right about that…

Posted on Thursday 15 August 2013

After the financial collapse in 2008, I spent some time learning a bit about something that I’d never had time to look into [one of the great pleasures of retirement is that you can think about whatever you want to think about, or think about nothing] – economics. The way our economy works, we require inflation – something measured in a variety of ways. The GDP [Gross Domestic Product] is the total amount generated by the economy in a given period, and the CPI [Consumer Price Index] is the cost of a fixed amount of goods at a point in time [AKA cost of living]. I was trying to look at their relationship [apropos of I-don’t-recall-what], but I happened on to something interesting in the process. Here’s what I wrote in those former times when I was briefly a hobby economist [2010]:
So I was piddling around on the government’s endless statistical sites messing with something that’s just been nagging at me. They use the gdp [gross domestic product] to correct some things and the cpi-u [consumer price index – urban] to correct others. As I’ve been messing with matters economic, I’ve wondered about their relationship, so I plotted them. Well they’re not parallel but after musing and surfing on this weighty question, I decided that it’s in the range of changing lead to gold and put it aside. But in the process, I noticed something that did seem to matter. There was a cpi-u for medical costs. Like the regular cpi-u, it was normalized to 1984 = 100, so I wondered how the medical cost of living compared to the general cost of living.

Yikes! To my way of thinking, that’s pretty outrageous. Those lines are diverging at a rate of a bit over 6%/year. I threw in a comparable US life expectancy curve for the curious among you [though I’m not sure that the small increases in longevity are a function of the higher costs of medical care]. To me, this escalation of medical costs at a rate far faster than inflation underscores the importance of…
So I nosed around further and found this graph from a Congressional Investigation. Notice that it has been corrected for inflation already, being expressed as the % of the GDP:

from: Growth in Health Care Costs, Committee on the Budget United States Senate

I recall when I first saw this graph, IN MY MIND I stuck my own history on the x-axis [years]. In 1965, I was in medical school. In 1975, I was in my second residency [psychiatry]. In 1985, I was leaving academic medicine for practice in the face of the changes in psychiatry. In 2005, I was recently retired. I tried to think back to see if I was aware of this steady escalation in costs. I wasn’t. What I have been aware of over those years is that it has been harder and harder to practice good medicine during my career-time with more and more regulations and more and more paper – stacks of paper – everywhere I turn.

The way it has felt is that there have been increasing controls placed on doctors in the service of minimizing costs, many of which have been oppressive and interfering. Shortly after entering practice, I stopped seeing hospital patients because all the staff talked about was insurance and I felt pressed to retain or release patients based on their coverage. Similarly, I avoided insurance directed situations [managed care] for the same reason. So maybe my obliviousness to what that graph says was a self-imposed exile of sorts. But I’m glad I missed it.

So there it is for us to ponder. One could characterize my medical lifetime as an era when medical care has increasingly been directed by a variety of controlling institutions which claim as their raison d’etre a devotion to controlling healthcare costs. And yet that graph just keeps on rising. Medication costs just keep on going up. Emergency room visits cost thousands. All that money is going somewhere, and it’s not to pay medical personnel salaries. A lot of it is administrative and a lot of it goes to executives and stockholders invested in various aspects of the medical industrial complex. And with it, there has been corruption in medicine that I couldn’t have imagined. Paradoxically, I think most physicians and patients would say that the quality of care has waned in a graph that is the inverse of the one under discussion. I would sure say that, speaking from both sides of that fence.

So I gave up my short-lived economics hobby and took up a focus on something I understand better – the corruption of psychiatry primarily by the alliance between academic psychiatry and the pharmaceutical industry. It’s closer to my knowledge base and it’s something we ought to be able to do something about. I hope I’m right about that…
    Steve Lucas
    August 16, 2013 | 5:30 AM

    A number of us have posted comments over the years for doctors to return to the old style of medicine where payment was made by the patient. Those doctors that have chosen this practice type have found they often can cut their fees in half due to the elimination of paperwork.

    This allows many patients without insurance to actually have lower out of pocket medical expenses. This does not solve the problem of a major illness or accident, but does make it affordable for people to see a doctor on a regular basis.

    What I find remarkable is the number of doctors who have been shown the numbers, met with doctors in this style of practice, but still insists they need to treat the insured patient.

    Add in hospital owned practices, EMR’s and all a doctor does is check a box. Many hospitals have declared that their owned practices are nothing more than retail outlets and they program their EMR’s to maximize income.

    The math is stunning when it comes to psychiatry. A hospital can generate over a million dollars a year on one psychiatrist seeing 40 patients per day.

    Steve Lucas

    August 16, 2013 | 9:09 AM

    The insurances companies make it seem like they’re trying to control costs, but what you need to realize is that they are actually just trying to control profits, by controlling what they pay out. Medicare is trying to control what they pay, also, but they are not trying to make a profit. So, Medicare are the only ones trying to “control costs” (or drive down the cost of health care) in a fundamental sense. If you look at the Big Picture, the insurance companies play no useful role in U.S. medicine; they’re strictly a middleman. They profit whether costs go up or not. Yet they provide no health care, no “service,” hence are a net drag on the system; yet another cost of doing business. Their main source of business are employers who buy policies for employees. Employees pay only a co-pay and thus are shielded from the true cost of what they’re getting. Many an ex-employee (having been let go) has been shocked to learn the true cost of health insurance when converting to COBRA. They’re suddenly paying $1000 or $1500/mo for what they used to get for a participation fee of maybe $200 to $300 a month. To that, add 20% copays and a $2000 yearly deductible. Suddenly they’re paying almost $2000 a month for the privilege of getting a discount on Prozac. The economics don’t make sense. Makes more sense to go naked and pay everything out-of-pocket. (Of course, you can’t go naked under Obamacare without paying a penalty.)

