A healthcare conspiracy theory

When Mad Magazine was still being published one of my favorite cartoons was Spy vs Spy. It was symbolic of a time when each nation had a spy trying to sabotage the other spy’s diabolical activities. I believe such a covert action has been secretly playing itself out in health care.

spyvsspy2

When the Affordable Care Act was enacted I read the law and came away stunned. It was remarkably well written. Way too well written to have been crafted by politicians.  No, they simply could not have written that bill!  Now, on the eve of the 2014 implementation I am even more convinced it was really done by outside third parties. The problem is that even K-Street lobbyists tend to be puppets-on-a-string. I have long wanted to know who was puppet-master, and now I think I know. The clues have led to William “Bill” Frist, a conservative Republican and a past Majority Leader of the U.S. Senate.

You might remember Bill Frist as the heart surgeon-turned-Senator. He is also the CEO of Nashville, Tennessee-based Hospital Corporation of America(HCA), and the son of its founder. HCA does business in Colorado as HealthOne.

It is my belief that Senator Frist, more than any single individual has been responsible for the failure of conservatives to ever achieve health reform. And, I believe he is the spiritual leader behind the Affordable Care Act. Mitt Romney had a part but he played second fiddle. Between these two supposed conservatives, they handed the American health care system over to the socialists on a silver platter.

We all have to remember that during the Bush years conservative Republicans controlled the three branches of government. They cut taxes and took us to war, twice. Why was nothing done in health care?

By the 1990s, the cumulative effects of public policy legislation in the 1970s and 1980s conspired to create a perfect storm in the financing and payment of health care. First, there was a wholesale acquisition of non-profit community hospitals in Colorado and across the country by holding companies such as HCA. Second, insurance companies and large self-insured plans and their TPAs scrambled as public entitlement programs negotiated fixed fee schedules and cost shifting began in earnest. This all led to healthy groups abandoning the old system in favor of self-insurance. Not buying insurance is a form of self-insurance for healthy individuals. Cost shifting caused different segments of the system to inflate disproportionately, accelerating the out-migration of healthy individuals and groups from the system. This left insurers like Blue Cross and the for-profit, high-cost hospitals gasping. For the past two decades they have desperately been trying to figure out how to get back in the game.

It is probably mere coincidence that Bill Frist was in the midst of a workout and turn-around of HCA when he entered politics. Even more bizarre–this all came at the same time when HCA (HealthOne) was  negotiating the largest fraud settlement ($2 billion) in U.S. history for overbilling Medicare.

It is now ironic that those segments of the health industry most grieving the loss of cost-based reimbursement and bemoaning the shift towards managed care found their first hope of salvation in Medicare Advantage HMO plans. By tightly integrating the insurance product using contractual relationships with providers this new hybrid approach between provider and insurer once again made health care profitable.

I now predict old fashioned managed care is being relabeled “accountable care”. But, it’s the highly integrated, contractual, and sometimes, ownership ties between provider and insurer that will serve as the alpha model for implementation of ObamaCare.

The social contract between the insurance/provider health complex and government is symbiotic. When markets fail, whether it is supply, demand or financial intermediary-induced, society turns to government to solve the problem. And, because government basically works best when it plays the role of purchasing agent or contract officer it routinely turns to institutional actors to do its bidding under contract. It no longer matters whether the U.S.  is waging war or gathering national security data. It is habitually farmed out to third party contractors who answer to bureaucrats.

The unstated quid pro quo is “you (government) pay us outrageous amounts and, mandate everyone buy the product and we(the insurer) will corral the providers in our networks. Once the gate is closed, we can impose price controls and utilization controls that would cause rebellion if government did it directly. Better to do the dirty work by proxy.

Who needs the freedoms of conventional market disciplines that are subtle and nuanced, when government can forcibly institute the carrot and stick approach of tax subsidies and penalties?  Why engage in surgery when a club will get the job done twice as fast? So what if it introduces trauma?

This has unknowingly led to a perverse form of adverse selection that is cannibalizing traditional insurance the way self-insurance gutted the risk pool twenty years ago.  People who are low utilizers and who wish to avoid paying premiums and deductibles will migrate to the new managed care offerings. This will cause premiums to rise even faster in the older, more established groups, causing more migration in the next round of enrollment. Eventually, though, you can run but you can’t hide and the only solution is a community-rated risk pool that completely socializes risk and justifies the conversion to a single payer system administered by the same wardens currently building exchanges and the cooperatives.

