Using Free Enterprise to Create the Best Healthcare Model


The web page has promoted universal healthcare for the United States. The provision of universal healthcare certainly does not assure that the care is optimal either in quality or in efficiency. The Sanders’ Medicare for All proposal would tend to promulgate the shortcomings of the current care delivery system while creating a cost that could not be covered by doubling the income tax base (Blahous, Charles: The Costs of a National Single-Payer Healthcare System. Mercatus Working Paper,

The shortcomings of the current healthcare delivery system center on the lack of integration and coordination of the various system components. The compensation methodology, especially fee-for-service, rewards the primary care physician, the specialist, and the healthcare facilities for more intervention rather than best patient outcomes. The various care providers seeing the patient do not communicate with one another sufficiently to assure that there is an integrated plan focused on achieving maximum patient health and well being. The absence of a universal, interoperative medical record facilitates this care fragmentation. Additionally, preventive care is poorly compensated so that, other than the insurer, the system is economically penalized for producing a healthy individual. The fact that approximately 20% of individuals change insurer each year minimizes even the insurers’ rationale for investment in maximum preventive care.

The optimal solution to this suboptimal system does not currently exist in spite of a variety of approaches across the advanced nations of the world. Our goal is the creation of aligned incentives so that all components of the care delivery system are working toward a single end point: A healthcare system that maintains optimal health of the population and most effective care of the infirm through the most economically efficient process achievable. In the absence of a clear framework for achievement of this goal, the approach presented is to create an environment in which the free enterprise system is leveraged to continuously innovate and organize more effective care and prevention. Success will be rewarded by more profit per individual in the program and the attraction of more business through demonstration of superior outcomes.

A set of principles has been presented that should be intrinsic to each of the competing entities. These principles will facilitate moving to optimal care but there are multiple challenges left unsolved. In this presentation these basic principles will first be enumerated. Some of the unresolved variables will be discussed, followed by the description of a competitive system stimulating evolution to the desired goal.

Key Principles of Plan

The fundamentals being proposed for all healthcare systems are as follows:

  • Every individual will have access to all the components of basic healthcare. Basic healthcare will be defined by an expert panel, such as the National Academy of Medicine with representatives from various specialty organizations. Basic healthcare will include the most current components of preventive medicine and curative treatment of disease, that is, making people well and keeping them well.
  • The individual will choose the healthcare system they desire and may keep that system as long as they prefer to do so. They are free to choose the system in which their historic primary physician is a member. Since the long-term relationship means that the system will potentially have the patient for life, there will be every incentive to keep their participants as healthy and functional as feasible for the longest time in the most efficient manner achievable.
  • The central responsibility for coordinating care will be the primary care physician who will receive a risk-adjusted yearly fee for his or her care of the patient. The capitated fee will free up the primary care physician to use whatever means of caring that is most efficient and efficacious. Examples are the use of nurse practitioners and case managers, maintaining communication with patients through texts, e-mail, or telemedicine, and use of care teams for a specific or multiple chronic diseases.
  • There will be outcome measures that will be publically available, calibrating the relative success of each delivery system, physician, and healthcare facility. These measures will lead the patients to the best providers and will provide the primary care physicians with the information needed to refer patients to the most effective specialist and hospital.
  • Coordination of care will be greatly facilitated by an interoperative electronic health record (EHR) available to every treating physician. The record will be formatted to facilitate easy accessibility to current medications and to current and pertinent past medical problems.

Unresolved Components of a Best Healthcare Model

A primary impediment to a system built around the patient is the compensation methods for each of the components of the care process. In this discussion the supervision and coordination of all care is the responsibility of the primary care physician. This physician is compensated through a capitated, risk-adjusted fee. A challenge to coordination arises with the compensation of the specialists and of the care facilities. Paying fee for service to the specialist creates a stimulus that does not put the patient’s best interest at the center. How might the specialists and the healthcare facilities be paid? Bundled payment for frequently performed procedures aligns the incentives of the physicians and the facilities in which a procedure is performed to produce the most efficient outcome with minimal complications or readmissions. Bundled payment does not assure the patient is not undergoing a procedure that might be avoided with excellent medical care. The treatment of stable angina pectoris is an example in which medical treatment has been shown just as effective as intervention. Bundled payments are one of a variety of alternate payment methods (APM). The Health Care Payment Learning & Action Network has produced a 45-page document titled APM Framework, showing the complexity of possibilities. Since compensation is key in a free enterprise model, assuring aligned incentives through compensation remains a challenge.

Another challenge yet to be resolved is the delineation of the responsibility of the healthcare system in addressing the social determinants of health. “Decades of research have demonstrated that economic stability, physical environment, education, food, and social context are powerful upstream factors that largely determine one’s health before the health system is able to intervene.”(Nichols, LM & Taylor, LA: Social Determinants as Public Goods: A New Approach to Financing Key Investments in Healthy Communities. Health Affairs 37:p1223, Aug 2018) “Overall, social settings are two times more likely to determine a person’s risk of premature death than the places in which he or she receives medical care.”(Pearl, R: Mistreated, Page 134. Perseus Books, LLC, Philadelphia, PA, 2017. We have discussed in the section on quality measures that the line between social determinants of health and healthcare is not at all clear. Outcome measures such as patient longevity, ED visits, and hospital days are very likely considerations in calibrating the success of a healthcare program. The extension of influence outside the current perimeter of the healthcare system seems inevitable but the extent to which this outreach is feasible is to be determined by the experience of the care systems described in this essay.

