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Cat's Cradle: Untangling The U.S. Health Care System

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My own sister-in-law watched the film “Sicko” and left the theater convinced that a single payor, nationalized health system would significantly reduce the dysfunction and waste that exists in the U.S. system today.

As we approached our annual vacation together, my brother warned me to steer clear of the “H” subject.

After 25 years in the health care field, I felt compelled to risk internecine warfare to offer some troublesome truths about what’s wrong with health care and how everyone must change to achieve what we all want-a system that covers all Americans, while continuing to innovate, improve and lead the world in quality and affordability.

Serving as a broker, consultant and managed care executive, I have represented employers, insurers and providers. Having lived abroad for 3 years, I have been hospitalized in both private and public health care settings under the National Health Service in the United Kingdom. I have struggled through the confusion of Medicare, Medicare Part D and Medicaid issues that affected my family members.

My advice to everyone, including my sister-in-law, is to become a student of the system first, and understand its current dysfunction and culprits before passing judgment on what needs to change.

As we survey what is wrong, we get angry and want to rush into quick fixes that will most certainly create unintended consequences.

So who should we blame? Grab a mirror folks and follow me.


Many believe the health insurance industry is responsible for the demise of health care in America. Health insurers are certainly a tempting–and at times, convenient–scapegoat. It is clear that nonprofit and for-profit insurers can and should do more to lead the changes that are essential to market-based reforms.

Insurers attempt to price their premiums at or just above the level of medical costs in order to compete with each other for market share. As medical costs rise due to a range of factors (utilization, malpractice, waste, fraud, cost shifting from government, technology, pharmaceutical demand, etc.), premiums rise as well. While insurers have developed extensive programs designed to mitigate costs, these programs can be too focused on controlling provider and facility costs.

As a result of this relentless focus on provider reimbursement, insurers are often at odds with doctors and hospitals. The zero sum game of fee cuts by insurers, countered by a wide range of practice and charge variations by providers, has created tension at a time when payors and providers need to work together.

Insurers, under pressure from employers and shareholders to lower costs, have been limiting increases in fee schedules for physicians in line with competitive market trends. Many doctors feel trapped by the managed care system and feel increasingly compromised by having to see more patients, thus reducing actual consultation times and increasing hours to maintain or slightly increase annual income.

The key to improving the relationship between managed care providers and insurers is to increase reimbursement to higher quality/higher efficiency providers. To make this work well requires provider-based report cards designed in cooperation with doctors and trusted by consumers.

Doctors feel under siege–the threat of malpractice litigation, fee schedule limits, increased patient volumes and a morass of administrative processes that vary from government to private insurers has doctors complaining to consumers, who, in turn, believe that the quality of their own health care is declining.

Employers hear from their employees that doctors are unhappy and pressure management to improve the health plan. Employers, in turn, pressure the insurers to reduce the “noise and disruption” resulting from their health plans but still elect insurers that will deliver the best economics.

Acting as a sentinel to manage the process of health care delivery puts any insurer in a “no win” position. The public relations problem is exacerbated by the fact that few stakeholders trust the insurer as an impartial ombudsman because of a perceived conflict of interest–profit.

Change in health-related behavior has come painfully slow in a U.S. health system that pays for treating illness, not curing it. Most disease management programs are often more successful in reducing the cost of claims of individuals already plagued with chronic illness. The ability to impact those at risk for tomorrow’s claims requires a level of lifestyle intervention that, to date, has been unpopular, unsuccessful or unsupported by many employers and most consumers. Insurers have moved at the pace of their customers, instead of insisting on a commitment to wellness.

Insurers are often accused of not reimbursing claims. One presidential candidate has said that insurers “try to find a way to get out of paying for the claims.” In my experience, insurers pay claims based on plan designs created by employers and the fee arrangements they negotiate with doctors and hospitals. Where insurers sometimes stumble is in their compliance with these contracts–prompt payment to providers, clarity around reimbursement practice and clarity around benefit levels. These phenomena create a sense that the insurer is trying to obscure the process and confuse the stakeholders.

To the degree the consumer experiences a lower level of reimbursement, the insurer’s “explanation of benefits” statements is steeped with legalese, and fails to educate the consumer on why and how their benefits were less than expected. Often, the reduction is due to a plan design not understood by the consumer, a dispute over provider billing due to a lack of information exchanged between the provider and the insurer, or any host of issues that can delay or reduce payment.

