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POLICY: We need health cost containment before fixing the payment method , by Jack Lohman

Das Kapital

Jack Lohman is a retired business owner from Wisconsin and founder of Throw the Rascals Out. He’s become a frequent commenter on THCB, oddly enough as a Republican voter who is in favor of single payer, and I thought that his opinions on health care were interesting enough to merit an opinion piece no the main page. Jack can be reached at jlohman@execpc.com.

MikeGUEST POST

Let’s take a time out.

As the nation struggles with how to pay for health care costs that are spiraling at an annual rate of 17%, five times the rate of inflation, we are virtually ignoring the reasons behind the escalating costs in the first place. We are engrossed in payment methods rather than cost containment, all while the industry seeks innovative ways of taking home a bigger piece of the national pie. Some see the “free-market” as our savior, when in fact, the slow conversion to a free market system that began a decade ago is the reason we are in trouble today. And it will get worse.

Years ago it was considered fraudulent for hospitals to hire their own physicians, for physicians to own an interest in a hospital to which they referred patients, and for physicians to refer patients to an outside laboratory in which they had a financial interest. We also had a certificate of need program that prohibited hospitals from leap-frogging the hospital down the street, thus churning expensive high-tech imaging systems. 

morThanks to $100 million in annual campaign contributions from the
health care industry to politicians, all of these cost-containment
rules that protected the system from excesses have been eliminated, and
the ensuing free-for-all began and thrives today. But this maneuvering
also promises to backfire and become the undoing of a once-proud
medical profession. 

The only competition that resulted is between hospitals and clinics
as physicians move expensive and profitable testing into their clinics.
Hospitals that once used time-shared mobile MRI services — and then
bought their own in-house system because volumes justified it — are
now finding their local clinics adding the mobile MRI service and
leaving them without patient volumes to pay for their system. In the
meantime patient testing volumes are increasing in the clinic because
of the added profit incentives. 

Is anybody watching the growth of these cash cows? Are we totally
blinded by the conflicts of interest that a free-market system demands?

Don’t get me wrong. Physicians should be paid extremely well, just
not on the basis of how many tests they order or surgeries they
perform. Doctors should have the freedom to refer their patients to any
hospital or independent lab for expensive tests, as long as they or
their clinic do not have a financial interest in the service. Hospitals
should be prohibited from employing their own physicians and physicians
should be prohibited from referring patients to a hospital in which
they have a financial interest. What’s not to understand about these
no-brainers?

There is one rule that has held for centuries: “He who has the gold,
rules.” Currently that gold is held by the business leaders who provide
employee health care and who are losing sales to products that are made
in countries that have universal health care systems. Their competitors
do not have to add health costs to their product price, thus some
American companies are moving jobs offshore while others are preparing
to take over the health care system.

Physicians should look at how the dominoes will eventually fall. The
current system is unsustainable and will eventually be taken over by
the MBAs and CEOs and shareholders. If left alone the current system
will transition to corporately-controlled HMOs and independent
physicians will be a thing of the past. 

We have two sustainable options: A Medicare-for-all system, like
that in Canada, or a socialized system, like that in Britain and our
own VA and armed services systems. The latter uses salaried physicians
while the former still leaves room for fraud and overuse. In the end,
health care can be either a social service or a market commodity, but
not both.

But make no mistake about it. Regardless of the system we choose,
the public will bear the final costs. The important question is: How
long will it take us to fix it the right way? We can fiddle with costly
workarounds and ultimately settle on one of the above. Or we can fix it
without delay and move on to other national policies that are critical
to our nation.

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30 replies »


  1. “I previously quoted the CEO of BIDMC in Boston claiming his (non-profit) academic medical center could not sustain its current level of care if it had to accept Medicare rates from all patients even assuming uncompensated care were eliminated.”

    Barry, I don’t think he’s a liar either, but he’s assuming no change at all under a Medicare-for-all system. Medicare would indeed have to get more realistic and make reimbursements fairer, or all hospitals would have to close. Or it could go to a Canadian-style system that pays a fixed yearly budget and a second variable budget for technology purchases.


    “I also understand that the VA actually opposes Medicare being allowed to negotiate directly with drug manufacturers because it is afraid that their deal would be endangered.”

    So what? This is not a decision for them to make. This should be decided by politicians who are not on the payroll of Big Pharma. And the added quantities from Medicare would force prices down further.


    “Medicare has also not been able to control its costs. It has no idea of how much is lost to fraud, and is doing relatively little to combat it.”

    There are black-and-white examples of fraud (i.e., billing for services not provided) and when discovered these are handled by the FBI. The grey areas of fraud, like over-ordering because it increases physician profit, are more difficult to prove and are generally handled with warnings. That doesn’t mean it doesn’t exist, it just means that warnings are more prudent.


    “… it has done little or nothing to narrow the utilization spread between the best practicers and the high utilizers.”

    I’ve come to believe (thanks to your friendly ragging on me) that some form of transparency and best practices can add to the system, but as I’ve mentioned before we also need a universal IT system to provide this and other services. It’s not an end-all or replacement, but would help add sunlight to the system.


    “It has provided no leadership in getting the Congress to change the law …. ”

    Barry, Medicare is not in the campaign contribution loop, and it has no power to command congress to do anything. Give them a “donation” budget bigger than that of the health care industry and maybe we’ll see some progress. Or eliminate the contributions from their antagonists and you’ll see progress.


    “I wonder what would happen if we told the existing doctors in the country that those 46 million previously uninsured people now have insurance and will collectively be making millions more visits to the doctor, so please find some time in your already busy schedules to treat them.”

    What? They’d turn away paying customers? I don’t think so.


    “However, we’re talking about 16% of the economy here. It’s complicated. Changes bring unanticipated and unintended consequences, and once they’re made they can be hard to undo, revise, or fix. If it were easy to fix, we would have done it 30 or 40 years ago!”

    Not true. Had we had full public funding of campaigns 30-40 years ago we would have fixed the HC system long ago. You clearly know the power of money, and it’s because of that money that health care represents 16% of our economy rather than 10-11%. I think you are assuming that once in place, a Medicare-for-all system will be unchangeable. I disagree.

