I blog about free markets in medical care and transparent pricing.
The Oklahoma Health Care Authority (OHCA) is an agency that was created here by the corrupt Governor David Walters in obeisance to the just-elected Bill Clinton’s regime. In anticipation of Hilliarycare’s passage, the OHCA was to act as a state “exchange.” Sound familiar? Rather than disappear with the failure of Hilliarycare’s passage, it has, like virtually all state and federal programs grown exponentially, now with an operational budget of almost 40 million dollars. This agency took over the administration of Medicaid from the state Department of Human Services and now administers this 5 billion dollar mess.
I thought at the time that Walters pushed this agency’s creation through the state legislature to secure some kind of healthcare spot in Washington for himself as a reward for being the first to take this step. Interestingly, our current governor is waiting until the presidential election results are in before declaring whether or not she will support setting up an Obamacare “exchange” here in Oklahoma. Walters and his old pals, including recently-returned state Medicaid director, Dr. Garth Splinter (no libertarian), probably find all of this very amusing.
The OHCA is recently in the news, having approved the hiring of a RAC auditor. RAC (not unlike a kick to the groin) stands for Recovery Audit Contractor. These “contractors,” whose hiring is required by Uncle Sam, audit Medicaid claims and identify overpayments to “providers,” receiving a commission for the amounts they declare as overpaid. If you are thinking that they are inclined to overstate “overpayments to providers” you get a gold star.
Physicians and facilities that are exposed to this type of shakedown will be effectively denied any appeal if they feel falsely accused, as the expense of battling these accusations will be daunting and the legal and financial resources of the government contractors will be unlimited.
What do you think physicians will do now that the pathetic Medicaid reimbursement, far below the market-clearing price for physician services already, is matched with the threats of RAC audits? If you think physicians will be even more inclined to rid their practices of Medicaid patients, you get another gold star.
Isn’t this classic central planning? Only government could come up with an anti-fraud program that would serve to eliminate access to health care. The politicians look good “cracking down” on fraud, the director of the OHCA publicly opposes the RAC audits and the scarlet letter of “Medicaid” becomes all too real for its victims. Physicians will be vilified for denying care, acting as scapegoats for these bureaucrats. This is going on with Medicare, as well, payments withheld from physicians and facilities for routinely over a year and once again, the denied amount forming the basis for the “contractor’s” commission.
No one is talking about the most obvious Medicaid fraud of them all, the payment relationship between the OHCA and the “not for profit” hospitals. Medicaid payment to these hospitals far exceeds the prices we have listed on our website. If you then add in the “uncompensated care” padding and the “provider tax” kickback the OHCA pays these big hospitals, the payment in excess of our displayed prices is stark.
Seems to me like the real fraud is that while the OHCA and Garth Splinter’s Medicaid bankrupt the taxpayers with these fat payments to their hospital pals, cheaper and I believe better care is provided just down the street at our facility. Preserving favors for their pals, erecting barriers to care for the poor. A classic lesson in government corruption and incompetence. The RAC bunch doesn’t make any money from this, though.
G. Keith Smith, M.D.
From our local paper, “The Oklahoman,” the most recent Saturday edition:
“Ray Walker took his job because he wanted to be better enabled to help his mother as she aged. Walker serves as the divisional director of the state’s Medicare Assistance Program. Walker’s job is to help people make health care decisions that are best for them. Part of that job includes helping older adults and their caregivers understand Medigap, the term used to describe supplemental insurance that covers what traditional Medicare doesn’t.”
I guess it’s not enough that your tax dollars fund the Medicare Ponzi scheme. You also get to pay a guy to explain to Medicare beneficiaries the ins and outs of buying policies that pay the bills the bankrupt scheme doesn’t cover! Think about it. What other insurance do you have that needs a back up insurance policy? Hmmm. Ahh, limited, constitutional government! But wait, there’s more!
