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Tuesday, February 25, 2003
The Economics of Medical Care
George Yossif, MD, PhD, a psychiatrist, writes an essay in Politicized Medicine. The opening paragraph succinctly places the past decade of managed care and managed competition in perspective. “In voluntary markets, private medicine included, the key knowledge necessary for trade is conveyed by freely fluctuating prices. The price system conveys knowledge of the personal and subjective utilities of the supply and demand of various commodities and services, which cannot be compared otherwise. Demand for ordinary medical care in voluntary markets is highly elastic and medical care by physicians is largely optional, except for some categories of life-threatening conditions, few in number and low in incidence, sometimes known as ‘catastrophic illness.’ As history shows, medical care in essentially voluntary markets tends to be accessible and affordable. Sustained price inflation in medical care is always a result of direct or indirect political intervention. The lately much-touted competition between providers is not the genuine competitive bidding for the satisfaction of the actual consumer of care, the patient, as a free market would have it. On the contrary, this politically created competition will further enhance and centralize the bureaucratic controls on medical care, thus compounding, instead of reducing, the inflationary effects of the multiple and pervasive political interventions already in operation.”
How Does That Work in the Real World?
According to a report in the Sacramento Bee, CalPERS, the California Public Employees’ Retirement System paid Tenet Healthcare nearly 50 percent more than it spent at other hospital chains each time members of the pension fund’s self insured health plans were hospitalized last year. A hearing was scheduled with the California legislature. No alternative or corrective approach was suggested.
As Yossif contends, restoring the voluntary market would make health care accessible and affordable while the direct or indirect political intervention will cause sustained price inflation. For example, Tenet Hospital in Redding, California, could not have gouged the insurance program for years without anyone noticing if the voluntary market were restored.
Really? Aren’t You Dreaming? Let’s Get Real.
In today’s health insurance environment, the insurance carrier pays for 100 percent of a “take it or leave it” coercively negotiated hospital charge with allowances for “outliers.” In this case the Tenet charges were $15,213 per hospital stay. However, this was a 50 percent increase over the $10,326 average for CalPERS. The patient pays essentially nothing (a $50 to $100 fixed co-pay has no effect on either hospital charges or patient utilization). The average length of stay (LOS) was not given in the report. For our example, we’ll assume a five-day LOS at $3,000 per day for Tenet instead of the $2,000 per day average for CalPERS.
It’s Not Just a CalPERS Problem–It’s Any Third
Party Payer Problem
MedicalTuesday has previously highlighted the Medicare allegations of overcharging and over-utilizing cardiac catheterizations and cardiac surgery at Tenet hospitals. The Sacramento Bee reports that payment to Tenet was three times as high for cardiac surgery, and utilization was also three times as high as that found in other hospitals in California. It is now reported that neurosurgical and gynecologic procedures were twice as high at Tenet hospitals than at the average California hospital. It also appears that “stop-loss payments for off-the-charts high” outlier charges average 25 percent of admissions at Tenet while only three percent in the average California hospital.
The Army of Medical Reviewers Can’t Control the
At the back desk of every hospital nursing station throughout America is a battalion of nurses and other reviewers who pour over patient charts in order to evaluate necessity of care, to recommend items for nonpayment to the insurance company (sometimes making the entire hospitalization non-reimbursable), and to facilitate an early discharge. There are reviewers for Medicare, Medicaid, Blue Cross/Blue Shield, private insurers, HMOs, IPAs and essentially all third-party payers, and they are referred to as the “Cops in White.” These nurses started wearing street clothes so they wouldn’t be mistaken by doctors as clinical nurses who take care of patients. By some estimates, this infantry of reviewers and the departments in each organization they represent adds 10 percent to 20 percent or more to the cost of health care–perhaps exceeding the savings in early discharges?
