Independent Physicians as Business Owners


Statement of


Greg Scandlen


Director


Center for Consumer Driven Health Care


Galen Institute


before the


Committee on Small Business


of the


United States House of Representatives


Field Hearing


On


Independent Physicians as Business Owners


July 14, 2003


Frederick, Maryland


Mr. Chairman and Members of the Committee,


Welcome to Frederick. I?m sure Dr. Bartlett has given you a full briefing on the wonders of our community, but nothing will do it justice until you walk around and visit our antique stores, restaurants, and historical sites. I hope you have brought your credit cards with you.


I am Greg Scandlen, the director of the Center for Consumer Driven Health Care at the Galen Institute. I am here to share my own views on the problems physicians are facing as small business owners and independent practitioners. My views are informed in part by the many hundreds of such physicians I work with every day in trying to create a more sensible health care system in America ? one that puts the needs and demands of the patient at the forefront.


Health care is, ultimately, about the patient. Insurance companies, employers, government agencies, drug companies, hospitals, nurses, even physicians, have a role to play only to the extent they adequately serve the patient. How well they do their jobs can be measured only by the patients themselves. Not by their peers, not by bureaucrats, not by academics.


But patients will be able to express their views meaningfully only when they are able to control their own resources, and reward those who serve them well, and punish those who do not. That is the core concept of everything my organization tries to do. That is the fundamental basis for a consumer driven health care system.


I asked a number of independent physicians to name the things that most interfere with their ability to succeed in their business. Virtually all came up with the same four items:


? Inadequate reimbursement,


? Excessive regulations,


? Burdensome administrative requirements, and


? A tort system that is out of control


These factors add to substantially to the cost of providing care, frustrate physicians, and interfere with their relationships with patients.


There are at least two ways to address these issues. I suggest one will have far better and longer lasting effects than the other.


On one hand, Congress could increase physician payment, especially in Medicare and Medicaid, roll back many of the more onerous regulations, and enact a package of tort reforms that will remove the extremes and still protect victimized patients. These would all be worthwhile measures and a job well-done.


But it wouldn?t be long before the same old impulses come back to move the pendulum back the other way. The next Congress could begin to cut payments again, re-enact the regulations, and dismantle the tort reforms you worked so hard to enact.


It is a never-ending battle between the regulators and the de-regulators, between generous appropriators and thrifty appropriators, between the plaintiff?s bar and the defendants, between insurance companies and drug makers, between nurses and hospitals, between employers and


doctors. Everyone is fighting for a bigger piece of the pie, for more political influence, for less regulation for themselves and more for their competitors.


But where is the patient in this struggle for influence?


Let me suggest an alternative approach — one that will serve independent physicians by empowering their customers. And one that will create a permanent change in our health care system that will reduce the need for regulation, improve the efficiency of paying for health services, lessen the need to sue for redress, and pay physicians and other health care workers according to their skill and their service to the customer.


This is putting resources in the hands of the consumer, so they can make their own choices, based on their own values and the needs of their own families.


You took a baby step in this direction with the enactment of Medical Savings Accounts in 1996. A much larger step was taken last year when the IRS issued its guidance on Health Reimbursement Arrangements. Allowing the self-employed to deduct 100% of their insurance premiums was another good move. There is a proposal in the current House Medicare bill for Health Savings Accounts that would be another bold step forward. The President?s proposal for refundable tax credits would also help.


The private sector is also moving rapidly in this direction. Employers and health plans are putting more control in the hands of individual consumers. This includes control over the type of insurance coverage they choose, control over the way their money is spent, and the information resources needed to make wise decisions. We are entering a period of great innovation and experimentation, all in the name of “consumer driven health care.”


Let me put these initiatives in context. Over the years America has come to rely almost entirely on third-party payment for health care services. Today only 15% of total costs are paid directly by consumers, and it keeps dropping every year. This means a third-party — insurer, employer or government — is deciding who gets paid, how much, and for what. Third-party payers are making the decisions, but all the money comes from consumers, either through premiums, taxes, or earned compensation on the job. It is all our money, but we control only how fifteen cents on a dollar is spent.


