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.
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.
What is insurance, after all? You see, big insurance companies walk a tight rope. They don’t just want to not pay claims. They actually set physician reimbursement at a level below the market clearing price. Remember that price controls cause shortages. This approach by the insurance companies guarantees access to a physician’s office is limited. No access to the physician means no access to the really expensive goodies like surgery and MRI’s. Oh yeah. All the while the insurance companies are collecting premiums! See how it works? Now they have to be careful that this doesn’t get out of control or they will lose business to competitors. So, many of us pay insurance premiums, an action which guarantees difficulty with physician access! Isn’t insurance- for-everyone a great idea!!
In anticipation of getting more serious about the care denial business, the insurance industry lobbied hard for and received the Medical Loss Ratio provision in the Unaffordable Care Act, a provision that will drive their smaller competitors out of business. Now, with the rationing abuses unchecked by competitive pressures, there’s nowhere for us to run. The insurance tightrope becomes a boardwalk. See how it works? Thank you Obamacare.
Remember “coverage doesn’t mean care?” This is the purpose of the “Independent Payment Advisory Board.” Not to keep the cost down by keeping bills low. To lower physician payment to levels that no one wants to see patients! If you don’t get through the doctor’s door, the rest of the wonderful care available is unavailable. The beauty of this is that the physicians will be made out to be the bad guys.
I’ve decided that the model adopted by many smart companies, self insurance, is the way to go. For individuals. We should all become our own third party administrators. Rather than pay premiums, the payment of which virtually guarantees denial to care, we should use this money to buy care. When a month goes by that no medical purchases are needed, stow the money away for a rainy day.
This is exactly what self-funded companies do. They have access to “re-insurance,” so that very expensive claims can be paid, but they pay for virtually everything else “out of pocket.” These plans also have a history of seeking out the best physicians, as this decision alone, can determine the plan’s solvency. Self-funded plans then are the opposite of third party plans like the giant insurance companies, seeking and finding the higher quality providers, cost-conscious all the while.
Scary to be self-insured, isn’t it? What if you need heart surgery or a total hip replacement? In Oklahoma City, you can receive open heart surgery for under $25,000 and hip replacement for about the same amount of money. This isn’t cheap, but it is as cheap as it gets. Keep in mind this is two year’s premiums if you are paying $1000/month.
Cancer? Cancer-only coverage is available if you want to protect against this risk. Very soon in Oklahoma City, affordable cancer treatment will be available, removing the worry of bankruptcy associated with this diagnosis. If you guessed that getting this treatment out of the hospitals was the key to reducing the cost, you go to the head of the class. They typically mark up the price of chemotherapy drugs by 10 times. 10 times! It’s amazing the lengths to which these folks will go to avoid making a profit.
Could you be self-insured? What do you think would happen to the price of care if vast numbers of people rejected insurance altogether and paid their own medical bills? This lowering of prices, the result of all those more well-off and risk tolerant becoming self-insured, would bring the purchase of health services within the reach of those not as well-off. This deflationary snowball would continue and more and more people would actually be able to afford to pay for their care, rather than purchase insurance out of fear of bankruptcy only to be denied care. Very few people would have health needs they found unaffordable, fewer than we have today for sure.
I don’t know about you, but I’d prefer to buy medical care than to buy a worthless piece of paper guaranteeing me only a place in line.
G. Keith Smith, M.D.
I blogged recently about the incredible claim of Eli Lehrer, that compensation of medical personnel, physicians in particular, was responsible for the high cost of health care. You can read my blog here, which contains a link to Lehrer’s article written for “The Weekly Standard.”
I’ve had time to re-think his article and in a way I’ve decided that he’s actually correct. He comes to the right conclusion but for all the wrong reasons.
Yesterday I was invited to participate in a conference call attended by people interested in transparent pricing. One of the participants was an experienced benefits administrator who confirmed what I call “the 10% rule:” doctors get 10% of the health care dollar and hospitals and administrative folks get the rest. He actually used the phrase “institutional” risk.” The health plans he administers are never in jeopardy of running out of money due to physician charges, you see. What he worries about and would like to see addressed are “institutional” charges and fees. You can imagine what he thinks about our fees and approach to pricing!