  2. Barry, I think BIDMC’s robust accounting system reflects the entire inefficient blotted system we have now, not what we could have with a more efficient single pay system with cost containment. I agree that this is a complicated system, as is the Canadian model. I am close friends with a regional hospital CEO in Canada. She spends long days and hard work keeping the system going and trying to bring together all sides to improve the system and the delivery of healthcare. But you know, if politicians would work with ideas and solutions and not bribes, we could have a better system here. I don’t deny that everyone has their own set of preferences, docs, nurses, drug companies, patients, and that they all have a stake at the table. But in the end it’s about good policy that works, not about who can bribe more. At least voters could feel confident that their reps were considering all sides fairly and not siding with the cash-for-votes side. Right now congressman spend more time dialing for dollars than they spend researching and reading legislation. They even get the industry lobbyists to write the legislation for them. How can you have any well run system that operates under those rules. If you ran a company like that you’d be in jail.

  3. Jack,
    I suspect that if Medicare for all were implemented, the system would run afoul of what economists call the fallacy of composition.
    For example, I previously quoted the CEO of BIDMC in Boston claiming his (non-profit) academic medical center could not sustain its current level of care if it had to accept Medicare rates from all patients even assuming uncompensated care were eliminated. I don’t think he’s a liar, and I don’t think he’s full of crap. He says BIDMC has a very robust accounting system and knows its costs in great detail. The ability to cost shift by charging private patients more allows his hospital to make a very small profit margin.
    I also understand that the VA actually opposes Medicare being allowed to negotiate directly with drug manufacturers because it is afraid that their deal would be endangered.
    Medicare has also not been able to control its costs. It has no idea of how much is lost to fraud, and is doing relatively little to combat it. While it has made some effort to identify wide differences in practice patterns from one region to another, it has done little or nothing to narrow the utilization spread between the best practicers and the high utilizers. It has provided no leadership in getting the Congress to change the law to allow it to specifically consider cost when deciding whether or not to pay for some of the ultra expensive biotech cancer drugs coming to market. It has provided no leadership in dealing with healthcare utilization at the end of life, which, by the way, varies considerably geographically.
    Furthermore, I wonder what would happen if we told the existing doctors in the country that those 46 million previously uninsured people now have insurance and will collectively be making millions more visits to the doctor, so please find some time in your already busy schedules to treat them.
    I know you think Medicare for all is the way to go and that you think the system works great for you personally. However, we’re talking about 16% of the economy here. It’s complicated. Changes bring unanticipated and unintended consequences, and once they’re made they can be hard to undo, revise, or fix. If it were easy to fix, we would have done it 30 or 40 years ago!

  4. Barry, IF the special interest money were not flowing to politicians — which it is for the sole purpose of deferring a political correction of a very profitable system — these bastards (sorry about the French) would find the solution overnight. The first thing that would go is the 1500 insurance companies that are consuming the 30% in administration costs. If I were calling the shots I’d then give corporations the right to buy into the Medicare system at what it is currently costing per patient (adjusted for age, of course, because currently Medicare has the sickliest patients). Then I’d slowly phase out their contribution from 100% the first year, reduced by 10% over each of the next 10 years until employer contribution is zero. Payroll taxes would have to go up accordingly to pay for it, but even then, the cost to the worker would still be less than under the current scenario. Physicians can either buy in or they can learn plumbing. But I’d increase reimbursements to make it worthwhile and to keep them in the upper 10% of wage earners. And if need be I’d open the immigration system to foreign physicians.
    But incidentally, I’d leave an opt-out for you and others that want to buy HSAs.

    Under the current system, lobbyists do more than contribute money to fund campaigns. Policymakers rely on these people to provide information based on expertise in a field. If a lobbyist deliberately misleads a Congressman or, worse, outright lies, he or she will never get access to that Congressman again, and the word will quickly spread that this person can’t be trusted or believed. End result: lobbying career is over.

    I wish that were true Barry, but as long as that lobbyist continues to write big checks, he can lie all he wants and will never find a closed door. Think Abramhoff.

    Do you really think we would be better off if legislation were concocted in some ivory tower by people who do not have a good understanding of its likely impact in the real world?

    Think petroleum companies, Enron, Cheney, and Bush. Then ask the question again.
    Barry, I have been to Washington to lobby, and congressmen need to hear all arguments from both sides of the issue. But when one side goes with big cash in their hand, they will be the ones heard. Don’t even waste your time unless you have more bucks to give than the opposing industry.

    One of the reasons healthcare is such a complicated issue is that it accounts for fully 16% of our economy now. Any significant changes could result in unpredictable and unintended consequences. That is why I think it is so important to experiment at the state level first.

    I’d probably say that it represents 10% of the economy but we are paying 15% for it, but we’ve been there before. We may indeed have to experiment at the state level first, but some legislators rightfully see this as a national problem. But we know what works: Medicare-for-all works. Why don’t we implement a known quantity and correct from there?

  5. Jack and Peter,
    I never got around to asking this, but I will now. Suppose we got all the lobbying money out of politics and all candidates either accepted taxpayer funding only or self-financed their campaigns. Then, those that are elected, presumably owe nothing to special interests. Now all these Congressmen and Senators who got elected without help from special interests decide it’s time to reform the healthcare system. How are they supposed to do that without tapping into the expertise of doctors, hospital executives, drug company scientists and executives, regulators, insurers, etc.? All of these people have a perspective, a bias, a personal interest, an ax to grind. For every so-called expert who argues passionately that a single payer system will save us, you can find one who will argue just as passionately on the other side. Who do you believe and who do you trust?
    Under the current system, lobbyists do more than contribute money to fund campaigns. Policymakers rely on these people to provide information based on expertise in a field. If a lobbyist deliberately misleads a Congressman or, worse, outright lies, he or she will never get access to that Congressman again, and the word will quickly spread that this person can’t be trusted or believed. End result: lobbying career is over.
    A case in point is the recent pension reform bill. My employer, along with an umbrella organization to which it belongs, did extensive lobbying to make sure that policymakers understood how proposals being considered would affect us and other companies in similar circumstances. This was an extremely complicated issue that had widely varying effects among companies. Do you really think we would be better off if legislation were concocted in some ivory tower by people who do not have a good understanding of its likely impact in the real world? Our PAC is quite small by corporate standards, but Congress needs to hear how legislation it is considering is likely to work in the real world. This is how the system works, and, on balance, it has served us well for a long time.
    One of the reasons healthcare is such a complicated issue is that it accounts for fully 16% of our economy now. Any significant changes could result in unpredictable and unintended consequences. That is why I think it is so important to experiement at the state level first. Let’s see what works and what doesn’t and build our knowledge base. Companies routinely do test marketing before they roll out new products on a national basis. Why? To improve the product and minimize the probability of a costly failure. We should approach healthcare reform with the same mentality.

