The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants

A Brief Historical Review of Delivery

Dr. David Edward Marcinko; MBA CMP™

[Publisher-in-Chief]

Prior to 1970s, the healthcare reimbursement system was not a monolithic complex and most Americans received their healthcare through one of five third-party organizations:  (1) Blue Cross/Blue Shield (pre-paids), (2) Commercial insurance (private) companies, (3) Medicare (federal-elderly), (4) Medicaid (state-poor) and (5) CHAMPUS (military).  

Four Fragmented Participants 

The four participants in this fragmented system were; the patient (consumer), the physician (provider), the employer (buyer or payer) and one of these third-party intermediaries (TPIs).  

Moreover, the doctor-patient relationship was often muddled by the third parties who became brokers between MD and patient; both who merely sought to understand: (a) who was responsible for payment; (b) how the MD would assist the patient obtain reimbursement, and, (c) how to establish the ultimately responsible party? 

Commercial Insurance and the CPI 

In the meantime, commercial insurance medical costs were accelerating at a rate greater than three times the Consumer Price Index [CPI], a measure of goods and services in a market basket intended to be representative of a typical patient’s purchases.  

There was no single reason for medical cost escalation, but many economists believed the following circumstances conjoined at one point in time to increase health care costs dramatically. Important factors include the following: 

1. Law of Supply and Demand (increasingly too many doctors chasing too few patients). 

For example, Milliman & Robertson, the actuarial firm, estimated that only about 70% of physicians actively practicing medicine in the United States are necessary; a decade ago. The same situation is true for other healthcare employees. Mergers, acquisitions, outsourcing, closings and consolidations have only exacerbated the situation. 

2. The US Federal Budget Deficit is about 3.5 trillion dollars, since income is 1.5 Trillion Dollars and outflow is 5 Trillion Dollars.

On the other hand, the budget surplus that existed several years ago was dissipated by 2005, thanks to the flagging economy and War with Iraq.  

Additionally, the federal budget further demonstrates the severity of the healthcare cost problem as a percentage of the national budget:  

• Social Security = 21%
• National Debt Interest = 20%
• Medicare and /Medicaid = 16%
• Defense Spending = 15%
• Domestic Spending = 15%
• Miscellaneous Spending = 11%
• International Spending = 2% 3. 

Increased administrative costs and advancements in health information technology. The primary use of new technology has been in the areas of diagnosis and treatment.  

However, HMOs also use technology to increase operational efficiency and reduce costs. The price paid is in the loss of jobs or reduction in the skill level needed to perform certain tasks, formerly done by trained technicians, nurses or physicians. 

4. Malpractice phobia, misinformed patients, hungry trial lawyers and class action lawsuits. 

The median malpractice award for all medical negligence claims increased by 14% since 2000, and in childbirth cases was $1.3 million, more than double the median for any other type of medical malpractice verdict.

Assessment  

According to some industry pundits, even seemingly small healthcare premium amounts matter.  

For example, the difference between a high and lost cost health care plan is about $20-25 per member/per month. Nevertheless, low cost provider groups gained enrollment, as high cost providers lost enrollment at this level; in one study.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact:

MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Healthcare Finance | Tagged: Health Care Finance |