 There is a general understanding that the price of medical care is out of control and probably abusive. In typical administrative mode, those who lead the industry work to fix blame on others. Even as they deny any liability for themselves, they are doing the right things and doing them well. The challenge for the patient is obviously one of cost, where even good insurance, expensive as it is, is often insufficient to support reasonable medical facility usage. To start this off, the people who need medical services are vulnerable to abuse. They are often in serious need and are willing to accept a painful level of abusive treatment in order to handle their medical challenges. There is incentive for medical providers to capitalize on this to get a little extra for providing what patients so desperately seek. On the other hand, there is the stringent and extensive education and preparation that is involved in becoming a medical provider. We naturally honor the associated investment made by people who become doctors and nurses. There are medicine costs that are obviously excessive. We know this because any competition that enters a picture causes the price of medicines to drop precipitously. There is a claim that the higher prices covered the original cost of research, but there is never any accounting that might address this as a reality. There is a high cost associated with insurance, with alternate lower medical prices associated with being insured. There are medical treatments that insurance will partly pay and other treatments that the insured patients that are responsible to pay. For this patient, the cost of insurance is added to other medical expenses that must be paid if their medical problems are to be addressed. Again, any patient staying at a hospital is a cause for a questionable bill for services. How much is reasonable? Nobody seems to know the answer. The hospital claims it is covering costs and it does have a very significant overhead, but its internal operation seems complex and difficult to evaluate. Doctors are in medical distress and they have to pay what is required. If something goes wrong, then it all gels into a resistance to blame. Corporate leadership does not accept liability for what the hospital does. They claim that medical providers and support staff just work there. It's others who are to blame. Doctors cannot be blamed for every injury, but they are still blamed when a medical treatment does not have a good outcome. In short, the entire medical operation is a mess, and it is horribly expensive to deal with it. It is not even that we know that it might be wrong, but that we know we are getting expensive services that seems uncertain in cost. As those oriented to performance, our first effort is to address the performance in our basic black box. The question is one of the hospital and its performance relationship to customers. The first effort is to identify customer and product. We begin this by identifying what the hospital must receive in order to continue an operation. In this case, it is pretty obvious the hospital receives income from delivery of medical services to patients. It is a medical provider organization that earns its income from what it does for those who have medical need for its services. For black box application, we must define and identify customers. We have the technique for refining this. We follow the incoming resources back to find the one who decides to pay, the one who receives the benefit of what the hospital produces. It is patients, or is it? A large part of the income seems to come from insurance companies. It is just that the insurance companies do not seem to receive any medical services that the hospital produces. Is the insurance carrier a decision maker here? It does appear to have effect on what services the customer patient receives. That is more like the relation you expect to have if parents pay for the services of their child. It is immediately apparent that there is something very wrong with performance relations in the hospital. There is a third party active in the performance relation. The black box itself is clear in its operation for performance. The customer is the one who has that symbiotic relationship with the providing business. The customer must so value what the hospital provides as its product that he or she will purchase it. Instead of clarifying performance relationships, the current situation seems to confuse them. When we try to address the insurance relationship with the patient, it only gets more complicated. The insurance carrier pays on behalf of the patient even though it receives no value from hospital activities. The value the insurance business gets for its operation come from the pool of potential patients. Does the insurance business value what the patient receives? That seems a little far-fetched. And trying to define the position of the insurance carrier just continues to cause confusion. Is the insurance carrier the agent of the patient? Of course not. It is a separate business with its own corporate purpose to be served by what it produces. There is no legal agency relationship with the customer. No agent liability for what it does on behalf of the patient. We need to do something different if we are to make sense of this. Applying what we have been learning, we can address the performance cycle with customers. That is the business effort that earns income. The first observation is that the insurance business is not even on the diagram. There is no part for medical insurance in the performance cycle. If it is covered on the diagram, then it is inside the box where it will not distract us from addressing the performance of the hospital. Wherever insurance takes part in the determination of value in services received or payment decisions, it is interfering with that performance, which is the lifeblood of the hospital business. If it is to function on the patient side, it will be an agent for payment. Not a