Philip W. Barnes, PhD

The Great Debate in our country over the new health care reform law continues unabated. And it is interesting to note that both the thoughtful advocates for the new law and its some of its critics are right, at least in part. Clearly, the advocates are correct: the new law when fully implemented will be a dramatic and improvement over the current costly and inefficient system - many more people will have insurance to meet medical expenses and badly needed reforms of the insurance industry are most welcome. However, the critics are correct when they argue that not enough is done in the new law to contain costs over time nor was enough done to assure that the nation will have an adequate number of physicians, other health care providers, and clinical and other facilities to meet our growing demand. Indeed, I would argue that the shortage of primary care physicians coupled with the fee based reimbursement system for compensating medical providers are the fundamental problems, affecting every dimension of health care from availability to cost.

I am offering the following ideas for consideration with the following caveats: the ideas are neither original nor based on any systematic research, although I believe ample data are available to substantiate (and refine) the basic premises.

1. The United States must have a nationwide national health service - let’s call it the U.S. National Health Service (“NHS”), for lack of a better term. The NHS would operate a network of local primary care clinics and hospitals in communities so that every American would have reasonable access to basic health care. NHS would exist parallel to the current health care institutions, both public and private. (This could be an expansion and redefinition of the current National Health Service Corps and the system of community health clinics, which have long served rural and inner city areas.)

2. As envisioned here, NHS would provide services primarily on an outpatient basis. These would include diagnostic testing, early intervention and risk assessment, preventive care and screening, examinations, diagnosis and treatment of common physical and mental conditions, prescribing and managing medication, counseling, well-baby care, and continuing care and management of chronic conditions. NHS could also provide day-surgery services - including dentistry — for procedures when overnight stays are not required. NHS would not likely provide acute care services or those requiring medical specialties, although it could emerge as the principal “gatekeeper” in referring its patients on for additional treatment. What is fundamentally important: NHS would have no financial interest in extending its care or referring a patient to others.

3. The cost of operating the NHS network would be underwritten by the national government; all doctors, nurses and other staff would be employees of the government. Only when the costs are known can the cost of providing primary care be broken down to its essential components: the hourly cost of the attending physician plus the cost of other staff, diagnostic equipment, and facilities. Assume the NHS physician earns compensation of $200,000 a year - a reasonable perhaps even generous wage today for a general practitioner. Assume further that all other costs required to support the physician in delivering services approximate $400,000 a year. Thus, the fully loaded cost of providing and supporting each general practitioner would approximate $600,000 a year, or $300 an hour over a 2,000-hour period. This number is important both for estimating the cost of the total system as well as its cost recovery methodology. Once established, the NHS could determine the actual fully loaded cost of service per physician hour each year, and publish it as the basis for all patient billing.

4. The network itself should be built as quickly as possible, but would likely take several years to provide reasonable access for all Americans. If the cost per physician is $600,000, and we decide we need 20,000 physicians in the network, then the direct cost of medical services would $12.0 billion a year (in today’s dollars) when fully developed - a modest amount when compared with the current and projected cost of our current system. In addition, the total cost must include the cost of central administration, which is estimated at $1.5 billion, or 13% of direct expense. (The 2011 budget request for the VA reflects about 6% of the total authorization for departmental administration. A portion of the NHS administration budget would be given over to finance medical education.)

5. Most physicians in private practice work in 15 to 20 minute periods - some average less than 15 minutes with each patient. For our purposes, let’s assume that the NHS physician would average 3 patients an hour. On that basis, each physician could accommodate at least 6,000 patient visits a year. If the system had 20,000 physicians deployed, they could collectively see and provide the equivalent of 120 million people with one office visit each year.

6. The simple math used in this presentation produces a simple equation: each 20-minutes of a physician’s time costs $100 in direct expenses. Some procedures will take several 20-minute units of time - day surgeries, for example. Most will require less time. Some will require extensive diagnostic testing, others will not. The total direct cost of the system - doctors, nurses, staff, equipment, and facilities - are ultimately expressed in an average cost per physician hour - in this case, $300 per hour. (Of course, NHS could be directed to recover its “departmental administration” expense as well, which would add approximately $39 to each physician hour.)

