Skyrocketing medical costs are a drain on national prosperity, a drag on employment and a damper on economic growth prospects. “Since the start of the recession in December 2007, real health care spending…has increased by 12.7%…During this same period, real GDP excluding health spending fell by nearly 7% in mid-2009 and, with its recent decline, is now 0.2% below its December 2007 level.” (“Health Sector Economic Indicators Briefs: March 2013 Spending Brief”, Altarum Institute)
In December 2012, health spending increased to a seasonally adjusted annual rate of $2.87 trillion…[Its] share of [the $15.81 trillion] GDP was 18.2%. (“Health Sector Economic Indicators Briefs: February 2013 Spending Brief”, Altarum Institute)
The U.S. Government’s Centers for Medicare and Medicaid Services expects that the health share of GDP will continue its historical upward trend, reaching 19.5% of GDP by 2021 (“National Health Expenditure Projections: 2011-2021”).
Employment Does a Lot of the Heavy Lifting (http://onlyhdwallpapers.com)
Steven Brill etched this sketch in Time magazine’s “Bitter Pill: Why Medical Bills Are Killing Us” published on March 4, 2013:
“When we debate health care policy, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: why exactly are the bills so high?
We may be shocked at the $60 billion price tag for cleaning up after Hurricane Sandy. We spent almost that much last week on health care. We spend more every year on artificial knees and hips than what Hollywood collects at the box office. We spend two or three times that much on durable medical devices like canes and wheel chairs, in part because a heavily lobbied Congress forces Medicare to pay 25% to 75% more for this equipment than it would cost at Walmart.
We’re likely to spend $2.8 trillion this year on health care. That $2.8 trillion is likely to be $750 billion or 27% more than we would spend if we spent the same per capita as other developed countries, even after adjusting for the relatively high per capita income in the U.S. vs. those other countries.”
Comparing why exactly the bills are so high with who should pay the bills: against an estimated $750 billion in excessive health care spending throughout the entire economy, the U.S. Government’s Centers for Medicare and Medicaid Services projects $598.4 billion worth of Medicare “entitlements” in 2013 (“National Health Expenditure Projections: 2011-2021”). Getting rid of the medical lobby’s own “entitlements”, thus, could fund Medicare in its entirety with another $151.6 billion to spread around.
RUSSIAN ROULETTE WITH AN ECONOMIC GUILLOTINE
Big surprise job growth is so much more robust in the belly of the beast. “The health sector now accounts for nearly 1 in 9 total U.S. jobs, a new all-time high at 10.74%.” (“Health Sector Economic Indicators Briefs: April 2013 Labor Brief”, Altarum Institute) U.S. employment does a lot of the heavy lifting to subsidize the medical lobby. Federal analysts reported in the January, 2012 issue of Health Affairs that:
“In December 2009, the unemployment rate was the highest it had been in twenty-seven years, and private health insurance enrollment fell by 6.2 million people, the largest one-year drop recorded in the history of the National Health Expenditure Accounts.
Between 2007 and 2010, private health insurance enrollment declined 11.2 million people and the number of uninsured increased by 7.0 million. As individuals lost their jobs and their employer-sponsored health insurance coverage, private business’ contributions towards employer sponsored health insurance slowed…
Health care spending by private business increased 4.2% in 2011 to $557.6 billion…private business financed 21% of total health care spending in the United States.”
Pandora’s Box (www.goldenapplestudio.com)
What does Pandora’s Box conceal in the heart of darkness to garnish labor costs for hidden subsidies going to the medical lobby? Katherine Baicker and Amitabh Chandra drilled down on “The Labor Market Effects of Rising Health Insurance Premiums” in NBER Working Paper No. 11160, Issued in February 2005:
“Premiums for employer–provided health insurance have risen 59 percent since 2000 [to 2005], far outstripping wage gains…
Every 10 percent increase in health insurance costs reduces the chances of being employed by 1.6 percent. It also reduces hours worked by 1 percent as employers respond to rising health costs by converting full-time jobs to part-time positions, most of which do not include health benefits.
