In part 2 we 3 concepts: 1) no two doctors are alike and consumers cannot make informed choices about their doctors because certain data is not generally known 2) attempts to reduce costs have actually increased costs by spawning additional industries deemed essential to make sure that providers are paid for the work they perform 3) physicians are not reimbursed 100 cents on the dollar.

Now here is the kicker.  Medicare is almost always the low payer.  Several years ago, I went to visit friends both in private practice in Southern California.  One of them, an orthopedic surgeon, told me what the reimbursement was for her to see a patient with a fractured hip in her office.  The number was so low, I hesitate to repeat it, but let’s just say it was low double digits, about as low as you can go  and still be in double digits.  My friend had $14,000 per month in overhead.  She asked a reasonable question, how many patients do I need to see at this reimbursement rate to cover my overhead?  There is a difference between the number of patients a physician has to see at a given rate of reimbursement to meet their overhead and the number of patients a physician can see and have a safe medical practice.  Guess which number is lower.  I had an open and frank conversation with my friends while sitting on a beach in Santa Monica.  It is hard for any number of physicians to get together and not have a conversation like the one we had on the beach that day.  Our conversation was impassioned and as a result some beach goers edged in a little closer to overhear our conversation.  When we realized that we had a small audience we made a move to leave.  One guy actually said that he had no idea that health care was as fragmented as it is and payment for services rendered so difficult.

In the first post in this series I said that America suffered from a Walmartization of its very consciousness.  We want to get as much as we want and pay as little as possible.  In so doing we forget that quality costs.  We complain about crowded physician waiting rooms and busy physicians who spend little time with their patients, but we forget that if that physician is being paid $30 dollars for a visit, he has to see a lot of patients to make sure his coding and compliance departments, office staff, office rent, equipment leases and malpractice premiums are paid.  Physician reimbursement can be ratcheted to zero and health care would still be expensive.  Paying $80 dollars for a procedure that really does cost $100 dollars is not controlling health care costs.  It is cheating physicians, hospitals and ancillary staff.  The only thing that will control health care costs is the one thing that we as a society do not want to do:  Restrict access to care, specifically new technology, until that technology has been proven through appropriate study to be cheaper in the long run and at least as effective as proven technologies already on the market.  Until we do that, we will simply commit theft in an attempt to control costs and costs will continue to spiral upward.

The physicians that drop Medicare do so because 1) Medicare is the lowest or one of the lowest payers in their payer mix and 2) the costs of compliance outweigh the benefits of accepting Medicare payments into their practices and 3) Medicare is a relatively small percentage of their practice.  These criteria will in general apply to sub-specialists.  Primary care physicians who may not be able to depend on the influx of patients under 65 to offset the impact of Medicare on their practices are likely to continue to accept Medicare.  Some physicians feel it is their duty, despite the hassles, to accept Medicare. I still reflect in wonder on a conversation that I had with a physician who practiced in Oklahoma many years ago who told me that the happiest day in his practice what when he started refusing to accept Medicare and Medicaid.  I had just begun my medical practice and I was actually offended by his attitude.

Today, I am forced to conclude as I did recently in dinner conversation with friends, that if the majority of physicians could exit Medicare they would.

What we need to do in America is start over.  If we are going to have a single payer system, then we need to fund that system and everyone must pay into it in the form of a designated tax.  We need to define a very basic level of care that system will provide.  Then if people want additional coverage which they will, they need to go to the private sector to get that coverage.  The woman that I mentioned in the first post in this series who wants the experimental procedure to address her uterine fibroids and abnormal bleeding should have to shoulder a significant burden of that cost and she should do that through a supplemental plan that spells that out.  In our current system, everyone is spending someone else’s money and there is little incentive to cut costs.  My concern with our current reform plan is that it is paid for by a tax on the top 2% of income earners rather than the costs being shared by all, the penalties for remaining uninsured are not sufficiently onerous to encourage people buy insurance and the tax on Cadillac plans a tax that might actually impact rising costs is not due to take effect until 2018.

