How Covert Rationing Precludes Efficiency

July 3rd, 2008 by DrRich

(Don’t forget to check out the Independence Day version of Medical Grand Rounds.)

Depending on which news source you read, physicians either are or are not about to get hit with a 10.6% pay cut from Medicare. (The actual outcome of the pay cut kerfuffle, some say, will depend on how many Republican Senators are buttonholed by how many American doctors at July 4 picnics.)

Many people have formed rather firm opinions on this matter. Physicians, for instance, mostly disapprove of the pay cuts. Others (most often non-Medicare-aged non-physicians with what is termed today a “progressive” outlook) feel strongly that doctors are among the most coddled and advantaged groups in the land, and that a modest sacrifice like this pay cut is the least they ought to be willing to offer for the public good. And of course, DrRich himself has an opinion on the matter, which will be well-known to most readers of this blog.

But on the other hand, most Americans haven’t really given it much thought. After all, most Americans are not doctors, they’re not on Medicare, they’re not politicians, and they’re not sick. Besides, some have suggested, the Bible-thumping, gun-toting masses are too disaffected with such concerns as the cost of gasoline, food prices, job security, health insurance, and the 15 (or 16 - one loses count) consecutive losing records of the Pittsburgh Pirates, to be able to concentrate on the truly lofty questions. Furthermore, it is commonly believed by well-educated (and especially progressive) persons that the great unwashed are just a bit too dim to understand the really important issues, and so must be reassured (and led along) with easy-to-digest, 10-second “executive summaries,” which can be repeated over and over and over, as needed. So, for instance, we can’t let a few greedy doctors and fat cat Republican Senators destabilize Medicare.

DrRich, on the other hand, who was himself held in captivity by two of these Bible-thumping, gun-toting hoi polloi for the first 18 years of his life before escaping to more enlightened environs, grudgingly came to realize they weren’t so dumb after all. Indeed, in comparison to many of the Harvard-educated Top Scientists and Top Doctors with whom DrRich (who did not go to Harvard) has had the honor of working, Mom, Dad and the guys in the steel mill (with whom DrRich also had the honor of working, back when America still had steel mills) displayed a very comparable degree of innate intelligence, and a far superior degree of general wisdom and common sense.

But not even Dad (the smartest man DrRich ever knew, uncommonly smart even for a steel worker) could have figured out how doctors are getting paid today, or what’s up with the projected physician pay cuts. (He would have easily brushed aside the assertion that doctors themselves ought to embrace the cuts out of a sense of altruism, or alternatively, guilt.)

The sad fact is that anyone who actually tries to look behind the headlines to figure out why physicians are (or are not) about to get hit with a 10.6% pay cut by Medicare will quickly be swept away by a maelstrom of tangled laws, policies, regulations, interpretations, guidelines, secret committee proceedings, quid pro quos, tit for tats, and “unintended consequences” of both varieties (i.e., the actually unintended ones and the secretly intended ones), that surpasseth all understanding.

Go ahead, try it yourself.

First, DrRich recommends you study the Happy Hospitalist’s latest exposition on how doctors actually get paid. It is the clearest explanation DrRich has ever seen. But even though Happy has taken very great pains to simplify the processes involved, in order to make them remotely understandable (and to such effect that he deserves a Pulitzer, or whatever the blogging equivalent may be), their complexity is breathtaking. Trying to explain how physicians get paid is akin to explaining how one achieves the mystic vision of the Great All; one can come close to the truth with the use of language, symbols, graphics, analogy, starvation, exposure to the elements and controlled breathing, but one must actually experience it to appreciate the essential wonder and transcendent awe.

Then, for a clear explanation of how changes to physicians pay are accomplished, DrRich insists you deconstruct Robert Laszewski’s article in Health Affairs. This is merely a description of Congressional procedure, not really that much more complicated than most things Congress does, and is necessarily much simpler to follow than the Byzantine convolutions tackled by the Happy Hospitalist. But still, it is fairly frightening that any aspect of America’s healthcare is decided in such a manner.

However, to really begin to get a general idea of the complexity of the whole system, one must synthesize these two articles - the process for regulating the system of physician reimbursement (Laszewski) and the system of reimbursement itself (Happy.) By “one,” DrRich is referring to you, the reader, as it is far beyond the poor abilities of DrRich to do so himself.