Look at the specific example of the Health Exchanges. They seek to offer the consumer low cost premiums and deductibles and a smorgasbord of benefits such as free wellness. To keep copays reasonable requires something happen in the shadows.  First, it is absolutely necessary to have large numbers of healthy people buying insurance that they will seldom use.  To get people who would otherwise self-insure to buy-in, government has to give tax credits and subsidies. And, that necessitates the consumer buy “approved” and “certified” insurance through the Exchange, not in the open market. The Exchange’s Board of Directors is comprised of the same select group which promotes managed, accountable care.  Small insurance carriers who might actually innovate the market are kept out. Eventually a “Law of Lemons” effect will take place.

While ObamaCare was being crafted, I believe Bill Frist and Mitt Romney and their confederacy of operatives from Nashville threw the American public under the proverbial bus to further their private equity interests. They had already donned sheep’s clothing and infiltrated government. They ended up making conservatives the laughing stock. The Republican Party has failed, not because of its treatment of illegal immigration but largely because of an inability to reform health care and education when they had the chance.  It is now a market controlled by oligarchs. You and I are mere wage slaves.

From now on, the health care you and I receive will be determined by some for-profit hospital or insurance company’s goal seeking financial model. Your doctor is no longer your loyal agent. You have a new Navigator who works for the Exchange. The provider’s contract is not with you but with the accountable care organization. They will arrange hospital financing and pay back the physician’s school loans. Health care has become an extractives industry lacking any sense of morality. Beware, the most dangerous people you encounter from this point forward are those who believe their own hype.

Financial problems at Denver Health: déjà vu all over again

 

The recent reports that Denver Health & Hospitals is financially stressed reminds me of an underground coal fire that seemingly burns on forever. When Frederico Pena was elected Mayor of Denver in 1983 he commissioned a Citizen Committee to study issues swirling around a troubled Denver General Hospital. Back then, as today, the City hospital along with University Hospital are the primary providers for indigents and the working poor.

As the citizen committee began to peel the onion on the city hospital situation, a lot was also happening at the federal level. Ronald Reagan had been elected president and the U.S. Congress passed the Omnibus Reconciliation Act of 1983. This act  allowed commercial insurance and public entitlement programs to switch from cost-based reimbursement and impose fixed fees on health providers. This ushered in an era of cost shifting.  ObamaCare hopes to fix the negative consequences of those public policies. In this in-between time, Denver Health is being stressed like never before.

When the Mayoral Committee reviewed Denver’s health system it quickly concluded it was of a very   high quality but financially distressed. By concentrating large numbers of poor, non-paying patients in a city-run hospital, the numbers didn’t work. Initially, some members of the Committee naively toyed with the notion of giving patients vouchers so they could be served by hospitals throughout the community. After all, there was a lot of excess capacity in the health system back then.

After many years of study, we now know hospital economics differ from typical business finances. You might think technology drives health costs. In fact a hospital is far and away labor cost intensive.  If you can staff the hospital exactly to meet demand everything balances out. Trouble is, hospitals are highly specialized. An oncology nurse does not work in the heart unit. The high degree of specialization in labor means that a hospital’s total costs are relatively fixed at a high level, whether there is one patient or 500 in-house. If the hospital could magically be operated at just the right level, its average costs per patient might be reasonable. Of course, that would also mean someone would have to pay the bill. If demand falls off and hospital staff idled, average hospital costs per unit of service jumps dramatically. And, if bad debts also rise because the mix of paying and nonpaying patients changes, big financial troubles develop very quickly. It’s a very tough balancing act.

Over the years, the Colorado Health Data Commission, the 2008 Blue Ribbon Commission, and the Colorado Division of Insurance all studied health costs. What we do know is that there is wide variations between hospital costs. But, premiums for insurance plans vary all over the place. And, there is a huge difference between what Medicare and Medicaid pay and what a self-pay patient is billed. This is due largely to shifting of costs between various categories of payers. Hospital systems are reimbursed below average by government and commercial insurers. They try and shift the difference to self-paying patients, but many of them can’t pay. It’s a health care system whose foundation is built on shifting sands. Large community hospitals usually make it work out by raising their sticker prices into the stratosphere they way  of auto dealers. We all know that nobody really pays that price. But, public institutions like Denver Health and University Hospital have no place to shift costs.

In theory, a typical community hospital should be able to take care of a certain number of patients for the incremental costs they might incur. If the hospital is already making money, what does it really cost to put one more patient in an empty bed? Mere pennies you would think. What happens if everyone who gets checked in is poor and can’t pay? When we concentrating the poor in one or two hospitals, it shatters the economic models. You simply need paying patients to defray the fixed costs.

