Why Medicare Sucks part 2

by Ouida on May 24, 2010

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

  • Share/Bookmark


Why Medicare Sucks part 1

by Ouida on May 23, 2010

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.

  • Share/Bookmark


The Mortgage Shuffle

by Ouida on May 20, 2010

Boy, I never thought I ‘d be writing this one!  This is the story behind the one I thought I was revealing when I wrote the property tax shuffle.  Turns out I wasn’t even close.  Several times this year I have read accounts of banks foreclosing on homes they do not own. With all of the crazy paperwork flying around I now have a pretty good idea of a possible scenario.

First of all, before I go any further, I want to tell you that I am okay and my investment properties are intact.  First the background I bought two neighboring properties via a short sale in 2008.  I didn’t escrow and I explained in Property Tax Shuffle why I avoid escrows when ever possible.

I paid property taxes as per usual in May and followed up with the county treasurer’s office to make sure my tax payments had been received.  It was then that I learned that Chase was also making payments on my property and the account was in surplus.  Thinking that I was being a good doobie and helping someone else, meaning a homeowner whose escrow payments were being misapplied, I called Chase to inform them to stop making payments on a property they do not own.  The customer service rep was incredulous as she took the information.  I thought that was the end of it.  Until today.  Chase called me back to tell me that according to their records they still owned the property and that the owner was Bobbie Tucker (name changed, obviously). I told them that Bobbie Tucker was the person that I purchased the property from and told them the closing date.  I also offered to FAX the HUD statement to them.  I have FAXed the HUD statement and the warranty deed to Chase.  I have also notified my realtor and asked the closer to locate all documents, especially disbursement information, related to the sale of the property.

I seems that Chase never booked the sale. Plain and simple.   Financial institutions got too big during the last boom.  One guy doesn’t let anyone know he approved a short-sale and another guy doesn’t book the sale after it happens and the bank receives the proceeds.  In this case the bank received $107,000 that they didn’t book. Do banks need to be broken up?  Yes, so that people start talking to each other and stop relying on computer screens thinking that what is on the screen is correct simply by virtue of being on the screen.  It never ceases to amaze me that when a large financial institution fouls up, the consumer has to provide the documentation 1) of the mistake and 2) that it wasn’t the consumer’s fault. That is just plain stupid.  I have had a few frustrating financial situations come up.  Good record keeping has helped to sort most of these out.  But shouldn’t being an honest consumer count for something?  I guess not, because the banks are too big and move about too clumsily in the marketplace to care about honest consumers.

So tomorrow I will follow up with Chase to make sure they got my paperwork.  I will also follow up with my realtor and the closer so that hopefully Chase will let go of something they haven’t owned in almost 2 years and we can put this puppy to rest.

Tell me what you think.  Please comment.

  • Share/Bookmark


The Big Short

by Ouida on May 19, 2010

My mother gave me a copy of Michael Lewis’ The Big Short: Inside the Doomsday Machine This book is about the financial devilry on Wall Street. 100 pages in and the only thing going through my mind is OMG! I have already written about Goldman Sachs and Magnetar and I have also read the articles by Fareed Zakaria and others urging us to leave Goldman Sachs and other investment banks alone. After all these are the big boys, the most sophisticated investors in the world and, in theory, they shouldn’t need regulation and their precious derivatives certainly shouldn’t. Reading The Big Short and listening to the Planet Money and This American Life broadcasts I keep raving about I cannot help but come to the conclusion that these banks were not terribly sophisticated. Individuals within these banks saw the opportunity to rake in millions in fees and, because derivatives and secondary markets decoupled risk from reward, certain individuals were happy to reap the rewards while redistributing the risk to others. AIG who had developed a solid business insuring the credit worthiness of publicly-traded businesses, simply assumed that insuring the credit worthiness of pools of mortgages made under circumstances they did not control was the same business model. None of the big boys, it seemed, bothered to look under the hood of the jalopy they were all taking a joy ride in. There was a group of investors who did look under the hood, they never got in the jalopy in the first place. They chose to short the market…they bet that the jalopy would run off the road and boy did it. Meredith Whitney of Oppenheimer asserts correctly that these bankers were incompetent failing to understand the implications of their own derivatives and the exposure on their balance sheets.

