Renovating America’s Healthcare System – Part Two

Over the past few months President Trump has twice sought to address the federal government’s growing difficulty in funding healthcare costs. He did this first by cutting the federal government’s funding under the Affordable Care Act and the Medicaid programs, ostensibly proceeding on the erroneous assumption that if healthcare funding is reduced, healthcare providers will find a way to cut fraud, waste and abuse. In reality, that explanation was simply a cover story to make his tax cuts for wealthy Americans seem more economically sound and politically acceptable. The result of these machinations, however, was that our federal government ran a fiscal deficit in 2025 of $2.23 trillion which was added to our national debt. What this ploy did achieve was to force reductions in the compensation of doctors and other medical service employees; and that is making improvements to our healthcare system even more difficult.

Trump’s current solution to cure the ills of our struggling healthcare system is to have the states take over the federal government’s share of healthcare expenditures (as well as the costs of several other social welfare programs). This proposal can’t even be taken seriously since the federal government’s annual share of healthcare costs alone exceeds 140% of the total annual combined revenues of the governments of all 50 states, making it impossible for the states to assume even a small portion of that burden.

As I suggested in my preceding article, the most significant step to alleviate our out-of-control healthcare costs is to eliminate the private healthcare insurers and authorize one or more agencies of the federal government to fund and regulate healthcare services. To Americans, however, the very thought that they will no longer be able to select their own doctors or be able to schedule medical appointments when they want is particularly repugnant.  Thus, what seems to be called for is what economists call  “splitting the market.”

This strategy has been successfully employed for years by manufacturers and retailers to maximize their revenues and profits. They create one line of products intended for those who only want the very best and are willing to pay the sellers’ asking prices. The other line includes lesser quality goods designed to be sold at a price affordable by buyers living on tight budgets.  Applying this concept to healthcare, one segment of the healthcare industry (yes, healthcare has become an industry) would service those who are willing accept service delays as long as they can ultimately receive the medical help they need; and another segment would service those willing to pay an annual fee for the services of doctors of their own choosing who will see them when they want to be seen.

As it turns out, the healthcare industry is already started to move in this direction. Individual medical practices and hospitals are rapidly being acquired by for-profit entities which cater to the dictates of the insurance companies that fund their services. Because of increasing demand for medical services they require the doctors whom they employ to adhere to tight work schedules, making it difficult for patients to get an appointment on short notice. While this arrangement can maximize patient service and do so at relatively low costs, it is an anathema to those Americans who are older and wealthier and who want more personalized healthcare service.

This, in turn, has led to the creation of a new class of doctors who only accept a limited number of patients and who charge those patients a substantial annual fee to receive their services on a “more personalized and timely” basis. Although this is a relatively new phenomenon, it offers an alternative those unwilling to wait weeks just to see a doctor and even months for elective surgeries. It also seems to be able to survive the demise of most private healthcare insurers; and it may even turn out to be a life-saver for at least a relatively small group of private healthcare insurers. The good news is that it is a path to creating a system that can economically make healthcare available to our country’s entire population.

To make healthcare affordable for those who are unwilling or unable to pay a premium price for priority service will involve an enormous administrative scheduling burden to determine which patients should receive immediate care and which patients’ appointments can be safely postponed. The starting point of this process will be to create scheduling protocols based upon the nature and immediacy of the services required by program enrollees. Still those administrative effort should be significantly less burdensome than the ones currently imposed upon healthcare providers by the multitude of private healthcare insurers.

Creating a sustainable healthcare system will also require substantial and continuing investments to improve the efficiency of providing healthcare by making greater use of technology and focusing on preventive care. The money that has been funneled into the healthcare industry by government agencies over the past few years has attracted many for-profit entities which have taken over scores of hospitals and medical practice groups. Those entities have been hard at work lowering the costs of providing healthcare services and unfortunately the quality of those services. That’s because healthcare decisions have largely been taken out of the hands of the medical professionals and turned over to business managers.

These for-profit companies have been increasingly relying on automated systems to communicate with patients and new technologies to improve healthcare diagnoses and decisions regarding patient care. The problem is that the new owners of healthcare practices have used the resulting cost-savings they have achieved to repay the indebtedness they incurred to purchase healthcare operations and to increase their profit margins. Those cost-savings, however, do not appear to have been used to reduce the amounts which are being charged to the public for healthcare services. Healthcare is thus becoming a “heads I win, tails you lose” game. If their innovations are successful in reducing costs, the acquirors earn a handsome return; if they are not, healthcare insurers and patients are required to pay more. Simply stated, the free-market system is not currently working for the healthcare industry. What is required is that patients must be championed by an entity that can effectively bargain with healthcare providers over the quality and costs of healthcare services.

