The Covert Rationing Blog

A Truly Admirable Degree of Inefficiency

September 4th, 2007 by DrRich

Stanley Feld, MD, has an interesting post on his “Repairing the Health Care System” blog, describing how health insurance companies systematically screw doctors out of their deserved reimbursements. They accomplish this by employing byzantine rules, by strictly enforcing unintelligible requirements that shift like the sands, by establishing arcane appeals processes, and, when all else fails, by generating a series of black holes into which claims mysteriously disappear, so that (if the doctor still insists on being paid) the claims process must be initiated all over again. Call it the “Chutes and Ladders” model of claims processing.

DrRich is reminded of the experience of Jim Clark, one of the founders of WebMD. Clark, widely acknowledged as an Internet visionary (having started - and sold - both Silicon Graphics and Netscape), originally envisioned WebMD as an electronic clearing house that would streamline various complex transactions within the healthcare system. Companies would sign up for WebMD’s transactional processing services and save millions; WebMD would take their cut; everybody would be happy.

The first big target for WebMD was to be claims processing.

Clark’s proposition to the health insurance companies seemed solid. In fact, it was obviously too good to pass up. Whereas processing a typical claim costs an insurance company $7.00, WebMD offered to do it for only $0.70 - a savings of 90%. Since the big insurers process multiple millions of claims each year, their potential savings would be colossal. This business model seemed compelling, and indeed, it was this very proposition that attracted most of the original investment capital that got WebMD started in the late 1990s.

But by early 2000, it became obvious that no insurance companies wanted to play with WebMD, despite the astounding savings they stood to gain. WebMD - which for a long time refused to believe that actual businesspersons would act in a way so obviously counterproductive to their own interests - was eventually compelled to move on to different (far less lucrative) pastures. And to this day, as Dr. Feld points out, the handling of claims transactions remains, er, inefficient.

So what happened?

What happened is that Clark and WebMD ran into one of the fundamental truths of covert healthcare rationing, to wit: Covert rationing requires complexity, opacity, deception and waste, and any genuine effort to inject transparency and efficiency (because such efforts threaten the very infrastructure of covert rationing) will be terminated with extreme prejudice.

In this case, Mr. Clark failed to recognize that insurance companies have a lot to gain by making the fulfilling of claims as difficult as possible. The most obvious benefit is that, when a legitimate claim can be delayed for 90 or 180 days, the insurance company can keep the money in their massive investment portfolio for that time. It’s like an interest-free loan. This, in fact, is a major profit generator for insurance companies (second only to figuring out ways of not spending the money on healthcare at all), and constitutes a cornerstone of the industry’s business model.

But there are many other benefits to inefficiency. If you can make it sufficiently inconvenient or expensive for doctors to chase certain claims, they’ll just stop trying, and the money is yours forever. Even better, doctors will eventually stop providing the services for which they know they can’t get paid, so you’ll get to keep the money without even having to engage your expensive stalling processes. (In today’s world, abounding as it is with efficient electronic transaction processing services, it’s not easy or cheap to lovingly maintain systems as complex as these. It takes considerable effort and expertise.)

Now, into this scene of managed care nirvana, imagine someone like Mr. Jim Clark, arriving with some cockamamie scheme to make claims processing quick, simple and cheap. His doom was foreordained. (One is reminded of the final scene in Butch Cassidy and the Sundance Kid.)

More than one otherwise brilliant entrepreneur has gone down in flames with schemes that somehow rely on the healthcare industry to behave “rationally.” Rationality depends on your perspective. As it happens the healthcare industry is indeed behaving rationally. But it’s only rational from the perspective of covert rationing.

If you want to do business within the healthcare industry, you’ve got to figure out what your customer’s real business model is, not the one they put in their mission statements and quarterly reports. And please, don’t expect them to just tell you what it is, when it’s covert rationing. If they told you it wouldn’t be covert anymore.

Posted in Gekkonian Rationing

2 Responses to “A Truly Admirable Degree of Inefficiency”

1. The Covert Rationing Blog » Blog Archive » Weep Not for UnitedHealth Group wrote on 09/6/07 at 9:19 am :

   […] how can this be? DrRich just recently described how the systematic inefficiencies that health insurers have built into their claims processing - […]

2. L-E wrote on 05/22/08 at 8:02 am :

   Medicare of course employs the same strategies. However, the government delegates most of the implementation to many competing contractors and sub-contractors who have insight into the system and develop business models that assist with the tactics, though under other guises obviously. This creates virtually, if not totally, impenetrable levels of covertness.

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