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The consumer and provider: pillars of the new health care system. (Consumer Choice).


* Unmanaged Care

* Health Care Reform

* Consumer Choice Model

* Aligning Consumer and Physician Interests

* Disease-oriented Care in Place of Specialty Care

ACCORDING TO THE Health Care Financing Administration (HCFA), national health care expenditures in 1997 totaled $1.092 billion, representing 13.5 percent of the gross domestic national product. By the year 2002 the same agency projects expenditures will rise to $2.1 trillion, representing an estimated 16.6 percent of GDP. (1) Health care inflation is back and we have to face the fact that nobody knows how to tame the tiger.

Not long ago, Alain Enthoven's concept of managed care was seen as the panacea for the U.S. health care system. Managed competition was expected to control costs, increase patient satisfaction, and improve the overall quality of care. Enthoven, an economist and former assistant secretary of defense, arrived at this concept through system analysis, first introduced to manage military campaigns.

Even though the Clinton's health care initiative failed, the market nevertheless continued to pursue many of its concepts. Enthovens managed care remained a favorite. With breathtaking speed, employers shifted employees into managed care products, expecting significant cost savings (in the process often exempting themselves). By 1997 a majority of U.S. citizens were insured through various managed care products and employers were delighted to benefit from a significant slowing in health care inflation, which in earlier years had resulted in double-digit increases. Between 1996 and 1997 spending increased by only 4.8 percent, according to the Health Care Financing Administration. The tiger seemed tamed and managed care appeared to have met expectations.

But a number of warning lights had been blinking for some time: While medical inflation seemed under control, the true cost to the public and the price exacted from the provider community became slowly apparent.

Dislike and disdain of managed care

The public had come to dislike managed care to an almost unprecedented extent. Managed care reform is a dominant election issue in this year's presidential campaign. President Clinton obviously thinks so and included a Patient Bill of Rights in his 1999 State of the Union Address. Consumer complaints about managed care have risen dramatically in every state. (2)

The issue has gone beyond mere dislike in the physician community. Within the American Medical Association (AMA), the fight against managed care has become a defining issue. As a sign of the times, the AMA opposed the acquisition of Prudential's health care business by Aetna. In a recent American Medical News article, Scott Gottlieb described Aetna's Chairman and CEO, Scott Huber, as the "hatchet man" arid suggested that he was driving Aetna towards a monopoly. (3) Diana Gianelli summarized the mood best in another American Medical News article: "America's physicians are mad as hell--and they don't want to take it anymore. " (4) Physicians don't dislike managed care--they have come to despise it. (5)

And herein lies the single most important problem: A health care system that is disliked by the public and is despised by the physician community can never succeed. No health care system or reform is possible without willing or even enthusiastic physician participation because only they can control costs, quality of care, and consumer satisfaction. System analysis, a valuable tool for the authoritarian structure of the military, had offered all the wrong answers.

Managed care and, with it, managed competition failed because neither were able to bring patients and physicians to their side. By squeezing one-time economic gains out of costs, a temporary euphoria misled the public and policy-makers into believing that the U.S. health care system had been salvaged from ruin. The squeezing is, however, almost over and low-hanging fruits have been plucked. Suddenly it seems obvious that the system will not provide any significant additional economies of scale except to the Aetnas of this world.

Aligning consumer and physician interests

It is time to change the paradigms and rethink how health care should be administered. The health care system that rises out of the ashes of managed care should be able to learn from its mistakes--in many ways, managed care has shown us how not to reform. A few principal lessons seem obvious: First, any new system has to satisfy the consumer and offer a generous level of provider and hospital choice. Second, the provider community has to enjoy working within the system and have incentives to practice. first and foremost, at a high level of quality of care, as well as cost-effectively.