By now you are wondering why I feel compelled to apologize to Mr. Lehrer. I’ll ask you now to put yourself into the shoes of the giant insurance company’s CEO and you’ll see why Mr. Lehrer has a point. You as the CEO of Giant Ins. Co. (GIC) collect premiums every month from millions of people. Most of the claims are for physician services, office calls, surgeries, diagnostic procedures, that sort of thing. While the number of claims from physicians dwarfs that of the hospital claims, the amount of money you spend on the physician claims is 10% or less of your total premium collection.
The investors of GIC are anxious to see a 10% return on their stock this year and you don’t feel like you can raise premiums any more due to competitive pressures and the fact that everyone knows your company made 11 billion last year. You decide to cut the physician’s pay. But wait! The serious savings in payouts would come from cutting “institutional” compensation, wouldn’t it? Simply put, reducing physician compensation to an amount below the market-clearing price for their services (while simultaneously increasing the hassles for obtaining this payment) will result in a relative shortage of physicians willing to see patients “covered” by GIC. Without access to the physician’s office, access to hospitals or MRI units or surgery centers (“institutions”) is severely restricted, the equivalent of what I call “soft rationing.” If the doctor won’t see the patients, the patients never get past the gate to access the wonders of modern medicine! Presto! Your investor’s stock just went up 12% and you are due a performance bonus!
The beauty of this move on your part is that the doctor looks like the bad guy. Where in the world did you as GIC CEO get this idea? If you said “Medicare” you go to the head of the class. When Medicare cut physician pay in the early ’90s, physicians didn’t react this way at first, rather they hired physician assistants (wonder why there weren’t many physician assistants around until the mid 90’s?) and increased their volume of work to make up for the cuts in pay. Medicare’s “mistake” was that they didn’t cut hard enough. So they did it again. Medicare bureaucrats also found it useful to always have future cuts on the horizon, this strategy simultaneously providing access problems for Medicare beneficiaries at the doctor’s office and guaranteeing political contributions from doctors to keep the next cut from happening. Don’t you love top-down, central planning?
Aren’t you glad you have health insurance now that you’ve read this? You can now see that the goal of the recipient of your insurance premium is to make darn sure that few physicians want to see you, as this reduces their exposure to “institutional” costs. Are you seeing this through the Obamacare lens yet? Maybe Mr. Lehrer “gets it” after all.
G. Keith Smith, M.D.
Someone asked me in disbelief earlier today how we could charge so little for surgical care at our facility. You can see our prices here. ”It’s one thing,” I said, “that our prices are so low. It is another thing, altogether, that you can view them online.”
Posting our prices is what my friend Jay Kempton of the Kempton Group calls, “doing the unthinkable.” Jay is the principle of The Kempton Group, a firm that provides benefit advice to and processes claims for companies that choose to self-fund, for purposes of health benefits for their employees. Imagine how his clients feel about paying a fraction of what they were paying for the same surgeries (and I would argue better quality) at “not for profit hospitals” and that they know in advance how much it is going to cost.
Continuing with questions from this morning: “How did you come up with these numbers,” I was also asked? ”What percentage of Medicare?” I explained that physicians basically bill for their time and that we know how long surgery will take most of the time and that as the managing partner, I know what the supply costs are and basically how much it costs to run an operating room for an hour. I also explained that “Medicare reimbursement” doesn’t really mean anything to me. Anyone setting fees will be wrong, one way or the other, as the market clearing price will vary from place to place, day to day and vary according to the facility or surgeon. A very busy, high quality surgeon will be unlikely to make himself available for Medicare rates, for instance.
I informed this individual that I stopped accepting Medicare and Medicaid funds in 1994. “This doesn’t make sense.” ”Since you are running a physician-owned facility and are self-referring, your prices must be higher than the ‘not for profit’ hospitals, since they are not as greedy for profits.”
