I blog about free markets in medical care and transparent pricing.
Check out this article by Reason Magazine’s editor in chief, Nick Gillespie (many thanks to Brandon Dutcher of the Oklahoma Council of Public Affairs for bringing this article to my attention). It turns out that the uninsured folks the Unaffordable Care Act was meant to help, don’t want this help after all. That’s kind of hard to comprehend, isn’t it? Let’s take a closer look.
Why would the federal government shove a national health care scheme down not only the throats of these folks who don’t want it, but disrupt and basically ruin the insurance everyone does have? Premiums are expected to increase by 100% in most markets using conservative estimates. Are they incompetent or just plain evil?
Put yourself in the shoes of the giant insurance company execs. Fewer and fewer folks are buying health insurance. These companies have priced their product increasingly above the market clearing price. They therefore have a surplus of product and not as many buyers. In a healthy marketplace, they would lower their price and deal with their increased “inventory” in this way, luring customers back to the table.
Or….they pick up the phone and call their congressman! ”I want you to fix things so the purchase of my insurance product is mandatory!” Bingo! Inventory goes flying off of the shelves. Stock prices go through the roof. 25 year old healthy people are now paying $2500/month for an insurance product they don’t want, subsidizing the sick and elderly and those otherwise uninsurable folks entering the market with pre-existing conditions. Pretty sweet deal for the insurance execs if you know who in D.C. to call and how much to pay them to get this kind of thing done.
The rest of the phone call looks something like this: “By the way, let’s throw in a Medical Loss Ratio formula that will destroy my smaller competitors giving these folks even fewer buying options. That will more likely funnel them to me. And you guys get your rationing game face on and cover my back with an Independent Payment Advisory Board so I don’t have to pay much on all these claims. In fact, you could price the physician services so low that no docs will see folks for the more expensive conditions and everyone will blame the “greedy” doctors! There’s a budget balancer for ya! You’ll have all the data you’ll need to get all of this done after you mine the Electronic Medical Record Systems you make all of the docs buy.
Obamacare, just like almost any other “law” oozing out of D.C., was meant to line the pockets of those who wrote and promoted it. Prior to this “law” the medical industrial complex had squeezed about as much money as they could out of folks willing to buy insurance from an increasingly consolidated market. The only way to increase their revenue was to enlist the firepower of Uncle Sam, employing the political means (as opposed to the economic means) of obtaining wealth. This “law” turned non-buyers into unwilling buyers and current purchasers were made to pay more. Their next goal is the destruction of the stop loss industry so that those companies that have seceded by self-insurance are thrust involuntarily into this arena. See my blog earlier this week for details on this.
I may start calling Obamacare “BIFOPE,” for “Buy Insurance From Our Pals or Else.” This conveys the true impetus behind this “law,” I think. And you thought they just cared about you.
G. Keith Smith, M.D.
I once wrote about how happy one of my mother’s friends should have been when Medicare decided to no longer pay for her B-12 shots, as the private sector would figure out a way to make sure there were no shortages of B-12 injections. Ever. Central planners, on the other hand, those in medicine in particular, who assign pricing to products and services always get it wrong. This is the fatal conceit, about which Hayek warned us. A bureaucrat can never discover a market clearing price (that price at which there are neither surpluses or shortages) because this price must emerge from market interactions, not be imposed on an economy.
Thousands of Medicare patients with cancer are getting their first glimpse of what the death panels will look like. In this article by Sarah Kliff of the Washington Post, thousands of Medicare patients are reported to have been turned away from their usual cancer treatment centers because the government has decided on a different price these centers are to be paid. If you guessed that they got it wrong on the low side, you go to the head of the class.
The real story actually has a sinister side. Kliff touches on it but doesn’t know and probably can’t even imagine the mercenary tactics at work here by the big hospitals and Uncle Sam. Remember that hospital-employed physicians are paid 40% more by Medicare for the very same service as physicians that are in private practice. Likewise, hospitals are paid more by Medicare for the administration of chemotherapy than private clinics. Keep this in mind when you hear some government apparatchik moaning about the impending bankruptcy of Medicare. These Medicare cuts, affecting only the private clinics, will not only put them out of business, but that is the intent, the goal, the very purpose.
Remember the lesson from Jim Epstein of Reason Magazine: “industry consolidation is the smoking gun of government corruption.” Or apply Murray Rothbard’s penetrating question: “cui bono?”…who benefits? If you said the big hospitals, you get a gold star.
