I blog about free markets in medical care and transparent pricing.
Don’t read this article. Seriously. If you are having trouble getting to sleep, read the whole thing. If you want to know how silly writing about health care can be, read pages 5-7.
The folks writing this stuff are believers in economic modeling. The flaws in their assumptions are so glaring that they have to admit to many of them on their own. The only conclusions they can draw are so obvious, that it’s a bit embarrassing. For instance, if you pay doctors more to see Medicare patients, they will see more Medicare patients. Duh.
Austrian economists reject economic modeling. This article is a great demonstration of why they do. ”Ahh…but the Austrians do this out of laziness or because they lack the mathematical rigor!” Go on telling yourself that. I am reading Professor Robert Higgs’, “Crisis and Leviathan.” He makes a point early in the book that economists drawing conclusions from bad econometric data, are like a drunk stumbling around under a street lamp looking for their car keys because the light is good there. This article fits that perfectly.
What do they claim? They claim that their model shows that if Medicare (you and me) pays primary care physicians more, they will see more Medicare patients and while that will run up the cost of the primary care physician component of Medicare, it will result in an overall savings due to the prevention of more expensive care as a result of the increased numbers of doctor office visits. Saving Medicare money. Making the system more efficient. Readers of this blog know where I’m taking this, don’t you?
How about this? If you want to save Medicare money, have the person requiring the care pay for it. Why should you have to cancel your vacation to pay for someone else’s heart surgery? Someone you don’t even know. This is the essence of what is called moral hazard: one benefits from another’s risk. That is how Medicare works. It represents what economists call a transfer payment, a payment from one individual to another, with Uncle Sam as the heavy handed go-between.
Let the doctors charge whatever they want. If they are too high, no one will see them. If they are too low, they will not get home until late. Some guys will be worth more than others. Some will be able to charge very little due to the value proposition. Do you see why increasing payment to primary care docs by 10% is a ludicrous policy? Who knows what they should be paid. I know a way to find out, and Medicare or think tanks like this are not part of the answer.
Tinkering with a failed socialist system like Medicare seems like such a waste of time. Socialism doesn’t work. It must be abandoned, not band-aided or tweeked. The Austrians would say, “let the free market determine the market clearing price for office visits.” Medicare wouldn’t have anything to say. Medicare wouldn’t exist. Articles like this that grant an unearned credibility to the Medicare system are a disservice to all of us.
G. Keith Smith, M.D.
“Don’t touch my Medicare!” Ah, the battle cry of the AARP. What a powerful political force this organization represents, powerful enough to cause some trouble for the independent payment advisory board (IPAB), an essential component of the Unaffordable Care Act. This brake on spending (quit paying people to do stuff and they’ll quit, sure enough) has been billed as a necessary tool to reign in out of control Medicare costs, but will, no doubt be applied to other health spending outside of the Medicare system. House Republicans are pushing a repeal of IPAB even though this move would likely die in the Senate and certainly meet the same veto treatment as the Keystone pipeline.
As Mises made clear in his book “Socialism,” the lack of a rational pricing system dooms all socialist regimes, as surpluses and shortages occur in undesirable sectors, lacking the discipline of the free market to provide the selling/purchasing guidelines (my apologies, once again to the Austrians out there that find my economic sound bites inadequate). You know, not enough cancers will be treated and too many carpal tunnel surgeries will be done. It will simply not make any sense. No human being is smart enough to assign the “right” price to anything, much less to an entire industry.
But that’s the point. The price assigned by the IPAB doesn’t have to be “right.” It just has to be lower than the market demands. That’s right. As long as the price is lower than the market would demand on its own, the deliberate shortages, the object of this board, will result. But think of the money we’ll save abandoning the elderly and sick! Where was AARP when the fight to stop the Unaffordable Care Act was at high pitch? On the side of the same bill containing this provision for the IPAB, that’s where. Ironic that their having sold the young down the river for the benefit of their constituency has come full circle to bite them.
So welcome aboard, AARP in the fight to stop IPAB. Never thought I’d see this outfit on the right side of anything.