This reasoning is even more relevant today, because the Colorado Health Exchange knows that to make ObamaCare work  they must get young, healthy people to buy insurance. Only by having a large pool of patients, some healthy and paying their way to balance out sick and poor patients can the system work.

The decision for the City of Denver to operate its own health system is both political and economic. It is political because when markets fail, as has health care, we turn to elected officials to be our loyal agents.  Community hospitals are still resistant to takiing care of poor patients at the marginal, incremental cost. And, insurance companies want to cherry-pick the risk pool.  Most health institutions are now run by either for-profit companies or part of a large system. Modern health care is run using goal-seeking financial models

We have to remember, Medicare and Medicaid were enacted because the markets had failed. It was not taking care of the elderly or the poor. In 1974, when Richard Nixon was President, the ERISA laws enacted allowed large corporations with healthy groups to pull out and self-insure. That destroyed the community-rated risk pool.  Laws enacted over the years created a favorable ecosystem for insured groups which attracts healthy patients. But, it also shattered remaining community-rated risk pool that served small groups and individuals. The lead to enactment of the Affordable Care Act in 2010.

As we move toward the 2014 the implementation of the Affordable Care Act, there will be some unintended consequences. I remain convinced that Denver Health and Hospitals will survive and thrive because it is a high quality institution with an important community mission. From the time when Frederico Pena was Mayor of Denver, it has been run professionally. I still maintain that if you wreck the family Rolls Royce on I-25 you want to be taken to Denver General. And, if you are a homeless person living under a bridge, you can’t find a better place to care for you. It’s a model we should all support.

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The most powerful idea in the world

Against all odds, the first decades of industrialization actually have something useful to say about their long term impact on the World’s climate–though it isn’t what either side in the global warming debate would probably endorse. It certainly doesn’t give much comfort to anyone who thinks humanity can be persuaded to spend any more for power than it has to: America and Europe might have finally so enriched themselves that they can afford to convert to wind, water and solar power, but neither China nor India is likely to choose either over coal costing one-tenth as much. If the history of steam power teaches anything, it is that the lower cost fuel option always wins. Right now, that option is about a trillion tons of easily mined, dirty, carbon-rich coal…..any comprehensive solution is going to have to do one of two things: figure out how to return all that carbon to where it was before humans learned how to exhaust it into the atmosphere–the technical term for putting carbon back is sequestration–or come up with a non-carbon-producing energy system that costs less than coal. Both options put the highest possible premiums on invention.–William Rosen, “The Most Powerful Idea in the World”.

james-watt-steam-engine-006

Is Obamacare a case of the Pot calling the Kettle Black

During the past month several reports have been forthcoming regarding the variation of costs in the health care system. In the case of medical providers there is clear evidence of wide differences in costs and utilization both in terms of geographic region and between institutions.  When the Colorado 208 Commission studied the issue it also found that there were great variation between what insurers, government and individuals pay. And, recently, the Colorado Division of Insurance analyzed insurance proposals for the health exchange.  Again, wide variations in insurance premiums are being proposed. Are such differences evidence of profiteering? Or, is this an opportunity for consumers to take advantage of lower price offering.

CostShift_208

The fifty year history on this matter is instructive.  Differences in costs at all levels of the health care system have increasingly been noticed as transparency in the health industry improved from computerization.  Jack Wennberg and Phil Caper employed computer-based claims data to compile the Dartmouth Health Atlas. And, Medicare has long used mandatory cost reports to track differences. The Business Coalition and Health Data Commission movement has focused on public reporting of these variations.

Soon after Medicare was enacted in 1965, health inflation became a problem because payment systems at the time reimbursed providers their costs. When ERISA was enacted in 1974, large corporate, union and public sector groups aggressively began to self- insure. This undermined the old community-based risk pools assembled by Blue Cross. The Omnibus Reconciliation Act of 1983 was passed as a solution to the mounting problems. (As an aside:  It is interesting to me that both ERISA (Nixon) and COBRA83 (Reagan) were passed by Republican administrations). The 1983 act ushered in an era of managed care and prospective price fee schedules. And, that brings us to where we are today: Republicans seeking to repeal Obamacare are the pot calling the kettle black.

All in all the set of public policies was well intentioned but it has been a dismal failure in terms of economics. Cost shifting has distorted, warped and tortured the market. We usually rely on the individual self paying patient to wring out the dead weight loss in a system but cash purchasers have  no bargaining power and they have abandoned the insurance market to the point where mandates and subsidies are necessary.  A lack of disciplining force in the health care market is obvious when the 12 leading socialized economies of Europe spend almost half what the U.S.’s competitive market spends. They average 8-10% of GDP and we spend 18%.

