Beware the Bursting of the Health Care Bubble

Beware the Bursting of the Health Care Bubble

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George Lundberg The good news is that if and when the American healthcare bubble bursts, some value will remain. The bad news is that the annual appropriate value could actually be only about 60% of the current expenditure.

The turn of the 21st Century has been marked by the creation, expansion, and im/explosion of at least 3 significant economic “bubbles”: the huge company Enron, plus the fields of dotcom and real estate/finance. A “bubble” comes to pass when a commodity of great promise and wide applicability entices many to participate and grows at a pace that reflects hope, excitement, sometimes greed, but does not have sufficient underlying  substance to support its continuing growth.

The demise of the fraudulently inflated Enron forecast much of this decade’s  financial  collapse.  A once successful oil and gas distribution company, Enron enjoyed accelerated growth in an essential field. But it came acropper by fakery, derivatives, and manipulation, out of synch with sound principles for sustaining value. When the trickery was exposed, little remained . Enron had become a “bubble” company with a top stock price of $90 in 2000 that shrunk to pennies.  This emperor had no clothes. It was a house built of Texas sand.

Many of us lived the dotcom boom and bust close up. Computer technologies do have lasting value. The internet added huge new potential with its promise to change the world in a fundamental way and did deliver. But on the way, its promise produced an inflated boom of economic value expectation far in excess of what was possible to sustain. In March 2000, the collapse began, producing a loss of “wealth” of 80 % as reflected in the NASDAQ and 40% in the Dow Jones over just a few months. NASDAQ has not recovered and the Dow Jones took several years to regain and (temporarily) exceed its level , after many companies collapsed.  Companies with the most real substance survived; the emperor had some clothes; the field endured and even prospered for the “winners”, once the bubble burst.

Then came the bubble of personal real estate; everyone wants his/her own home.  Politicians pushed home ownership.  Many buyers could not afford the homes  they were sold.  Subprime mortgages to unqualified buyers accelerated lenders’ profits. America’s Masters of the Universe created a pure shell game, “derivative financial products”, packages of unsound mortgages, thereby claiming vast short term gains. In the computer business, we call that “garbage in; garbage out”; now these products are labeled “toxic ”. This derivative and credit swap scheme was “take the money and run” on a grand international scale. When the derivatives bubble burst, the world economy came close to collapse and no one knows for sure when or even whether it will recover fully.

Which brings us to 2009 and the healthcare bubble. Health Care in the USA uses (consumes) some 17% of the Domestic National Product, something like $ 2 600 000 000 000 per year. Its growth has been at 2-5 X the rate of inflation almost every year for as long as I have watched it (some 30 years).  Many in health care, especially those with high expectations for continued large incomes from this growth, say, “So what”? “We earned it”. I agree that it is better to spend the national treasury for health care than for unneeded, new pork-barrel fighter jets and naval destroyers, or cocaine, booze, tobacco, fancy cars, gambling, second homes, sports, other entertainment, and porno.  The problem is that much of the $2.6 Trillion does not provide the medical value needed by our people. At least $400 000 000 000 annually is spent on unnecessary administration, competitive marketing and advertising, lobbying, large incomes (yes , including bonuses) for CEOs and executive staff who run for-profit organizations (and many not-for-profits ) plus profits for shareholders.  And, (conservatively) something like 20% of the total US health care expenditures (perhaps $ 500 000 000 000 annually) is expended for medical  practice activities that are not based on scientifically sound  evidence and do not improve patient outcomes. The habits of those over-spending and under-achieving American medical geographic regions and many medical/surgical specialists could/should be changed drastically to better conform to those right-spending or mini-spending and maxi-achieving  geographic regions and medical practice organization patterns. From this change, we can expect NO loss of quality, indeed likely improved outcomes.  And, some $150 000 000 000 is expended annually for clinically superfluous actions to defend against potential future medical liability allegations.

These expenditures, of no value to patient care or the public health, add up to roughly $1 050 000 000 000 per year. Comprehensive health care reform that puts the interests of patients first, followed closely by the public health and the long term economic health of the United States, will wipe out those expenditures. Pop goes the health care bubble.