G. Keith Smith, M.D.
“Price controls cause shortages.” Ever heard this? This is actually not competely true. Price controls can cause surpluses if the price is set too high. Prices set too low will cause shortages.
What should be the price of anything? What determines the price? It is the presence or absence of surpluses or shortages that determine pricing. If products or services are flying off of the shelves, the message sent back to the vendor of this activity is that his price is probably too low. He will run out of goods quicker than he can replace them. If his goods are sitting, not selling, his prices may well be too high. This is the beautiful dance of the free market that constantly adjusts the price to approach what is called the “market clearing price,” that price where there are neither surpluses or shortages.
What is interesting about this “market clearing” price is that it isn’t the same on any given day or time. A price that is just right today may be too low tomorrow. If, for instance, the price of plywood has been found that the buyer and the seller are both happy with, then a hurricane threatens the area, the price will increase in an attempt to avoid a shortage. You say,”NO! That’s just price gouging by the lumber yard!” Actually, the lumberyard owner has to be careful to not be perceived as a gouger or the local residents will never set foot in his lumberyard again after the disaster has passed. What the residents will really hate him for is his empty shelves. The higher price sends a message to the logging companies to pick up the pace in their production, either by increasing the workload of the current logging operations or by expanding. The higher price will allow for this expansion and increased employment by Weyerhauser and others to increase their output.
What’s the point of all of this? Those who would annoint themselves “price setters” are on crack if they think they can achieve prices by decree that will not result in surpluses or shortages. No one could possibly get it right. The right price doesn’t even stay the same. The current White House tyrant has proposed an Independent Payment Advisory Board for physician payments. What arrogance. There will be shortages. They won’t get this right. They can’t possibly get it right, when what’s “right” isn’t right from one day to the next. The tyrant Jimmy Carter tried his hand at this with oil and created waiting lines at the gas pumps.
There is only one way to get to the “right” price: let the free market do it. No bureaucrat or committee will get it right….ever. I am anxious for health facilities other than ours to publish prices as a little competition will help me determine whether our prices posted at The Surgery Center of Oklahoma are “right” or not. At 1/5 to 1/10 of the prices at our local hospitals who claim to make no profits, we are definitely closer to the “right” price than they are. Austrian economists talk alot about “the next best alternative” when discussing human action. While our prices are definitely lower than “the next best alternative” I would still like to see more price transparency. This is the answer to the high price of medical care in this country. Not some arrogant fool in D.C. armed with tables and sycophantic economists at his side.
G. Keith Smith, M.D.
I just want to be sure that readers connect the dots between the salary paid to the nun running the Catholic Hospital Association and your hospital bill. Any Catholic hospital that belongs to this mafia-like organization (that would be virtually all of them) has to pay for membership. The money that they use to buy this membership came from…well…it came from you, if you were ever a patient at a Catholic hospital.
How many people have been bankrupted by medical bills from these outfits? Don’t you think those who have been unnecessarily financially ruined by these so-called “not for profit” hospitals would be troubled by the nun millionaire?
Also keep in mind that the CHA and Catholic Charities receives massive federal funding. Since we all know that the government has no money that it didn’t first take from us at gunpoint, that means that another source of the funds required to make a nun millionaire came from taxpayers.
Once again, if you want to know one of the primary reasons health care is so expensive, look no farther than your local “not-for-profit” hospital. The unholy alliances they have made with the government and certain insurance companies have resulted in a cartel-like model of doing business, nothing resembling a business model disciplined by ruthless market forces.
Thugs like this nun pushing for Obamacare only have enriching their clients in mind. There is no altruism in a habit-less millionaire nun, whose clients make a regular and daily habit of shaking down the sick for money.
Try to remember that her million dollar salary would not be possible were it not for the taxes you pay and the $100 aspirin and $30 Kleenex on your hospital bill.