  6. Pidgas,
    “He won those trials using junk science.”
    Get yourself a better lawyer. When Louisiana Senator Trent Lott could not collect from his home insurer after Katrina he hired, guess who, the same lawyer who won the big tobacco lawsuit. Trent Lott, who riled against greedy trial lawyers, until he needed one. One mans junk science is another man’s malpractice. My wife is a Neonatal/obstetrics Nurse, done so for about 30 years, she can tell you a lot of “never-been-prosecuted malpractice stories and docs protecting docs. As well as the good docs doing the right thing.
    “Of course, patients paying doctors themselves would substantially increase their empowerment in the transaction.”
    Of course!! Of course what? Do you really want to sit in an office visit and bargain with a patient? And what is the patient going to bargain with? “Hey doc, I’ll pay you under the table so cut me a deal.” And tell me where in the world this is happening now and how it’s holding down costs?
    “My take on the government being involved with socialized healthcare is this; they can’t even straighten out Medicare. They screw up Social Security. Do you really want OUR government… not Canada’s govenerment… OUR government… involved in healthcare before need to be?”
    They didn’t screw up Social Security (another right wing lie), it just needs some tweaking. As for Medicare, well I’ve never used it, but I bet for all the patients that do it’s not screwed up. As for Canada’s government (not perfect by any means) no I think any plan now put forward by a U.S. government with all the kick backs and bribes will not work for anything. We’ve witnessed this now with Katrina, and Iraq. So no I at least agree, THIS government system won’t/can’t do the right thing.
    “Just as they help regulate the food industry.”
    Yea right, like the bought off FDA/USDA can regulate anything – ecoli in spinach, maybe. See that’s the problem, americans won’t come to realize – their, “by the people for the people” has been co-opted by corporate bribes. This “democracy” runs on dollars not votes. Until money is taken out of the system nothing will change. But I’m not naive just realistic and therfore still hold my Canadian citizenship for healthcare. They did a fine job on my cataracts for about 25% of the U.S. cost. Want to bargain?

  7. My assertion is that government bureaucrats cannot “control” economies in any meaningful sense. Their actions have unintended consequences because economies are complex phenomena.

    C’mon, Pidgas. If what you are really saying is that governments cannot control doctor ordering patterns because they do not shadow them on a regular basis, then I’d agree with you. I used to have to watch over my kids so they wouldn’t get into trouble. I would hope that physicians are beyond that.
    I agree that lobbyists won’t “just go away” as long as bribery and payola in our political system is not only legal but the required mechanism industries use to sway politicians. And Tim points to exactly how it affects the health care industry: lobbyists make the rules because they bought a seat at the table. And the head of the table at that.
    I won’t fall for the GOP rhetoric that social security and Medicare are in trouble because of government involvement. That talk is being financed by Wall Street, who would like to see the massive revenues created by “private accounts” and health savings accounts.

  8. Peter, yes, the carriers for the most part are scum. But the problem does not simply stop with them. The problem is their distribution model, and it’s severely flawed. The other problem is political, as most state DOI’s are heavily lobbied by the large group carriers, and the large group carriers tell THEM what to do. The DOI’s make the rules, after being told what rules to make.
    Ironically, many of the state DOI’s are in violation of federal law, and don’t even realize it. Most consumers tend to think the DOI’s are the law, and in reality the DOI doesn’t even KNOW the law, much less make it. It’s just one more example of how consumers are being lead to believe something that puts them under the big carriers’ collective thumb, squeezing every last dollar out of them that they can.
    My take on the government being involved with socialized healthcare is this; they can’t even straighten out Medicare. They screw up Social Security. Do you really want OUR government… not Canada’s govenerment… OUR government… involved in healthcare before need to be? Medicare is so confusing for most folks… different plans, different rates in different states, different FFS plans that change every year, etc. Medicare is already in place, and maybe they will get better at it and make it more easy to navigate as the years go forward.
    They way I see it, there is no healthcare crisis, unless you are simply believing all the garbage being sppon fed to you from the large group carriers and brokers, the politicians that they lobby, and the DOI in your state. Socialized healthcare is NOT the answer, as there really is no problem. Do your homework, do your due diligence, know the rules of the game. It’s all just legalized gambling and the house doesn’t like to lose.

  9. Your link to a John Edwards court settlement overtly separates two unrelated issues and exposes your Republican bias. A chief RNC smear during the Kerry/Edwards campaign was that Edwards was one of those “greedy trial lawyers”.
    Actually it exposes my bias as a physician. Particularly one who cares for newborns. He won those trials using junk science. Electronic fetal monitoring does not help prevent cerebral palsy. So far it has just increased the rate of C-Section. Of course, C-Section isn’t as good as vaginal delivery and is fraught with it’s own complications.
    Oh, and Jonathan Edwards IS a greedy trial lawyer. From the article:

    He took only those cases that were catastrophic, that would really capture a jury’s imagination,” Mr. Wells, a defense lawyer, said. “He paints himself as a person who was serving the interests of the downtrodden, the widows and the little children. Actually, he was after the cases with the highest verdict potential. John would probably admit that on cross-examination.”