For workers who continue to get health insurance, more and more often, the increased price of premiums is coming out of their salary: a 10 percent increase in premiums is offset by a 2.3 percent decrease in wages…
Particularly vulnerable…are low-wage hourly workers, because employers are legally constrained from how much they can reduce wages to accommodate a rise in health premiums. So, instead they may choose to just drop coverage altogether…For hourly workers, a ten percent increase in health insurance premiums results in a 3.8 percent reduction in the probability of being offered health insurance coverage.”
We’re playing Russian roulette with an economic guillotine. Out of a civilian labor force = 154.4 million as of February 2013 – on the broad U-6 unemployment measure, which includes the part-time under-employed – the official body count has hit 14.3% = 22.2 million flesh and blood Americans. (U.S. Bureau of Labor Statistics) If payroll garnishment for medical insurance premiums looks like a levy, works on the premise of a (politically correct) mandate, and re-distributes income like a tax, could we possibly throw more incentive at shipping our jobs offshore?
MISBEGOTTEN INCENTIVES
Trojan Horse”
(Обои для рабочего стола, скачать бесплатные обои и картинки на рабочий стол, заставки |www.zastavki.com)
We’ve conjured a Trojan horse with OMG in its DNA from 9-1-1 to sticker shock. Diluting the pain of sticker shock makes it like a casino comp for everyone with skin in the game – except Medicaid – which skins everyone else: $491.0 billion in 2013 = 16.8% of National Health Expenditures (“National Health Expenditure Projections: 2011-2021”). Whether it comes off the assembly line wrapped in ‘Socialized Medicine’, Health Maintenance Organization or Up Shit’s Creek Without a Paddle, try buying season tickets to “Civilization and Its Discontents” on a co-pay.
“Although every hospital has a [wish list of prices in its] chargemaster…there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills…[According to] an annual expense report that Stamford Hospital is required to file with the federal Department of Health and Human Services…its total expenses for laboratory work…in the 12 months covered by the report were $27.5 million. Its total charges were $293.2 million. That means it charged about 11 times its costs…No hospital’s chargemaster prices are consistent with those of any other hospital, nor do they seem to be based on anything objective – like cost – that any hospital executive I spoke with was able to explain…That so few consumers seem to be aware of the chargemaster demonstrates how well the health care industry has steered the debate from why bills are so high to who should pay them…
In January 2012, a report by the federal Government Accountability Office found that ‘the lack of price transparency and substantial variation in amounts hospitals pay for some IMD [implantable medical devices] raise questions about whether hospitals are achieving the best prices possible’.” (“Bitter Pill: Why Medical Bills Are Killing Us”)
The First Cover Up (https://commons.wikimedia.org)
For a popular mandate to exceed the sum of individual parts, notice:
The displacement of price tags for medical procedures between demand and supply.
The pay wall amputating most exchange transactions at the joint between medical procedure buyers and sellers.
The market threshold for consumers (demand) is whether they’re covered by medical insurance and whether the stone is ready for romance. If so, there’s scant incentive to refrain from intemperance. Indifference to price is like repealing the law of gravity. You need a hammer and nails to hold anything down. Misbegotten incentives conspire in every economic meltdown.
“Many markets suffer from asymmetric information between sellers and buyers and many other pricing or output decisions are made on the basis of incomplete information…This inherent issue may result in private choices that do not then represent the best interests of individuals or society as a whole.” (“Free Market Efficiency: Conditions, Desirability, Optimality”, an Economic Discussion Paper by George Mendes for The Strategy Tank)
With price AWOL at point of sale (POS), supply works the joint between (medical insurance) pay wall and (medical provider) pay day. Since (medical insurance) pay walls need their check-offs at employee benefits windows, it’s the kind of action that greases the joints.
