Instead of a single payer, let's create stronger regulation

Perhaps in trying to solve the health care crisis we’re going about it the wrong way. Rather than creating a single payer system or moving more to free market solutions (the political divide between liberals and conservatives) we could focus on regulatory oversight rather than government run or insurance company run health care.

If the federal government regulated administrative markets, it could define standards such as eligibility for coverage, provider payment methods and benefit plan standards to reduce or eliminate variation and thus reduce administrative cost. Doing this would reduce the options employers or government plans could offer but it wold have effect of reducing the amount of staff employed at plans, hospitals and physicians who perform non-health care related functions such as customer service, claims payment, billing and collection, eligibility checking and underwriting.

The cost of administration in the U.S. is not trivial. Estimates are that between 25 and 30 percent of all health care dollars are spent for administration. At today’s national health care total expense of $2.5 trillion this amounts to as much as $750 billion. Reducing this by just 15 percent produces more than $100 billion in savings, which would pay most or all of the cost of coverage for the un-insured.

The administrative requirements of American health care are driven by variation and the lack of regulation and standards. Because we pay for half of all care with private sector dollars via premiums to health plans, insurers and administrative service companies there is wide variation in benefit plans, eligibility rules and payments to health care providers. In the health plan and payer world there are literally millions of customer service reps, claim payers, underwriters, actuaries, product staff, computer programmers, provider representatives, doctors, case managers, sales and marketing staff, lawyers and others. This staff develops products and variations on those products, answers member and provider questions, pays health care claims and programs changes into computer systems.

In the provider world, hospitals and physicians employ an army of people to decipher the variations in benefit plans, policies and payment methods and rules. Both sides try to maximize their revenue and minimize cost, but each one schemes against the other to do so. Plans try to reduce payments to providers while providers try to figure out to get more from payers. These non value-added activities go on every day in the provider and plan worlds. One side planning how to pay less and the other side planning how to get more. Believe me, there is a great deal of expense involved in this interchange.

Providers increasingly tell me in our conversations that the variation in benefit plans, in administrative rules and in payment schemes must end because they have seen how much they cost to administer and know this is robbing the system of dollars to pay for health care. But to date, there has been no serious effort by providers to ask Congress or state houses for regulatory oversight of payers so that this variation is reduced. And of course payers aren’t going to volunteer to simplify their policies and procedures. Neither are they allowed to collaborate with other payers to reduce or eliminate variation among them.

So, as a start to reducing cost, here are a few things Congress could do to reduce variation so that providers can focus on providing care and not on figuring out how and what they are going to be paid or how a patient’s benefit plan works.

1. Mandate national payment methods and levels for physicians, hospitals and others. There is no longer any justification for the various levels of payment to physicians and hospitals for the same service just because the payer is different. This should include Medicare, Medicaid and commercial insurers.

2. Reduce the number of benefit plans allowed to three. High, low and medium. That’s it. And all coverage should cover the same things--at a minimum, all doctor visits, all hospitalizations and prescription drugs. Other coverage could be provided in the higher level plan, but the basic plan would cover everything. Use the most common federal employee benefit plan as a basis for the low benefit plan.

3. Administrative rules for payers would all have to be the same--prior authorizations for high tech radiology, hospital pre-admission rules and claim submission rules would be allowed, but would have to comply with national, evidence-based guidelines. Ditto for drug lists. All drug lists would have to be the same and all step-therapy and pre-authorizations identical. It might be necessary to endow the FDA with new powers to set these standards.

4. End state oversight of health insurance. This gives rise to endless variation and cost across state lines. Use ERISA as the new regulatory framework for health insurance across the country,including employers and insurers under the same umbrella.

These four things are a place to start. They won’t bring about a single payer, but they will eliminate a lot of the non-value added, non socially-beneficial variations in health care and allow for greater focus on caring for patients. And they will save at least $100 billion and probably a lot more. Now that’s cost containment we can believe in.