    You really must be a fanboy to look at the evidence and conclude he’s anything but a greedy trial lawyer.
    Your assertions that government involvement (tax cash) drove prices to these levels, if I read correctly, may have some validity only in that the governemnent also did not control costs.
    My assertion is that government bureaucrats cannot “control” economies in any meaningful sense. Their actions have unintended consequences because economies are complex phenomena.
    Government involvement drove prices up in at least two ways. First, it drove them up by uncapping demand. Second, it drove them up by removing price-sensitivity from the market. When they realized Medicare cost growth was becoming unsustainable, they moved towards prospective payment systems and sustainable growth rate ideas. They then started clamping down on reimbursement – which led to cost-shifting. Thus, the $10 Tylenol.
    I think what you are saying is that the healthcare industry can’t control itself when it comes to looking after taxpayer money or even premium money.
    That’s not what I’m saying at all. I’m saying that economies are created by consumers with a need and service providers to meet that need. The actions of both are governed by complex (sometimes unsuspected/unknown) incentives.
    Surely every time there are attempts to limit reinbursements industry screams and sends another lobbyist to washington with a bag full of money.
    You think that will change one iota for the better if government is put in charge?!!! You think lobbyists will pack up and go home?!! LOL. I think just the opposite. I think lobbying will INCREASE. Docs will unionize like the nurses and things could get ugly real quick.
    Attempts to limit reimbursements create industry “screams” because they are artificially imposed upon the economy. They are effectively “price controls” and the economic literature on such “incomes policy” is not favorable.
    So what’s your solution? Go back to paying docs with chickens and pigs?
    Going back to paying docs with chickens and pigs? You want care for a discount?! No, we only accept payment with firstborns and virginal daughters. Gimme a break.
    Of course, patients paying doctors themselves would substantially increase their empowerment in the transaction. It would also help realign provider incentives towards serving the patient. Patients want electronic medical records? Higher quality care? Prevention programs? I think they do, and I think they would pay for such things. And I think that patients would probably get more of what they want from health care under such a system.
    If you agree we need reform do you just want get rid of all government involement. Not likely, because what would you do with all those lobbyists trying to get “government” to stake the deck for the industry, against patients.
    No. I do not favor getting rid of all government involvement. But I also think we’ve crossed into dangerous territory when 50% of all health care dollars are flowing through the government already. Government has an important role. Just as they help regulate the food industry and provide food stamps for people, government should regulate health care and help provide some sort of safety net. I think government could play a roll in creating an enterprise to help insurance companies diversify their risk and make insurance more accessible. Putting government in charge of the whole thing is a disaster waiting to happen.
    Finally, with respect to your last comment about lobbyists. As I mentioned above, you have to be the most naive person alive to believe they’ll go away when all the power and money flows through Washington. In fact, centralizing power and money like that is a recipe for corruption.

  10. Tim and Scott, I also agree that insurance carriers are scum and that citizens do not see the behind the scenes reality until they need the system. That’s why I’m unisured now, healthy and sleep well. Not because of inability to pay, but because of an ability of choice that I was not going to play their game any longer. This occured after I used the, “system” for the first time and a small part of the premiums I had paid for 6 years. Past posts have outlined my story. I have used both the Canadian system and the U.S. system, believe me the majority of Canadians have it better, and polls in Canada confirm Canadians think so as well. Their fight for universal coverage was also met by strong oppostion from doctors and continues to be.

  11. Pidgas, Your link to a John Edwards court settlement overtly separates two unrelated issues and exposes your Republican bias. A chief RNC smear during the Kerry/Edwards campaign was that Edwards was one of those “greedy trial lawyers”. Look at figures on Canadian and U.S. malpractice and you will see that neither drive healthcare costs. My reference to the Canadian Supreme court ruling was a reference to how, in Canada, they can have the politicians put on notice by the courts, through an action by one citizen, certainly not the healthcare industry, which here controls congress through bribery not through voters or the courts. Your assertions that government involvement (tax cash) drove prices to these levels, if I read correctly, may have some validity only in that the governemnent also did not control costs. I think what you are saying is that the healthcare industry can’t control itself when it comes to looking after taxpayer money or even premium money. Surely every time there are attempts to limit reinbursements industry screams and sends another lobbyist to washington with a bag full of money. I also think that the reason healthcare returns fair no better than other industry is because y’all are chasing the same blotted charges that w’all is havin to pay. So what’s your solution? Go back to paying docs with chickens and pigs? If you agree we need reform do you just want get rid of all government involement. Not likely, because what would you do with all those lobbyists trying to get “government” to stake the deck for the industry, against patients.

  12. Pid, you surprise me. I had you pictured as one of those MBAs that was in the process of taking over the health care system and didn’t want any outside interference. I’ve written about those at Eleven facts about our health care crisis and would recommend it to all physicians who think their profession is secure. They will be rudely awakened when in 10 years they are working for an MBA. Get used to it.
    As for your medical expenses, I feel that every student in the top 10% should have his full college expenses paid for by the taxpayers when he graduates, though I’d limit the awards to physicians, engineers, nurses, and other needed professions.
    I am sure you also understand that “profits” are determined after expenses, and as a CEO I can keep my profits at zero by simply taking a high salary. Thus the physician making $5 million per year could still be running at zero profits. But as the above article suggests, those high salaries will be gone unless the medical profession moderates its practice.

  13. I would also point out how much fairer the Canadian system is when the Supreme Court can rule in favor of PATIENTS over the “system” in some provinces. We can only dream about such a solution here where years of arguing and overpaying will produce nothing for patients, but through political bribery, will produce everthing for providers.
    NO WAY!!! The court can rule in favor of patients in SOME provinces! We really must dream for that. Courts in this country NEVER rule in favor of patients.

  14. >>> “Providers reacted by shifting their costs to other patients.”
    Wow, is that a stretch. And they did this because Medicare was the bad guy and not because they could? I suppose if Medicare had not been a big bad bully they would not have gouged the private payers? Give me a break.

    It’s not a stretch, it’s fact. Seriously, read the article I referenced. Hell, read any objective article on the subject.

    Obviously you are making too much money on the current system to be detracted, but others of us do care.

