The Healthcare System Today!

Everyday there is something in the media concerning healthcare. Some good, but mostly bad. Is there a simple fix for the current healthcare system? NO!!!!

It is my belief that our congressional representatives have no idea of the complexity of the healthcare system.

In 1989, I was a co-founder of an organization that won, in competitive bidding, a contract to operate a Medicaid Managed Care Healthcare Insuring Organization, for 80,000+ individuals in the Philadelphia, Pa. area. The previous contractor had serious financial issues, and the Commonwealth cancelled their contract, and were looking for a new organization to operate the program. We bid on the contract, and were successful, even though we had no healthcare experience. We were however, experienced with government contracting, and that was our “ace in the hole.”

The Commonwealth of Pennsylvania paid us a per capita amount per individual every month. We were 100% liable for the cost of providing healthcare to these 80,000 + individuals.

During the bidding process, all bidders were furnished with cost data for the past few years on these 80,000. The cost data was broken down by individual, and by classification, i.e. hospitalization, specialists, primary care, etc. You were required to bid a percentage of capitation ( i.e. cost). The previous contractor had bid 95% of capitation and still lost money.

We looked at all of the data and made certain assumptions, based on that, and we bid 92.5% of capitation. We felt very comfortable with the assumptions we made in arriving at our bid. We protected ourselves by purchasing “re-insurance protection” through Lloyds of London.

We realized that we would have to negotiate rates with a network of Primary Care Doctors, Specialists, Hospitals, Pharmacies, and other medical providers. But with 80,000 members that should give us some leverage.

We were to have 6 months to put our organization into effect, before we were to begin providing healthcare services to our members. Obviously, the first thing we needed to do was to put our organization together, and hire healthcare professionals, as well as support personnel. During the bidding process, we had retained a number of Doctors and nurses to assist us in understanding this industry and the pitfalls concerning it.

We proceeded to hire a number of individuals from the previous contractor, as well as some new faces. We had projected that we would need approximately 100 personnel in total. We had to establish a claims processing group as well as install a data system. In addition we needed a number of nurses, as well as some Doctors, to review proposed procedures, recommended by the providers, for our members.

Once our base organization was in place, the next order of business was to establish a healthcare provider network that would treat our members. We would need to also establish rates for services provided by that network. Fortunately, we were able to get all of this done in a short period of time, and we were able to begin operations on July 1, 1989.

Because we had been furnished cost data during the bidding process, we knew where the cost drivers, both in provider services, as well as with our members, existed. We then had to determine what it would take to change that. As an example, we had one member who was spending at least a week a month in the hospital, for fluid around the heart. This was expensive, and obviously the healthcare output wasn’t satisfactory. We sent one of our nurses to the home of this member, to review their living conditions, and determine what, if any, changes might be necessary. Interesting, it was determined that the bed that this person was using was not satisfactory for their condition, and it was the main cause of their fluid build-up. We then approved purchasing a new bed that would allow the person to position themselves differently, and prevent fluid accumulating around their heart.

Some of our healthcare professionals had a difficult time understanding this. They said that this wasn’t a normal healthcare cost. We said yes, but we were receiving a fixed price from the Commonwealth, and we could spend those funds as we saw fit. This became a win, win for our member, and we reduced our recurring cost because they weren’t in the hospital a week each month.

This was a different approach, than what was normal, for a healthcare organization, but it worked. As a result we were profitable from day 1 and our members had better healthcare than ever before. We found that the cost of healthcare for our employees was greater than that of our members, and that our members had better coverage than our employees.

We subsequently expanded to New Jersey, Brooklyn, NY, Western Pennsylvania, and Michigan. We also purchased a claims processing, and IT organization in Arizona to service all of our operations.

All of this was done with internally generated capital, except for a small sum that we borrowed, to acquire the operation in New Jersey.

We did have two outside investors, as we expanded. TA Associates, a large Boston based private equity organization and CNA Insurance.

In 2002, we decided that in order to expand our operation further, we needed to consider becoming a public corporation. We had discussions with a number of Wall Street Investment Firms, and decided to go public, with Bank of America’s investment group leading our Initial Public Offering. We retained them and proceeded to put an S-1 together for the public offering. We had just completed the S-1, and were getting ready to file it with the Securities and Exchange Commission, when we received a call from Bank of America’s head underwriter. He said that United Healthcare was interested in talking with us, and that he felt that they might be interested in purchasing 100% of the company.

A meeting was set up with Steve Hemsley, President of United Healthcare, and two of his finance folks. It was obvious that they were interested, and after a few additional meetings, they put an offer on the table to acquire the entire company, but it was to continue to operate as a wholly owned subsidiary of United.

