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Getting a grip on health care costs: the wrong conclusions

The New York Times has a piece up using the cost of colonoscopies as a surrogate for explaining the spiraling costs of health care in the US.

Before I go to that, however, let's use a pair of local reactions from Delawareliberal to examine how to draw the wrong conclusions (even conclusions at odds with the information in the post itself).

First, the original comment by cassandra m:
This Sunday’s NYT provides a must-read for those of us interested in resolving the long-term problem of reducing health care costs. This piece take a look at how colonoscopies are performed and charged to demonstrate the scope of the problem. And basically the scope of the problem comes down to Profit incentives, rather than health incentives. It also shows how hard it is to even get cost data for procedures — even by a physician doing the procedure. Certainly our health care system pays dearly for heroic end-of-life care, but it certainly looks as though basic procedures done by our physicians in their offices or their physician centers are ripe for cost review.
Then there is this response from commenter bamboozler:
Read the colonoscopy story, all too true, healthcare in America will never be fixed until the profit motive is removed.  Just like the rest of the world.
Now let's take a look at the article itself, beginning with the erroneous idea that we have some kind of free market in healthcare:

“In the U.S., we like to consider health care a free market,” said Dr. David Blumenthal, president of the Commonwealth Fund and a former adviser to President Obama. ”But it is a very weird market, riddled with market failures.” 
Consider this: 
Consumers, the patients, do not see prices until after a service is provided, if they see them at all. And there is little quality data on hospitals and doctors to help determine good value, aside from surveys conducted by popular Web sites and magazines. Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending. 
Even doctors often do not know the costs of the tests and procedures they prescribe. When Dr. Michael Collins, an internist in East Hartford, Conn., called the hospital that he is affiliated with to price lab tests and a colonoscopy, he could not get an answer. “It’s impossible for me to think about cost,” he said. “If you go to the supermarket and there are no prices, how can you make intelligent decisions?”
Free markets are driven by information about costs and profits.  By taking the information about costs out of the consumers' hands, which is something that government "regulators" have cheerfully allowed for years (even decades:  since the failure of "Hillary care" saddled us with the current crazy quilt of insurance coverages).  We literally CANNOT price shop for most procedures because the information is denied to us.  In a moment I will show you how that works to our disadvantage.

But, again, back to the article:

Colonoscopies offer a compelling case study. They are the most expensive screening test that healthy Americans routinely undergo — and often cost more than childbirth or an appendectomy in most other developed countries. Their numbers have increased manyfold over the last 15 years, with data from the Centers for Disease Control and Prevention suggesting that more than 10 million people get them each year, adding up to more than $10 billion in annual costs. 
Largely an office procedure when widespread screening was first recommended, colonoscopies have moved into surgery centers — which were created as a step down from costly hospital care but are now often a lucrative step up from doctors’ examining rooms — where they are billed like a quasi operation. 
They are often prescribed and performed more frequently than medical guidelines recommend.
Now let's parse this carefully:

1.  Colonoscopies (as later paragraphs in the NYT study document) are used far more often than recommended by the CDC, and often instead of less expensive alternatives.

2.  Colonoscopies have moved to the hospital (usually in out-patient "surgery centers") from the doctors' offices.

Let's ask why, in both instances.

First, why so many colonoscopies? This is from an AARP report
John Inadomi, M.D., a professor at the University of Washington School of Medicine and chair of the American Gastroenterological Association's clinical practice and quality management committee, cites a number of factors that may lead doctors to perform more colonoscopies than necessary. 
"We get paid for doing more," he says. "There is an inherent conflict here."  
"I think a lot of us look for reasons to bring back people early, because we know we miss things," Inadomi says. 
Meanwhile, financial incentives may be at work, Inadomi adds. 
As is the case with other physicians, gastroenterologists are paid for how many procedures they perform, not based on whether their patients have a healthy outcome.
But why does this incentive exist?

