This report explains that the main cause of steadily rising healthcare costs is the method of reimbursement used by insurance companies, who have now become trapped in an economic "death spiral" of their own creation, by ignoring the natural tendency of people and organizations to act in their own self-interest. The problem can be resolved by creating appropriate financial incentives. Insurers must align the financial interests of the caregivers with the interests of the patients by restoring the link between money and treatment effectiveness. In other words, insurance companies should pay doctors more if they get us well more cheaply, and insurers should charge their customers less if they make efforts to stay healthy.

If the reimbursement problem is adequately resolved according to the proposals outlined in this report, costs should stabilize and then actually decline over time, which should in turn help resolve many of the other health-related issues, such as who pays, the large number of uninsured, etc. If the recommendations in this report are adopted, a new insurance concept that could be called exclusive physician responsibility will become part of all future health insurance contracts. This insurance concept, along with increased financial responsibility for patients for their own behaviors, forms a new system currently referred to as the Responsible Doctor-Patient system.

The Responsible Doctor-Patient system is comprised of four major principles:

Insurance companies should pay doctors just once for the degree of improvement in a patient's condition or quality of life, up to a pre-set limit established for that condition. The doctor no longer seeks reimbursement from the insurance company for every office visit or every treatment effort made -- if there is no improvement, the doctor will receive no reimbursement. The key feature however, is that doctors would be entitled to keep the full amount available for reimbursement (assuming the patient received the maximum amount of improvement), even if the doctor's actual expenses were much lower. With this method of reimbursement, it is in the doctor's own financial self-interest to treat patients as quickly, as completely, and as cheaply as possible. This approach also means that doctors are similarly discouraged from withholding treatment when real improvements in the patient's condition would be likely. It also lowers insurer costs considerably, since the insurer no longer cares what the doctor does, as long as it is effective, thus eliminating the need for utilization review and appealing claims.

This principle means, among other things, that all payments and costs are coordinated through the doctor's office -- including hospital care, supplies, medications, and lengthy travel expenses, for treatment of the condition itself as well as treatment of any related side effects. This is necessary so that the doctor can effectively monitor and control all of the costs, and it prevents costs from being improperly shifted to the patient. Patients pay only the insurers, insurers pay only the doctors, and vendors bill only the doctors.

For this system to work well, patients should have objective performance information when selecting a physician. Insurers would publish basic statistics about the percentage of the total amount available that they had reimbursed individual doctors for treating various conditions, as a simple but useful measure of a doctor's effectiveness. Doctors would be encouraged to become more proficient to retain patients and their own profitability.

Require insurers to accept everyone who applies and charge everyone the same rates regardless of age, sex, and health status. But allow insurers to charge higher premiums to people who engage in proven unhealthy behaviors that the person could be expected to change. This would encourage individuals to adopt healthier lifestyles in order to reduce their premium costs.

The report also explains how HMOs and other ideas are not likely to succeed as desired, because they do not maintain the necessary link between money and treatment effectiveness. It also describes how to address the lobbying efforts that will probably be mounted against making the necessary legislative changes.

Legend has it that when life insurance was first offered, it was a disaster for insurance companies, because unscrupulous people would take out life insurance policies on complete strangers, then kill them to collect the insurance proceeds. Out of that failure, insurance companies developed the concept of insurable interest, which basically means you must have a legitimate reason to purchase a life insurance policy on someone other than yourself. That is one example of how insurance companies have had to change their way of doing business to deal with adverse social effects caused by their product.

Health care in the U.S. in 2003 is apparently another example of adverse social effects caused by insurance products. As health insurance costs continue to skyrocket, more and more Americans join the ranks of the uninsured, either voluntarily or not, as many employers drop unaffordable coverage for their employees. Unfortunately, current discussions and proposals to deal with the lack of affordable health care and/or health insurance primarily involve arguments about who should pay for the steadily rising costs, without truly addressing the problem of why costs are rising in the first place.

