major factors/trends on how they evolved. MAJOR TRENDS 1. Healthcare Delivery System The healthcare delivery system from the early 20th century until approximately 1960s was very basic, primarily consisting of family doctors and hospitals. People sparingly went to the doctor or hospital since these visits were paid out of pocket or insurance plans had high deductibles. Most health insurance plans were for major medical incidents and/or were granted via larger employers. Generally, one had to be very sick to utilize medical services in the first place. All vaccinations and such were administered via federal programs and were viewed as a societal preventative benefit. Hospitals were run as non-profit organizations, received a majority of their operating capital from the federal government via grants and private donations as a secondary supplement. Today, a much smaller portion of hospitals derive the majority of their operating capital from federal grants and many hospitals are run as for profit businesses due to federal spending cuts or regulatory avoidance. Over time, Americans have adopted less healthy eating habits and lifestyles which can be correlated to more trips to the doctor. Americans also used to stay away from public areas and lacked mobility when they became sick. Compared to today, people rarely stay home when they are sick and are also highly mobile. This usually results in spreading an illness very quickly nationally/internationally. This directly correlates to more people getting sick across state and national borders- i.e cost. From the 1960s to present, health insurance plans expanded coverage for more events while insured people started scrutinizing the need to go to the doctor less and dont stay home when sick. Furthermore, payers are attempting to contain cost by setting reimbursements that are statistically and transactionally determined. Providing the best service for the patient is not their focus since payers are all about processing claims against insurance plans to remain solvent and not about providing healthcare. The providers are all about providing healthcare and sustaining a viable business, where all encompassing service is not a focus nor are complicated patients served well. For a doctor to be profitable on a person who walks in the door with 5 health issues, he/she attempts to break down those issues into separate visits in order to make money. The more patients they see, the more money they make or quicker they break even for the month - it is a simple Copyright 2008, B2B Knowledge Source Inc Version 2.0 Page 3

business model based on patient volume and corresponding insurance reimbursements. If the doctor were to spend 30-60 minutes per patient to listen to and troubleshoot all 5 problems, he/she would be operating at a loss since plans/payers do not pay claims based on number of items treated or level of complication. This creates its own fragmentation to treatment, breeds poor service delivery and poorly scales for complicated patients. 2. Insurance Regulation All insurance regulatory bodies since the late 1800s were created by each state, meaning that originally there were 50 different ways to regulate companies that provided insurance. Also NAIC, National Association of Insurance Commissioners was formed where all states participated in membership. In the last 15 years or so, NAIC has taken a very active role in trying to nationally coordinate and unify regulation across all insurance segments. However, every state regulator still has to contend with getting unified legislation passed in his/her state legislature. The bottom line is that many strides have been made in nationally unifying regulation across states, but much more work needs to be done. The prior lack of central coordination from inception fostered an environment for a variety of health insurance companies and products to locally enter the market along with all of the different local payer systems and provider networks that went along with them. In the last 10-12 years, some local and regional payer and provider consolidation has occurred, primarily pressured by rising healthcare costs and/or federal grant funding cuts to providers. 3. Provider Market Regulation Individual state legislation was created to encourage market competition, prohibit monopolization and price fixing for providers of healthcare. Where the legislation exists, it prohibits or makes it more difficult to standardize on regional managed care systems. Health insurance policies typically have a large list of providers they will cover, but if the listed providers do not have a business relationship between them it causes its own problems pertaining to medical record synchronization, service fragmentation and redundant tests/imaging. For instance, if a person goes to their primary doctor and has to see a specialist or get an x-ray, the person is referred to a different location with its own claim system and the primary care physician will only receive the written evaluation if there is an existing business relationship between the two providers. Even when there is a business relationship, where the primary care physician receives the written evaluations from multiple sources, it usually leads to no one taking a comprehensive look at complicated/multiple problem patients. Furthermore, when an individual has to take time off to courier his/her radiology films to a specialist, the broken process takes a double toll on business. There is a cost business in productivity lost while employees are taking extra time courier their film and businesses are also copaying health insurance premiums. The individual also takes a hit to their leave balances by taking extra time off to courier the film. This is poor service model that business and individuals pay good money for. In the last 10-12 years, there has been expansion of the business relationships that exist between providers but it still does not Copyright 2008, B2B Knowledge Source Inc Version 2.0 Page 4