To explain, let me go to Dr. Vince Schaller, a local physician and small businessman who is the Medical Director and owner of Hockessin Walk-in Medical in Lantana Square.  Dr. Schaller recently appeared at the Libertarian Party of Delaware annual convention, and explained in great detail how procedures like colonoscopies moved from the doctor's office to the hospital surgery center, and--more importantly--why this will continue to get worse under Obamacare.

Existing insurance regulations, Schaller explains, allow for hospitals (both for admitted patients and in out-patient settings like emergency rooms and surgery centers) to charge much more for the same procedures that could easily and safely be handled in a doctor's office or a storefront clinic.

For example, Schaller cites the fact that under Obamacare the insurance companies pay hospitals four times the amount to do a cardiac stress test than they allow for the exact same test (on the exact same equipment) conducted in a physician's office.

"As a result," Dr. Schaller told the Libertarians, "the three largest, oldest, and most widely respected cardiology groups in Delaware--one in each county--have all closed their doors and sold their practices to the local hospitals within the last year.  Because the insurance regulations under Obamacare prohibit them from even breaking even on the procedures, they have gone from independent doctors to hospital employees."

There is a hidden cost here, Schaller notes.  Independent doctors running their own practices often work the 60-80 hours weeks that other small businessmen do, in order to keep themselves afloat.  But when the same doctors then become hospital employees, "there is no longer any incentive for them to work beyond their 40-hour week.  So you automatically lose about 1/3 of their capacity."

Obamacare has made a bad problem worse, Schaller notes, with the austerity cuts to Medicare and Medicaid.  "For many services I am now being compensated well below the actual costs of delivering the services, and insurance companies drop their rates to independent doctors every time Medicare and Medicaid does.  On the other hand, hospitals (many of whom are now partly owned by the insurance companies) are getting three and four times what I receive for the same service."

Schaller also points out that health insurance companies are being allowed by lax regulators to manipulate prices within markets as well.  "Highmark is a part owner of MedExpress.  Highmark pays its own doctors in MexExpress clinics higher rates for almost every service than it pays independents like Hockessin or Eden Hill (in Dover).  The state insurance commissioner has been asked on several occasions to examine this practice, but has consistently refused.  You cannot tell me there is no inherent conflict of interest if you are paying your own partly owned subsidiary higher rates in order to drive its competitors out of business."

(Side note:  Dr. Schaller reports that his own rates of compensation for services from the biggest insurance companies has remained flat for a decade.  In the meantime, what they pay hospital chains for the same services has increased nearly 400%--as has his malpractice insurance.  Why?  "Look at how many hospital chains and big insurance companies are now interlocking companies," Schaller says.  "Then you'll see that they are carefully taking care of their own business interests, not patients.  Doctors have become disposable employees.")

Hear that, Karin Weldin "See No Evil" Stewart?

Let's go back to the NYT article:
The high price paid for colonoscopies mostly results not from top-notch patient care, according to interviews with health care experts and economists, but from business plans seeking to maximize revenue; haggling between hospitals and insurers that have no relation to the actual costs of performing the procedure; and lobbying, marketing and turf battles among specialists that increase patient fees.
This is important, because while it is--in and of itself--accurate, it is also misleading.

The PROFIT motive that cassandra and bamboozler decried in the opening paragraphs of this post is the PROFIT motive of gigantic healthcare corporations.  These corporations are not free to gouge patients and doctors because of the free market, however.

They are free to gouge people because they have successfully lobbied their cohorts in the government for preferential treatment designed to drive actual competition out of the marketplace. 

Is this an argument for removing the "profit motive" from health care?

Possibly.  But it is equally likely to be an argument for removing the preferential treatment of large corporate interests (health insurance companies and hospital chains) from the law.

Think about that again:  the entity most responsible for the cosmic ballooning of health care costs in America is NOT the free market (which has not existed as such in decades), but the REGULATED market that is responsive not to health care outcomes, but to corporate profits.

