I was encouraged by the recent announcement that Amazon, Berkshire Hathaway and J.P. Morgan are joining forces to form a new health care company. This project looks promising, and I must confess to more than a little satisfaction that the mere announcement of such a plan sent health insurance stocks into the dumpster.
These three large companies are focusing on the unnecessary insurance middleman in American health care. This is long overdue. In the past, other employers have tried to work collaboratively with these middlemen but failed to achieve any meaningful result.
We have created a bizarre health care system in which these useless middlemen have convinced everyone that costly insurance products and/or third-party administrators are needed to deal with the dreaded $50 aspirin or the $100 cotton ball. Ironically, these charges are as fictitious as the claims that the middlemen are needed to manage them.
The reality is that these inflated, fictitious charges are, in fact, created by the middlemen.
Let's get something out in the open. Yes, health care providers bill ridiculous charges. They do this because, to receive a dollar in payment, they must submit a bill that is grossly inflated in order to get paid some much smaller, realistic amount. The real amount paid is considered to be a trade secret by the middlemen who pay these bills using other people's money.
The actual bill-payers may be the federal government (Medicare Advantage Plans), state governments and the federal government (Medicaid programs), or large, self-insured (ERISA) employers.
In all these cases, the insurer middleman assumes no real insurance risk, but rather disburses funds using the money of others and tells them what was paid, with no meaningful method of validation. Recent lawsuits have shown that in many, if not all, cases, these middlemen internally inflate the amount they report as paid to health care providers and pocket the difference for themselves. (See Hi-Lex Controls vs. Blue Cross Blue Shield of Michigan.)
Thus, no consumer knows what health care really costs. The useless middlemen, while refusing to provide actual and verifiable claims-paid data ("trade secrets"), bombard us with laws and rules (actual or proposed) requiring disclosure of provider prices, all the while knowing that the "disclosed" prices are the artificially inflated prices that the middlemen require for billing.
The middlemen offer to "help" us through an endless stream of proposals based upon all-payer claims databases. These databases are the self-reported, aggregate, unverifiable, payment-made claims data from the very middlemen who are suspected of fraudulent price inflation and reporting. In short, this information is as useless as the insurance middlemen.
Please remember that almost all self-insured employers use insurance middlemen as third-party administrators for their plans and rely completely on these middlemen to tell them what is actually paid for services, which means the employer hasn't got a clue.
Why am I excited by the formation of a new entity by three of our biggest and savviest corporate interests? Because, at the outset, they have declared their belief that the insurance middleman is the principal cost driver in our current system.
Given that the insurance middlemen self-report double-digit administrative costs and double-digit profits, and appear to use hidden network access fees and other tricks to internally inflate self-reported costs by more than 20 percent, that suspicion is well-founded.
What can our heroes at Amazon, Berkshire and J.P. Morgan do to drive down the middleman-waste in our current health care supply chain? Here's my advice:
First, do not go to the middlemen to get the data you desperately need. The middlemen have already told you these data are trade secrets. Forget all-payer claims databases. What's the value in aggregates of unreliable and unverifiable data?
What needs to be established is an all-payee database. Collectively, you have more than a million employees. Your new nonprofit organization could create an application that will provide you with actual claims-made and claims-paid data from the providers who serve your employees, not from the middlemen processing the claims. You need to see what things really cost, based on actual payments received and accepted, rather than on spurious billed charges and unverifiable payment reports. You need to know these things to determine actual costs and to identify the real cost drivers in our system.
If you do this, in a short time you will be able to reconstruct the database the middlemen consider a "trade secret." Can you legally do this? Yes, absolutely! So long as the providers supplying the data don't have access to data other than their own, there's no problem.
Can you technically accomplish this? You are Amazon, Berkshire Hathaway and J.P. Morgan. It's a rhetorical question. I'm willing to bet that there's an app for that, or you can create one. If not, invite Google to the party.
Finally, you may wonder, will providers cooperate? Given that, to start, you have more than a million employees and that this model would be invaluable to everyone else in the current system (except the middlemen), and that you can give the software needed to do this to providers without cost to them, the answer is yes.
After decades of being blamed as the greedy cost drivers in our current system, most providers have no love lost for what Warren Buffett has described as a hungry tapeworm in the American economy.
David Feinwachs, of St. Paul, is an attorney and former general counsel for the Minnesota Hospital Association.