7. NHS should bill its patients or the patient’s insurance provider on a means-tested basis at $100 for each 20-minutes or $300 per physician hour - regardless of the number or types of tests or procedures that may be required. The rate should be the same. The means test could also be simple, based upon annual income. For example, an individual or family with an income that is at or above the median income for a particular area would pay, say, 100% of the cost either out of pocket or billed to an insurance provider. In the same manner, a Medicaid or Medicare patient might pay a minimal or perhaps no co-pay for any services provided by the NHS. Private insurance, Medicaid or Medicare would reimburse NHS for the actual cost of providing these services on a physician-hour basis - not by the type of procedure or test involved or other complex reimbursement formulae. (This fundamental change in the reimbursement system for providing services through the NHS could potentially save all insurance funds - Medicaid, Medicare, and private insurance - billions of dollars a year.) All collections from any source - patients or third party payers - should be held in trust and used to reduce the appropriations required to support the NHS for the following year . In effect, Medicare and Medicaid dollars spent through NHS would be “recycled” for payment of more effective, less costly medical care.

8. Many resources are available that could be utilized by NHS to minimize the actual costs incurred. Most notably, the NHS should be given and required to use the Veterans Administration (VA) patient care information systems for maintaining all patient records, and it should be given access to the VA’s treatment protocols. This would immediately eliminate the cost of acquiring or building a new patient information system, while providing universal portability of information across the entire NHS network - a huge benefit for patients and doctors. (Moreover, the accumulation of information about what actually works and does not work from throughout the network would be of immense importance as the basis of statistical analysis to guide the evolution of new treatment protocols.) The NHS should use its purchasing power to negotiate favorable costs for everything from diagnostic equipment to pharmaceuticals. And many American communities have underutilized facilities - including clinical and hospital facilities - that might be acquired by NHS as its network expands.

9. Where would the doctors come from? First, I believe a sizeable number of practicing physicians today would welcome the opportunity to simply practice medicine, free from the pressures of managing a fee-based practice, if provided fair compensation. So the NHS could begin with a core of physicians drawn from those currently practicing, adding to those each year in part from new doctors. Today, the U.S. produces about 25,000 new doctors a year. Current estimates are that the nation will need to increase that number up to 35,000 or so each year to keep up with demands of an aging population. The NHS could facilitate this process while encouraging physicians to become general practitioners rather than specialists. The NHS should offer to pay the student debt accumulated in medical school for new physicians in return for a five-year commitment of service to NHS - at the NHS going compensation rate. (The average physician graduates from medical school with a debt approximating $120,000; the departmental administration budget discussed above includes about $600 million a year for financing the debt of 5,000 new doctors each year.) At the end of their commitment, some of the physicians may choose to move on to specializations, others into fee-based practice. Many, I believe, could find a rewarding career as part of the NHS network.

If and when an organization like NHS is in place, it would offer substantial “cost/benefits” to the American people. I am sure a good health care economist could develop reliable estimates from available data. However, we can say with some certainty that the following benefits would occur:

· Virtually all Americans would have access for the first time to affordable, efficient basic health care, with all of the attendant immediate and long-term socioeconomic benefits.

· Means testing would make NHS available to all Americans without subsidizing those with the ability to pay.

· Utilization of NHS would substantially reduce the cost of care reimbursed by Medicare and Medicaid and other third party payers.

· Overtime, Medicare and Medicaid could become more true insurance funds - i.e., funds designed to pay for the unexpected and often catastrophic events, not the predictable costs involved in routine health care services.

· Utilization of NHS would reduce the cost of emergency care now provided by state and local governments.

· No one would be required to use NHS. However, NHS would be competition for the private fee-based system, which would be healthy for both.

American government today finances over 50 percent of the cost of American’s health care - and it does so inefficiently by any standard. We are simply not getting our money’s worth. The new law will reduce the deficit over time, but not as efficiently as it might have. A single-payer system - Medicare for everyone - would certainly provide universal coverage, minimize overhead costs, and slow the rate of growth in total system expenses. However, no system of insurance can address the underlying issues of fee- and procedure-based services and the national shortage of physicians committed to the general practice of medicine. For a relatively modest investment - regardless of how we organize our public or private funded insurance programs — something like NHS could make a very substantial impact in addressing these fundamental problems in America’s health care system.