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Is Healthcare a ‘Tapeworm’ in the American Economy?

May 26, 2021 By

Tapeworms cause health problems in our bodies. They can rob us of important nutrients, block our intestines, and take up space in organs so they don’t function normally. Tapeworms keep our bodies from operating efficiently.

Warren Buffett described the American healthcare system as a “tapeworm in the American economy.” Given the latest failure of Haven, a joint health care venture with JP Morgan, Amazon and Buffett’s Berkshire Hathaway – the tapeworm appears to be live and well.

Buffett’s comment is brutally honest.

The tapeworm analogy is demonstrated in a new article from the New York Times, “Buoyed by Federal Covid Aid, Big Hospital Chains Buy Up Competitors.” This article paints a picture that some larger hospital chains are using Covid bailout money from the Provider Relief Fund and purchasing other hospitals and physician groups to grow their footprint in markets. Without much federal scrutiny, this bailout allows hospital chains to grow larger and dictate higher prices from private insurers, employers and individuals.

Multiplier Effect

I have to hand it to the American Hospital Association (AHA) and their state-based hospital members, including the Iowa Hospital Association (IHA). When payers demand to hold hospitals accountable to improve their outcomes at lower associated costs, hospitals revert to a tried-and-true formula to combat public scrutiny: Remind the public about how hospitals provide economic contributions to our communities and states.

As an example, in 2017, the AHA stated the “Health care sector has traditionally been an economic mainstay, providing stability and job growth in communities. Health care added more than 35,000 jobs per month in 2016.” The AHA mentions that hospitals employ more than 5.7 million workers, are one of the top sources of private-sector jobs, and purchase nearly $852 billion in goods and services from other businesses. More recently, Rick Pollack, President and CEO of the AHA, had a paid AHA advertisement in the Wall Street Journal titled, “Value of Health Systems Shown Clearly During the Pandemic.”

This information is pumped out every few years for each state to tout, including Iowa. The AHA provides a state-by-state economic impact grid that illustrates the value hospitals provide to their respective local economies. The IHA readily uses this information to display on their website. Of course, we are constantly reminded of the ‘multiplying effect’ that supports “thousands of additional jobs.” We are told that “more than 143,000 jobs are tied to Iowa hospitals, creating an overall impact that is worth nearly $8.6 billion to Iowa’s economy.” It is true that, along with public schools, hospitals are the largest employers within many of our communities.

Not to be outdone, the lobbying organization for insurance companies – America’s Health Insurance Plans (AHIP) – employs a similar approach to tout how private insurance is an economic boon for local economies. In early May, AHIP posted “By the Numbers: How Health Insurance Providers Contribute to State Economies and Peace of Mind.” The 2021 AHIP biennial report discusses how the economies of each state are impacted by health plans, specifically on the number of jobs generated and tax revenues paid to support the local economy.

Based on AHIP data, Iowa employs over 4,000 health plan employees and almost 13,000 insurance-related employees. Average annual wages for health plan employees are over $86,000 while insurance-related employees earn about $63,000 annually. By most standards, these wages are good for the Iowa economy, especially when using the multiplier effect.

Zero-Sum Game

Given the narratives being sold to us, perhaps we should supersize the entire U.S. economy by continuing to expand healthcare and health plans beyond their current size. But that simply will not work. There are economic tradeoffs that come into play.

It brings to mind poker and gambling, two popular examples of the zero-sum game. In poker, the sum of the amounts won by some players equals the combined losses of other players. In a zero-sum game, there is one winner and one loser.

“Currently, the U.S. healthcare and health insurance systems are really a patchwork of different programs, which create gaps and expensive inefficiencies”, according to economic health researcher, Katherine Baicker.

But who pays for these inefficiencies? ALL OF US.

What we pay to healthcare providers and insurers will indeed fund the job growth of doctors, nurses, medical technicians, health insurance personnel and professionals. To be sure, we need these services. But, as a consequence, we don’t have this money to spend (or save) on other economic necessities or preferences. This becomes an economic tradeoff that adversely impacts other parts of our economy.

Inefficient and opaque spending on healthcare creates another problem: a redistribution of our hard-earned money that is often being used to our own detriment – for lobbying efforts to ensure the status quo remains unchanged. Opaqueness breeds blind spending by those who pay. This is a vicious cycle that perpetuates the zero-sum game.

Law of Diminishing Marginal Returns & Opportunity Costs

Another economic term, Law of Diminishing Marginal Returns, is typically used when analyzing the production of a particular commodity. For example, when a factory employs workers to manufacture its products, at some point during production, the company will operate at an optimal level (with all other factors remaining constant). Over time, however, adding additional workers will result in less efficient operations.