While eliminating private healthcare insurers will provide an immediate reduction in healthcare costs, those savings will be rapidly consumed by providing healthcare services to the roughly 20% of Americans for whom healthcare services are currently unaffordable. This will not only help those who heretofore have not been able to afford comprehensive healthcare, but it will also prevent them from infecting others. This will still leave the daunting task of making further changes so that the price of healthcare services can be reduced or at least sustained.

Simply contending that our healthcare system is a hotbeds of fraud, waste and abuse is not the answer; rather, it’s simply an excuse to cut government funding for healthcare services. The reality is that each year the Medicare and Medicaid programs receive roughly 1.1 billion claims from approximately two millions medical providers relating to an estimated 135 million patients.  Still, the annual incidence of fraudulent or otherwise inappropriate payments by HHS is reported to be in the neighborhood of $19 billion which is a little over 1% of HHS’s annual budget of $1.8 trillion.

By comparison, our nation’s Department of Defense which has an annual budget of almost $1 trillion has flunked its annual audits for each of the last seven years. Even more disconcerting is that as of 2022 the Department of Defense could not account for 61% of its reported $3.5 trillion in assets. Yet, there seems to be no corresponding outcries of fraud, waste and abuse relating to our defense industry. Thus, while it remains imperative that ways must be found to keep healthcare costs at a manageable level, the allegations that our healthcare system suffers from rampant inefficiencies are largely overstated and seem to be politically motivated.

Admittedly, there are U.S. citizens who feign medical problems to secure prescription pharmaceuticals as well as individuals who use the IDs of others enrolled in the Medicare and Medicaid programs to obtain medical services for which they are not entitled. Beyond that, the main perpetrators of fraud, waste and abuse in our healthcare system are some medical providers who (a) mischaracterize the services they perform in order to receive higher reimbursements, (b) submit fictitious claims for existing patients, (c) prescribe unnecessary tests and procedures to increase their revenues, and (d) bill for the same service multiple times. Part of the problem is that many hospitals and medical practices simply don’t have the necessary systems and personnel required to detect and prevent such activities.

Eliminating these forms of waste cannot be achieved by simply cutting the budget of the Department of Health and Human Services. What is required are investments in more sophisticated accounting systems that will minimize these forms of misbehavior. Shortly after the crash of the dot.com stock market bubble in or around 2003 there was an outcry for better financial reporting to prevent financial fraud. In response, the accounting profession revamped its Auditing Standards Board and charged it with the task of developing better auditing techniques that would detect material financial misstatements. This was a major undertaking because large publicly-owned corporations employed over 100,000 workers and effected tens of millions of transactions each year. Moreover, their auditors had to perform their services in a limited time period on relatively small budgets.

What came out of this process was a series of new audit standards which required auditing firms to first ascertain whether their clients had adequate internal controls to assure that all transactions were properly authorized and recorded.  Those that didn’t received a qualified audit report, a kiss of death for any publicly-ownd company. A requisite feature of a company’s system of internal controls includes a cadre of internal auditors who conduct audit procedures on a year-round basis. Secondly, the outside auditors had to perform analytical procedures to make sure that the resulting financial reports were internally consistent and reasonable.  Lastly, they had to actually confirm a representative sample of material transactions against information from sources outside the enterprise being audited. Although these standards still can’t attain their stated goal of eliminating all material fraudulent or unauthorized transactions, they were an important step forward in enhancing the reliability of corporate financial reports.

These same operating procedures should be applied to all federal and state government departments with substantial budgets to assure that taxpayer dollars are being properly employed. This type of investment could result in savings many times the costs of implementing such systems. The problem is that our Congress tends to focus myopically on annual spending budgets and tends to short-change investments that will make government operations more efficient. Unfortunately, in many cases the failure to make such investments is not simply a decision born out of frugality, but rather are intentional so as to allow transactions favoring political allies to remain undetected.

The sad truth is that making investments that will curb fraud and waste in our nation’s healthcare system will only have a minor effect on reducing healthcare costs. Of far greater importance are changes that alter the very nature of healthcare services. This includes developing a wider arsenal of vaccines and making greater use of the mRNA technology perfected during the COVID-19 pandemic. That technology produced vaccines that were more than 90% effective (as opposed to 50-60% effective for previously approved vaccines) and did so in a time period which was roughly one fourth as long as it took to develop vaccines utilizing prior technologies.

Preventive care should also include revitalizing the CDC’s early warning system to detect viruses that develop in foreign countries so that our healthcare providers can be better prepared when they come to this country. Similarly, there should be a resumption in funding for the USAID which helped to defeat pathogens operating in foreign countries. This not only generates goodwill abroad but adds an important layer of protection for U.S. citizens by stopping, or at least retarding, the spread of those pathogens to the U.S.

Over the past few years the private healthcare insurers have begun to realize the economic advantage of addressing healthcare issue at an early stage. That’s because remediating a health problem at an early stage is far less costly than doing so after it has spread throughout the patient’s body. This is particularly true with respect to various forms of cancer which become life threatening if not interdicted at an early stage. The result is that healthcare insurers have begun to acquiesce in underwriting the costs of annual physicals. The simple fact is that many pathogens spread rapidly making it useful to monitor the health of individuals more frequently than once a year.

