American Health care – Oxymoron

Money Driven Medicine, Maggie Mahar, 2006

This book was published in 2006, two years before the bursting of the real estate bubble and the resulting collapse of Wall Street. Her message in 2006 is that the free market economy doesn’t work in health care. Now even free market pied piper and Serial Bubbler Alan Greenspan realizes it doesn’t work for much else of the economy. The central theme here is the pernicious effects of huge corporations; hospitals, insurers, pharmaceuticals, device and equipment manufacturers on our health care system. Lost in the equation are doctors and patients.

We previously reviewed an excellent history of health care and the road to our current mess and a review of a work exposing the pharmaceutical industry.

She mentions private insurers as they trim their enrollment, deny coverage for preexisting conditions, increase deductibles, and deny claims. She is particularly incensed by the new Las Vegas style “thrill seeker” policies. Blue Cross even named some of their plans Thrill-Seeker, Part Time Daredevil, and Calculated Risk Taker. The idea here is the buyer assumes they will never have a catastrophic health care problem but the low cost policy is there just in case. Of course the fine print in the policy plus the typical $10,000 deductible make the policy all but worthless for most illnesses and problems. Mahar also discusses the medicare drug benefit program which is costing far more than projected and precludes medicare from negotiating for better prices.

On doctors, Mahar says few keep up with developments in their field. They use the excuse of lacking time (that could be better used billing patients) but the effects are profound. In an experiment, a hypothetical patient with symptoms and test results was given to 130 doctors. Using amazing creativity they managed to come up with 88 distinct treatment programs. As far as doctors voluntarily adopting electronic records, it may have to wait for the next generation of doctors. There is a continuing trend for doctors to specialize. Specialists earn more money, only need to keep up with a limited field of knowledge, and can earn more prestige It has the side effect that the specialist has very limited contact with the annoying patient (they may be unconscious most of the time). The downside is the “when you have a hammer, everything is a nail” phenomenon where the specialist is tempted to expand business by employing unnecessary and even harmful treatment (See the Redding doctors later in the review).

As to why the free market economy doesn’t work in health care she gives a simple illustration. The patient visits his doctor who diagnoses a live threatening problem. An immediate operation is required to save the patients life and as luck would have it, the doctor and a hospital have an opening this very afternoon. Can the patient make an informed buying decision under these circumstances. Both the patient and the patient’s spouse are probably in total shock at the diagnosis and would be unable to make any sort of rational decision under the circumstances. This is a situation calling for complete trust between patient and doctor, not a free market economy. At the end of the book she includes a real world example of a doctor, after a full career diagnosing a treating a particular disease himself contracting that disease. Here the doctor has full world class knowledge and information about his own condition and the options available. Yet the doctor is frozen, unable to decide anything about his own treatment until a friend suggested he needed a doctor, a trusted outsider and professional to develop a treatment plan. Free market economics doesn’t apply to health care and Mahar coyly points out only economics of all social sciences is built around the assumption that people behave rationally.

Mahar discusses the full range of issues confronting our broken health care system but gives particular attention to two subjects; for-profit hospitals, and device manufacturers. Hospitals are a bad business for making money; they are labor intensive, need constant equipment updating, and their income is restricted by the private insurers and medicare. So the hospital business became a real estate play where the big hospital corporations go on a mergers and acquisitions binge, swallowing up low valued hospitals around the country. The difference in PE ratios between the hospital corporation and the acquired hospital translates direct to increased valuation of the corporation. Then, once the corporation is satiated it starts unloading its money losing hospitals and because real estate and hospital prices are continuing to rise, the corporation makes money from dumping its losing hospitals. The cycle repeats.

Sen. Bill Frist Lives High on Medicare Fraud

The other way hospital corporations make money is by over-billing, usually fraudulently, insurers and Medicare. They employ accountants who are specialists in “gaming” the insurers and medicare, often fraudulently. One of the first investor owned hospital corporations was HCA founded by the Frist family. In 2000 HCA paid a total of $1.7 billion is civil and criminal penalties as a result of fraudulent billing practices. Senator Bill Frist, joining other insiders at HCA in 2005, sold all his shares at $58, a market peak. Stock prices at HCA subsequently plunged and the company was taken private through a leveraged buyout in 2006. Was this a case of insider trading like that notorious Martha Stewart. Bill Frist was never prosecuted despite an SEC investigation.

chae-hyun-moon fidel-realyvasquez
Chae Hyun Moon and Fidel Realyvasquez Fraudulent Cardiologists

Hospitals were also generating business by performing unnecessary procedures including surgeries, most notoriously by two doctors in a Redding hospital who conducted bypass surgery and implanted stents in any patient who came their way, needed or not. Some patients who needed no surgery at all died as a result. The Federal government went after the hospital and two doctors with the resulting settlement that the doctors would no longer be eligible for Federal payments for their work. For private insurers, its business as usual.

