<I>RE·MEDI</I> COST SAVINGS <I>Lists the major cost-drivers in a table and discusses the <i>RE·MEDI</I> system's impact on them.

RE·MEDI  Cost Savings

A Proof

The RE·MEDI system succeeds in eliminating or significantly reducing virtually all of the major cost-drivers that have made healthcare so expensive. In this article, we demonstrate that 22 of the worst cost-drivers are eliminated or are significantly curtailed; 14 are impacted by the intense competition in treatment markets that the RE·MEDI system creates, while the other eight are impacted by several efficiencies introduced by the RE·MEDI system.

The first cost-driver listed in the table below affects the demand side of healthcare markets. Currently, third-party payers severely blunt any incentive for consumers to be price-sensitive in their healthcare purchases. Consequently, healthcare consumers in a private or government health plan rarely shop on the basis of price.

Cost-driver No. 1: The RE·MEDI system creates a powerful incentive with Reference Pricing plus Rebates, the only method of paying for insured healthcare benefits that makes consumers price-sensitive to all of their healthcare purchases. Because Reference Pricing plus Rebates compels consumers to bear the full cost differences of their healthcare decisions, healthcare markets are made considerably more efficient, compared with third-party payer plans and even Health Savings Accounts with high-deductible policies. Because their healthcare cost savings can be substantial, consumers with Reference Pricing plus Rebates can be expected to shop enthusiastically for their healthcare, particularly when The Doctor Shopper makes it so easy for them to compare their options. Many health experts consider the third-party payer problem to be the biggest healthcare cost-driver.

The RE·MEDI System's Impact on the
Healthcare Cost-Drivers

1.  DEMAND SIDE:  Motivates consumers to
      comparison shop (solves third-party payer problem)
2.  SUPPLY SIDE:  Produces intense price competition
     among healthcare providers
3.  Eliminates virtually all unnecessary and inappropriate
      medical treatments
4.  Eliminates technologies and techniques that are not
      cost-effective
5.  Eliminates cost-shifting
6.  Curtails/shuts down the practice of providers with
     excessive malpractice
7.   Eliminates external utilization review
8.   Outperforms virtually any regulation whose primary
      aim is to moderate prices or improve quality
9.   Compels the rapid penetration of new, cost-saving
      technologies and techniques
10.  Aging of the population: extends life spans, but all
       affected years are healthier and less costly
11.  Offers home care or hospice as an alternative to
       heroic end-of-life treatments
12.  Reduces the cost of healthcare subsidies by
       reducing medical prices, eliminating unnecessary or
       inefficient treatments and by reducing fraud
13.  Motivates physicians to prescribe the most
       cost-effective pharmaceuticals
14.  Motivates providers to specialize in those activities
       in which they have a comparative advantage
15.   Slashes costs of the plan administrator
16.   Reduces administrative costs of providers,
        including paperwork burden
17.   Eliminates costs associated with the coding of
        treatments for reimbursement
18.   Reduces medical risk in multiple ways
19.   Makes fraud difficult to perpetrate
20.   Integrates a fragmented healthcare system
21.   Significantly reduces the incidence of misdiagnoses
22.   Eliminates "defensive medicine"

Cost-driver No. 2: This cost-driver is weak price competition among providers, and it affects the supply side of healthcare markets. RE·MEDI creates intense competition with the powerful Value Chart, which allows consumers to readily identify the best values in the marketplace. Providers are compelled to compete for consumers, not only with respect to price, but also with regard to patient outcomes and other quality measures. This competition also extends to medical specialties, pharmacies, hospitals and other providers. By making providers more cost-sensitive, the competition extends derivatively to suppliers of medical equipment and other medical products and services. The result of this competition will be falling prices and increasing quality.

The impact of the RE·MEDI system on the next twelve cost-drivers in the table is easily demonstrated with reference to the Value Chart.

Cost-driver No. 3: First, unnecessary and/or inappropriate treatments are virtually eliminated. Doctors appearing in this chart have a powerful financial interest in becoming and remaining competitive by positioning themselves on "The Cutting Edge." But doctors who perform unnecessary or inappropriate treatments increase their costs without a commensurate improvement in patient outcomes, thereby making themselves less competitive. Moreover, the diagnostician's annual performance review gives him an incentive to exclude unnecessary or inappropriate treatments from his treatment plans.