Reasons for variation are normally explained by differences in input costs, economies of scale, management prowess and profit-seeking attitudes. We will never eliminate all the differences that exist in human systems. It is a role of government to make sure that disciplined, countervailing forces exist. Gradually, over time, variations are reduced and we achieve the most efficient, high quality system possible.  In the case of health care two forces conspire to sabotage this goal. First, the consumer is by and large disconnected from direct payment of either the premium or the services rendered. Second, our desire to make sure that 100% of the population receives Cadillac care runs counter to market principles whereby the market rations based on the consumer’s ability or willingness to pay. Because of public entitlement programs and employer-tax-advantaged plans, the health care purchase is rendered an abstract transaction largely performed by third parties. Rationing thereby becomes a political act.

The second neutralizing force is the imposition of discounted, fixed fee schedules. This intervention almost always overpays low quality providers and underpays high quality providers. Health providers who are both low cost and high quality are punished by fee schedules imposed by government fiat or the insurance oligarchs. The additional volume and premium pricing that should reward our best providers is denied them. Prices in a natural, functioning market, are signals of quality and efficiency. A monopolized or heavily regulated market will cease to send valid signals and eventually all feedback becomes white noise. No provider is distinguishable from another and quality has to be assumed. Providers with high standards and ethics eventually either create a black market in concierge medicine or exit the market, leaving the consumer subject to the Law of Lemons.

The cumulative effect of health policy decisions since 1965 has rendered health care a brownfield. Sadly, Obamacare does nothing to make it green. There is little economic rationale within it that would hope to flatten the cost curve without the blunt trauma force of price regulation. Worse,  ACA imposes a perverse principle that is one of the cornerstones of socialism. By forcing young, healthy individuals into a risk pool filled with older, sicker patients it becomes a covert act of intergenerational transfer and taxation by another name.

This is all the more tragic because we should be taking deliberate steps to make health care a global export industry. The Planet Earth, soon to be filled with 8 billion people, desperately needs good health care. The U.S. should, by now, have positioned itself to take our advanced technological and educational capabilities and deploy them around the world. Instead, we have been out-foxed by socialist countries who spend half what we spend and they get better results. How do you compete when socialism is more efficient and effective than capitalism? During the eight years that both George Bush and Bill Owens, respectively, controlled national and Colorado state government, exactly nothing was accomplished.

In an ideal world, we would spend no more than 7% of our GDP and 5% of our workforce on domestic health care. To compete against socialized systems we simply must get more bang for the buck. Variations should  narrow over time. Health care organizations need to operate in an ecosystem where they are disciplined to have low administrative costs. Technology should lower costs the way it does in the personal computer market. And, institutions should be scaled to a level where they operate at optimal efficiency. In a virtuous cycle we, in the U.S., would buy consumer goods made in foreign countries. In turn, foreigners would use those dollars to buy the health care we provide.

The stakes of this game are very high. I have news for you. We are not going to reclaim the manufacturing base we have lost to foreign countries. And we are not going to deport the 50 million aliens who have infiltrated our economy. The twin effects of these trends has eliminated wage gains over the past thirty years and destroyed the middle class. An ongoing balance of payments deficit simply cannot continue forever. At best it cannibalizes our wealth and renders us impotent.

The root of this problem stems from two strategic blunders of epic proportions. First, during the past decade policy makers have been vascillating between an embrace of Adam Smith’s conservative and John Maynard Keyne’s liberal economic theories.(More pot calling the kettle black!) The problem is that neither of these two thread-bare concepts represent 21st century thinking.

The second great failure has been to put narrow specialists, cultivated during the industrial revolution, in charge of our society at a time when we desperately need generalists. When specialists attempt to solve complex, systems problems they almost always lack the requisite skills and we end up in the briar patch. Specialists cannot help driving into the future looking out their rear-view mirror. That is why their public policy initiatives are a always a day late and a dollar short. In the end, the kettle and the pot argue over distinctions without a real difference. The situation now seems impossible. We desperately need a finesse option.

The last word on variations

“ Facing an onslaught of regulatory changes and major market pressures, health care providers are grappling with how to transform existing services as part of a push to raise the quality of patient care while boosting efficiencies and reducing costs.”—MicroSoft

Significant recent press has spoken to the issue of variations in costs. On the one hand, health care costs vary significantly from geographic region to region and from hospital to hospital. Some would use this information to indict the system as lacking in control or possibly gouging where the market will bear higher prices.