part of the performance cycle, but acting to pay on behalf of the client under a separate arrangement. For performance, it would not even show up on the diagram. The very purpose for having the performance diagram is identifying value relations between hospital as a business and customers as those who receive and value what the hospital provides. Variation from this will be variations from performance. It will define waste. It will identify efforts that can be removed without loss to either the hospital or the patients. Instead of simply describing what we have, we are able to define areas of waste that can be eliminated. It is not just the problems that this exposes, but potentials for improvements. Performance vision provides opportunities. It can identify changes that will increase the value delivered to patients or decrease what they must pay to receive what they value. But then the insurance company also has to deal with the hospital, a separate arrangement where the patient only pays what the insurance carrier agrees. The service to the hospital is assurance that the patient does pay and that the insurance carrier can cover costs as a service. Handling questions prices for services is incentive for the patient to deal with the insurance carrier. It is patients paying for insurance to minimize the threat of unfair prices for medical services. The cost of insurance is the cost the patient pays that has nothing to do with the value that the hospital provides. There is waste here, though it is hard to define. For another aspect of the medical challenge, we have a way for medical providers to buy their way into privilege. They get to be the right people and buy protection that can keep them from some legal results of what they do. We call it malpractice insurance. It is what gets sold to medical providers so that their leaders can do what they believe to be right without worrying about what actually accomplished. As a simple fact, hospitals are paid for medical services not for accomplishments, not for results. The hospital buys insurance to cover costs associated with failure in their service or damaging consequences to those who are serviced. Clearly, the hospital's performance cycle is with the patients who are served. The patients receive and value those medical services and provide payment as a key input to the operation of the hospital. We have the vision provided by the black box. Now we try to add in malpractice insurance. It just isn't there at all. We need to create a whole new black box that shows the hospital buying insurance from a third-party insurance carrier. The hospital buys the insurance to protect its medical providers and passes the cost to its customers as higher payments. This starts to make sense when we see how it works. There is a bad outcome and the patient gets payment from the insurance. The patient pays for it by higher prices. The hospital passes the excess payment to the carrier. The one who ultimately pays for this is the patient. That payment protects the doctor from legal consequences of delivering damaging services to the patients. From the standpoint of the patient, they are paying to protect the hospital from the consequences of injuring them. The hospital is spending patients money without even asking permission to protect the hospital from the consequences of injuring its own customers instead of serving them. We encountered something like this back in the 1920s. It was criminal organizations selling protection to businesses. It was a way to raise the prices of goods and the services a little bit through threatening criminal consequences, largely what the mob would do, and selling relief and protection from other criminals. It was a business model that worked for the mob, selling the privilege of relief from their actions. It was a way to get other people's money without having to deliver anything of value to them to get it. It was criminals claiming privilege. In effect, it was criminals taxing businesses so that they could spend their money where the criminals thought it to be right. Taxing commoners was a government privilege. The police stepped in and closed down the mob protection business. Is the insurance company threatening anyone? When you look with performance orientation, the answer is that they certainly do. The insurance company has promised to pay for injury sustained by patients who succeed in suing the hospital and its staff. Lawsuits based on damages normally get to collect if the one who caused the damage did something wrong. If someone trips while walking down the street and you aren't able to catch them preventing their injury, you won't be successfully sued for failure to prevent their injuries. Because the insurance industry has deep pockets, you can sue the hospital for almost any injury suffered, even if neither the hospital nor the insurance carrier did anything wrong. The medical damage suites can succeed because they are based on an injury alone and the fact that the hospital was unable to protect against it. Selling protection has corrupted even the court's judgments that would ruin the hospital as a regular provider are common, but paid by the insurance. Higher prices for malpractice insurance services cover that insurance cost. It interferes with normal responsibility for legal consequences of hospital activities and does so with the money extracted from patients. The cost is passed to the patients as higher prices. Payments that contribute nothing to the services that they receive. It is waste and it can be eliminated without any performance loss. There are lawsuits that would never have been considered without the possibility of huge payments that would cover the legal cost. The very existence of the insurance protects medical providers from the consequences of their actions, even as it accepts liability for damages that would otherwise have no legal consequences. In a more definitive legal understanding, it is illegal to promote legal