This report explains that the main reason for steadily rising costs is the method of reimbursement used by insurance companies, and that they have now become trapped in an economic "death spiral" of their own creation. Insurers have actually encouraged prices to increase by ignoring the natural tendency for people and organizations to act in their own self-interest. If the reimbursement problem is adequately resolved according to the proposals outlined in this report, costs should stabilize and then actually decline over time, which should in turn help resolve many of the other health-related issues, such as who pays, the large number of uninsured, etc. If the recommendations in this report are adopted, a new insurance concept that could be called exclusive physician responsibility will become part of all future health insurance contracts.

In essence, insurance companies have been rewarding the wrong behavior of both patients and caregivers -- rewarding inefficient medical care and unhealthy behaviors -- because only a very weak link exists between money and treatment effectiveness. To fix the problem, it will be necessary to align the financial interests of the caregivers with the interests of the patients. In other words, insurance companies should pay doctors more if they get us well more cheaply, and insurers should charge their customers less if they make efforts to stay healthy.

Between the two primary insurance choices available now, neither approach gives us what we really want and need, because:

• Fee-for-service rewards caregivers who bill as much as insurance companies will pay, and
• HMOs reward caregivers who simply withhold care to increase profits

Fee-for-service actually encourages the overproduction of health care -- a surplus, if you will. It may sound ludicrous to say we have a surplus of health care when so many people are uninsured, but this refers to the tendency to over-treat conditions and/or treat any condition at all costs. For example, a kid with a broken arm may receive a CT scan when such an expensive procedure is not medically necessary. The surplus term also refers to the fact that treatment decisions are often modified based on insurance coverage available, rather than the condition being treated. The availability of insurance money also tends to cause a surplus of illnesses, in effect, by increasing the financial incentive to "discover" new diseases that require expensive drugs or equipment to treat, in order to obtain reimbursement money from insurance companies. One possible example of this situation is that drug company television ads now say acid reflux is a disease that requires drugs to treat, instead of just instructing people not to eat close to bedtime.

In academic terms, fee-for-service insurance in it's current form is acting like a government price support, where the availability of insurance money allows prices to rise above their "true" level. It is not a coincidence that the cost of the three things that we insure the most -- our homes, our cars, and our health -- have all risen faster than the general rate of inflation, and frequently the adjective "affordable" is used to describe a missing element of these insured items. The problem is much more pronounced with health care, however, because of the high demand for the product -- we buy health care much more frequently than we buy autos or homes -- and because, unlike autos and homes, insurers often pay even when the "repairs" are not adequately performed.

When fee-for-service insurers pay caregivers for most every effort made to treat a patient, without considering the effectiveness of each effort, they cause a surplus of care by encouraging more treatments. A patient can see their doctor, or see several doctors, several times, for the same problem and the insurance company is expected to pay for every attempt. This is like paying a plumber for several attempts to fix a leaking pipe, instead of paying just once for the task to be completed correctly. We do not accept that behavior in plumbers, but we accept it in doctors, primarily because we as patients do not have the medical knowledge required to evaluate performance, and because we do not control the money that is paid to doctors. Some limits are imposed by the insurance companies, (or more likely, the cost is shifted to the patient), but the bottom line problem is that the amount of money involved has little relation to the well-being of the patient. And for the doctor, there is a financial incentive to do as much treatment as possible, or simply make changes to the diagnosis when insurer limits are encountered, in order to collect more money from the insurer.

HMOs came into existence to address the problem of rising costs, but they seek to lower costs by simply rationing health care. The main problem with this approach is that to compete with other HMOs, or to increase profits, they must ration more and more, which only encourages more government intervention to mandate coverage for various health conditions. It also tends to put doctors and patients at odds over treatment decisions, because the doctor/HMO has a financial incentive to withhold treatment from the patient, even when the patient could benefit from treatment. With HMOs, there is still no direct relationship between effective treatment and the amount of money spent. Using the above plumbing analogy, this is like paying a plumber a lesser amount to fix a leaking pipe, but instead of fixing it, the plumber just puts a bandage over the leak, or else he says to just use a bucket because, "all pipes leak a little bit."

Neither the fee-for-service model nor the HMO model nor any of the current variations will give us the system we want, which is presumably one that keeps us healthy and gets us well as quickly and as cheaply as possible when we're sick. If those are the behaviors we truly want, then the insurance industry must change it's way of doing business so that it rewards exactly those behaviors. This will enhance cost-effectiveness that we can all share in, so that medical costs will go down over time and our overall health will most likely improve. The necessary changes, along with the expected benefits, are outlined within the following four principles of this new, preferred approach, which will be referred to as the Responsible Doctor-Patient approach.

