Healthcare & Crony Capitalism

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In the course of reading the news last month, I came across the announcement of new regulations issued by the federal Health & Human Services Department. In a nutshell, the regulations require hospitals and insurance companies to disclose details about pricing and reimbursements.

That struck me as odd. I assumed I could find the price of literally anything with a few keystrokes and mouse clicks. Actually, that’s true! …except for healthcare. Healthcare pricing is as clear as mud. Got me to wondering why it’s nearly impossible to get a price for something so pervasive and fundamentally important to all of us.

I started my investigating on the web site of the hospital where I got my hips replaced a few years back. Turns out they have something called Chargemaster. Chargemaster is a “comprehensive list of charges for each inpatient and outpatient service or item provided by a hospital – each test, exam, surgical procedure, room charge, etc.” “Cool,” I thought. My hospital already complies with the new HHS regulations.

Or so I thought until I read this… “Chargemaster amounts are almost never billed to a patient or received as payment by a hospital.”  Huh… So I can find the price for everything the hospital does, but that price is a made-up, meaningless, useless number.

Of course I get the fact that for the most part, we don’t buy healthcare, we buy health insurance. We’re insulated by an insurance company from direct payment for any specific healthcare service. But still… Why is pricing information for healthcare so opaque?

Lack of pricing transparency is a classic sign of crony capitalism, so it made me wonder…

In case you’re not particularly attuned to economics, I’ll repeat:  Lack of pricing transparency is a classic sign of crony capitalism. Turns out the symptoms of crony capitalism are everywhere. Opportunities to game the healthcare system are rampant and available to every single one of the industry’s players. This includes health insurance companies and politicians, of course, but also physicians, hospitals and other healthcare facilities.

And the cronies among them have all been really clever about wrapping themselves in the mantles of a variety of noble causes as they go about their gaming. Worse yet – and sadly – even the most pure-of-heart among them have been slowly and inexorably pulled into the schemes.

It has become quite clear to me that crony capitalism and its ongoing influence on the industry, are the most significant drivers of our painfully high healthcare costs. To be perfectly clear…

The easiest, fastest and best strategy to reduce the insanely high cost of healthcare in the U.S. is to seek out, attack and eliminate crony capitalism. Where to attack?

Maybe we should start with Disproportionate Share Hospital payments or DSH. The federal government passed this legislation so that hospitals could afford to provide care for individuals who could not afford to pay for it. Without a doubt, the DSH legislation sprang from a noble goal – to provide healthcare for the poor. But were there any cronies involved in crafting the legislation? Like maybe health insurance and hospital lobbyists who donated to the campaigns of a few politicians? Yep!

They invented something called “Uncompensated Revenue.” Uncompensated Revenue… How’s that for oxymoronic industry jargon? Doesn’t uncompensated mean you don’t get paid? Well, yes, for everywhere on earth except for a hospital. When a hospital provides services to someone unable to pay for it, their admins report that fact to the folks at DSH, the feds provide compensation and the hospital records it’s uncompensated revenue.

Actually, so far, I don’t really have any problem with that. But let’s look at a real live example of what else is going on. It’s one about a guy’s back surgery. Stay with me now… It gets a bit complicated. First the billing… The hospital’s  charge for the surgery was $101,673.77. (Ya’ gotta’ love the precision of that number! Seriously?) The hospital actually collected $13,000 from the guy’s employer’s insurance company. The exact same procedure is performed by a handful of first rate facilities that refuse to deal at all with insurance companies – like the Surgery Center of Oklahoma – for $9,900.

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Now the accounting… I’ll round off some numbers for clarity. The list price for the surgery is $100,000 but the hospital only gets $13,000. That means the hospital will account for an $87,000 loss. This $87,000 loss is duly reported to the DSH folks in the federal government, and the hospital collects a payment from the feds. That’s the hospital’s slickly-named “uncompensated revenue.” Which is in addition to the $13,000 they already got from the insurance company. And which is also $3,100 or 31% more than the real, legitimate going rate. AND, they still get a tax break for what goes on the books as a financial loss!

We’re not finished… Next, the insurance company goes to it’s client – the patient’s employer – the one that provides health insurance coverage – and shows them how they negotiated with the hospital and reduced their payment by $87,000. The employer then pays the insurance company a contractually agreed upon bonus based upon a percentage of this totally fictitious, made up, so-called “savings.”

