Federal health care reform - Does it promote an evil practice?

Despite the fact that I have written 25 books, a thesis, and hundreds of papers, apparently,  I am a failure at writing this kind of information. Why? Because already, a number of you who have contacted me about this piece have missed the whole point. So I am going to beg you, please, please, read the whole story. Do not make any judgment until you read it all. Then write down the point: The point is that the federal law declares that what doctors are taught and what they believe, even what the law says is illegal, is suddenly okay because it is practiced in a government-approved mega-corporation. Now, if you cannot get that out of this article, please write me immediately so I know that I am compelled to go take a "Blog Composition 101" course.
 

What I am about to say uses a make believe doctor to tell a story. As you will hear shortly, what he does is immoral, unethical, illegal, and even evil. But almost no doctors do these things.

I am going to illustrate how the Affordable Care Act of 2010 throws ethics overboard to replace them with institutional behavior that would land a corporate leader in prison.

For purposes of this story, we’ll call your doctor Smith. How would you respond if Dr. Smith looked you in the eye and said: “You need an MRI for your sore finger, and I want you to use my clinic, the Smith Radiology Clinic across the hall.” Unless you own a piece of Smith Radiology, you would probably be incensed, not that the doctor owns another medical practice, but that he seemed to be forcing you to use his facility.

Let’s try another. “That really is a nasty rash you have there,” Dr. Smith says, “and I want you to go to Dr. Jones, the dermatologist, to have her look at it.” He fails to mention that Dr. Jones sends him $25 every time he does this. If you knew that Dr. Smith got a kick back (called fee splitting) from Dr. Jones, you would certainly find two new doctors.

And one more. “You appear to have hurt your right arm and left foot,” Dr. Smith says after examining you. “Let’s look at your arm today, then I want you to come back tomorrow so I can examine your foot.” He winks and adds, “That way I can charge two office call fees. But don’t worry, your insurance covers the cost.” That would be the last straw. Good bye Dr. Smith.

Dr. Smith, in this scenario, is motivated to do as many procedures as possible to wrestle away health insurance money, or your own. This is a nasty idea, and despite what Big Government planners want you to believe, the practice is limited to a tiny percentage of doctors.

If you discovered that Dr. Smith did self-referrals, fee-splitting, and manipulated the system to get more than one office fee, you would report him to President Obama, the FBI, and worse yet, Nancy Pelosi. What an outrage this would be.

This behavior is also illegal in most states, and unethical, immoral, and evil in all…until, well, until Congress passed the new health care law.  

An Affordable Care Organization, called an ACO, is one of three lynchpins of the new law (the other two are insurance exchanges and the inevitable reduction in the number of health insurance companies). Here is how the ACO works:

Medicare, and eventually all medical payers, pays a flat fee to the ACO to pay for your medical services. You have access to all the doctors and other medical providers under contract or employed by your ACO.

If Dr. Smith is employed by or under contract to the ACO, he makes more money by providing fewer medical procedures. The fewer procedures Dr. Smith does, the more money retained by his ACO, and ergo, his bonus is greater. This is really the same thing Dr. Smith used to do when we called it evil, but it is in reverse. Before, more medical care and more money. In the ACO, less medical care and more money.

Rather than fee split with a doctor friend, however, Dr. Smith now does his fee splitting with the ACO, and the federal government blesses him for it. When Dr. Smith sends you to a dermatologist or radiologist under contract with his ACO, he receives a gold medal for sticking to the plan, and incidentally, the ACO gets paid. It is true that Dr. Smith would probably examine both your arm and leg the same day, but he would do it as quickly as possible. Or, more likely, the ACO will have Nurse Practitioner Johnson or Physician’s Assistant Peterson see you – they cost the ACO less, and leave more on the table for Dr. Smith.

Studies show that when doctors work under contract where they earn a salary their productivity falls – often as much as 50 percent. In the new ACO, Dr. Smith can work less, make more, and still be able to self-refer and fee split, plus get back door fees from his ACO peers. What a deal.

The federal reformers tell you the ACO is a better way to deliver health care than a fee-for-service plan: It is true if your doctor is immoral, evil, and unethical, like an ACO. The purpose of the ACO is to consolidate services in a closed system to cut cost. While it may be true it would be effective helping people with chronic illness get more coordinated care, it does so using the very reimbursement arrangements it labels illegal or immoral when done by individual doctors.