G. Keith Smith, M.D.
The head of the Catholic Hospital Association is a nun. She doesn’t look like a nun. She doesn’t act like a nun. And she sure isn’t paid like a nun. In this article, by George Neumayr, her salary and benefits package is revealed: $962,467. This amount is for 2010, however. If the raise she got from ‘09 to ‘10 is any indication, this gal will make over $1,000,000 for ‘11. You couldn’t make this stuff up.
She has nicknames. Sister Obamacare. Daughter of Charity. Her real name is Carol Keehan. I prefer thug. Or goon. How about The Anti-Mother Teresa? Or the “Anti Nun?”
We are surrounded by the charity of the members of the Catholic Hospital Association. I have written extensively about the billions that the Sisters of Mercy have choked out of the sick. Somehow in their effort to not make a profit, the Sisters found several billion dollars to blow on a building and spending spree that would make Donald Trump blush. Where did they get this money? Do you think they’ve overdone the “cost-shifting” thing a bit? The shake downs of physicians and hostile takeovers of their practices is another charitable activity that characterizes these “girls in the hood.” Keep in mind that the charges generated by these outfits are often ten times what we charge for the very same surgeries….and we are profitable.
Also keep in mind that the profits are such at these outfits that some of their executives rake in salaries/benefits in excess of 9 million. The money these goons stand to make once The Unaffordable Care Act kicks in makes what they are making now look paltry. Keep this in mind when your insurance becomes truly unaffordable. Your local Catholic hospital has hired this old gal to get to D.C. and get it done for them, never mind what it does to you.
I thought I had a pretty good handle on the greed and viciousness of the not for profit hospital bunch until I read this. It has never occurred to me until now to advise my sons to consider going to a convent as a career path to their millions. Seriously, what an embarrassment not just for the CHA, but for any hospital that belongs to this organization. They should ponder Matthew 19:21….Jesus said unto him, If thou wilt be perfect, go and sell that thou hast, and give to the poor, and thou shalt have treasure in heaven: and come and follow me.
G. Keith Smith, M.D.
Check out this website. Dr. Paul Dibble in Magnolia, Texas has jumped ship. He doesn’t deal with insurance companies. Period. He has listed his fees on his website. This is great stuff. He e-mailed me recently to make contact and let me know that a patient of his had actually had surgery at our facility, the prices at our facility being considerably lower than anything the patient could find otherwise. Magnolia, Texas is about a seven hour drive from Oklahoma City, but this drive translated into a several thousand dollar savings for this patient’s hernia surgery.
Dr. Dibble spends a lot of his time researching prices for his patients. If one of his patients needs laboratory testing, MRI’s, physical therapy or any other treatments, he takes it upon himself as a true patient advocate to find the best and the best-priced.
In my brief conversation with him recently we both agreed that the surest guarantor of quality is competition. A little healthy competition goes a long way toward making all of us in the medical community sharpen our skills and helps to keep the focus on the patient. Why do patients see Dr. Dibble when the entire payment for a visit to him comes out of the patient’s pocket? Because it is worth it. If he weren’t worth it, no one would go see him. Because of the confidence he has in his abilities and his dedication to his patients, he has placed himself on the free market firing line. The service he provides must be distinctively better or else he would not be in business at all. The accountability that is attached to him at the hip will never go away. He has volunteered for it. Patients are in his waiting room because they want to be there, not because he is on some approved list.
When you look at his price list, think again of the money he will save the people of Magnolia when they pay $100 for a laceration repair, rather than the exhorbitant amount charged by the local not for profit hospital. And he’s making money! Back, once again, to Bastiat’s “what is not seen.”
I believe that we will be seeing more and more of this in this country. Dr. Dibble was very excited to find our center and our transparent pricing for his patients. Like me, he is a proud member of the Association of American Physicians and Surgeons, the primary advocate of third party free medical practice. I look forward to visiting with Dr. Dibble again soon and hope to see as many Magnolia medical refugees as he can send us.
G. Keith Smith, M.D.
If I didn’t have my hands full I would like to open a surgery center across the street from the not for profit hospital in Tulsa that has bestowed such large amounts of “community benefit” on local residents. I would display prices called “community benefit pricing” on a large neon sign out front. I might even run weekly specials.
