2 Comments

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  Comment by Dan Smith — November 23, 2009 @ 7:50 pm

  Oakleight, there is a solution to controlling healthcare costs that no one is talking about. It is state Medical PSC’s (MPSC’s). In the past, when competition was not sufficient to control costs and the providers could name their price, i.e., railroads, phone companies, power companies and gas companies. The states came to the rescue of their citizens and established Public Service Commissions. This told the big monopolies that to conduct business in these states, they had to be reasonable and follow some rules. As a result, all has prospered and the average citizen has benefited. We now have a similar problem with healthcare. So we need to turn the problem of healthcare costs over to a PSC to sort out. Each state can look at their particular situation and take steps to solve their problem.

  But generally all MPSC’s would need to address costs. The way they would do this is by getting to the core cost of each Medical Charge Code. The components of each code would be examined and a reasonable cost determined. Adding all the component costs together would produce the Medical Charge Code cost. This should be a very good representation of what it costs the medical provider to dispense this medical service to a patient. All Medical Charge Codes billed to private insurance would be examined in this manner. This would be a full time job for a PSC and staff. But the job would be clear and focused.

  But due to the large number of Medical Charge Codes, the PSC would examine a subset of these codes annually. The PSC would choose codes that need review or provider groups could request a review. The PSC would standardize the Medical Charge Codes so that doctors and hospitals would use the same codes for all insurer claims.

  Once you know the cost of all provider activities, you can determine fair and reasonable prices. The MPSC would adjust these costs once annually for inflation. Only codes that had not been reviewed for a year would be adjusted. Next the PSC would add a percentage mark-up (profit). There is a special way this mark-up is determined. The provider profit margin is determined by insurer profit margin. If the insurer profit margin goes down, the provider profit margin goes down since the MPSC sets the provider mark-up percentage. This will encourage providers to think twice about the overuse of medical services. Also insurers are encouraged to return some of their profit back to policyholders in the form of reduced premiums.

  The MPSC publishes all Medical Charge Code prices on its official web site for all to see. The Medical Charge Code price includes reasonable cost X inflation factor (if appropriate) X mark-up percentage. This is all a MPSC has to do unless the state wants to give their MPSC more functions. Notice that the MPSC does not make medical decisions or come between the patient and the doctor/hospital. The MPSC focuses purely on setting a fair and reasonable price on each Medical Charge Code. All state providers would use the same official codes to bill all state private insurers.

  Now watch what happens in a state MPSC environment:

  1. All provider networks and provider service contracts are eliminated because the MPSC sets the prices and all providers are paid the same for identical services. This increases competition between providers since a patient can go anywhere in the state and use their insurance.

  2. New insurers can quickly enter the state and compete with existing insurers once licensed by the State Insurance Commissioner because there is no network or provider service contracts required. This increases insurer competition because the only way for an insurer to increase market share is to have the cheapest policy with the best coverage. The State Insurance Commissioner can determine if the state needs to increase insurer competition.

  A state MPSC will reduce healthcare costs and enable each healthcare dollar to go much further. The Federal Government can enact new laws to extend healthcare and help subsidize the disadvantaged while the state squeezes the maximum benefit out of each dollar. This is the way the American healthcare system should work. Can you help get this message to Congress and your state governor. If state MPSC’s were in place we should not have the current healthcare crisis. The state MPSC’s should eliminate the need for a Government Option or a single-payer system.

  Thanks.

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  Comment by Dan Smith — November 24, 2009 @ 2:54 pm

  Oakleigh, in my previous comment I mentioned that the Medical PSC (MPSC) would determine the medical provider mark-up (profit). Of course, the closer the provider matches the Medical Charge Code Cost determined by the commission the more profit margin there is for the provider. So this will encourage the providers to control their own costs.

  Further, I meant to say that the commission will use fiscal end-of-year reported profit margins of the insurers to set the coming year’s mark-up for the providers. Normally the mark-up is set equal to the insurer’s average net profit margin. This would mean that the providers and the insurers make about the same profit which might be considered fair. If the providers over-prescribe medical services and the insurer costs go up, then the provider and insurer profits will go down together. This should encourage providers to think twice on how they use medical tests, procedures, etc. Of course, there will be a minimum mark-up amount the commission will not drop below as a safety net for the providers.

  If insurer and provider profits start climbing, then the State Insurance Commissioner can look at inviting-in additional outside insurance companies to increase competition. If the state insurers are making money, there will be other insurers wanting to compete in the state. Whether to take this action will be up to the elected State Insurance Commissioner. The State Insurance Commissioner will determine if the profits are fair and reasonable and judge the impact on the state’s citizens.

  If a state insurer feels that the State Insurance Commissioner may increase competition to lower profits, then one or more of the state insurers can announce premium reductions for the coming year to lower the anticipated average profit margins for both the insurer(s) and the providers for the coming year. This allows the policyholders to participate in these profit gains as well as the insurers and the providers. This spreads the wealth. Insurers who reduce their premiums should increase their state market share unless the other insurers do like-wise. So the insurers have three reasons to spread the wealth.

  1. Stop the State Insurance Commissioner from increasing the number of competing state insurance companies.

  2. Increase market share in the state to get a competitive advantage over the other competing insurers.

  3. Reduce Medical Charge Code claim costs by reducing the average net profit forecast used by the MPSC to set provider mark-ups. The projected annual premium reductions are subtracted from the insurer’s profit margin and the resulting net profit is averaged with the net profit from all other state insurers to determine the mark-up value for the coming year.

  Of course, the insurers will want to maintain a reasonable profit margin so they will not give away all their gains. But the elected State Insurance Commissioner will be watching.

  The provider’s mark-up value is determined by averaging the net profit of all state private insurers. The average is weighted based on the state market share represented by each state insurer.

  The state MPSC can be flexible on how it sets the provider mark-ups, but the method described above is more reasonable and fair than just arbitrarily choosing a mark-up value. The above method subjects all participants to market forces and encourages the prudent use of healthcare services. Healthcare decisions are still between the patient and their doctor.

  In summary, the state use of MPSC’s can be implemented now and need not wait on any action from Washington. If MPSC’s are effective in reducing healthcare costs, as they will be, then Washington should not need to go to the extremes now proposed and tax us to death. We need to take a stand and get the ball rolling to establish state MPSC’s.

  Nevertheless, we have to be sure that Congress does not slam the door on the MPSC idea through ignorance. Everyone who reads this and agrees should contact their congressional representatives and state governor to tell them that we must have state MPSC’s.

  Thank you.

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