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Capitalism. Wikipedia defines it as:
Capitalism refers to an economic and social system in which the means of production are predominantly private[1][2] owned and operated, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy. It is usually considered to involve the right of individuals and groups of individuals acting as "legal persons" or corporations to trade capital goods, labor, land and money (see finance and credit).
This is America. The grand daddy of capitalism. The trading of goods, labor, land and money. That says it all.
If anyone has ever watched CNBC or has any sense of financial awareness on what it takes to run a business, you will understand this point completely.
Health care inflation will never be controlled until the laws of supply and demand in a free market economy are allowed to do their thing. Let me explain.
Health care delivery is not static. It is full of millions upon millions of private enterprise, each running a business in our capitalistic society. Each running their business by the rules of capitalism.
The SEC requires that publicly traded companies disclose to their shareholders the state of economic affairs every quarter. Here is an example of a 10Q from Altria, formerly known as Phillip Morris, aka the Marlboro Man. With out any business training, these forms can be very complicated, and the accountants can play tricks with the numbers, just like our Congress does every year with the budget.
The numbers you hear reported: X company earned $4.13 per share this quarter. That number can be full of accounting trickery. Say a company sold some of their assets that quarter and got a windfall of billions of dollars. They would report massive profits for that 3 months, but it would not say anything about the health of the company if it was losing billions every month to begin with. The same goes with purchasing large assets presenting as a massive loss in the balance sheet. The earnings per share are also highly manipulated by options, dilution, buy backs etc. Capital expenditures can also affect how the numbers are reported.
What you really want to know is.
1) Are their business revenues growing.
2) What is their free cash flow.
If revenues are growing, the company is growing.
Free cash flow doesn't (usually) lie. It's harder to hide it, create it, or manipulate it. It is the end result of the business practice. How much cash can you extract from the company.
Every business in this capitalistic society wants to increase #1 and #2. It is a sign of a healthy business. Let me give you a smattering of the types of capitalistic business's that make up the health care system we know today.
1) All Hospital systems
2) All doctors offices
3) Physical therapy offices
4) Occupational therapy offices
5) Speech therapy offices
6) All device manufacturers for artificial implants (hips/knees/spine/screws/rods/implants...)
7) surgical equipment makers/gowns/gloves/towels/sterile equipment
8) catheters/stents/endoscopy cameras/lap scopes
9) medical grade video systems
10) software vendors for everything from EMR to radiology to email, to security
11) Information technology
12) consultants by the millions for everything
13) every employee of every job is in esssence the head of their own business (their household)
14) retirement plan administrators/banks
15) legal services
16) accountants
17) maintenance crews for all the properties
18) advertising companies
19) all drug companies, public and privately held and the drug reps they employ
20) computer companies for office and hospital computer systems and upgrades and maintenance
21) all the vendors for office supplies for all hospitals and offices
22) Radiology imaging makers (CT's MRI's Ultrasounds and all other radiology devices)
The list is endless. This is just a sampling.
Every single good or service that makes up our health care system is run as a business in our capitalistic system with a goal of maximizing revenue and increasing free cash flow. These are the hallmarks of a successful operation.
So it does not surprise me that health care costs are out of control in this country. It does not surprise me that health care costs are out of control in any country that does not run its business practices based on capitalistic principles of supply and demand. Resources are not infinite. Without demand control, you will eventually ration.
Insurance, whether it be private or government, has essentially disrupted the very powerful forces of market economies. It has created unlimited demand AND created a supply crunch at the same time. It is no wonder why medical schools are increasing enrollment by 30% to meet demand for physician services. The government has created the demand and their result is to increase supply, not decrease demand.
I believe the demand, is to a large degree, artificial, propped up and created by a massive spigot of government and private insurance money that the millions and millions of capitalistic business that make up our health care system are trying to grab. Everyone wants their share of the free money.
We are over doctored. We are in a tail spin economically and there is not a single government intervention in the world that will change the basic principle that all business strive for:
Increase revenue and free cash flow.
No matter what system our health care delivery operates in. Whether it is 100% private insurance. 100% government insurance. Single payer. What ever.