We would include in our medical staff only those who have refused to succumb to the large hospital system, those independent practitioners whose understanding of the doctor patient relationship precludes employment by a hospital.
So here’s the question: what would be the effect on the quality and cost of medical care provided in the Tulsa market? Let’s forget for the moment that the likelihood of success in getting this venture going is practically “zero” as those threatened by this move would more than likely keep it from happening. Back to the question.
What happens to the service you receive from the hardware store down the street if their only competitor goes out of business? Conversely, what happens to the service you receive from your favorite restaurant when another restaurant opens right next door to them? What happens to the price of a hammer or hamburger with this competition? Why do you think that health care is any different?
You say,”the more surgeons that practice in a town, the more surgery that is done!” You would be correct. I’m talking about facility competition, however. You see, physician fees are an almost insignificant component of the overall cost of health care. It’s the facility fees that make up the lion’s share of the cost. Even a 10% cut in facility fees would represent a savings that would dwarf eliminating physician fees altogether! The website fees at our facility are 1/5 to 1/10 of the charges at our local “not for profit” hospitals for the very same procedures. This represents an 80-90% savings of the facility fee. And our facility is profitable.
I think this Tulsa hospital would do the same thing that our prices have forced some of our local hospitals to do: lower their prices. I have blogged before about the patient that told me he was quoted the exact same price for his surgery by a local hospital not known for providing low-cost care, as that listed on our website. Our price, however, included the physician charges and so represented a better deal for him. This price difference can’t be sustained for very long. The competition for patients will force the prices down and increasingly, the embarrassment of “not for profit” price gouging will have its effect on prices, as well.
At the bottom of the neon sign would be a running total, a number that represented the “community benefit” our new little surgery center venture bestowed on Tulsans. This number would be the difference between our fees and the fees across the street. Bastiat’s “what is not seen.” Money people didn’t have to pay. Money that stayed in their pockets. Money that stayed in their self-funded plans.
Watch for a physician-owned facility in the Tulsa area to embrace price transparency. That will be for the price of medical care in Tulsa, what the Surgery Center of Oklahoma’s deflationary effect on prices has been for Oklahoma City. And that will be a true benefit to the community.
G. Keith Smith, M.D.
Ezra Klein of the Washington Post recently wrote the biggest threat to The Unaffordable Care Act and health care reform was a shortage of 30,000 primary care doctors. I find this very interesting for a number of reasons.
If it is true that a shortage of 30,000 primary doctors exists or will exist shortly, why is that? There aren’t shortages of plumbers or tomatoes. What’s up? Could it be that government intervention and that magical thing that Uncle Sam can’t seem to get enough of which causes shortages……price controls? ”Wait! There you go again you free market fundamentalist!” There, I said it. Can you allow for the possibility that the government price controls in Medicare and Medicaid and the hassles with these wonderful agencies could drive young physicians away from primary care? The primary care physician would be filing 40 claims or more a day if he/she were really busy. What a nightmare!
Actually, this is a great time to pursue primary care, though, as a non-contracted physician. No insurance of any kind accepted. Patients pay a set fee when they come in. Wow. Talk about an independent, bullet-proof practice. Very few worries and hassles. The gross almost equals the net. This is not what Uncle Obama has in mind, though.
And this. Who decides how many primary care doctors are enough? Who decides how many plumbers are enough? This reminds me of Bastiat’s essay entitled “How Paris is Fed.” It is one page and you can read it here. How do we know that the number is 30,000? If you said, “We don’t!” you go to the head of the class.
What will our government do? I think you know. They will force a certain percentage of graduating medical students to pursue this path whether they want to or not. This is what always happens. And the number of physicians that they force into this or that field will be wrong. And the doctor you see won’t want to see you. See any problems with this so far?
The government is always wrong in this business of allocation of scarce resources and the market is almost always right, but corrects itself when it’s off a little. Why would we think that health care is any different?