Don’t feel badly if you can’t synthesize this mess, either. For in truth, the physician reimbursement system is not meant to be understood by mortal man.

And that’s the point.

It turns out that this incomprehensible physician reimbursement system was set on its current path by one simple desire: to force doctors to covertly ration healthcare. As Laszewski explains in another article,

The idea was to set an “affordable” physician cost trend and when real costs exceeded that level Medicare would compensate for it by cutting future fees. The. . .message to doctors was simple: If you spend too much the Medicare program will compensate by cutting your fees in the future to balance things out. The objective was to give physicians a reason to control their costs.

Yes, that’s right. The original purpose behind this whole mess was to induce physicians to stop spending so much of Medicare’s money on patients’ medical care.

But when you set out to do such a thing, you can’t just come right out and say so, because that would be admitting to rationing. Instead, you’ve got to hide your real purpose in soothing language (generally it’s best to employ irony, and talk about improving efficiency and quality), and in bureaucratic processes that are so convoluted that the casual observer (or even the serious investigator) will not be able to discern their real intention.

Things get bad enough, as DrRich has described numerous times, when the bureaucratic entity running the covert rationing effort is a private insurance company.

But to really appreciate the potential for the opacity, complexity, and inefficiency demanded by covert rationing, one must study the government’s efforts in this arena. To the mere goal of profit which is the lifeblood of any company (too often fueled by excessive greed, one must admit), add the much stronger and additional aims of power and influence that fundamentally motivate our politicians, regulators, administrators, and others too numerous to mention who work for the government. Then stir in the absolute need to make convoluted deals, compromises and concessions with sundry interest groups and diverse colleagues and acquaintances, influences that may or may not have anything whatsoever to do with healthcare. Pretty soon you have the kind of “system” that is partially explained by a synthesis of the exertions of the Happy Hospitalist and Robert Laszewski.

The current physician reimbursement system is emblematic of what we might expect if we turned the entire healthcare system over to the government, and those who rail against such a single-payer system ought to use this example as an object lesson. For those who favor a single-payer system, however, such examples are simple to counter with illustrations of the egregious and heart-rending abuses perpetrated by private health insurers.

This is all to say that the real issue is not so much with the government or with the private insurers. Whatever travesties these entities perpetrate simply follows from the job we’ve all given them, which is, to ration our healthcare covertly. Covert rationing is rationing by whatever means you can get away with, and so utterly requires head fakes, misdirection, systematized inefficiencies, complexity, delusion (of self and others) and flat out lies. These things simply cannot be accomplished in a system characterized by transparency and smooth efficiency.

So if we’re going to continue rationing healthcare covertly, it really doesn’t matter all that much whether the rationing bureaucracy is controlled by the feds or private insurers. As the (other) Poet says, Fire or ice; either will suffice.

Posted in General Rationing Issues | 4 Comments »

Proof That Warren Buffet Reads This Blog

May 17th, 2008 by DrRich

Yesterday, Jacob Goldstein of the Wall Street Journal Health Blog reported that Warren Buffet greatly increased his stake in big health insurers during the first quarter of 2008. Specifically, he added 300,000 shares of WellPoint and 400,000 shares of UnitedHealth to the holdings of Berkshire Hathaway. Notably, the stock prices of both of these insurers have been tanking for months. So why would Mr. Buffet be buying them?

Mr. Buffet has a simple answer: “If we’re going to be buying things, we want to buy them on sale.”

To which the WSJ replies: “Of course, if it was simply a matter of increasing holdings that are falling, we’d all be billionaires. There must be more to it than that.”

Indeed, there is more to it than that, and careful readers of this blog (as Mr. Buffet must surely be) realize what that is.

The case against buying health insurance stock, it goes without saying, is plain for anyone to see. As DrRich has pointed out more than once, the mega-insurance companies have traditionally had three major pathways for increasing shareholder value:

1) Acquiring and privatizing community assets - generally non-profit hospitals and non-profit insurers - for a tiny fraction of their true value (through the collusion and/or ignorance of boards of trustees, state attorneys general, and state insurance commissioners), then letting the market assign the actual value of those formerly public assets to the company’s stock price.

