Howard Dean Endorses SMA Feedback Loop as Essential to Healthcare Finance Reform

“Why do healthcare costs rise as much as they do? What, specifically, is driving it?” This was the question posed to Democratic Party Chairman Howard Dean by Maria Bartiromo during his appearance on MSNBC’s Morning Joe program on July 27.

Dean’s response: “The private sector doesn’t work well in healthcare because there is no feedback loop. There’s no supply and demand curve that are linked.”

Dean’s reply, which can be heard on the MSNBC website, is the best indication so far that the healthcare policy concepts pioneered by Sylvain Raynes and his associates at R&R Consulting and Standard Medical Acceptance Corporation (SMA) are reaching a serious audience. The concept of incorporating a feedback loop into a healthcare cost control mechanism was originally presented to members of the White House Council of Economic Advisors in 2006 as an R&R white paper entitled “A Cybernetic Approach to Healthcare Finance.”

A copy of that white paper was given to a Dean DNC associate earlier this year. Needless to say, we are extraordinarily pleased that our ideas are being discussed on national television. Copies are available upon email request from info@creditspectrum.com.

In essence, the SMA resolution is based on two simultaneous but linked feedback loops, one at the hospital level and one at the insurer level. According to our plan, hospitals would satisfy their daily liquidity needs via the packaging of medical claims into diversified pools, out of which highly creditworthy notes would be issued and traded on exchanges, the same way commercial paper is now traded. The obvious natural buyers for these notes would be healthcare insurance companies. Through this mechanism, they would accomplish what would have hitherto seemed impossible, i.e., solve their asset liability management problem. Their leverage ratio could be increased significantly with no reduction in payment ability, and their stock price would shoot up. The purchase of such pools in real time would constitute the first feedback loop, since markets would price them according to their repayment characteristics.

The second feedback loop would be enabled via real-time valuation of the same medical claims, i.e., those submitted daily by the hospitals. Any decrease in collection efficiency, in either time or dollar space, would result in a smaller advance rate, thus warning the hospital that their operations are slipping. Of course, the opposite would happen to hospitals improving their efficiency, in which case the system would automatically increase their advance rate with each cash cycle, thereby radically improving the hospital’s cash flow position. In this manner, the country’s entire healthcare finance architecture would be brought under control slowly, monotonically and permanently. For a more detailed description of this system, please request a copy of the white paper.