“For all the crap that insurers get for raising premiums, attacking insurers is the health-economics equivalent of shooting the messenger. Insurers are in the business of distributing to policyholders the cost of health care; that is, the prices that are charged by hospitals, doctors, and manufacturers for their services and products. Insurers can, and do…help keep costs down. But insurers have much less leverage with the most predatory force in our health-care system: hospital monopolies.” (“Hospital Monopolies: The Biggest Driver of Health Costs That Nobody Talks About” by Avik Roy in Forbes published on August 22, 2011)
Because popular acts score big hits with their fans, head liners rake it in at the box office. Sellers set the price for tickets. They operate like toll collectors with motorists on the New Jersey Turnpike, ditching any road runners who can’t or won’t pay the freight. Only Medicare and Medicaid – with a captive audience of season ticket holders – can scorch the same earth.
“Thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs…customers must have the product and can’t go elsewhere to buy it. They are steered to a hospital by their insurance companies or doctors…Or they end up there because there isn’t any local competition. But unlike with the electric company, no regulator caps hospital profits. (“Bitter Pill: Why Medical Bills Are Killing Us”)
HOARDS OF TREASURE
Burden of Privilege
(http://thetyee.ca – The CEO and the New Feudalism)
So feudal are these trade practices that medieval guilds might just as well have trust deeded themselves into tax exempt nonprofits, with prestigious university affiliations the first among equals. Does it get any more feudal than institutional moats sealing off commercial fortresses to hoard their treasures, so that all capital gains have to be re-invested in the medical estate’s own endowment funds?
“The 2,900 nonprofit hospitals across the country, which are exempt from income taxes, actually end up averaging higher profit margins than the 1,000 for-profit hospitals after the for-profits’ income-tax obligations are deducted. In health care, being nonprofit produces more profit…
Under Internal Revenue Service rules, nonprofits are not prohibited from taking in more money than they spend. They just can’t distribute the overage to shareholders. So what do these wealthy nonprofits do with all the profits?
The hospitals improve and expand facilities (despite the fact that the U.S. has more hospital beds than it can fill), buy more equipment, hire more people, offer more services, buy rival hospitals and then raise executive salaries because their operations have gotten so much larger. They keep the upward spiral going by marketing for more patients, raising prices and pushing harder to collect bill payments.” (“Bitter Pill: Why Medical Bills Are Killing Us”)
These are like Ponzi’s rules for asset inflation, sequestering nearly a fifth of the entire economy from the equity market’s capital rationing. They’re also like a growth guarantee in the sector’s share of budget appropriations to fund national spending (GDP).
Island in a Sea of Suffering
Argolikos Archival Library History and Culture
“We’ve created a secure, prosperous island in an economy that is suffering under the weight of the riches those on the island extract. And we’ve allowed those on the island and their lobbyists and allies to control the debate, diverting us from what Gerard Anderson, a health care economist at the Johns Hopkins Bloomberg School of Public Health, says is the obvious and only issue: ‘All the prices are too damn high’.” (“Bitter Pill: Why Medical Bills Are Killing Us”.
Whoever story boards monopoly as “The Lone Ranger” of private enterprise is picking the wrong masked gunman out of the police line-up. The one-man-one-vote competitive market dynamic is fantasy fiction, where market reality meets monopoly.
“Powerful institutions and the bills they churn out dominate the nation’s economy and put demands on the taxpayer to a degree unequaled anywhere else on earth…the drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.” (“Bitter Pill: Why Medical Bills Are Killing Us”)
In “A Legislative History of the Affordable Care Act” (The Law Library Journal Vol. 105:2 [2013-7]) John Cannan reveals “the drug companies were promised that health care reform would not involve government-negotiated prices of drugs or the importation of drugs from Canada.”
“It is a pivotal issue not just about health care. Are industry groups going to be the ones at the table who get the first big piece of the pie and we [the public] just fight over the crust?” (Interview with “Raul M. Grijalva, the Arizona Democrat who is co-chairman of the House progressive caucus” reported in “White House Affirms Deal on Drug Cost” by David D. Kirkpatrick in The New York Times on August 6, 2009.) Put affordable health care legislation into the Beltway’s blender and, instead of trimming the fat, even more goes into the medical lobby’s mix.