As long as there is the removal of market forces from the equation, the supply demand equation will never be allowed to fix things.
Take the housing market for example. A massive influx of demand was created when the federal reserve dropped interest rates to their lowest levels in 50 years. The demand for housing soared. Everyone and their dog bought a house, whether they could afford it or not. Investors swarmed in from all over the world.
The market was allowed to work. What happens with increased demand? Prices rise. And boy did they rise. They rose right out of the pricing range of the majority of home buyers. As defaults started setting in and banks got nervous, they started tightening their credit standards. Demand fell. So the natural response to housing prices is exactly what is happening today. Prices are falling because the demand has left the market.
This is how supply and demand works.
Where does our health care system stand? What of the demand?
The demand is controlled by the government spigot called the Medicare National Bank. The demand is controlled by the insurance companies with their endless supply of premium dollars.
The supply? The supply is exacerbated by the endless spigot of money from all these third party systems with their endless supply of other people money. The supply is propped up by artificial demand. It's almost as if: Build it now and they will come. And as demand keeps growing, the supply must grow with it.
Where is the brake on demand?
When houses became to expensive, people stopped buying them.
I don't think anyone can argue that health care is extraordinarily expensive. Why is the market not allowed to drop the prices? To me it's obvious. Because somebody else is paying for it. The spigot is wide open. And as the spigots pay less each year for each individual service, the volume of service continues to rise. The economical response of a business enterprise to Medicare's position of cost control with payment control will always be to increase billable service. A business always operates on increasing revenue and free cash flow.
Once the folks who make policy understand that, they will understand why you need to control demand, to control costs. And demand is best controlled by allowing the people to make their own financial decisions. This is universal.
They must have a financial stake in their health care dollars.
The cost equation will always default back to demand. If the people don't demand a service, the price drops and becomes more affordable to larger portion of society.
When is the demand for services going to slow?
It is no where in site. The volume of services have been exploding. These reasons are numerous. FREE=MORE and always will. Price controls create artificial volume as well. Bloated cost structures necessitate increased volume of services to generate more revenue to increase free cash flow on the bottom line.
When your business costs 60% of revenue rather than 30% of revenue, you MUST do more volume to survive as a viable business entity.
When your business costs 30% of revenue rather than 60% of revenue, you have the luxury of providing less service for a cheaper price which increases access to everyone, and increases time with the patient, and ultimately quality health care.
Let me give you an example. Lets say overhead of a business is 30%. Lets say government intervention and regulation created the need to hire a clerk who does nothing but file paperwork and stay in compliance with government rules and regulations. Lets say that at the same time the government reduced the value of payment for services rendered.
Overnight, the overhead of the business went from 30% to 60% due to increased costs and decreased revenue. The natural response of any capitalistic business will be to look for alternative revenue streams. For a primary care doctors office, this comes in the form of volume. Increased service, extenders, double and triple booking. Ancillary services. Labs, xrays.
For specialists, it comes in the way of doing more procedures.
The volume of the system was created by the system. The government created the volume by their price controls and their never ending spigot and declining payment rates.
Demand has been left unabated. And the demand on the system has driven costs of the system through the roof. The demand equation is the problem. The supply equation is a natural response to the increased demand, AND the unending spigot of free money from all third payers.
The governments natural response to unabated demand has always been to decrease payment for each individual service provided. But as you can see, the business (any business) response to decreased payment has always been to increase revenue by increasing volume of service.
Growth at a reasonable price.
In a capitalistic world that all our businesses operate in, increased demand increases prices, until the prices are no longer affordable, and then they fall. The market determines the correct supply and demand.
In the third party world of health care economics the artificial demand created by these massive open spigots of money have created a system where, because of the artificial demand, the cost of the volume of service it has generated, has strained the system at the seams. It has created more care for more money, but not better health.
Let me give you an example.
Lets say our community has 10000 people. Lets say our community has 1 doctor. Doctor A
Lets say Doctor A charges $100 for an office visit, cash only. No insurance. The doctor has no billing department. Only a secretary, a nurse and an office. Overhead may run 30%. The doctor sees on average 2 people an hour.