Again from our local paper, “The Oklahoman,” the most recent Sunday edition:
At a recent news conference at our state Capitol: ”Changing health care is hard - changing behavior is even harder,” said Gregg Koehn, the Oklahoma Foundation for Medical Quality chief executive officer. “We certainly don’t have all the answers, but we can together make a difference.”
Continuing: ”The Oklahoma Foundation for Medical Quality hosted the news conference, which served as an announcement of ‘Oklahoma Healthcare Quality Week.” ”The foundation is a state-based ‘Quality Improvement Organization,’ a term that means it’s contracted through the Centers for Medicare and Medicaid Services to improve the effectiveness of services delivered to Medicare beneficiaries, according to the center’s website. Koehn said over the past few years, the organization has helped about 1000 primary care providers implement electronic medical records. About 200 providers have achieved Stage 1 Meaninful Use, he said. ’Meaningful Use’ is the set of standards defined by the Centers for Medicare and Medicaid Services Incentive Programs that governs the use of electronic health records and allows eligible providers and hospitals to earn incentive payments by meeting specific criteria, according to the U.S. Department of Health and Human Services.”
Apparently, we not only need a government program like Medicare - we need a government program to improve the effectiveness of Medicare! We are paying these clowns to have news conferences like this. Declaring this Oklahoma Healthcare Quality Week will make a big difference, don’t you think?
One of their greatest accomplishments? Bringing us more electronic medical records! And forcing the “meaningful use” garbage down the doctors’ throats. To say that incentive payments are available to those adopting “meaningful use” criteria, isn’t exactly true. What they mean is that for doctors who don’t adopt this set of criteria, the purpose of which is to provide the bureaucrats with patients’ confidential health information, those doctors will be paid less. That’s not exactly an incentive payment, is it? The’ve called the stick a carrot, I think.
I have called the electronic medical record scam, the KGB of medical intelligence. Patient’s private and confidential information will be transmitted via this technology to folks whose job will be to deny care to those believed to cost the system the most or those who are politically expendable. ”That can’t happen here,” you say!
Sorry. It has already begun and the henchmen like Mr. Walker and Koehn are with us and working hard for the boss man. Principiis obsta, finem respice ( Resist the beginnings, consider the ends).
G. Keith Smith, M.D.
Check out this letter to the editor from the Washington Times. He almost has it right. When you consider that the purpose of the IPAB (Independent Payment Advisory Board) will limit the price paid for medical care for the elderly below the market rate, you realize that the exposure of the “supplemental” insurance plans leeching on to Medicare is very limited. Let me see….more people scared in to buying these policies….paying out lower amounts for claims….sounds like a money-maker to me!
The AARP, like the AMA, receives a majority of its funding from Uncle Sam. Their endorsement of Obamacare couldn’t have been affected by this relationship.
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.
Lew Rockwell described the General Motors bail out as follows. Imagine that you have saved enough money to by a car. After doing careful research you decide that you want a Toyota. Uncle Sam says, “NO!” ”You must buy a Chevrolet!” The funds are taken out of your account and deposited in the General Motors account. The catch? You don’t get a car!
I don’t like the use of “bail out” as a phrase that indicates a rescue of sorts. I prefer to think of “bail out” as ejecting from a burning airplane leaving everyone else on board to fend with the mess. Isn’t this what the GM bailout really was? ”What was seen” was GM continuing to operate. What was not seen was the robbery of the taxpayers and the ruin inflicted on those holding GM’s bonds.
“Bail out” can also mean scooping water out of a sinking ship or vessel. The key to understanding this use of the phrase is that the ship is sinking.
I think it would be more honest to start using the phrase “bail in.” This phrase would be more useful in that Uncle Sam’s role might be more clear as the distributor of money stolen from taxpayers to political or corporate favorites. Solyndra is a great example of a “bail in.” Your money and mine was “bailed in” to that poorly conceived black hole. We have involuntarily participated in countless “bail ins” for big banks over the years, institutions deemed “too big to fail.”