Just last week, the Colorado Division of Insurance released its findings of wide variations in health premiums to be sold through the Exchange. Those on the Exchange Pom-Pom team cited this as evidence of competition and choice for consumers. What do we really make of a situation whereby health care providers exhibit high variations in costs which we proclaim as bad but we heap praise on the financial intermediaries who arbitrage those same services and add their own measure of profit.  I maintain there is both a devil dressed as an angel in drag here.  You have to drill down and look at the detailed picture.

When analyzing and making decisions, most of us calculate average costs to have a working number. To be precise, a health policy professional (like the person who regularly follows The Thought Czar) will not merely use crude averages, but will display the underlying data as a bell-shaped curve, aka, a frequency distribution curve. Without jumping into the briar patch, let me point out that a knowledge of the shape and distribution of the underlying data is important before we reach any conclusions.

                        BellCurve

 

Variations in outcomes, of which “cost” is paramount, are an outgrowth of both natural and human managed systems. This phenomena in health care has been well known ever since Jack Wennberg and Phil Caper created the Dartmouth Health Atlas back in the 1980s.

Let’s assume for the moment that you are the “Big Data Analyst” at the NSA of Healthcare, operating out of your bunker in Nevada.   What would you do with this data? What conclusions can you reach? Those suspicious of market player motives might view “high price chargers” as taking an opportunity to overcharge whenever possible. Others might see “low cost chargers” as competitors striving to outdo their rivals

I look at it differently. If you take the distribution of prices(variations) in the health care market you can only make rational decisions if you know quality. Think for a moment, the difference in prices listed on Craigslist for two similarly looking autos can only be used as a basis for purchase if you know that one is a Mercedes and the other a Kia. By what means could we sort through the complexity of costs and quality differences?

Below is a frequency distribution curve embedded in a classic 2×2 matrix. In  the upper right-hand quadrant, there are high quality/high price providers(insurers) and in the lower, left-hand quadrant are low cost/low quality providers(insurers). You might have to meditate on the graphic to understand it fully, but it is one way to frame out the problem and solution to the cost/quality conundrum.

Reimbursement Model_revised

In viewing data in this way, we also can reach an even more profound set of conclusions. Let’s suppose you are the federal government or a big insurance company. You use your bargaining clout to come in and impose a fee schedule on providers. If you are the 800lb gorilla, like Medicare you will demand prices far below average so that you can prove to the electorate that you are their loyal agent in getting them a good deal. And, if you are the big-dog-on-the-porch insurance company (essentially one of the seven largest who are oligarchs) you will attempt to peg your fee schedules to a shadow of Medicare.

Now, you might promise the provider more patients, but there are few incentives other than copay or deductible differentials to allow you to make that happen. And, you will likely have promised the employer or individual lower premiums. The reality, though is that the Division of Insurance data for the past five years has shown “exclusive-provider- networks” are more expensive than “open-networks”.

For the time being, go back to the frequency distribution(variations) curve and climb it like a mountain. At price P.5., which is in the low cost/low quality quadrant, paying the average price would still overpay the quite a few providers because they are vending poor quality. But, paying the higher “average” price also conspires to penalize high quality providers and it may not pay their costs. So, quality is driven from the market(Law of Lemons), leaving low quality providers willing to accept low prices. Similarly, paying price P.4, which is an above average price may over-reward low quality providers and  still bears the risk of underpaying the highest quality provider.

If your eyes have glazed over by now and I am at risk of losing you, step back from the graphic. What does all this boil down to?

  1. All systems exhibit variations and there can be both innocent or diabolical  reasons for this occurring.
  2. Paying  a simple average price rarely takes into account the quality differences. It risks making an irrational decision.
  3. Merely thinking you are getting a good deal because you are paying less than average risks penalizing providers who should be rewarded. It almost always overpays the scoundrels.
  4. Over time, negotiated fee schedules distort the market. They drive out high quality because they punish efficient provider.  Individuals with high standards leave the market and it must subsist on expensive lemons.
  5. Financial intermediaries arbitrage by exploiting differences and normally play a parasitic role.

 

Prior to the Omnibus Reconciliation Act of 1983, most health care was paid based on costs. It was required to get providers to accept Medicare. In hindsight it was a recipe for hyper-inflation. But, attempting to chill inflation by implementing fixed-fee schedules under prospective payment lead to an even worse cascade of unintended consequences.  The cumulative effect of fifty years of ill-conceived public policy initiatives, when taken as a whole, has rendered the health care market a brownfield. In the end, the self-pay patient has been left abandoned and in need of rescue, like a wounded soldier on the battlefield. That class of patients has had no negotiating leverage and has had to play the game in a foggy market where prices and quality are impossible to determine. As a result, the self pay patient, who we normally rely on to eliminate dead weight loss, has ended up paying rack room rates while government and corporate payors extracted up to 70% discounts from the system. Now that we wish to increase access to the 50 million people without insurance, we find ourselves painted into a corner. The system has become so inflated that our last ditch effort is to force young and healthy patients into a risk pool and use their lower costs to subsidize older, sicker patients. Like bubble gum, it will soon lose its taste. It is unsustainable and will eventually cease to function whether policy makers do anything about it or not.