Mahar also talks about the equipment arms races that all hospitals succumb to for competitive reasons. If one hospital gets a full body scanner, then all hospitals must get one. Doctors joke that in Toledo Ohio their are so many MRI machines that you can feel the magnetic force field just walking across town. The advertising that hospitals are now free to use escalates the arms race with hospitals trying to outbid each other with the latest amenities. They almost sound like resort spas today. Whats wrong with buying the latest equipment? For one thing you risk false negatives and subjecting patients to treatments they don’t need (like the Redding Cardiologists). But even older equipment like mammograms are only as good as the doctors or specialists reading the xrays. And the skill varies remarkably. By having every piece of equipment in every hospital you are almost assured that not everyone performing the tests is adequately skilled and competent, to say nothing of intentional misdiagnosis to generate business.

And what about those uninsured who show up in the hospital’s ER. If they don’t have insurance get lost. Despite laws to the contrary, more and more hospitals, including University research hospitals are turning away uninsured or under-insured patients who are unable to pay for treatment. Simply put, treating uninsured patients hurts the bottom line. Still hospitals routinely set aside a reserve of 12% or more to cover noncollectable debt.

Finally with hospitals there is the issue of electronic records. With billions at stake, IT vendors are falling all over themselves to offer proprietary systems. The problem is that the system do not inter-operate, that is, information can not be shared across systems by different vendors. Then hospitals work with many doctors who each has his own practice and each practice may use two or three different hospitals. Doctors are reluctant to install and learn an electronic record system and it is likely no one system will allow them to communicate with each hospital. Until the government steps in to create an interchangeability standard, electronic records will go nowhere. The two exceptions, noted by Mahar are Kaiser Permanente, a prepaid non profit hospital system and the VA. These two organization have been able to automate records because they are closed systems with payer, doctors, and hospitals all bundled into a unified health care system. The VA’s system costs $78 per patient per year to operate. Kaiser’s system costs $40 per patient per year to operate. Cost should not be a reason not to implement universal interoperable electronic health care records. The VA’s system has been so praised they have offered it free of charge to anyone wanting to automated their records. The VA even has volunteers willing to help any doctor set up a system. Still there are few takers. Electronic records is also not in the interests of the big powerful corporations controlling today’s health care. With electronic records it would be possible to track the performance of doctors, hospitals, devices, drugs, and see what is effective and to find problems. Secrecy is necessary to protect the big interests so expect a big fight over electronic records and interoperability.

Now don’t assume that non profit hospitals are immune to the problems of their for profit brothers. Non profit hospitals still require huge expenditures to keep up in the equipment arms race and for that they need to sell bonds to raise money, and to sell bonds, they need good credit ratings so they are subject to mast of the same problems and constraints of publicly traded companies.

Device manufacturers are now the leading cause of runaway health care costs, but to understand them Mahar says you must start with the pharmaceutical takeover of the FDA in the early 1990s (under Clinton. Pharmaceutical companies wanted fast track approval for new drugs and as part of the new federal mandate they directly foot most of the cost of running the FDA. The program was a rousing success with fast approval of record numbers of new drugs. But of course the FDA ceased to operate as a regulatory body responsible for continuous testing and monitor of FDA approved drugs and devices. As an example Vioxx was identified by the VA, Kaiser Permanente, and the Mayo Clinic as unsafe years before the the FDA came forward and Merck was forced to withdraw Vioxx.

Guidant’s Faulty Defibullator gets Recalled

Her worst device story concerns an implanted defibrillator manufactured by Guidant. A young man with a defibrillator suddenly died while riding a mountain bike in Moab Utah. A New York Times reporter got interested when he discovered the defibrillator had short circuited just when it was need which led to the death. The reporter filed a freedom of information request to find out how much the FDA knew about such failures. His request was denied but upheld on appeal. What he discovered was shocking. Guidant had known about the problem for years and had redesigned the unit to correct the problem but continued to sell the original design for at least three years after the redesign. Many deaths resulted from the faulty device but neither the FDA nor the company ever issued warning to doctors or patients. Only when the reporter began the first of more than 30 articles on the device did the FDA issue a very tepid warning. Oh, by the way Guidant was purchased by another company for an astounding $27 billion in the middle of all this. Device manufacturers think they can get away with anything and charge anything they want.

Now to some startling statistics. Worried about a government run health care option? The Federal government is already paying 51% of all health care costs if you add medicare, medicaid, VA, SCHIP, and Federal employees insurance. If you add tax revenue lost to deductions from employers and employees for health care, the Federal government is in fact paying 60% of all health care. The Federal government and its taxpayers are already paying more than enough for a first class comprehensive all inclusive health care system but the corporations are making sure we don’t get one.

And guess who the the big hero of this book is. The lowly Veterans Administration, those guys with the pealing paint and holes in the wall. The VA had been able to cut their costs by half at the same time everyone else s costs are skyrocketing. They have been able to dramatically reduce hospital beds, negotiate for better drug prices (The VA laments that if VA 5% drug market share could have added to Medicare’s 10% market share they could have negotiated even better prices), control doctor salaries, and implement only testing and treatment procedures that are acknowledged to be be best practices. The result is better outcomes and lower death rates along with lower costs.

Comments are closed.