This principle means that doctors should be paid for results, rather than for every effort they make. Insurance companies should pay just once for the successful treatment of a given condition, which means doctors are paid for the degree of improvement in a patient's condition or quality of life, up to a pre-set limit established for that condition. The limit would be determined by a historical analysis of the typical costs of treating that condition. The doctor no longer seeks reimbursement from the insurance company for every office visit or every treatment effort made -- if there is no improvement, the doctor will receive no reimbursement. If a condition allows for a patient to be 20%, 40%, or 50% improved, for example, then the doctor can be reimbursed for a similar, though not necessarily the same, percentage of the total amount available.

The key feature however, is that doctors would be entitled to keep the full amount available for reimbursement (assuming the patient received the maximum amount of improvement), even if the doctor's actual expenses were much lower. With this method of reimbursement, it is in the doctor's own financial self-interest to treat patients as quickly, as completely, and as cheaply as possible. This approach also means that doctors are similarly discouraged from withholding treatment when real improvements in the patient's condition would be likely. The advantages of this approach are:

• Insurance companies no longer pay for every doctor's appointment and treatment effort, so the paperwork burden is reduced tremendously, and they do not have to keep paying for ineffective treatments, meaning paying multiple times for the same illness. The company will pay a fixed amount once a patient has reached the maximum amount of improvement, to whichever doctor provided the successful treatment.

• The insurance company now has a fixed cost for each illness/condition that it chooses to cover, thus providing predictable, stable expense ratios, which means stable premium costs.

• Insurance companies would no longer second-guess a doctor's every decision, because the company would no longer care what the doctor did as long as the treatment was effective. (However, information about effective treatments would be collected and shared in order to adjust future reimbursement amounts.) This also reduces insurer costs considerably, because there is no longer any need for utilization review or appeals of claims. And, it puts alternative medicine on par with conventional medicine, so that whichever option offers the most cost-effective treatment will become the standard.

• The financial incentive for caregivers now is to find the most cost-effective treatment, and doctors will become experts in treating certain conditions most effectively, thus encouraging some specialization. Cures will now be preferred over extensive (and/or more expensive) treatments, because the doctor will keep any unspent money. As an extreme example, if it is determined that acupuncture can cure appendicitis as well as the more expensive surgery option, then acupuncture will become the standard treatment in the medical community for that condition, which is what should happen, ideally. After a period of time, either in terms of years or in terms of the number of cases experienced, reimbursement rates will be adjusted up or down (presumably downward in most cases) to reflect the lower actual costs of any new successful procedures.

• There will also be a financial incentive to make more accurate diagnoses, to avoid spending effort treating the wrong condition. Reimbursement amounts would be set higher for the more difficult to diagnose conditions, to allow for a typical amount of ambiguity, so that over time a doctor's successes would balance out with the average number of failures.

• If no effective treatment exists for a given condition, then there would be no incentive to spend any money treating it, except for reduction in pain or other symptoms, since pain reduction, etc., would be an improvement in the patient's condition.

• There is no longer a financial incentive to make heroic efforts at end-of-life situations, since only procedures that had a history of effectiveness in extending life or reducing pain in those circumstances would have been included in the determination of the standard reimbursement amount for that condition. Legal reform may be necessary for this approach to be an adequate defense against malpractice if it is an insufficient legal defense to say a procedure was not done because there was no medical evidence that it would have been effective.

• Conversely, if a patient was expected to recover, but unexpectedly took a turn for the worse or died, then the lack of additional insurance money and the threat of malpractice charges would highly motivate caregivers to take steps to prevent that from ever happening again. It is assumed that doctors would be able to guard against financial disaster of mistakes by using their existing malpractice insurance or by purchasing additional coverage for that purpose.

