Wednesday, September 11, 2013


There is no greatness where there is no simplicity, goodness and truth.~ Leo Tolstoy

Andrei Kolmrogov’s Optimal length of an Algorithm and Occam’s razor have a lot in common. Whereas Kolmorogov states that “Among algorithms that decode strings from their descriptions (codes) there exists an optimal one,” Occam believes that the simplest argument among all complex ones is usually closer to the truth.

Now that is interesting in of itself to ponder upon, but there is a better axe to grind, one that would make both these brilliant logicians happy and sated.

The combinatorial forces in this forest of healthcare laws and acts is gathering the enormity of a Typhoon or if you prefer, a tsunami. The incoming is bloating the fears and playing on the hidden fancies of others. The tragicomedy is being written in many dialects, dialog, speeches and in journalistic expanse of the written word. Experts abound in the field of information. Most of that I suggest, is patently useless and self-serving and here is how I have come to that conclusion. It seems to me that the solutions are mostly window dressing for a failed paradigm.

Let’s look at the Medical Care as it is being rendered today.

It is a classic story of the Revenue Cycle cloaked in ambiguities and uncertainties. Revenue Cycle, you  might ask, “What is that?” Having little to do with business, most doctors let alone patient ever think about this.
Let me explain the Revenue Cycle for those inclined to read further, is a cycle of providing services and awaiting revenues to pay off the expenses and deriving the most evil of all, the net income at the end of that cycle.

And why is that news? You ask. Well simply put, where in the world today in a small business , such as convenient stores, gas stations, Apple stores, Microsoft stores, Nine West, Black and White, Macy’s Nordstroms, Lord and Taylor, FAO Schwartz, Staples, Home Depot, Target, Pathmark Grocery stores, Walmart, BJs, Restaurants-any and all can you go and expect goods without paying for them immediately. None, Nada, Zilch! Everywhere you buy goods, you pay before you can haul them off to your home. Right? 

And in some places like, for instance at Dell Computers where the negative cash cycle was in play due to Just in Time production and supply chain distribution, Dell actually got the money up front many weeks prior before the goods were delivered. A nice bonus of cash to play with, invest and raise shareholder equity through their stock price, improve the Market Value of the company and inflate the Market to Book ratios. It happens in the corporate world all the time. But that is not where for the moment, I am not going to go, maybe later.

Let’s get back to the Kolmorogov’s Optimal Algorithm for a moment. The simplest and least complex algorithm that realizes the best outcome is what we are after. In the case of Medicine where there are a multitude of in-between-ers the algorithm is mired in a sea of troubles and all "slings and arrows"are directed at the hapless physician.

The Revenue Cycle in Medicine runs something like this in any doctor’s office. Go ahead, check it out!
Patient Referral Acceptance à Patient Registration à Patient Intake Process à  Insurance Eligibility à Pre Authorization Process à Patient Care Rendered à Claims Submitted à Patient Claims Status à Coordination of benefits à Denial  Received à Denial Management à Follow-up Tracking of Claims à Medicare Claims Remitted à Remittance Posted on patient à  If Medicare 20% submission to Second (third party eg. Aetna, United etc.) à Claims Status à Coordination of Benefits à Follow-up tracking of Claims à Remittance à Remittance Posted à Patient billed for remainder à Reminders à Payments Received à Posted to Account.

That my friends, is the Revenue Cycle Management a physician’s office is compelled to do. In the process there is an automatic 12% denial rate from Medicare for improper coding. There is a strong bias towards RAC (audits) from Medicare which is not included in the above Cycle but occurs frequently and disposes off a physician and his staff time without compensation, but mostly in lost income.

And here is the other kicker that very few physicians are aware of. The Present Value of the future payments. The Revenue Cycle can take as little as 6-8 weeks and as much as 3-6 months. The delay in payments gives the insurer additional revenues, remember that Dell negative Cash cycle) for balancing their balance sheets and paying out before the end of fiscal year to draw attention to costs from the Congress. While the Non-Medicare delay their payouts to help their Cash Flow Statements for potential  M & A activity, stock price escalation by showing increased earnings per share due to delay in Accounts payable etc.

