BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

June 24 2009
by John Backus

Health Insurance is not Health Care

A recent article in the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2009/06/19/AR2009061903583.html) and an investment we recently made in a new company, Qliance (www.qliance.com) prompted this post.

Did you ever wonder why you have health insurance for ordinary everyday stuff?  Like an annual physical.  A flu shot.  A vision test.  Having your teeth cleaned twice a year.  I did.  Why?  Because everything else I have insurance for is to protect me against things that are unlikely to happen – but if they do are catastrophic  Like car insurance (bad car accident).  Homeowners insurance (fire or burglary).  D&O insurance (in case a company whose Board I sit on is sued.)

So I understand why health insurance would exist to cover me in case I have a heart attack or develop cancer.  But why also cover my everyday stuff?  That is like my auto insurance paying for oil changes.  My homeowners insurance paying to replace my air conditioning filters annually.  My D&O insurance paying my travel costs to a Board meeting.  Sure sounds silly, doesn’t it?  But that is exactly what health care insurance does.  But worse.  My employer pays for most of my health care.  So I don’t even know what those oil changes, air conditioning filters and travel expenses are – because someone else is paying for them.  The cost to individuals, businesses and the US Government is HUGE to have health care insurance cover the every day stuff.

$.40 of every $1.00 spent in America on primary health care, via insurance, goes to support paper pushers.  They are in ever doctor’s office filing claims.  They are at every insurance company, receiving, processing, denying, and paying claims.  They are in call centers, talking to us when we can’t figure out why some of our reimbursement claims were denied or reduced in value.  How big is this number?  In America, health care accounts for 16% of US GDP, about $2.3 trillion dollars a year.  Most of the dollars flow thorough the insurance system.  With 40% of these dollars being wasted on insurance inefficiencies this means that we are wasting $920 Billion per year (the rate is a bit lower for “expensive services in the hospital – maybe 35% administrative costs).

But of course, you say, we do need insurance for many things.  Surgeries, hospitalizations, cancer, etc.  I agree completely.  We all need insurance against the catastrophic.  Who pays for that is a policy debate for another time.  But this statistic startled me.  90% of all patient incidents (ie disease or visit reasons) can and should be caught by a first line interaction with a primary care physician.  An internal medicine doctor.  A family practice doctor.  Assume that the insurance bureaucracy costs follow the number of pieces of paper pushed, and not the size of each bill.  This means that we need insurance to support 10% of patient interactions.  But we don’t need it to support 90% of the interactions.  So, perhaps we need an insurance bureaucracy of $92 billion a year to support critical care.  But, were we to pay for primary care differently, we could save, as a country, $800 billion + each and every year.

How might this work?  Well, it is working today, in Seattle Washington but also across the country.  Minute clinics have popped up across the company inside of CVS.  Take a look at their price list for 50+ services:  http://www.minuteclinic.com/en/USA/Treatment-and-Cost.aspx When was the last time you saw a price list at your doctor’s office?   Walgreens, Safeway stores and more are doing the same.  A nurse there can give you a flu shot, check your blood pressure, test your blood, check to see if you strep throat and much, much more.  Price lists are posted for all to see and it is a cash, pay as you go service.  People use it because it is convenient.  I had my flu shot last year while I was traveling in Chicago – I just stopped in to a local grocery store with a minute clinic.  Easiest doctor’s visit I ever had.  And I was happy to pay the $16 out of pocket.

But it gets better.  A small clinic in Seattle is pioneering a completely new type of direct practice – operating completely outside of the insurance system.  Qliance is the name.  We are small (10%) investors in them.  We think their business model is what is right for America, American companies, and American patients.  Although they are not always loved by the insurance industry.

What do they do differently?  They charge a fixed price per month for unlimited access and care at their clinic.  They have many of the top rated doctors in Seattle on their staff.  Their fixed price is $39 per month for a child to $69 per month for a 50-year old.  What do you get for that?  Basically, anything a doctor can do with their brain or their hands.  Annual physicals.  X-rays.  Sprained ankles.  A cut that requires stitches.  Chronic disease management, including high blood pressure, high cholesterol, diabetes, HIV.  All for one fixed monthly price.  And there are 100+ direct practices like Qliance popping up across the country.

But isn’t this just a new HMO you ask, where you are herded through the system like sheep, spending more time in the waiting room than you do with a medical professional, and more time with a nurse than you do with the doctor? 

Absolutely not.  Because the incentives are different.  In the world of insurance, a doctor is paid per patient visit.  About $20 a visit (net to the doctor after paying the costs of their practice – $50 – $60 “gross”) by the insurance company when all is said and done – you of course pay a lot more.  That is why they see 30-35 patients per day, for an average in-person time of EIGHT MINUTES per patient.  They are paid for patient throughput.  So when someone comes in with complicated stuff going on, they refer them to a specialist – because under the insurance reimbursement system, it is not profitable for a primary care doctor to spend too much time with a patient.  As a result the average established primary care doctor has 3,500 patients in their patient pool that they see when en hey are sick.  Terrible isn’t it?

So why is Qliance different?  Fundamentally, their doctors receive a salary.  They are not paid more for seeing more patients.  They are rewarded by keeping patients well.  Their average doctor has 600 patients (800 maximum.)  Their minimum appointment slot is 30 minutes – WITH the doctor.  They are open 7 days a week, including 7am – 7pm on weekdays.  Once their doctors know you they will talk to you by phone.  Respond to emails.  There is always a doctor available 7 X 24.

Ever wonder why your doctor won’t take phone calls or respond to emails?  Why they force you to come in to the office to renew a prescription?  It is because the insurance rules don’t provide reimbursement for email or phone consultations.  

There is a better way.  And we think Qliance and direct practices, operating outside of the insurance industry, are leading the way.

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