I explained that it is precisely because we are a physician-owned facility that our prices can be reasonable, as, unlike our mis-named “not for profit” hospital competitors, we don’t care if the facility makes a bundle, we just don’t want the facility to lose money. As long as our professional, physician fees are reasonable, we don’t need for the facility to charge much above what it actually costs, to be content. Physicians’ (taking in less than 10% of the health care dollars) fees are cheap compared to the typical institutional fees.
“So you’re telling me that I am more likely to find a reasonable price at a physician-owned facility that at a “not for profit hospital?” Followers of this blog know by now that this person had never seen my blog.
In a completely different tone now: ”Is it fair to say then that physician-owned facilities will lead the way in price transparency and reasonably priced delivery of health care?”
“Yes,” I said. I restrained myself from telling them to go to the head of the class with this remark.
Continuing, I said, “that is why the Unaffordable Care Act specifically stopped the development of any new physician-owned hospitals, some even already under construction, like the Texas Spine and Joint Hospital. This proscription gave the cartel cover, protecting them from high quality and affordable competitors, consistent with the intentions of the bill’s authors, increasing the cost of care dramatically.”
I have come to believe that the reasonable amounts we charge at our facility are not the most radical departure from the rest of the medical industry, but rather our display of those charges. That our display of prices is seen as so radical is, however, an indication of how sick the medical economic system is in this country, as every other industry must contend with price calculation challenges.
The answer to our problems from Washington? More government, price controls, less competition for the big hospitals, more regulation, insurance industry consolidation bordering on monopoly, budget caps, tax code tweeks, mandated computerized medical records and mandated first dollar insurance purchases. And it’s called the Affordable Care Act?
G. Keith Smith, M.D.
My mother’s doctor wanted to test her vitamin D levels.
“Medicare doesn’t pay for this lab test, Mrs. Smith.”
“How much is it then?”
“OK. I think I’ll pass.”
What are the lessons here? Put yourself in the shoes of the lab that has a capital outlay for vitamin D testing equipment. Medicare stops paying. This lab is now face to face with my mother. She doesn’t see the value proposition at $369. The lab has a choice. They can either drop their price or not do any more vitamin D levels. What do you think they will do?
The price tag for this test is in for a free fall. It will reach a level (the market clearing price) where the consumer and the producer are both happy and willing to interact. The poor, folks who would otherwise never be able to afford this test, will at some level find the price acceptable. Everyone benefits. The lab, offering the test to more patients, will make more money if they adopt the economies of scale that every other business in the world must adopt.
The absence of the price distortion caused by the mother of all third parties, the federal government, results in a lower price for this test. This is yet another example of the market at work, just as we have shown for B 12 shots in a previous post. Justifying lab prices to veteran shoppers and bargain hunters like my mother is a much tougher prospect for this laboratory than firing off a claim to a third party. The level of accountability for all of the actors dwarfs that of the previous arrangement with a third party intermediary. Consumers are not likely to demand that this test be unnecessarily performed as they are the ones paying for it, for instance.
Let’s hope that Medicare refuses to pay for more and more care as this will move more of the medical economic system to the market where prices will fluctuate, sending the appropriate scarcity signals to the producers, leading us all to price nirvana, that place we have come to know as the “market clearing price.” This price, achievable only through a free market will insure that vitamin D testing will always be available for those who need it.
G. Keith Smith, M.D.
I noted in a previous blog that now that Medicare no longer pays for B 12 shots, their availability will become greater and their price will drop. ”What about the poor,” you say. Actually, the poor are the true beneficiaries as the price will drop to a range affordable for them. In short, the price will become what the price should become, as sellers and buyers dance until equilibrium occurs, leaving neither surpluses or shortages, what economists call the “market clearing price.”
I was asked earlier today in an interview about payment for dialysis and how that fit in to my “free market” medical ideas. Dialysis is expensive. I would argue, though, that its high price is primarily due to the presence of the mother of all third party distorters, Uncle Sam. If dialysis were no longer covered by Medicare, what do you think would happen to its price? Its availability? Why should it be any different from B 12 shots? Without government administered dialysis, the price would fall. Charities would form to pick up the slack and would render more dialysis for far less money. Bastiat’s dollars not wasted from the previously overpriced dialysis care could be used to purchase more dialysis, for someone who could otherwise not get it.
