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Thoughts from the Frontline

Who Took My Easy Button?

February 4, 2012

Choose your language

Everyone knows by now that the US is facing difficult choices. Depending on what assumptions you use, the unfunded liabilities of Social Security and Medicare are between $50 and $80 trillion and rising. It really doesn't matter, as there is no way that much money can be found, given the current system, even under the best of assumptions. Things not only must change, they will change. Either we will make the difficult choices or those changes will be forced by the market. And the longer we put off the difficult choices, the more painful the consequences.

This week we begin a series on the choices facing the US, having covered Europe in the first three letters of the year. In order to make the best of a difficult situation, we need to understand the consequences of the choices we make. "Cut spending," say some. "Tax the rich," say others. "Cut out waste and corruption" is always a popular choice. "Do all of the above," intone others.

There are over…

Discuss This

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Raymond Kordonowy

Feb. 10, 2012, 6:18 p.m.

I am a practicing Internist and first generation physician (18 years in practice).  Stay with me cause this commentary gains some steam. To the reader who believes a thousand dollars an hour to save a life is too much; it needs to be pointed out to you that your surgeons spent over 12 years of post graduate time (most of this education they paid for). Furthermore they keep a skill set in their memories that allows them at a moments notice to fix a ruptured or infected organ, remove a cancerous tumor, stop a hemorrhaging blood vessel, etc. Do you think this isn’t worth a few thousand dollars a procedure?  Did you ask and complain to the facility why they charged you 10s of thousands of dollars to “rent the place” for a few hours/days so you could receive your surgical care?  Under the current payment system your surgeon gets paid for the procedure but you surely understand your surgeon isn’t doing procedures 7 days a week full time.  You need to average out those procedural fees to their hourly non paying work to be more fair in your analysis.

Regarding Mr. Maudlin’s daughter, while hopefully the problem at hand is benign, the exercise outlined is very much worthy of some feedback.  The present full dollar coverage insurance model hides the providers from real price disclosure.  When the uninsured show up they are given the price quote that is the “pie in the sky” fee. This is because the providers never expect the insurance companies to pay in full (they never do). This creates very artificial economics.  There is no reason radioactive iodine should cost 10’s of thousands of dollars. The stuff has been a treatment available to us for decades. I can’t imagine it is still patent protected. I bet if John and his daughter shop around they can get a private radiology group to provide this treatment at a fraction of the quoted price. 

My group charges all Non-Medicare customers the same fee and our fee structure is necessary for us to remain profitable and in business. We have no choice in what the Medicare patients pay us because the government dictates this and makes it illegal for us to collect above what the government has decided they are paying for the service provided (price fixing).  We don’t give favors (drop fees) to insurance companies because they don’t pass the savings to the patient (warrented comment based upon 2 decades of annually rising premiums despite physicians being locked into marginal increases in pay).  We don’t inflate our fees because we don’t pander to the current sick game being played by the insurance health care model.

Hospital based/owned treatments are always way more expensive because hospitals are paying for large staffs, huge spaces, etc.  If we were to just look at how we as a society are paying the hospital side of our care we could come up with a more cost effective arrangement (I suspect). The hospital costs are why we are all “scared” into insurance. I sincerely doubt anyone has gone majorly bankrupt over a physician bill or office visit charge.  This is where our focus should be for cost savings because hospital costs are way and above the largest cost of the health care pie.  More and more is being done outpatient yet the size of money consumed by hospitals isn’t going down. The government keeps giving the hospital networks annual raises while drastically dropping outpatient reimbursements (rewarding the larger more inefficient system, while punishing the more efficient group). The government and payer want the public to believe physicians are “churning” fees yet somehow the more profitable hospital business doesn’t?  Consumption is rising not because of physician churning, rather because consumers are being shielded from the cost of their consumption. The average patient feels that if it is covered by insurance (or the copay is low), it is “free”. Outpatient physician services are up because we are more efficient than hospitals and are trying to meet the increasing demand. The truth about hospitals is that like the horse and buggy, they are not as necessary as outpatient medicine broadens its capability.

Mandating insurance (and universal health care coverage) is the worst possible solution to health care costs. Many on this site have explained why and I would also refer readers to John H Cochrane’s opinion piece in the recent Wall Street Journal page A13 Feb 9th, 2012 titled “The Real Trouble With the Birth-Control Mandate” for further enlightment. In a different piece in the same paper (different day) the birth control/women’s preventive services mandate dolled out by the recent Obamacare legislation highlights the even more important issue for us to ponder- do we really want a few individuals at the federal level deciding what our insurance payments are going to provide, to whom, and for what price? This is insanity!  The Universal health care that Mr. Maudlin opined for would be the absolute empowerment of such a program. How would he feel and what would he do if the Universal health care plan decided his daughter should wait longer to see if her problem “resolves” on its own? Does anyone believe in a “one size fits all, one price fits all” model that John and his daughter could have even found a surgeon to see them in the very short time frame they were able to get it done? By the time the universal health care system got going the smart docs would quit because they aren’t going to work at a randomly chosen fee the system would throw at them.