ACOs that rely on self-referral and fee splitting, which they do, should be judged by the same standard you use on Dr. Smith. But if you complain to President Obama, he will “call you out,” and Nancy Pelosi will whine and shake her finger at you.

Over time, I plan to share the 50,000 foot picture of the ultimate intent of ACOs, Exchanges, and massive consolidation of care and insurance. Just stay well, please!

Judge calls out Congress as constitutionally stupid

Politicians should avoid tempting the constitution, because principled judges can make them look stupid.

Federal Judge Roger Vinson recently overturned the new federal health care law. He did this because the mandate that would force everyone to sign up for health insurance is unconstitutional. Note that I said it is unconstitutional. Not too long from now, we will learn if the Supreme Court also understands the constitution.

Almost two years ago I offered to be the lead plaintiff opposing the individual mandate. Thank goodness, 20 state attorneys general did this on our behalf.

I teach the constitution. My high school students can read it and pretty much understand it. They read it in plain language, and in the context of the Founding Fathers who wrote it. But more importantly, they learn that it is a document of enumerated powers, not of unlimited powers.

If the Democrats that passed the new health care law knew this truth, that the United States constitution tells the federal government what it can and to some extent, what it cannot do, they would never have passed the individual mandate. If Congress stuck to the spirit and letter of the constitution, they could have avoided having this judge make them look constitutionally stupid.

For years, of course, the federal courts have also ignored the constitution, and wrote their own modern ideas into their decisions. We now know, clearly, that when men choose to make up laws as they go along, without regard to rules, we end up with confusion. Confusion may be good for lawyers, who earn their living off it, but it is bad for citizens.

That is why I am so astonished when several members of a Minnesota State Senate committee recently said, “We deal with health policy. We don’t deal with constitutional issues. That’s not our job.” I hate to say it, but it is true. The Senators that said this were all Democrats, and so were all of those that voted for the unconstitutional federal health care law.

Even more astonishing, however, were the comments of Hennepin County Board Chair, Mike Opat. Yes, he, too, is a Democrat. When asked specifically if the constitution was important to the county board’s decisions, Opat said, “I believe the constitution is irrelevant to what we do at the county. We are reactive.” Well, how about reacting in concert with the law, Mr. Opat? And State Senators, and Federal Congress members?

This thumbing of the nose at the constitution by legislators and other government policymakers is exactly why Judge Vinson’s ruling is so important. If our policymakers are free to create any and every kind of scheme they devise, without regard to the rules under which we the people have ordered them to live, then we do not have a government – we have an oligarchy, aristocracy, or worse, a dictatorship of the chosen ones.

So paradoxically, one of the blessings of the unconstitutional federal health care law is that we finally, might actually get to talk about the rule of law again. We might get to teach lawmakers and citizens alike that We the People are in charge, not them, and we will enforce the constitution.

Do we spend too much or does it cost too much?

We can’t even ask the right questions.

Maybe it’s the writer in me, but it drives me nutty when smart, educated, informed people say we have to cut health care cost, when that’s not what they mean. What I believe they mean, taken from the context in which this phrase is usually used, is that we spend too much on health care (and I believe that assertion is hard to defend).

The evidence of what I say? Listen to the discussion. “We spent $2.5 trillion on health care, 16 percent of our GDP. We have to cut the cost of health care.” So, do we spend too much or does it cost too much? Furthermore, is health care spending a good thing or a bad thing?

Cost. Every purchase we make reflects built in cost. Cost includes labor, materials, administration, marketing, and various other overhead expenses. The cost of a pacemaker, for instance, includes research, development, marketing, the buildings in which all this is done, taxes, snow plowing (lately, all across the country), administration and a whole lot more. You get the idea.

Price. Every purchase carries a price. Price is different from cost. Price usually reflects cost plus some degree of margin. If the total cost of making a pacemaker is $15,000, and the manufacturer wants a 10 percent return on investment (before taxes), the price will be $16,670.

Spending. When all purchases are combined we can arrive at a spending level. Spending includes cost and price, plus use or the quantity of purchases made. My insurance buys me a pacemaker. Nine others in my town also receive pacemakers (thanks to their health insurance or government health plan). Our health care payers just spent $167,000 on the pacemakers (plus at least that much for the doctors, surgeons, scanners, MRIs, X-rays, blood test, hospital room, surgical center, etc.).