So the concepts here are that

1) Medicare is the low payer and the costs of compliance outweigh the benefits

2) The way to control costs is to restrict access to care and one way to do this is to have consumers shoulder a greater part of the burden for some care

3) New technology should only be adopted when it is adequately studied and proven to be just as effective and cost less than established technology

Please comment

In my previous post, I talked about health care in general, the artisan’s approach to health care and the advent of managed care.  Managed care worked to a certain extent, slowing the rise in health care costs.  There are two other aspects of health care that are important to understand.  Imagine two doctors both in the same specialty, general surgery.  Including college, they have both had 13 years of training:  4 years of college, 4 of medical school and 5 of residency.  When they graduate they both go into private practice, in other words, they become small business owners, but their behavior in private practice is entirely different.  Doc A reads about new techniques and procedures.  He spends his time outside the office reading medical evidence and modifies his practice to adapt to changing medical standards.  Staying well informed about the changing face of medicine is a priority for him.  Doc B doesn’t really do what Doc A does.  He figures that what he learned in residency should be enough to see him through the rest of his medical career, the next 30 years.  He reads only occasionally.  In his area, he was the last to incorporate laparoscopic cholecystectomy into his practice dismissing it initially as a passing fad.  Which doctor would you rather go to?  Should they each be paid the same for their services?  Because so many aspects of medical care are actually hidden from the marketplace, consumers actually cannot make informed choices.  Fortunately medical boards and insurers have stepped in to level the knowledge playing field for physicians.  Insurers are increasingly deciding that they will not reimburse for services by non board certified physicians and medical boards have stated boldly that board certification is the minimum standard for medical competency.  Boards have also gone the additional step of making re-certification an ongoing and active process requiring that physicians read at least 2 articles per week.  So here is the important concept here:  No two doctors are the same and factors that may assist in comparison are not readily available.

Concept number 2:  Medicine is a practice of probabilities.  We know that when a woman undergoes a tubal ligation anywhere from 1% to 5% of these procedures will fail and she will have an unintended pregnancy.  That unintended pregnancy will either be a pregnancy in the uterus or a pregnancy in the tube, an ectopic pregnancy.  That 1%-5% failure rate does not mean that anything was done wrong during the initial tubal ligation.  It simply is what it is.  No medical procedure or drug is 100% efficacious without adverse events (works 100% of the time without complications).  A hysterectomy will cure abnormal uterine bleeding 100% of the time, but a woman is assuming a 4% risk that she will experience ureteral injury requiring further surgery and repair.  An endometrial ablation, a less invasive technique, to address the same problem will “cure” 85% of women but that means 15% of women will require additional procedures over the next 3 years to address the original problem.  In medicine, we know that the majority of people will experience a positive result from the drugs and procedures we recommend, but not all will.  And some will experience adverse events.  Lawyers want you to believe that an adverse event means that something was done wrong.  That is not necessarily so.  We know that roughly 4% of women who undergo hysterectomy will experience an injury to their ureters specifically no matter what we do.  Does that mean something was done wrong by the doctor? No.  Patient’s themselves are the variables and while patients are similar and are likely to behave similarly under similar circumstances, no two patients are alike.  Is using malpractice data helpful?  Oddly no.  Physicians are sued in the event of adverse outcomes some of which are truly the result of the failure to adhere to accepted standards of care.  Many more are simply the exercise of the odds. Should we look at outcome data to compare physicians?  We definitely should, but we should look at the data over time.

Okay, so we have that no two doctors are alike although medical boards and insurers are trying to standardize physician competency and we have that medicine is a practice of probabilities.

So how does Medicare fit into this?  It is simple really, but first I have to cover one more thing.  I discussed in part 1 of this series that insurers decided that reimbursement should be based on documentation of work.

There are 5 parts to a patient visit:

The Chief Complaint

The History

The Exam

Supporting documentation such as labs.

Medical decision making

A physician gets a certain amount of points in each category based on the documentation he or she provides for each category. Those points are used to create a code and that code is used for billing.  Once insurers began to demand this documentation, and each element has to be documented the way the insurer wants, you to document it a new industry sprang up around health care.  That industry is called billing and coding, another up-tick in the spiral of rising health care costs.

Today every practice no matter how large or small has teams of medical coders, people who did not even exist in medical practice 25 years ago, whose sole function it is to make sure that physicians and hospitals get paid for the services they provide.