A final point it-has been incorrect for our society to start the health care cost issue with the premise “health insurance equals health care”.  Health insurance as it is today is nothing more than a holding company for capital to be dispensed when services are provided. It doesn’t actually provide any health care services. It is a middle man that “polices” providers and patients in order to protect the margin of profit they most assuredly have mandated for themselves. They also process claims/bills-is the consumer unable to acknowledge a service was provided without some middle man. Being on the margin they really don’t want to total cost of care to go down because that would be a smaller number which means smaller take home pay, profits and bonuses for the “house”.  True catastrophic health insurance whereby the individuals start the consumption process is the only reasonable way to get out of this morass.

john allen

Feb. 10, 2012, 12:32 p.m.

What I find interesting in the health care space is the constant whining of doctors that they are getting squeezed out of practice…..especially surgeons. I have had two surgeries in my life and I am glad they both went well and the doctors knew what they were doing. However, both surgeries took about 45 minutes start to finish with I’m sure an hour of prep time and travel. Both surgeons billed close to $4,000 and were paid $2,000. I’m not sure what a good surgeon is worth but it is worth a discussion I think. Are they worth $1,000 per hour. I know a few surgeons personally and they both are mult-millionaires at the age of 45. So, what is a reasonable charge for doing a surgery?

Arthur Mulick

Feb. 8, 2012, 12:52 p.m.

It is Wednesday. I hope your daughter’s surgery went well. I also hope you negotiated a discount up front with the hospital (and the surgeon). You should have done so. The hospitals will give a significant discount for cash up front (or payment plan). The “retail price” is a made up number to maximize revenue after discounts. NO ONE pays that except people in your daughters situation who don’t ask for a discount.  The poor have medicaid. Most others have private insurance. In fact, hospitals can get into trouble charging retail “prices” to individuals with modest income but no insurance. They will happily give you a 40-60 % discount (and still make money).

Jorge Herrera

Feb. 7, 2012, 10:14 a.m.

John, I have enjoyed your newsletters for years and look up to you for guidance to my understanding of world economics and behavior.
I feel though that you just go along with some issues like accepting the central banks as having the god given right to decide how we can live our lives since they and not the free markets make economic decisions like interest levels and amount of money in circulation.
I believe most of our economic problems could be improved by reducing the expenses of having all those military bases around the world and the huge government trying to manage every single aspect that free markets could manage better.
I respect your authority when you use your formulas to determine economic results but you still base those formulas on fiat money and fiat money can be unlimited if we take “we the people out of the question”.

David Oldham

Feb. 7, 2012, 6:54 a.m.

I think the trouble with running a private system and a lower level public system is the private system catering for the “rich” is always going to push up costs (and R&D demands) for the public system. Better to have one good system for all and invite the “rich” to make their pro rata contribution based upon affordability.

I dont go along with the “free lunch” argument where healthcare is concerned. For the long term unemployed lazy brigade yes that problem needs addressing but unfortunately our respective governments have left it too late, there are no jobs for them at this particular time. They should be put to work on infrastructure projects and the like or trained as domiciliary carers, ha.

Anyone who could walk past a human being needing urgent medical attention gets my contempt, even if he/she is under priviliged in this unfair world we reside. The question is whether we should halt the breeding from generational unemployed, since we seem to be incapable of breaking that cycle through education.

I cant see any long term solution besides introducing compulsory birth control and capping medical R&D costs at the other end of the spectrum. I also find it very difficult to come to terms with the presevation of life for grossly malformed new born babes. The associated costs to this are horrendous and there are heathy kids out there needing parents to adopt them. We drift too far from the basic laws of nature.

I know one thing for sure and that is that JM would vigorously dissagree with my idea to cap R&D :-)

In the UK we have 101 year old beauties lying in expensive nursing homes asking to be allowed to die yet our laws will not permit. My wife knows all about it having recently retired from nursing. Her family are all medical profession and without exception are pro the NHS system and anti the private system. If you do away with PMI and exit the insurance industy you are halfway there to cutting costs.

Paul Wachtler

Feb. 6, 2012, 5:06 p.m.

John,

One of the more interesting occupations I have had over the years included analyzing the US healthcare system for the government of Ontario. Costs were brought into focus: the biggest difference was in administrative costs: USA= 38%; Ontario: 8%! That’s one thing a single payer system can achieve ... food for thought!

Wish the best for your daughter. Immediately cutting out the thyroid sounds drastic - ever considered alternative medicine, perhaps just for ideas?

Regards, Paul W.

Jeffrey Lyman

Feb. 6, 2012, 9:59 a.m.