    In any case, with medical costs at around 20% of GDP and an unsustainable trend in place, the pressure will now be on Obamacare to prove that it warrants being called the Affordable Health Care Act. So far, there is no sign of health care becoming more affordable. It’s still business as usual — and always will be, as long as insurance companies are allowed to sit in the middle. Any true solution, IMHO, will necessarily mean taking private insurance out of the picture, but that’s never going to happen in this country under current lobbying rules.

    August 16, 2013 | 4:48 PM

    I got the bill today for my daughter who went to a urgent care place to have what was very unpleasant sore throat evaluated. She was seen for at best 5 minutes, and the bill was for $250. Really, I am not exaggerating one bit, $250 for a doctor to do a cursory ENT exam, a strept swab, and then tell her she had a viral pharyngitis and sent her on her way. And I am on the hook for $125 of it.

    You experience these things and wonder why people are growing more and more distrustful of health care in general. Frankly, I am at a point in my life where my colleagues are greedy bastards and idiots and clueless morons.

    Money corrupts people until proven otherwise these days. And this blind acceptance of the business model for health care, well, all of you who try to rationalize and justify it, sorry Dr Mickey, but you can all go to hell.

    We are doomed, and those who just stand back and stay silent, you deserve to be grabbed and dragged into the flames as fast as those who are actively complicit in the corrupting of health care.

    What a fun summer this has been!

    August 16, 2013 | 10:51 PM

    A good essay here by Dr. Andy Coates, president of Physicians for a National Health Program (PNHP), raises the not-too-distant specter of doctors becoming employees of private-equity funds:


    It just shows you how any decent idea can be twisted when harnessed to private profit interests. In this case the concept of Accountable Care Organizations which sounded kind of good on paper — docs would practice in groups, many would be salaried, and when chronically ill patients were seeing 3 or 4 specialists these worthies would actually talk to each other. But from talking to doctors on the ground it’s now clear: ACO’s are just a stalking horse for corporate consolidation on a massive scale.

    Joining PNHP may not be such a bad idea! Can’t guarantee anyone you will win this year, or next. But what worthwhile battle was ever that easy?

    Steve Lucas
    August 17, 2013 | 7:34 AM
    August 17, 2013 | 12:43 PM

    Rentier capitalists have been eating increasingly large portions of our lunch and are attempting to suck us dry, even if they kill the goose in the process, because such indifferent money grubbing greed among the already wealthy is a form of mental illness that is treated as a virtue or a perfectly logical thing to do in the religion of capitalism. Apparently these people can’t help themselves, and so need to be regulated.

    Growing up, my working poor family could get a home visit from a doctor and
    pay for it themselves. Medicine should not be a profit making business.

    August 17, 2013 | 12:55 PM

    Recently, NPR covered a series of articles written by a journalist analyzing medical costs in the US; a remarkable thing was how much cheaper it can be to have major medical procedures done in foreign countries. The example I heard was for a knee or hip replacement done (I think) in Belgium. The difference in cost was staggering.

    August 17, 2013 | 3:12 PM

    “Federal regulations and laws have not consistently targeted institutional conflicts of interest. The U.S. Public Health Service (PHS) regulations on conflict of interest, which were issued in 1995 and which are included in Appendix B, cover only individual conflicts of interest and relationships with industry. Institutional conflicts of interest were deliberately not addressed”

    Its sort like Alice Dregor mentioned-the game is geared toward avoidence of institutional liability.

    August 18, 2013 | 5:44 PM

    I hope so.

    Hedgefund investors have to invest very large amounts of money, billions. They buy all available stock in a large number of companies that are deemded to be the most profitable. The pharamceutical companies have long since lost majority ownership of their own companies, as the founders died off and the stock was slowly sold off from charity foundations and whereever else they continued to be held on to. These companies are deemed to be good investments and have fairly large returns.

    The result is a darwinian situation where the investors put intense pressure on the pharmaceutical company to make the greatest profits possible. Anywone who who isn’t willing to do everything possible is fired by the shareholders and replaced witha CEO or other executive who is more willing to.

    This situation prevents pharmaceutical companies from making long term investments, because they can’t show an immediate return for their shareholders (who aren’t planning on holding onto the stock for years and years). So short term profits is all they can do. Thi

    The average yearly pay for a hedgefund manager in 2009 was close to a billion dollars, you can imagine how much currency they move.

    Developing new drugs is pretty expensive

    Pharma is using out of date “applied research” (not actually research, but develpment) to produce drugs. They can’t do ‘pure research’ to develep new technologies to exploit as they can’t show an immediate return. What they are doing instead is very expensive and they’re under extreme pressure to keep profits as high as possible (or they lose their job and get replaced by the sharholders). As a result, their drugs only treat sysmptoms as they cant do any ‘pure research’ to find exactly what they need to produce to cure an illness.

    Pharmaceutical companies first started in a scientific and heroic quest for finding cures for illness and disease from isolating natrurally occuring drugs in nature (like penicillin and other antibiotics). It’s hard to imagine they ended up the way they eventually did today after their orgional owners died, after exhausting everything they could easily find in nature.

    I’m certain the newly emerging biotech companies (and the gene therapy drugs they produce), if they can avoid being purchased by pharmaceutical companies, will eventually correct the situation. Until then, fighting for data transparency will put more pressure on pharma companies driving them to more illegal marketing and other fraud to increase profits. Which will in turn further undermine their public and federal support.

    At least i hope so.

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