Meanwhile as the fiscal year ends and the Administrative Costs of Medicare and Medicaid go up, the blame game starts against the physicians and Fraud and Abuse is charged with ample display of such in the news segments. 

The total recovered so far is less than $30, 000,000,000.00 vs. the total healthcare costs ramping up at 2,600,000,000,000.00 and that equates to 1.65%. Removing Fraud is a laudable effort but equating fraud to the entire field of medicine and its practitioners in the eyes of the public is a disservice to the 850,050 physicians with a national ratio of 1 physician to every 350 patients and a shortage of nurses is a travesty, wouldn't you say?

Now let us set up a hypothetical scenario of a new paradigm, where, and I will quote an oft stated phrase, “there is skin in the game for both the patient and physician!” The middle meddling wealth accumulating meddlers that have created a man-cave for themselves and are enjoying the fruits of the doctor's labors will come to a halt (with a lot of threats, anger, vilification, etc).

Here the Revenue Cycle does not exist. Patient Referral Acceptance à Patient Registration à Services rendered à Patient Payment à Payments Recorded.  Here the patient is paying for services and expects the best offered by the physician that he or she has contracted with and the physician renders the best possible treatment for the best outcome, knowing that to remain the patient’s physician he or she must provide the best care. It becomes a mano-a-mano decision making and care.

The patient sends the bill to the insurance company that he or she has contracted and paid premiums  and for that the insurance company wants to retain the patient for future premiums and pays the required invoice submitted directly to the patient. Patients today have no clue,as to how the reimbursement cycle turns under the aegis of the bureaucracy. 

But some would say, what about the ones that cannot afford the care. What about them? Believe me charity in the U.S. is the heart of her people. No one has ever gone without care in this land of the free and no one ever will. A safety net of Medicaid, Indigent care will pay for those without means.  But the majority of the people will be spared the nonsense of the Revenue Cycle Management that is causing more and more physicians to shut their offices and run for the hills. The truth is that of the $1 that is billed for service, 30 cents are never collected by the physician's office and the remaining 70 cents are used to pay the expenses (Malpractice premiums, office space rental, mortgage, office staff salaries, pension and benefits, equipment costs, service contracts, education for self and employees) and what is left over is meager and paltry for the time, expense, effort and psyche expended! 

So you might wonder where Kolmorogov and the Occam’s Razor come in. Well Look at the simplified Algo and you will see the answer for Optimal Care!

1 comment:

  1. Spot on description. I might add some pertinent information to share.

    Third party reimbursement (revenue cycle) costs the industry 40% of every dollar billed. So if no third party then the cost of care can be reduced by 40%, making care more affordable to millions more, even without insurance involved.
    In fact you can carry this argument even further to the prevention of expensive care by assuming if more could afford care, they would practice better use of the care giver and reduce catastrophic or expensive care left untreated due to cost. The constant better outcome argument brought home to the root cause of cost of care.

    Insurance and government actually only pay out about 80% of the value of the claims filed annually, thus a whopping 300 billion dollars never actually reaches the care giver providing the service. Thus rates are inflated at least this 20%.

    Patient Balances, direct billed, non charity care billed to insured and true self pay patients now exceeds 30% of all billed dollars in health care, and 49% of it never pays. Thus another 450 billion never reaches the party providing the actual care. Again the rates reflect the losses.

    Revenue cycle in health care costs the industry 15% of every dollar billed. Other businesses pay less than 2% for the same processes of getting paid for the services they provide. This totalled 385 billion last year.

    Add all this up, cost 385 billion, lost to insurance non-payment 300 billion and lost to patient non-payment 400 billion and you have 1.1 trillion of the 2.7 trillion billed in allowable billing never actually being paid. All lost to the dreaded revenue cycle.

    And the elephant in the room, is this is all going to get more challenging starting January one, when the exchanges come into play and millions are placed into plans with high deductibles of which the care giver will have to collect directly from a group that already only pays half what they owe.

    The third party is the culprit, care transactions, both financial and care delivery have to move back to a transaction between patient and caregiver in order for the care giver to even have a chance at surviving, at least as an independent.