There is something else that goes on that has to be made clear.  Physicians are paid about 65 cents on the dollar.  What this means is that for every $100 dollars a physician bills out, he’ll get $65 dollars back and that is a best-case scenario.  That  lost revenue comes in the form of denied medical claims (an insurer decides not to pay for an office procedure because the physician did not ask their permission to do the procedure first, or an insurer decides not to pay for visit because they did not like the physician’s documentation, or because of capitated rates, the idea that a $100 dollar procedure is really only worth $80 dollars as far as the insurance company is concerned.)  What the general American public does not understand is that when they walk through the door of their doctor’s office, their doctor has a 1 in 3 chance of not getting paid for that visit.  Doctors know this so they have to make up for the anticipated revenue loss by seeing more patients.  A doctor who would have been able to take care of his practice seeing 20 patients per day must now see 30.  Please understand how crazy this is.  Your auto mechanic has had 2-4 years of training.  He is paid roughly $75 dollars per hour.  If he presents you with a bill for, $150 dollars you pay it.  You don’t send him $100 dollars and tell him to forget the rest.  Yet this happens all the time in health care.

What does Medicare have to do with this?  Medicare and Medicaid account for more than half of all health care dollars spent in the US.  Medicare has become the 800-pound gorilla in the room using its immense size to ratchet down expenses.  Usually all other insurers will follow Medicare’s lead.  If Medicare lowers its reimbursement for the diagnosis and treatment of condition X other insurers eventually will too.

Medicare has another issue and this is a big one; it is called compliance.  It seems that government firms are concerned with preventing fraud, concerned to the point of crowding out all logic.  Billing Medicare too much for services is considered just as egregious an act as billing Medicare too little for services.  My cousin is a partner in a large OB/GYN group, she and I had an occasion to talk about health care one morning last Fall.  She told me that a group across town had just been fined $100,000 by Medicare for under-coding.  Let me explain.  Remember how I explained how a visit is coded?  Well let’s say a physician sees a patient.  He cannot remember the number of elements in each category that constitute a level 3 visit so he codes it out as a level 2 visit just to play it safe and avoid the risk of billing too much for his work.  Medicare considers billing at level 2 for a level 3 visit, just as fraudulent as billing at level 4 for a level 3 visit.  My cousin’s practice made the investment in electronic health records a decade ago because they thought it would streamline costs and be a boon for their patients.  The cost to them? $100,000.  In actuality there is very little opportunity for practices to recover capital investments like that other than to see more patients and do more procedures.  But we’ve already seen the perverse incentive to see more patients because you know you are not going to be paid on a certain percentage of your work.  Now you have the incentive to see more patients and do more procedures to cover the capital investments needed to improve your practice.  My cousin’s practice was considering hiring a compliance expert to audit their charts to insure they were in compliance with Medicare.  The cost of the compliance expert?  $30,000.  Compliance is another industry that did not exist 20 years ago that has sprung up around Medicare. My cousin’s practice ultimately decided to drop Medicare.  The costs of compliance simply outweighed the benefits of continuing to accept participants in the program.  When any practice accepts Medicare, they agree to allow Medicare to swoop in with little notice and audit that practice.  All insurers can do this in theory, but Medicare does this with some degree of regularity.  Consider the costs of Medicare compliance another up-tick in the rising costs of health care.

Here are the new concepts addressed:

1)  physicians are not reimbursed 100 cents on the dollar.

2)  attempts to reduce costs have actually increased costs by creating additional industries to a) ensure that physicians get paid and b) to ensure compliance with Medicare

3)  it is difficult to compare one physician to another because outcome data do not tell the whole story and it is impossible to determine physician behavior within his own practice.  Is your doctor reading and keeping up with medical trends or is he falling behind?

Please comment

I have finally admitted to myself that I am going to have to do this in parts. It is hard for me to write about health care.  Health care in America is an emotional topic for me as I think it is for everyone.  Health care costs are rising and they are doing so out of proportion to benefit.  In fact when you compare our expenditures with the United Kingdom a nation with half our per person, per capita, expense you find that the money that we are spending does not translate into better health. Among developed nations, we lag in rates of infant mortality and healthy life expectancy and lead developed nations in high rates of obesity, smoking and HIV. As a nation we have proven that throwing money at a problem like health care only increases costs and does not improve outcomes.  Our health care system is so crazy that at one end we can have a woman petition her health care provider to pay for a highly experimental procedure to help her manage her fibroid uterus and abnormal uterine bleeding and at the other end another woman goes without the basic health care screening needed to keep her healthy.  The patient petitioning her insurance company already has about a dozen proven ways to deal with her problem, but no, she wants the experimental procedure and she wants someone else to pay for it, i.e. her insurance company. In our society we want and expect everything at little personal  expense.  There is a significant difference between denying access to care and denying access to experimental procedures or demanding that patients share a significant portion of the financial burden to benefit from experimental procedures, but as a society we deny that there is a difference. We use ridiculous idioms like “death panels” to stoke the fires of hysteria and forestall meaningful debate.  We make incredible investments in technology most of which are not proven to provide any real benefit over the treatments currently available while whole segments of the population lack access to immunizations and health screening proven to prevent cancer.