That's the demand created by this village of 10000 people 8 hours a day. 5 days a week. 48 weeks a year. That's 3,840 patient contacts in a year. That's revenue generation of $384,000 a year. At 30% overhead, take home pay would be about $270,000
What do you get for this free market system?
1) You get a patient and a doctor who have set their fees in mutual agreement for a service provided. The patient is happy and the doctor is happy. The patient gets the benefit of 1/2 hour of service. The doctor does not worry about getting paid, claims, rejections, audited and on and on. The government has left the building. Blue Cross has left the building.
Some folks may say that $100 is too much to see the doctor. They can't afford it. That access to care will decrease. That only the rich will be able to afford a doctor.
Hogwash I say. And why do I say that? Because in a market economy, if there is an attractable price point for a service, competition will enter the field.
Enter Doctor B. Doctor B realized that Doctor A is making a nice living by seeing one patient every 1/2 hour. He want in on the action. But because the demand in this community can only support one doctor at $100 a visit. He decides to cut his fee to $75 and see patients for 1/2 hour.
By doing so, he has stolen alot of Doctor A's clients. He doesn't make as much as Doctor A, but Doctor A's salary will decline as Doctor B takes away clients.
Doctor B is happy with his $200,000 a year he generates in take home pay for seeing one patient every 1/2 hour.
With declining market prices, the demand has increased. The demand created by doctor B has taken away some of Doctor A's clients, which has forced him to drop his fee from $100 to $85. He believes that his experience, his bed side manner, his likability is worth $10 more. Plus, he now offers to throw in a free lab screening panel once a year for coming to his office, and he will keep 2 slots open a day for walk ins.
Well, Doctor C comes to town and realizes that even with Doctor A and Doctor B in town, he believes that there is still an untapped market. He believes that there are people out there who he could see for cheaper. He has made conscious business decision in this capitalistic world that his lifestyle which he would like is set at a minimum of $200,000 a year. That is his minimum.
Doctor C looks at this village of 10,000 and sees an opportunity. If he can charge just $40 a visit, but limit the visit to 15 minutes, he could generate $215,000 a year working 8 hours a day, 5 days a week, 48 hours a year.
Now Doctor C will market his business as a cheaper alternative, but less intense. It will clearly state that visits are limited to 15 minutes, that longer visits will require higher fees. The rules of engagment have been established. Anyone coming to see Doctor C will know exactly what they are getting. Lower priced care, lower time value, but not necessarily lower quality.
Doctor D realizes that there is a population of wealthy villagers who are driving 30 minutes to the "big city" to pay MORE for their health care in order to achieve more service. He decides to open up a full service retainer based practice for $2000 a year, all inclusive. He will limit his practice to 500 people and be available to them 24 hours a day. He will include all basic labs, massage, stress tests, office procedures, home visits. He will be their doctor daddy. What ever the client wants. The client gets. He will generate 1 million dollars a year. Overhead will go up, but it will go up to provide service, not to pay for paperwork and billing. And both doctor and client are happy.
What this village of 10,000 has now achieved is a market of primary care doctors with rings of service. One doc offering free basic lab once a year for an extra $10, and who believes patients will be willing to pay that extra $10 for his experience. A doctor who came to the community and created demand based on a price point and actually lowered the cost for all. A third doctor who entered the community to offer a low cost alternative. And a 4th doctor who captured a niche market of high cost and extraordinary service
The price of the service creates the demand. In our market economy, price will always be the driving force of demand.
There will always be those that say even $40 is too much and if a person can't afford that $40, then the market system has just eliminated health care as their "right". To that I say, it is not my responsibility to make sure that the desolate poor have access to a physician. I should not run my practice for 300,000,000 based on the characteristics of 20,000,000 people.
If the government wants to provide medical care for those who claim poverty, they can. And they have. There are sliding scale clinics. There are county health departments. If the government wants to build it. They can. Look at the VA. That's government 100%. There are an assortment of free and low cost alternatives. If the government wants to fund that. So be it. My duty as a doctor is not to provide free care to anyone and everyone as a mandate.