Extrapolation bias teaches us that the scenario I advocate here will not happen. We will not control costs. Neither The Final Report of The Committee on the Costs of Medical Care in 1932, nor Harry Truman’s proposed National Health Insurance in 1948, nor Wennberg’s compelling work on geographic variations of medical practices beginning in 1967 nor Schwartz and Aaron’s “The Painful Prescription: Rationing Hospital Care” in 1984, led to basic health care for all Americans or control of health care cost inflation. Why should 2009 be any different?   Our system has repeatedly not responded well to data or rationality. But, then again, no prior large group (an organized public, the industry, the market, the profession, or the government) has ever been truly serious about the needed reforms.

Some loud and whispered voices in medicine will say…. “we are not like those finance guys. We deserve our money; after all, we do good”.  American medical advances unquestionably do save lives. But I argue that medicine is still a learned profession, indeed still a service profession, and should perform as such.  Asking the government to throw a lot more money medicine’s way in order to cover the uninsured is thinking like those in the failed financial sector. Comparative international experience shows that there is enough money already in our system to care for the basic medical needs of all of our people, if we spent it right. Government has a responsibility NOT to make the health care bubble even bigger. I believe that our long overdue Health System Reform must care for the basic healthcare needs of all of our people as a moral imperative derived from our national culture of common compassion.  And, now is the time for those of us in the American medical profession to do our patriotic duty to rein in our many egregious and habit-addicted members and lead the rest of the bloated medical-industrial complex to cut back on its vast waste. We can help to get the US back on track economically to benefit us and our children’s children.  But let’s beware of the inevitable collateral damage that will result from the bursting of this bubble, and re-valuation of the healthcare industry at 60% current expenditures, and let’s prepare for it.  Or, will we learn that the American Disease-Medical-Industrial Complex has really been largely a sophisticated “jobs program” all along, and cannot change now since the already high US unemployment rate would rapidly reach double digits?

George D. Lundberg MD, is former Editor in Chief of Medscape, eMedicine, and the Journal of the American Medical Association. Currently Distinguished Consultant, Physicians Advocates, Berkeley, CA and Consulting Professor, Stanford University School of Medicine.

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45 Comments on "Beware the Bursting of the Health Care Bubble"


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Bonedoc
Oct 25, 2011

Midcareer yeoman orthopedic surgeon here. Just a brief reality check from the front lines. I run an efficient practice, normal 50 percent overhead. Medicare is a financial nightmare. By RVUs i mtake home about 300 dollars for performing a total hip replacement. That’s right, 300 dollars. Preoperative care, hospital care, calls at night, and 90 days of postoperative care. I support myself on privately insured patients who, thereby, are subsidizing Medicare patients and the federal government. If you cut my reimbusement by 40 percent i am losing money. WHY DO ANY OF YOU THINK I WOULD DO THAT? Politicians want to continue to say they provide insurance and have us be the bad people who don’t see them. That is clearly the future my friends.

Guest
Dec 17, 2011

Joint Replacement is the #1 expenditure of Medicare. Patients receiving failed implanted devices are in medical and legal purgatory. Orthopedic surgeons are 96% male making an average annual salary of $400k. Dr. George Lundberg’s reasoning is accurate: medical providers in the US must respond to the new reality by elevating science and service.

Guest
May 17, 2011

WAKE UP!!
Perhaps better is more focus on incentivizing ‘healthy wellness ‘ type care. Americans have always placed value collectively on those things that they aren’t able to do as ‘rugged individualists’. Tax based school and interstate highway systems come to mind. Funding in the form of mil levies (everyone has to have a place to live, right?) were the strategies employed.
As the foodstuffs we place in our bodies everyday are the seed agents of so many of our chronic and costly disease states, it would make sense to begin a ’sin tax’ provision in the Earl Butz created depressed food cost market.
These point of sale taxes would be tied to the known deleterious effects of high fat, high sucrose, additive and carcinogenic potential foods and food-like products consumed in abundance by Americans.

Guest
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Dec 26, 2009

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Renee Baeb
Dec 11, 2009

This is for Ellesia Blaque, Ph.D.
Roy Scales was a friend of mine and he did pass away. Thank you for remembering him. He was a great man and deserved far better than he was given.

