Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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New topic 2019-05-24 20:49:32 description

Miriam's Suggestion: A Communication System For Doctors, Run by their Local Society.

The credit card business got its start in the restaurant business. Easy credit is a big help for high living and big spending, but it also leads to a lot of bad debts. The restaurant customer may be from out of town, may never come back, can get along without the restaurant forever; and you can't repossess the product.

Bad debts would easily run to 7% of sales if you allowed restaurant and barflies to put it on the tab. Furthermore, there would be billing costs, in a business traditionally run on the basis of "cash on the barrelhead". Extending credit leads to impairment of cash flow; the bar owner might be forced to borrow money, just to buy more liquor to remain in business until the end of the month when the bills were eventually paid. If they were paid.

So, the credit card is a pretty good deal in the restaurant business, even though it switches a small percent from gross receipts to expenses. The "service establishment" takes a pile of slips to the local bank, which exchanges cash for them, less the discount, and so off to the liquor wholesaler for restocking. The banks make an arrangement with the credit card company, sending the charge slips to a service center for consolidating bills to the customer to one monthly bill. There may be some fraud from time to time, but the merchant is required to call for authorization if the amount exceeds $50. Customer fraud, plus bad debts, come to less than 1.5% in the credit card system, usually leaving room for a profit from the increased sales volume and slightly reduced bad debt.

While it is true this system is remarkably parallel to the health insurance payment system, there are certain unrecognized differences which shift the cost equation. In the past, a well-run middle-class medical practice experienced no more than 2% loss from bad debts and fraud. Since that is rather comparable to the attrition of the credit card system, at first it is hard for a doctor to see why he should permit his charges to be discounted an additional 2-5% by the credit card company. Cash flow is nice, but a doctor doesn't run much inventory, and his expenses are about 50% of gross receipts; he can wait for his money without pain, and so is used to surrendering a month's interest to the tradition of billing at the end of the month. For him, the image of easy credit (costing 2-5%) seems less valuable than the image of a trusted professional. If his practice is in a low-income area, he can always revert to cash at the time of service.

The exception to this similarity is found in a hospital-based physician. In the past, that mostly meant surgeons, but it now includes a wide array of specialists who hang around the hospital accident room, waiting for a patient to wander into the system. These physicians generally have even less overhead than the traditional office physician (radiologists and pathologists are the traditional hospital-based physician) and concerns about cash flow are unexpected. In the traditional case of hospital-based physicians, the patient may not even have recognized these issues, since the new billheads reflect some mysterious title like Cardiovascular Associates, PA. If the patient hadn't met them (like pathologists), didn't request their services, and doesn't understand what their function is, then their bills seem doubly excessive and rapidly turn into bad debts.

A. Telecommunicating the Remittance Advice. Commonly known as the EOB (Explanation of Benefits), the piece of paper which the insurance company sends back to the doctor is as much nuisance to him as the claim form was. In other words, each party is heedless of the trouble it causes the other and both have an interest in peaceful exchanges. Unfortunately, most doctors are unaware of the chaotic non-uniformity of the bits of advice their office assistants must use to adjust their balances, to balance bill or to write off the disallowances, to collect copayments and deductibles, or to rebill an incorrectly processed claim. More than any other area, this is the one where the Medical Society could perform the greatest service to its aggregate members.

B. A uniform format for EOBs needs to be developed, a task which is made somewhat easier by the fact that no one is now sending remittance pieces of advice by wire, so there is no local protocol which would have to be changed. A program needs to be developed for the office computer of the doctor, so that advice received by wire can be reconciled with the patients' accounts and balances. And, obviously, the insurance companies need to agree to piggy-back the reverse flow of remittance advice at the end of the forward transmission of claim forms. The trade is not entirely equal; one remittance can cover several claims.

This concept separates the remittance advice from the remittance; the check can go to the doctor's bank, not the doctor's office. The cost of preparing the check, postage, and depositing costs are eliminated by electronic funds transfer, which has some small cost of its own. From the insurance company's point of view, one cost is the loss of float; but three or four days cannot be a serious obstacle to negotiation. Close and careful analysis of the float reveals that the system only eliminates one or two days for claims transmission and two or three days for depositing. There is now more float than that, but either it is eliminated by office automation which the insurance company cannot stop, or it is unaffected by the proposals.

C. Additional Services. The organization of a communication system into doctor's offices generates an opportunity to send more than insurance claims over it. The Medical Society would undoubtedly wish to communicate with its member notices and similar medical chatter over it. Such a system could easily become a unifying force.

The most obvious needed data transmission in the medical environment is that of laboratory and x-ray reports. Once more, the opportunity is created, not merely to eliminate the step and the postman, but to incorporate electronic material directly into the physician's medical record of the patient.

Other transmissions are more fanciful; some linkage with the drug store might be developed which notified the doctor of refills which he may or may not have authorized, for example.

D. Commercials should be explored. There are no doubt drug firms willing to pay to have their material transmitted over the system; scarcely any doubt that doctors would want their computers screened to filter out what they didn't want. The combination of the two might actually make this the preferred system for conveying drug information. Since drug throw-away journals abound, there might just be some suppressed but discoverable enthusiasm to transmit scientific information through this medium. Most doctors would be very enthusiastic to have the current medical literature screened in response to their designed areas of interest. Since 80% of the drug industry is located within a hundred miles of Philadelphia, it should not be difficult to see what interest could emerge.

E.Using the Float to Pay for the System. At a number of points in this letter, I have referred to the float as if it were an inconsequential thing. That may not be entirely balanced, but I believe it is necessary to overcome some exaggerated over-emphasis from the Carter high-interest days which will probably never return. Nevertheless, the whole principle of commercial banking resets on the ability of banks to aggregate a vast number of erratic dribs and drabs of no great use to the individual depositors into a steady useable lump. By asking the members to join a large assignment account run by the Society, we accomplish the same thing. It is my belief that the members would much more willingly agree to allow us to use the aggregated float to pay for that system than they would receive an itemized bill. Similarly, it seems to me that the insurance companies would more willingly agree to permit us to have to the interest on our own money than they would to paying directly for the costs of running the electronic clearinghouse. The technicalities of running a money market fund with transfers via Fidelity USA (for example) seem to be very standard and pose no great problem. The big problem is to obtain agreement to substitute electronic remittance advice and make bulk transfers to the assignment account. After that, it is merely a matter of holding on to the money until it generates enough interest to cover the cost of running the system. Since we could garner 30 days of interest simply by paying the monthly credit card bills members, they should experience no cash flow problem.

Cash flow, by the way, seems to me to be an exaggerated concern. Relatively few doctors, radiologists, and pathologists perhaps have such high overhead proportions that cash flow is more important than interest payments. No doctor that I can think of maintains an inventory like a druggist and hence needs to have the cash flow to restock. Cash flow is nice, but for the most part, gaining interest on the money is just as good. Reduction of Society dues is another painless way to move money between doctors and the Society; I see no need to send people a bill, and I hope we can avoid it
. F.Seed capital is another matter and one which must be deferred at least until after preliminary discussions with the companies. As a general rule, the costs of a system should be borne by those who benefit from it; that's what is known as negotiating the price. It is generally true that one party in such a venture is willing to spend more money than the other, and money then "talks" in the sense that disproportionate contributions to seed capital must be reflected by some other adjustment. In this case, of course, the Federal government is a major player and may be willing to fund a pilot study or development costs if the system goes into the public domain to some degree. But generally, the system should remain in private hands.

Originally published: Friday, November 02, 2018; most-recently modified: Friday, May 24, 2019