    I could be offended, but really I’m just bemused. You assert this with about as much evidence as you assert anything else (i.e. not much).
    Only an idiot goes to medical school to make money. It’s certainly not why I went. I’m still in training (in my sixth year of post medical school training), I’ve got over 130K in medical school loans and 350K in opportunity costs invested in becoming a physician. I incurred those costs in my mid-20’s to early 30’s. Assuming I could have been successful in another enterprise without incurring those costs, I would be a helluva lot better off financially. Maybe even invested in an employer-matching 401k.
    If I wanted to “protect” the relative safety of becoming a doctor, I sure as hell wouldn’t advocate changing to a consumer-based approach.

    And all of that squeezing resulted in one of the most profitable industries in the country? What fairy tale are you reading, Pid? I’ve got to get me a copy.
    With all of the dumping on by Medicare, this Maverick Doc in Orange Grove must really be wacko to be purposely going after Medicare patients!

    One of the most profitable industries in the country?!! Hey, pop quiz, what is the average net margin for medical service companies and how does it compare to other major industries? Answer: about 2.96% (data through January 2006) well below the the market average of 7.78%. Heck, the only part of the medical industry generating net margins higher than the market average is the pharmaceutical industry. Next closest? Medical supply companies at 7.21%. Pharmacy service and medical information companies are way down the list at 2.69% and 1.63% respectively.*
    Oh, and did you even read the article regarding the “maverick md”??? The guy’s getting squeezed so bad by the HMOs that even Medicare looks like a good idea. What’s more, he sees the opportunity to stick it to the HMOs because, “without contracts, the insurers must pay the full charges when their patients come to the emergency room or are admitted to the hospital.”
    Of course, he hasn’t made any money yet. Heck, the subtitle of the article reads (emphasis mine), “Doctor-turned-hospital owner hopes to make money by booting HMOs out of his local facilities.” You’re touting THIS as a Medicare success story?

    If I find the references I will post them, but perhaps Matthew or Brian have access to them. I believe it was a study by Johns Hopkins, but rather than belabor the point, what number do you want to use? 20%, 10%, 2%? You name it, it is still too high.

    I hope you find the references. If you’re gonna go around quoting numbers like that, you better have data.
    Of course, practicing medicine is not like cranking widgets. There is less solid evidence out there about a lot of stuff than you might be led to believe. And if you overlook something or miss a diagnosis, it can cost you your livelihood. “Over-ordering” is very much in the eye of the beholder. For some things, we have very clear patient protocols. For others, protocols don’t exist and we don’t even have the evidence to create them. In many cases, it’s impossible to ever know if the doctor “over-ordered.” Let alone prevent it before the diagnosis is made.
    Even more perplexing to me is why you even bring up physician “over-ordering.” Nothing about any of the “solutions” you’ve offered even begins to get at the problem.
    Pidgas
    * the link is to an Excel spreadsheet from Aswath Damodaran, a finance professor at NYU. It contains data on net margins for 7113 US companies broken down by industry.

  15. Posted by: Scott | Oct 25
    “Well I guess the justices had it right, “Access to a waiting list is not access to health care”.”
    Scott you should understand that each province controls it’s own healthcare system under the federal healthcare act. There is money sent from Ottawa to the provinces as well as provincial money for healthcare. The decision in Quebec does not necessarily reflect how patients are treated in each province. I would direct you to read this on the court ruling and Canadian healthcare:
    http://www.cbc.ca/news/background/healthcare/
    Note 80% of Canadians are happy with the system.
    I would also point out how much fairer the Canadian system is when the Supreme Court can rule in favor of PATIENTS over the “system” in some provinces. We can only dream about such a solution here where years of arguing and overpaying will produce nothing for patients, but through political bribery, will produce everthing for providers.

  16. >>> “Providers reacted by shifting their costs to other patients.”

    Wow, is that a stretch. And they did this because Medicare was the bad guy and not because they could? I suppose if Medicare had not been a big bad bully they would not have gouged the private payers? Give me a break.

    >>> “Then the private insurers of those patients saw the “success” Medicare had with its prospective payment system and sqeezed the providers themselves. So Medicare starts sqeezing, privates get into the act soon after, and the health care industry continues having to cost-shift to make their money.”

    And all of that squeezing resulted in one of the most profitable industries in the country? What fairy tale are you reading, Pid? I’ve got to get me a copy.
    With all of the dumping on by Medicare, this Maverick Doc in Orange Grove must really be wacko to be purposely going after Medicare patients!

    >>> “I’m afraid explanation is necessary when postings really don’t make sense. In that vein, I’d point out that you still have not provided any data to back up your assertion that 30% of health care costs are from physician over-ordering. I’m really dying to see your data for that one.”

    If I find the references I will post them, but perhaps Matthew or Brian have access to them. I believe it was a study by Johns Hopkins, but rather than belabor the point, what number do you want to use? 20%, 10%, 2%? You name it, it is still too high.

    >>> “Yeah, you’ve got no horse in the race or financial interests. Except to protect and preserve the program providing health care to you for well below-cost.”

    Medicare is providing me a program that I contributed to over decades of work and paying taxes so others could be covered. I am not trying to protect it for my sake, but I am trying to fix the free-market rip-offs for my kid’s and grandkid’s sake. Obviously you are making too much money on the current system to be detracted, but others of us do care.