Bureaucracies and Third Party Payers Can Never Be
Sure Who’s in Charge
In the afore mentioned report, CalPERS has paid the excess for more than a year. The report mentions the legislative hearing and that everyone seems to be blaming everyone else. Professor Glenn Melnick, a professor of health policy at the University of Southern California, stated, “It’s shocking that Blue Cross and CalPERS have not caught this sooner and done something to stop Tenet from gaming the system.” Blue Cross spokesman Michael Chee countered that the insurer has no control over how often CalPERS members seek hospital care. “They pay us to use our network of hospitals at the rates we negotiate, but we do not have any involvement in the medical care CalPERS members receive.” I’m sure that after months of litigation, each side with their team of attorneys, charging more per day than the hospitalization costs, will never be able to determine who’s in charge.
The Medical MarketPlace Would Solve the Problem by
the Second Day of Gouging
MedicalTuesday’s position, from anecdotal observations pending further actuarial analysis, is that a 10 percent co-payment on the hospital bill returns hospital care to the voluntary free market and puts the patient in charge. In this case if the patient had to pay 10 percent of the hospital charges, he/she becomes aware of the charges at the end of the first day. The patient, or the patient’s family, compares this cost with the charges at another hospital in Redding, California, and find that the charges at the competition is $2000 per day as opposed to the daily $3,000 the patient is being charged. Thus the co-payment of $300 per day instead of $200 per day will immediately put things into focus. Currently there is no daily co-payment. Therefore, no one cares which hospital is used. Hospital charges are irrelevant to the patient. But with a daily percentage co-payment, the patient will dial the business office of Tenet Hospital before noon on the second day demanding that they either meet the competition or order an ambulance to transfer him to the hospital that charges $1,000 less a day or on average, $5,000 less per admission saving the patient $500 of co-payment. The gouging stops within 48 hours in the free Medical MarketPlace and not years downstream. Thus Dr Yossif is correct. It’s the bureaucracy that causes price inflation. The Medical MarketPlace with competitive bidding for the patient, reduces the cost of medical care to the lowest possible denominator. And the war zone between hospital, carrier, patients, physicians and other providers disappears. All players are friendly again instead of adversaries.
The Galen Institute, a Not-For-Profit Health and Tax
Policy Research Organization
This week we heard from Grace-Marie Turner, Founder of The Galen Institute, who announced the launch of a new “Center for Consumer Driven Health Care” and named Greg Scandlen as its director. She states the time is ripe to focus clearly on the growing movement to empower consumers in health care. She states that Greg Scandlen is uniquely qualified because of his extensive experience in both health policy and the health insurance marketplace. Ms Turner writes a weekly Health Policy Newsletter to which you may subscribe by sending an email to her at email@example.com. Her letter stated the following: “For decades, consumers have had less freedom and fewer choices in purchasing health care than in virtually any other sector of the American economy. For those with health coverage, choices are often limited and dictated by either public or private sector bureaucracies. Consumers have seldom known the full cost of their health care, making it virtually impossible for a true market to function. After years of an intense national debate over health care reform, politicians at all levels of government have produced many counterproductive and even harmful attempts at solutions. Many were based on an erroneous premise that ‘health care is different and too important to be left to the individual.’ We believe that health care decisions are too important not to be left to the individual. There are many serious health care problems that must be attended to: how to provide access to prescription drugs for senior citizens, coverage for the uninsured, and health security for pre-retirees. There is a right way and a wrong way to achieve each of these goals - our challenge is to point the right way.” MedicalTuesday welcomes Grace-Marie Turner and the Galen Institute into our Tuesday gathering of concerned individuals and institutions working towards a patient centered Medical MarketPlace.
Greg Scandlen Reminds Us That Universal Health
Proposals Are Not Dead Yet
Greg in his Consumers Choice Matters reports: Business Insurance has an article by Judy Greenwald that shows some ideas will never die. Despite losing by four to one in the recent elections in Oregon, the Single Payer folks have a zombie-like ability to rise from the dead. The article repeats some of the tired old slogans -- "the United States is the only industrialized nation in the world that does not guarantee health care to all its citizens." (Yeah, and the Soviets "guaranteed" everyone bread - they just didn't say when.) The article looks at some of the activities going on in Oregon, California, Maryland, Illinois, and Maine. See: www.businessinsurance.com/cgi-bin/article.pl?articleId=12323&a=a&bt=universal health care
Physicians Should Be Like Mules.
