The CPA Journal

May 2001

How To Make Healthcare Available to All

By Benjamin Podgor and Norman H. Kass

For anyone unfamiliar with how health maintenance organizations (HMO) function, this is the theory: They provide healthcare to their members at minimal cost for medical visits and an approved list of surgical procedures. Procedures not on the approved list are customarily excluded from coverage. HMOs are private businesses that exist to turn a profit for their shareholders. Patients choose their caregivers from among a panel of participating physicians and specialists, and it is usually contrary to HMO policy and practice to permit patients to use practitioners outside of that panel.

To attract new customers, some HMOs have spent large amounts of money on advertising and sign-up incentives. Some large HMOs have remunerated their top officers with bonuses based on their success in attracting large numbers of customers. As in most businesses, however, when costs rise and product quality decreases, the company suffers. Many HMOs have gone broke when their policyholders realized that they’d been shortchanged. But HMOs don’t have to operate this way.

Consider an imaginary HMO that provides the essential services that patients need. Call it XYZ HMO, Inc., and staff it with physicians, surgeons, and specialists. Each office visit counts as one unit of service and each visit to a specialist counts as two units of service. Arrangements have been made with an affiliated hospital to accept 10 units for each in-patient day and one unit for each emergency or clinic visit.

The controller of XYZ HMO pursues the following procedures:

The subscriber’s annual premiums are deposited into a trust account.

From this trust account, an amount equal to one year’s administrative, selling, and malpractice expenses is transferred into an operating account, to be estimated by using the total number of subscribers times a unit multiplier (e.g., 10,000 subscribers X $100).

Each month, one-twelfth of the funds in the trust account (the amount originally deposited minus the amount transferred to the operating account) is transferred to a provider-payable account.

At the end of each month, that month’s total accumulated units of service are divided into the provider-payable account to arrive at a unit value.

Payments are made to the service providers, medical practitioners, and affiliated hospitals by multiplying the unit values by each provider’s accumulated units of service.

Although the aim will be to keep medical services at a reasonable level to maintain higher unit values, patients who need services will not have those services diminished. A board of directors will order the replacement of any medical practitioner who is deemed to perform below acceptable medical standards.

This is but an outline of an HMO that would work effectively. For the sake of simplicity, no mention was made of diagnosis-related groups (DRG) for hospitals or the Medicare resource-based relative value scale or other physician payout systems. This program could also be a prototype for a national healthcare system:

It calls for private sector operation.

It is fair to the patient.

It is fair to the medical profession.

It should maintain the cost of medical services at manageable levels.

It reduces or marginalizes unnecessary services.

It eliminates nine-tenths of paperwork, which can otherwise form 30% of operational costs.

It eliminates the insurance companies.

It will motivate medical practitioners to keep their patients healthy and encourage good health habits.

Any temporary monetary miscalculations are left to the party most able to carry them (the HMO, rather than the patient).

Naturally, both private and public employers would be able to purchase coverage for their employees.

This system enables Medicare or Medicaid patients to become subscribers, ensuring that a true national healthcare system would be available to all.

Benjamin Podgor, JD, CPA (Retired), is a member of the NYSSCPA Healthcare Committee. He is indebted to Norman H. Kass for his assistance in revising, updating, and refocusing this article since it first appeared in The CPA Journal and the Massapequa Post in December 1992.

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