A third challenge to be addressed is the effective treatment of chronic disease. Fifty-nine percent of American adults have at least one chronic condition and these patients account for 90% of healthcare spending. Twelve percent of the population has 5 or more chronic conditions and these account for 41% of healthcare dollars spent. ( The reality that there is no current optimal model for care of these complex patients is clear from the National Academy of Medicine’s lengthy special publication, Effective Care for High-Need Patients. Resolving the best and most efficient care for this population is clearly a crucial aspect in the evolution to a best healthcare model.

Proposed Approach to Creating Optimal Healthcare

As pointed out, this web page has proposed basic principles for healthcare that will move the delivery system in an appropriate direction but does not define a full implementation program. Three of a number of remaining, unmet challenges have been discussed. “We are familiar with the idea that free competition among private business enterprises spurs innovation that no rational planer could have devised in advance.” (Hazony, Y: The Liberty of Nations. Review section, Wall Street Journal, 8/25/18). The success of America has been the product of this competitive, free enterprise system pushing toward ever improving solutions to challenges in our lives. The free enterprise system has failed in healthcare primarily as a result of the compensation system for each of the components of care, i.e. primary care physicians, medical specialists, hospitals and other healthcare facilities, and insurers, all being rewarded individually in a manner that fails to create cohesive effort but rather supports excess usage of intervention and technology. Governmental regulations have added to the dysfunction. The proposal of this statement is to reestablish the free enterprise incentives so that the competition is to deliver the goal stated in the introduction:  A healthcare system that maintains optimal health of the population and most effective care of the infirm through the most economically efficient process achievable.

The proposed approach is to take the taxation funds for universal healthcare and provide prepared organizations a risk adjusted yearly fee per patient covering all care that year. The closest current model is Medicare Advantage. In Medicare Advantage a capitated fee is paid to the insurance company based on a percent of the local cost of care per year with an individual risk adjustment included. This will not be simple mathematics but must be as reasonable as feasible. The insurer or other contracted healthcare system will deliver the full basic care including drug coverage and share in any savings below the benchmark. A primary goal will be slowly decreasing costs in the presence of increasingly positive health outcomes. Superior outcomes should be compensated sufficiently to push achievement. Outcomes should be easily interpreted and readily available, drawing more patients to the clinically successful systems.

In a Health Affairs blog on 8/15/18 Bill Wynne supported the concept of simply expanding the Medicare Advantage model to universal care. This approach would include, almost exclusively, large insurance companies as vendors. There are a number of entities that have begun the transition to more coordinated care. Some of the Accountable Care Organizations initiated by Medicare have integrated all components of the care delivery system. Kaiser Permanente is an example of an organization that has direct contracts or ownership of the various components of care. The consortium being created by Amazon, Berkshire Hathaway, and JP Morgan-Chase with Atul Gawande as CEO may create a care delivery model that could manage the full spectrum of care beyond just the employees and families of employees.  The recommendation of this proposal is to set criteria that assures that an organization has sufficient experience and economic and logistic wherewithal to create a fully integrated care delivery model before they are included. These organizations will receive a capitated fee analogous to the Medicare Advantage payment and must be prepared to include all of the requirements mentioned in the Key Principle section. The EHR must be constructed so that the outcome measures of success are included and easily extracted except for economic outcomes to be separately submitted at least semiannually until the system is sufficiently stable and successful to be assessed on a yearly basis.

Initial emphasis should be on improving health maintenance and clinical outcomes. “Depending on the specific measure studied, health care providers who make prevention a priority are able to lower hypertensive disease, stroke, and heart attack rates anywhere from 10 to 30 percent below national averages. In fact, if every insured American received care from these higher performers, as many as 200,000 heart attacks and strokes could be prevented each year.” (Pearl, Robert, see above, p.165). These preventive care outcomes are not high tech but accrue costs from case managers and chronic disease teams as well as other supportive caregivers. The absence of demonstrable gains in population health should exclude participant systems. The focus must initially be on making the American healthcare system the best in the world.

Cost reduction may not be the initial central consideration but the allocated capitated funds at the outset should not be above norms and should steadily decrease. The burden of administrative costs for billing different entities will be obliterated with one yearly payment. If quality data can be acquired from the EHR another administrative cost will be substantially reduced. The healthcare providers in most of the Medicare Advantage systems are in a closed panel, which has generally shown significant cost reductions. The caveat in considering closed panels in an environment in which outcome data is easily available is that there must be some mechanism for patients to avail themselves of superior clinicians outside the system. Undoubtedly there will be other challenges as the program evolves but the conclusion should be that all components of the delivery system are continuously exploring how to work more effectively together to make the American population the healthiest in the world. If, in the process, the cost could be decreased as much as one third there would be one trillion dollars left in the economy.