2) Mergers and acquisitions of smaller insurers, i.e., through the consolidation of the industry.

3) Taking advantage of certain opportunities for “efficiency” that big insurance companies’ quasi-monopolies have bought them, such as cherrypicking patients, handcuffing doctors, retrospectively denying coverage to insured individuals, and the manifold other activities we can safely bundle under the rubric, “covert rationing.”

Obviously, all three of these pathways are closing off. There are few community-owned assets left to acquire, and consolidation has already left the U.S. with just a handful of important health insurance carriers. As for the “efficiencies,” opportunities here are drying up as well. For instance, this past December, shareholders of UnitedHealth Group (concerned because subscribers to the company’s insurance products had decreased by 315,000 in 2007) demanded a promise from company executives that the insurer would become “nicer” to its subscribers. Their own shareholders are wrecking their business model!

Insurance companies are left with the impossible task of trying to make a profit (and worse, to demonstrate continued growth) by actually managing the healthcare of sick people. This has never been accomplished in the modern era, and in all likelihood is not within the realm of possibility.

This explains why the stock prices of the big health insurers have been heading south for some time now. But what explains Warren Buffet’s enthusiasm for these failing businesses?

Two things. First, he recognizes the growing prospect of a Democratic victory this fall, in both houses of Congress and the Presidency. Second, he has clearly read and digested DrRich’s posting of six months ago that describes what will happen to the insurance industry with a Democratic victory.

Republican-style healthcare reform, even with a Republican such as John McCain, would bring the rapid and painful death of the health insurance industry. This, simply, is because the Republican strategy for healthcare reform relies on “competition and efficiency” in the private insurance market to save the healthcare system. Republicans, apparently, have not noticed that the insurance companies have been desperately trying their brand of “efficiency” for more than a decade now, and it’s been a disaster. The insurers have shot their efficiency wad; they’re entirely bereft of ideas; they haven’t a clue. Indeed, one can only imagine how the notion of a Republican victory, and the unbearable expectations such a victory will place upon them, must shake insurance executives to their core.

On the surface, Democrats will also put the insurance industry in an untenable position, as it is clearly their aim to drive insurers out of business (though they won’t actually tell us so). But Democrats actually have no performance expectations whatsoever for the insurance industry. Their only expectation is that the insurance companies should fail in due time. This prospect - as long as it’s preceded by one last, massive windfall - is quite acceptable to an insurance industry itself, which, realistically, can only be looking for a graceful exit strategy at this point.

As it happens, that one last windfall for the insurance industry is an integral part of the Democrat’s promise. For, before they drive private insurers into oblivion, the Democrats will present them with the gift of government-paid insurance premiums for many (Obama) or all (Clinton) of the 47 million uninsured Americans. These new premiums will amount to as much as $150 billion per annum. So, for at least a while, the Democrats will guarantee that health insurance profits will rise, executives bonuses will increase, and - more to the point - their stock prices will soar.

Which brings us back to what Warren Buffet is up to. DrRich is a great admirer of Mr. Buffet, and is sincerely happy to have been of assistance in furthering his understanding of the complex interplay between politics and the fiscal status of the big health insurers. So far, Mr. Buffet is playing the game perfectly.

DrRich does respectfully remind him, however, to carefully monitor this blog for the “sell” signal.

__________

Addendum. DrRich has just noticed that his deeply admired fellow blogger, DB, has challenged him this morning to a discussion of honor over the topic of malpractice reform, where DrRich has taken a very contrarian and highly unpopular position. Indeed, even DrRich hates himself for making such an argument. Nonetheless, DrRich is compelled, reluctantly, to answer in the affirmative (this being a matter of honor), and will post a reply within a day or two.

Posted in General Rationing Issues | 6 Comments »

One Hell of an Exit Strategy

November 13th, 2007 by DrRich

How else to explain the strange behavior of insurance companies?