Cost-driver No. 4: This same line of argument also applies to technologies or techniques that are not cost-effective, as compared with other available options; and while new technologies can add to the overall cost of healthcare, the competition stimulated by RE·MEDI ensures that these additions must be cost-effective.

Cost-driver No. 5: Competition also militates against shifting costs from one set of patients (e.g., Medicare patients) onto RE·MEDI patients. Again, such actions raise costs without producing a net benefit to the consumer/patient.

Cost-driver No. 6: Doctors with an excessive malpractice record will, in all likelihood, have an inferior Outcomes Index, which will position them well away from "The Cutting Edge." Because such doctors will have a difficult time attracting patients, their opportunities to harm future patients will be sharply diminished, if not eliminated completely. Another salutary result is that this will cause malpractice premiums to fall, since a relatively small number of doctors is believed to be responsible for the major share of malpractice.

Cost-driver No. 7: Because it is in each doctor's financial interest to produce for each patient the best outcome value for any given cost, the need for external utilization review is eliminated. A doctor is invariably in a superior position to determine what is best for his patient, compared with some remotely situated third party.

Cost-driver No. 8: Doctors pursuing their own self-interest also render redundant— at best— any regulation whose primary goal is to moderate price and/or improve quality. In fact, it is more likely that the regulation will produce results inferior to the unregulated but financially motivated doctor, especially if the regulation applies to many different providers in different situations. While the RE·MEDI system cannot by itself eliminate regulations—only government can do that—it creates a real opportunity to eliminate many or most of them, and the costs associated with them.

Cost-driver No. 9: A further benefit of the Value Chart is that it will cause the rapid penetration of new, cost-saving technologies and techniques. A doctor who discovers and applies a procedure that is less costly, or that produces superior patient outcomes, will cause "The Cutting Edge" to be shifted downward (less costly) and/or to the right (improved outcomes), leaving his competitors positioned further away from "The Cutting Edge." To restore their competitiveness, competitors will be eager to discover the reason for the doctor's success so that they can incorporate the new procedure into their own practice.

Cost-driver No. 10: The aging of the population is another cost-driver. The leading edge of the Baby Boom generation has been collecting Social Security benefits for several years and there are many more waiting in the wings. In addition, the impact of the Boomers on our healthcare system is likely to be profound. Because, under the RE·MEDI system, each doctor will be striving for the best outcome value for every patient, patients are likely to have longer and healthier lives. However, longer lives imply greater financial demands on our healthcare system, but healthier lives imply fewer demands. For nearly everyone below 55 years of age and for most above it, the monetary benefit of healthier lives will outweigh the health costs of their extra life. Notwithstanding the net effect, longer and healthier lives are both welcome outcomes.

Cost-driver No. 11: It was reported in the July 2001 issue of Health Affairs, vol. 20 no. 4 188-195, hat a fourth of Medicare outlays are spent in the last year of life. The RE·MEDI system will present information on end-of-life options to those appearing near the end of their life. Many may prefer hospice or home palliative care if these alternatives are presented objectively to them.

Cost-driver No. 12: If healthcare were not so heavily subsidized, a significantly smaller fraction of the nation's scarce resources would be allocated to healthcare, releasing the remaining resources for higher-valued uses. Thus, growing subsidies for the Medicare and Medicaid programs, the employer tax exclusion and other healthcare-related government programs and tax preferences increase the demand for healthcare and represent a significant cost-driver. With the RE·MEDI system, a smaller subsidy will be required to elicit a given amount of healthcare services, as compared with the current system. This result follows from the fact that price competition reduces the cost of healthcare and improves the effectiveness of the healthcare delivery system.

Cost-driver No. 13: Physicians under the RE·MEDI system are held accountable for both the cost and effectiveness of the drugs they prescribe. The patientís medical response to the drugs prescribed by the treating doctor will influence his Outcomes Index, so he will be motivated to prescribe to his patients the combination of drugs that will be effective.

Physicians also will be concerned with the prices that their patients pay for drugs, as the lower are the patient's drug costs, the greater is the likelihood that the patient will take her drugs as prescribed, which also could affect her outcome.

In fact, the drugís cost and effectiveness are both relevant, as they will influence the treating doctorís overall treatment costs and his Outcomes Index. Both of these are published in The Doctor Shopper and will influence the doctorís competitive position with respect to The Cutting Edge of the Value Chart.