Very provocative article, and one that is close to my heart (and profession).  I am an orthopedic surgeon specializing in knee surgery.  I can’t help but to comment on the state of health care because I am shocked by it every day in my profession.  No question—costs in this country are out of control, and the costs of simple, routine procedures are embarrassing and unsustainable.  For example:  AN ACL reconstruction (common sports surgery) typically takes me between 45-70 minutes to fix with surgery.  The surgery is done on an outpatient basis, with the total time at the hospital or surgery center being around 4 hours—most of that spent waiting.  The disposable equipment for the procedure is some paper drapes, one dose of antibiotics, some anaesthesia drugs, some rubber tubing, and two screws.  The patient most often provides their own graft material.  The total cost of the procedure is often around 15,000$,but can be much higher depending on the facility.  About 10% is doctors fees.

For decades, the focus of many components of the healthcare system—-companies, hospitals, and doctors (sadly)—have been to figure out ways to extract more money from insurance companies.  They have become very effective at maximizing billing, and justifying that billing.  Protecting the system from malpractice claims which in many regions can be filed for nearly any reason also drives up the cost of care dramatically.

We have a system which is unsustainable because neither the patient nor the physician (ultimately, the two parties involved in the service interaction) have any interest in driving down costs.  I can promise that the surgeries I perform could be done safely at a fraction of the cost.  This is true for probably every procedure, or close to it.  The response has been to lower physician reimbursement to levels which are quite low and have led most doctors to look for other sources of revenue. (A side note—which John mentioned in his article).  This problem is layered by the national hospital administration lobby which has successfully fostered legislative barriers to entry for ownership in hospitals and therefore limited competition.

The problem is complex but in my opinion the solution can be simple.  We need a safety net for low income people, and that can be provided by a national system.  We have the infrastructure for this already in place with the University systems and VA programs—-and a great model already in the Australian healthcare system.  No system is perfect, and this can be looked at critically.  We also will not (and should not try to) meet the demands of the US and the world with a public system alone. A private system can meet the demands that can not be achieved with a basic, low cost system and will allow for both competition and innovation. 

I think about this topic a lot and would enjoy entertaining comments.

David Oldham

Feb. 5, 2012, 6:19 p.m.

John, I wish you all the best with your daughter’s current heath problem.

We have drifted way too far from the laws of nature. Need to cap this problem at both ends. Compulsory birth control/baby licenses. Compulsary abattoir, age 80 ?. No private healthcare, same for all in the interests of fair society. Cap on R&D costs, cap on drugs costs. Dont bother to develop new drugs Mr Pharma costing more than $30/week for the prescription course. Cap the excesses of medical profession gods who rip off the system. Surgery could soon become a semi skilled job with many procedures routine if further development is halted. Ok I know this sounds radical but you get the gist.

We have the same problems in the UK. Our NHS service works pretty well most of the time but rising costs are completely and utterly unsustainable and the private system is no better than the bankers, parasites in every respect and responsible for pushing up NHS costs. The heathcare industry needs to become a middle income vocational occupation. The current cycle of job decline is the right environment for radical change. Girish Vinod mentioned Indian costs, well why not take advantage to force a competitive solution. There must be plenty of students worrying about future employment prospects who would be happy to change course for a career in healthcare at half or less the current remuneration expectations.

Craig Buhr

Feb. 5, 2012, 4:55 p.m.

Always great thoughts.  Take care this upcoming week.  You and your daughter are in our thoughts and prayers.

William McCarthy

Feb. 5, 2012, 11:50 a.m.

We appear to be attempting to reconcile the irreconcilable. How can you have liberty in a society that is prepared to extract the productivity from a finite and ever decreasing minority to deliver infinite wants to an expanding majority?  The simple answer is you cannot. We will grapple with this and lie and squirm in our efforts to create what cannot exist. A free lunch.

The example of the military healthcare as a model misses the point. The military demands a minimum level of performance and compliance with norms usually with sanctions for non-performance. Our society has a massive free-rider problem that simply cannot be solved within the constraints of our Constitution. Universal healthcare demands that the moral (as you wish to define it); the prudent; and the productive underwrite the immoral (depending on our own unique perspective); the profligate; and the reckless and feckless. Does a society have a duty to provide top notch healthcare to criminals? Our courts believe so.

I posted a solution to the healthcare problem that I found attractive in the abstract in an effort to elicit a response from a group of progressives. My plan was the “20/70” means tested plan. Basically no one between the ages of 20 and 70 were eligible for any kind of subsidized healthcare unless they were truly incapacitated developmentally or physically. Any assistance for the age eligable was rigorously means tested. Possibly simplistic and over rigorous, but an instructive vehicle in the level of vitriol I was subjected to by the other posters. No matter what we do there will be a multi-tiered healthcare system just like there is in universal healthcare states where the well connected always seem to get better care, better dachas, better food, etc.

We need to leap past the evolution to socialism and back to ultimately a free market healthcare system. China seems to have seen the errors of socialism. Of course, people will be required to work harder and save more money. Kind of rough on a debt/consumption economic model.

Justin McCarthy

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