The short term solution, of course, to save Medicare money on chemotherapy, is to insure that no Medicare patients are treated in a hospital! This is far too logical, though, and the private clinics don’t have the money to throw at lobbyists that the corporate hospitals do.
This is a great example of Jane Orient’s quote that “coverage doesn’t mean care.” These thousands of Medicare patients are getting a feel for what this president means by a “right” to health care, aren’t they? What they really have is a right to hope for chemotherapy. The current regime doesn’t care if you have “coverage.” They don’t care if you get care. What they want is control of your healthcare. Collecting premiums from the taxpayers while simultaneously denying care is a recipe for a profitable “insurance” enterprise, no?
Welcome to Obamacare. We haven’t begun to see the worst. I remain hopeful, however, that this tyranny will usher in a market economy in medical care. I remain hopeful that rather than be corralled into health camps and clinics, the American people will take matters into their own hands and seek alternative sources of “coverage” and “care.” These patients with cancer really haven’t been given much choice though, have they?
G. Keith Smith, M.D.
My father recently asked me if any of the hospital administrators whose billing practices have bankrupted countless patients ever had face to face contact with those whose lives had been ruined by their greed. Or, he asked, were they like drone operators, destroying people’s lives in a remote, impersonal way safe in their office?
Look around. Hospitals building everywhere. Sponsoring sports franchises. Buying advertising in high-priced media outlets. Ceaselessly buying physician practices. Buying rural hospitals destroyed due to having bought all of the small town physician practices and diverting their referrals. Building on to their emergency rooms. Building free-standing emergency rooms, so-called loss leaders for their institutions. Multi-million dollar “logo” changes. Giant and well-payed administrative staffs. This is what you see. One of my partners told me the other day that after reading TIME Magazine’s article on abusive hospital billing practices, in which Oklahoma City’s own Mercy Hospital was named, that the rotating cross on top of their hospital should be replaced with a dollar symbol! He is seeing things pretty clearly, I think.
Contrast what you see with what you are hearing. Hospitals are going broke. They can’t make ends meet. The uninsured are breaking the hospitals’ backs from emergency room over-utilization. Hospitals won’t survive unless Medicaid is expanded (funny that they want this expansion yet this is a program they simultaneously claim underpays them and justifies their cost-shifting to others!). These are the lies that are primarily responsible for bringing us Obamacare.
The truth is that economically, hospitals are not unlike utility companies in that they have high fixed costs. As Thomas DiLorenzo explains in his brilliant book, “Organized Crime: The Unvarnished Truth About Government,” once the plant is built and the power lines are present, the cost of adding an additional utility customer approaches “zero.” Once the emergency room is built and staffed, the actual cost of adding an additional patient approaches “zero,” other than the actual supply costs. As a physician who owns and operates a medical facility, I can tell you that the actual supply costs are not that high even in a surgical environment.
Also keep in mind that while the hospital spokesmen claim that they have to take everyone regardless of their ability to pay, they get paid even when they don’t get paid, throught the uncompensated care scam. As I’ve written previously, as the hospitals wave the charity flag with one hand they are fleecing the taxpayers through this scam with the other.
When Jim Epstein of Reason Magazine was here to do his piece on our facility, he discovered that the amount Medicaid paid local hospitals exceeded what we had listed online. Keep in mind that these “horrible reimbursements” by Medicaid are one of the primary excuses used to justify cost-shifting by these hospitals. And think about this: if the costs for the indigent are shifted to others who do pay, how is it that the hospitals are providing indigent care? Seems to me they are getting paid for everyone that comes through their doors when you think about it this way, the uncompensated care scam notwithstanding.
We make a profit at the prices we have listed online. These prices are 1/6-1/10th the prices charged for the same procedures at most “not for profit” hospitals. This is what you can see for yourself. What you hear if you listen closely is a quiet panic engulfing those in the medical industrial complex now that this free market, transparent pricing model is getting noticed and gaining ground. This movement, if left to its own devices will reduce the cost of care and raise the quality bar, just like competition does in every other sector of the economy.