If I want to see someone for free because my successful business in market economies has allowed me to do that, that should be my duty as a physician. I should expect myself to do that.
But it is not your right to take it from me. That constitutes slavery and that was abolished. And it is not the governments right to demand that. But they do. And they do it in the form of unfunded mandates, and EMTLA Just to name a few. They do it in the form of less than cost payment for services rendered. The equivalent of slave labor.
And they are threatening to do it again. They threaten to do it with 10% cuts, once again, looming for July 1, 2008.
I can tell you what the response of any business operating in a market economy will be.
Immediately after the cuts ensue, there will be a rash of retirements. Doctors will quit. Doctors will drop out of insurance. They will stop being the middle man in the battle between the patients wallet and their insurance company. There will be clinics closing. There will be clinics merging. There will be an increase of volume, if it's even possible, which will ultimately raise costs. There will be a further deterioration in the quality of the physician-patient relationship, and I suspect quality of care as well.
It is a LOSE-LOSE_LOSE-LOSE-LOSE for all the parties involved.
I believe, we as a nation, are over doctored. We are over doctored because the government and 3rd party insurance has created a system of wide open spigots of cash that everyone is trying to grab for. And they try to grab more and more every year. Everybody. From doctors to glove makers. All players from my list above. The demand for physician services has exploded because it's being paid for, albeit at substandard rates, when placed against the backdrop of massive cost structures resulting from the governments rules and regulations. Which, by the way, continue to straddle the system with incredible ineffeciencies.
It has created a cost structure that has raised the cost of delivering quality care at an affordable price out of a price range of cash paying customers. It has created a system where all people are subjected to the lack of service engrained in this health care culture, that is a result of the failed payment rates.
We have too much demand. Way too much. To the tune of 2.2 trillion dollars.
We have too much cost built into the system. To the tune of 2.2 trillion dollars. The rules and regulations required to get paid have created mulitibillion dollar industries that have been created out of thin air just to deal with the absurdities. Documenting. Coding. Payment. Rejection. PQRI. Quality.
We have physicians (like me) spending valuable time dealing with all the non patient associated duties, like correct billing, correct documentation for me and the hospital, a never ending paper trail. And this is time away form patients.
A primary care doctor could spend 1/2 the time with a patient, see twice as many patients and charge 1/2 as much if they were simply unstraddled from the massive requirements of coding and documentation.
And every year, those that don't get it, make policies for those that do get it. What have those policy doo'ers done for our health care? They have created a 2.2 trillion dollar fiasco that, in 25 years, has only increased the life expectancy of a 75 year old by 18 months.
2.2 trillion dollars for 18 months of life.
The time is now. The time is now to return the demand to the people. To let the people decide with their pocket books. To let the people decide the demand side of the equation.
Complete removal of physicians from the glorious role of being the insurance companies float.
If you want to shift the cost curve downward, you need to shift the demand curve down. It is overt rationing of the people.
Talking with their pocket books. Attempts to ration the doctor by cutting the payment rates have always resulted in higher costs due to volume. That is the natural business response in a capitalistic society.
The unintended consequences of government intervention into your health has created a system where nobody can afford anything.
The people have a way of finding the best way to spend their money.
A doctor
A nurse
A clerk
And a patient.
Nothing else getting in the way.
Imagine the possibilities.
13 Outbursts:
I know there are those in government whose ultimate plan is to stretch the present entitlement system as long as it can using FMG's and NP's who they hope will continue to provide services for a lower level of payment. Maybe they can get 10 to 15 more years out of this strategy, leaving the big fix to yet another generation. I have yet to hear a health care plan from any of the current presidential candidates that was not just another bunch of platitudes and bandaids.
This only works if pricing is transparent and people actually have a choice.
If I have X and need to be hospitalized, can you tell me how much you'll charge? (per day would be fine) Can I find out how much the hospital fee will be? And can I get that information about other hospitals? (are there other hospitals in the local area, even?)
If not, then you folks aren't actually competing by price. What about quality? Can I get good quality information so I can choose?
Price is difficult, if not impossible because it means nothing in the current system of insurance.