address model inefficiencies in the claim, billing, duplicate record, duplicate tests, duplicate radiology, payment processes and service fragmentation. 4. HIPAA Regulation Federal HIPAA legislation was passed in 1996. This legislation was enacted in order to help protect an individuals health information while allowing it to be passed between payers/providers. The legislation was an attempt to pave the way for payers, providers and clearing houses to transmit health record information while protecting the patients privacy. It also gave patient access to their medical records, something that was rarely done in the past. However, HIPAA has created its own legal obstacle to solving or gaining efficiencies in the existing healthcare delivery model by not clearly defining where legal liability for the data resides. Who owns the data? is a common question when viewed from a legal liability perspective. Among other things, HIPAA also mandates that providers keep logs of who views an individuals medical records, requires policy, procedures and process be implemented to comply with the legislation. Federal and State governments are exempt from complying with HIPAA. 5. The Uninsured In the U.S. there exists a large pool of approximately 47 million uninsured people that do not have healthcare insurance coverage and use the emergency room for healthcare or those individuals receive no healthcare at all. There are federal laws that require hospitals that receive federal funding to treat everyone who walks in the door whether they are insured or not. So if an uninsured person has a sinus infection or broken arm and goes to an emergency room they will get treated at the hospitals expense - or partial expense depending if charitable affiliate programs cover a portion of the medical care. Also buried within the uninsured figure are people who are considered high risk (i.e. expensive) due to major pre-existing health conditions or severely adverse health habits. So, the insurance companies/employers may reject covering them due to the higher cost of including the person in their health insurance pool. This group is commonly referred to as the high risk pool and politicians theorize that if health insurance were mandated (i.e. require every person/employer to pay for health insurance), then it would allow for the uninsured/high risk pool to be covered at an affordable price. There is some truth to this argument, but depending how the insurance plan is structured, mandating coverage will have adverse impact to an individuals take home pay and/or raise a businesss overhead cost. Potentially eroding the businesss ability to compete locally, globally and will cause the price of their goods/service to increase. There are other systemic problems in the provider and payer systems that should be addressed in conjunction with any new insurance programs. Otherwise, adding even more people to the fragmented processes would amount to throwing gas on the fire of already skyrocketing healthcare costs. Furthermore, statistics indicate that large percentage of healthcare cost and spend is attributed to the last five years of a persons life. In the past, people would just die literally- without measures to keep them living longer, trauma response systems, early detection, long term care, etc. So advances in treatments, drugs and procedures that Copyright 2008, B2B Knowledge Source Inc Version 2.0 Page 5

extend life which are quite amazing, have a direct correlation to the higher cost of healthcare and insurance. The end of life kicker to cost/price of healthcare is not really addressed in the payer/provider systems universally. Long term care health insurance and facilities are an attempt at reigning in some of the costs, but only for one segment of the end of life population. Americans who do not require long term care, but are frequently in/out of the hospital, require many medications, frequent periods of extended hospital care, etc are not addressed. So the end of life kicker is something that providers/payers and individuals know about, are unprepared for and the additional costs seem to not be reflected in any of the projections - broken out on its own cost line. The argument is if it is buried in the numbers, how can it successfully be addressedwithout dumping elderly from health plans or creating asset liquidating poison pills to pay for end of life healthcare- similar to Medicaid requirements. One major medical incident can easily devour $50,000 - $200,000 of a persons assets dependent on the type of insurance coverage they have. For instance, Medicare is 80/20, so 20% of the bill is the individuals responsibility. 6. The Pharmaceutical Industry In the last 20 years, the pharmaceutical industry has grown exponentially. In the past, bringing drugs to market was primarily handled through government sponsored research, usually conducted in universities, research clinics and/or a handful of drug manufacturers/distributors. That was the pipeline. Venture capital and investment banks have invested heavily in the pharmaceutical industry trying to find new cures and the patents that go along with them. Once a patented drug makes it through the rigorous testing process to market, the companies push to get doctors (providers) prescribing and insurance plans (payers) approving the drug as an eligible treatmentwhich is primarily how the pharmaceutical company gets paid. This process in and of itself is not bad, leads to innovative cures and spawns economic development. Unfortunately, there is quite a bit of pressure on management within pharmaceutical companies to hit astronomical revenue targets and has bred a few bad practices. Marketing prescription drugs directly to consumers in order to indirectly pressure doctors via the patient to prescribe the new drug or lose business, is a bad practice. Some pharmaceutical companies create incentives for doctors to prescribe their drugs or pharmacies to fill prescriptions via marketing agreements that provide rebates back to the doctor or pharmacy. Some drugs have mysteriously made it through the rigorous, federally regulated testing process with skewed data - possibly influenced by pressure on the pharmaceutical company to hit astronomical revenue targets and/or a failure of the Food And Drug Administration to properly police the manipulation/errors. This has lead to adverse health events for individuals, fatalities and/or drugs being pulled from the market. The bad practices or regulatory failures just add to the confusion and lack of trust in the healthcare system. However, it does not mean pharmaceutical companies are bad or that FDA regulation should be eliminated. Both need to get back to their basic mission- finding cures that have been properly vetted before reaching the market, while investors and corporate boards need to lower their growth/revenue expectations to realistic projections.