The hospital gets a financial windfall. The insurance company gets a financial windfall. DSH gets duped. The taxpayer foots the bill. The insured individual, whose employer pays the health insurance premium, is not at all financially affected and is therefore totally uninterested.

How many thousands and thousands of times is this crony capitalist scenario repeated every day? I don’t know, but most certainly in the thousands and thousands. Thanks, DSH! You were created with noble intent, but you were corrupted by cronies from the get go, and their game has infected the whole freaking system. Infected and corrupted it so that pricing is an incomprehensible morass. How many millions of real tax dollars get pumped into this phony baloney scam? This phony baloney scam enshrined in the official law of the United States of America?

Let’s move on to RVUs, Relative Value Units. It’s important to note that surgeons in big hospital systems get paid in part based on their RVUs. The Omnibus Budget Reconciliation Act of 1989 set a schedule of fees to be paid by Medicare for more than 7,000 distinct physician services – each of which is worth some set number of RVUs.

Since Medicare is so ubiquitous and influential, the RVU concept has spread throughout the healthcare system and expanded dramatically. Who determines the fee and number of RVUs? Why it’s the American Medical Association’s Specialty Society Relative Value Scale Update Committee! (Trying saying that out loud three times quickly!) They’re a private group of 29 mostly specialist physicians.

These 29 folks are clairvoyant and brilliant enough to set pricing and value for over 7,000 procedures? They’re instantly aware of every single innovation that saves time and money and increases quality for every single one of them? That’s obviously utterly impossible! It’s complete nonsense. In fact, it’s exactly analogous to the Commissar’s staff who set up the corn quotas for farmers in the Soviet Union!

Think… Think deeply about this if you like the idea of “Single Payer” or “Medicare For All.” There are, in fact, specific codes for over 70,000 procedures and another more than 69,000 diagnoses currently defined by the World Health Organization. What Star Chamber of so-called experts would be appointed by the geniuses in Congress to arbitrarily set and maintain the price list for those 140,000 items? But I digress…

The woefully flawed, centrally planned, standardized pricing is nowhere near the ugliest part of the RVU story.

Picture yourself as an ethically pure-as-the-driven-snow physician who wants to be sure about a diagnosis. Maybe one more test – just to verify what you already know… Maybe two more… Maybe order that biopsy just to be sure… You probably don’t think about the fact that the extra test or two and the probably unnecessary biopsy earn you extra RVUs and more money for which you did …wait for it… absolutely nothing.

Now picture yourself as a physician with the average student loan debt for your profession of $194,000. You have two kids, just bought that beautiful new house with the king-sized mortgage and your Mercedes just broke down. Might you be tempted to rack up just a few more RVUs to pad this month’s bonus check just a tad?

Now picture yourself as a slightly less-than-pure-as-the-driven-snow physician… Now picture yourself as a dishonest, greedy bastard…

I wonder how many cronies were involved in the invention of the RVU? And how many physicians – even the honest and unwitting – screw the taxpayers with extra, unnecessary procedures.

Now let’s move on to the Certificate of Need. I love the acronym for this one; Certificate – Of – Need. C-O-N. CON. Currently, 38 states have CON laws. These regulatory mechanisms control capital spending for health care facilities. The goal – the noble goal – of CON is to prevent “wasting” money by building duplicate hospitals and clinics that will provide medical services already available at other nearby hospitals and clinics.

And who, you might wonder, is deemed by the cronies to be in a position to know what facilities providing which medical services already exist? Who is allegedly in the best position to know when a new competitor to provide those services is or is not necessary? Why it’s the operators of the existing medical facilities, of course. They’re the ones who decide if the new facility is needed.

Seriously!

It’s a classic example of assigning the fox to guard the henhouse! How often will the head hospital administrator go public with the fact that his facility is not up to the task and advocate for more competition? It’s like having Publix and Kroger deciding whether or not Whole Foods should be allowed to build a new grocery store in town. Why invite competition and ramp up the pressure to improve quality and decrease costs? How much overspending for medical services does this nobly conceived, yet crony-capitalist-created debacle load on our taxpaying heads?

Now let’s move on to EMTALA, the Emergency Medical Treatment and Labor Act. It’s a federal law that requires anyone coming to an emergency room to be stabilized and treated regardless of their insurance status or ability to pay. Again, it’s impossible to deny the nobility of the goal.

