Proposal of the Physicians' Working Group for Single-Payer National Health Insurance


Payment for Physicians and Outpatient Care

The NHI would include three payment options for physicians and other practitioners: fee-for-service; salaried positions in institutions receiving global budgets; and salaried positions within group practices or HMOs receiving capitation payments. Investor-owned HMOs and group practices would be converted to not-for-profit status. Only institutions that actually deliver care could receive NHI payments, excluding most current HMOs and some practice management firms that contract for services but don’t own or operate any clinical facilities.

1- Fee-for-service: The NHI and representatives of the fee-for-service practitioners (perhaps state medical societies) would negotiate a simplified, binding fee schedule. Physicians would submit bills to the NHI on a simple form, or via computer, and would receive extra payment for any bill not paid within 30 days. Physician payment would cover only the work of physicians and their support staff, and would exclude reimbursement for costly office-based capital expenditures for such items as MRI scanners. Physicians accepting payment from the NHI could bill patients directly only for uncovered services (e.g. for cosmetic surgery).

2- Salaries within institutions receiving global budgets: Institutions such as hospitals, health centers, group practices, migrant clinics, and home care agencies could elect to be paid a global budget for the delivery of care as well as for education and prevention programs. The negotiation process and regulations regarding capital payment and profits would be similar to those for inpatient hospital services. Physicians employed in such institutions would be salaried.

3- Salaries within capitated groups: HMOs, group practices, and other institutions could elect to be paid capitation premiums to cover all outpatient, physician, and medical home care. Regulation of payment for capital and profits would be similar to that for hospitals. The capitation premium would not cover inpatient services (except physician care) which would be included in hospital global budgets. Selective enrollment policies would be prohibited and patients would be permitted to disenroll with appropriate notice. HMOs would pay physicians a salary, and financial incentives based on the utilization or expense of care would be prohibited.

The proposed pluralistic approach to delivery would avoid unnecessary disruption of current practice arrangements. All three proposed options would uncouple capital purchases and institutional profits from physician payment and other operating costs, a feature essential for minimizing entrepreneurial incentives, containing costs and facilitating health planning.

The fee-for-service option would greatly reduce physicians’ office overhead by simplifying billing. Canada, and several European nations have developed successful mechanisms for reconciling the inflationary potential of fee-for-service practice with cost containment. These include: limiting the supply of physicians; monitoring for extreme practice patterns; setting overall limits on regional spending for physicians’ services (thus relying on the profession to “police” itself); and even capping individual physicians’ reimbursement. These regulatory options are not difficult (and have not required extensive bureaucracy) when all payment comes from a single source. Similar measures might be needed in the U.S. There might also be a concomitant cap on spending for the regulatory apparatus - eg. expenditures for program administration and reimbursement bureaucracy might be restricted to three percent of total costs.

Global budgets for institutional providers would eliminate billing, while providing a predictable and stable financial support. Such funding could also stimulate the development of community prevention (eg. school-based smoking prevention programs) whose costs are difficult to attribute (and bill) to individual patients.

Continuity of care would no longer be disrupted as patients’ insurance coverage changes due to retirement or job change. Incentives for capitated providers to skimp on care would be minimized since unused operating funds could not be diverted to profits or capital investments.

Long Term Care

The NHI would cover disabled Americans of all ages for all necessary home and nursing home care. Anyone unable to perform activities of daily living (ADLs or IADLs*) would be eligible for services. A local public agency in each community would determine eligibility and coordinate care. Each agency would receive a single budgetary allotment to cover the full array of long term care services in its district. The agency would contract with long term care providers for the full range of needed services, eliminating the perverse incentives in the current system that often pays for expensive institutional care but not the home-based services that most patients would prefer.

NHI would pay long term care facilities and home care agencies a global (lump sum) budget to cover all operating expenses. For-profit nursing homes and home care agencies would be transformed to not-for-profit status. Doctors, nurses, therapists, and other individual long term care providers would be paid on either a fee-for-service or salaried basis.

Since most disabled and elderly people would prefer to remain in their homes, the program would encourage home and community based services. The 7 million unpaid care-givers such as family and friends who currently provide 70% of all long term care would be assisted through training, respite services, and in some cases financial support. Nurses and social workers, as well as an expanded cadre of trained geriatric physicians, would assume leadership of the system.

[*Activities of daily living (ADLs) include: bathing, dressing, going to the toilet, getting outside, walking, transferring from bed to chair, or eating. Instrumental activities of daily living (IADLs) include: cooking, cleaning, shopping, taking medications, doing laundry, making phone calls, and managing money.]