Third parties are not about to write a blank check and pay for every whim a patient or a physician might have. To control their costs, they impose rationing. The rationing may take the form of outright denial of care. But it might also involve excessive administrative burdens, essentially rationing through hassle ? “you may perform this service, but only if you jump through all these administrative obstacles and barriers we have created,”


Consumers know they are being deprived of the services they believe they need. Because they don?t control the money, they have to find other ways of expressing their wishes. They end up in court or before legislative bodies or regulators to complain about inadequate service, poor payment, lousy care, and excessive paperwork.


In a consumer driven system, consumers would control the funds, and could express their wishes directly, by refusing to pay for inadequate services and paying more for superior care. Using direct payment would be a far more efficient way of paying for services than processing every encounter through an insurance mechanism. Let?s look at how would this effect the four areas of concern the physicians have expressed:


Inadequate Reimbursement.


Third-party payers pay all “providers” the same, regardless of their skills, efficiency, or bedside manner. Arrogant, indifferent, distracted physicians are paid at the same rate as caring, involved and focused physicians. The kid just out of medical school gets paid the same as the town?s best doctor. Having Congress increase reimbursement rates, means you have to increase everybody?s payment, regardless of how good they are. If patients controlled their own funds, they might very well be willing to pay more to get better quality care. The best physicians would prosper, while the mediocre ones would struggle. There would be an incentive to improve, to serve patients better, to listen more carefully.


Excessive Regulations.


Many of the regulations are aimed at correcting problems created by third-party payments. Mandated benefits are one such example. A legislature decides employers or insurers aren?t responding to the needs of workers, so it passes a law requiring them to cover some service. If consumers controlled their funds, they wouldn?t need to get a law passed. They would simply buy the service they wanted to have. The same is true of physician regulations, which are too numerous to name. If patients control their own funds, they could make their own decisions on whether a physician-owned lab is providing good value. So-called “private contracting” under Medicare would be the norm, not the exception. Patients would decide for themselves whether a particular doctor is worth the extra cost.


Administrative Burden.


Our system of third-party payment adds substantial cost and irritation to the provision of health care services, none of which contributes to the quality or value of the service provided. Most of the available information reports that every working physician requires about five full time staff, at a salary cost of $150,000 or more, primarily to manage the paperwork burden from payers. One insurance regulator informs me that in his experience 45% of claims denials that are appealed are overturned after review. This, too, adds costly burdens and delays in treatment to a physician?s office. A system in which patients controlled their own resources would slash these costs. People would pay at the time of service. Billing could be based on the physician?s time, not the procedures used. Denials and appeals would be a thing of the past.


Medical Malpractice


The entire tort system needs reforming, of course. But a consumer-driven payment system would reduce the animosity between patient and physician. They would build mutual trust, and patients would be less worried about being given short shrift because the doctor is more concerned about the requirements of the insurer than about the needs of the patient. As quality is rewarded, there would be fewer incidents of negligent behavior by doctors.


This is a system that would be eternally self-correcting. As new technologies and new services come along, patients would be willing to pay for them ? or not ? depending on their perception of value. It would inspire a greater pursuit of clinical skills by physicians because they would be rewarded financially for their better service. It would spawn a new era of lower costs facilities and therapies. If patients are paying directly, they will be more inclined to look for generic or over-the-counter substitutes, more likely to go to a neighborhood clinic than the ER department of the giant Medical Center, more accepting of seeing a nurse practitioner for common ailments.


But they wouldn?t be forced into doing any of that. They would make their own judgments based on their own needs and values.


Physicians would be happier in their practices. They would be more independent, they would have the opportunity to improve their incomes, and they would have far less overhead expenses as the administrative burden lessened and malpractice premiums were reduced.


Already we are seeing a substantial movement in this direction from America?s physicians. More are refusing to participate in Medicare and managed care, preferring to see only cash-paying patients who appreciate their services. We see this in organized efforts such a SimpleCare, but also in completely individualized decisions. Other physicians are starting “boutique” practices which promise enhanced, personalized services for a retainer.


Unfortunately, too many of our best physicians are retiring early or changing careers because they resent the frustration of our current system. We will never know how many promising careers never got started because young people decide to go into other professions.


We are at a critical crossroad in American health care. We can continue on the path we?ve been on, of ever-increasing regulation, cost, and frustration. Or we can change directions and move to a system that empowers patients and values physicians.


I hope you will take the latter course.