In America we want it all.  We want complete access to the most expensive treatments and we want to pay the least possible for it.  I have written in previous posts that America is ill.  We suffer from a Walmartization of our very consciousness.  And that Walmartization extends to health care.  “I have good insurance, so I may as well use it,”  is a phrase that I hear often spoken by friends and family to justify very frequent doctor’s visits to specialists. We say that good insurance is the insurance that provides the broadest coverage with the least out of pocket cost for us. But is that the way we really ought to be thinking about what is essentially a scarce resource?  What do I mean by Walmartization?  Walmart sells a lot of stuff cheap.  So cheaply, in fact, that they have to sell a lot of stuff to make a buck.  Walmart has brought to reality the concept that the things we need ought to be cheap.  There is a public perception that health care which is intrinsically expensive ought to be cheap.

Why is health care intrinsically expensive?  It is intrinsically expensive because it requires training and lots of it.  The moment that you can remove the skill require to do a task from the task, is the moment that you can lower costs.  The reason that mass production works is that individuals on an automobile assembly line, don’t have to know and probably don’t know how to assemble an entire automobile.  They just know their one task on the assembly line and to that extent they are entirely replaceable driving the overall costs of production down.  The cars that cost the most today are the ones that are in limited production and are essentially hand crafted or who have a high percentage of human craftsmanship.

While I was in medical school little attention was paid to the business of medicine.  By that I mean how to run a business.  When we graduate residency training we will become one of two types of physician, 1) the business owner or self employed physician or 2) the employed physician who is an employee of an HMO, university or the US Federal Government. In the 1980s the concept of managed care began to gain traction in an effort to control rising health care costs.  This concept used a system of gate-keepers, primary care physicians, who essentially controlled access to more costly sub-specialists.  Here is the reality, managed care works.  Patients didn’t like it because they felt it restricted access to doctors doctors didn’t like it because they thought it restricted access to patients.  It did, and, so what, that was the point.  I refer you to Paul Krugman’s articles over the past 2 years.  Health care costs were actually flat during the period of managed care.  There were concepts that arose during the managed care period.  Those concepts were that before a claim is made there should be adequate, which turned out to mean exemplary in actual practice, documentation of physician work and that that work should be assigned a value and standardized across a given region.  That valuation of work is called the RVU and it was intended to allow insurance companies to characterize a medical practice and fix reimbursements across a given region.

So where does Medicare fit in?  Medicare was enacted into law in 1965 as part of sweeping legislation that really did change the landscape of America. In order to get doctors to buy into a program that represented huge government incursion into the market place, Medicare agreed to pay usual and customary fees to physicians.  Medicare is paid for by a payroll tax that both the employer and employee pay.  The total tax is 2.9% with each side paying 1.45%.  This tax goes to fund Medicare part A, Medicare part B is funded by direct premiums paid by Medicare recipients.  Part A covers in-patient care and part B covers out patient care.  Congress made assignment of RVUs part of Medicare part B law in 1989.

Medicare Part C is actually parts A and B combined into a single policy and is administered by insurance companies.  Let’s think about this a moment.  Medicare is a government program but for consumers who want the ease of a combined policy (in patient and outpatient care) the government allows a middle man, the insurance company, to stand between the government and the consumer and administer part C.  Insurance companies are in the business to make a profit.  So get this visual:  grandma gives $10 dollars to a guy called Big G for her insurance needs, Big G then gives the $10 to Smart I to give back to grandma for health services.  Smart I has to take his cut so how much do you think those dollars are worth by the time they get back to grandma? $8. It is magic, grandmas $10 dollars buys $8 dollars in health care.  Actually the health care reform bill was supposed to have addressed this very issue, but that is for another blog post.