G. Keith Smith, M.D.
The Office of the Inspector General has decided that physician owned distributorships are unethical and probably illegal. Physician owned distributorships are companies that doctors set up to procure surgical implants from the manufacturers, implants that are then sold to the hospital once marked up by this intermediary. I am no fan of this arrangement, as in most every case, the intermediary (the physician owned distributorship) brings no value, representing simply another layer that gets paid along the way. There are exceptions to this but not many. Are many of these “companies” formed to line the pockets of the physicians who set them up? Without a doubt.
It should be obvious that a free market would destroy these distributorships. If surgery center “A,” for instance, is charging too much for its implants, they are ripe for competitive destruction by surgery center “B” having decided to avoid ripping people off with these fictitious markups and thus pricing their surgeries at a correspondingly lower rate. These distributorships are viable only because the folks receiving health care are typically not the ones paying the bill, or as Jim Epstein of Reason Magazine says,” there is no sticker shock.”
I want to be clear. I am no fan of these distributorships because they fail the Austrian economic test, that of looking at all economic transactions from the viewpoint of the buyer. There is simply no advantage conferred upon the buyer via this arrangement. The hypocrisy of attacking these distributorships cannot go without comment, however.
Hospitals mark up implants 300-1200% as a matter of course. That’s right. A $25,000 cochlear implant will be marked up to $80,000 and a $9400 pacemaker will be marked up regularly to $100,000. Scorpion anti-venom, obtained for $3750, morphs into a $40,000 charge in Arizona. These criminal practices while well known to the federal government have never been addressed. In fact, to the extent that many hospitals don’t collect on these outrageous markups, they get a secret kickback from Uncle Sam through the uncompensated care scam, where reported “losses” come back to them in the form of Disproportionate Share Hospital payments.
So let me get this straight. It is criminal for physicians to set up sort of phony companies through which to funnel the implants they are going to use for the purpose of making a little dough, but it’s ok for the hospitals to mark up their implants by a factor of 10, and their pharmaceuticals by 70,000%?
I know of a not-for-profit hospital system that has set up a hospital owned distributorship. That’s right. This for profit distributorship procures all of the supplies (implants too) for all of the hospitals in this organization, obtaining these supplies at significant discounts due to their size in the marketplace. They then…...mark these supplies up when they sell them to themselves! This helps to maintain the fiction of their not for profit status and furthers their take from the uncompensated care system, because they don’t pay all of the bill they give themselves, and undoubtedly report the unpaid portion as a “loss.”
All of this insanity goes away with transparent and upfront pricing. All of it goes away when patient consumerism is promoted. None of this goes away as long as the federal government continues to create a distraction by vilifying the petty activities of physicians, while they ride shotgun for their hospital buddies whose bankrupting supply charges represent institutionalized larceny, the scale of which is difficult to comprehend.
G. Keith Smith, M.D.
A quote from Butler Shaffer’s “Boundaries of Order:”
“Political institutions thrive by encouraging the development of various group identities. Insisting upon maintaining the clear distinctions of our collective boundary lines, they help to foment conflicts among such groups and then offer to mediate the very differences it has been in the state’s interests to foster! It is a racket, which, if engaged in by private parties, would result in long prison sentences.”
Here’s another one:
“It is critical for us to re-examine the basic assumptions upon which our social systems are to be based. What are the values and the practices we are to embrace? We might begin with the inquiry offered by Franz Oppenheimer, who distinguished the two basic methods for acquiring wealth. The first was the ‘economic means,’ which arose from the free exchange of property claims in the marketplace; the second was the ‘political means,’ which consisted of the use of violence to despoil property owners of their property interests.”
G. Keith Smith, M.D.
Patrick McGuigan writes this piece about the Entrepreneurial Excellence in Oklahoma Award presentation this past Friday. Labor commissioner Mark Costello is running radio ads featuring our facility and once I have a copy of this I will post it for all to hear.
Commissioner Costello credited Dr. Lantier with introducing him to Austrian economics in his remarks just prior to presenting the award. Costello had no idea that I was headed out the door with two of my sons to the “Mises Circle” in Houston, just after the award presentation. When I spoke to Lew Rockwell in Houston about having received this award from the State and the Commissioner’s economic “Austrianism,” he said, “..that is shocking, and remarkable.”
The economists speaking at the Houston event seemed focused on the difficulties the current economic climate has created for entrepreneurs, true entrepreneurship becoming more difficult with opaque price signals and “regime uncertainty,” to use Dr. Robert Higgs phrase. I’ll blog soon about this Houston conference and how I think the information presented there applies to free market health care.
