Archive for April, 2013

April 17, 2013

Comment I made on the Advances in Nursing Science Blog

Of course I am inclined to think that the most significant problem affecting health care policy, the health care system and the quality and quantity of nursing care has to have a timeline that goes back even further than Richard Nixon’s support for health maintenance organizations and the promotion of capaitation as a major form of payment for health care services.

This even longer time frame, two centuries, dating back to Carl Friedrich Gauss’ work on measurement error and the normal (Gaussian) distribution is necessary to really understand the mathematical and statistical basis of the fundamental flaw of capitation financed health care: That capitation cannot work in efficient health care (finance) systems ergot, capitaion cannot drive our health care (finance) systems toward an efficient state.

The core problem of 21st century nursing has to do with resource constraints and insurance risk bearing by health care providers. While resource constraints by themselves are more than adequate to negatively impact the quality and quantity of nursing care the real problem is far more injurious.

When health care providers: Hospitals, Physicians, Nursing homes and Home health agencies bear the insurance risks associated with the care of their patients AND the obligation to care for their patients, it is a simple matter of getting hit from both sets of demands.

Under a fee for service mechanism as the intensity of care required by patients rises so does the revenue stream associated with patient care. As a health care provider steps up to meet the needs of more complex, more intense or longer duration care the health care provider is compensated for the increased level of care rendered.

Under capitation-like health care finance mechanisms the level of payment for care is fixed at the outset. As the intensity of care required by patients rises there is no increase in the revenue stream associated with patient care.

Rather than being able to step up to meet the needs of more complex, more intense or longer duration care the health care provider is compelled to manage the fixed revenues AND deliver the increased level of care rendered.

The problem here is that health care providers have been failing, financially and clinically, at alarming rates since the introduction of the first risk-transferring efforts incuding Kaiser Permanente and the post-Nixonian decision to require employers to offer health maintenance organization coverage to their employees.

The crux of the issue has to do with the proximity of the average cost of providing care to the average for the population cared for. The basis of insurance is that unlike individual policyholders, insurers have an advantage in managing risk that no single policyholder has: While some policyholders will have very high claims which the insurer will have to pay, most policyholders will not.

Large insurers can offer insurance protections to their policyholders at a cost close to the average claim cost per policyholder and still earn very predictable profits every year.

Individual policyholders cannot do the same and small insurers do not do as well as large insurers.

When the insurer is very small: A single Physician, Nurse, Hospital, Nursing home or Home health agency the variation in avaerage costs for their patients, during any specific financial period: Patient, Shift, Day, Week, Month, Quarter or year is far too high. Such risk bearing providers’ service costs may be higher, or lower, than the payments they will receive and the core premise of capitation-like health care mechanisms is that these risk-bearing health care providers will become “more efficient” by reducing the cost of the care they provide.

But, in an efficient health care (finance) system, individual providers do not have the ability to control the severity of illness of their patients. The only way that risk-bearing health care providers can control the costs of care, in efficient health care (finance) systems is by reducing the level of care they provide, lest they, at the end of any specific financial period, become insolvent.

The issue of how health care, and more specifically how nursing care is financed is the defining issue affecting the quality and quantity of nursing care in the 21st Century. If the advocates of capitation succeed in implementing capitation as the sole method of financing nursing care, the quality of nursing care will plummet in all settings.

While the rich will be able to access care on a fee for service basis, the overwhelming majority of the population will not. The poor, disenfranchised, people of color are the ones most impacted by the manner in which health care services are paid. It is the poor and the powerless suffer the delays and denials of diagnosis and treatment that come with capitated health care finance.

Until nursing puts its attention on the singularly most impactful aspect of modern health care, until nurses understand the impact of risk transferring health care finance mechanisms and nurses address these issues in their worksites and at a national level, nursing will continue to offer suggestions for care that will be ignored by the seemingly more sophisticated players at the tables, the people who have the stacks of financial analyses, the reams of paper on how much patient care costs and who seem to understand (But do not) how the health care service system can respond to capitation-like health care finance mechanisms.


Market positioning for private insurers in the face of statutory health insurance reform in Curaçao 2013

April 3, 2013

I recently got a chance to read a very interesting draft of a thesis, Market positioning for private insurers in the face of statutory health insurance reform in Curaçao 2013, prepared by Dennis Arrindell.

The thesis describes the context of health care and health care finance in the Netherlands Antilles and got me thinking about all sorts of things. I suggested to Dennis that we dialogue on a blog about some of the issues it raised for me.

This is the first of what I hope will be several posts/exchanges about topics covered in his thesis and in my work on Professional Caregiver Insurance Risk.

I will leave it to Dennis to introduce himself.

I chose to focus on “efficiency” in this post because I think it is a poorly understood term in the ongoing debate about health care (finance) reform in the US and elsewhere in the world. So here goes…

I think the first thing is that the word “efficiency” is being used in multiple contexts without ever really formulating a coherent definition or standard of efficiency.

I am perhaps hyper vigilant for it because I struggle with it so much myself. So I would suggest careful review of the chapters on how epidemiology, service capacity, service delivery and payment determine the costs for health care, who gets treated and at what overall cost.

The problem as I see it is that no private, for profit insurer can ever really win the “efficiency” argument if by efficiency we refer to converting the maximum amount of premiums into health benefits for policyholders.

The most efficient insurer, based on that definition of efficiency will always be the insurer that elects to operate without a profit margin, without charging a risk premium and which need not set aside any surplus reserve at all because in times of insurance catastrophe it can rely on the unique capability of government to print debt or sell bonds.

When we specify the epidemiology, system resources, treatments that will actually be provided and the amounts that will be paid, at least as broad societal averages, we can begin to set a standard for efficiency with respect to cost, waiting times, diagnostic delays, and treatment delays.

The danger, as it occurs here in the US and around the world is that we simply assume that government insurers MUST be less efficient when their inefficiencies tend to be manufactured rather than unavoidable.So, for example, here in the US, Medicare/Medicaid COULD compel physicians, hospitals, pharmacies and other providers of health related goods and services to cut their profit margins but the special interests involved prefer to hamstring these programs, forcing them to operate inefficiently.

Private insurers are not intrinsically able to bargain better than governments – after all, in the final analysis bargaining takes place between human beings, it is only the red tape designed to make government agencies operate inefficiently that prevents such accomplishments.

But I think there is an even deeper issue here. If I read between the lines, the implication appears to be that it is inherently good for private insurers to engage in profitable operations and that we ought to encourage and support them in this.

I think such a case can, ad should, be made, but one has to be careful that in making this case one is not arguing in contradictory ways.

You have made the point that when profits in the insurance sector are high, the industry accumulates and that this wealth may be distributed to shareholders, re-invested in these insurance companies, expanding their ability to offer insurance, new products or support government through bond purchases or consumers through mortgages.

The wrinkle here is that physicians, hospitals, pharmacies and other providers of health related goods and services can make an identical argument that their profit margins are inherently good because as their wealth rises they will also use that wealth toward the betterment of society. Given adequately strong profits, their wealth may be distributed to shareholders, re-invested in their health services operations, expanding their ability to offer new products and services and/or support government through bond purchases or consumers through mortgages.

If the only way private sector insurers can build their profit margins is by shrinking profit margins of other entities I personally think there is little justification for preferring financial transactions to have higher profit margins than the components of the health care system that actually provide health care services and products.

So, framed this way, the question becomes: What intrinsic value do insurers bring to the table, what benefit to society do insurers produce, that is of such estimable value that it is acceptable for them to extract their profit margins from the profit margins of other economic actors?