Nice graphs from the Cato Institute show that heath care costs began to climb sharply when the government entered the market place through its Medicare and Medicaid programs.  In the Institute’s 1994 policy analysis “Why Health Care Costs Too Much”, Stan Liebowitz argues that because consumers actually pay so little of the true costs of health care, they have little incentives to act like smart consumers.  The case of the woman with the fibroid uterus is a true example and would tend to support Dr. Liebowitz’s claim.  The problem with Dr. Liebowiz’s argument is the artisan model of health care, that health care is provided by skilled workers that are not readily subjected to the mass production model.  Health care costs are only going to go so low; the consumer cannot vote with his feet and go down the street to see physician A because physician A is offering colonoscopies for $800 dollars as opposed to physician B who is offering them for $1500 dollars.  Prices are not advertised in that way, maybe they should be but prices are only going to go so low for a reason:  it takes a minimum of 11 years to make a physician and the physician you get after 11 years of training generally cannot do surgical procedures, that takes an additional 1-7 years of training.

I talked about three concepts in this post:

1) the concept of mass production producing cheaper goods and how that does not apply to health care services

2) managed care was intended to restrict access to care and thereby lower costs and also provide a way to standardize value of work over a region

3) Medicare was enacted as part of sweeping social change in 1965 and was initially part of the fee for service paradigm paying physicians usual and customary fees for care.

You can gain access to the World Health Organization’s health tables here and compare the US with other countries yourself.

Please comment.

This post was provided by Ruth Vincent, Clarkston Georgia.

Those appearing to favor big business in the Health Care Reform discussion appear to have lost sight of the moral dilemma faced in this country with approximately 47,000 million individuals uninsured (see study, Who are the Uninsured? An Analysis of America’s Uninsured Population, Their Characteristics and Their Health dated June 2009 by the Employment Policies Institute (EPI). This study is based on 2006 Current Policy Survey data obtained by the US Census Bureau. Using more recent polling data also in June 2009, the Gallup-Healthways Well-Being Index data revealed that one in six US adults are without health insurance.

It appears that misinformation and fear of change dominate the day. A recent example of misinformation by a national conservative daily newspaper in an article supposedly discussing ‘the truth about health insurance’ stated, “nine out of 10 people under 65 are covered by their employers”. This statement in my opinion is not only dishonest, but deceitful. Statehealthfacts.org reports for 2006-2007 that 53.4% of US employees were covered by employer plans.

In addition to the moral dilemma of the uninsured, we must face the fact that Medicare is going broke in the near future, the employer and employee shares of health care costs are rising at such a rate that employers can barely afford the premiums and the employee’s share has escalated to the point that the average worker sees take home pay reduced while co-pays and caps on hospital costs, professional services and drugs continue to increase.

Using CPS Microfile data from March 2007, the EPI study of the uninsured indicates in ages 18-64, 57% (21,541 million) are involuntarily uninsured because their incomes are less than 2.5 times the poverty level. This means that 43% (16,251 million) of the uninsured had some means of contributing to the cost of their insurance. Eliminating all non-US born uninsured, leaves 26,454 million US born citizens between the ages of 18-64 without health care insurance or about 9% of the total US population uninsured!
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The uninsured receive some level of medical care, either through self-pay, non-profit agencies, free services, emergency rooms, and etc. Free-to-patient-services are not without costs and we as taxpayers pay for them one way of the other. A reasonable person would agree that it will be more cost effective and humane to keep people healthy by providing them with a basic level of health care.

For those of us who can afford care that is superior, say to Medicare which I consider basic care, there will be private providers who will sell supplemental policies that will upgrade any basic ‘Chevrolet’ health coverage to a ‘Cadillac’ or somewhere between. Not many with insurance now have ‘Cadillac’ coverage.

Having worked with college students, it did not take long to figure out that ‘tax credits’ are not cash on the day that tuition is due to be paid. I don’t pretend to know what health care reform must look like, but if we don’t make meaningful reform, I do know a few things:

• What we have today will cost more next year;
• If you are employed today, you may not be employed tomorrow;
• Even subsidized COBRA coverage may be unaffordable; and
• If you think leaving it up to the private sector is the answer, just look at the melt down in the financial sector: stocks, banks, capital markets, housing, student loans and insurance!

Finally, I believe in capitalism, but it seems that ethics, integrity and reasonable profit expectations are being replaced by simple greed.