 

 

My feelings exactly

Your precious independence! Your white plume!

What would you have me do?

Sleep for the patronage of some great man,

And, like a creeping vine on a pole tree,

Crawl up where I cannot stand-alone?

No, Thank You!

Be a buffoon,

With the vile hope of teasing out a smile on some cold face?

No, Thank You!

Eat a toad for breakfast every morning; make my knees callous;

Cultivate a supple spine?

Wear out my belly groveling in the dust?

No, Thank You!

With my left hand, scratch the back of any swine that roots up gold for me,

While my right, too proud to know my partner’s business, takes in the fee?

No, Thank You!

Shall I use the “fire” God gave me to burn incense all day long?

No, Thank You!

Struggle to insinuate my name into the columns of the gazette?

Calculate, scheme, be afraid?

Love more to make a visit than a poem?

Seek introductions, favors, influences?

No, Thank You!

No, I Thank You, and again, I Thank You, No!

But, to sing! To laugh! To dream!

To walk in my own way, with an eye, to see things as they are,

A voice that means manhood,

To cut my heft where I choose!

Not a word, a “Yes” or a “No”!

To fight or right!

But never to make a line, I have never heard in my own heart.

To travel any road under the sun, under the stars,

Nor care if fame or fortune lie beyond the dawn,

Yet, with all modesty, to say,

My soul, be satisfied with flowers, with weeds! With thorns even!

But, go then in the one garden you call your own,

In a word, “I’m Too Proud To Be a Parasite”!

In my needs to light the germ, that grows towering to heaven like the mountain

pine,

I stand not high, but alone!

Why go about making enemies?

Watching other people making friends, everywhere, as a dog makes friends,

I mark the manner of these canine courtesies, and think,

Here comes, thank heaven, another enemy!— Cyrano de Bergerac

Circumcisions, genital mutilations and castrations

By Francis M. Miller

Shortly after I was born at St. Vincent’s Hospital in Billings, Montana, the doctor who delivered me approached my father to schedule the circumcision. This created, I believe, the first cross-cultural crisis in Montana since the Battle of the Little Bighorn when Custer made his last stand against the Sioux and Cheyenne.

My father was Catholic, a WWII veteran and working class. Most of the landowning aristocracy of Montana were protestant. It was a divide that resulted in Montana having two hospitals in each major city. In Butte, the home of Anaconda Copper, the miners went to the catholic hospital. In Missoula, the loggers did likewise and it was a pervasive pattern that I did not acknowledge until I was older. In looking back at it, I now understand why my sisters and I had to go out to the oil refinery and get our polio vaccinations. The “Protestant” hospital did not provide them to people who lived on “the Bench”.

A triangle between this unspoken conflict was the Jewish doctors. They were a small group, not even large enough to have a synagogue and they observed in a private home. But, when they practiced medicine, their cultural beliefs emerged and both Protestant and Catholic had to figure out what to make of it all. I won’t tell you the outcome of this particular argument.

When I came to Denver in 1972, there were multiple hospitals that today have Exempla, Health One and Centura logos. Back then there was a Swedish, Lutheran, Jewish(Rose), Veterans, University, Denver General(the poor), St. Anthony and St. Joseph, and Presbyterian. The entire system was a mosaic where the pieces of the market grinded as they collided. There was a multi-faith task force to reduce tensions. Even as late as three years ago, a firestorm erupted when the Sisters of Charity of Leavenworth offered to buy Lutheran Medical Center with the stipulation that abortions and birth control follow the guidelines of the Catholic Church. Just a year ago, litigation was initiated by Hobby Lobby and the Catholic Church went ballistic when Obamacare tried to ensure employees would have equal access to birth control and new drugs like the morning after pill.

The United States is well on its way to becoming a pluralistic culture. There have already been killings of children by parents who object to their children adopting Western secular culture.