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7. Health and Human Services (Federal Agency) The final major influencing factors are programs from the federal agency, Health and Human Services (HHS) which include it subdivisions of CMS (Medicare and Medicaid). With Medicare, State government participation is via grants that fund complimentary state based Medicare programs and CMS administers all provider claim processes and payments. Medicaid is administered by each State, where claims and payments to providers are administered by state - federal participation is via grants that fund State Medicaid programs. Some efforts from these programs tend to overlap when focusing on services for economically or geographically disadvantaged people. Overlap equates to inefficiency and customer confusion. Furthermore, HHS began the NHIN (National Health Information Network) which spawned RHIO (Regional Health Information Organizations) initiatives. RHIOs main purpose is to provide a method to exchange health information (claims and records) between regional providers/payers. In concept, RHIO is good but the initiative has already experienced many failures from not having a standard business model to financially support a RHIO or viable transaction networks to pass the information. Capability to design working business models are thwarted by regional issues, confusion about data transport standardization, lack of record standardization, lack of leadership (politically and corporate) and the usual business and political turf wars that occur when change is initiated. RHIO in its current form also encourages more fragmentation in process and business models, but does provide data and transmission standards. Every state/region can have its own unique business model and its own (entirely) unique processes which can add to the existing confusion in the healthcare system. There is opportunity for the RHIO concept to work if a cookie cutter solution/model is implemented, but many, many healthcare provider/payer system components and standards need to be addressed.

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8. National Spending on Healthcare by Source Of Funds Important Statistics from the CBO 2007 Long Term Healthcare Outlook (U.S. Congressional Budget Office). Spend Type in 2005 Private Spending (private insurance, etc) Public Spending (Medicare/Medicaid, other) Total Cost in Billions $1,013.5 $847.3 $1,860.9 Percent 54.5% 45.5% 100%

It is important to note that the CBOs most current industry data in November 2007 is 2 years old and prior to the Medicare Part D prescription drug program. However it does stress an important point that the federal government was already paying over 45% of the total health care spend in the U.S and as Baby Boomers retire, that number ($847.3B) is expected nearly double by 2017 in some industry projections. Thus, some projections peg the U.S. government spend to approximately 65% of total U.S. healthcare spend of nearly $4 Trillion dollars by 2017! More recent figures from Medicare/Medicaid for 2006 (provided in 2008) include Part D and have bumped the government share by 2%, totaling 47% of total healthcare spending.

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Basic Provider/Payer Systems

(Variations can and do occur in the marketplace)

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PROVIDER SYSTEMS/MODELS
1. Healthcare Delivery System 1 Traditional HIPAA can be an obstacle between the different healthcare providers for maintaining one master medical record. Thus, it requires the individual to coordinate the process of keeping their record current at their primary care physician. However, if a business relationship exists between providers, then patient information can be passed between them. All appointment scheduling and re-scheduling is done by the individual per healthcare provider and provider locations are usually geographically separated. It is important to note that a complicated or long term condition that does not require hospital stay, creates a tidal wave of claims, explanation of benefits, bills to people and checks back to providers for more than routine doctor visits. Complicated medical conditions/patients stress this model of delivery and results in poor healthcare- i.e. this model does not scale well. This system is very inefficient in delivery and costs are layered in billing, claims, record management, overhead (operating) costs per provider and payer payment processes. (Full size diagram at end of this document)

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2. Healthcare Provider System 2 Hospital This system is a little more efficient in delivery but very inefficient pertaining to cost layered in billing, claims, record management, overhead (operating) costs per provider and payer payment processes. It is important to note that many hospitals are leasing space to different medical groups based on specialty or service but do not unify/lever business processes for them. Thus, creating multiple claims, bills, payments processes and explanations of benefits per hospital visit. A complicated hospital stay creates a tidal wave of uncoordinated, fragmented business processes which directly correlate to very high processing overhead for provider/ payers. However, it is better equipped to handle short term complex/severe medical problems and surgical needs. Hospitals also tend to send patients home right after surgery in an effort to contain costs urged by what will or wont be reimbursed by insurers (payers). HIPAA tends to not be as big a factor in this model since business relationships already exist between providers contained within the hospital. (Full size diagram at end of this document)

Healthcare Provider System 2 (Hospital)

Ambulance bill for claim balance

Separate bills for each service provided

Pharmacy

Person Mailbox @ home Multiple Payments

Doctor Referral for surgery or observation

Heart Surgeon Group Check Patient in

Internal Medicine Group

Central, manually recorded patient medical record

Person Requiring Health Services

Brain Surgeon Goup

Rehabilitation (Physical Therapy, Speech Therapy, etc)

All other services provided by hospital, including anesthisiology (which any can generate its own separate claim and bill)

Explanation of benefits for each service, projects payer and persons responsibility

Ambulance?