I can charge 1 million dollars for a hospital visit and I will get paid what ever Medicare says, which is different from what Blue cross pays, which is different from what United pays.
As a general rule, physicians set their fee schedule at 250% of what Medicare pays. That way, they capture revenue from all other private insurers who pay more than Medicare, but rarely more than 250%.
So who gets screwed? Those without insurance end up paying 250% of what Medicare pays.
Thats the game in the current system.
If you go to any office, they can tell you exactly what it would cost for you to be seen without insurance. With insurance? Nobody, even the physician, often knows, until they get their check from the insurance company.
The same goes for hospital charges as well.
What they charge is meaningless. It is simply a number in the wind.
And it screws those without insurance because the rate is an arbitrary value at some X% above Medicare.
As far as quality goes, how does having insurance verify you are getting quality.
I'll answer that for you.
It doesn't. Quality can be measured in so many ways. It all depends on what is quality to you, the client. And it has nothing to do with wether you have insurance or not.
Price is difficult, if not impossible because it means nothing in the current system of insurance.
I can charge 1 million dollars for a hospital visit and I will get paid what ever Medicare says, which is different from what Blue cross pays, which is different from what United pays.
As a general rule, physicians set their fee schedule at 250% of what Medicare pays. That way, they capture revenue from all other private insurers who pay more than Medicare, but rarely more than 250%.
So who gets screwed? Those without insurance end up paying 250% of what Medicare pays.
Thats the game in the current system.
If you go to any office, they can tell you exactly what it would cost for you to be seen without insurance. With insurance? Nobody, even the physician, often knows, until they get their check from the insurance company.
The same goes for hospital charges as well.
What they charge is meaningless. It is simply a number in the wind.
And it screws those without insurance because the rate is an arbitrary value at some X% above Medicare.
As far as quality goes, how does having insurance verify you are getting quality.
I'll answer that for you.
It doesn't. Quality can be measured in so many ways. It all depends on what is quality to you, the client. And it has nothing to do with wether you have insurance or not.
"The price of the service creates the demand. In our market economy, price will always be the driving force of demand."
Just an example: airlines and deregulation.
(I am talking major airlines only).
One announced recently they were going to start charging for a 2nd carry-on... watch them all follow suit.
The same result ensued when they started charged fuel overcharges, and all kinds of taxes - a hidden way to increase profit - to try and stay afloat.
One Dr. will increase his price, they will all follow suit. Such is human nature.
But just wait. One enterprising airline will try to increase market share by offering the second bag for free again. Others will follow, and we'll be back to two free bags. It's the nature of capitalism. Things are constantly changing. The striving for equilibrium is never ending. The point is that this process should be allowed to take place in the doctor business. The politicians' strategy of pushing the illusion that health care is a "right" through over-regulation and price control, has actually pushed the system to the brink of implosion.
anon607. What difference does it make whether one airline or all airlines make you pay for one bag, two bags, or 10 bags. They are a business. If people are willing to pay for having 2 bags then they have a right to charge for it.
Nobody puts a gun to your head and forces you to fly any airline. If the price of a second bag is two much. then rent a car and pay for $3 dollar gasoline.
In a free market economy the companies battle for market share at a price point which meets goals. If they raise prices to much, folks won't fly. And if they drop prices too much, they risk going bankrupt, which by the way has happened over and over again.
But nobody has a right to tell an airline what they can and can't charge.
If you wan't first class, you can pay for first class as well.
Where's the first class service in medical care?
It's called concierge.
Happy;
If you could distill this post into a few sentences, I believe these sentiments would make an important contribution to the letter Sermo members are currently trying to compose to the public, who sorely needs education in these matters. (I don't like the whiny tone of some of the stuff Sermo members are promulgating right now.) You are a member, aren't you? Why don't you check that out. Good post!
anonymous sermo member
There is one healthplan that has done away with restrictive networks and fixed prices.
Docs, dentists, hospitals, pharmacies, etc. all list their prices for consumers to see.
Consumers comparison shop and usually pay with HSA linked debit cards.
