From the May 2005 Idaho Observer:

Healthcare in America: From "there" to "here" in 80 years

The following story is excerpted from a presentation by New Jersey surgeon Dr. Fred Nahas at the XII "Mut zur Ethik" conference in Feldkirk, Austria, September, 2004. In, The United States Health System: Its Development from the Perspective of the Doctor-Patient Relationship and the Ethical Standpoint, Dr. Nahas described how the healthcare system in America has failed, largely due to outside entities—insurance companies, hospital/HMO administrators and government regulators—interfering with the doctor/patient relationship.

"Ever since the time of Hippocrates, the doctor-patient relationship has been the center point of medicine," wrote Dr. Nahas.

If the ideal model for healthcare is for the doctor/patient relationship to be inviolate, with the only objective being the health and healing of the patient with no outside interference, one can see how the "center point of medicine" has been obliterated.

Today, human illness is a two-trillion-dollar-a-year industry built on the creation and perpetuation of diseases; patients are merely vessels into which patented pharmaceutical drugs are poured and masses of tissue upon which expensive surgeries are performed.

We encourage our readers to view the entire article at (No.6, 2004). For our purposes here we have excerpted from Dr. Nahas’ presentation his excellent of recounting of developments in American healthcare since the 1930s to illustrate how this industry has devolved to its presently deplorable state.

Before we start this interesting history lesson, Dr. Nahas advises us to exercise the first rule of investigation in order to understand how and why medicine and public health have deteriorated so severely in the last 80 years: "Just follow the money."

by Frederick Nahas, MD

In thinking about factors which affect the doctor-patient relationship, it is easy to understand that the doctor-patient relationship becomes very crowded when you insert family, friends, professional colleagues, professional societies, the legal profession, health care laws, the public health , health maintenance organizations, new technology, the Food and Drug Administration (FDA), the federal government (Medicare and Medicaid), hospitals, the media and all those "organizations" that are quasi medical in nature (Red Cross, Doctors Without Borders, etc.). They all have opinions, by-laws, precepts, rules, protocols, standards of care and/or expectations that directly or indirectly affect the doctor-patient relationship. As we trace the history of medicine over the past 75 years in the United States, we will see that there were many indications along the way that medicine was headed in the wrong direction from the standpoint of protecting the patient from bad outcomes.

The emergence of the HMO

In the 1930s, the first health maintenance organizations or HMOs were established in California by the Kaiser Permanente Company to provide medical care for employees and their families located in remote locations where medical care was unavailable.

The plan was simple. In order to provide adequate numbers of workers in these remote areas, companies had to provide, among other things, adequate housing and medical care. Work camps were like small cities that sprung up virtually in the middle of nowhere. The companies hired doctors to provide immediate care and, in serious illnesses, could at least provide diagnosis and the care plan for the patient, even if it involved transferring him to a major city.

This was a good arrangement:

*It reduced delay in care and usually resulted in appropriate management or referral of the patient;

*There was no interference on the part of the employing company with the delivery of health care;

*Doctors were employed directly and paid a salary;

*Patients felt more secure having a doctor close by that could handle most routine illnesses and injuries and had the authority to order more complicated care if deemed necessary.

During this time (before and during The Great Depression), medical care was available on a fee-for-service basis and technology was minimal by today’s standards. In general, the cost of care was also minimal compared to what is commonplace today:

*Office visits in this era were frequently $2 or less;

*Diagnosis was primarily based on the history and physical examination of patients;

*There was little available in the way of blood testing and;

*Physicians performed most x-rays, blood counts, and urine tests in their offices.

Medical science advances and costs increase

As the 1930s ended and the 1940s began, World War II simultaneously boosted the American economy and contributed greatly to the advancement of medical science. After the war, in the mid-1940s, everything in medicine continued advancing technologically and hospitals began to lose the stigma of being places where patients went to die:

*Community hospitals close to people’s homes started to gain popularity as places to deliver babies and perform minor surgeries;

*Many serious illnesses were being successfully treated in hospitals.

*Hospitals became a focal point for academic medicine, further advancing the science;

*Large city hospitals were usually associated with universities and/or schools of medicine.

*Serious problems and major surgeries were generally treated at university hospitals.