A competitive market dynamic works iteratively – like natural selection – to cull the herd. As the weak perish, the surviving fittest fill a power vacuum, even as their numbers dwindle. Built into the culling of competitors, there’s a mathematical survival progression towards the outer limit of market size. Approaching or reaching this limit shifts the competitive dynamic from beating rivals – who’ve either ceased presenting any meaningful threat or settled into an operational coalition – to effectively ruling the domain that’s been conquered, with a primary focus on the market’s overall dynamics from whichever position they occupy in it.
“[M]any doctors have found that private practice on their own is no longer profitable and comes with a host of complications…’Physicians are squeezed between rising costs and decreasing reimbursement,’ and they ‘see only declining revenue in the future,’ as Medicare and private insurers restrict payments, the American Medical Association said. (“Doctors Warned on Divided Loyalty” by Robert Pear in The New York Times published on December 26, 2012)
“The independent, private physician practice model will be largely, though not uniformly, replaced. Most physicians will be compelled to consolidate with other practitioners, become hospital employees, or align with large hospitals and health systems for capital, administrative and technical resources.” (Merritt Hawkins opinion poll in October, 2010 for The Physicians Foundation in “Health Reform and the Decline of Physician Private Practice”)
No big surprise then that contemporary market dynamics seem a lot like home run derbies with heavy hitters all swinging for the fences. “What happens when powerless buyers…meet sellers in what is the ultimate seller’s market…the result is a uniquely American gold rush for those who provide everything from wonder drugs to canes to high-tech implants to CT scans to hospital bill coding and collection services. In hundreds of small and midsize cities across the country…the American health care market has transformed tax-exempt ‘nonprofit’ hospitals into the towns’ most profitable businesses and largest employers, often presided over by the regions’ most richly compensated executives.” (“Bitter Pill: Why Medical Bills Are Killing Us”)
“[E]vidence has surfaced that certain non-profit executives were receiving levels of pay that were unseemly for charitable organizations…Nonprofits are increasingly being seen not as public spirited philanthropies but as self-serving entities that pursue the interests of their top officials and board members…Late in 1997 two apparently unrelated events brought front page headlines. One involved a contract between the American Medical Association and the Sunbeam Corporation, a maker of consumer electronic products, with the AMA promising to endorse Sunbeam products, such as heating pads and vaporizers, in return for payments expected to yield millions of dollars.” (The nonprofit mission and its financing: Growing links between nonprofits and the rest of the economy” by Burton A. Weisbrod in To Profit Or Not To Profit: The Commercial Transformation of the Nonprofit Sector published by the Press Syndicate of the University of Cambridge ©1998)
SELF INFLICTED CASUALTIES
Millions of Americans are still scared of the bogeyman (The 2010 world corruption index by country | Procentus Leadership Talk | http://procentus.wordpress.com)
What gain do we get for our pain from exempting the profits of nonprofits from sales and income taxation? What kind of way is this to dodge the ‘Socialized Medicine’ bullet of lame bureaucracy? Influence peddlers have found just another way to who-do dat voodoo. For an autopsy of the casualties that we’re inflicting on ourselves, follow the trail of transfusions to “The Lie Factory: How Politics Became a Business” by Jill Lepore in The New Yorker on September 24, 2012:
“In 1942, Republicans backing the state’s attorney general, Earl Warren…in the governor’s office urged him to hire Whitaker and Baxter to run his campaign. Warren agreed, somewhat reluctantly…Warren won, but he didn’t like the way he had won. Just before the election, after Whitaker and Baxter issued a press release without his approval, he fired them. They never forgave him…
In the fall of 1944, Warren got a serious kidney infection. This set him thinking about the rising costs of medical care, and the catastrophic effects that sudden illness could have on a family less well provided for than his own. ‘I came to the conclusion that the only way to remedy this situation was to spread the cost through insurance,’ he wrote in his memoirs. He asked his staff to develop a proposal. ‘We concluded that health insurance should be collected through the Social Security System. After some studies, it was determined that the employers and employees in that system should each contribute one and one half per cent of wages paid by or to them.’ After conferring with the California Medical Association, he anticipated no objections from doctors. And so, in January of 1945, during his State of the State address, he announced his proposal for comprehensive, compulsory health insurance for the state of California…
Original Sin (https://commons.wikimedia.org)
Whitaker and Baxter took a piece of legislation that most people liked and taught them to hate it…They launched a drive for Californians to buy their own insurance, privately…In 1945, Warren’s bill failed to pass by just one vote…Whitaker and Baxter defeated it. ‘They stormed the Legislature with their invective,’ Warren later wrote, ‘and my bill was not even accorded a decent burial.’ It was the greatest legislative victory at the hands of admen the country had ever seen…
Whitaker and Baxter’s campaign against Harry Truman’s national-health-insurance proposal cost the A.M.A. nearly five million dollars, and it took more than three years. But they turned the President’s sensible, popular, and urgently needed legislative reform into a bogeyman so scary that, even today, millions of Americans are still scared.”