Now let’s change gears. Why wouldn’t physician services follow the same economic pattern? They would and they do. What would happen to physician fees in the absence of third parties? If you said they would fall and become more available and abundant, you go to the head of the class. Just as Medicare patients should celebrate the decision by Medicare to no longer pay for B 12 shots (prices will fall and the shots will be more available), these same patients should celebrate physician services no longer being paid for by Medicare. Physicians who “opt out” of Medicare are a great example. This is the only way these physicians will see patients “covered” by Medicare. Their professional services would otherwise be unavailable to these patients. Their fees are transparent and low after opting out. This physician defection removes the scarcity-producing price controls and therefore improves access for the elderly. This financial arrangement, limited to the patient and their doctor, also removes rationing influences like “best practices,” and results in care that is customized for each patient, not care that caters to a faceless Medicare bureaucrat.
Look at the prices on our website. These prices have made surgery an affordable option for many who would never have been able to have access to this care, thanks to our friends at the “not for profit” hospitals. These prices are contingent on the absence of a third party. Lower prices, better access.
The Unaffordable Care Act (UCA) institutionalizes the distortion of the government and third parties on health care costs, a situation that will drive prices through the roof and simultaneously create long waiting lines. Higher prices, less access. Once again, remember that this is intentional, as the crisis created by the UCA will lead to many begging for even more government “help” in the form of a bankrupting single payer system
Smart patients should be begging their doctors to get “off the grid,” to “opt out.” Smart Medicare patients should be encouraging their doctors to do this, as this will mollify the physician’s fears of this bold move. Smart patients should be asking their doctor to be thinking about how much they would charge if the patient paid cash.
Many physicians have “opted out” of Medicare, thanks to the writings and advice of the Association of American Physicians and Surgeons. As smart a move as this is for the doctors, their patients are the primary beneficiaries. Lower price, improved access. More and more doctors will make this move. I think that many more would do it with the encouragement of patients who understand the basic economics of the distortions of third parties, which are nothing more than government charlatans masquerading as “protectors” of the people.
G. Keith Smith, M.D.
My mother called me this morning to tell me that a 76 year old friend of hers had gone to her doctor to get a B 12 shot. She was told her insurance (Medicare) didn’t cover that any more. Her friend was incensed and left without getting the shot.
What are the lessons here? First, my mother’s friend doesn’t understand what incredibly great news this is. She will understand soon enough that the only care available to her might be only those things that Medicare doesn’t cover. Care subject to price controls will be…ok..if you said “scarce” you get a gold star. Care outside of the “system” will be controlled somewhat by market forces, with prices free to adjust and send appropriate scarcity signals to producers who then rationally respond. If my mother’s friend really needs her B 12 (as opposed to those patients that obtain this injection simply because it is free or priced below its value) it will be available.
But here’s the rub. She will have to pay for her B 12. All of it. So many people are conditioned to follow the “orders” of the third parties, including government payers.
“The pharmacist will only fill 30 days at a time of my medicine because that’s all Medicare will pay for.” I don’t know how many times I have heard that.
“How much would it be for you to pay for a 6 month supply out of your pocket,” I ask?
“Didn’t think about asking.”
Did my mother’s friend have difficulty thinking outside of her usual box or did she not really need the injection? I don’t know. Maybe a little of both.
What has happened to the price of Lasik surgery and plastic surgery over the years? What has happened to the quality? Poor results in this field are simply not tolerated. Too high a price? That surgeon’s waiting room is empty. Why would anyone think that the rest of health care is any different? Indeed, what is it about the medical economics of Lasik surgery and plastic surgery that results in reasonable pricing and great results? Could it be the absence of the distorting influence of third parties? Could it be the market at work? What do you think will happen to the price and availability of B 12 shots once “insurance” is no longer part of the picture? What will happen to the demand of the unnecessary B 12 shots? What will happen to the incidence of B 12 shots reported given that were never given but billed for?