Guest
Sep 5, 2009

Great article by Dr. Lundberg on Reducing Health Care Costs Now.
Your help needed. Support. AB1478. Jim Henderson, Esq. and John McDougall, MD wrote AB1478, presently in the CA legislature. The informed consent bill seeks to reduce health care costs and improve the standard of care for heart disease and diabetic patients by requiring physicians to give these patients the option, in non-emergency cases, of being referred out to intensive nutritional therapy and lifestyle changes, instead of receiving the standard milieu of drugs/or surgery.
Visit http://www.camedicalchoice.com for more details on the bill. The bill was created when a consultant of one of the committees read Indicted! The People versus The Medical and Drug Cartel, by Jim Henderson, Esq. See http://www.indicted.us. Indicted argues that while we have the best trauma care in US, we fall flat in chronic disease care because we only seek to manage the symtpoms of diseases such as heart disease, diabetes and cancer without even attempting to cure the underlying cause of the disease. This is a great national scandal. We are trading health for dollars. Hippocrates defined medicine as the discovery of the best foods to restore and maintain health and he discouraged the us of drugs. Today we define medicine as he search for the right drugs to manage,without curing the symptoms of disease.
It is estimated that 70 to 80% of our health care dollars go just to managing symptoms. California spends approximately $48 billion annually on heart disease and $36 billion annually on diabetes. California would realize great savings if we shifted from a drug and surgery intervention health care model to a prevention and cure model. All major studies show that bypass surgery and angioplasty do not prolong life or reduce heart attack rates. Ornish et al showed that patients who opted for a healthy diet and lifestyle in place of medical management or surgery has a 91% mean reduction in their chest pain and a 82% reversal in their underlying atherosclerosis.
Similarly medications for type-2 diabetes are prescribed aggressively with the unfounded belief that better control of blood sugar will result in better long-term outcomes for the patient. But all six major studies in the past 13 years have shown otherwise. Nutritional therapy and a plant based diet reverses diabetes.
It is time we took back our health by adopting a healthier lifestyle and by demanding choice in our medical remedies.

Guest
Rick, DMD,MBA
Jun 16, 2009

Many good thoughts here. Not too much mention so far on preventive aspects of disease. Chronic disease states are predictable cost constraints for payers. Incidence and prevalence are all known quantities. We need to play on the same field as the ‘insurance pros’ by having our own cadre of actuaries. Can the third party payers really be expected to pick up the known tab of long term care? ..without some kind of fuss? An insurance ‘requirement’ in the form of a Massachusetts type program plays right into the hands of the insurance industry. Sure, the infrastructure is easy and in existence but is that really the answer?
Perhaps better is more focus on incentivizing ‘healthy wellness ‘ type care. Americans have always placed value collectively on those things that they aren’t able to do as ‘rugged individualists’. Tax based school and interstate highway systems come to mind. Funding in the form of mil levies (everyone has to have a place to live, right?) were the strategies employed.
As the foodstuffs we place in our bodies everyday are the seed agents of so many of our chronic and costly disease states, it would make sense to begin a ‘sin tax’ provision in the Earl Butz created depressed food cost market.
These point of sale taxes would be tied to the known deleterious effects of high fat, high sucrose, additive and carcinogenic potential foods and food-like products consumed in abundance by Americans.
These funds would help offset the proposed 1 trillion Obama-care concept being considered in Congress.

Guest
Jun 15, 2009

‘there is enough money already in our system to care for the basic medical needs of all of our people, if we spent it right.’ To paraphrase Ghandi, the system provides enough to satisfy every man’s need, but not every man’s greed.