The hospital mission

in the 1940s

At that time, the mission of the hospital was to provide a clean, well-equipped facility in which doctors could treat patients. Hospitals would hire nurses, orderlies, support staff and maintenance personnel. It was not until much later that hospitals would hire doctors to run the pathology/laboratory, x-ray, and emergency departments.

There was not nearly the sophistication in pathology/laboratory, x-ray, and emergency care available today. Most physicians were trained to examine pathologic specimens (tissue, blood and urine), take and interpret x-rays, and provide emergency care.

As the 1940s ended and the 1950s began, there was a proliferation of hospitals, residency programs and services. Specialists became common. Prior to that time, physicians were trained to do almost everything by the time they left medical school including minor surgery and delivering babies.

As residencies developed, technology and techniques improved and many physicians became specialists in various fields. The extra training and the application of new technologies opened the door for higher fees.

Everything was expanding rapidly in medicine:

*New drugs;

*Better equipment;

*New residency programs;

*Miracles of medical innovation were occurring almost every day;

*The media became involved;

*The Food and Drug Administration (FDA) was established to evaluate and approve new drugs as they became available;

*The cost of medical care increased;

*Many patients could no longer afford medical care beyond the routine office visit with the family doctor and;

*Indemnity health insurance became popular.

The indemnity insurance plan was simple: Patients would pay a premium and the insurance company paid physicians’ fees. Physicians did not fill out insurance forms— patients merely submitted their bills to insurance companies and fees were paid.

Hospitals submitted bills directly to insurance companies for hospital services on a daily basis.

Within a relatively short period of time, costs of care seemed to skyrocket and medical liability became an issue.

Treatment outcome expectations grow

It was not long before patients expected a successful outcome for each medical encounter:

*They were going to specialists, having sophisticated testing performed and submitting to more surgical intervention than ever before;

*New drugs were becoming available all the time.

The legal profession became involved, believing that a bad outcome for the patient may be the fault of the physician. The term "malpractice" was coined to attach liability to errors that can be blamed on physicians. The public, the lawyers, and the lawmakers then crafted a system of accountability so that mistakes made by physicians resulting in bad outcomes for patients may be grounds for court-ordered awards for damages.

Insurance companies, always ready to make a profit, saw the opportunity to provide insurance to doctors against the potential liabilities now inherent in treating patients.

Doctors could be covered for the cost of litigating malpractice suits by buying liability insurance (malpractice insurance), for what seemed to be a relatively small premium payment. It sounded like a good idea at the time, but as we all know, the malpractice lawsuit awards became astronomical and the insurance premiums have become unaffordable for many physicians.

Did the "deep pockets" of the insurance companies attract malpractice cases? I’m sure you know the answer to that question to be yes. Generally speaking, it is an unwritten rule that lawyers will not generally seek judgments beyond the limits of the malpractice policy. Most policies are written for $1 million of coverage for a single event and $3 million of coverage in combined cases (aggregate). Today the range of malpractice insurance premium payment is from $10,000 for a general practitioner to more than $400,000 for a neurosurgeon or obstetrician.

Medicare in 1965 is welfare

As the 1950s ended and the 1960s began, there was a noticeable increase in the number of elderly patients. People were living longer because of healthier lifestyles and better medical care. As these elderly patients retired, they found that it was difficult or impossible to pay the premiums of indemnity insurance for healthcare. Many patients went without any healthcare coverage, even though they were entering those years of their lives that would most likely be fraught with medical illness. Social security checks and pensions were not enough to provide for healthcare.

Government stepped in and crafted the "Medicare" program in 1965. Medicare was specifically designed as a welfare system for the elderly—it was not designed to provide preventative care.

The original preamble of the Medicare description states specifically that Medicare will not cover preventative care. When you think about it, that is a very interesting statement because routine office visits may be interpreted as being preventative care and should not be covered by Medicare. Preventative care is one of the hallmarks of good medical management, but Medicare specifically prohibits it.

Medicare initially unpopular

Initially, the American Medical Association and most doctors were against Medicare. Medicare had two ways in which physicians could participate in the plan. They could be Medicare participants and "accept assignment" for payment of fees or they could choose to not "accept assignment."