actions between parties. It is a crime called legal maintenance. It is as if the insurance had promised to pay patients for suing the hospital, even though that insurance carrier was not a party to any agreement between them. This is violently antisocial. It is abuse of the courts. It is corruption of our common law system to allow the selling of privilege to medical providers. It is the twisting of our legal system to provide the injured party a restitution instead of justice. And if you ask why the police are not shutting this down, you only have to compare the insurance business to the mob. The difference in relation to privileged government leadership is obvious, and it is paying taxes. The mob didn't pay taxes on its harvest from the people it threatened. The malpractice insurance does pay them. The big difference is that the mob just claimed privilege based on its ability to threaten shopkeepers and businessmen. It seized upon what these people earned from their productive efforts without the permission or support of privileged government leaders. The mob was selling protection, which was the same product that the government was selling by taxing people to pay for police protection. The mob was effectively competing with government in the sale of one of the few products that citizens did personally get to value. In the case of medical malpractice insurance, the patients could be taxed without competing with government. The insurance business paid taxes and assured that those who receive their damage-based payment also could be taxed. The government receives its cut. The government's privilege is honored. As with other performance challenges, we have the challenge of a socially and politically accepted waste that has become institutionalized. The people who are most certainly involved in creating and supporting that waste have never known anything else. To them, even a change for the better is likely to be met with hostility. Our problem-solving technique is historical, an engineering transform based on solving like problems in the past. We are looking where a similar problem was encountered and successfully relieved. For malpractice insurance, you criminalize selling protection. If the company wants to ensure patients, then it will have to sell it to the patients. The hospital won't even be involved in the relationship. The max payout will be determined by the limits of the policy that the patient chooses to purchase, not by extent of damages. The liability of the hospital is likely to be limited to the result of what it actually contributes to the harm of the patient, not restitution of the patient. The hospital would only be liable if the hospital error caused the damage. This involves a massive legal change affecting the legal industry, minimizing the number of lawsuits and their payouts. Even as it is like they did erupt the business of lawyers, specializing in medical damage lawsuits. All those are medical industry costs that will simply go away, a waste that is eliminated and no longer paid for as costs of service. The cost of regular medical insurance is quite high. Not only is there likely to be one person hired to handle insurance for every three or four doctors, but there are a light number of people hired by the insurance business to work with them. These administrative people are all paid by patients. A good part of its cost is paid through higher prices for medical services. For general medical insurance, we have application of common law agency. If the insurance business pays on behalf of patients, then it is personally responsible for saying to the clients purposes in entering into the agency relationship. If that same business also becomes the agent of the hospital for the purpose of payment, then it accepts liability for performance of that agency. There are legal consequences for trying to mix the two. If a patient dies from a lack of treatment that involve refusal of service for cost, the insurance carrier might be joined in the resulting wrongful death action for its failure to properly cost the process. Only those with political privilege get to make decisions that would bind commoners. The U.S. Constitution specifically mentioned refusing authority to legislators to interfere with obligations of contract. It is a general directive to support the obligations of business contracts, respecting the relationship between the business and its customers. This would protect the relation between the insurance carrier and the patients and separate agreement with the hospital. It would not allow the one to interfere with the other. It would also insist on legal liability for mixing the two, insisting that the carrier business is liable for the results of supporting one at the expense of the other. The value of regulating the cost of services is another matter, one where government can do its function in supporting vulnerable citizens from overcharges. One public service might be establishing the cost basis for services. This does not fix prices, but rather establishes a general approach for costing medical services that is then available to both hospitals and patients supporting their agreement on a fair cost for services. He might, for example, have a list of covered hospital services such as hotel services, practical service, practitioner services, emergency and operating area costs, nursing care for each class of patient, pharmacy, administrative expenses, medical facility and equipment maintenance and the like. This could be a basis for a level of fairness in costing. The extent of regulation would be having that costing available as a basis for medical services. It would support the contract relation between patient and provider. Not only would it support fair pricing, but would do it without having price controls. If there was a challenge, the cost would have a regular basis that could support agreement instead of the current confusion. We also have a capacity to look at the general