It is our adherence to the free market principles of the Austrian tradition that are responsible for our uncompromising business plan. These same principles have undoubtedly translated into a quality commitment coupled with rational pricing. I doubt seriously that another state’s labor commissioner has the foggiest idea what I mean by the last two sentences written.
Thanks to Pat McGuigan for attending the award presentation, his fine journalism and to all who attended the event. We are pleased to receive this award, particularly as it was presented by a proud “Austrian.”
G. Keith Smith, M.D.
Last night I wrote: “We are very pleased to have been selected for this award and hope that other states will follow the lead that Oklahoma legislators, past and present, in creating a climate where the free market can thrive in the delivery of medical care……”
I am now hanging my head in shame and deserve all of the guff I get for having written this. What I meant, of course, was that rather than create a climate where the free market can thrive, Oklahoma legislators, past and present, have neglected to destroy the opportunities for the free market to function in health care in this state.
Government can’t create anything. The free market functions continuously in spite of government, not because of it. Even the most vicious attempts to crush market activity result in “black” markets, that activity in totalitarian societies that is responsible for the very survival of the people living under such a regime.
That I am making my way through Butler Shaffer’s “Boundaries of Order,” makes my gaffe all the more embarrassing. More on this eye-opening book in a future blog. I hope that those reading this will accept my apologies for this lapse.
G. Keith Smith, M.D.
One of our orthopedic partners brought me this article recently. Some comments.
The author’s conclusion is that Medicare’s pay cuts for orthopedic surgeons performing total knee replacements has paradoxically resulted in more of these surgeries being performed and an overall increase in cost to Medicare. The authors correctly surmise that the surgeons are attempting to achieve “income homeostasis.” But then they gloss over their own punch line. This increase in the number of total knee replacements caused an increase in the total expense exclusively due to the large facility fees paid by Medicare to the big hospitals.
Did you catch that? Remember Eli Lehrer’s claim that exorbitant physician salaries were the reason that medical care was so expensive in this country? This is no exception to the law of supply as the authors state, but rather, the equivalent of someone eating more slices of pizza once they are sliced thinner. The authors also arrogantly pontificate about what the “right” number of total knee replacements should be and what the “right” charge for this should be. These guys have never heard of Murray Rothbard, I’ll bet.
This is an example of the failure of the central planners trying to control a market by deliberately lowering the payment to the surgeons to an amount below what is believed to be the market clearing price, a deliberate attempt to cause a shortage of supply…rationing, in other words. But the policy dunces in D.C. got it wrong once again, with the hospital charges busting the budget.
I can just hear the folks at CMS (Medicare): ”Let’s cut these surgeons to the bone but leave our hospital pals alone.” ”We’ll save bundles off the backs of these surgeons and they’ll see fewer of the patients needing this surgery, too!”
This is no failure of the free market. This is the absence of a free market. This is one of many examples of the unintended consequences of the central health planners, a failed attempt at deliberate rationing. I expect their future attempts to ration care to the elderly to be more overt in the future. Perhaps even those who are saying “Don’t touch my Medicare!” and even some supporters of the Unaffordable Care Act will come around to the idea that we should give the free market a real chance in the delivery of healthcare, a service upon which people’s lives depend.
G. Keith Smith, M.D.
A great post from Walter Williams. I’ll never forget the first time I heard him speak. He opened his talk with a discussion about the economics of rape and the economics of seduction. He described the economics of rape as the business of government, where “you do what I want or I’ll make you feel bad.” He said he preferred the economics of seduction where “you make me feel good and I’ll make you feel good.”
He talked at length about the transaction between the consumer and the grocer selling milk. He showed very clearly that in order to trade two dollars for milk, the milk had to be worth more than the two dollars was worth to the consumer. The two dollars, likewise, had to hold more value to the grocer than did the milk in his possession. I don’t think I’ve ever heard a better or more simple description of a “win-win” deal, where both parties are actually better off as a result of the exchange, no zero-sum fallacy here.
I don’t think Dr. Williams considers himself an “Austrian,” but he quotes them plenty, quoting Hayek in the above link, for example. I encourage you to pick up anything you can find by this brilliant and very funny man.
G. Keith Smith, M.D.
I am not an economist. I consider myself a student of the school of economics sometimes referred to as the “Austrian” school. Having said this, it is with some uncertainty that I write the following piece. Oh well. Here goes.