The bond market is larger than the stock market and is largely unregulated. Views on the stock market from The Big Short:
“Steve Eisman knew enough about the bond market to be wary, and Vincent Daniel knew enough to have decided that no one in it could ever be trusted. An investor who went from the stock market to the bond market was like a small, furry creature raised on an island without predators removed to a pit full of pythons. It was possible to get ripped off by the big Wall Street firms in the stock market, but you really had to work at it. The entire market traded on screens, so you always had a clear view of the price of the stock of any given company. The stock market was not only transparent but heavily policed. You couldn’t expect a Wall Street trader to share with you his every negative thought about public companies, but you could expect he wouldn’t work very hard to sucker you with outright lies, or blatantly use inside information to trade against you, mainly because there was at least a chance he’d be caught if he did. The presence of millions of small investors had politicized the stock market. It had been legislated and regulated to at least seem fair.”

The bond market is much larger than the stock market and the description of it and how it works defies an easy quote and is frightening to say the least. Add this quote about the bond and derivatives market to the mix, “The CDO was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold”, and we find a disturbing trend in America that goes well beyond this book. America as a nation is ill.

The Big Short, is connected conceptually to another book I am also reading called Cheap: The High Cost of Discount Culture and two other books I read several years ago: Nickel and Dimed: On (Not) Getting By in America and Credit Card Nation: The Consequences of America’s Addiction to Credit. Credit Card Nation was published almost a decade ago. It is a treatise on credit, but more than that, it delves into the world of sub prime lending. Bank of America and Citi Group were specifically named as big players in the sub prime game. These 4 books published over the last decade chronicle an economic trend in America that culminated in the financial meltdown of 2008.

After WW II it was possible for a youth to graduate from high school, land a factory job and be set, literally for life. Retire with a pension, supplemented by Social Security and you were guaranteed a level of economic well-being for your entire life. Robert Kiyosaki is fond of saying that that way of living and thinking represented the Industrial Age. When the wall came down in 1989 and with the advent of the Internet the rules changed. We entered a global economy and the citizenry was the last to realize it. Our schools have failed to keep up with the realities competition in a global economy and wages have not only stagnated at home they have declined. 2/3 of our health care dollars will be spent chasing 2 diseases we shouldn’t even have in large numbers, obesity and diabetes. PE has been eliminated from public schools but are our kids better able to compete on the global stage because if it? No.

We fostered industries who produced consumer goods, the manufacture of which could be outsourced, yet failed to make investments at home that cannot be. I remember being enthralled as a kid watching a PBS special about recycling. I collected cans for a year, then my parents drove me all over town looking for a place to recycle them. No such place existed in 1970’s Nashville and the cans ended up in the dump. Today over 30 years later, it still takes extreme dedication for most Americans to recycle. Over 20 years ago we drove through the Sacramento Valley. I saw wind farms for the first time in my life. I thought for sure that I was looking at the future of electricity. A decade later as I drove cross country to begin my career, I saw the plains states devoid of wind farms. Now there is a wind farm in Central Arizona and it is BIG news. When I was a kid, I debated in high school. Consumer product safety was the national topic. My partner and I developed an airtight case around dam safety, no kidding. Dam safety. They were in shoddy shape then. Passive restraints are now standard in automobiles. Laws support seat belts and child seats but our nation’s dams and bridges are in worse shape than they were in 1979 when we ran our case.

It is like we spent our money and good will digging for oil rather than develop an alternative to it and the last 5 to 10 years of our economy were based on extending cheap and ultimately unaffordable goods and services to middle class and lower middle class America. Just as high fructose corn syrup is the answer to cane sugar, credit rather than real economic growth became the answer to stagnant wages.

America is ill because we didn’t address our problems when there was both foreknowledge and opportunity and now, I am afraid, we may be too hobbled to do so no matter how high our taxes go. Amid all this, discussion about whether or not we should regulate financial markets is puerile. Of course we should. In so far as a few guys and gals in suits (or sweats) can target the most vulnerable segment of our society and take the our economy, trillions of dollars of wealth, and several sovereign nations with them. Of course we should.

Please comment.

  • Share/Bookmark

{ Comments on this entry are closed }