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About the author


Statement of


Greg Scandlen


Director


Center for Consumer Driven Health Care


Galen Institute


before the


Committee on Small Business


of the


United States House of Representatives


Field Hearing


On


Independent Physicians as Business Owners


July 14, 2003


Frederick, Maryland


Mr. Chairman and Members of the Committee,


Welcome to Frederick. I?m sure Dr. Bartlett has given you a full briefing on the wonders of our community, but nothing will do it justice until you walk around and visit our antique stores, restaurants, and historical sites. I hope you have brought your credit cards with you.


I am Greg Scandlen, the director of the Center for Consumer Driven Health Care at the Galen Institute. I am here to share my own views on the problems physicians are facing as small business owners and independent practitioners. My views are informed in part by the many hundreds of such physicians I work with every day in trying to create a more sensible health care system in America ? one that puts the needs and demands of the patient at the forefront.


Health care is, ultimately, about the patient. Insurance companies, employers, government agencies, drug companies, hospitals, nurses, even physicians, have a role to play only to the extent they adequately serve the patient. How well they do their jobs can be measured only by the patients themselves. Not by their peers, not by bureaucrats, not by academics.


But patients will be able to express their views meaningfully only when they are able to control their own resources, and reward those who serve them well, and punish those who do not. That is the core concept of everything my organization tries to do. That is the fundamental basis for a consumer driven health care system.


I asked a number of independent physicians to name the things that most interfere with their ability to succeed in their business. Virtually all came up with the same four items:


? Inadequate reimbursement,


? Excessive regulations,


? Burdensome administrative requirements, and


? A tort system that is out of control


These factors add to substantially to the cost of providing care, frustrate physicians, and interfere with their relationships with patients.


There are at least two ways to address these issues. I suggest one will have far better and longer lasting effects than the other.


On one hand, Congress could increase physician payment, especially in Medicare and Medicaid, roll back many of the more onerous regulations, and enact a package of tort reforms that will remove the extremes and still protect victimized patients. These would all be worthwhile measures and a job well-done.


But it wouldn?t be long before the same old impulses come back to move the pendulum back the other way. The next Congress could begin to cut payments again, re-enact the regulations, and dismantle the tort reforms you worked so hard to enact.


It is a never-ending battle between the regulators and the de-regulators, between generous appropriators and thrifty appropriators, between the plaintiff?s bar and the defendants, between insurance companies and drug makers, between nurses and hospitals, between employers and


doctors. Everyone is fighting for a bigger piece of the pie, for more political influence, for less regulation for themselves and more for their competitors.


But where is the patient in this struggle for influence?


Let me suggest an alternative approach — one that will serve independent physicians by empowering their customers. And one that will create a permanent change in our health care system that will reduce the need for regulation, improve the efficiency of paying for health services, lessen the need to sue for redress, and pay physicians and other health care workers according to their skill and their service to the customer.


This is putting resources in the hands of the consumer, so they can make their own choices, based on their own values and the needs of their own families.


You took a baby step in this direction with the enactment of Medical Savings Accounts in 1996. A much larger step was taken last year when the IRS issued its guidance on Health Reimbursement Arrangements. Allowing the self-employed to deduct 100% of their insurance premiums was another good move. There is a proposal in the current House Medicare bill for Health Savings Accounts that would be another bold step forward. The President?s proposal for refundable tax credits would also help.


The private sector is also moving rapidly in this direction. Employers and health plans are putting more control in the hands of individual consumers. This includes control over the type of insurance coverage they choose, control over the way their money is spent, and the information resources needed to make wise decisions. We are entering a period of great innovation and experimentation, all in the name of “consumer driven health care.”


Let me put these initiatives in context. Over the years America has come to rely almost entirely on third-party payment for health care services. Today only 15% of total costs are paid directly by consumers, and it keeps dropping every year. This means a third-party — insurer, employer or government — is deciding who gets paid, how much, and for what. Third-party payers are making the decisions, but all the money comes from consumers, either through premiums, taxes, or earned compensation on the job. It is all our money, but we control only how fifteen cents on a dollar is spent.