So is the answer what the New York Times suggests?
A major factor behind the high costs is that the United States, unique among industrialized nations, does not generally regulate or intervene in medical pricing, aside from setting payment rates for Medicare and Medicaid, the government programs for older people and the poor. Many other countries deliver health care on a private fee-for-service basis, as does much of the American health care system, but they set rates as if health care were a public utility or negotiate fees with providers and insurers nationwide, for example.
This is one possible model, albeit a model that libertarians would be uncomfortable with.

But the problem is not the pricing, it is the inherent and unexamined anti-trust problems with the interlocking of the healthcare giants.

And the greater problem is that the people who are profiting the most from the system are the very people in charge of "fixing" it.

You want to start using the profit motive correctly to help fix the system?

Here is a start:

1.  Enforce anti-trust legislation that prevents collusion between hospital chains and insurance companies.

2.  Require up-front price information for every service to be available to patients in non-emergency situations BEFORE procedures are performed.  This price information should include not just what the patient will pay out of pocket, but what the provider will be reimbursed.

3.  Allow patients who decide to pay "fee for service" out of pocket rather than via insurance to claim dollar for dollar tax credits for so doing.

None of this is going to happen, of course.  Just like a single-payer health care system is not going to happen in this country--at least not for another decade.


Because the profits are not going to doctors.  If they were, prices would be lower and patients would know what they were paying for.

The profits are going to insurance company executives and hospital chain executives, who become both big donors to our legislators and "stakeholders" to be given "a place at the table"when reform comes up.

Every time.  By Republicans and Democrats alike.


Anonymous said…
@50+ yo coloniscopies are paid for by State in DE right? Might that explain why so many are done?
delacrat said…
"the entity most responsible for the cosmic ballooning of health care costs in America is NOT the free market (which has not existed as such in decades), but the REGULATED market that is responsive not to health care outcomes, but to corporate profits."

What you call a "REGULATED market" in healthcare is, in fact, a market rigged by corporate interests.

Until there is a separation between commerce and state, where corporations are restricted to funding businesses (and not congressmen) rigged markets are, to greater or lesser degrees, what we will have.
Anonymous said…
Obama care is the final straw in the battle between doctors and the insurance companies.

In 5 to 10 years doctors will be employees of the insurance companies.
The problem is really one of a legal monopoly enforced by the government for the benefit of health care providers. As stated, the more a doctor can "do", the more he or she will earn. In the doctor/patient relationship, the doctor makes virtually all the decisions. The patient has little choice in the matter and the doctor will get angry if the patient questions the need for these services. Instead of the doctor/patient relationship we need to move to a "contractor/client" relationship where the client decides and the contractor provides the desired service. This would require major changes in the health care system which would be strongly opposed by the medical profession since it would considerably reduce their incomes. The first step is to repeal prescription laws. Eliminate the doctor's legal monopoly over access to medicine. Patients also need to educate themselves on these issue with the understanding that many medical procedures are performed because it is profitable for the doctor to do them. It is also obvious that American doctors earn far larger incomes than do doctors anywhere else, which brings into question how much we can actually "trust" these people when their incomes are dependent upon patients doing as they wish? In most issues of life, we can obtain independent data, but this is more difficult with medicine because of the political power of the health care industry which now consumes some 18% of our GNP here in the USA.
Delaware Watch said…
I think it's a weakness to rest the substantial amount of your contravening evidence on the word of one local physician who gave a talk at a local political gathering. That's definitive against a body of expert opinion? Also, I frankly don't want someone whose worked 60-80 hour workweeks shoving tubes up my backside whatever the cost savings. Another thing I don’t understand. Libertarians frequently argue that 1) We don't have a free market and that's why prices are high but 2) they also think that big corporations should be legally permitted to spend part of their profits on lobbying for the very regulations they want to ensure the continuation of their near monopoly status--a status that, allegedly, ensures high prices. So it is a free market that causes these high prices--the free market of corporate interest promotion. No one wants the regulation of the capitalist marketplace more than large successful capitalist entities.
Anonymous said…
Muskegon's comment blows me away. What needs to be evaluated is the whole reimbursement system, and where the profit margin lies. To even suggest the doctor is contracted to do what the patient says is naive, when he is obligated to relay all risks, options, treatment, lack of treatment etc.. I am horrified your experience in healthcare has been such that you obviously felt "handled" to sign the dotted line. I would no more assume I know more than my doctor in my course of treatment for something serious, then i would in defending myself in a murder trial I didn't commit. Reimbursement is the thing to get in a twist over. You tell me my husband's lousy snip, snip, snip of skin tags and stupid moles justifies 1300 per site billable to insurance? Meanwhile, my emergency, weekend, middle of the night, abdominal peritonitis, with subsequent placement of skin grafts and 10 hrs. later surgical team, and off to ICU was billed as a whopping 1500 bucks to insurance, as 2 hernias? I literally cried when I saw for all my surgeon did what he was reimbursed. My plumber, mechanic, and HVAC guy get a helluva lot more. That doctor earned every cent. And the dermatologists need to be reined in.
tom said…
As usual Dana, you have chosen to completely misunderstand (or deliberately misrepresent) what libertarians are saying.