Under this new method of reimbursement, there would obviously be a financial incentive for a doctor to pronounce a patient cured who wasn't, so insurers would rely exclusively on the treatment doctor's determination only on relatively inexpensive conditions. For most others, the insurer would ask the patient directly or obtain independent lab results, since collusion is unlikely when patients would have to say they were cured if they knew they weren't. For those conditions that are relatively expensive to treat, a second doctor -- a diagnostician selected by the insurer -- would be used solely for the purpose of diagnosing the patient's condition before and after treatment. This separation of duties -- in this case separating diagnosis from treatment -- is a common auditing approach to combat fraud, and is similar to the current practice of obtaining a second opinion prior to surgery or other expensive treatments.

In some cases, like unknown new conditions, or to initially establish treatment maximum amounts, insurers would solicit bids from doctors for treating certain conditions, or special arrangements would be made to monitor the treatment progress to determine an appropriate amount. Once determined, all insurers would have to pay the same reimbursement rates, although it might be permissible to allow for some regional adjustments.

The maximum reimbursement amounts would be re-adjusted occasionally, (presumably downward in most cases, as doctors discovered more cost-effective treatments). Doctors would quickly adopt new drugs and technological advances if they truly benefited the patient more and/or lowered a doctor's costs in any aspect of his or her operation. However, doctors would be less susceptible to marketing pressure of drug companies if the new drugs were more costly or less effective than current options.

Paying for performance would help resolve another disconnect between patient care and money. Currently, drug companies pay bounties to doctors if the doctor will refer the patient to the company's drug trial. Doctors can be paid several thousand dollars to encourage a patient to try a new drug rather than sticking with conventional treatments, and patients are often not told that their doctor is profiting by encouraging them to be a "guinea pig" rather than accept conventional treatment. Drug trials are of course necessary in the development of new medications, but doctors should not be given a financial incentive to withhold care. By paying for performance, doctors will be much less tempted to forego treatments that work. A drug company could offer to pay a doctor what was not paid by an insurance company if the drug proved ineffective, and it could pay the patient for the additional risk, but it could not keep a failure from being reflected in the doctor's performance statistics, as described later.

This principle applies in several ways. Since the insurance company reimburses for results rather than for every effort, there is no longer any need for the insurance company to monitor or second-guess the doctor's course of treatment (which should lower insurers' administrative costs considerably). This is also necessary because when insurers or managed care administrators second-guess doctors' methods, they also remove or make fuzzy the doctors' accountability for their actions. This principle restores accountability, since the doctor will bear the burden and costs of ineffective treatments, with the side effect that good doctors will become proficient in their treatments, while ineffective (bad) doctors who order unnecessary procedures or make too many mistakes will suffer financially. This is what should happen, too, since chronically bad/inefficient doctors only drive up costs.

This principle also means that all payments and costs are coordinated through the doctor's office -- including hospital care, supplies, medications, and lengthy travel expenses, for treatment of the condition itself as well as treatment of any related side effects. This is necessary so that the doctor can effectively monitor and control all of the costs (except for those of a separate diagnostic physician), and to prevent costs from being improperly shifted to the patient. The patient may have to physically go to a pharmacy to pick up medications, but the insured patient does not have to pay the doctor or anyone else for medical care. (It may be necessary for the patient to pay a small co-payment to the insurance company to discourage overuse of medical care, but there would be no separate co-payment to the doctor or others for medication or other medical supplies.) Insurance companies would pay only the doctors. Hospitals, pharmacies, and medical supply companies would send their bills only to the doctor, who would handle payments and also negotiate, either individually or as part of a group of physicians, for more predictable, lower costs with those vendors. Insured patients would not be held responsible for any additional costs that the hospital might want to charge for covered medical conditions, except perhaps for ancillary creature comforts requested by the patient, such as a phone or television.

This approach is necessary because the doctor is the only one who knows the complete situation. The laws of supply and demand work well, but they assume that the buyer has perfect information about existing alternatives. Shifting costs to the patient assumes that the patient has the knowledge and ability to make appropriate medical decisions, which is not true. When a patient is on an operating table, and a decision has to be made immediately, there can be no discussion with the patient about the most cost-effective treatment at that point in time. This is one reason why reliance on Medical Savings Accounts (MSA) will not be the answer to rising costs, because the patient does not have the medical training needed to make appropriate treatment decisions.