  17. Excellent summary, Scott. There IS no health insurance crisis. Everyone is just being led to believe it. And why not? Their agent comes in at renewal… tells them they are getting a 17% increase…. and wah-lah… they get a 17% increase. Brilliant!
    Who do you think makes the ridiculous rules that favor the insurance carriers, and who do you think lobbies to put those people in office to make the rules? Wellpoint just posted record profits for the quarter… and at the same time people are being led to believe that group insurance is still the holy grail.
    The problem is this; agents are paid on commission, and I have no problem with that if they are earning it. It’s how I make my money as well. However, commissions for small group are paid regardless… the agent’s don’t have to do jack in order to get paid except keep someone as a client.
    Now, as an agent getting commissions, what incentive do you have to show someone how to go from paying $1,000 a month down to $300 a month for the same benefits? Your broker certainly isn’t going to be too happy with his bonus being taken away.
    It’s all about the commissions, the big brokers, and the distribution model that’s been set up. There’s so much fat in the system it’s ridiculous. And to those that try to actually help people out… there are agents in every state…. I guarantee it… that have had their appointments cancelled for showing people less expensive and equal-benefit options. I’d stake my year’s earnings on it. I know of about 30 right off the top of my head that this has happened to, and that’s just in the tri-state area. Who do you think cancelled their contracts and why? I’ll tell you. Some broker is getting million dollar bonuses until someone comes along and shows people all their true options, and gets the business. The carrier still makes money, the agent makes money, and the consumer saves money. It’s a win/win/win all around…. except for the broker who’s been “cheated” out of his bonus. Then the broker complains that he’s losing business to the carrier, and the carrier… ever protectful of the broker who has made them a boatload of money… protects the broker and forces out the guy helping the consumer. I’ve seen it personally.
    If everyone knew what was really going on in the insurance industry and the money involved, there would be an uprising on the scale of civil war with the insurance industry.
    The days of the insurance carriers standing behind the McCarren – Ferguson Act are coming to an end… andI’m willing to bet the IDOI and most brokers don’t know what THAT is either.

  18. [QUOTE] Enlighten everyone? I wish I could. I’ve sat and discussed all of the options with countless CPA’s, attorneys, State Departments of Insurance, long time brokers… it’s amazing at how stuck in a rut and uneducated the vast majority of them are when it comes to all the options. I just got off the phone with my Anthem commission rep who actually thinks COBRA is an insurance carrier. The director for the Indiana DOI that I met with a month ago actually thinks individual policies are just “conversion” plans. The list goes on and on, as does the increasing level of ignorance throughout the insurance industry.[END QUOTE]
    I agree the lack of understanding about the healthcare / health insurance industry is astounding. This lack of understanding is a HUGE problem and let’s the insurance companies exploit the system. These insurance companies get away with what ever they want because; One: The confusion about State of Federal jurisdiction is out of control, two: None of these “agencies” actually enforce the regulations (it’s rare) and three: the consumers are confused as to what is covered and what is not covered.
    I have had multiple conversations with the DOL and or EBSA about major violations of the ERISA regulation and they either had no clue as to what I was saying or they did nothing to enforce compliance. So the patient was stuck with a bill when they were entitled to their benefits per plan, but had no idea how to fight or just didn’t want to. I see this all the time. The whole system is so complex that you have to be in the healthcare field for years to understand the relationships. I agree that the system needs to be simplified, but Medicare for all is not the answer.
    See the insurance companies have greatly execrated the healthcare crisis at the provider’s expense. These companies have successfully projected the blame for the crisis as these greedy doctors that want more money. At the same time these insurance companies have lowered their liability to pay on any such claims. Pretty cunning.

  19. Peter,
    Enlighten everyone? I wish I could. I’ve sat and discussed all of the options with countless CPA’s, attorneys, State Departments of Insurance, long time brokers… it’s amazing at how stuck in a rut and uneducated the vast majority of them are when it comes to all the options. I just got off the phone with my Anthem commission rep who actually thinks COBRA is an insurance carrier. The director for the Indiana DOI that I met with a month ago actually thinks individual policies are just “conversion” plans. The list goes on and on, as does the increasing level of ignorance throughout the insurance industry.
    If you think Big Pharma is bad, you should check out what is really going on in the world of the big group carriers. They are just as bad, and they are fleecing people right into bankruptcy for ridiculous plans that they don’t need. Many employers have already given up providing insurance, because they think they can’t afford to offer it. They make people think they have no other options. They scare people out of looking into the alternatives that they have. They lie to employers and tell them they can’t do anything else. The truth is, there are several options employers have, without stripping benefits to the employees, that cost far less than how they are most likely buying it now.
    I’ve done my homework. I’ve done the research. I’ve read the tax laws that apply to the employer/employee arrangement. Group insurance is the worst buy in the United States, especially for large groups. Most employers are paying more for insurance plans than the employees are paying for their mortgages. They should buy their employee’s homes for them; at least it’s fixed for 30 years.

  20. >>> “Hardly seems right for Medicare to precipitate this and then call for more Medicare to fix it.”
    Medicare did not precipitate this. The people that went bankrupt would not have gone bankrupt had they had Medicare.

    Ah but that’s where you’re wrong. Medicare squeezed providers substantially when it clamped down its prospective payments in the 80’s. Hospital margins on Medicare patients went from 13% in the mid 80’s to -2.1% in 1991. It was a great “bait and switch.” Bring in providers and patients under one system, then jerk the rug out from under the providers.
    Providers reacted by shifting their costs to other patients. Then the private insurers of those patients saw the “success” Medicare had with its prospective payment system and sqeezed the providers themselves. So Medicare starts sqeezing, privates get into the act soon after, and the health care industry continues having to cost-shift to make their money.
    May I humbly recommend this paper: Tomkins, Christopher P. et.al., The Precarious Pricing System for Hospital Services. Health Affairs, Vol. 25, Number 1 Jan/Feb 2006. It lays out the history pricing for hospital services. While that’s different than provider payments, it clearly lays out how Medicare affected pricing in health care. As they point out:

    The steady tightening of Medicare payments in the lat 1980s, as well as low reimbursement levels from state Medicaid programs, imposed financial pressures on hospitals, particularly those with a high proportion of public patients. Hospitals attempted to maintain their profit margins by increasing prices faster than costs to privately insured patients, a practice known as cost shifting. The gap between private payments and costs grew from about 15% in the early 1980s to 31.8 percent in 1992.

    It is indeed sad that the uninsured bear so much of the burden. It’s not true that they’d all be bankrupt anyway. Costs would be spread out more fairly among everyone consuming services. Spread such that it wouldn’t cost hospitals as much to provide free care for those who can’t afford it. Just look at the paper I suggested and compare the gross charges to net receipts. It’s outrageous.
    So I think it’s a bit bizarre to know this history and then advocate for more Medicare as a solution to the problem. But I guess when one makes a mistake, you gotta sell it as a success!