Throughout the World there are practices such as genital mutilation and there are wide variations in attitudes towards abortion, birth control and other practices. These differences are not so great and the population of Muslims large enough to build an Islamic Hospital, but I fully expect it will happen. When Jewish doctors in Denver faced obstacles getting admitted to Christian hospitals, they pooled their resources and built Rose Medical Center. When I consulted with them as late as the 1980s many of their original board members were still writing checks to keep the place afloat.

The differences between cultures can be a difficult chasm to cross. When a Christian Science parent seeks to prevent a child from being provided care it often ends up in the Courts. And, make no mistake about it, abortion is an issue so great it divides us politically and occasionally results in violence. Will the day come when Islamic beliefs, Asian treatment protocols, and a whole host of differences shatter our systems.

Government and corporations typically scale up their size and introduce uniformity of practice to achieve efficiency. They are not a good job shop. And, when it comes to spending money there is an insistence that everyone be treated equally under the law. That leads to systems of control that prevent, detect and correct deviations from the norm.

The desire to achieve unlimited and consistent access as a universal right is only one step away from mandatory participation and universal treatment. If government funds circumcisions, isn’t it a small step to impose circumcision on every young man. Can a parent resort to Catholic doctrine or personal preference? Religious doctrine often fails to speak crisply on certain matters and it becomes a matter of folklore and common belief. Most societal systems cringe at the thought of individual determinations on such matters. Will we eventually have health care Courts to make such determinations. What is the cost to society of lawyers and experts facing off against each other to determine whether little Fran should be circumcised to ensure his personal hygiene. The next step is to provide vaccinations and then engage in existential arguments about whether the side effects lead to autism or other disorders.

We threw Jack Kervorkian in jail because he was helping people off themselves. And, yet, in spite of federal laws against it, Colorado and Washington legalized marijuana and created a new tourism industry. What would the local papers have to write about if weed had not been legalized? After all, you can only talk about gun control and civil unions so long.

All of this leads to the conclusion that institutions cannot make these determinations. They necessitate the individual, the family, the clan and the tribe hammer out a consensus opinion that is respected by the rest of society. If these smaller units are not to be subject to the tyranny of the majority, decisions must be based on a spiritual, ethical, moral set of values and beliefs centered in the individual. That level of respect, given our most recent history of genocide against Indians, enslavement of Blacks, and poor treatment of 1st generation immigrants seems difficult to achieve. Why? The reason lies in our intense desire to protect individuals from the consequences of personal decision making. If someone refuses health care altogether and pockets the savings we are outraged. And if a child isn’t vaccinated or a mother wants to use a midwife, we are uncomfortable. Our sociology and politics tends to break down rapidly when personal liberty and psychology seek to trump the wisdom of the crowd and the herd. Enforcement of prohibition has proven to be very difficult.

Winning the silver cup

CHB_TrophiesAdWinning the silver cup in the Exchange horse race

By Francis M. Miller

The launching of the exchange in October is taking on the appearance of a Kentucky Derby horse race at a track. The insurance companies are in the gates and the uninsured, if you believe “Connect for Colorado  adds, are drinking mint juleps and wearing big hats. I view all of this with a jaundiced eye.

There is no doubt that health care has been on a slippery slope for years and the rocks at the bottom spell market failure. We have no other choice than to attribute the source of this failure to the “players” in the market. We place blame on ill-conceived public policy, greed of financial intermediaries, mismanagement amongst health providers or passivity and the irresponsibility of consumers. It is a multi-factorial equation and there is plenty of blame to spread around. Perpetrators shape-shift and morph into victims as providers decry fee schedule decreases, consumers and small businesses drop insurance as premiums arise and insurers lament government regulation and interference.

My take on all this has become philosophical. When markets descend into failure, regardless of who caused it all, the voters will wrestle the  market away from corporate control and turn to their elected representatives to serve as their loyal agents. In some cases it works and in other cases, the grand experiment fails. The Soviet Union was filled to the gills with collectivist cooperatives and they failed.  Now the Russian economy  is controlled by elitist oligarchs and the shelves are bare of bread. Margaret Thatcher became the devil incarnate when she tried to rebalance socialism in Great Britain and return certain industries to the free market. But, whether you favor capitalism or socialism, the plain and simple fact is that when it comes to health care, the hybrid system in the United States is an abject failure when we look at costs and outcomes.

Contrast all of this with free and competitive markets such as phones, communications and computers. Beginning in the 1970s with antitrust legislation against IBM and then in 1996 with the deregulation of telecom, government actions did stimulate competition to the benefit of the consumer. There is little doubt that the disciplining forces of competition were the prescription to bring us cheap cell phones with unlimited service and cheap personal computers. It has been a virtuous, continuously improving  cycle.  Along the way it also dealt severe blows to MaBell, AT&T and IBM. Neither are the companies they were before all this took place.