Truly free markets are an ideal which currently exist nowhere on Earth, though some places & times did approach that ideal very closely.

Corporations are artificial entities that have been granted both existence and special privilege by Government. They have no place in a Free Market. Nor do Regulations, which are created by Government to alter the way the market functions by force. And Lobbying is nothing more than a form of Bribery that corrupt governments have chosen to ignore rather than prosecute as a crime.

Your argument is specious.

Now if you wish to argue the merits of relatively free vs highly regulated markets, I think even you would probably agree that Health Care falls much closer to the highly regulated end of the scale than (for example) Computer Software.
Delaware Watch said…
So, let's just see how specious my argument is. Are you saying that in a libertarian society the following would be illegal: 1) The formation and operation of corporations; 2) individuals and businesses pooling their money to engage in lobbying. Yes or no?
I'll take that one:

1) Corporations [as currently constructed following Supreme Court rulings in the 1870s and forward) are privileged creatures of the State, and serve as tax farmers for the State, while allowing people to escape personal liability for both their incompetent and/or malfeasant decisions. In a Libertarian society corporations as we know them would not exist because (a) the State would not have the power to create "artificial persons"; or (b) artificially limit the liability of people for their bad decisions.

2) Individuals and businesses pooling money to engage in lobbying, fine. The State creating a protected class of anonymous individuals privileged to lobby without having to make their positions known? No, Libertarians would not give that power to the State.
tom said…
Nor would Lobbying be particularly relevant or profitable as the State would be so limited in scope and influence that that very few goals could be accomplished by influencing legislation.
Delaware Watch said…
So, neither of you answered the question I asked. I asked if corporations would be illegal and you responded that they wouldn't be legally recognized by the state. Big difference. Nothing would prohibit investors pooling their money together (shareholders) and building mega companies. In effect, corporations.

I asked if lobbying would be illegal, and Steve it wouldn't. Thank you for your honesty. Tom, however, foisted a fantasy into his admission. Lobbying would be ineffectual because government would be limited. Here is why it is fantasy. It would only be limited to the extent that the lobbying would be ineffective but the lobbying would be effective especially to the extent that corporations and wealthy individuals would contribute to elected officials campaigns (no publicly funded elections in a Libertarian society).

So my argument was right on the money. Corporations and wealthy individuals would still influence elected officials to pass laws and regs that benefit them. Free markets result in varying degrees in what we have now.
tom said…
Since you want to play your pretend to misunderstand game, I'll restate my answers more precisely in the form of your questions (with the caveat that your 2nd one has a false & leading component to it).

In a libertarian society, 1) the formation and operation of corporations as we understand them today would be not only illegal, but unconstitutional, and;

2) individuals pooling their money to engage in lobbying would not be illegal, and businesses would not be "persons" so "they" would not have any money or be able to act in any way not attributable to specific individuals.

Now let's explore the fantasy that I foisted into my admission (whatever that means) :

Please explain how those Corporations (which don't exist), and wealthy individuals would still influence elected officials to pass laws and regs that benefit them in a libertarian society.
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