“According to the Center for Responsive Politics the pharmaceutical and healthcare product industries, combined with organizations representing doctors, hospitals, nursing homes, health services and HMO’s, have spent $5.36 billion since 1998 on lobbying in Washington…the health care industrial complex spends more than three times what the military-industrial complex spends in Washington.” (“Bitter Pill: Why Medical Bills Are Killing Us”)
“Monopolies are valuable to their owners because they produce monopoly profits. These potential profits create incentives to expend resources to attain or maintain a monopoly position. (“Regulation of Natural Monopolies” from Paul L. Joskow’s work in the Department of Economics at Massachusetts Institute of Technology, later published in the Handbook of Law and Economics, 2007, vol. 2, Chapter 16, pp. 1227-1348.) “These resource expenditures could include things like investments in excess capacity to deter entry, duplication of facilities…as multiple firms enter the market to compete to be the monopoly survivor, and expenditures to curry political favor to obtain legal monopoly.”
Once upon a time, my ex-wife administered the two big Nursing Homes for Metropolitan Jewish Health Systems (MJHS). I’d occasionally ask her “who owns that place?” meaning “to whom are they accountable?” She reported to a VP in charge – best I could reckon – of staying in the CEO’s good graces. Substituting for any kind of ‘Citizens United’ mission or outcome ownership, there was a Board of Trustees. Each served at the CEO’s pleasure, for all practical purposes, meaning above all for the pleasure of his compensation package. Such individual motivation as there was for any of them – meaning Adam Smith’s ‘invisible hand’ of self-interest – came by way of status in exchange for which they were expected to do fund raising on behalf of MJHS. Because excessive surplus (profit) gets in the way both of fund raising and of ‘don’t ask / don’t tell’ – plus there was no ownership with any kind of claim on the proceeds – you shouldn’t even have to ask “why exactly are the bills (cost reimbursements) so high?” American healthcare nonprofits ought to show Socialists everywhere that nothing does incentives better than private enterprise.
Without any upside potential whatsoever for competitive market dynamics against all of the collateral damage from nonprofit insiders’ fat paychecks, there is a “market failures case for regulation to mitigate distortions…in situations in which there are significant barriers to entry and unregulated prices can be sustained at levels far above both marginal cost and average cost.” (“Regulation of Natural Monopolies”)
“Several of the industries that have evolved as regulated monopolies produce products access to which has come to be viewed as being ‘essential’ for all of the nation’s citizens…While there are no clear definitions of what kinds of services are essential, how much is essential, or what are the ‘reasonable’ prices at which such services should be provided, these concepts have clearly played a role in the development of regulatory policies.”
“The ‘independent’ regulatory commission eventually became the favored method for economic regulation in the U.S. at both the state and federal levels…Independent regulatory commissions have been given responsibility to set prices and other terms and conditions of service…[T]oday all states have such commissions.”