    I am speaking of the 1989 Omnibus Reconciliation Act which introduced the Stark legislation that was specifically designed to eliminate the conflicts of interest physicians had created amongst themselves, namely the ordering of tests through entities in which they had a financial interest. And yes, these conflicts began long before 1989, and if you want to be ridiculously exact about it, the over-ordering probably began with the inception of Medicare. The Stark legislation began to crumble with the 1994 Gingrich revolution and the ratcheting up of campaign contributions.
    I would not have expected the need to explain all of that, Pid.

    I’m afraid explanation is necessary when postings really don’t make sense. In that vein, I’d point out that you still have not provided any data to back up your assertion that 30% of health care costs are from physician over-ordering. I’m really dying to see your data for that one.
    Unfortunately, your “explanation” doesn’t really describe how any of this well-known history constitutes a slow move towards anything like free market medicine. There is no reason to believe that “free market” medicine should allow the relationships prohibited by Stark I & II. Just as there are rules about accountants being consultants, there should be rules regulating the practice of medicine. Free Market (consumer driven) medicine is NOT unregulated medicine. As I said, you’re beyond missing the forest for the trees on this one.

    1. I have no horse in this race and no financial interests on either side of the issue.
    2. You are obviously not on Medicare. I am and I think it is totally fair. I have a choice between deductibles, GAP insurance and/or simply paying cash for uncovered services. What’s wrong with that picture?

    Yeah, you’ve got no horse in the race or financial interests. Except to protect and preserve the program providing health care to you for well below-cost.
    Moreover, you make a logical fallacy when you project your current experiences with Medicare on to a future in which it “takes over” health care. Private insurance usually pays about 10% above Medicare and still covers a substantial part of the patient population. Providers have a substantial amount to lose if all payment is lowered to Medicare rates.
    Just this year, when threatened with 4.4% Medicare cuts, around 61% of providers said they’d defer purchasing equipment and 54% said they’d hold off on buying Health IT (Modern Healthcare, Jan 1 2006). That’s just on the basis of their Medicare patient reimbursement falling 4.4% over one year. They still have their private insurance patients paying about 10% over Medicare (and Medicaid paying no more than Medicare). What happens if Medicare takes over those patients as well AND reimbursement drops 4.4%? Providers would experience a drop in their reimbursement of almost 15% on many patients. One cannot say, “I like Medicare today so we should expand it to cover everyone.” Expanding Medicare would be such a profound change, your experience is unlikely to be generalizable.

  21. Scott, I just finished waiting two months for a doctor’s exam and another two months for an eye exam for cataracts. I’m used to waiting lists, and I’m in the US. Understand that the for-profit health care interests in Canada are doing everything possible to get their system underfunded so waiting lists grow and Canadians to become disenchanted and demand a free-market system like ours. But it is not working, as Peter on this Blog has said, 90% of Canadians still prefer their system to ours, and he’s a Canadian.
    You are obviously not on Medicare. I am and I think it is totally fair. I have a choice between deductibles, GAP insurance and/or simply paying cash for uncovered services. What’s wrong with that picture?

  22. [quote]We have two sustainable options: A Medicare-for-all system, like that in Canada, or a socialized system, like that in Britain and our own VA and armed services systems. The latter uses salaried physicians while the former still leaves room for fraud and overuse. In the end, health care can be either a social service or a market commodity, but not both.[end quote]
    “”Access to a waiting list is not access to health care,” two of the justices wrote in their decision.” That’s the opinion of two justices of the Canadian Supreme Court that ruled against the Quebec and federal governments that wanted to outlaw the purchase of private insurance policies. Now, why would people want to buy private insurance to cover procedures that are already covered under the “Medicare-for-all system”? Well I guess the justices had it right, “Access to a waiting list is not access to health care”.

  23. I am not surprised to have struck a nerve among those on the “other side” of the health care debate, Pid, and I don’t know where your “interests” are, or whether you are a physician. But y interest is in fixing the system before it is taken away from us by the very free market you and others tout.

    (Note: I have no horse in this race and no financial interests on either side of the issue. I am retired and enjoy my Medicare with total physician and hospital selectivity and no wait times and no rationing. And I’d like to make clear that I am not nor ever was a physician. I owned a cardiac monitoring company that served as a subcontractor to physicians and hospitals. I was at the bottom of the food chain and had no “ordering” powers, but I saw what happened within the industry that did.)

    I am speaking of the 1989 Omnibus Reconciliation Act which introduced the Stark legislation that was specifically designed to eliminate the conflicts of interest physicians had created amongst themselves, namely the ordering of tests through entities in which they had a financial interest. And yes, these conflicts began long before 1989, and if you want to be ridiculously exact about it, the over-ordering probably began with the inception of Medicare. The Stark legislation began to crumble with the 1994 Gingrich revolution and the ratcheting up of campaign contributions.
    I would not have expected the need to explain all of that, Pid.

    >>> “I find it hard to believe that you practiced for 35 years and still believe that insurers pay anything near what physicians/hospitals charge ….. The only people “paying” those rates are the uninsured.”

    IF you are on the side that charges insurers, you know full well that some will pay and some will balk, but the claim that only the “uninsured” are getting ripped off is a rather sad commentary on the industry.

    >>> “Hardly seems right for Medicare to precipitate this and then call for more Medicare to fix it.”

    Medicare did not precipitate this. The people that went bankrupt would not have gone bankrupt had they had Medicare.

    >>> “Color me crazy, but it seems like that’s a proposal to put all docs in the country on the federal payroll. Then again, you come right out and say it’s your favored option in the next paragraph.”

    I stand by my personal preferences, as you do yours. Medicare-for-all would not employ physicians and a VA-type system would.

    >>> “Famous last words of a man who would entrust 15% of the economy to the feds.”

    Yeah, Pid, we’ve tried putting the foxes in charge the system, and it didn’t work. I’m ready to try something else. And I would suggest that those who want to keep the system out of the hands of the CEOs and the unavoidable HMO-for-all approach, had best work to fix it in a tolerable way.