At what point has healthcare exceeded the optimal revenue from its payers? When will the best possible returns obtained by healthcare diminish with every dollar invested? Are we there yet? The latest Kaiser Health News poll that found large employers are ready for more government involvement may suggest this point has been reached.

Put yet another way, what are the opportunity costs with each dollar spent on healthcare? Opportunity cost is the loss of the benefit that could have been enjoyed if the best alternative choice was chosen instead. Continuing to pay higher healthcare costs without receiving the commensurate benefits represents a lost opportunity of investing that money elsewhere – such as investing in updated infrastructures, efficient factory equipment or paying higher wages. Redirecting financial investments into other worthwhile opportunities would provide a multiplier effect for local economies.

Continuing to accept overpriced care is not the solution to sustain economic growth. In fact, overpriced and inefficient care is holding the economy back from becoming MORE robust. This is precisely Buffett’s point.

Summary

Contrary to the argument of being an ‘economic stimulus’ to local economies, the REAL purpose of healthcare is to enhance the quality of life by enhancing our health. It is true that creating reasonable profits to remain financially viable is necessary to stay in business to serve others. However, healthcare must focus on creating social health and well-being to fulfill its fundamental promise to society.

Marketing platforms being used by healthcare-related associations on how hospitals and health plans will benefit our communities is, at best, disingenuous. We live in a world of unfulfilled opportunities. Until these opportunities are given the chance to succeed, we will never know just how robust our economy can become.

How long do we allow the tapeworm to control our economic well-being?

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Filed Under: David P. Lind, Lindex Tagged With: , , , , , , , ,

Healthcare Price Transparency? Its Time Has Finally Come

December 2, 2019 By

NOTE: Given the latest hospital price transparency developments, this blog enhances the one I published last March,  A Potential Game Changer – Making ‘Secretly-Negotiated’ Medical Prices Public.

The insurance card that you carry represents lost wages and financial bonuses that have been unnecessarily diverted to pay exorbitant healthcare fees to others.

From our 2019 research, the average annual Iowa employer premiums were $7,017 for single and $19,335 for family. Since 1999, these premiums have increased by 240 percent and 251 percent, respectively. Additionally, largely under the push for ‘healthcare consumerism,’ Iowa employees have been asked to pay much higher deductibles – now at $2,200 for single and $4,000 for family coverages.

The escalating prices we pay for healthcare services operate in a black box. Whether for hospitals, doctors, pharmacy or other healthcare providers, we have no idea what the negotiated prices actually are between insurers and health providers, at least until sometime AFTER the services have been rendered. Such opaqueness is intentional. To paraphrase noted economist Uwe Reinhardt, where there’s mysteries in pricing, there’s larger-than-normal margin to be had. In healthcare, obscene money is made when it is allowed to operate in a dark room of denial and obfuscation.

On November 15, the Centers for Medicare and Medicaid Services (CMS) issued a final rule that requires hospitals to disclose the rates they negotiate with insurers. This hospital price transparency rule, set to begin in 2021, requires hospitals to disclose the standard charges for all items and services, including supplies, facility fees and professional charges for employed physicians and other practitioners.

Additionally, the final rule requires hospitals to post payer-specific negotiated rates online in a searchable and consumer-friendly manner for 300 of the most popular services shopped by patients.

Under a separate CMS proposal, health insurers will be required to disclose on a public website their negotiated rates for in-network providers and allowed amounts paid for out-of-network providers. Health insurers will need to offer a transparency tool to provide covered members with personalized out-of-pocket cost information to all covered services in advance. The language for this proposed rule can be found here.

Negotiated prices are largely bound by confidentiality agreements between healthcare providers and insurance companies, and are so closely guarded that even mega-sized employers are not allowed to penetrate this veil of secrecy.

It is revealing that the American Hospital Association (AHA) and the Federation of American Hospitals are exploring legal options to argue that transparent pricing will constrain private contract negotiations.

Two influential insurance organizations have revealed their opposition to price transparency – America’s Health Insurance Plans and the Blue Cross and Blue Shield Association. A spokesperson from the BC/BS Association indicated these rules “will not help consumers better understand what health services will cost them and may not advance the broader goal of lowering healthcare costs.” The argument made is that price transparency can actually increase prices because clinicians and medical facilities will bid up prices, rather than lower rates.

Despite these self-serving arguments, the status quo only works for hospitals and insurers, but not for those who actually pay for healthcare. This must change.

By itself, real prices made public will not solve the inherent problems that persist throughout the healthcare system, but price transparency is a good first-step to have. Clearly, it is not the sole remedy to a ‘system’ that requires massive incremental fixes.

Admittedly, the push for healthcare ‘consumerism’ has been relatively slow. However, it is likely that consumerism will find new legs due to third-party entrepreneurs and technology companies who will find disruptive ways to make pricing a relevant decision-making tool for many patients. All purchasers want the best value in the healthcare being purchased.

