The Historical Setting of a National Health System: Avoiding the Mistakes of the Past

First let me restate that I whole-heartedly believe that we need a national health system in this country. What we don't need is some half-baked scheme that ends up being worse than what we have now. That's my fear and I've been at this long enough to know that such an outcome is entirely possible at this point. There is great pressure to 'act' but as in most things prudence has to be our guide. And we need to get over the knee jerk reaction to shudder every time some idiot pundit shouts the phrase 'socialized medicine' whatever that really means.

When politicians talk about healthcare reform they almost always mean payment reforms and controls. There are a lot of reasons why this is the case and we'll get into that in later episodes. A big one is that they have no idea that there may be alternatives and admittedly these alternatives won't be easy or come cheap. Often they gravitate to the notion of a single payer - a super sized Medicare program that pays for all health related services using a single standard. Some proposals would have the actual payments being made by regional parties such as either Medicaid or the existing payers (like the Blues for example) operating under contract to administer the programs for the government. A lot of healthcare dollars are already managed that way. Understanding why this has almost nothing to do with the actual practice of medicine and may not significantly improve care is important. This difference is key to making an intelligent choice about what a national system should look like. It's an important topic and will require more than one posting to cover. It's going to take some preliminary review.

Short historical review: We need some background here and please understand that entire libraries have been written discussing what we're forced to handle in a few paragraphs. There will be some simplifications required in the interests of accessibility.

Government payment for healthcare is a relatively recent phenomenon in this country. Come to think of it health insurance is pretty new. Prior to WWII very few people had any kind of medical coverage. In the aftermath of the war, employers sought new ways to compensate their returning and expanding workforce other than by direct, and taxable, salary. Employee benefits such as healthcare really took off at that time. Prior to the late 1940's very few people talked about any rights to healthcare services and there was very definitely a multi-tiered system of care. Most people negotiated for healthcare just like any other commodity and if unable to pay for one of the prestigious hospitals then they went to one of the charity hospitals run by the churches or some municipalities or bartered with physicians. Still, many people were left out in the cold. After WWII, a lot more people could avail themselves of the higher tier of care through their employee benefits.

Ironically this period, and the golden age of fee for service medicine that followed until the 1980's, was a very 'socialized' time in healthcare. How so? Well, what came to be known as balanced billing was pretty rampant. What that means exactly is something to which I will return shortly. Most hospitals and physicians took care of all sorts of patients regardless of their finances. MD's covering emergency rooms didn't perform wallet biopsies all that often and although a lot of the care for the indigent was done by resident physicians in training people got the care they needed for the most part - at least on the acute care side. Wellness, early diagnosis and prevention remained (and remain) huge problems for the underserved. Once they were sick, the acute care system would generally handle their needs if it wasn't too late. This continued imbalance is a prime driver in the need for a true national system.

Doctors and hospitals basically taxed the haves in order to care for the have nots. Part of the fees submitted to insurance companies essentially included a surtax to cover some of the costs for providing services to all the patients without money or coverage. That worked pretty well until medical advances lead to spirally costs and the Government stepped in with the heavy hand of Medicare. (The rise of Medicare and its effects is the topic of the next post.)

Now keep in mind a really important feature of being a doctor - you are just as legally liable for what happens to a person who doesn't pay you one red cent as you are to those that do. And we have to add the fact that said doctor has an office and staff to support. Many of those on that staff have nothing to do with actually delivering healthcare - they are there to manage the billing, regulation and administration of services already provided. The overhead for a practicing physician depending upon specialty and efficiency can range from 20% to 60%+ of gross revenues. Like any other business these are fixed costs. Before WWII and the rise of employee health plans most doctors offices didn't need much in the way of administrative staff. Billing was something that happened directly between the patient and the office and wasn't all that complicated of a process.

Employee benefits lead to the golden age of fee for service that I mentioned earlier. Doctors and hospitals were only too happy to deal with these insurance plans rather than directly with the patient. The promise was of more consistent revenues and standardized transactions that would lead to higher reimbursement for services. It turned out to be a somewhat Faustian bargain but only time would reveal that. Now it became necessary and not completely onerous to hire administrative staff to manage the relationship of payer to the clinic and hospital.

Three critical problems would result from this over time. The first was that the patient became distanced from the true cost of the care they received. As far as the average patient was concerned it may as well have been free. That in large part accounts for the change in expectations that patients have experienced over the last few decades. There was no personal incentive to budget or ration one's use of services and no sense of the true cost of care. Couple this to the rapid advances in healthcare itself and fewer and fewer people were interested in preventive maintenance as it were. After all, if they got sick, somebody would fix it and the relative impact financially to the individual was pretty minimal. Healthcare, subtly at first, became perceived to be a right. Even more telling was the fact that it was perceived to be a right without tiers. People who would have looked at you funny if you said that everyone was entitled to a Mercedes even if you could only afford a chevy had no problem with the notion that all the medical bells and whistles should be at the beck and call of all. Single tiered care is extremely expensive. (One of the issue this nation will have to face soon is whether it can be afforded.)

Second, The payers were (and remain) in the business of turning a profit. They are very happy to take all that employer money to cover benefits but not so keen on spending any of it on actual care. Thus was created an enormous and bloated bureaucracy to dispense the funds but also to make it harder and harder for the clinicians and hospitals to get it. This triggered what is essentially an ongoing arms race between clinicians and payers to see who can gain the advantage. More and more layers have been added with time, ostensibly to monitor these transactions and ensure that the money is going to where it should. Over time, two parallel systems evolved in healthcare: one to provide the actual care, and another to manage the business transactions that indirectly were the result of it. And the separation between these two systems has continued to widen with time. This duplication is a major contributor to healthcare costs in this country. More on this in later posts as it has profound implications to Mr Obama's plans for electronic health records.

Third, the fee for service boom times were of greatest benefit to those who performed technical tasks, treatments, and developed acute care technologies. Prevention and wellness were little regarded and financially ignored. People wanted active services, drugs and surgeries and the payers responded. That predilection to pay for procedures rather than other services continues today. 'Show me the money' has provided huge incentives to develop and invest in acute care services and technologies. The cost and complexity of these technologies also tipped the balance of power between physicians and hospitals since among other things the hospitals were better equipped to afford them in the first place. It also didn't help the development of wellness and prevention programs or indigent services - there was no money in it in a largely capitalistic medical R+D world. Again, short of some kind of government services it's hard to imagine that changing significantly.

These and other factors converted the long-standing doctor patient partnering into a triangulated relationship between patient and doctor, doctor and payer, and payer and patient. The interests of these three relationships are often in conflict. The friction thus created breeds inefficiencies that have added to the costs of medicine in a big way. They've also eroded the vital relationship between clinician and patient so necessary to good care.

This became more and more complicated - and that was ignoring the growing dominance of Medicare....

Next time: Medicare, Medicaid, the VA system and the rise to dominance of government healthcare programs.