In Rx for Health Care Reform, Ken Terry analyzes the current state of health care reform and finds it wanting. Instead of tackling the core problems in our failing system, he argues, politicians, insurance executives, and health care leaders have embraced ideologically driven initiatives that pursue impractical objectives or will take too long to bear fruit. Among these are such widely hailed trends as disease management, pay for performance, cost and price “transparency,” consumer-directed care, and health information technology. These approaches all contain parts of the solution, but none of them will reverse the rising tide of health spending

While technology, aging, affluence, and other factors are all helping to push up health costs, the top driver is the sheer profitabiity of the health care industry, says Terry. Insurers, physicians, hospitals, pharmaceutical companies and device manufacturers are all striving to maximize their profits, and there is no effective competition or regulation to restrain them.

Only a complete overhaul of health care financing and delivery can get us out of this mess, Terry maintains. He proposes having primary-care physicians join group practices large enough to take financial responsibility for professional services. Competition among these groups, based on cost and quality, should replace competition among health plans. There should be only one government-regulated insurer per region, and it should have no role in managing care. Its profits would be limited, like those of power and water utilities, and its main functions would be to pay claims and measure provider performance.

Terry does not favor a government-run, single-payer system. Instead, he believes that regional health boards, comprised of consumer, employer, and provider representatives, should hire and fire the “utility” insurers and supervise the competing primary care groups. They should also work with health planning agencies to decide which new health-care facilities are needed.

The physician groups would set their own budgets for primary and specialty care, outpatient lab and imaging tests, and prescription drugs. As in the pioneering Patient Choice program in Minneapolis, their total cost of care—including hospital costs—would be published, along with group quality scores. If a consumer chose a primary-care doctor in a higher-cost group, he or she would have to pay a higher share of the insurance premium. Competition among these groups would force them to become more efficient without sacrificing quality. So they’d choose specialists carefully and refer to them judiciously.

The government and the utility insurers would pay fixed per diem and case rates to hospitals, nursing homes, and other institutions. While there would be adjustments for medical education and other factors, the size or market position of a hospital system would have no bearing on what it was paid. The system would be funded by health care contributions from all individuals and employers, with government subsidies for those who couldn’t afford to pay. No company would pay more than a certain percentage of its payroll, and no individual would pay more than set percentage of his or her income. The IRS would collect the money in the form of payroll and estimated taxes and allocate it to utility insurers, based on place of residence.

The utility insurer model could save almost enough money in administrative costs to cover the uninsured and make sure everyone else had decent insurance. In the long run, competition among the primary-care groups, coupled with the development of a national health IT infrastructure and comparative effectiveness research, could cut costs by 30 percent and slow spending growth.