Insurers must become more user-friendly and earn trust from the various stakeholders. Insurers have simply not yet achieved trust with the public and, as a result, find it hard to attain the role they seek–a trusted advisor to help America improve its health and health care experience.


There are more than 44 million Americans who do not have health care coverage today. Many others are underinsured.

The uninsured population is a diverse group including a large percentage of individuals under 30-years-old. These “young invincibles” choose not to be insured due to a sense that the risk versus the benefit is not worth the investment in insurance.

Meanwhile, average consumers are angry as they hear from their disaffected providers, their health care becomes more expensive, and insurers seem to be constantly intervening between them and the care they believe they need.

Here’s the problem: Americans want the best technology, immediate access, the ability to self-diagnose and self-direct, and no interference in this process. More than 60 million Americans have a body mass index over 30, which indicates obesity and vulnerability to chronic illnesses.

To make matters worse, the American consumer does not understand the health care system or have the tools to better distinguish between a quality and efficient clinical outcome from one that resulted in less value.

Given the lack of tools and health care education, today’s consumer determines value by a complex subjective algorithm that includes whether he felt the doctor had a good bedside manner, whether he got better in a timeframe that the consumer felt was reasonable, how much the health plan reimbursed for the services, and whether the patient was denied access to services he felt were merited.

Today’s health care marketplace is a massive grocery store where the consumer is charged a considerable price of admission (premium contributions), but once in the store, the consumer does not know the price of a single item he is purchasing.

Consumers hold the solution for healing the health care system in their hands. For example, statistics show that many consumers with insurance coverage who are diagnosed with chronic conditions such as diabetes fail to comply with the basic maintenance and management programs designed to keep their conditions under control. Tests and procedures such as HCA-1 tests for blood sugar and regular use of insulin for diabetes, and use of statins and beta blockers after a heart attack are routinely ignored. These failures to comply lead to significantly higher rates of complication and co-morbidity issues.


Employers are eager to get out from underneath the burden of health care costs.

As the second largest expense on an employer’s income statement after payroll, health care costs are considered by many employers to be unmanageable. Unlike any other business risk, employers consider health care costs difficult to mitigate. Most employers absorb annual health care cost increases to a certain budgeted level and then transfer the remainder of the rising expenses to employees in the form of higher deductibles, co-pays and premium contributions.

Once costs are shifted, a sort of “quid pro quo” effort is made to minimize a sense of diminished value by the employees. The focus then shifts to limiting disruption to the employees through access–ensuring a broad network of hospitals and ease of administration. If an insurer has a dispute with a hospital that results in that hospital terminating its contract with the insurer, this creates disruption for the employees, making an employer uneasy.

This desire carries over to other health care costs that are in need of control, such as pharmacy benefits.

Intuitively, improving the health and well-being of employees makes absolute sense, but companies have a hard time measuring the return on investment of wellness. No chief financial officer likes the idea of “lost opportunity cost” as the basis for measuring the worthiness of an investment. Furthermore, there is a psychology that says “if we shift the cost to the insurer by paying it a premium, the insurer then becomes responsible for improving employee health.”

Larger, self-insured employers understand that their employees’ health drives claims, which drive costs. Smaller employers often fail to make this critical connection or are in plans in which costs do not always personally reward good claims experience because the employer is too small to be considered statistically credible for predicting future costs.

In many industries, turnover statistics suggest that typical employees will work for other employers within 3 years. The question is always hanging thick in the air: “Why should I invest in making someone healthy who may leave and take that better claim cost to another employer?”

My question is, “Why not?”

If every employer committed to a culture of promoting healthy lifestyles and creating incentives to improve health compliance, medical trends could decline.


Brokers, consultants and other intermediaries assist employers to make better decisions around health care costs, and work to leverage their experience and expertise to improve an employer’s control of costs over time. Some like to depict themselves as “keeping insurers honest.”

The reality is that a good broker adds value by raising the employer’s understanding and awareness around employee benefits and health care-related costs. The broker can bring very important resources to complement those of an employer and the insurer. A good broker helps human resource and benefit professionals drive important cultural changes within the employer to embrace health, wellness and consumer education.