Yes

Emergency Room

Radiology Services No Drive Car

Lab Services

Claim Aggregator (Separate claims for each service provided)

Medical service is complete and person goes home

Intensive Care

Multiple payments

Insurer (Payer)

Ambulance insurance claim

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3. Healthcare Provider System 3- Managed Care All appointment scheduling is done by the individual to one master 800 phone number. It is important to note that even though many of the process are the same as in the Traditional/Hospital Systems, they are typically contained within one building or hospital, serviced by a single 800 scheduling number, billing, claim, patient record, explanation of benefits processes and overhead is reduce by grouping provider services. This model is very efficient in delivery and cost. This system scales well and meets the needs for approximately 80%-85% of all healthcare required by individuals. Extremely complicated patients or rare disorders/diseases can stress this model of delivery but it has a higher threshold of the type of complicated patients it can accommodate as compared to the separated Traditional and Hospital Systems. There is no HIPAA obstruction since all health delivery processes, claims and the payer are contained within one system. University clinics and hospitals are striving towards a managed care model. Typically university hospitals are better prepared to diagnose and treat complicated patients and rare disease. (Full size diagram at end of this document)

Healthcare Provider System 3 (Managed Care Hybrid- Kaiser Model)

Person Requiring Hospital Services

Doctor Referral for surgery or observation

Check Patient in

Ambulance?

Yes

Emergency Room

No

Drive Car

Makes Doctors Appointment via 800 number

Go To Doctor

Are lab tests required?

Yes

Blood, Urine, etc taken at lab

Person Mailbox @ home Specimens tested

Pharmacy

No Pharmacy verifies insurance and a variety of other regulatory requirements and fills prescription. Person pays copay on the spot Heart Surgeon Group Persons Master chart (manaual or digital) Medical Records Internal Medicine Group

Is medicine Prescribed?

Yes

Person goes to Pharmacy in building to fill prescription

No Person Requiring Health Services Is Radiology Required? Yes Person goes to Radiology department in building to get picture taken All events update chart Brain Surgeon Goup All other services provided by hospital

Xray, MRI, CatScan taken

If balance to claim, it is billed until payed (one bill)

Rehabilitation (Physical Therapy, Speech Therapy, etc)

No Person makes appointment via 800 number (specialist usually in same building) Person visits specialist that has access to the same health and claim data as primary physician

Is a specialist Required?

Yes

No Person visits Physical therapy clinic has access to the same health and claim data as primary physician

All claims recorded and co-pay collected during visit

Radiology Services

Lab Services

Is Physical Therapy Prescribed?

Yes

Person makes appointment via 800 number

Intensive Care No Healthcare requirement complete Kaiser is its own Insurer/payor

Hospital Claims

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PAYER SYSTEMS/MODELS
1. Healthcare Payer Model 1- Employer Claims and payment of service must be synchronized across potentially four systemsprovider claim system, provider billing system, 3rd party aggregator, employer. In certain cases, the Employer will approve the claim reimbursement in the aggregators system either manually or electronically via a portal. Inefficient from the individuals perspective if bills and explanation of benefits statements are generated for more than one provider per incident. Third party claim/payer aggregators are utilized and only the very largest employers can afford this approach in an effort to contain costs. This model is cumbersome, inefficient and does not scale well, but it has appeared to help produce benefits in short term containment of healthcare costs for large employers. Not a long term nor an industry wide solution. (Full size diagram at end of this document)

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2. Healthcare Payer Model 2- Traditional Claims and payment of service must be synchronized across potentially four systemsprovider claim system, provider billing system, 3rd party aggregator, payer. Responsibility for fixing rejected claims usually falls on the individual and requires them to weed through many confusing statements to verify payments. Inefficient from the individuals perspective if bills and explanation of benefits statements are generated for more than one provider per incident. Third party claim/payer aggregators are another layer of cost in the process- the process is paying their profit margins on top of profit margins of the actual insurance company. This model is cumbersome, inefficient and does not scale well. (Full size diagram at end of this document)
Healthcare Payer Model 2 (Traditional)

Individual makes payment for services provided (co-pay or deductible)

Healthcare Service is provided

Is there a balance due?

Yes

Provider Bills balance of service provided

Bill sent to Individual for each service or vist

No

Provider submits claim balance for Insurer reimbursement

Person 1

Aggregator Cuts check for Employer Reimbursement for the service provided

3rd Party Aggregator or clearinghouse

Payer (Insurer) synchronizes valid employee and provide lists

Explanation of Benefits Statement that shows payor reimbursement and balance paid or due by individual for each service or visit

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RHIO REGIONAL HEALTH INFORMATION ORGANIZATIONS (or HIO) The proposed RHIO network model (HIN) is envisioned to help regional providers exchange health record/claim data and are similar in concept to the networks that were developed by banks to support a national ATM system. There are defined RHIO data standards but they have not been adopted in mass nor is their consistency to how a RHIO (HIE) should be set up, managed or what business model should be used. Past technology initiatives (non-healthcare) have failed for lack of a solid business model or inexpensive tools for all parties to utilize/integrate. There is always a grave underestimate of the business cost/need for all parties to incorporate multiple, competing or new emerging standards and technologies. As of today, the only thing that scales in this model is the physical network component and nothing else. The Public Health Data Standard Consortium is working an EDI standard, ANSI ASC X12N 837, which is an electronic format for health claims. HIPAA may also be a limiting factor to exchange data or accept liability of data ownership depending on how a RHIO is structured. If implemented, RHIO could have an impact in providing healthcare rural areas and there appears to be many states attempting to fund or lever network infrastructure to help make this occur. However, without a viable business model, these efforts will be forever subsidized/sponsored by State and Federal spending. There is also resistance in metropolitan areas to jump on the RHIO band wagon where healthcare provider business relationships and networks are more established. (Full size diagram at end of this document)