Third parties are not about to write a blank check and pay for every whim a patient or a physician might have. To control their costs, they impose rationing. The rationing may take the form of outright denial of care. But it might also involve excessive administrative burdens, essentially rationing through hassle ? “you may perform this service, but only if you jump through all these administrative obstacles and barriers we have created,”


Consumers know they are being deprived of the services they believe they need. Because they don?t control the money, they have to find other ways of expressing their wishes. They end up in court or before legislative bodies or regulators to complain about inadequate service, poor payment, lousy care, and excessive paperwork.


In a consumer driven system, consumers would control the funds, and could express their wishes directly, by refusing to pay for inadequate services and paying more for superior care. Using direct payment would be a far more efficient way of paying for services than processing every encounter through an insurance mechanism. Let?s look at how would this effect the four areas of concern the physicians have expressed:


Inadequate Reimbursement.


Third-party payers pay all “providers” the same, regardless of their skills, efficiency, or bedside manner. Arrogant, indifferent, distracted physicians are paid at the same rate as caring, involved and focused physicians. The kid just out of medical school gets paid the same as the town?s best doctor. Having Congress increase reimbursement rates, means you have to increase everybody?s payment, regardless of how good they are. If patients controlled their own funds, they might very well be willing to pay more to get better quality care. The best physicians would prosper, while the mediocre ones would struggle. There would be an incentive to improve, to serve patients better, to listen more carefully.


Excessive Regulations.


Many of the regulations are aimed at correcting problems created by third-party payments. Mandated benefits are one such example. A legislature decides employers or insurers aren?t responding to the needs of workers, so it passes a law requiring them to cover some service. If consumers controlled their funds, they wouldn?t need to get a law passed. They would simply buy the service they wanted to have. The same is true of physician regulations, which are too numerous to name. If patients control their own funds, they could make their own decisions on whether a physician-owned lab is providing good value. So-called “private contracting” under Medicare would be the norm, not the exception. Patients would decide for themselves whether a particular doctor is worth the extra cost.


Administrative Burden.


Our system of third-party payment adds substantial cost and irritation to the provision of health care services, none of which contributes to the quality or value of the service provided. Most of the available information reports that every working physician requires about five full time staff, at a salary cost of $150,000 or more, primarily to manage the paperwork burden from payers. One insurance regulator informs me that in his experience 45% of claims denials that are appealed are overturned after review. This, too, adds costly burdens and delays in treatment to a physician?s office. A system in which patients controlled their own resources would slash these costs. People would pay at the time of service. Billing could be based on the physician?s time, not the procedures used. Denials and appeals would be a thing of the past.


Medical Malpractice


The entire tort system needs reforming, of course. But a consumer-driven payment system would reduce the animosity between patient and physician. They would build mutual trust, and patients would be less worried about being given short shrift because the doctor is more concerned about the requirements of the insurer than about the needs of the patient. As quality is rewarded, there would be fewer incidents of negligent behavior by doctors.


This is a system that would be eternally self-correcting. As new technologies and new services come along, patients would be willing to pay for them ? or not ? depending on their perception of value. It would inspire a greater pursuit of clinical skills by physicians because they would be rewarded financially for their better service. It would spawn a new era of lower costs facilities and therapies. If patients are paying directly, they will be more inclined to look for generic or over-the-counter substitutes, more likely to go to a neighborhood clinic than the ER department of the giant Medical Center, more accepting of seeing a nurse practitioner for common ailments.


But they wouldn?t be forced into doing any of that. They would make their own judgments based on their own needs and values.


Physicians would be happier in their practices. They would be more independent, they would have the opportunity to improve their incomes, and they would have far less overhead expenses as the administrative burden lessened and malpractice premiums were reduced.


Already we are seeing a substantial movement in this direction from America?s physicians. More are refusing to participate in Medicare and managed care, preferring to see only cash-paying patients who appreciate their services. We see this in organized efforts such a SimpleCare, but also in completely individualized decisions. Other physicians are starting “boutique” practices which promise enhanced, personalized services for a retainer.


Unfortunately, too many of our best physicians are retiring early or changing careers because they resent the frustration of our current system. We will never know how many promising careers never got started because young people decide to go into other professions.


We are at a critical crossroad in American health care. We can continue on the path we?ve been on, of ever-increasing regulation, cost, and frustration. Or we can change directions and move to a system that empowers patients and values physicians.


I hope you will take the latter course.

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About the author