Much of health care in the United States is purchased by smaller employers and these employers are served by thousands of agents and brokers. Many employers do not know how much commission they pay or do not focus on what they pay their brokers because it is often embedded within their premium. Relationships are an important part of this decentralized market and often relationships prevent employers from going through a professional process of making sure they are getting the best possible advice for the health care services they are purchasing.

The fact is that a poor broker helps perpetuate the dysfunction in health care. A poor broker does very little to change the employer’s understanding of health care and has little influence in helping impact the underlying cost of the employer’s health care, other than shopping the insurance to achieve lower costs.

As premiums increase, the broker’s commission increases. The question for an employer becomes, “What am I getting for the fees and commissions I am paying?” To complicate the remuneration equation, most brokers accept contingent commissions based upon the volume of business they achieve with certain insurers. These volume rewards, coupled with generous commission packages, can create conflicts that impact a broker’s ability to be objective.

Fortunately, recent focus on broker compensation arrangements and a broker-led industry endorsement of compensation transparency should help any employer better judge the value for commission that they are paying. These reforms, coupled with an intensely competitive broker market, have improved industry objectivity and raised the bar for brokers to prove they add value.


As larger hospital systems gain market share, smaller hospitals are finding it harder to survive.

Doctors are exacerbating this situation by investing in and directing care to outpatient surgical centers, which siphon higher margin surgical business away from hospitals. Many smaller, independent hospitals are finding themselves in danger of closing due to reduced reimbursement and an inability to compete with larger systems on cost or quality.

Increased accounts receivables resulting in increased defaults for payment of services are accelerating the burden on hospitals. Staff cuts, reductions in compensation and labor disputes also are creating unrest. Where there is an excess of beds, there are several hospitals teetering on insolvency.

Many hospitals are not run at optimal efficiency and more often than not, the lack of competitiveness requires the hospital to seek levels of reimbursement from commercial insurers that are not competitive in the marketplace. The smaller hospital, torn between the need to treat an underserved part of the community and confronted by the realities of a highly competitive market, finds itself reaching out to legislators, regulators and the media in an effort to influence public opinion that reforms are required to create equity in health care.

Larger hospitals are increasingly influential and driving higher rates of increase from commercial payors. Those higher increases are usually shifted to smaller and mid-sized hospitals by insurers in the form of lower reimbursement.

Many larger players hope to buy or drive out of the market smaller players to gain the redirected commercial patients being served by those hospitals. Those individuals “most at risk” are often served by these smaller urban and rural hospitals and are the first to suffer when a closure occurs.


The cottage industry of physician services has become increasingly sophisticated. However, doctors still disagree over many aspects of how health care is or should be delivered. Most providers view anyone looking over their shoulders (insurers, government, etc.) as ill qualified to pass judgment on a vocation that is as much art as science.

Market-based reforms require physician profiling and a wider bell curve of reimbursement rewarding high performing doctors for quality and efficiency while penalizing those that habitually fall short. Getting agreement on the criteria to measure value is difficult. Doctors and insurers are often locked in mortal combat over billing practices, medical review of services, provider reimbursement practices and the multitude of insurer payment systems.

Most consumers do not understand how providers are paid and how they charge for services. Most consumers do not grasp the difference between a specialist and a general practitioner and how they generate their income. Most being treated for cancer do not know that the average oncologist might make as much as 50% of his annual income through the wholesale purchase of chemotherapy drugs sold in his office at retail cost.

When insurers or other payors clamp down on practices that may lead to clinically unnecessary costs, providers fight furiously against these changes and often lament these facts to the patients who, in turn, relate to their employer that either (a) the employer’s coverage is poor, or (b) the insurers are not adequately reimbursing their providers.

There is no doubt that certain providers have seen little to no increase in fees in the last several years from commercial payors because across-the-board fee cuts do not distinguish between higher quality and lower quality doctors. This must change so higher quality providers can get paid for the value they create–value defined as achieving better outcomes quicker with fewer complications or rates of readmission. However, providers need to understand that the U.S. health care market is changing and that it will be impossible to survive as a provider or hospital within the next 5 years without change.

What now?

Everyone is to blame and everyone holds a key to helping open a new door to a better and more comprehensive delivery system supported by market-based reform.

However, everyone must prepare for the fact that change, and the subsequent disruption, will be constant companions as we redirect this first generation of consumers to think very differently about how they access care and manage their own health. Every stakeholder has to look deep into the mirror, prepare for change and above all, stop pointing fingers.


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