performance of medical insurance. In its current operation, it is a bit of a monster. Setting prices for medical services based on general agreement with providers. This appears to be a fairly natural result of the origin of medical insurance. And that was assuring doctors that they would be paid for their services. It was not originally focused on a service to customers, so much as did doctors whose patients once treated might resist payment. There was indeed a pressure to spread the risk of non-payment among patients so that the doctor received pay for the services being rendered in light of a certain resistance by many patients. Insurance of patients so that payment was more certain had value. It was a service that the practitioner could value highly. It was then a matter of what the insurance business had to offer to its customers who would be the patients of doctors. The lowering of prices for insured patients made good sense as they were less of a risk to the provider. There would be an insurance payment even if the patient resisted. And so the service was born with reducing the risk for doctors getting paid even as it reduced the base payments that were the basis for insurance being paid. The unaddressed challenge was the basis for negotiation, the privilege of the hospital in assessing its operating costs. Again, the offered government service discussed above provides a good working direction for a whole different business model, one that better serves both the citizens and their cost of medical services. Our effort is to minimize or eliminate the costs of administration of that insurance so that it costs less to service the public that buys the insurance and also costs less to administer the systems that is maintained to establish effective funding for medical providers. We also have an established legal foundation in agency relations with the patients which must be reasonably in place if the insurance is to make payments to providers on behalf of insured patients. If you minimize the cost of administration of insurance you minimize both the cost of insurance and the cost covered by patients payments for medical services. To make this change we have the basis offered by government regulation, a way of specifically identifying cost of services. This provides a foundation for fair payment to cover costs of operation, a uniform basis for costing that can be the basis for negotiation of services. Agreement on that basis provides a relatively uniform costing approach for what insurance can promise to providers and a basis for addressing costs covered by insurance. It gets the insurance carrier out of the business of trying to decide what services are covered and what are not. It gets the business out of paying a percentage of whatever the providers charges. It allows the carrier to be the in fact agent of the patient providing a simple service for a fairly low price. It greatly simplifies dealings between provider and insurance carrier. The carrier is notified of costs incurred as a basis for payment and the appropriate amount is paid. The evaluation process, the unit level checking of service and payment are largely eliminated. These are replaced by a periodic and coordinated review of cost basis providing another industry benefit to all the patients. There is also the public benefit of eliminating price fixing by coordinated efforts of the provider industry and the insurance companies. There is also some benefit from eliminating potential insurance business involvement in legal actions on the costs of services. It has an agreed and publicly available basis for business as long as it remains true to its promise to the patients and the providers. It has not entered into any medical relationship. It does not get to determining which costs to cover and which to deny. It removes the liability for an agent getting involved in disputes between the patient and the provider. Another cost that is minimized or eliminated. And then there is the wonderful involvement of government serving both the industry and the citizens. It is government saying to the welfare of citizens by the action it takes a simple and fairly inexpensive system of cost tracking to establish a shared basis for both providers and patients to use to their individual benefit. Supporting the insurance companies so that it can minimize the cost of insurance is an additional bonus that comes with serving the public. Like most performance improvements, it is a win-win situation for everyone involved. Our current federal government involvement also includes public medical insurance built on the industry's current model. The size and cost of that service can also be minimized by this same simple mechanism. It is worthwhile to note that there has been an ongoing effort to treat industry economics as a pricing problem with the common privilege-based solution to increase the size and cost of insurance so that everyone can get insurance benefits. It is to further separate the customer from any choice. It is loss of freedom. The other favorite approach is price controls. It is direct removal of the right of a provider to set price for what he or she offers. It is direct removal of the right of a patient to search for a best price for the services they value. The challenge, of course, is that economics does not operate on regulation. It operates on the personal decisions of customers for economic goods and services. Attempts to replace the working economy with a regulated economy system creates massive waste. A working economy would not be focused on the value relation between the people and their economy. As a wrap-up for regular medical insurance, there is the observation that the proposed direction of change serves the common law purpose of assuring the welfare and productivity of the people. The insurance business that simply accepts the cost basis and assures pay to cover some agreed part of that basis becomes the, in fact, agent of the patient for payment