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When I had finished writing the first volume of this quartet, I considered adding a bibliography. However, it sounded sort of Stodgy, so it wasn't included. That decision appears to have been a misjudgment since some reviewers criticized the lack of references. A bibliography is therefore found at the end of this volume.
But a bibliography does not satisfy me as a description of the intellectual influences which led to this book. If anyone really cares about the matter, some anecdotes are needed.
First of all, Benjamin Franklin
However, two hundred years after Franklin's death it is possible to see some other effects and to draw some other morals about "perpetual" fire insurance. For example, the effect of compound interest is such that the lump sum payments not only pay for the insurance premium, but it also draws a very handsome cash dividend in addition. As an investment, this fire insurance is so attractive that people have actually been heard to urge a higher assessment of the value of their house, in order to qualify for more insurance! What has developed in our olde towne is a very good illustration of the principle of "adverse selection of risk". Since subscribers with spare capital almost invariably live in more substantial and fireproof houses than average, are better able to afford fire alarms, and are more likely to live near responsible neighbors, they have fewer fires. That makes the insurance less costly, but it does not reduce the legal requirements for reserves. The insurance laws force the perpetual fire insurance into a position of "over-reserving" but since the company is a mutual company, owned by the subscribers, it all comes back as dividends and fancy directors' dinners. Would anyone like more Madeira?
The power of compound interest, and the frustrating inability of most citizens to appreciate it seems to have been an obsession of Franklin's. In his will, he left $500 to the cities of Philadelphia and Boston (he was born there) to be left at compound interest for two centuries. The Boston investors did rather better and generated $xxx million by xxxx, but even Philadelphia had generated $xxx million by XXXX. Poor Richard, of course, knew that the interest growth would seem astounding, and gave the bequest in order to promote self-interested thrift among his countrymen. The idea was simple and obvious enough; Poor Richard didn't need a Hewlett-Packard 12-C pocket calculator. Even more powerful was the insight that human nature would not likely change much in the next two hundred years. People do indeed still need the message about compound interest, and people who are young enough to profit from the concept still resist the arithmetic.
What's Needed to Create an Electronic Claims and Payment System.
1. A coordinated approach. Since everyone is giving up something to get something, there must be a global agreement before anyone will move.
2. The system must focus on one and two-doctor practices. At present, 14% of claims are submitted electronically, but this almost exhausts the market of large-volume provider groups. With a small-provider focus, it follows that packaged systems must be inexpensively provided and maintained by software houses; training and support must be provided by medical societies to their members in large groups. This approach requires universal standards negotiated by payors and organizations representing doctors. The small-volume provider cannot cope with or afford a multiplicity of payor protocols, nor can he cope with frequent changes of the rules.
3. The new systems must be paid for. HCFA could pay a surcharge for electronic submission ("but why should we pay people to send us a bill?"), one carrier could perform the service on behalf of all ("but why should we let a competitor see all of our business secrets?"), the doctors could pay all of the costs ("but why should we pay to do the key entry for the carriers when HCFA has rolled back our fees? "). Since possession of the interest float is a central part of the haggling, it seems easiest to capture a part of the float as the source of the needed transfer of costs within the system.
4. It is unsafe to make any national system changes without first trying a local demonstration project; therefore, negotiations should continue while a pilot program gets going rapidly. Many fears will prove to be unfounded, while many problems will have been unanticipated. The government has experience with this sort of venture and is fairly well equipped to deal with it.
5. Although everyone hates to see a new organizational layer in the system, the providers will probably have to create a new "provider intermediary" to aggregate their data for retransmission as well as negotiable at the interface with the present "payor intermediaries". This is true in part because of HCFA's insistence on the accounting principle that "the agency which prepares the bill should not also be the one to pay that bill." Since this intermediary acts on behalf of providers, will want to control it; the sticky thing is to get HCFA to pay for something which is controlled by others. The interest float seems ideal for this purpose since excessive costs would reduce the income of providers, causing them to raise questions and/or change agents. It also automatically adjusts itself to volume, so that the agency can more comfortably work with multiple payers and providers.
6. Although medical societies act on behalf of their members, their budgets are separate from the members' pocketbook. Furthermore, membership is voluntary and not universal. Therefore, what costs or benefits the members in aggregate is not necessarily the same as a cost or benefit to the societies. Any negotiating process must recognize the distinction between representing members and sharing in their finances.
7. While maximum competition between hardware and software vendors, timeshare computer companies, and long-distance carriers is desirable, there is one small computer software program to interface between provider and insurance company software, utilizing a single common protocol which will be subject to continuous revision while negotiations and the pilot program are underway.
Software developers on both sides of the interface need to know that someone will provide them with the interface so they can go ahead with their parts of the system. Since the specifications will be speculative at the beginning and subject to continuous revision, HCFA should be willing to absorb this cost of buffering, dealing with a designated vendor, in order to be able to assure the industry of stability. This piece of software should be strictly confined t the goal of permitting inputs and outputs to be untroubled by experimental variations in the interface mechanics; it should be mainly regarded as a research tool, although its final form would be operational. To repeat: anyone could develop it when the situation is stabilized, but no unsubsidized vendor could afford to develop it until then. And no one else can budge unless it exists.
Electronic Claims System From the Doctor's Point of View
The doctor would have one of several computer system choices in his office which cost about $2000, employing software which he purchased from one of many existing sources for about another $2000. He and/or his secretary learned to use it at courses provided at the County Medical Society.
When the office closes, the machine turns itself off, but turns itself on again at night and dials a number, redialing it if busy. After connection, it identifies itself and send all of the accumulated claims of the day to a file, then receiving accumulated payment bits of advice and EOB information. The machines then disconnect, but the office computer then reconciles accounts internally, producing revised balances and accounts and takes appropriate actions; it then turns itself off. Next morning, the first process after the start-up is to print out reports about the night's activity.
Back at the collection computer, the aggregated claims are sorted by carrier and transmitted. Carrier information is them received, and sorted by provider, awaiting the evening transmission.
Meanwhile, funds are electronically transmitted into an escrow account, and a money market operation invests the money for a specified period. After the expenses of the operation are deducted, the funds are either: 1) available at that bank for checking by the providers 2) electronically transferred to the providers' banks or 3) used to pay the credit card purchases of the providers on cards utilizing the account.