Item 1: Bob Laszewski at Health Care Policy and Marketplace Renewal points us to a Los Angeles Times article describing how one health insurance company (Health Net Inc.) has systematized its practice of rescinding health insurance policies of patients who become sick. The article describes 51-year-old Patsy Bates, whose coverage was rescinded in the midst of her therapy for breast cancer, allegedly for failing to disclose her accurate weight and the possibility of a prior heart problem at the time she had applied for insurance. See the article for details, but the point is that the alleged (and disputed) failures to disclose have nothing whatever to do with her breast cancer. They amount to mere excuses to cancel her insurance (but not until she needed it - they were delighted to collect the premiums up to that point).

This story is entirely consistent with the tale told by Lee Einer, the notorious insurance company “hitman” featured in Michael Moore’s film, Sicko. Einer has subsequently expanded on his former activities in gaining rescission for insurance companies on the Honest Medicine blog:

(When you get sick). . .the insurer will go after you “like it’s a murder case.” They will contact every medical provider they believe treated you, and will request medical records. They will contact every pharmacy which you are believed to have used, and request their records. They will go into your health history as far back as five years before you applied for coverage. If they find anything — ANYTHING — which they determine that you did not fully disclose, and which could conceivably have been captured by the questions on your application, they have you.

Laszewski expresses the puzzlement that any thinking American would express in regard to this kind of activity:

It’s hard to imagine a worse headline for the health insurance industry just as we are heading into what will be a fundamental debate over who should run our health care system. It is even harder to imagine a dumber thing for the insurance industry to do than continue to argue and litigate the notion that an insurer can cancel–or rescind–an insurance policy for a misstatement of fact on an application for coverage no matter whether that statement was intentional or material.

Indeed, for the relatively small amounts of money it can save (relative to the massively expensive PR campaigns these companies run to convince us of how innately caring they are, and which they completely negate with such antics), it is hard to imagine why they take this kind of chance.

Item 2: Health insurance companies are big contributors to Hillary Clinton’s campaign. This might seem counterproductive considering the widespread notion that, if her reform plans are fully implemented, ultimately the role of private insurers in the healthcare industry will shrink or even disappear.

Why would insurance companies engage in high-profile, counterproductive activities, and contribute to political candidates who may want to put them out of business?

DrRich has a theory.

Insurance companies have recognized that the end-times are nigh.

In the early days, their chief mode of growth was in acquiring public assets (such as non-profit hospitals and HMOs) for a tiny fraction of their actual value, then after absorbing them, realizing the true value of these assets in their stock prices. The insurance industry has also nearly finished the exhilarating, immensely profitable consolidation phase of its business cycle, such that a very few large outfits now tower over the health insurance industry. So now, for the first time in their history, health insurance companies are going to have to try to make a profit - or even more difficult, to demonstrate continued growth - by actually managing the healthcare of their subscribers.

Faced with this impossible, panic-inducing task, the risk of running illegal, high-profile rescission operations begins to seem worth it. The risk of getting caught is now measured quarter to quarter - not long term. “Our risk of getting caught in the next 3 months seems relatively small,” they must be telling themselves. “As for the long-term risk of getting caught, who cares?”

Ditto with the contributions they are making to Democrats, especially the Democrats who seem most likely to win, and to push their healthcare reform plans. Republicans, who invariably promote the notion of private-insurance-based solutions, must seem really scary to the insurers. If Republicans win, there will follow completely untenable expectations on the part of insurance companies. They’re the ones who will have to figure out how to control costs!

Democrats will also put the industry in an untenable position, of course, and will at least arguably aim to drive them out of business (though without actually telling us so). But Democrats actually have no expectations for the insurance industry, other than that they fail in due time. This, DrRich submits, is the insurance industy’s plan, too.

But before they drive them into oblivion, the Democrats promise to create for them one last, massive windfall - namely, the government-paid insurance premiums for many of the 47 million uninsured Americans. (Joseph Paduda at Managed Care Matters thoughtfully estimates for us that windfall as $150 billion per annum - not exactly chicken feed.)

So, for at least a while, under Hillary’s plan the insurance industry profits will rise, stock prices will rise, and executive bonuses will rise. This is as good as it’s going to get.

In 1994 the insurance industry (then early supporters as well) took a look at Hillary’s massive plan for healthcare reform, and said, “My God! We’ll be out of business in 5 years!” And they became intractable enemies of her reform plan.

Today, they look at their situation and say, “My God! We’ll be out of business in 5 years!” And they see in Hillary a means to engineer those 5 years into one hell of an exit strategy.