No objective information about doctors' effectiveness is currently available to patients in their desire to select effective ("good") doctors, so inefficient doctors who drive up costs are as likely to be selected as efficient ones. For this system to work well, patients should have objective performance information about the doctors available to them to use when selecting a physician. Doctors could always decline to treat certain conditions that they were not confident they could treat effectively, or make referrals to other physicians, but insurers would publish basic statistics about the percentage that they had reimbursed individual doctors for treating various conditions. This percentage is calculated by dividing the total that the insurer actually paid the doctor by the total amount the doctor would have received if all the patients had been completely cured. They would also publish industry-wide comparison percentages along with the number of times the doctor had treated that condition. It should not be necessary to publish a doctor's costs or the actual dollars paid to the doctor -- only the percentage paid relative to the maximum amount available, as a measure of a doctor's success in treating various conditions. Here is an example of the data that might appear on a doctor's "report card":

Dr. John Smith, M.D. Period covered: 5 years preceding 1/1/2003

From these simple statistics, a prospective patient could see that Dr. Smith was generally quite competent, since insurers had paid him close to 100% of the maximum amount available, which indicated he was slightly better than the average doctor at successfully treating nearly all of the conditions he had encountered. However, he might not be the best doctor to treat skin cancer, since he has encountered more cases than the average doctor but his success in treating the condition is noticeably lower than the average doctor. (In actuality, it might be more useful to break down the national statistics into quartiles rather than simple averages, but the idea is to provide relatively simple but meaningful "grades" that the majority of patients can understand).

Publishing this type of information would again encourage doctors to become more proficient to be able to retain patients. It would also allow doctors to make appropriate referrals to other physicians for conditions that could be handled more effectively by that other physician. Doctors would undoubtedly compare their own results to the averages, and would be willing to pay for training to learn more efficient methods from the more successful doctors, thus encouraging the most efficient practices to proliferate in the areas that really needed improvement. It might even enable comparisons of effectiveness worldwide, if foreign countries collected the same statistics.

To maintain profitability, insurance companies tend to "cherry pick" their customers, preferring young healthy customers and refusing to cover those who really need medical care, with the result that the number of insured progressively shrinks as insurance companies try to lower their costs by dropping their sickest customers. Legislation should be adopted to require insurance companies to accept everyone who applies, with no waiting period and no pre-existing condition limitations. Insurers must also charge the same premiums to everyone, regardless of age, sex, health status, (and possibly even group size), in the same way that no other business is allowed to discriminate in choosing their customers. This change is necessary to keep companies from favoring young over old, males over females, etc., and as advances in genetics are made, it will also be needed to keep insurers from avoiding those who may be genetically predisposed to certain illnesses.

Since the above change by itself would tend to raise premiums considerably, significantly higher premiums could be charged for unhealthy behaviors that the insured person has the ability to change, such as smoking, drug use, not getting physical exams, unhealthy diet, not exercising, dangerous activities, etc. Higher premiums could be charged to an individual -- but not to a group -- if such behaviors can be shown to be detrimental and if it can be proven by tests that the person engages in them. In this way, patients would have personal responsibility and a financial incentive to stay healthy and get regular exams -- to reduce their insurance premiums. But patients would have the freedom of choice to do what they wanted if they were willing to pay for the increased risk. There would undoubtedly be some self-destructive individuals who would prefer to do without insurance rather than stop their unhealthy behaviors, but at least they would have a financial incentive to seek counseling to effect psychological change, or to make other positive changes. If their paycheck is reduced to nearly zero because of the high deduction for health insurance premiums due to their behaviors, the connection between health and money will become very apparent.

To put insurers on a level playing field, they would all need to offer the same standard policy of catastrophic coverage, with essentially identical provisions that described what specific conditions were and were not covered. Since an insurance company would be required to charge the same rates to all of its customers, and the reimbursement amounts would be standardized throughout the industry, insurers would compete by keeping their administrative costs low, or by offering additional services or optional coverages. However, insurers could not decide to increase their profits by refusing to cover certain illnesses, (unless some federal governmental agency was willing to take over coverage of those conditions), because these various "cherry-picking" practices are what precipitated the current downward spiral of diminishing numbers of insured.