  24. Posted by: Tim
    “Bottom line, the answer for affordable coverage is already here, and change is underway. If everyone knew all the rules and how to play by them, they would be absolutely furious at how they have been taken advantage of for the last 20 years.”
    Please enlighten us Tim.

  25. Some see the “free-market” as our savior, when in fact, the slow conversion to a free market system that began a decade ago is the reason we are in trouble today. And it will get worse.

    What are you smoking?!!! Seriously. What?
    If you want to look for the start of health care cost inflation you’re gonna have to look a lot further back than the 90’s. The mischief you cite regarding the “gutting” of the Stark restrictions has far less to do with where we are today than the unrestrained demand unleashed by employer sponsored health care and Medicare combined with a post-war explosion in capacity enabled by the Hill-Burton act.
    The subsequent acceleration of health care spending was visible as soon as 1969, and we haven’t really looked back since. Blaming subversion of bureaucratic restrictions set forth in the 90’s is really well beyond missing the forest for the trees.

    Importantly physicians would not be charging Medicare the exorbitant rates they are currently charging private carriers (which range from quadruple, that I’ve seen, to up to 30 times Medicare rates that others have posted here).

    I find it hard to believe that you practiced for 35 years and still believe that insurers pay anything near what physicians/hospitals charge. That game of cost-shifting and overcharging to inch up reimbursement has been going on for at least 30 years. The only people “paying” those rates are the uninsured. So really, the power of Medicare and employer sponsored insurance to “hold down” costs for their members has directly contributed to the absurdities rife within the chargemasters of America’s hospitals and clinics. And the people going bankrupt beneath the weight of those charges are the uninsured. Hardly seems right for Medicare to precipitate this and then call for more Medicare to fix it.

    I don’t propose that we employ every doc in the US. As with Medicare today they would remain independent contractors. Same with hospitals.

    I guess it depends on what your definition of “propose” is. You say, “We have two sustainable options: A Medicare-for-all system, like that in Canada, or a socialized system, like that in Britain and our own VA and armed services systems.”
    Color me crazy, but it seems like that’s a proposal to put all docs in the country on the federal payroll. Then again, you come right out and say it’s your favored option in the next paragraph.

    This is NOT rocket science. It is not as complicated as you make it out to be.

    Famous last words of a man who would entrust 15% of the economy to the feds.
    Yeah, it’s not rocket science; we should be so lucky.

  26. Universal care from the government and administered by the government is a joke. They can’t even handle Medicare. How in the world can they handle the rest of the population? Hilary-care is not the answer.
    When I read that a CEO of an insurance company is pushing for Hilary care, it tells me that he is doing some serious pocket stuffing to get that contract.
    If America would wake up, do their homework, and educate themselves to all of their options, they would see that the answer is readily available to everyone. A few already have, but they are scoffed at as doing something “unethical” or even “borderline illegal”. Just because someone knows more about the law than you do, doesn’t mean they are doing anything illegal; they simply have more knowledge of the system than others, and how to apply it.
    Bottom line, the answer for affordable coverage is already here, and change is underway. If everyone knew all the rules and how to play by them, they would be absolutely furious at how they have been taken advantage of for the last 20 years.

  27. Eric, I have mentioned in another post (though you may not have seen it), if it were a Medicare-for-all system Part B could remain as is (but with more rational reimbursements) and Part A (hospital) could be modeled after Canada with a fixed budget for operating expenses and a variable for technology upgrades. However, even the Maverick doc in Orange County seems okay with it just as it is.
    This is NOT rocket science. It is not as complicated as you make it out to be. No, there would no longer be $4M salaries for physicians, except for those who opt to be boutique Docs for the rich. But the other would receive enough to live with the top 10% of our wealthy.
    Reduced spending would occur as we converted the 30% overhead costs of 1500 US insurers to the 3% Medicare currently represents (though realistically it’d likely end up the same as Canada’s 13%). Importantly physicians would not be charging Medicare the exorbitant rates they are currently charging private carriers (which range from quadruple, that I’ve seen, to up to 30 times Medicare rates that others have posted here).
    And yes, we’d pay for it in increased payroll taxes. Please note that the public *already is* paying for 100% of health care costs, at the very least when US manufacturers add their costs to their prices and the public pays at the cash register. But we also pay in deductibles and co-pays and bankruptcy costs and cost-shifting and on and on and on.
    We wonder why companies are sending jobs offshore, and it’s a combination of high wages, high health care costs and high environmental costs. Reforming health care won’t solve that by itself, but it doesn’t have to. But it will more than offset its costs and still cover 100% of the people.
    I don’t propose that we employ every doc in the US. As with Medicare today they would remain independent contractors. Same with hospitals. And yes, I would severely reform the malpractice system, though I hasten to point out that malpractice awards have remained at less than .5% of overall costs for the last 5 years and are not the monster driving the spiraling costs. Defensive medicine is very profitable under the current system.
    I would indeed have a no-code requirement on patients over 90 unless the family is willing and able to pay for extensive end-of-like care. I will avoid your cluster-bomb questions at the end that I think are just diversions.
    If we ever got into a VA-type of system then the government would indeed have to buy the current hospitals and employ the physicians directly. Though that’s an expenditure I would consider an extremely wise investment, it won’t happen in my lifetime.

  28. As we have discussed many a time– you do not specify which medicare you want for all.
    To reduce spending — how do you propose to do it? Freeze the budgets at their current level? Go ahead and let the part B cuts drop reimbursement by nearly 50% over the next 5-6years? Eiminate the automatic increases for medicare part A? Increase payroll taxes? Increase ‘indexed payments’ based on income for part B?
    How do you propose to employe every doc in the US? Would this also apply to all nurses? Would the gov’t buy every hospital? Would you severely reform the medical liability system? Would you by statute prevent certain end of life care? How about newborn icu care? Would you ban smoking or fatty foods? How about fast food restaurants– many would say that this is a real cause of high medical costs?
    I’ll wait patiently for answers…

  29. Nice piece Jack. I heard a good take on this from the Clinton campaign slogan – “It’s the prices stupid.”

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