Guest
Jun 11, 2009

In a recent 60 Minutes report presented April 5, 2009, a set of facts regarding the healthcare industry were revealed that shocked even me. According to the 60 Minutes report, Las Vegas, Nevada has been hit especially hard by the economic crisis, which makes perfect sense: why would smart people, even those who are usually irresponsible and/or rich, pilfer away their money at a desert casino? This massive loss of tax revenue has crushed the city and state budgets, and like Dickens’s scripted old Scrooge to state, “decreas[ing] the surplus population” is at hand.
The healthcare facility to which I refer is the University Medical Center of Southern Nevada, Las Vegas, and the woman making the budgeting decisions is Kathy Silver, UMC’s CEO. According to a Channel 8, Las Vegas news report dated May 22, 2007:
“[s]elf-pay clients — that is, those who don’t have insurance but who don’t qualify for a government medical program — owe $160 million for care they’ve received over the last four years. Some of them declared bankruptcy while some simply can’t or won’t pay. Silver says $160 million is the total billed charges, but UMC never expected to collect the full amount because of fee agreements.”
This is not only a symptom of the problem of healthcare, it IS the problem. American healthcare is overwhelmed with negotiations and backroom deals for services and prescription drugs. There is no unified system for how these services and drugs are billed or by whom. Nor is there a unified system on how those bills are paid. Within the interstice of these healthcare ills are the patients, of which I am one; but here are a few examples of others effected by UMC’s financial woes, which I find more compelling than my own, and certainly in need of more pro-action from me and all of you who are reading this op-ed piece.
UMC, the Las Vegas, NV hospital to which I have been referring, lost $51 million when they lost the bulk of their tax revenues. Kathy Silver “chose to sacrifice services duplicated at private institutions” (Silver), despite her knowledge that the patients dropped from UMC because of its new policies on acceptable insurance products, might not be able to afford that care: “the patients who don’t qualify for a social services type of program” (Silver), i.e., the middle class. Therefore, many of the patients Silver and UMC dropped from care are going untreated for killer diseases, such as cancer.
For example, Yolanda Coleman has breast cancer, which she learned about while employed. However, she was dropped from her employer’s insurance and after three rounds of chemotherapy at UMC, they dropped her from care as well. As a result of interrupted cancer treatment, the disease has advanced to her bones. For several weeks, she lie in a medical bed using a wheel chair for legs, as she was restricted by a broken hip; no doubt her bone cancer was diagnosed during treatment for her hip. Yet, there was still no treatment for her ever progressing cancer.
Coleman, an African American single mother, worked as a maid in hotels and later as a truck driver to support and educate her two children. At the time of her 60 Minutes interview Yolanda Coleman did not know when, or if, she would receive the remaining rounds of chemotherapy treatment, stating, “I’m just living day by day” (Coleman, 60). After her interview, according to 60 Minutes, the medical supply company supplying Coleman’s medical bed and wheel chair came and took both away like so much repossessed furniture. Insurance reinstated after 60 Minutes contacted her insurance company “to ask why she had been dropped.”
I spoke to Yolanda Coleman this afternoon. She explained to me that her company, the Imperial Palace Hotel and Casino did not offer her Cobra, the insurance plan that most employers offer their employees upon job separation. Because Cobra can be attained through Imperial Palace, it’s a given that they should have offered Coleman the coverage at the time of termination, but they did not, which supports my theory that as individual companies and CEO’s, there is an attempt to “decrease the surplus population” (Dickens), those of use expected to die–soon.
UMC Las Vegas terminated the prenatal, outpatient oncology, outpatient dialysis, obstetrics, and outpatient mammographies clinics. They also closed the women’s cancer clinic altogether. Closing the outpatient oncology clinic severely effected Mr. Roy Scales, an African American lung cancer patient. Scales learned in person on the day of his set appointment that the clinic was closed by UMC when they “turned me away at the door,” saying, “every day I don’t get medical input, this [cancer] advances on my body” (Scales, 60). In his attempt to access the clinics listed on the ‘good luck’ document issued to him by UMC, he contacted “at least 25″ doctors’ offices” (Scales, 60) all of which have turned him down because they don’t accept Medicaid. In April of this year, Scales “signed himself” into a local hospice, which by definition means he plans to keep his word in the 60 Minutes interview, to “die peacefully” (Scales, 60. I checked as many hospices in Las Vegas as I could find. Only one asked if I knew Mr. Scales middle name. He would not have asked me that if there had never been a Roy Scales there. Or is he still there?
In the richest, most industrialized nation, where people live one person to a $500K house, attend universities at $42K a year, drive Hummers and BMWs, spend money on their local Daily Number, in casinos in Vegas and Jersey, poor people are allowed to dies on the street.
When I was first diagnosed with my disease I was a ward-of-the-state of Pennsylvania. I had been adjudicated a delinquent and chose to sue my parents for abuse and abandonment and was waiting out the decision a children’s home for girls in a suburb of Philadelphia. I was working as a dishwasher at the local Denny’s, second shift. I came home one night and was told I had won my case and was forced to leave the facility right then. My diagnosis was only weeks old. I had no idea was sarcoidosis was, nor was I aware of what the treatment–mass amounts of steroids–would do to my body and my mind. All I knew was that the pills keep the headaches and vision loss at bay and the eye drops burned like hell. Those eye drops, Pred Forte 1%, cost about $60 for 10ccs, and I needed about 20ccs per week. I did everything from forge prescriptions to outright steal the drugs because I had no access to healthcare. I did not know about Loma 1-10 and the insurance companies ‘morbidity’ rates. I did not know that there were people who were considered ‘uninsurable’ and that I was one of them. For many years I received treatment during flare-ups at local emergency rooms, still not knowing that each flare-up left scar tissue on my eyes and optic nerve. Eventually, the disease moved to my brain. The only reason I survived was because, for the first time, I had a healthcare plan, which is credited to my graduate fellowship at Wayne State University. Even with healthcare, that I no longer have as I transition into my new job, I cannot afford the medications most of the time. Thank God for Wal-Mart’s $4 plan, but where do those drugs come from and are they safe, are they as efficient as brand name prescriptions, and how long will Wal-Mart offer that plan? These are the types of problems facing Americans. Regardless of their race, heath insurer, time on the job, income level, or medical issue, Americans are dying on the street everyday because they do not have healthcare.
The political right argues that State sanctioned healthcare gets the government between the patient and the doctor. What they do not consider is that before I worry about the government getting between me and a doctor I have to actually have a doctor first! What about the tens of millions of people, including the elderly, children, and people like me who have chronic, incurable diseases, without healthcare at all? Are Americans going to hoard a few pennies so that they can buy new houses, new rims for those new cars, and new stereo equipment for those new houses? Or are we going to demand that our tax dollars and insurance premiums and co-pays are collected fairly and spent wisely to allow ALL Americans to have access to wellness.
Thanks to Nick Spiritos and his partners for investing $100K of their own money to build an oncology clinic in a spare room in his private office where they now treat women with ovarian and uterine cancer. Let’s follow his lead. Please review the 60 Minutes video that inspires this comment, titled, “This Clinic is Closed” at http://www.cbsnews.com/stories/2009/04/03/60minutes/main4917055.shtml. Then decide what YOU are going to do to help alleviate this suffering.
Thanks for listening, reading, watching, and responding.
Ellesia Blaque, Ph.D.