Every facet of the health care industry reflects cost and selling price. Spending reflects purchase quantity.

The definitional difference is critical to our health care redesign debate. Because spending, quite frankly, is directly related to rationing. Someone is going to ration health care because someone has determined that we spend too much in the aggregate, or we spend too much on a certain type of procedure.

The best way to control cost, on the other hand, is through competition. When Smart Choice of Milwaukee figured out how to do all MRI’s for $600, it should have resulted in other MRI providers finding a way to reduce their cost if they want to stay in business. Unfortunately, the third party payer system seems to prefer to pay a higher price and real cost competition falls aside.

Yet, at $600 each, we cannot say whether health care spending would fall just because the price is less – because Smart Choice found a way to reduce cost. Spending could very well double as more people turn to less expensive MRIs in place of less effective but cheaper X-rays. Such is the nature of health care spending.

Ask your health care guru, Congressman, or state legislator this question: Do you intend to reduce health care spending? Or do you intend to reduce the cost of health care?

There is something Congress and legislators can do to reduce cost, and they ought to do it quickly. The cost of business regulation in the United States during 2009, according to The Wall Street Journal, was $1.75 trillion dollars or 14 percent of GDP. What if a miracle occurred, and elected officials decided to reduce the imposed cost of doing business that result from over-regulation? These regulatory costs are included in every increment of health care cost.

If the government-imposed regulatory cost were reduced, the price of health care services would fall, thanks to competition. This is a winning strategy, but it does not address the other question: How much do we and should we spend on health care?

Stay tuned.

Congress actually is doing something constitutional

Republicans in the U.S. house want to cut federal spending back to the 2008 level. That’s a good start.

Consider the irony of this, however. The cuts they are proposing now, in 2011, are not for 2012’s budget. They for the current budget.

The Constitution is quite clear about what Congress is supposed to do – somewhat less clear, thanks to the Supreme Court and some very aggressive politicians, about what it cannot and should not do. One of the very clear tasks is this: appropriate money.

All bills that spend money must originate in the House, so says the Constitution. The Senate cannot create bills to appropriate money, although they certainly can, and so, amend them – billions in earmarks each year. The President cannot write a bill to spend money – all he can do is find creative ways to spend what Congress allows.

The point is that it is a primary responsibility of Congress to figure out appropriate, constitutional ways to spend money. That is why Congress passes a federal budget every year except, well, last year.

Instead of passing  budget, which is their constitutional obligation, Congress bailed out big business, wrote a federal takeover of health care, grabbed more power over banks, started the process of dictating rules and regulations, and a plethora of other constitionally questionable actions. Is it any wonder that voters threw out the old rascals and elected new ones?

The new House, however, actually seems to want to listen to and obey the Constitution. They had the gall to actually read it aloud on the House floor – can you imagine? Now, the House actually wants to write a budget, and properly appropriate money. Will wonders ever cease?

Imagine the incredible freedom we could all enjoy if Congress and the President focused on what is constitutional, instead of the continuous increase in federal power over us. Imagine. Well, like our founding fathers imagined.

Given a chance to do it right, maybe the GOP will usher in a new day in a America, a shining city on a hill. But let’s be clear about this: it will only happen if We the People continue to lead and insist on it.

Accountable Care Organizations: Accountable how, to whom, and how does that work again?

Take a look at the two pictures included in this article.

The first one is a picture of our health care system – many disconnected or sort of connected pieces that work in a relatively chaotic manner to deliver care. This system is very hard to manage and by nature, is beset by some level of inefficiency. It is also, however, extremely dynamic and able to quickly add new technology, practice concepts, treatments, medicines, and evermore refined medical delivery.

The second picture is how the Affordable Care Act wishes our health care system could look – an organized, coherent, manageable monolith. This is kind of system that can more easily be managed from the top down, like the Army, a football team, or a single payer health care system. (Actually, the analogy falls apart with single payer; it’s just a way of saying that is what single payer adherents believe to be true.)

The Affordable Care Act of 2010 (ACA), the new federal health care law, in trying to create this coordinated, efficient, top-down health system model, points toward three large organizational structures to accomplish its goal: The Health Benefit Insurance Exchanges (one in each state), consolidation of health insurance companies (the eventual result), and Accountable Care Organizations (ACOs). Here I want to briefly address the ACOs, and will leave the others to another time.