Expenditures for physician services during 1997 represented only 19.9 percent of health care dollars spent or $217.6 billion. Physicians also control directly or indirectly hospital costs, which in 1997 represented $371 billion or 38 percent, the largest piece of the health care pie. Finally, physicians almost exclusively control the fastest growing expenditure, pharmaceuticals, which in 1997 represented $78.9 billion or 7.2 percent. As John K. Igelhart recently noted in the New England Journal of Medicine, spending for prescription drugs has increased at double-digit rates over the last few years. Only physicians can put a halt to this troubling trend. Physicians control two-thirds of national health care costs or approximately $666.5 billion. We better give them a leading voice in the reorganization of health care. (6)

A successful health care system has to be built around the needs of consumers and providers. Other key stakeholders, including insurance companies, hospitals, and industry, are important but cannot make or break the system. Consumers and doctors can. An incentive structure needs to be created so providers offer only high quality, cost-effective care and, therefore, achieve high levels of patient satisfaction. Consumer and physician interests need to be aligned to restore the role of the physician as a patient advocate, a relationship often disrupted under managed care.

Hospitals and insurers may, in fact, have to suffer--neither, in their current incarnation, can significantly contribute to patient and provider satisfaction. Their functions are redundant and need to be modified.

Unmanaged care

If the managed care fiasco has taught us one lesson, it is that nobody can manage all of medicine well. It is too complex an organism to allow an insurance, managed care, or physician practice management company, or, for that matter, any organizational structure to establish medical practices. To maximize the quality of care at the lowest cost, we must look to medical experts in highly specialized fields. Only detailed knowledge about medical conditions will allow for an ongoing process of innovation and reengineering in an industry that is changing at a breathtaking pace.

Medicine needs to be broken up by disease entities. Traditional medical departments and practices are too large in their respective spectra of disease coverage. Is it reasonable to expect that a surgeon will enhance non-surgical treatments of a disease as quickly as a non-surgeon? Surgeons and non-surgeons will co-exist and primarily serve their disease entity, not their specialty. Progress will be quicker, knowledge will be deeper, outcomes will be better, and patient satisfaction will be higher.

Harvard business school professor Regina Herzlinger advocates disease-specific 'superstores" in Market Driven Health Care. (7) Maybe we will not see "superstores" for hysterectomies as she suggests, but we can expect the ascent of disease-specific provider organizations, some of which may contain "stores." These provider organizations will have the detailed know-how to treat a specific disease spectrum better and cheaper. Consumers will be able to purchase this new "product" in a competitive market.

Some managed care organizations, physician practice management companies, and newly founded disease management firms have attempted to implement disease management programs. None of them have been successful--they don't understand that the bureaucracy of disease management cannot be separated from the provision of medical care. Only the provider can truly manage disease.

The provider organization

Physician administered, disease-oriented practice structures will contract for comprehensive medical services in their area of expertise. These provider organizations will be at risk for all medical services, including physician and ancillary services, pharmaceuticals, and possibly hospital care. They will direct their resources towards outcomes, since only an improved outcome will make it acceptable to the public to receive "less" care.

Provider organizations with the same expertise will compete within a geographic area based on published outcomes data, cost, and patient satisfaction. In each market, the public will choose provider organizations like any other "product" based on perceived quality, cost, and, perhaps, sex appeal.

The insurance product

The consumer will purchase a new health insurance product. Approximately 60 percent of health services bought by private payers in 1997 were funded through health insurance purchased by employers. As Igelhart noted in the New England Journal of Medicine, the exclusion from income taxes and Social Security payroll deductions creates a substantial tax subsidy for employment-based insurance. (6) It seems likely that employer-driven health insurance products will continue to dominate the market. This, however, does not mean that the purchasing system will survive. In fact, it should not and will not.

Various studies have demonstrated that between 15 and 25 percent of dollars in the U.S. health care system go towards plan administration rather than health care itself. (8,9) These costs exceed the administrative expenses of most European countries and Canada. Proponents of a single payer system have pointed out that a significant decrease in these expenses could free dollars towards health care for the poor and uninsured.