Posted in General Rationing Issues | No Comments »

Another Reason Patients Should Review Their Health Records

August 30th, 2007 by DrRich

In the Wall Street Journal today, Victoria E. Knight writes that smart patients will always review their medical records for accuracy.

“Not only can incorrect medical information lead to ineffective or harmful treatment — the Institute of Medicine estimates that as many as 98,000 patients die each year in hospitals from medical errors — it can also affect your insurability.”

Your health records, she points out, are analogous to your credit scores.

“Savvy consumers know to check their credit score before applying for a loan. What is less well known is that consumers can improve their chances of getting insured — and of paying lower premiums — by checking that medical information held by doctors, hospitals and pharmacies is accurate.”

There are a lot of reasons errors can appear in your file.

“Mistakes can arise from a mistyped diagnosis code or transcription error to an inaccurate diagnosis or a diagnosis that is out-of-date, say because a patient has gotten his or her cholesterol under control. And, if you have a common name, other peoples’ records can end up in your file. . .”

This is all very true, and these are very good reasons you should check your medical records. But in the spirit of this blog, DrRich would like to point out another reason.

You should check to see if your doctor is using your medical records for CYA purposes. This is especially true if you are a patient with a potentially expensive medical problem which, if your doctor followed all the guidelines to the letter, could result in substantial “medical loss” for the third-party payer (i.e., the doctor’s boss).

An example (which, in DrRich’s own clinical experience, is distressingly common): Say you’re a recent heart attack survivor. You’re pretty conscientious about taking all the medicines your doctor has prescribed to reduce your risk of another heart attack, and you’ve even changed your diet and started a walking program. Truth be told, you’re actually feeling better than you have in years. But then one day while putting the dishes away you have some kind of “spell.” One moment you’re opening a cabinet, feeling absolutely fine; the next, you find yourself laying on the floor with a bruised chin. Your wife, having heard a crash, is just now rushing in from the next room - so you know you were “out” only for a couple of seconds.

So, you go to see your doctor. You tell him what happened. He asks a few questions, nods, looks serious for a moment, then smiles and says, reassuringly, “Well, <Your Name>, I don’t think this is really anything to worry about. Sounds like you were just a little dehydrated. Happens all the time after a heart attack, what with all the pills and all. Really, nothing to worry about.”

Happy that the doctor thinks it’s nothing, you leave the office relieved. But might be surprised to read the note your doctor has put in your medical record:

“<Your Name> in for checkup. Doing well. Complained of an episode of significant lightheadedness two nights ago. Lost balance and fell, with minor trauma. Says thinks he was dehydrated from exercise program. Has felt well since. Nothing to suggest arrhythmia.”

This is a classic CYA note. Sudden, unexpected loss of consciousness after a heart attack is OFTEN due to potentially life threatening cardiac arrhythmias, and should ALWAYS be treated as a potential harbinger of impending sudden death. Unfortunately, treating it as a serious problem is usually expensive, requiring at least a hospitalization, and (if the evaluation is positive) the insertion of an implantable defibrillator. Such an outcome will not improve the doctor’s cost profile with his master, the third-party payer.

Your doctor should know that you are potentially at very high risk for sudden death. If he doesn’t know that, he’s stupid, and stupid is bad when it is seen in doctors. But stupid isn’t as bad as dissembling. And dissembling is what his note indicates.

Your doctor’s note does not accurately reflect what happened to you, or what you actually told him about the episode. Instead, it alters the facts just enough to make it seem reasonable for him to skip any further medical evaluation. If you have no further problems, no unnecessary dollars will have been spent and everybody’s happy. If you die, that’s terrible and all, but nobody reading the records will be able to fault him for doing what he did (or rather, for not doing what he didn’t). So it’s a win-win.

This is another reason for routinely reviewing your health records. In an era of covert rationing, you can protect yourself by not exposing your doctors to the ever-present temptation to “spin” the records. (Some doctors are regular DJs.) If your doctor knows you are going to read whatever he puts down, he’s a lot less likely to color the story to your disadvantage.

Indeed, for this very reason, DrRich would be especially suspicious of doctors who refuse to give you copies of your own health records.

Posted in General Rationing Issues | 3 Comments »