A MedicalTuesday devotee suggests that physicians become more like the mules that refused to move. Like physicians, they were beaten savagely. Finally the farmer built a fire and the mules moved a few paces–just enough to get themselves out of the fire and the wagon over it. The wagon burned, the grain burned and the farmer was ruined. Without the wagon, the mules were free again. She states that she has gotten the government out of her office so that she is free again to serve her patients.
Medical Gluttony or Unnecessary Medical Care
A 40-year-old male patient with asthma was seen after a motor vehicle accident (MVA). He had several sore muscles. Although he had no medical insurance, he wanted physical therapy which would be paid by the medical coverage in his auto insurance. I agreed with two weeks physical therapy, three visits per week. He was immediately issued a TENS pain management unit and told it was his to keep. The physical therapist told him they would bill his insurance $400 for the unit and treated him twice as long as prescribed. After that time, an authorization request came for me to authorize the four weeks of treatment and prescribe the TENS unit for billing purposes. With approximately 20 million MVAs in the US per year, we can safely assume that at least 10 million people would have a sore muscle or two and have some reason to benefit from physical therapy. If they were all distributed a $400 TENS unit, that would be $4 Billion in largely unnecessary health care costs. An outpatient co-payment of 30 percent on the $400 would have produced at least a 50 percent to 90 percent reduction in health care costs without even one “cop in white” reviewing the record.
The MedicalTuesday Network Recommends the Following
in Restoring Accountability in Government and Society:
• The National Center for Policy Analysis, John C Goodman, PhD, President, issues a weekly Health Policy Digest which is a health summary of the full NCPA daily report. You may log on to NCPA (www.ncpa.org) and register to received one or more of these reports.
• The Mercatus Center at George Mason University is a strong advocate for accountability in government. Nobel Laureate Vernon L Smith, PhD, has recently joined its Economics faculty. Last week we heard from Dr Paul Edwards, President, introducing J C Watts, as a Distinguished Visiting Scholar after eight years in Congress. He joins Lawrence Kudlow, of Kudlow & Cramer on CNBC, a Distinguished Scholar, and Maurice McTigue, QSO, also a Distinguished Visiting Scholar, who was instrumental in revolutionizing the way government did business in New Zealand from 1984 to 1994. By looking at how effective every single government program was in achieving the required results, New Zealand went from having the most socialized and highly-regulated economy of any western-style democracy, to having the freest, reducing the cost of government from nearly half the GDP to slightly over a quarter of the GDP. He is optimistic about making the same progress in the US. The Mercatus Center recently published a pamphlet, “A Day in the Life of a Regulated American Family,” that documents the costs of $8,000 the average American family pays per year to meet government regulations. (So you thought July 4, Independence Day was the day you start working for yourself having paid your tax obligations? Well try Labor Day, The First Monday in September, as the day we begin laboring for ourselves having completed our financial servitude to the government.) Please log on at www.mercatus.org to read the government accountability reports and information on Dr Smith’s economic experiments that help us understand health care issues. You can also register to receive updates.
• Greg Scandlen, whose research at the NCPA we used frequently over the past year from his Health Policy Comments, has been named the Director of a new “Center for Consumer Driven Health Care” at the Galen Institute and has a New Weekly Health Care News Letter: Consumer Choice Matters. Please subscribe to this very informative and well outlined health care newsletter by logging on to www.galen.org. The first entry to this week’s Consumer Choice Matters is copied above and the entire issue can be found at http://www.galen.org/happenings/ccm021803.html.
• The Galen Institute, Grace-Marie Turner President and Founder, has a weekly Health Policy Newsletter to which you may subscribe by sending an email to firstname.lastname@example.org.
• Martin Masse, director of the Montreal Economic Institute, is the publisher of the webzine: Le Québécois Libre. Please log on at www.quebecoislibre.org/apmasse.htm to review his free market-based articles, some will allow you to brush up on your French You may register to receive copies of his webzine on a regular basis.