Dr. Richard Reece, who has been writing about health care reform efforts for nearly 50 years, calls ACOs, “Another attempt to herd doctors into large organizations.” Other of my MD-friends call them “HMOs on steroids.” Or, “super-sized HMOs.”

The simple definition of an Accountable Care Organization is this: a broad system of doctors in a wide variety of practice types, along with hospitals, clinics, and other health care service providers. ACOs will deliver services under contract with the Centers for Medicare and Medicaid Services (CMS). ACOs will also contract with private insurance companies. CMS believes by bundling care into these super-sized HMOs, it will be able to accomplish several purposes, the most important of which is to reduce the cost of health care.

The “Accountable” part of the ACO is designed to use manufacturing quality control concepts to evaluate the performance of a doctor or hospital. If the doctor follows the prescribed guidelines (i.e., is accountable), the doctor will be rewarded with a bonus. If the doctor fails to follow the guidelines (never mind the uncooperative patient that refuses to obey the medical cookbook), the doctor receives no bonus – and might be paying to keep his or her job.

It’s essential to understand that the ACO on its own is not designed to reduce the use of health care, nor will it reduce overall spending. Its purpose is to reduce the unit cost of care.

Using the ACO to reduce the cost of care is something like thinking that if we could eliminate small bakeries and have all pastries made and distributed from one source that our donuts would cost less. We will probably buy as many donuts or even more, but each one would save us a nickel.

I believe that the purpose of the ACO is to make it more possible for the federal government to manage the health care of everyone who receives care from an ACO. And who might that be? Well eventually, you, me, and everyone.

What’s a doctor to do?

Right now, doctors all across the country are trying to decide what to do about these ACOs. Do they sell their practices and go to work for the hospital or mega-medical system that sits at the center of the ACO? Do they try to continue in private practice, or in small, independent group practice? A cash only practice might work, unless you are a cardiac surgeon.

More regularly now, the march is toward selling a private clinic or practice to join the ACO, as if it is a matter of fate. Many doctors believe it is a way to escape from the underpayments he or she receives whenever a Medicare or Medicaid patient enters their clinic.

(For the non-doctors reading this column, understand that more than 75 percent of doctors report that Medicare’s payments for their services barely meet the hard cost of providing the service, or in fact, the doctor loses money every time he or she sees a Medicare patient. But even at that, Medicaid is far worse. Doctors report receiving as little as 28 cents on the dollar for each Medicaid patient. Therefore, many doctors are refusing to see anymore Medicare and Medicaid patients.)

When the doctor contracts with the new ACO, he or she may have walked into a trap, and it might be one from which extracting oneself is nearly impossible. Here is why: Hospitals cannot turn away Medicare or Medicaid patients. When the doctor joins the ACO in concert with a hospital (and an ACO cannot exist without a hospital), the doctor has by default agreed to accept Medicare and Medicaid payments for service. So what was inadequate before is just as inadequate in the ACO, except the doctor has no recourse, other than to quit the ACO.

The others that join ACOs – nurse practitioners, physician assistants, perhaps pharmacies, medical device resellers, etc. – to flee the Medicare and Medicaid reimbursement system will find themselves at the financial mercy of the ACO. The ACO, in turn, will be subject to the reimbursements it can win from the remaining, huge, private health insurance companies and the granddaddy of them all, CMS.

This is all driven, in my humble, yet studied opinion, by the belief that large organizations are more manageable and efficient than are small organizations. More so, that solving the health care “crisis” means that the federal government must be in charge. Here is the greatest worry about all this. The federal government wants Accountable Care Organizations so government planners can hold someone accountable. But, who holds the government planners accountable?

The Second Rule of Politics: The Single Most Important Vote

Former Speaker of the House Nancy Pelosi, D-Ca., gave her “farewell” speech a few days ago. Then she handed Rep. John Boehner, R-Ohio, a huge new gavel. Pelosi’s symbolic gesture of handing over the reins of power is an incredibly important civics lesson.

You see, Pelosi never gave Boehner the gavel. Boehner earned the gavel by convincing the new GOP House Caucus to vote for him as Speaker. That singular vote is the most important vote the GOP members will take during the 112^th Congress (barring replacement of Boehner at some later date).

By electing Boehner, the voters that elected the GOP House majority created an entirely new governing structure. The Speaker, you see, is responsible to decide which committees will be created or allowed to continue, who will serve as chairs of those committees, and which members will serve on them. Sure, it is true that seniority plays a significant rule in choosing chairs and committee members, but the real power rests in the Speaker’s office.