By accepting assignment, the physician agreed to accept the assigned fee—minus 20 percent—for the particular service that was rendered. Medicare would assign a discounted fee for every service. It was the patient’s responsibility to pay the 20 percent balance of the fee to the physician. If the physician accepted assignment, Medicare mailed the check directly to the physician for 80 percent of the fee, and he or she could not bill the patient for more than 20 percent of the assigned fee.

If the physician did not accept assignment, the physician could charge whatever fee he or she felt was appropriate and bill the patient for that amount. Medicare would still only pay 80 percent of the assigned fee, but would mail that check directly to the patient.

This arrangement became an inducement for physicians to accept the Medicare-assigned fee because patients often spent the money sent by Medicare.

After awhile, many physicians became "assignment physicians" so they could get 80 percent of the assigned fee mailed to them without risk of being "stiffed" by their patients.

Sometime in the 1990s Medicare changed its policy, making it illegal for physicians to bill more than the assigned fee. Today most physicians accept assignment as there is no advantage to not accepting assignment. In fact, there is a distinct disadvantage to not accepting assignment, because the patient will receive the check for the service rendered and the physician must then try and get the money from the patient.

Most physicians and the American Medical Association initially rejected Medicare. As time passed from 1965 until the early 1970s, Medicare gradually increased its fees and private indemnity policies began to reduce payments to physicians in an effort to become competitive with Medicare assignment fees. Indemnity insurance companies established similar policies to the Medicare plan and would identify fees as "usual and customary."

There were many efforts to establish a national fee schedule, but cost of living differences in various parts of the country, among other things, prevented a universally-accepted fee schedule.

Health care costs soar and fraud and abuse are alleged

In the mid-to-late 1970s, there was much in the media about the spiraling costs of medical care and that the government should do something about alleged fraud and abuse. Fraud was investigated and Medicare started to reduce its reimbursements for various services and change their descriptions of services in an effort to rein in the costs of care.

For example, Medicare would pay a single fee for admission, surgery, hospital care, and follow-up care for most surgical procedures. It would, in effect, "bundle" the fee so that physicians could not charge individually for the admission to the hospital, the surgery, the hospital days following the surgery and the follow-up office visits.

Initially, Medicare paid slightly more for the bundled fee than the surgery alone, but after a short period of time began to reduce those reimbursements.

Private insurance policies followed a similar pattern of bundling services and reducing reimbursements.

Diagnosis related groups

During this time, in an effort to reduce costs, diagnosis related groups (DRGs) were established.

The idea behind DRG was that each disease process resulting in a hospitalization was paid a fixed amount regardless of the number of days spent in the hospital. For example, the diagnosis of congestive heart failure would pay for four days in the hospital regardless of how long the patient stayed for treatment.

The intent of this arrangement was to provide an incentive for physicians and hospitals to get the patients in and out of the facility— usually "sicker and quicker." If the physician and the hospital managed to get the patient out in two days, the hospital was still paid for four days of hospitalization. On the other hand, if the patient stayed six days, the hospital was still only paid for four days of hospitalization.

This arrangement did not affect the reimbursement to the physician very much because he was in the hospital almost every day anyway, so there was not much incentive on the part of physicians to discharge patients early.

This is where the hospital and the physician parted company as being partners in providing care for patients: Hospitals began to see that they were losing money if physicians kept patients longer than the DRG allowance.

In an effort to make more money, hospitals created "case managers" (who were usually nurses) to conduct routine analyses of patients and their records with an emphasis on trying to determine which patients could be discharged early.

The case managers’ job was to pressure physicians into discharging patients early— or at least document specifically in the record why certain patients had to stay longer.

Eventually, the documentation that physicians would provide became less and less acceptable to the case managers and the insurance companies.

As an example, it is a well-established medical principle that you do not discharge patients with a fever. Case managers have personally hounded me for not discharging the patient with a fever of less than 101 degrees F. Suddenly, it is acceptable to insurance companies, hospitals and case managers to send patients home with a fever as long as it is under 101 degrees F.

There is nothing in the medical literature to support the safety of this insurance company-induced rule. Well-established medical principles are routinely superceded by policies originating in the board rooms of insurance companies.

As time went on, the DRG system made a positive monetary impact on insurance companies: Their profits grew. After the first year, if it appeared that four days for congestive heart failure was resulting in the hospitals "making money," the DRG allowance was reduced to three days. Gradually this put a squeeze on patients and hospitals: Hospitals began to lose money and patients began to lose their lives.