In addition, United wanted to fold their Medicaid business into ours, as they were not as profitable as we were, and they were hoping that we would be able to increase the profitability of their Medicaid programs.

We thanked them for their offer, and indicated that we needed to have a shareholder meeting to discuss this. We brought all of our outside investors together and a decision was made to accept their offer. We closed the transaction in October 2002, and as part of their offer, I was required to stay with the company for three additional years, through 2005.

That three years was one of the longest periods in my life. It was not productive. I found that United’s philosophy was quite different than ours. They were very financially oriented, and in my opinion, lost sight of their mission .They were more interested in denying service to their members, than providing alternatives that would help both the member, as well as reduce costs to the organization. I was never so happy when I was finally able to “retire.” It wasn’t long after, that United completely merged our operation into theirs , and the purpose of the acquisition was lost forever.

We had created and run a health insuring organization successfully for over 13 years. We had obtained a significant insight into the healthcare world, the insurers, the providers, and all in between. As some would say, “the good and the bad.”

Insurance companies, the insurers, have become so large that the axiom “too big to fail” Is a fair statement today. They have purchased Doctor’s practices, established themselves as Pharmacy Benefit Managers, and have a category of nurses doing everything from administering services to patients to monitoring them, as well as denying care, when it is needed.

Today’s healthcare system consists of Doctor’s, hospital systems, pharmacy companies, insurers and of course the Federal Government, through its Medicare & Medicaid Programs. There is not one system, but multiple systems. All unique, and self-serving.

The Catholic Church Healthcare System is one of the largest today. There are also For Profit Systems, Not-for-Profit systems, and even systems within the insurers. It is a confusing mess. How do you simplify this?

The all have different rate schedules. Not all insurers pay the same rates to providers, and the Federal Government has their own rate schedules.

I hope that you can see that there is no easy answer. When the current Administration says that they have a healthcare program, I say “baloney.”

There is no such animal. How does one go about trying to simplify this? There is no answer.

Some have proposed a government system of uniform healthcare for all. Not in my lifetime, or that of my children or grandchildren.

The Affordable Care Act (ACA) was established to provide the ability of those who had no healthcare insurance, to purchase it, at supposedly low rates. Government subsidies were established to assist those who earned too much to qualify for Medicaid, but not enough to go it on their own.

The issue today, is that there are over 20 million people who purchase their healthcare insurance through the ACA. The government wants to do away with subsidies, but they have no alternative. If subsidies don’t continue, many will have to drop their insurance, as rates have increased significantly. It isn’t impossible, that a family of 4, could be paying over $2,000. per month for insurance with high deductibles, and co-pays. This is increasingly not feasible.

Employers are finding that providing healthcare benefits to their employees is cost prohibitive. One estimate that I saw indicated that the annual insurance cost, for a family of 4, is north of $25,000. Most employers cannot afford to continue healthcare as an employee benefit.

In the case of hospitals, they will have as many different rates for the same procedure, as they have insurers that they deal with. As they said to us, “we can’t bill each insurer based upon the negotiated rates we have with them, because it is too complicated. We will bill you based upon our schedule of billed charges and you figure out how much you owe us.”

If a patient has no insurance, they receive a bill from a provider, based upon “billed charges.” These charges can be double, or triple what the providers negotiated rates with insurers are, for the same procedure.

My wife and I have regular Medicare, and I recently received an Explanation of Benefits from my Supplemental Insurer for the month of September. My provider billed Medicare $2,787. on the basis of “billed charges,” and Medicare approved these charges for $377.60. and paid $303.66 , approximately 80%. My supplemental insurance paid the remaining 20%. A difference between billed charges and what was eventually paid of over $2,400.

Hopefully, you see the issues. The same holds true for all other healthcare services, physician services, pharmacy, etc.

How is this “broken system” made better? I am not smart enough to answer that. I am not sure anyone is. Some have stated that the entire healthcare system needs to be exploded. If so what replaces it? It isn’t something that can be done quickly.

I do agree that something needs to be done, and the sooner the better. A start might be establishing an independent committee, comprised of representatives from government, providers, insurers and users, to begin a conversation of where it stands today, where should we be trying to go, and how do we get there. The leaders of this committee must be open minded, and good listeners as well as successful implementers.

This will be a long term project, and one that we shouldn’t waste time, “pushing the can down the road,” as we have done with the “Deferred Action for Childhood Arrivals” (DACA) children.

In the meantime, we need to continue to patch the existing system until something better is on the horizon. That could be later than anyone can imagine.

Jess Sweely

Madison, Va.

November 29, 2025