While modifications to handle some details will almost certainly be necessary, the above four principles should be followed, at a minimum, to achieve a health care system that provides the desired results of effectiveness and efficiency. All four principles must be adopted for it to work -- they cannot be adopted piecemeal -- and all insurers and caregivers must adopt them, including the federal government's Medicare and Medicaid programs.

However, universal adoption does not mean that this new Responsible Doctor-Patient system requires everyone to purchase insurance. Patients can choose to forego insurance and see the doctor of their choice on an as-needed basis, and doctors can charge those patients whatever they want. Only insured patients are protected by their contract from additional charges as well as catastrophic events. This protection is the economic value that consumers need to see to encourage them to buy coverage. When hospitals and doctors are allowed to charge the patient over and above what has already been paid for insurance, individuals perceive insurance as being less and less valuable.

In the process of paying for performance, there is the possibility that insurers could decide to pay caregivers other than licensed physicians for treatment of some conditions. As long as these other practitioners were willing to bear the costs of ineffective treatments and carried malpractice insurance, then there would be no reason to deny more cost-effective successful treatment options from entering the system. Of course, many physicians will object to their inclusion, so it may be preferable to simply allow physicians to make referrals to non-licensed practitioners so that the doctor retains responsibility and control.

Discussion of the rising cost of medications is intentionally avoided because it is largely irrelevant, although any effort to reduce the costs of bringing effective drugs to market is certainly worth consideration. It is assumed that under this new system, doctors would negotiate with drug companies or pharmacies for lower prices, since the money now comes out of the doctor's pocket. Doctors would use lower-priced generics, herbal remedies, or even over-the-counter medications when available, if they were as effective as higher priced options.

Similarly, the decision about who should pay the cost of insuring every American is avoided, since in the end the consumer will eventually be the one to pay, either directly or indirectly, through changes in the price of insurance or through higher taxes. There are several possible mechanisms of payment, and the preferred method would be the one that was most efficient.

For example, if universal coverage is a desired goal, it could largely be achieved by requiring employers to deduct for catastrophic coverage and deducting similar amounts from unemployment compensation payments or other government payments. Portability of coverage could be enhanced by encouraging labor unions and other professional organizations to administer medical coverage (and probably retirement funds as well) to their members instead of employers. Employers could then just make contributions to those organizations in the employee's name. This would also enhance privacy, by eliminating the need for employers to have medical information about it's employees. And it could encourage more professional development of employees to maintain their membership in these organizations. Of course, any organization that accepted the responsibility of administering insurance or retirement funds would need to be accountable to it's members through annual independent audits and similar requirements, as a condition of any favored tax status.

If health insurance is deemed to be an entitlement of every American, it would even be conceivable for the federal government to take over the operation of the catastrophic coverage portion from insurance companies, as long as there was no violation of the above four fundamental principles. The government would not be negotiating with drug companies or caregivers, except to establish reimbursement rates based on historical analysis of actual costs, and the government would be in a position to evaluate actual cost claims by virtue of the financial information collected through the Internal Revenue Service. However, the federal government does not currently offer hunger insurance, or personal relationship insurance, or insurance against many other events that would be arguably more important than health insurance, so there is the danger that letting the federal government manage the system might encourage public demands for many more entitlements. The much larger danger, however, is that politics would have a strong influence on medical concerns, which would eventually destroy the efficiency of the system as politicians try to either expand benefits to unsustainable levels, or balance budgets by reducing payments to doctors, thus imposing destructive price controls. Politics would also introduce a higher degree of uncertainty into the medical system, where long-range plans would be much more difficult to implement if there were fears that the next election would impose massive changes again.

Since everyone sees that the cost of insurance is rising, there are many calls for the government to address the problem by imposing price controls or assist with the purchasing of insurance. Either of these approaches would be inadvisable. The principles of the Responsible Doctor-Patient approach rely on the free marketplace to enhance efficiency whenever possible, and are designed to be consistent with the laws of supply and demand. They are called laws rather than theories because they always hold true. For the readers who are unfamiliar with these laws here is a brief recap of the more salient points:

• Price supports cause surpluses and artificially high prices
• Price controls cause shortages
• Individuals will make decisions that are in their own best interest, rather than for the greater good of society, unless the same option happens to do both