The new HMO model

Ultimately, the DRG system was dropped as the new HMOs became established. The new version of the HMOs was reinvented by a pharmacist named Len Abrams who started the private "US Healthcare" corporation. Abrams’ concept of HMOs had nothing to do with the original HMOs of the 1930s. He used the term "health maintenance organization" to sell his idea to large employers and tie the benefits to pension plans offered by the companies so that the HMO would be protected by certain ERISA (Employee Retirement Income Security Act of 1974) regulations from antitrust laws.

Abrams’ idea was that he could get physicians to work at a discount as long as he gave them a volume of patients. Once he established a patient population for the physician, he would gradually reduce reimbursements for services. He approached large employers with health plans that were far less expensive than indemnity plans. When he undercut indemnity plans he was protected from antitrust by the ERISA laws—even though these employees were not retired. The benefits were tied to their retirement plans. He then went to physicians in a particular area offering them exclusive patient populations if they would sign contracts for reduced fees.

In effect, he was eliminating the free choice of the patients to choose physicians and limiting the numbers of physicians who would be able to treat those patients. Again, antitrust didn’t apply, because of the ERISA laws.

Many physicians took the bait and signed on for reduced fees, thinking that although they would be making smaller fees, they would see more patients and eliminate their competition. Eventually, "the competition" might have to leave the area because of a lack of patients and then their practices would get even larger.

Things didn’t always work out for the best. Sometimes the physicians signing up with US Healthcare would be so overrun with patients seen for a discount, that they could not see many patients with other forms of insurance for the full fee. In a sense, these physicians became "patient poor"—they were seeing too many patients for fees that were too low to support the costs associated with their practice.

Remember that US Healthcare would rarely increase fees to physicians they had under contract. Sometimes the US Healthcare-contracted physicians would have to leave the area because they couldn’t afford to continue to treat the US Healthcare patients, and "the competition" was taking care of all the rest of the regular fee patients.

There was also a tendency for US Healthcare physicians to run patients through the office, thinking that "time was money." This was a disaster—for patients and doctors alike.

US Healthcare had similar contract negotiations with hospitals. They were often able to get hospital day rates at 70 percent of what was being paid by regular insurance companies and it is my understanding that they were even paying a lower day rate than Medicare.

It was extremely successful for Abrams who made almost $2 billion when he sold US Healthcare to Aetna. As I understand it, the deal included $940 million in cash, a place on the board of Aetna and an undetermined amount of stock in Aetna. Aetna wanted to learn from Mr. Abrams why his company was 13 times more profitable than Aetna’s HMO.

The power of the HMO model and money

US Healthcare became the single most profitable healthcare organization in the history of American medicine. US Healthcare was most successful at manipulating the doctors, the hospitals and the patients with a number of tactics to increase profits by avoiding payment for services.

The HMO model worked on the "gatekeeper" theory. As the name implied, patients were funneled into the general practitioner’s office as a mandatory first step in seeking medical care. HMO patients were instructed that they must see their primary care physician first. They could not go to the emergency room unless given approval by the primary care physician and the primary care physician was only allowed to give permission for them to go to the emergency room under specific circumstances.

US Healthcare realized that emergency rooms were very expensive places to obtain medical treatment. They wanted those patients treated initially in the primary care physician’s office where the fees were discounted or the primary care physician was working on a per diem basis.

US Healthcare frequently contracted its primary care physicians based on a fee payment per month per patient. For example if US Healthcare enrolled 1,000 patients and they were assigned to physician A, that physician would be entitled to a payment of five dollars per month per patient regardless of how many times he saw any patient in that group of 1,000 patients. If that physician’s charge for a routine office visit was $50,then $5,000 worth of patient visits would equal 100 patient visits per month. It is quite likely that more than 10 percent of those 1,000 patients (100 patients) are going to be seeing that physician that month. It is unlikely that less than 100 patients will be seeing that physician that month. If more than 100 patients see that physician, his $50 fee for an office visit just went down. If the physician sees 200 patients, the office visit then becomes $25.