How long will it take for patients to learn to pay for their hernia repair out of their pocket rather than wait years in a line like the Canadians have been trained to do? Will people in the U.S. be intolerant of this treatment? We’ll see.
I always learn something when I talk to my mom.
G. Keith Smith, M.D.
When I first entered private medical practice in 1990, Medicare paid me about $1100 for anesthetizing a patient for an open heart procedure. Most of the time, my time commitment for one of these operations was about 3 to 3 1/2 hours. This was about half what a reasonable private insurer paid for the same thing. On an average day, I would do two anesthetics like this. I was making about $300/hour doing these cases! I wasn’t yet savvy enough to factor overhead, malpractice and taxes in to the equation to come up with the real number.
I knew attorneys who charged $300/hour and were unapologetic about it. They would tell me that if people didn’t want to pay that they could go see someone else who was cheaper. One attorney told me that when he didn’t have all the business he could handle he would revisit his hourly rates. I began to wonder what a patient’s reaction would be to an arrangement like that. Could I look a patient in the eye and talk to them about money? Would the average patient think that I was worth $300/hour to anesthetize them? What about $300/hour to anesthetize their child? If not, what was the “right” number? How did Medicare come up with their numbers? This all seemed arbitrary to me. Could it work like my lawyer friends’ practices, where if the service delivered was judged to be less than the price charged, the service was forced to improve or the price to fall?
When Medicare cut anesthesiologist’s fees to half of the 1990 rates, I took a harder look at overhead, malpractice and taxes (now increased thanks to King George the First). Was I only worth $150/hour, half my lawyer friends’ rate? It was beginning to dawn on me that the market was not working, and that I needed to set some boundaries myself, rather than allow some faceless bureaucrat to determine my wages. Refusal to do this seemed like a dangerous precedent. This was the beginning of my desire to display my prices.
Then the unbelievable happened. Medicare cut the rates in half again. I am no mathematician, but I knew what this meant. A 31% federal tax rate plus our Oklahoma state 7% rate plus 13% social security rate plus 3% Medicare rate was 54%. That left $40.50/hour to cover overhead and malpractice. I stopped dealing with Medicare or Medicaid (their rates were actually worse) in 1994. I continued to see these patients, just never dealt with their “insurer.”
If you are a non-physician reading this, imagine for a moment that your employer tells you that you are going to take a 30% cut in your wage next year (this is what is going to happen to Medicare payments to physicians in January). Furthermore, in order to avoid a 40% cut in your wage (rather than the 30%) you must purchase a $75,000 computer system to get paid. What would you do? Keep in mind that as a physician, you would have endured the cuts of the early nineties and these new cuts are on top of past ones.
Many of the poor and elderly are about to discover what a mistake it was to believe the lies told to them about how government would take care of them. I’m afraid that FEMA’s locking folks in the Superdome without food or water during Katrina will seem like a cake walk compared to what the shortages of physician manpower will represent. The most incredible part of the suffering that people will endure is that it is intentional. Creation of a health care crisis is necessary in order for the “government” to rescue us from it.
Readers of this blog know by now that I am not one to advocate for physicians being paid more by the federal government. I don’t think the government has any place in medical care at all. Their presence inevitably results in the politicization of medical care, price controls, fraud and poor quality (I could go on but that’s enough). Government intervention in healthcare (always to route money to the source of their bribes) has created the cartel-like mess we now know. Less, not more government is the approach that will result in an honest evaluation of the costs of care, an approach that reveals the value of the service and an approach the current regime along with its cronies wants desperately to avoid.
Reducing payment below the market-clearing price will result in shortages of care, but that isn’t the worst outcome. Worse will be the government’s reaction: they will force physicians to see patients for payment physicians consider grossly unfair. Do you want to be the patient of a physician who has a gun pointed at his head to see you? If you were a doctor, would you quit?
G. Keith Smith, M.D.