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CONCLUSIONS
The requirements placed on the existing U.S healthcare system has exceeded the systems ability to operationally and financially accommodate them. It is out of alignment. The U.S. needs to re-invent or restructure its healthcare provider/payer systems from an existing, established but fragmented and expensive model. The federal government needs to be in one of the leadership roles since it already accounts for over 47% of total healthcare spend. The good news is that many of the required primary future components already exist or are currently reaching the market and there appears to be a group will (citizen, political, corporate) to fix it. The bad news is corporate America, venture funding, investment banks, federal/state agencies and politicians have to walk in lockstep during the restructuring process. That has rarely occurred in our recent past, but it is not impossible the creation of NASA and HHS are prime examples of government and industry working together to solve a problem. As with any change, there will be sacrifice and compromise among existing businesses, citizens, politicians. The federal government could go a long way at reigning in spending by becoming more efficient in their payer processes/models, negotiating volume discounts on care/prescription drugs (Medicare Part D), consolidate the number of prescription drug plans offered (Medicare Part D) and possibly providing best practice incentives to providers. Citizens need to take responsibility when they are sick by limiting exposure to others, practicing good hygiene and lead healthier lifestyles. There needs to be an understanding that insuring everyone, government sponsored or otherwise, will not contain rising healthcare costs. This action alone will not drive the cost of healthcare down but will exacerbate it. Remember, as a whole, the current delivery (provider/payer) system of healthcare is broken from the perspective of most patients and operating at a premium cost in real dollars to society, business and government. There is a societal need to insure the uninsured 47 million people living in the U.S., but that solution is not straight forward. Creation of a federally sponsored, health insurance plan could lead businesses that currently offer private health insurance to slash costs by moving employees onto the federal plan. If these two actions consecutively occur in the marketplace, it could instantaneously eliminate private insurance/payers all together - an unintended consequence - and would balloon any initial federal cost estimates for the program. Certain corporations have already executed a similar maneuver for retired or minimum wage employees by eliminating health benefits and moving them onto Medicare/Medicaid. In addition, requiring participation by all will place a burden of paying monthly premiums on lower wage employees and small businesses. In the case of small business, raising their operating overhead and which would trigger product/service price increases or put them out of business. These scenarios should not be used as an excuse to do nothing, but they should be considered in any new insurance strategy. Government funds for the ominous Baby Boomer Medicare/Medicaid financial deficit and/or providing federally sponsored health insurance can only be derived one of several ways. Improve federal government efficiency to reduce operating costs or cut other programs then divert saved money to insurance plan(s). Collect more taxes by raising the taxable income ceiling for Medicare/Social Security or impose new health insurance premiums. A third option would be doing a combination of all the above. Copyright 2008, B2B Knowledge Source Inc Version 2.0 Page 16

One strong argument for a national or consolidated regional insurance plans is portability. With the extreme economic expansions and contractions in the last 18 years, large numbers of employees moved around between different companies usually locally or regionally. This movement is accompanied by changing company sponsored insurance plans, creation of an insurance coverage gap between jobs and requires the employee to change his/her entire provider network. It is up to the employee to move their medical records, bring doctors up to speed, etc. By having a national or regional insurance and provider strategy, it would cause less disruption to the patient (customer), since it reduces or eliminates the possibility of changing providers. As stated before, if RHIO or HIO (Health Information Organizations) are to be successful nationally, they need to follow a cookie cutter solution in business and transactional models. Several private health record solutions/portals have emerged in the past year from two major technology corporations, but they are too new to be an industry standard and do not address an industry adopted, standard method for synchronizing records or claims by providers or insurers. Also, these solutions shift the burden of record management to the individual- who is not well versed in healthcare. A mistake by the individual in providing the wrong document(s) to providers or insuring the record is kept current, will directly result in degradation of healthcare or fatality. It can lead to duplicate testing, imaging, etc- cost. Efficient procurement and supply chain practices should be implemented to achieve cost savings. Levering the buying power of regional providers, automated procurement systems that include supply chain order integration should be a goal. Private investment may want to consider a consolidation strategy in the pharmaceutical industry. Fragmentation in venture funding also leads to fragmentation or duplication of effort once/if products reach the market. This duplication also increases overall industry operating costs, etc. The results would be larger pharmaceutical corporations with broad market focus and should lower risk of failure (ie loss of venture investment) while levering operating expenses via combining them (ie reduce the cost of R&D). Markets can still be capitalistic in nature, executed with a little more vision and organization. Regulatory action may be required to assist in transformation, but necessity can only be determined by a regulatory review, by state, that defines where support and gaps exist pertaining to restructuring or if health regulation is better pursued federally. Federally regulated versus state regulated versus capitalistic/competitive insurance/provider markets has been a long protracted political battle. All three arguments have their pros and cons. There may need to be some compromise in health insurance regulation between all three in order to expedite transition to what ever the new systems will be. However, the ideological reason that markets lack provider/payer competition caused by over-regulation is not really the primary cause of skyrocketing costs. Again, it is process fragmentation (inefficiency) and redundant fixed operating costs across all systems caused by everything else cited in this paper.