Nancy Pelosi demonstrated the Speaker’s power by breaking enough Democrat arms to pass the Affordable Care Act of 2010. Using her power, she convinced dozens of Democrats to throw away their political careers and vote against their constituents. Don’t lose the lesson here: The House Speaker is more powerful than the constituents that send members to Congress.

How John Boehner uses his power as Speaker will be seen. I expect it to be more benevolent than Pelosi’s, but when the Speaker needs votes, he will get them.

The single most important vote, then, is the vote for Speaker of the House. In the U.S. Senate, it is for the Majority Leader. This will become more evident as the 112^th Congress gets about doing its business. The contrast between Sen. Harry Reid, D-Nev., the Senate Majority Leader, and Speaker Boehner will become evident quite quickly. Reid will be the obstructionist, running interference for President Obama. Reid has the power, albeit not to the same extent as Boehner, to stop good things from happening.

The Second Rule of Politics is, the single most important vote a member of the House or Senate takes is for their senior leader. And the second part of that formula is the party that holds the majority elects the leader.

Cong. Colin Peterson, D-MN, is viewed by many as a Blue Dog Democrat, willing to buck Speaker Pelosi and vote more like a Republican whenever principle demands it. Two things are wrong with this formulation: First, Peterson voted for Pelosi as Speaker. His own convictions, with this vote, took second place. Second, Peterson voted with Pelosi 92 percent of the time, and why not? She was his leader.

Next time you find yourself thinking or saying, “Well, all those other Congressmen are liberal but my Member is more like me,” remember this: The single most important vote your member will take is for the Speaker of the House, or the Senate Majority Leader. This is precisely why you must vote for the opponent of even the most benign, conservative Democratic Congressman or U.S. Senator. Vote wrong, and you lose it all.

Be sure to go to freemarkethealthcare.com and download the "Myths and Misconceptions" piece.

The First Rule of Politics - Proving to be True

(This posting is also available as a video from on off-site server.)

State Senator Linda Berglin, D-Mpls., slowly made her way to her chair in the Minnesota State Capitol hearing room. She came 20 minutes late. As she reached her chair, she slowly panned her eyes across the gallery, trying to make sure everyone noticed her. She sat down slowly, and somewhat dramatically picked up her folder of hearing materials. No one cared.

Since 1972, Sen. Berglin served in the Minnesota House or Senate majority. For the last 18 years, she dominated the making of health care policy in the state. In other words, she orchestrated Minnesota’s march to the left. But after the 2010 elections sent her to the minority, things have changed for her, and for Minnesotans.

As I traveled last summer and fall talking about health care reform, I taught four political laws, the first of which is, “It is far better to talk with a legislator that believes as you do than one who is deaf to your ideas.” I used Sen. Berglin as my example, all across the country. Sen. Berglin, you see, is deaf to people who understand that a market-based approach to health care reform is far superior than a Statist approach. No matter how many facts we presented, no matter how many zany ideas we shot down, no matter how fiscally irresponsible was the constant expansion of government-run health care, she remained immune to what we had to say, acting as if she were deaf.

So, we changed the majority party and elected new committee chairs.

This past week, leaders from the Minnesota Association of Health Underwriters gave a Health Insurance 101 presentation to the House and Senate committees on health care policy. These are the committees that will write and rewrite Minnesota’s health insurance laws.

For the first time at least since 1992, these elected officials heard the story of risk pooling, underwriting, what agents do, how insurance works, and that there are better, market-based ways to deliver health insurance. It felt as though a cool breeze had entered the stuffy hearing room. I cannot over-emphasize how different this message was – 180 degrees – from what the legislature has been hearing for 18 years.

All of this is a result of electing a new majority, with leaders that are willing to listen to, analyze, and use ideas offered by people like us. The new majority has fulfilled the first law of politics.

Do not let this lesson be lost on you. If you have not elected a market-friendly legislature yet, make sure you do it in 2012. And if you have, as we have done in Minnesota, make sure you return that majority to power again. Start now, because I can assure you, the “deaf ones” are already plotting to grab back their power.

You might enjoy reading the “Myths and Misconceptions” piece I wrote for the legislators. Grab it here and download it. Spread it around to everyone. It’s really good stuff.