So the incentive is for the physician to avoid seeing patients and avoid providing care. If that physician does see patients there is an incentive to treat them quickly and take up less time. Remember that the physician gets paid the same $5,000 per month whether he sees one patient or 300 patients. Beginning with the first managed care visit, the primary care physician has an incentive to make himself less available to patients.

US Healthcare would closely monitor referrals made by the primary care physician. They would publish patterns of referral for all the primary care physicians and eliminate the physicians that were referring patients most frequently. This policy serves to deter primary care physicians from referring patients out for specialized care and treatment.

US Healthcare would do a similar monitoring of the primary care physicians ordering of laboratory tests, x-rays and studies. Again, the physicians costing US Healthcare the most would be eliminated from the panel.

US Healthcare established a preservice approval process. This means that, before "expensive" tests such as CAT scans, MRIs or arteriograms could be ordered, primary care physicians had to personally talk with someone at US Healthcare to obtain approval.

The "someone" was not necessarily a physician or even a nurse, but sometimes someone with as little as two weeks of medical terminology training and a "cookbook" in front of them at the computer terminal to ask "appropriate" questions about the patient and provide "guidelines" to the physician regarding treatment.

You can understand where this is going from the standpoint of reducing costs and increasing profits. Not infrequently, physicians would just avoid ordering "expensive" tests just so they could avoid encounters with US Healthcare representatives.

US Healthcare established the preservice approval process for referrals to specialists as well. Any hospitalization required preservice approval. Emergency hospitalizations required contact with the US Healthcare representative at the time of admission. It was not uncommon to receive phone calls from US Healthcare representatives on a daily basis, checking on patients’ progress in the hospital. The motivation was obviously to get patients out of the hospital as quickly as possible.

Deviation from the rules resulted in no payments for services rendered. This applied to primary care physicians, specialists and hospitals. It even applied to laboratories, x-ray facilities and other providers of services if the paperwork was not filled out properly or approvals were not obtained.

US Healthcare, HMOs in general and other types of healthcare plans who provided prescription plans for medications frequently reduced costs by illuminating from their drug panels "expensive" medications. They would send lists of commonly prescribed drugs by class, indicating which drug was the least expensive in that particular class and recommending that physicians prescribe that medication unless there was a compelling, documented reason why a more expensive drug should be used.

US Healthcare was one of the first HMOs to insist that primary care physicians treat their patients suffering from depression with drug therapy alone and avoid referral to psychiatrists/psychologists. Many HMOs provide incentives for primary care physicians to treat dermatologic conditions (including minor surgical procedures) rather than refer patients to dermatologists.

It has been accurately estimated that indemnity insurance companies and HMOs spend about $.12 of every health-care premium dollar on medical care including pharmaceuticals, hospital care, physician fees and all related services while $.88 of every health-care dollar stays with the insurance company or HMO.

With the advent of managed care and the greater divergence of interest and patient care between hospitals and physicians, many hospitals have entered the patient care arena by hiring full-time physicians for hospital care in direct competition with physicians that are or have been admitting patients to the hospitals for years. It has not been unusual for hospitals to hire full-time surgeons, internists and emergency room physicians to provide care for patients.

The hospital will generally pay the physician a salary, and the hospital will bill for the physicians’ services at the regular fee. This way they can control admissions and discharges, reduce hospital stays and obtain significant streams of income from physician fees.

This is called the "vertical integration of medical care" and, not surprisingly, it is all about money.

The Hospital board hires a CEO, who in turn hires a director of medical affairs. The director of medical affairs is usually a physician who is given the responsibility of hiring and monitoring other physicians on a contract basis to include radiologists, emergency room physicians, pathologists, staff surgeons, internists and on-call physicians for in-hospital emergencies.

Modern Medicare

The government, by its involvement in the Medicare and Medicaid programs, has established numerous guidelines, many of which are either inappropriate or ill advised. The basic premise of Medicare is to provide welfare for the elderly. The government has realized that Medicare has become an economic and budgetary nightmare.

The basic structure of Medicare is administrative. The government, through the Department of Health and Human Services (HHS), contracts with large insurance companies to provide the employee base for the processing of healthcare claims. These large insurance companies adopt and establish, within their infrastructure, Medicare policies for payment and requirements for documentation.