G. Keith Smith, M.D.
A physician with a high deductible health care plan recently tried to obtain a price for his son’s upcoming surgery (an outpatient procedure). Read his blog about it here. The local hospital quoted him $37,000. A local ambulatory surgery center later quoted him $1500…and you thought I might be exaggerating the price differences out there! It seems that the hospital needs a whole lot more money to not make a profit. Anyway, the author of the blog asks the right question: why didn’t his surgeon tell him about this $1500 alternative? Could it be that the surgeon is a hospital employee? Could it be that this hospital-employed surgeon has his marching orders and has been told to patronize his employer’s establishment, regardless?
I think this is a great example of the breakdown of the doctor patient relationship caused by the hospital employing a surgeon. ”Whose bread I eat, his song I must sing.” People often times talk about the conflict of interest present if a physician owns a hospital or surgery center. Once again, why is it that it is ok for hospitals to own doctors and not for doctors to own hospitals? I think that this is a clear example of the obvious conflict created by hospitals employing physicians. This creates the “cartelization” of the health care marketplace that distorts competition in a way that is hard to combat.
If he is not a hospital employee then I guarantee you he is not an owner in an outpatient surgery center, for if he had been, he would have picked up the phone and asked and promptly found out what the cost of this procedure would be.
The really bad news for the hospital that tried to rob this guy? He is the CEO of Healthcare Blue Book, a pricing guide for those looking for a guide to what medical procedures ought to cost. He is a physician and also has a law degree. Wrong guy to mess with maybe?
G. Keith Smith, M.D.
PPO’s were set up ostensibly to help with the escalating price of health care, the idea being that if you include only the highest quality physicians and facilities in “a network,” effectively eliminating the unethical or incompetent players, you could theoretically curtail complications and minimize unecessary surgeries/care. Physicians and facilites would then theoretically provide discounts in return for an increase in the number of patients they would see.
The PPO’s have become precisely what the insurance and big hospital industry wanted: cartels. They have been extremely effective in shutting out competitors for the big players. They have done nothing, as we all know, to eliminate unscrupulous physicians or hospitals from “the network.” In fact, as the pay rates drop for physicians and the PPO’s become increasingly abusive, it is the doctor who is already busy and doesn’t have to mess with this crap who is likely to drop out of “the network.” The PPO’s tend to run off the best in the crowd over time. And they have actually been one of the primary factors in the escalating costs of health care in the U.S., eclipsed only by Uncle Sam. Once again, if you’ve been following this blog, none of this is new to you.
Now imagine a cigar smoke filled room full of insurance executives laughing uncontrollably. Pouring the scotch are the big hospital administrators when they aren’t dancing around the room high-fiving one another. This is why they are laughing: . many PPO’s are actually incentivized to seek out the highest priced facilities. What?! Oh yeah! Nobody talks about this one: PPO repricing. You see, some PPO’s (actually all of them I think) charge PPO repricing fees. This means that if the PPO pays $10,000 to a facility for a surgery or hospitalization that the facility charged $20,000 for, the PPO, by virtue of having “repriced” this procedure or hospital stay, gets a percentage of the money they” saved” whoever was paying the bill…usually no more than 25%.
“Wait a minute,” you say! “You mean the PPO collects the premiums, then maximizes their profit by ratcheting down the payment to the physician and facility but also makes a percentage on the difference between the beginning and ending bill amounts? So the higher the bill is to start with, the more they make?”
“So if a better doctor at a better price is across town, that is the last place this PPO wants to go?” ”So the PPO’s get giant bills from the hospitals and the hospitals get exclusivity from the PPO’s?” Maybe I’m not anticipating all of your questions here.
What do you think those in the repricing business think of transparent, fixed and direct pricing like that on our website?
Tranparent pricing spells the end of this game. Hopefully the consumers of care in this country will be laughing and dancing soon, celebrating the high quality and low pricing in health care that is inevitable when the government and the corporate schemes like this are eliminated and the free market is allowed to work its magic.
G. Keith Smith, M.D.