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There is opportunity for regional consolidation of private or non-profit payers and claim processors in order to contain or reduce costs in the marketplace. Possibly dividing the U.S. market into 4-6 regional quadrants, but further analysis would be required before taking such an action. There is also opportunity for further consolidation of healthcare providers, but this is a much more complicated segment due to the shear number of providers. Surely, any of the regulatory or market shaping suggestions may send the pure capitalist, providers/payers and pundits over the top but they must be considered as part of due diligence. All parties must focus on solving the problem and not cling to ideology or imaginary turf that prohibits a real solution. Shared sacrifice for long term gain should be everyones mantra. There are localized bright spots in the provider sector to give some hope that they get it from a business and service perspective. The problem is they are very localized, there is not broad industry coordination of effort and if one does not have access to those systems, then they are suffering from poor delivery of their expensive healthcare. Providing quality, service oriented, affordable healthcare for all U.S. citizens is a worthy cause. It is also reasonable for business and government to expect/implement efficient healthcare provider/payer systems that contain healthcare premiums and cost.

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STRATEGIC HEALTHCARE REORGANIZATION PROPOSAL There are really six components involved in re-engineering Americas healthcare system: 1. 2. 3. 4. 5. 6. The Patient (the customer) Providers Private health insurance - payer Public health insurance - payer (currently, 47% of all healthcare spend) Business and technology operations for all of the above that include 3rd parties Regulation to include provider and payer, state and federal

If one were to design a high volume, quality service delivery model, he/she would not utilize the current anti-service, premium cost models used in healthcare today. Furthermore, if one were to start from scratch and design a model that would efficiently deliver and insure healthcare to/for the masses, one would have to consider the managed care model with some possible enhancements to handle more complicated medical conditions. However, the U.S. does not have that luxury and has to come up with a solution that will lever and/or reorganize what already exists in the market. This means sacrifice across the board but strategic restructuring should cause the least disruption and limit the pain of doing so. Existing managed care provider systems that already own the entire vertical will be minimally impacted by the proposed redesign since they in theory are already operating more efficiently than the rest of the market. First, one should consider where the actual high volume service load is in the system. It exists at the first line delivery and rehabilitation services: family practices, labs, radiology, pharmacy and rehabilitation. This is where the most service fragmentation occurs and repetitive/layered costs for billing, filing claims, etc. Not to mention, currently, it is a poorly designed, service impeding model. For all non-managed care providers a hub and spoke approach could be incented through an investment partnership between private investment and the federal government. By combining all of the prior services into one building or similarly situated buildings, then it allows for combining scheduling, billing, claims processing and repetitive overhead to a central or shared service. Thus, lowering the cost of delivery and insurance by making it efficient and providing a better service to the customer. Efficient procurement, supply chain practices and volume purchase agreements could be levered by location or region. An investment fund could be created to acquire/lease existing regional commercial property or build the proposed facilities, install supporting business systems, negotiate volume processing rates with payers. Providers could be incented to move into the space via premium claim reimbursement (tiered) and valid business cost reduction/ROI arguments. A move like this would improve/simplify patient services, provide a viable medical record solution and early detection for outbreaks while closing the loop for follow up rehab therapy for family doctors. It puts the family doctor, back at the center of coordinating care. Second, hospitals would be required or incented to produce one claim, one bill, receive payments and parse them to their business partners. Consolidation is also an option for private investment to focus on by bringing outsourced services in-house. Again lowering overall costs via reducing fixed costs layering of separate entities and improve service to the patients. Copyright 2008, B2B Knowledge Source Inc Version 2.0 Page 19