of medical bills. The law of agency applies, and these companies no longer have to skirt regular liability that would attach to an agent who negotiates with third parties without the approval of their clients. It simplifies their business model, even as it minimizes the administrative cost expended by the medical providers. The value cycle is again in place with the patient paying for services rendered by the hospital and the hospital providing services in order to earn its operating income. The insurance is no longer acting as a customer, but simply as a patient's agent for payment. Of much greater value to us as the people who receive medical services, this minimizes government involvement in the performance process. It provides a costing support service that puts people more in charge of the services they can receive while lowering the economic burden of government intrusion. Government could then concentrate its regulatory efforts to areas where economic concerns are outweighed by other welfare matters. Our challenge is not regulation itself. The challenge is regulation that establishes privilege. It is regulation that is used to limit legal liability for what leaders choose to do. Consider a hospital that scrupulously cleans an operating room to a regulatory standard but still has a history of infection problems with use of that room. Does meeting all the standards limit or remove liability for those who become infected when they are treated in the facility? A medical provider who has a history of patient abuse still has his license to practice. Is there a hospital liability for supporting that practitioner when he abuses patients in the hospital? Clearly, the challenge is not one of having good standards. It is attempting to grant privilege based on that. The challenge includes granting legal protections to the hospital even when its activities contribute to damages. As in early lessons, we have to look for privilege established us and them relations or setting its own internal goals and objectives in place of performance. Does doing all that is required by regulation to relieve the hospital from further liability? There is a common and insistent administrative leaning in that direction. It is that completion of and honoring of all public relation and law will shield the hospital from direct liability for what patients experience. This entire subject is introductory to a larger subject, the subject of people managing the entire medical industry. What we get when we look at the individual hospital as a performance entity is the realization that it is a mess and that its challenges are many, complex and somewhat interrelated. Rather than effectively addressing these, modern leadership has difficulty even recognizing what cost it puts on people or the reduction in services to them. It is intent on running things effectively. For us, that speaks to opportunities that are available. There are some rather obvious directions for accomplishing improved general operation in terms of what the hospital costs patients and what they receive or what they pay. Our remaining challenges include communication of the challenges and the cures that are available so that we come together to set them in place. These are opportunities, not just problems. The study of human performance is a study of how we, people who discover our potency as people, are going to address the world we live in. The hospital is just an example for the use of what we are learning here. It was selected because of the great waste that has been institutionalized in the operation of these critical human service facilities. It was chosen because its problems seem so complex and so great and yet only those who see in performance terms are able to even address its challenges clearly. And it all goes back to the simple black box as a working tool. As in other economic institutions, it is people who own the hospital. So it's a purpose of people. It is people who work in the hospital so that it does what people do. It is people who are the patients and customers of the hospital so that our purchase decisions are the ones that can rule over it. We are the only party in interest. It is waste where those who deliver no services to patients receive payment or benefit from hospital operations. It is waste where patients pay and time or other resources to receive medical support services but what they put in gets directed to the benefit of others. We know with ever greater certainty what has to be accomplished to really improve things. We can eliminate waste without having any losses to what we receive. We can eliminate waste and it will cost us less to receive what we value. That is our human performance reality. There is insurance waste where gaining hospital services requires insurance. It is not that insurance has value but that it has no part in performance. We need the value that it does produce for people but not the significant added costs of current administration. When we identify the waste and can see it for ourselves then we can bring others to see it and to see possible directions for improvement. We have the foundation for bringing people together for supporting personal investments that can bring our human power for focus on specific improvement actions. And then there is government. It has under the guidance of privileged based leaders attempted to have beneficial effect on the hospital by regulating what it does and how it performs its functions. Again, we have learned that regulation is of less benefit to our performance cycle than support. We have looked for the delivery of value to either the hospital or the patients increasing the value in the performance cycle or minimizing costs for the hospital or for us as patients. When we also own our governments we are its only customers. We are as we find our common sense of cost and value able to come together to enlist and support our leaders in delivering what we value. And that is human empowerment.