Guest

Our health care system is driven by those who can afford expensive health care system, those people who pay their taxes right, and most of people who have the money to go to the hospital and ask for a treatment.

Guest
Jun 7, 2009

Good essay. Would that the following, quoted from the essay, would happen. Given that the current system of financing and payment for medical services generates a predictable, recession-proof and highly lucrative “life-style” to physicians, I see no chance of this happening. I have never met a specialist physician who does not think that his/her $300,000 median net income or $1 million median gross income is at all abnormal.
“And, now is the time for those of us in the American medical profession to do our patriotic duty to rein in our many egregious and habit-addicted members and lead the rest of the bloated medical-industrial complex to cut back on its vast waste.”
The only elements of the delivery of medical services that apply competitive pressure on price in medical services are the walk-in clinic chains and services for expensive interventions, surgery primarily, performed in lower-cost sites outside the USA (medical tourism). But their presence and impact are next to nil.
The walk-in clinic phenomenon seems to me to offer some potential for competitive forces to gain a foothold in the market for medical services in a way that does not have the side effect of potentially lower quality of service (if not higher convenience) along with the lower price.
The services offered seem to me to qualify as “precision medicine” as defined in the recently published book The Innovator’s Prescription. To my mind at least the book provides a useful and unique framework for understanding which medical services can be delivered based on a “factory” model and which cannot be.

Guest
Peter
May 18, 2009

This recent study on the Kaiser web site has been adjusted for changes in Census questions. It doesn’t even remotely support your claims Nate.
http://www.ebri.org/pdf/briefspdf/EBRI_IB_09a-2008.pdf

Guest
Nate
May 17, 2009

Peter where is your study proving any less then 98% can’t? Check the census study or kaiser only 3-5 million uninsured either don’t have insurance they qualify for and choose to not enroll on or make over 50K and thus able to afford it. Your right I am way to busy to poll 300 million people, luckly the US Government, Kaiser Family and a dozen other organizations already proved it for me