The provider-driven health care system would achieve the same goals without handing health care over to the federal bureaucracy. Like a single payer system, this proposal calls for a dismantling of health insurance organizations. But instead of selecting an insurance carrier who, in turn, chooses a medical provider panel, consumers would select disease-oriented practice organizations within their geographic market through an Internet-accessible insurance broker. Prices could vary between provider organizations in the same field based on outcomes, quality, location of facilities, and hospital affiliations.

A consumer might choose to spend more on cardiology because she feels at risk because of family history. She might omit obstetrical coverage altogether because childbirth is not in her plans. Or she might select a congestive heart failure organization because her husband suffers from this condition. In short, while the employer still pays for the overall health care package, the consumer chooses the provider organizations. The consumer's principal demand of choice is met and providers are fully incentivized to provide high quality, low cost services.

Brokers would be obliged to offer comprehensive coverage packages that offer insurance in all basic areas of medicine. We are entering, willingly or unwillingly, the era of genetic medicine, and consumers would have the opportunity to choose the Mercedes for high-risk areas and the Volkswagen where the risk appears smaller. Consumers would purchase components of health care as individual products, giving them the same opportunity of choice as with any other merchandise. This market model allows for a relatively simple integration of medical savings accounts, a cost control strategy that has been effective in other countries, but awaits a determination of its value in the U.S. (7)

Health care becomes unmanaged. Providers and consumers have aligned their incentives. The provider organization is directly incentivized to offer a high quality, affordable product, because otherwise the product will not sell. The consumer is incentivized to choose provider organizations wisely, but has almost unlimited choice and can change products if dissatisfied.

The consumer

Regina Herzlinger points out that only "the market," that "great organic confluence with consumers and providers," and not managed care, will provide the ultimate solutions to the problems that plague our health care system. (7) The consumer, as the ultimate winner, will buy a better product, receive better service, and, on top of it, pay less.

Consumer satisfaction, one of the two principal milestones for a successful health care system, should be a given. As the overall concept of comprehensive health care gets broken down into smaller products, market forces will treat them like any other merchandise. Unit prices can be expected to decrease while quality will improve.

The provider

Unmanaged care creates a competitive marketplace for the provider, albeit within an acceptable framework. Providers make utilization and treatment decisions and are no longer dependent on an anonymous insurance bureaucracy. They have the opportunity to be innovative and progressive, but are fully accountable through published outcomes and patient satisfaction results.

Physicians are also at economic risk. This model will require organizational and economic skills that many physicians do not have. However, they are quick learners when the situation requires, as the introduction of Medicaid and Medicare demonstrated. They will either acquire or buy the skills required to succeed. As the second pillar of a successful system, physicians will be an integral part of "the organic confluence of consumers and providers" and will have reestablished their standing as the principal leaders of the healing process.

The insurance company

The insurance company will cease to exist. Health care brokers will assemble comprehensive products at a considerably lower expense than insurance companies typically consume for administrative overhead. If just 10 percent of administrative costs were saved, more than $100 billion could be redirected toward health care, principally for the 43.4 uninsured and 41.3 million low-income people insured through Medicaid. By the year 2002, that same 10 percent would represent an excess of $200 billion if one believes recent HCFA data, exceeding the $160 billion spent in 1997 on Medicaid. (1,6)

Health care brokers will accumulate and disseminate product/provider information, including cost variances, and bundle the sale of products that they help the consumer to assemble. Brokers will be incentivized to sell products with high consumer satisfaction levels since they otherwise are at risk to lose their business--and commission--to a competitor.

The concept that a non-medical entity should carry responsibility for quality of care monitoring seems unhealthy. This would be akin to the American Bar Association delegating the licensing process for lawyers. And yet, health insurers (as well as hospitals) assume responsibility for provider privileging, the most essential quality assurance process. Component brokers will not be called upon to judge providers and/or organizations in their quality of care. That will be the public's responsibility--and they will have reliable, standardized performance and outcomes criteria and will be assured by U.S. licensing requirements that a provider has appropriate credentials.