Unfortunately, most policy makers, as well as the general public, are unaware of these laws, or else they choose to ignore them and try to impose their own solutions that prove to be as unworkable as legislating against the laws of physics. Admittedly, it is not always easy to detect price controls and supports, because the practices are often given much more appealing names. However, following is a list of proposals that are virtually guaranteed to fail to produce the desired results:

• Increase government payments to individuals to help them buy insurance
• Increase the tax deductibility of premiums paid to individuals or organizations
• Increase the tax deductibility of Medical Savings Accounts
• Create a government-financed prescription drug program for Medicare recipients
• Mandate that employers pay more of the premium cost for their employees

All of the above options are thinly disguised price supports, and if implemented, they will only encourage prices to rise even further. Proposals similar to the following have also been discussed:

• Impose penalties on insurers who charge premiums greater than an officially approved amount
• Establish a single-payer, government-controlled system with fixed salaries for doctors and prescribed procedures for every ailment

The above options are basically price controls, and are sure to result in shortages of medical care. This has already been evidenced in Canada and Great Britain, where government-regulated systems require that people wait months, if not years, for non-emergency care.

It is important to note that the pre-established reimbursement limits described in the Responsible Doctor-Patient approach are not price controls, as long as the limits are set above the actual costs that doctors incur. If the limits were set below the actual costs, then they would become price controls and the incentive value would be destroyed, so this must be avoided to prevent shortages from developing. It will be very tempting for insurers to pay doctors less than the standard reimbursement amounts if they see that doctors are making large profits in treating certain conditions. However, insurers cannot be allowed to reduce the reimbursement amounts outside the normal review process in an attempt to shift those profits to themselves.

Some suggestions ignore finances completely, such as these:

• Encourage doctors to adopt a "best practices" approach to increase patient satisfaction
• Develop initiatives that focus on the doctor-patient relationship

If contrary to a patient's or doctor's own financial self interest, efforts similar to the above are unlikely to be very successful at reducing costs, although they may help some people feel better emotionally.

It could be argued that the anti-discrimination requirement in Principle #4 does prevent the marketplace from working most efficiently, but if we have decided as a society that fairness is a requirement of the new system, then we must accept this bit of inefficiency to meet that requirement.

There is one other option that is viable, although painful, and that option is to do nothing. The most likely result of inaction will be that increasing costs and declining numbers of insured will cause most insurers to either go out of business or stop offering medical coverage. The loss of insurance money would then result in the bankruptcies of hospitals as well as many doctors and possibly some drug companies. Many people will have to do without some forms of health care in the interim. But in the aftermath, alternatives to health insurance would appear, such as the discount health plans that are already available, and prices of medical care would fall dramatically when insurance money was no longer available, so that the uninsured could afford at least some level of medical treatments. However, if the HMO model was the only survivor, then we should expect increasing government regulation to mandate coverage, medical procedures, limits on hospital and doctor payments, and similar restrictions, until we effectively end up with a single-payer, government-run, system in the U.S., along with its unavoidable shortages and inefficiencies.

In general, implementation of the Responsible Doctor-Patient plan would involve the following steps, which could all occur simultaneously after legislation is in place:

• Pass legislation to require insurance companies to change their method of reimbursement and sales practices
• Determine reimbursement levels for all, or at least the most common, medical conditions
• Build or revise information systems as necessary for insurers to track doctor performance measures
• Build information systems as necessary for doctors to track actual cost information and vendor invoicing and payments
• Allow some time for doctors to form cooperatives to negotiate with hospital and drug companies

It is expected that it would take at least one year of intensive effort to complete the above steps, and most likely several years to implement completely.

As described earlier, implementing the Responsible Doctor-Patient approach requires some federal legislation to be enacted. Although it is theoretically possible that insurers could decide to correct their reimbursement methods on their own, it is unlikely to succeed over the long term. Eventually one insurer would try to increase their profits by paying doctors less than the established reimbursement schedule so they could lower their premiums to attract customers, which would force other insurers to do the same, and the downward spiral would start all over again. Therefore, unless insurers can develop some type of effective self-enforcement mechanism, legislation will probably be required to change the reimbursement method, eliminate discrimination in insurance sales, and determine the specific doctor performance information to be publicized.