So, we have proven that it can be done. But, we also know that it is very difficult to effect global changes once a market passes from the freedoms of capitalism over to the politicians and the bureaucrats within the governmental sector. In the final analysis, Obamacare is a power battle royal  between the private sector and the public sector for control of the hearts and minds of the consumer and the monies that flow through the system. With health care reaching 18% of our GDP it is the greatest of epic battles.

Warfare always results in the introduction and advancement of new combat devices. Airplanes, tanks, big bombs and drones all came out of our conflicts with other nations. So it is with Obamacare: Exchanges, Cooperatives, and Accountable Care Organizations are being introduced as weapons of war. Let’s take the Exchanges as an example.

Not all states have embraced Exchanges which are inextricably tied to expansion of Medicaid and mandates and penalties for the uninsured. What is the specific market problem this new organization is supposed to solve? If you listen to their ads it is getting insurance companies to compete for your business? And, how will they do that? Currently, insurance company profits average less than 2% of premiums, comparable to big box retailing, obviously a competitive arena. The companies who are offering products on the Exchange are, by and large, the largest carriers who currently dominate 80% of the market. They are the oligarchs.  They compete using many marketing channels such as call centers, the internet, advertising and brokers. These are all capabilities that small, upstarts (think Microsoft and Apple back in 1976) lack. In reality the appearance of competition between oligarchs is illusion and like gasoline at the corner station, will increase in stair-step fashion over time. The oligarchs will carve up the market and government be co-opted along the way.

If we want to flatten the cost curve in health care, maybe we should shift our focus to hospitals and doctors. All of us know that their prices are outrageous and ever rising. But, when you inspect financial statements and cost reports of health providers you reach the same conclusion you reached when you looked at insurance company profitability. First, there is virtually no history of competitive shakeout amongst inefficient providers. Quality amongst providers is assumed without proof of such. Profits of hospitals are what you would expect of a non-profit and in the 3% to 5% range. That level is barely sufficient to replace plant and equipment over time. Sure, you could single out anesthesiologists or other specialists but even cutting their outrageous salaries 50% would have virtually no impact on health system costs. Ditto for high cost patients. The million dollar premie baby or liver transplant makes for good press but it is not a really a driver of total system costs.

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Studies have consistently shown that the prime driver of health care costs in American health care is the excessive intensity of services. If you are in Japan you can lounge around the hospital for a month and its like hanging out at the Super 8. Some countries actually provide more tests and even house calls without it raising the total cost of the system.

The American health care system is besieged with high administrative costs, high salaries, and a host of costs that could be wrung out under ideal circumstances. Economists call this “dead-weight-loss”. It comes from consumers being willing to exploit the system because their insurance pays the bill and their employer pays the premiums.

If you get inside the mind of every hospital or insurance worker in this country you will discover a deeply ingrained belief system. They believe they are doing the Lord’s work. They believe they work hard and have invested mightily in their education and experience. They believe that if there was a better way they would be doing it. And, they believe they are essential to keeping people healthy.

And, if you get inside the head of every patient or consumer you will discover a mirror-image belief system. They believe health care is a right and that health benefits are a pass-through on their wages. They believe they are being victimized by an excessively costly health system and that they are barred from purchasing health insurance because of its costs. They know there are things they could do to be healthier, but they also know few of us will die of natural causes in our sleep and if we don’t die from a brain tumor it will be COPD or some other malady. Like Secretary of State Hillary Clinton said, “What does it really matter?”

Health care is a system in crisis. It is a bubble-building. We all know it is an unsustainable system that is destined to change, whether policy makers take an enlightened approach or not. The Exchange(Connect for Colorado) is like the military launching a new aircraft carrier at a point when what we need are more Navy Seals.  As a whole, the Exchanges will spend billions but only affect the system at the margins. They will largely be focused on increasing enrollment into Medicaid and policing the uninsured. They will defend their existence by proclaiming health care costs would be even higher if the Exchanges had not been put in place.

I no longer believe the solution to the problems that beset health care will come from either corporations or government. They are rearranging the deck chairs on the Titanic. No, real change must come from the grass roots, the true source of all causative action in the first instance. Somehow, someway, you and I will find a way to abandon the old health care system. Like an abandoned and useless office building we will eventually go back and have a demolition squad place charges and implode it. Once we realize we are now in the 21st century we will seek a different path–a different way. Nonviolent revolutions actually play out over decades. Corporate executives and elected officials have life cycles of just a few years. So, there is a discontinuity in all this. We must be patient and allow time to work.