Heathcare: How an insurance company decides to pay for what

As many of you are aware, I’ve left the high tech sector and have moved to work for a Health Insurance company. Since my job is to analyze processes and improve them using Lean process improvement methodology, I have a pretty unique insight into the broader workings of my company – which will only grow as I expand Lean through more parts of the company. As a note, these views are my own and do not represent the views of Cambia Health in anyway. I believe that it’s important to help educate the broader public about what happens when you want to have elective care or even while you’ve been admitted for care – either after an elective procedure or in an emergent case.

I know I’m opening a can of worms here, so I think it’s important to note that these are truly caring individuals that want their members to receive the best care. However, they are also put into a tough position because health insurance is a contract and your employers negotiate types of care that will be paid for within your health insurance plan. Furthermore, as a way to control the amount of money the insurer pays they will “manage” the type of care that is being provided to a member. This of course is the part that people hate, my doctor says this should be done, so it should be paid for by insurance company! Well, yes and no.

In some cases your doctor may recommend a specific type of treatment that you actually need, but your insurance company won’t pay for it! Why not? Well, there could be a few reasons. First, you may not actually have the benefit. For example many cosmetic procedures aren’t covered and aren’t part of your benefit package, or maybe you’ve already exhausted the benefit for instance number of days in a skilled nursing facility. Unfortunately, insurance premiums are based upon the amount of benefits that you could use and the total amount of risk that you are to the insurer. Which of course is difficult, because a person may need that care, but they didn’t pay to have all of it fully covered. The other unfortunate portion is that most people truly don’t understand what their benefits are, which makes this even more difficult. This of course goes back to Prospect Theory where insurance companies are acting as much more rational entities than their members, which leads to a definite imbalance of understanding and event potentially power in the relationship. Humans don’t read all the contracts and Econs do – insurance companies are Econs extremely rational (in the economic sense) when dealing with contracts and risk.

The second case where an insurance company won’t pay for a service relates to medical necessity. This is the part where providers get really upset with insurance companies. Essentially, this is a case where the insurance company is using a combination of medical research to create policies with criteria for procedures. So when you are trying to receive care, the Diagnosis is less important than the service that your provider selects for you. Diagnosis plays a larger role whenever the insurance company recommends alternative methods of care that lead to the same level of care but typically cost less – either to the member, insurance company, or both.

This requires the provider to submit clinical information to justify that procedure. Some of this requirement may actually drive up costs because the provider may have a great deal of intuitive experience with a specific type of diagnosis and knows that the best treatment is X. However, the insurance company requires that for procedure/treatment X that tests a, b, c must be run with results q, r, s. Based on the combination of the results the insurance company determines if that procedure is medically necessary or not. This works really well when there’s very clear medical research and clear correlation between diagnosis and treatment. It doesn’t work as well for less precise treatments such as behavioral health – which is much more trial and error and requires a lot of time.

Who creates the medical policies though? A combination of research clinicians, internal MDs, and providers – if they are insurance company specific policies. However, there are more general policies that are recognized and used for inpatient Medicare and Medicaid. These may have more input from the people using them. Policies take time to develop and typically lag the latest research. However, in many cases these policies may represent more knowledge about a specific treatment methodology than a general practitioner or even a specialist can know because of the breadth and depth of medical knowledge.

I will discuss more topics related to healthcare and how these impact costs over the next few weeks.

Are patents going to impact how doctors treat a patient?

Today Ars Technica reported on a case before the US Supreme Court and how the court is assuming that the usage of scientific data, which has been publish, is a valid patent. This is a pretty scary scenario. What do you mean? Well, the patent is related to how the levels of some chemical impact the dosage of a drug. That’s it. If you have level X in your blood you should have dosage Y. The patent holder created a device to test the level of the chemical in your blood which then suggests a dosage level. The Mayo clinic developed their own test and  have been administering the test on their own without paying anything to the company. The arguments in the court essentially assume that this is a valid patent.

Should this patent be valid though? Seems like something that could be patented. Based on what is considered patentable, this should fall under mathematical formulas. Essentially, this is a matter of correlation and basic regression analysis. During a drug trial you can determine a correlation between the impact of a dosage of a drug on the current level resulting in a lower level of the chemical. This is really how all medicine works. If you can reduce costs by creating your own tests and administering it yourself then that’s great. Hospitals should be encouraged to do this if they are large enough.

This is what Doctors do. They read literature about the medicine the condition it’s supposed to impact and what sort of connection there is with the dosage levels and the response rate within the patients. Every doctor has to use a test to determine the level of a chemical or some condition. This can be the pulse (irregular heartbeats), blood pressure (pressure cuffs), blood sugar (A1 test) and the list goes on. In each case the doctor is able to assign a proper dosage prescription based on the study of patients. If a doctor was required to pay a licensing fee for each and every case of this our currently exorbitant costs of health care will seem cheap. Like when we used to complain about $1.50/gallon for gas.

The other problem with patenting something like this is that it’s likely to be highly unenforceable except for when a large institution like the Mayo Clinic. Individual practitioners will be safer than large clinics, but they could be impacted as well. If they are required to use an extremely expensive proprietary testing methodology rather than have the ability to use any testing method it will drive up prices and may put doctors out of business.

If the court rules on this as if these types of patents are valid, we will need to push to have patent law changed again. The last change moved things in general, in the right direction but a lot more work needs to be done.