Finally, this market-based approach eliminates the need for or the desirability of drug formularies.

Cost-driver No. 14: Providers will be motivated to improve and increase the production of services in which they have a comparative advantage, while decreasing the production of services at which they are a disadvantage. Market forces will discourage them from continuing with the latter, as those searching for such services will tend to choose treating doctors that are offering better values. This higher degree of specialization will raise the overall value of these providers' output.

Cost-driver No. 15: FAHPA, our fully automated health plan administrator—and the RE·MEDI system's administrative machinery—mitigates the next three cost-drivers. By supplying providers with an electronic health records (EHR) system at no cost to them, substantial administrative costs can be stripped from the operations of providers. Providersí claims are uploaded automatically to the processing facility and can be paid safely overnight, and they rarely, if ever, will be denied. Paperwork is sharply reduced.

Cost-driver No. 16: FAHPA is also a fully-automated third-party administrator. It performs all of the functions of a TPA, including on-line enrollment, real time eligibility assessment, claims processing, creation and handling of EHRs, integrated payment processing, reconciliation of accounts, including, optionally, Health Savings Accounts, patient billing, automated data updates, self-administered surveys and fraud assessment.

Cost-driver No. 17: Since providers are reimbursed for outcomes rather than for treatments, and all reimbursements are based on episodes defined by ICD codes, CPT treatment codes are no longer required for reimbursement. Therefore, the costs associated with using these codes are eliminated. Even if the treating doctor chooses an alternate plan, reimbursement is based on the cost of the Diagnosticianís treatment plan and not on the treating doctorís costs or codes.

Cost-driver No. 18: Medical risks in the RE·MEDI system are reduced in a multitude of ways. The Value Chart always motivates doctors to achieve the best result. The use of EHRs and electronic prescriptions, the free second opinion and the coordination of treatment with Diagnosticians are other examples.

Cost-driver No. 19: Fraud is especially difficult to perpetrate in the RE·MEDI system. Multiple copies of each treatment plan and treatment record exist simultaneously at separate physical locations: the provider's office, the member's personal flash drive—which is almost always offline— and the central claims processing center. During each medical transaction, these records are compared to ensure integrity. If the records are not in agreement, indicating a record may have been tampered with, the transaction is flagged for further investigation.

Cost-driver No. 20: Another significant contributor to healthcare costs is the fragmented nature of our healthcare system. Many individuals are treated by multiple doctors who may not have access to each other's records. Consequently, duplicate tests are often ordered or conducted, drugs are sometimes prescribed without full knowledge of other drugs the patient may be taking, and even treatments may be administered that are less than optimal, given the patient's treatments from other providers.

The RE·MEDI system eliminates fragmentation by providing each member with an up-to-date EHR that includes her comprehensive clinical record and medical history. Providers with a PC and an internet connection can download the EHR when the patient signs in for an appointment, so that it is available for the provider's review prior to examining the patient. Even if the provider has no connection with the RE·MEDI system, the patient possesses an encrypted copy of her EHR (possibly excluding large image files), which she can release for the provider's review. This unified approach to healthcare not only reduces costs, but it eliminates a potentially significant source of risk to the patient's well-being.

Cost-driver No. 21: Problem-knowledge coupling software used at the Specialty Diagnostic Centers has the potential to reduce the incidence of misdiagnoses (21). This software systematically evaluates all possible diagnoses consistent with a patientís signs, symptoms, test results and examination, and with reference to all of the relevant peer-reviewed medical literature, which has been pre-processed for efficiency.

Cost-driver No. 22: Finally, the RE·MEDI system can eliminate defensive medicine. Even though a test or other diagnostic procedure may not be covered by the patient's insurance—because the test is deemed not cost-effective—the diagnostician will nevertheless advise the patient about the test and its cost, and then he will add it to the patient's treatment plan. It then becomes the patient's responsibility to pay for the test if the test is administered. If the patient declines the test, the diagnostician, by prescribing it on the patient's treatment plan, is absolved of any legal responsibility for not ordering and/or not performing the test.

We have shown how the 22 healthcare cost-drivers listed in the above table can be either eliminated or substantially reduced by the RE·MEDI system. The savings can accrue to your business or to the nation as a whole. They can be expressed in monetary units or as a percentage of the total healthcare dollar. However, no matter how you calculate it, you are likely to discover that the total savings will be substantial.