Each transaction affords the consumer 1 opportunity to provide feedback on the vendor in terms of 1 to 5 ratings for quality, service, convenience, and value.
That is free market healthcare.
You can find it at www.healthmatch.com
- There already exists a real life model of medicine under the type of capitalist free-market structure you propose and guess what? It works. The reality of medical treatment for infertility supports the ideas you mention. There are definitely advantages for everyone involved.
PATIENTS WIN: The advantage for the patient is better care. My colleagues and I are in a constant friendly but furious competition to offer the best success rates, the best customer service, the lowest waiting list times, more personalized attention and lower fees. Competition brings out the best effort in everyone.
PHYSICIANS WIN: I can choose to provide standard care and just get by. Or I can try go above and beyond and cater to patients who will make the choice to pay extra for my the results that my efforts bring. I am rewarded for effort and punished for lack of effort. It is fair. More students will choose to study hard and enter this field.
THE GENERAL PUBLIC WINS: People who choose not to have children do not incur any forced expenses. The people who are getting the benefits of the infertility treatment do not force the taxpayer to help pay for their treatment.
- So who loses out? Only the people who want the service but don't want to pay for the service. Before anyone attacks with the question of what about the people who CAN'T pay for the service, I can share with you the story of the poor woman with blocked tubes who wanted IVF but couldn't afford it. She came back 8 months later, telling me that she diligently cleaned houses on weekends and finally saved up enough for IVF. (Of course after her IVF, she went on Medi-Cal for her pregnancy care). Still, she chose to contribute her part to society in order to get what she wanted.
- Without an accountability system to control demand, I am sure that if infertility services were free for all people, there would be many people who don't need it (ie those who can get pregnant on their own in 4 years or get pregnant with IVF in 1 month, who would rush to get the free services). Happy hospitalist gets it. Allowing demand to run unchecked by giving everything free will end up in major supply shortages and a lose-lose-lose situation. Great post!
(I had to resubmit this comment to fix a typo)
What about the costs to society for individuals who don't get medically necessary/indicated care? The person who decides not to get on the airplane because he thinks it costs too much will not have much of an impact on society but the person who delays preventive medicine because he thinks it costs too much will pose significant costs on society by seeking intensive expensive treatment later in the ER? President Bush was right when he said Americans have access to healthcare. After all, they can go to the emergency room. But, do we really want to base our healthcare system on emergency medicine?
Without transparent information or symmetrical knowledge, how can we have consumers (patients) drive the decisions about what type of care to receive? Doctors, with their years in med school and residency, are the supposed medical experts. Surely, not all doctors work for charity nor do all doctors work for profit. I think the more important question is determining what incentives are necessary for doctors to make the most cost-effective decisions for patients based on the available scientific evidence? I do not see how getting rid of insurance or the government will prevent doctors from under-treating or over-treating patients. A "free-market" system would only seem to exacerbate the gap between the rich and the poor, allowing a small segment of society to afford the best and often unnecessary healthcare while leaving a larger middle/poor segment without the ability to afford basic comprehensive healthcare.
Can we really treat healthcare as any other good or service that is produced to maximize revenue? Aren't there certain social/public goods that we value as a society? For example, all children K-12 are required to go to school because we value education in our society. Children can attend public schools funded mainly through taxes or, if they can afford it, attend private schools. We do not want a society with a bunch of uneducated citizens because it would make us less productive and would harm the democratic process. What do you think about applying this philosophy of education to healthcare?
I'm still mulling my response to this excellent post (i.e. high cost cancer treatments and surgeries), but I did want to respond to Anon that posted today at 12.44am.
"For example, all children K-12 are required to go to school because we value education in our society. [snip] We do not want a society with a bunch of uneducated citizens because it would make us less productive and would harm the democratic process. What do you think about applying this philosophy of education to healthcare?"
Right now, with government over involvement in education we see the lowest literacy rate in a hundred years. Citizens who don't know the basic US election process, i.e. the electoral college. I could go on and on. Yeah, government meddling works GREAT! In fact our citizens are so under educated they are more than willing to hand their personal freedoms to two Socialists (H. Clinton and B. Obama). More government meddling is NOT the answer.
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