I have begun to think of Medicare as a “bail in” effort. Rather than declare this Ponzi scheme a disaster, voters over the years have tarred and feathered anyone suggesting even the slightest change in this program. ”Don’t touch MY Medicare!” ”I have paid in to this for many years and now I want my benefits!” The current Medicare beneficiaries receive their “benefits” not from money they paid in, but rather from money others currently pay and even money that future generations will pay. Medicare is being “bailed out” by bailing young people’s money in.
If a private company had Medicare’s balance sheet, it would be declared bankrupt, broken up and sold off and those that had put money into the organization would take their lumps, recognizing they had contributed to a failed enterprise and learned their lesson. However, as a government institution, Medicare has the power to bail the money of future generations in to this financial abscess, only to make the boil even larger. Cries from Medicare beneficiaries continue and the politicians respond just as you think they would, maintaining or increasing the benefits to this powerful voting bloc.
Some politicians paid a big price for voting for the various bailouts. I don’t see the difference between that and political promises to “save Medicare.” Placing Medicare in to receivership won’t be easy and can’t be accomplished quickly as too many folks have come to count on this program to provide funding for their health care. That said, I believe it is irresponsible and immoral to continue to present future generations with the current health care bills of today’s Medicare population. Is it possible to end the confiscatory “bail in?” Is it possible for a group of the elderly to endorse the end of the robbery of our young, and those struggling to make their own ends meet?
G. Keith Smith, M.D.
An interesting market distortion caused by third party payment for medical care is new drug/device innovation. Third parties (insurance companies and Uncle Sam) will pay for some new drugs and devices and not for others. The devices that are “covered” have an incredible advantage over their potential new competitors.
Put yourself in the patient’s shoes. The surgeon says that a new sinus surgery that’s available will cost the patient an extra $500, as their insurance doesn’t pay for it. Never mind that it’s better. It’s $500! This “insulation” from competition that those “accepted” devices and drugs receive from the third party payers who cover their products, actually allows those drug and device manufacturers to charge more than they would in an otherwise free market. Subjecting the “accepted” devices/drugs to real competitive pressure would force price or quality re-evaluation constantly, a process every other industry must embrace.
If some bright engineer comes up with a better total joint implant, for instance, he has no chance to enter the market place and compete with the big boys unless his device is included in the list of accepted devices that are “covered.” The typical response by the big insurance companies when questioned about why they don’t “cover” something is “Medicare doesn’t cover that.” So ultimately it is Uncle Sam that determines whether this new and improved total joint implant makes it.
Much more likely is that politics will get involved, with agency bureaucrats in government recognizing their opportunity to peddle influence. After all, how easy would it be for one of the “big boys” to get a tip from some “helpful” bureaucrat, that a new device is out there that makes their technology obsolete . ”Big boy” company “requests” sufficient delays be put in place at federal agencies, placing the upstart in an impossible situation, so that they can them buy the young engineer out at a fire sale price. Don’t think this has ever happened? Seriously?
State governments helping inventors apply for federal funds for their medical inventions represents another distortion. See my blog “Favors We Can Live Without” here for more on this. This is moral hazard at its finest when bureaucrats determine the risk part of the risk-benefit proposition. Capital then chases an inordinate number of bad ideas, or chases the ideas that benefit the bureaucrat decision-makers. Oklahoma’s “Center for the Advancement of Science and Technology” is one such outfit that enables such federal mal-investment, rather than limit losses for bad decisions to those who would seek to profit from the idea. I find it incredible that taxpayers fund an agency whose job it is to invest taxpayer’s money into projects from which the taxpayers receive no windfall, other than the lie of economic growth. Who knows what the taxpayers, left to their own devices, would have invested in. Maybe a new inhaler for their asthmatic child? Who knows? Our old friend, Bastiat, continues to haunt us with “what is not seen.”
Higher prices for drugs and medical devices. Stifling of innovation. Opportunities for fraud and bribery. Misuse and mal-investment of capital. Faulty products coming to the medical market place due to politics rather than merit. I’m sure this is only a partial list of distortions caused by the presence of third party payment for medical care. Many thanks to Jason Sigmon, M.D. for the idea for this blog and his keen insights.
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.