It also becomes much more difficult to follow the money because of the morass of federal and state-by-state tax implications. According to the Tax Foundation, “…most hospitals now operate as tax-exempt entities and in return provide free or low cost care.” Pay attention now… Hospitals – including for-profit hospitals – and their lobbyists, all across the nation, have successfully used EMTALA as justification for exemption from income tax, property tax and all kinds of other taxes. What other industry in the U.S. has ever been granted tax-exempt status by our dedicated, so-called public servant politicians?

Looking for an example of a quid pro quo? Look no further than a state or local government and a hospital hiding behind EMTALA to trade free health care for giant tax breaks.

Does the cascade of unintended consequences and very expensive-for-the-taxpayer after-effects stop there? Nope!

On a happier note, businesses across the nation are applying all kinds of ingenious creativity to reduce their healthcare expenses. I’ll share one more story that beautifully illustrates how ingenuity can save a bunch of money and still achieve high quality results by cutting out some cronies who commited crony capitalism.

It all happened in July of 2019, and I’ll call it The Mexican-American Knee. Here are the four key players:

  • The Patient – Donna Ferguson of Ecru, MS who underwent successful total knee replacement surgery and was paid $5,000 to do so. Yeah, you heard me right… She paid nothing for any of her treatment and got a check for 5 grand!
  • The Surgeon – Dr. Thomas Parisi, who got his medical training at the Mayo Clinic. He was paid $2,700, which is roughly 3 times what he normally gets for the same procedure when he does it at his home-base in Milwaukee. His travel expenses were all covered and he was out of town for less than 24 hours.
  • The Hospital – Galenia Hospital in Cancun, Mexico, which is certified by the gold standard of global healthcare accreditation, the Joint Commission International. This commission also sets all the hospital standards in the U.S.
  • The Innovator – Ashley Furniture Industries. The self-insured employer of Ms. Ferguson’s husband. About 80% of all medical bills in the U.S. not paid by the government, are paid by self-insured companies like Ashley.

Note the key players you’d expect to be in the story that are not in the story. There’s no Health Insurance Company and there’s no hospital or medical facility that operates within the U.S. healthcare system.

You can follow this link to get the detailed story from the New York Times, but I think you already get my point. Ashley Furniture Industries is competing to attract hire and retain the best possible employees. One of the things they provide to help do so is really good, high quality, inexpensive health coverage. Ashley Furniture innovated by seeking out and coordinating with other innovative players in the healthcare world and cutting out two cronies. They figured out a better way. Most interesting to me though, is how simple their solution is.

The U.S. Healthcare System is so fraught with crony capitalism and has been for so long, that many of its flaws are obvious, making it possible to quite easily provide better, higher quality, significantly less costly healthcare.

Instead of buying health insurance for their employees and following the typical procedure for an American company, Ashely paid for all the travel expenses; paid for the medical facility; paid for all the supplies; paid for all necessary medical staff including 10 days of post-surgical physical therapy, paid the Mayo Clinic-trained surgeon a 200% bonus over and above his normal fee; and paid the patient – who is doing just fine, by the way – $5,000. Ashley Furniture Industries paid for all that, and still saved money vs. traditional health insurance.

Let me return to a statement I made earlier… The easiest, fastest and best strategy to reduce the insanely high cost of healthcare in the U.S. is to seek out, attack and eliminate crony capitalism.

I’m your Intentionally Vicarious host Todd Youngblood – Sick and tired of all the hyped-up, political rhetoric about the “Single Payer” and “Medicare For All” idiocy that’s guaranteed to generate massive, new and additional opportunities for crony capitalism – Encouraged by the innovative creativity of we humans; especially like the ones at Ashley Furniture Industries – Hopeful that many, many more of we taxpaying citizens will join my crusade against crony capitalism in healthcare – And yes, in the face of all this, I’m still having more fun than anyone else I know.

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Thanks for paying attention…


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Join the discussion 2 Comments

  • Mary Margaret Just says:

    Thank you. Clear and damning.

  • James D Roth says:

    Your great research and cogent analysis dovetails with my opinions, observations, and experiences in the health care morass. Then again, you and I have never disagreed since the 9th grade. Great article, big guy.

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