Third, healthcare regulation will also need some restructuring. As mentioned earlier, there is a tug of war between state regulation, federal regulation and capitalism on how to best approach insurance availability and contain costs. NAIC has done a tremendous amount of work in mapping out state health insurance regulation and has attempted to unify or influence enactment model regulation in states. However, NAIC typically deals with the insurance and consumer protection component of the system not the provider component. Making sure insurance companies honor their policies is the primary consumer protection component executed by state regulators/commissioners. The federal government will occasionally enact its own healthcare legislation (HIPPA, ERISA and so on) that solves or creates its own issues. The regulation disconnect directly impacts the U.S. in-ability to craft a comprehensive healthcare delivery system or insurance strategy. For this reason, regulatory restructuring could include the best of all worlds. Hybrid regulatory models have been proposed in the past, so the concept is nothing new. However, for the purposes of providing a solution for this paper, the following broad strategies or restructuring should be considered for only the Healthcare segment of insurance regulation. 1. Create a national (federal) regulatory structure that focuses on national market shaping initiatives to improve service delivery, lower cost and spend in both provider and payer industries- which allows for private sector solutions to be viable. Regulatory bodies are typically enabled/funded by fees paid by the industry it regulates. So there will have to be some compromise between state and federal regulatory bodies and the regulated industries on fee structures. Another funding option would be to fund federal regulatory body via the tax payer (the healthcare participant). 2. The federal regulatory structure would have an organizational link to NAIC and/or the state regulators since they are the experts in approving and auditing new insurance products for solvency and regulatory compliance. They also have the consumer services divisions that assist in resolving insurance disputes between policy participants (patients) and health insurance companies. This is where determining the funding mechanism becomes important since states will still need to fund their healthcare regulatory operations and the federal government would be wise to utilize state regulators to keep close ties to consumers in each state. It would provide an instant feedback loop to adjust transition strategy as required. Another regulatory restructuring option would be to lever NAICs position by enabling it to set and oversee national healthcare regulation (for provider and payer), coordinating within its existing structure with state regulators. Even if these suggestions are not utilized, the bottom line is regulatory restructuring has to compliment, incent and shape the transition to a new unified, responsive healthcare system.

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B2BKS Proposed Healthcare Market Restructuring Provider System view

Regional Hospital System

utilizing unified billing/claim system, Medical record subset

Regional Specialists Building

Unified Claim, billing, Medical record subset

Re c o r o rd up vie da w te

Front Line Medical Services Building

Family Practices Radiology Pharmacy Lab Rehab Patient Master Health Record Unified claim, billing

w vie d at e r co d Re r u p o

w vie rd ate o d c Re r u p o

Re c or ord up vie da w te

Regional Specialists Building

Unified claim, billing, Medical record subset

University Hospital System for Complex Patients

utilizing unified billing/claim system, Medical record subset

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B2BKS Proposed Healthcare Market Restructuring Payer System view

Regional Hospital System

utilizing unified billing/claim system, Medical Record Subset

University Hospital System for Complex Patients

utilizing unified billing/claim system, Medical record subset

Claim payments (parsed to providers once applied to invoice) One Claim per visit

Claim payments (parsed to providers once applied to invoice) One Claim per visit

Payer
(Medicare, Medicaid Private Insurance)

One Claim per visit Claim payments (parsed to providers once applied to invoice) Regional Specialists Building
Unified claim, billing, Medical Record Subset

One Claim per visit Claim payments (parsed to providers once applied to invoice)

Front Line Medical Services Building

Family Practices Radiology Pharmacy Lab Rehab Patient Master Health Record Unified claim, billing

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B2BKS Proposed Healthcare Market Restructuring Patient/Person System view

Regional or University Hospital System

utilizing unified billing/claim system, Medical Record subset

Payer
(Medicare, Medicaid Private Insurance)

One Bill per visit Invoice Payments (parsed to different providers)

Exception EOB when Claim is not Reimbursed

Invoice Payments (parsed to different providers) One Bill per visit

Patient

Invoice Payments (parsed to different providers) One Bill per visit Front Line Medical Services Building
Family Practices Radiology Pharmacy Lab Rehab Patient Master Health Record Unified claim, billing

Regional Specialists Building

Unified claim, billing, Medical Record subset

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FULL SCALE DIAGRAMS

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Healthcare Provider System 1 (Traditional)

Test Results

Payment to doctor

Person Mailbox @ home Specimens sent to lab for testing

Make Doctors Appointment

Goes To Doctor, He/she records visit in chart

Are lab tests required?

Yes

Blood, Urine, etc taken at doctors office.

Persons Payments

No Pharmacy verifies insurance and regulatory requirements and fills prescription. Person pays copay on the spot

Is medicine Prescribed?

Yes

Person goes to Pharmacy to fill prescription

Separate Bills for Copay

No Person Requiring Health Services Is Radiology Required? Yes Person makes appointment Xray, MRI, CT Scan taken (film stored in patient folder on-site Separate claims for reimbursement for each provider service rendered Explanation of benefits- projects payer and persons responsibility

No Person visits specialist who manually records visit to persons chart on-site

Is a specialist Required?

Yes

Person makes appointment

No Person visits Physical therapy clinic which administers and manually records visit to persons chart on-site

Claim Aggregator

Is Physical Therapy Prescribed? No Healthcare requirement complete Payer Payments

Yes

Person makes appointment

Insurer (Payer)

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Healthcare Provider System 3 (Managed Care Hybrid- Kaiser Model)

Person Requiring Hospital Services

Doctor Referral for surgery or observation

Check Patient in

Ambulance?

Yes

Emergency Room

No

Drive Car

Makes Doctors Appointment via 800 number

Go To Doctor

Are lab tests required?

Yes

Blood, Urine, etc taken at lab

Person Mailbox @ home Specimens tested

Pharmacy

No Pharmacy verifies insurance and a variety of other regulatory requirements and fills prescription. Person pays copay on the spot Heart Surgeon Group Persons Master chart (manaual or digital) Medical Records Internal Medicine Group

Is medicine Prescribed?