• The Ludwig von Mises Institute, Lew Rockwell, President, is a rich source of free market materials, probably the best daily course in economics we’ve seen. If you read these essays on a daily basis, it would probably be equivalent to taking Economics 11 and 51 in college with considerably less bias. Please log on at www.mises.org to obtain the foundation’s daily reports. You may also log onto Lew’s premier free market site at www.lewrockwell.com to read some of his lectures to medical groups such as how state medicine subsidizes illness.
• Hillsdale College, the premier institution for producing graduates that understand Free Market accountability, receives no federal subsidies which places them at a monetary disadvantage to all other colleges and universities. They recognize that the price of freedom is never cheap. You may log on to www.hillsdale.edu to register and receive Imprimis, the national speech digest that reaches over one million readers each month. Last month Imprimis featured Charles Krauthammer, MD, a psychiatrist at Mass General prior to becoming a journalist in Washington, DC, and is a member of President Bush’s Council on Bioethics.
• Robert Cihak, MD, writes an informative Medicine Man column which has recently moved from WorldNetDaily to NewsMax. Please log on at http://www.newsmax.com/pundits/Medicine_Men.shtml or subscribe by sending Bob an email at email@example.com You may read his current column at http://newsmax.com/archives/articles/2003/2/11/125226.shtml
MedicalTuesday Supports These Efforts in Restoring
the Doctor & Patient Relationship:
• PATMOS EmergiClinic - www.emergiclinic.com where Robert Berry, MD, an emergency physician and internist, provides prompt care for many of the injuries and illnesses treated in Emergency Rooms at a fraction of their cost as well as an internal medicine practice;
• Dennis Gabos, MD, President of the Society for the Education of Physicians and Patients (SEPP) www.sepp.net for making efforts in Protecting, Preserving, and Promoting, the Rights, Freedoms and Responsibilities of Patients and Health Care Professionals, with a special page for our colleagues in nursing;
• Drs David MacDonald and Vern Cherewatenko for their success in restoring private based medical practice which has grown internationally through their SimpleCare model network, www.simplecare.com; Dr Dave has also partnered with Ron Kirkpatrick to start the Liberty Health Group (www.LibertyHealthGroup.com) to assist physicians by helping them control their medical benefit costs for their staff and patients. He says, “More importantly, we educate and empower their employees and patients regarding the benefits of payment at the time of service.” He is available to speak to your group on a consultative basis. You may contact him at DrDave@LibertyHealthGroup.com.
• HealIndiana as a supporter of market-based medicine, www.HealIndiana.org;
• The Association of American Physicians & Surgeons, (www.AAPSonline.org) The Voice for Private Physicians Since 1943, representing physicians in their struggles against bureaucratic medicine and loss of medical privacy. The monthly AAPS News for March written by the Executive Director, Jane Orient, MD, is must reading. She points out the government’s attempt to delay the bankruptcy of Medicare involves not only fee cuts for physician’s future services, but retroactive “recovery” of payments made for services rendered years previously which is far more vicious. With penalties of up to $11,000 per line of claim, Medicare’s best targets, one at a time, are highly productive physicians over the ago of 50, who are terrified of spending years in prison with racketeers and thugs and have assets to pay huge settlements. A claim for a visit which may require 10 lines of code, for which the physician may have received less than $100, will provide a large infusion of over $100,000 to keep Medicare solvent for a few years longer. The AAPS has documented fines as large as $10 million against physicians for code discrepancies which have been made into a violation in legal retrospect.
Stay Tuned to the MedicalTuesday.network and Have
Your Friends Do the Same
Each individual on our mailing list is personally known, or requested to be placed on our mailing list, or was recommended as someone interested in our cause of making Private HealthCare affordable and accountable. If this is correct, you may consider opening a folder in your inbox labeled MedicalTuesday or copying these messages to your template file so that they are available to be forwarded or reformatted as new when the occasion arises. If this is not correct or you are not interested in or sympathetic to a Private Personal Confidential HealthCare system, email DelMeyer@MedicalTuesday.net and your name will be sorrowfully removed.
Del Meyer, MD, CEO & Founder