Quality of care monitoring needs to move to the provider organization. Because most quality of care monitoring takes place outside of the provider's office, physicians may know what their department's outcome data are but be ignorant of their own. A quality improvement program may become a provider organization's most successful competitive weapon.

The hospital

Hospitals will have to undergo a radical reorganization in mission, structure, and service. They are a hybrid entity, principally running a hotel business by providing the bricks and mortar that allow physicians to practice medicine. They also, however, provide health care services by hiring physicians and are thus competing with their own guests.

More importantly, they enjoy a competitive advantage over the providers because they control physician privileging. Providers that compete with a hospital's physician groups won't receive privileges, even if they are professionally qualified and it is in the community's best interest. Such anti-competitive behavior--paradoxically accepted by federal authorities, as well as physician organizations--is unacceptable within a consumer and provider-driven health care system.

While there seems little rationale for the direct employment of physicians by hospitals, such relationships can be maintained as long as they are not anti-competitive. Hospitals have argued that their ability to restrict privileges lies at the core of their responsibility to control the quality of care within their four walls. But continuous quality improvement efforts are clinical issues that belong in the purview of the physician community. Moreover, they should be devoid of economic interests and removed from competitive considerations. Hospitals should compete amongst themselves based on their products--both consumers and providers are clients and should be able to choose a hospital based on perceived quality and cost.


The concept of unmanaged care makes the consumer responsible for purchasing health care. It creates, for the first time, individual responsibility and purchasing incentives even if employers continue to pay a comprehensive insurance package, It also allows the freedom to choose more or less, better or worse--one of the basic requirements for a functioning free-market system. Unmanaged care also returns medical decision-making to the physician and incentivizes the provision of high quality, cost-effective care. This new health care system achieves high satisfaction for the consumer and the provider community. Only a system that satisfies these the two principal constituencies can be successful in the long run. (1)


(1.) Levit, K., Cowan, C., Braden. B., Stiller, J., Sensenig, A., Lazenby, H. National Health Expenditures in 1997: More Slow Growth. Health Affairs. 1998; 17(6): 99-110.

(2.) Targovnik, D. The Clams of Health care: Empowered Consumers Gain Stature in the Marketplace. Managed Health Care News. 1998; 14:11.

(3.) Gottlieb, S. American Medical News. January 11, 1999, volume 42, #2. p. 31.

(4.) Gianelli, D. American Medical News. January 4, 1999, volume 42. #1, p. 1.

(5.) Kassirer, J.P. Doctor Discontent. New England Journal of Medicine. 1998; 339: 1543-1544.

(6.) Igelhart, J.K. The American Health care System: Expenditures, New England Journal of Medicine. 1999; 340: 70-76.

(7.) Herzlinger, R. Market Driven Health Care: Who Wins, Who Loses In the Transformation of America's Largest Service Industry. Reading, Massachusetts: Addison-Wesley Publishing company, Inc., 1997.

(8.) Friedman, M. Gammon's Law Points to Health Care Solution. The Wall Street Journal, November 12, 1991.

(9.) Woolhandler, S., Himelstein, D.U. The Deteriorating Administrative Efficiency of the U.S. Health Care System. New England Journal of Medicine. 1991; 324: 1253-1258.

Norbert Gleicher, MD, is Chairman of the Board and Chief Medical Officer of TREBRON, Inc., a physician service management company. He is also Chairman of the Center for Human Reproduction (CHR)-Illinois, President and Medical Director of CHR-New York. and author of many books and scientific articles. He can be reached by calling 212/891-5600, via email at, or via fax at 212/891-5624.
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Author:Gleicher, Norbert
Publication:Physician Executive
Geographic Code:1USA
Date:Mar 1, 2000
Previous Article:Managed care's achilles heel: ethical immaturity. (Ethical Reasoning).
Next Article:The consumer choice model: a humane reconstruction of the U.S. health care system. (Consumer Choice).

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