The government has given the responsibility of providing ICD-9 codes to the American Medical Association. The American Medical Association publishes the ICD-9 codebooks on a yearly basis, changing a few codes and code descriptions, thereby necessitating the annual purchase of these books by virtually all physicians and healthcare providers billing Medicare or Medicaid. This provides the AMA with a healthy income stream and precludes significant critical analysis of the Medicare system by the AMA.

The AMA, an organization with over $50 million worth of reserve money, only represents about 25 percent of the active physicians in America and provides little or no political support for physicians and patients.

Medicare with the guidance of the AMA frequently reviews procedures and diagnoses to provide physicians with the framework within which to work and provide care for patients and rules for submitting claims for payment.

It is virtually impossible to follow the coding guidelines for office visits, consultations and emergency visits. In 1997, Medicare attempted to publish guidelines for coding office visits. The initial document was over 50 pages in length and was filled with contradictions, confusing statements and uncommonly used formats.

After reading the document in 1997, I sent Medicare a 12-page letter requesting clarification on a number of points. I have yet to receive a response.

Medicare created a document capable of hanging virtually all physicians for coding violations. As an example, there are five levels of office visits based on intensity of service and they are coded 99211, 99212, 99213, 99214, and 99215 with 99211 being the office visit with the least intensity of service, not even requiring a physician to render the service. 99215 is a highly complex office visit requiring all sorts of documentation. The other codes are for lesser degrees of intensity than 99215. The reimbursement difference from one level to the next is probably less than $25. It would make sense, in an effort to avoid trouble with coding, to just choose the lowest code routinely. But this would be a violation of Medicare policy and subject to punishment.

Medicare insists that you follow the guidelines precisely. The penalty for "fraudulent" coding is a felony conviction for fraud, which could include mail fraud, and up to $15,000 in fines for each incorrect code. The felony conviction could result in five years imprisonment, up to $250,000 in fines and loss of Medicare participation and/or one’s medical license.

If you don’t participate in Medicare, it is almost impossible to obtain hospital privileges.

The government estimate is that for every dollar invested in investigating doctors, over $23 is generated in fines.

In conclusion

Federal Reserve Chairman Alan Greenspan has stated that our legislators must address the shortfall that will exist for the delivery of health care for seniors within the next 10 years.

There are alternatives. We must think in terms of buying healthcare and not buying health insurance. The model is simple to construct and relies on contract law, which may fairly resolve the malpractice dilemma. In contract law, doctors can provide services to patients for agreed-upon fees with a clear understanding of potential outcomes among involved parties; disputes are settled in civil court through binding arbitration.

By eliminating the cast of characters who have found interfering with the doctor/patient relationship so profitable, the skyrocketing costs of decreasingly effective healthcare will come under control. Once the doctor/patient relationship is reestablished, the marketplace will determine both the cost of healthcare and the services to be provided.

Editor’s note: A couple years ago Dr. Nahas attempted to organize physicians in the New York/New Jersey area to legally challenge the HMO system. Dr. Nahas discovered that joining an existing union was much more expedient than starting one from scratch. Ironically, the only established union that would take the radical surgeon and his compadres was the Meatcutters’ Union. Unfortunately government regulators were not interested in changing the status quo and his fellow physicians, though equally disgusted with the HMO system, were not willing to continue fighting it.

It should also be noted that one of the engines driving the HMO system are the demands placed upon healthcare by people who have not taken the time to learn how their bodies work. The majority of doctors in America have been trained to treat patients with drugs and surgeries because that is what the marketplace demands.

In our chapter of human history, we have invited into our lives occupations, habits, thought processes, gadgets, gizmos and toxic substances that promote ill health. As a culture, we have demanded that doctors provide us with magic pills and corrective surgeries to fix the damages we, for the most part, inflict upon ourselves.

This was a very important article that has lessons in it for all of us. Among them, we should learn from history, encourage the marketplace viability of more doctors like Fred Nahas by teaching ourselves and those around us to accept more responsibility for our own lives.

Home - Current Edition
Advertising Rate Sheet
About the Idaho Observer
Some recent articles
Some older articles
Why we're here
Our Writers
Corrections and Clarifications

Hari Heath

Vaccination Liberation -

The Idaho Observer
P.O. Box 457
Spirit Lake, Idaho 83869
Phone: 208-255-2307