Regardless of political party affiliation, price transparency in healthcare should be widely accepted by Iowans and all Americans.

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Filed Under: David P. Lind, Lindex Tagged With: , , , , ,

‘Medicare For All’ Can Be a Common Enemy to Unite ‘Foes’

May 8, 2019 By

It is both comical and infuriating to watch how key healthcare stakeholders react to two different, but highly inter-related subjects: 1) Medicare For All, and 2) Who is at fault for outrageous medical prices. Stakeholders in healthcare include hospital systems, provider groups, health insurance companies and pharmaceutical and device manufacturers. Employers are another major stakeholder, but much too often, they are largely excluded when it comes to contractual relationships between many of the aforementioned players.

When many of these stakeholders are asked who is at fault for charging high prices for medical services, each will conveniently step into a circle and point fingers at one another, as if they are participating in a circular firing squad. It seems that someone else is always at fault, but never the accused.

However, when asked about the growing ‘Medicare For All‘ proposals, commonly believed to eliminate private insurance and ‘socialize medicine,’ many of these same stakeholders will quickly hold hands in support of something centrally sacred to their collective well-being, as if they are military comrades in the HBO mini-series, “Band of Brothers.” These stakeholders’ words and actions are quite transparent about protecting their own self-seeking interests.

Below are just a few examples of this love-hate relationship between various healthcare stakeholders.

Medicare For All

Former Secretary of State, Condoleezza Rice, was quoted as saying, “We need a common enemy to unite us.”  For stakeholders who are frequently at odds with each other, such as medical providers are with insurance companies when it comes to contractual reimbursement arrangements, the relationships can be confrontational, if not outright brutal. However, for various reasons, both typically view Medicare For All as a major threat to their profitable well-being, if not survival. Given what is at stake with a ‘Single-Payer’ system that presumably would be controlled by federal bureaucrats, providers and insurers have found this ‘common enemy’ to mask their mutual differences with each other.

On April 16, UnitedHealth Group CEO David Wichmann warned Democrats that Medicare For All would destabilize the nation’s healthcare system. As mentioned in The Hill, Medicare For All would be a “wholesale disruption of American healthcare [that] would surely jeopardize the relationship people have with their doctors, destabilize the nation’s health system, and limit the ability of clinicians to practice medicine at their best.”

Insurance companies are greatly threatened by the many proposals initiated by progressive Democrats to expand Medicare to the entire U.S. population, most likely greatly reducing the role of private insurers. It must be noted, however, even with any given Medicare For All program implemented, private insurers would most likely be chosen as subcontractors to administer the program, but the profit motive would be greatly reduced from today’s standards.

Not to be outdone, a major counterpart to private insurers, the American Hospital Association (AHA), have similar views to Wichmann’s. AHA President Rick Pollack wrote in February that Medicare For All proposals “could do more harm than good to patient care.” Additionally, this one-size-fits-all approach could disrupt coverage of 180 million Americans who are currently covered by employer plans, and that physicians and other providers “may limit the number of Medicare or Medicaid patients they see because of chronic government underpayment.”

When lobbyists from both stakeholders were recently on stage together in Nashville addressing the Medicare For All topic, such as Matt Eyles (CEO of America’s Health Insurance Plans (AHIP)) and Chip Kahn (CEO of the Federation for American Hospitals), one could almost detect John Lennon’s epic song, “Give Peace A Chance” in the background. Kahn discussed a new organization that he formed, Partnership for America’s Health Care Future, and its purpose of ‘counter-messaging’ against the Medicare For All movement. Eyles acknowledged that AHIP was one of the first groups to become part of this new organization.

Healthcare Prices – Who is at Fault?

The camaraderie found in Medicare For All quickly vanishes when stakeholders are simply asked why healthcare prices are so high. This healthcare ‘hot potato’ can quickly determine just how deep-seated relationships are (or not) between major industry players. The April 15 cover of Modern Healthcare appropriately illustrates fingers pointing at each other, deflecting the price question and placing the blame elsewhere. Additionally, when leaders from Pharmacy Benefit Managers and the Pharmaceutical Research and Manufacturers of America (PhRMA) have appeared in front of the Senate Finance Committee during the past few months to justify their pricing methods, both pointed fingers at one another (insurers also), making sure that their respective organizations and industry were not to blame.

Deflecting responsibility and other self-preservation behaviors will only add to the desire to seek alternative solutions that can reform a grossly underperforming and bloated healthcare system. Stakeholder organizations and industries must decide whether they want to be part of the solution – or, at their own peril – continue to pursue their ‘business-as-usual’ behavior that benefits no one – but themselves.

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Filed Under: David P. Lind Tagged With: , , , , , , ,