To this end, it is now possible to assess many health indicia remotely. For example, my pacemaker can be monitored on a daily basis from a device situated in my bedroom allowing my cardiologist to detect when my heart lapses into fibrillation. Similarly, Kardia Mobile has a cellphone app that allows a patient with a heart condition to monitor his/her heart and transmit that data to a medical center. Additionally there are a number of cell phone apps currently available that measure bodily functions that are routinely checked during an annual physical. Expanding the ability of cell phones to measure and transmit these data to a central monitoring system which could enable the immediate detection of impending health issues and enable them to be treated at an early (and less costly) stage.

Among the principal plagues afflicting our healthcare system is the performance of unnecessary procedures. That is principally the result of three factors: (a) the systems utilized by health insurers to compensate healthcare providers, (b) medical malpractice litigation which prompts medical providers to prescribe additional diagnostic tests out of an overabundance of caution and (c) operating procedures designed to maximize the economic returns on investments in costly diagnostic equipment.

In an effort to control the costs of healthcare, all healthcare insurers have developed reimbursement schedules for the payment all medical procedures. It is relatively easy to derive at an accurate figure for most, if not all, diagnostic tests because the compensation of the qualified technician is known as well as the amount of time it will take for the technician to perform the test and the cost of the equipment being utilized. On the other hand, it’s far more difficult to gauge how long it should take a doctor to determine the cause of a patient’s discomfort or how much the doctor should earn for the time he/she spends in doing so. As a result, a reasonable value of the doctor’s services could vary greatly, making this the one area in which insurers have significant latitude in determining what they should be paying. Stated another way, this is the one item of medical service that insurers may (and do) tend to cut their reimbursement for healthcare services. This, in turn, prompts medical providers to maximize the medical tests they prescribe in order to make up for the low reimbursement they receive for their doctors’ time.

A second factor motivating the overuse of diagnostic tests is the scourge of medical malpractice litigation. Notwithstanding the substantial progress that has been made toward understanding how the human body functions and the various elements that can cause it to malfunction, there is still much that remains unknown. Moreover, in many cases it may take a significant amount of information to make a correct decision as to how to best treat what seems to be afflicting a patient. Add to that the pressure on doctors to determine as quickly as possible what remedial steps are required. These facets of healthcare services present a ripe environment for litigation against healthcare providers claiming that they made an error in judgment or failed to perform a test that would have revealed that they were misdiagnosing and/or mistreating their patient.

Add to that is the propensity of lay jurors to assign high values to the resulting pain and suffering experienced by the patients receiving improper care. While medical malpractice insurance is readily available, it also can be very expensive. For some medical specialists the annual costs can exceed $100,000. The result is that healthcare providers tend to err on the side of ordering more medical tests than might otherwise be deemed reasonable before reaching a diagnosis of their patients’ problems. These factors also cause hospitals and other centers of medical practice to invest in expensive medical equipment such as proton therapy systems (costing $25 million), PET/CT scanners (costing $2.5 million) and MRI systems (costing $1-3 million).

A third factor is the economics considerations relating to the use of expensive diagnostic equipment. Decisions as to when to utilize an expensive piece of diagnostic equipment may be prompted by a desire to maximize its usage in order to fully amortize the purchase price of the equipment before it becomes obsolete as a result of the availability of new and more accurate equipment. Also there is the simple desire to on the part of most healthcare organizations to maximize the entity’s return on their investment in the equipment. In either case, unnecessary expenses are incurred.

Addressing these causes of excess healthcare services has not been easy. The healthcare providers have begun to utilize artificial intelligence systems to determine which tests and procedures are called for with respect to their various patients. While this may avoid certain misdiagnoses, for the immediately foreseeable future it is likely to increase, rather than decrease, the number of tests and procedures that healthcare providers will perform. That’s because not all facets of medical experience have been recorded making it unlikely that they will be taken into consideration by AI systems. Even if the answers generated by AI system are merely stated in probabilities, humans will have to make the ultimate decisions as to how to best proceed and the ultimate decision may be based on economic, rather than medical, considerations.

Reducing the impact of medical malpractice litigation will require the establishments of professional boards to determine which claims appear to have merit and the reasonable level of damage incurred by the patient. While such boards will not preclude an injured party’s right to seek civil damages, their reports are likely be accorded significant weight by lay jurors. Thus, the review boards will have a dual effect: (1) they will provide an independent assessment of the quality of the services of the defendant as well as the value of specific diagnostic tests, and (2) they will add greater rationality to damage determinations because a panel that has reviewed scores of malpractice injuries will have better perspective than a lay jury that has never before been asked to assess the nature and extent of a medical injury.