Everyone wants to be part of a “win-win” deal, don’t they? Mutually beneficial exchange is the hallmark of a free market and is absent in a coerced (“win-lose” deal) arrangement like government-provided services. In a free market, parties enter the arena of exchange in anticipation of which they hope to better their current circumstances. If no perceived future benefit is anticipated due to a proposed exchange, the exchange simply doesn’t occur in a voluntary and free market. Some folks are happy to be in a win-lose arrangement as long as they are on the “win” end. That is a subject for a future blog.
The “seller” wants the exchange to occur for something he values more than the goods with which he is willing to part. The value to the seller of the money or goods for which he is trading is greater to him than that which he already possesses, otherwise, no trade/exchange will occur. The buyer values the seller’s goods more than the money in his pocket, otherwise no exchange will occur. The job of the salesman is to highlight value and perhaps even introduce the concept of the scarcity of the buyer’s opportunity, an attempt at increasing the buyer’s time preference, a common strategy in many “sales” arenas.
One of the most miraculous things about this entire dance is that both parties are better off/improved having undergone this exchange. This is the basis for the formation of capital and the market activity that improves the standard of living of all people involved. This capital formation doesn’t occur in a government-coerced exchange as one of the parties is necessarily a loser, negating the other “winning” party’s gain.
One of the radical “Austrian” contributions to the field of economics is the idea of the “subjective theory of value.” Quite simply, a potential buyer’s assessment of the value of targeted goods is different from any other buyer. The goods don’t have an arbitrary value, only that assigned to them by a potential buyer and a function of a comparison to the next best alternative use of the buyer’s money. “It’s worth what someone will pay for it,” partially captures the meaning of the subjective value theory. This radical concept makes the whole concept of economic forecasting suspect, as the prediction of the actions of individuals based on changes in pricing or other variables, is different for each individual, making any assumption about future mass behavior difficult at best.
Since rocking chairs, Steinway pianos and French Bordeaux’s are valued differently by different buyers, the sellers have an incredible challenge. They must take into account their production costs, factor in a reasonable profit and find the “market clearing price” (that price that results in neither surpluses or shortages). If they get it wrong on the high end, little product is sold. If they shoot low, they can’t fill all of their orders.
The appearance of competitors keeps the sellers in a position of constantly re-evaluating various efficiencies and production costs in order to present a value to the marketplace and potential buyers.
What does any of this have to do with healthcare? I think that even a basic understanding of the above (and I confess to only a basic understanding) illustrates the futility of the role in which the central planners have placed themselves, engaging in price fixing, completely discounting the notion of subjective value. Some people have chosen a higher priority alternative to the purchase of healthcare, that choice now removed from them, however.
Also keep in mind that the lack of transparency in healthcare pricing is the equivalent of walking into a store of some kind that has turned its lights off such that none of the merchandise can actually be seen. The information necessary to determine value is not there, so there is no way to know if an exchange is mutually beneficial and hence no way to know if such an exchange is to the buyer’s advantage and whether such an exchange should even occur. Mises clearly showed that the absence of a rational pricing system spelled the doom for any socialist enterprise or government due to the lack of feedback this pricing information provided the producer and buyer, shortages or surpluses being the obvious result.
Inevitable shortages and surpluses result from central economic planning, the shortages in the healthcare arena meaning neglect or death. This is not my opinion. This is evident in every country where central planning has been introduced into the medical marketplace. The presence of government in any arena of exchange means that one or both parties want no part of the exchange on their own. If the parties saw an exchange as mutually beneficial, there would be no reason for the GUNverment (bureaucrat with a gun) to “enforce” the exchange….it would occur quite simply on its own if seen as mutually beneficial.
That GUNvernment has an even greater presence in the health care marketplace than ever before, with even more to be expected, the parties with a gun in their ribs will act differently, just as you would expect. Robbery victims don’t typically part with their property or service with a smile on their face, wishing their mugger a nice day. Surly, sullen and cursory. Neglectful, dismissive and dangerous. These are the words I’ve seen describe many physician encounters in medically socialized countries. I believe that we will see more and more of it here in this “country.” The idea that the behavior and actions of physicians will not change when a gun in at their head is yet another miscalculation and the predictable result of the arrogance of the central planners, those who relish in “making” people do things, rather than mind their own business.
G. Keith Smith, M.D.