Yes

Person goes to Pharmacy in building to fill prescription

No Person Requiring Health Services Is Radiology Required? Yes Person goes to Radiology department in building to get picture taken All events update chart Brain Surgeon Goup All other services provided by hospital

Xray, MRI, CatScan taken

If balance to claim, it is billed until payed (one bill)

Rehabilitation (Physical Therapy, Speech Therapy, etc)

No Person makes appointment via 800 number (specialist usually in same building) Person visits specialist that has access to the same health and claim data as primary physician

Is a specialist Required?

Yes

No Person visits Physical therapy clinic has access to the same health and claim data as primary physician

All claims recorded and co-pay collected during visit

Radiology Services

Lab Services

Is Physical Therapy Prescribed?

Yes

Person makes appointment via 800 number

Intensive Care No Healthcare requirement complete Kaiser is its own Insurer/payor

Hospital Claims

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Healthcare Payer Model 1 (employer)

Individual makes payment for services provided (balance due, co-pay or deductible)

Healthcare Service is provided

Is there a balance due?

Yes

Provider Bills balance of service provided

Bill sent to Individual for each service or vist

No

Provider submits claim balance for employer reimbursement

Person 1

Aggregator Cuts check for Employer Reimbursement for the service provided

3rd Party Aggregator and payer

Explanation of benefits statement that shows payer reimbursement and balance paid or due by individual for each service or visit

Employer synchronizes valid employee/Provider list

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Healthcare Payer Model 2 (Traditional)

Individual makes payment for services provided (co-pay or deductible)

Healthcare Service is provided

Is there a balance due?

Yes

Provider Bills balance of service provided

Bill sent to Individual for each service or vist

No

Provider submits claim balance for Insurer reimbursement

Person 1

Aggregator Cuts check for Employer Reimbursement for the service provided

3rd Party Aggregator or clearinghouse

Payer (Insurer) synchronizes valid employee and provide lists

Explanation of Benefits Statement that shows payor reimbursement and balance paid or due by individual for each service or visit

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RHIO Vision (Regional Health Information Organizations)

Other States

National HIN

Other States

State HIN OHIO National HIN FLORIDA

RHIO 2

RHIO 2

RHIO 1

RHIO 1

RHIO 4

RHIO 4

RHIO 3

RHIO 3

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REFERENCES 1. Summary of the HIPAA Privacy Rule, US Health and Human Services, May 2003 2. The Long-Term Outlook for Health Care Spending, US Congressional Budget Office, November 2007 3. Feds Health Spending to Double in a Decade, Wall Street Journal Health Blog, February 2008 4. States Role in Health Information Exchanges, Deloitte Center for Health Solutions 5. Health Information Exchange Business Models, Deloitte Center for Health Solutions 6. Preliminary Report: State Level Health Information Exchange: Roles in Ensuring Governance and Advancing Interoperability, Foundation of Research and Education of American Health Information Management Association, September 2007 7. The Internet 8. All provider and payer system processes were obtained from participation by the author and/or his senior relatives in the various models over the past 10 years. ABOUT THE AUTHOR Tim Ameredes has 17 years of experience in leading roles where he streamlined business operations and/or aligned IT in corporate, government, higher education industries. Witnessing market actions or provider issues that adversely affected retired relatives began his quest of monitoring the healthcare industry. The adverse actions were as follows. An increase in monthly private insurance premiums paid by $300/month in one case of a retired teacher and completely eliminating two other relatives pension/healthcare benefits by a profitable international steel manufacturer in the other case (resulting in that relative being moved to Medicare). A 40 day hospital stay for one parent while the other parent was having a hip replaced- both were buried in claim paperwork. Coordinating healthcare services as Power of Attorney for an aunt with dementia. Their ages were 78, 78, 83, 84 and 84 at time of the poor service actions. Fortunately, all are still living. This paper is not intended to make a political statement but rather to offer a different viewpoint to the existing healthcare crisis in the United States. Future U.S. healthcare solutions need to take into account this viewpoint in order to achieve success in providing quality service and containing rising healthcare costs over a shorter period of time.
COPYRIGHTS Copyright 2008 B2B Knowledge Source, Inc. The works of authorship contained in this document, including but not limited to all design, text and images, are owned by B2B Knowledge Source Corporation and all rights are reserved therein. They may not be copied, transmitted, displayed on Intranets or the Internet, mass distributed by email, US Mail, fax or any other means (for compensation or otherwise), licensed, altered or otherwise used in whole or in part in any manner without the B2B Knowledge Sources prior written consent, except to the extent permitted by the Copyright Act of 1976 (17 U.S.C. 107), as amended, and then, only with notices of B2B Knowledge Sources proprietary rights. TRADEMARK NOTICE B2B Knowledge Source and "The B2B Symbol" are trademarks of The B2B Knowledge Source Corporation.

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