It’s a local matter, in other words, to correct for irregularities outside of a market’s natural jurisdiction. If healthcare nonprofits answer to no one, there is a compelling economic imperative to give them a shout out, since guess who is paying MJHS $136,200 a year per patient for residential health care? (“Estimated Average New York State Nursing Home Rates”, New York State Partnership for Long Term Care)
Lightening Genie
(Allen Michael Geneta – http//www.digitalartisdaily.com)
REFERENCE SOURCES
- “Health Sector Economic Indicators Briefs”, Altarum Institute).
- The U.S. Government’s Centers for Medicare and Medicaid Services “National Health Expenditure Projections: 2011-2021”.
- “Bitter Pill: Why Medical Bills Are Killing Us” by Steven Brill in Time magazine, published on March 4, 2013.
- “Slow Growth in Health Spending and Use of Health Care Goods and Services Continued in 2010, Federal Analysts Say” in Health Affairs on January 9, 2012.
- “The Labor Market Effects of Rising Health Insurance Premiums” in NBER Working Paper No. 1160 by Katherine Baiker and Amitabh Chandra, Issued in February 2005.
- U.S. Bureau of Labor Statistics, “Table A-15. Alternative Measures of Labor Under-Utilization”.
- “Free Market Efficiency: Conditions, Desirability, Optimality”, an Economic Discussion Paper by George Mendes for The Strategy Tank.
- “Hospital Monopolies: The Biggest Driver of Health Costs That Nobody Talks About” by Avik Roy in Forbes published on August 22, 2011.
- “A Legislative History of the Affordable Care Act” by John Cannan in The Law Library Journal Vol. 105:2 [2013-7].
- “White House Affirms Deal on Drug Cost” by David D. Kirkpatrick in The New York Times published on August 6, 2009.
- “Doctors Warned on Divided Loyalty” by Robert Pear in The New York Times published on December 26, 2012.
- Merritt Hawkins opinion poll in October, 2010 for The Physicians Foundation in “Health Reform and the Decline of Physician Private Practice”.
- “The nonprofit mission and its financing: Growing links between nonprofits and the rest of the economy” by Burton A. Weisbrod in To Profit Or Not To Profit: The Commercial Transformation of the Nonprofit Sector published by the Press Syndicate of the University of Cambridge ©1998.
- “The Lie Factory: How Politics Became a Business” by Jill Lepore in The New Yorker published on September 24, 2012.
- “Regulation of Natural Monopolies” from Paul L. Joskow’s work in the Department of Economics at Massachusetts Institute of Technology, later published in the Handbook of Law and Economics, 2007, vol. 2, Chapter 16, pp. 1227-1348.
- “Estimated Average New York State Nursing Home Rates”, New York State Partnership for Long Term Care.
ART & PHOTO REFERENCES
- “Employment Does a Lot of the Heavy Lifting”: http://onlyhdwallpapers.com.
- “Pandora’s Box”: www.goldenapplestudio.com.
- “Trojan Horse”: Обои для рабочего стола, скачать бесплатные обои и картинки на рабочий стол, заставки |www.zastavki.com.
- “Burden of Privilege”: http//thetyee.ca – The CEO and the New Feudalism.
- “Island of Suffering”: ΑΡΓΟΛΙΚΗ ΑΡΧΕΙΑΚΗ ΒΙΒΛΙΟΘΗΚΗ ΙΣΤΟΡΙΑΣ ΚΑΙ ΠΟΛΙΤΙΣΜΟΥ | ARGOLIKOS ARCHIVAL LIBRARY HISTORY AND CULTURE | www.argolikivivliothiki.gr.
- “The First Cover Up”: https/commons.wikimedia.org.
- “Millions of Americans are still afraid of the bogeyman”: The 2010 world corruption index by country | Procentus Leadership Talk | http://procentus.wordpress.com.
- “Original Sin”: http//onesongmeow.blogspot.com “The Banality of Evil”.
- “Lightening Genie”: Allen Michael Geneta – http//www.digitalartisdaily.com.