Only a handful of Americans have private coverage for long term care. For the rest, only virtual bankruptcy brings entitlement to public coverage under Medicaid. Universal coverage must be combined with local flexibility to match services to needs, overall budgetary limits, and simplified regulations that minimize bureaucracy and assure that payments benefit patients, not executives or investors.

Our proposal borrows features from successful programs in some Canadian provinces and in Germany. The German program, in particular, demonstrates the fiscal and human advantages of encouraging rather than displacing family caregivers - offering them recompense, training and other supports.

Capital Allocation, Health Planning, and Profit

Funds for the construction or renovation of health facilities, and for major equipment purchases would be appropriated from the NHI budget. Regional health planning boards of both experts and community representatives would allocate these capital funds. Major capital projects funded from private donations would require approval by the health planning board if they entailed an increase in future operating expenses.

The NHI would pay owners of for-profit hospitals, nursing homes and clinics a reasonable fixed rate of return on existing equity. Since most new capital investment would be funded by the NHI, it would not be included in calculating return on equity. For-profit HMOs would receive similar compensation for their clinical facilities and for computers and other administrative facilities needed to manage NHI. They would not be reimbursed for loss of business opportunities or for administrative capacity not used by the NHI.

Current capital spending greatly affects future operating costs, as well as the distribution of resources. Effective health planning requires that funds go to high quality, efficient programs in areas of greatest need. Under the existing reimbursement system which combines operating and capital payments, prosperous hospitals can expand and modernize while impoverished ones cannot, regardless of community health needs or quality of care. NHI would replace this implicit mechanism for distributing capital with an explicit one, facilitating allocation based on need and quality. Insulating these crucial decisions from distortion by special interests will require rigorous technology evaluation and needs assessment, as well as active involvement of providers and patients.

The consistently poor performance of investor-owned facilities precludes their participation in NHI. Investor-ownership has been shown to compromise quality of care in hospitals6 7 8, nursing homes9, dialysis facilities10, and
HMOs11; for-profit hospitals are particularly costly12 13 14 15 16 17 18 19. A wide array of investor-owned firms have defrauded Medicare and been implicated in other illegal activities. For-profit providers would be phased out and compensated for past investments in clinical facilities.

Prescription Drugs and Supplies

NHI would pay for all medically necessary prescription drugs and medical supplies, based on a national formulary. An expert panel would establish and regularly update the formulary. The NHI would negotiate drug and equipment prices with manufacturers, based on their costs (excluding marketing or lobbying). Where therapeutically equivalent drugs are available, the formulary would specify use of the lowest cost medication, with exceptions available in case of medical necessity. Suppliers would bill the NHI directly (for the negotiated wholesale price plus a reasonable dispensing fee) for any item in the formulary that is prescribed by a licensed practitioner.

NHI could simultaneously address two pressing needs: (1) providing all Americans with full coverage for necessary drugs and supplies; and (2) containing drug costs. As a monopsony purchaser, the NHI could exert substantial pressure on pharmaceutical companies to lower prices. Similar programs in the U.S. and in other nations (e.g. Australia) have resulted in substantial savings.

Additional reforms are urgently needed to: improve prescribing practices; minimize medication errors; upgrade monitoring of drug safety; curtail pharmaceutical marketing; assure that the fruits of publicly funded drug research are not appropriated for private profit; and ameliorate financial pressures that skew drug development.


NHI would disburse virtually all payments for health services. Total expenditures would be set at approximately the same proportion of the Gross National Product as in the year preceding the establishment of NHI.

Funds for the NHI could be raised through a variety of mechanisms. In the long run, funding based on an income or other progressive tax is the fairest and most efficient solution, since tax-based funding is the least cumbersome and least expensive mechanism for collecting money.

It is critical that the vast majority of funds flow through the NHI. Such single source (monopsony) payment has been the cornerstone of cost containment and health planning in Canada and other nations with universal coverage. Government expenditures, including payments for public employees’ private health coverage and tax subsidies to private insurance, already account for nearly two-thirds of total health spending in the U.S. This figure would rise modestly under NHI, to perhaps 85% of health costs, and the public money now routed through private insurers would instead be used to fund public coverage. The mechanism for raising the additional funds for NHI is a matter of tax policy, largely separate from the organization of health care per se. Federal funding would attenuate inequalities among the states in financial and medical resources.