In December of last year, Luke & Associates, a leading provider of medical and clinical services for the U.S. military and private industry, was recognized as one of the top 100 job creating companies in the United States by Inc. Magazine, placing #22 on Inc.’s Hire Power Awards. In addition, Luke was identified by Inc. as the #2 job creator in Florida and the #2 job creator in government services.
i4 Business sat down with Luke’s president and CEO, Jim Barfield, to discuss changes in the health care industry.
i4B: Do you see the Affordable Care Act (ACA) as being as disruptive as some have predicted?
JB: I think it will be. First of all, someone has to pay for the cost of this program, not only the delivery of services, but also the additional administrative overhead that the legislation requires. The misnomer, to some extent, is that the original purpose was to make health care more ‘affordable,’ to reduce the costs, and frankly that isn’t happening. In fact, the cost of health care is continuing to go up. ‘Available’ might be more accurate, but not ‘affordable.’ There is a simple difference between the ‘price’ and the ‘cost’ of health care.
i4B: Please explain.
JB: The price is what is being charged and paid, whether that is by an individual or an insurance company. The cost is the actual expense incurred in delivering the goods or services. A company may offer a great price, but if their costs exceed the price, they go out of business.
The second problem is there is no longer any competition in health care. We must ask the question, ‘Who is the customer?’ It is obvious that the patient has no ability to shop or negotiate the cost, so essentially they are no longer the customer. Since the patient doesn’t pay, but the insurance company pays, they become the actual customer. It comes down to what the insurance company will pay and how well the provider can navigate the billing game.
i4B: What about the cost to the business owner?
JB: Small business owners, S-Corps, are facing escalating income taxes. If you make a profit in your business, even if you reinvest it back into your company, it is now counted as income to the individual business owner if it exceeds $250,000. No longer is the business owner just taxed on the income they take out of the company, but on all the profits the company makes.
i4B: This is all part of the health care legislation?
JB: Not directly, but the need for revenue has pushed it over the edge. It is more than just the health care, it is the additional burden of tax on business owners, which could and will stifle business reinvestment and expansion. Also, employers will be fined if they do not have the coverage. Unfortunately, for many, it is cheaper to take the $2,000 a year fine than to participate in the government plan.
If you are a smaller company, rather than having profits to invest, you have to borrow and the cycle continues. It’s rough; I know we started out talking about health care, but it is another tax put on the small business owner.
i4B: You don’t anticipate the cost of health care going down, but will the quality of health care improve?
JB: If you are uninsured or you’re in a lower income bracket, the price will go down, but not the cost. The cost is what it is; that will be paid out of increased income taxes and costs to employers.
i4B: What are the biggest misconceptions of the ACA?
JB: That it will reduce the cost of health care. Don’t get me wrong, there are some things I like about it. It does open up the opportunity for people to get health care, which is as it should be. But the machine to run it from the government side is cumbersome. Someone has to administer all of these regulations and oversight procedures.
i4B: Some people make the analogy between being required to buy car insurance and being required to buy health insurance. Is that applicable?
JB: I see several major differences. No one is forced to own a car and drive; what if the government required everyone to own a car? Secondly, with health care, you aren’t buying insurance in the event of an accident. You are buying health ‘care,’ which would be like forcing people to not only buy a car, but also requiring them to buy a maintenance program on that car.
Not only do I have a choice about driving, I have a choice about the type of car I drive and the type of coverage I want. In addition there are a multitude of insurance companies competing for my business; none of this is true with health care.
i4B: Could we just require people to have, say, PIP (Personal Injury Protection) for health insurance?
JB: We are so far along, and this legislation is the law, so I don’t think that is possible. Also we are seeing a lot of providers leave the field. It is the only business I know of where you file an insurance claim and you don’t know how much you are going to get paid or when. Imagine a business where you have no idea what you will get paid for a given service.
i4B: Just like retail has moved more and more to the consolidated “Big Box” store, do you see this kind of “Big Box” medical services becoming the norm as well, the gradual extinction of the independent practice?
JB: That’s why you see hospitals and health care systems purchasing physicians’ practices. They are trying to get all the medical services under one roof, where physicians are now employees of a corporation.
i4B: What are the pros and cons?
JB: The upside is when everything from electronic health records and diagnostic/lab results are all readily accessible. The downside is their price structure covers all their overhead, the purchase of special equipment and increasingly large administrative staffs.
i4B: What other major changes do you see?
JB: I am concerned that some providers will get out of the business or will refuse to deal with Medicare or Medicaid. The price versus cost equation won’t work for them. It looks like Medicaid may go back to the state. Well, budgets being what they are, and then you add the requirement to cover innumerable additional people, and you’re going to have to cut somewhere. Since they have to cover people, the only logical place to cut is to the provider.
Also we are seeing a decreasing number of students pursuing general medicine or Family and Internal Medicine. They don’t make the money they could in other disciplines and you throw this additional challenge of the heavy administrative load and those in that arena of medicine are harder to find. How to address the coming imbalance is a critical issue.
i4B: Any other changes you see?
JB: Already we are seeing the emergence of what is being called concierge medicine – physicians who work on a cash basis, where people have a certain amount of power over the price they pay because they are the ones paying it. Or the doctor limits his practice to so many patients, say 500, who pay so much a year and have access to his services. They pay cash or credit cards and filing insurance claims would be the patient’s responsibility.
i4B: Do you see larger corporations setting up their own clinics, along your concierge model?
JB: This is already happening. A company sets up a clinic and for employees there is no cost. The challenge is getting employees to go and I suppose that is where some kind of incentive program would be necessary.
i4B: Where is the entrepreneurial opportunity or what advice would you give companies?
JB: The biggest overhead in a medical office is on the administrative side. So if you can move toward a cash system versus an insurance billing system, the costs could come down and the system could be profitable. That way I can accurately determine my costs, versus basing my cost on what the insurance company may or may not pay.
Companies have to shop for the best insurance values and incentivize their employees to be healthier; it not only is good for your bottom line, it also builds morale