Since this legislation would effectively put the products of drug companies on the same playing field as over-the-counter medications and other treatment options, it should be expected that drug companies will lobby hard to prevent this from being adopted. There is a good chance that such lobbying will be effective at killing corrective legislation, so to counteract the likelihood that members of Congress will continue to put their own self-interests above those of their constituents, it may be necessary to first solve the campaign finance issue.

Effective campaign finance reform has been very difficult to obtain. Legislation to date that limits contributions has been consistently ruled unconstitutional. However, focusing on contributions is ill advised in any event, since it merely seeks to determine what level of bribery is acceptable and should be legalized.

Instead, a better approach that is more consistent with everyone's self-interest is to ignore contributions per se and eliminate the incentive to make large contributions to legislators, and/or eliminate the willingness of legislators to grant political favors in exchange for contributions. To do this, we must increase the penalty -- the cost -- of "legislative infidelity" by members of Congress. Merely require that if a member of Congress intentionally votes contrary to their constituents' wishes, they can be drummed out of Congress immediately for violating their oath of office, causing them to lose their pension and other benefits. Since polls can now be conducted with great speed, there is arguably no excuse for a legislator not knowing how their constituents want them to vote. By increasing the penalty for ignoring the voters who elected them to office, members of Congress will be much less likely to have their vote influenced by large contributors. Realizing this, contributors will in turn stop making large payments to buy legislative favors.

If Congress is not willing or able to make these changes, it may require that the general public initiate -- or at least threaten to initiate -- legislation from the grassroots level via a national initiative and referendum effort.

Most of the information needed already exists, but it would take time to determine an appropriate level of reimbursement for each medical condition that takes into consideration the possible variations of those conditions that could add costs or ambiguity, regional cost differences, and the like. Insurers could shorten the process somewhat by soliciting bids from doctors for the successful treatment of various conditions, and then setting the reimbursement level at some later point after obtaining a sufficient sample of cost information.

Also, insurers need to determine the appropriate levels of premium surcharges for unhealthy behaviors. These surcharges cannot be so punitive that the insurer becomes a health enforcement officer, but they should reflect the actual additional medical costs experienced, to provide customers with useful information about their behavioral choices.

Most insurers probably already collect enough information to track doctor performance. However, they would need to concentrate on collecting cost information to determine appropriate reimbursement levels, based on the effectiveness of various treatment options.

Since doctors would be taking on more responsibility in terms of negotiating with hospitals and other vendors, they would need to obtain information systems that effectively tracked payments and invoicing, not only by patient, but also by the condition being treated. Most doctors would probably contract to use existing information systems, but it would take time to select the best option.

Hospitals would probably face a more difficult transition, due to their large fixed costs. They must become much more efficient as they can no longer justify purchasing expensive equipment that adds to their operating costs if the seemingly limitless source of insurance money no longer exists. Hospitals will become much more accountable to doctors, who will be much more vocal about pointing out inefficiencies and demanding lower charges. Therefore, hospitals will need to be able to justify each piece of equipment with their information systems.

Instead of figuring out how to get around insurance reimbursement limits, vendors now have to concentrate on satisfying the doctors under the new system, by being both cost-effective and worthy of every dollar they want from the doctor, since that dollar comes out of the doctor's own pocket. Doctors will most likely group together to obtain more favorable pricing from all vendors of medical supplies and medications, since it can be time-consuming to enter into multiple negotiation sessions.

The system is largely self-maintaining, with the exception of the periodic review of actual costs to set new reimbursement levels. This review would most likely be a perpetual process, since it would take a great deal of time to review the costs of treating thousands of medical conditions, but rates should not change more quickly for any condition than perhaps every 3 to 5 years. Insurance companies would be the ones to establish the limits, although they should certainly solicit input from doctors and vendors.

If there were a catastrophic event that significantly increased costs virtually overnight, such as a new law or viral outbreak, then interim increases could be allowed. Some minimum threshold should be established, such as a 15% increase, before such interim increases would be permitted.

Over time, as the general health of the population improves and medical costs come down, the federal government may be able to provide more comprehensive and affordable coverage for poorer Americans through a self-insurance program that replaces Medicare and Medicaid with much better alternatives.