Saturday, April 4, 2015


Several years ago, my colleague sitting on the far side of the medical lounge piped in “Those were good years!” He was wearing his green surgical smocks with the booties still covering his shoes. He had just finished removing a diseased gall bladder. He looked tired. “In the 80s and 90s we did what we had to do and got paid for the hard work and we were respected. Now it is a different game.” He fell silent on the weight of those words. His shoulders sagged and his head rested against his clasped hands in the back of his neck. “They were great, weren't they?” another colleague piped in.
Indeed those were good times to be in the service of humanity, although the pump had been primed a few decades prior to blow up the “healthcare bubble.”

The Dawn of Public Money:
In 1965 with a signature of the President, The United States offered elderly people on fixed incomes and others with disabilities a safety net of healthcare protection. President Johnson remarked, "Under this plan that the committee is recommending, every American over 65 years of age will guarantee himself comprehensive hospital and medical protection for the rest of his life." It came to be known as Medicare. Medicaid, the other sister agency was specifically for the impoverished and disabled individuals with limited means. Both services were under the umbrella of CMS a division of U.S. HHS Agency. The politicians to the great delight of the voters, created this well-spring of options and the doctors were encouraged to accept assignments for reimbursements against services provided. The patients (the elderly and indigent voters) were saved from filing the claims. The money exchange occurred between massive bureaucracies and both the physician and the patient became oblivious to the costs. As the tax payer funded dollars grew in size and scale, the bounty could be had for anyone who could provide a “recognized” service. The doctors worked 12-14 hours a day as the demand for care grew. There was no “skin in the game,” and no “horse in the race,” neither at the patient level since they only had to pay co-pay, which was a meager amount or the doctor who could ask for diagnostic tests to satisfy any and all potential differentials bothering his or her mind. Meanwhile some entrepreneurial doctors and businessmen and women created businesses that catered to the needs of the patients by providing high cost diagnostic procedures. Some created multi-specialty group practices with scores of physicians the likes of which not seen before. The names on the letter-head looked like a law firm from New York. As Medicare turns 50 years old, the creaks and wrinkles are evident. The system his bloated with administrative costs and is reaching into 1/5th of the GDP.

Pharma Bonanza:
Seeing the bonanza of tax-payer money, the pharmaceutical companies started advertising heavily on television, radio and rag magazines in a direct-to patient campaign, in order to influence the patients. The cost of drugs rose exponentially, even medicine like penicillin which were to be had for 5-cents-a-pill suddenly and inexplicably cost $1.50-a-pill. The newer biotechnology monoclonal antibody drugs were a different breed. These immunological modifiers cost close to $100,000 per patient per year and the costs were justified by their complexity in creation, “due to the stringent and arduous FDA requirements needed to complete studies to prove the medicine’s worth.” The first of these drugs in cancer care to hit the market was Dendreon’s Provenge used in Prostate Cancer.

This drug was a first in class that was produced using the patient’s own Immune Cells against the cancer, an ingenious idea to say the least. The drug provided a 4-month increment in survival for a $93,000 cost. There was a muted hue and cry from the public and the physicians. The Pharmaceutical companies started advertisement campaigns: “Have yourself tested,” was the banner of the day. Urologists tested every man over 50 with a PSA test and study after study called for early diagnosis and potential for cure against prostate cancer. Breast surgeons clamored for mammograms, Gynecologists urged PAP smears and pelvic examinations as the rigor of the day required. Medicine was in a full swing of ‘capture it early and live another day,’ mode.

Hospital Windfall and Control:
Hospitals too got in on the act. Some used creative coding methods to receive windfall from the tax-payer dollars. Everyone got wealthy through the “healthism” culture. More and more people lined up in doctor offices for “this” or “that.” The doctor complied because (s)he had to address each issue. Seeing the physician income reported in various magazines, the lawyers started feeding on the information and the vicious cycle of more testing to CYA (Cover Your Ass) became the agency of the day. It served two purposes in the minds of the physicians; 1. It generated income and 2. It potentially prevented lawsuits. Pete Stark a Congressman from California wrote a law into effect discouraging any physician from enriching him or herself by creating diagnostic or therapeutic businesses in which he was not a member/owner. The Stark Law had three iterations and the venerable Stark Law III is still in effect. The states also discouraged individual ownership of outpatient facilities as the hospital lobby saw a decline in easy money flow from low-complexity procedures being vented out to those outpatient centers at 1/10th the cost.

The hospitals however were successful in curbing these business ventures of the physician entrepreneurs through the force of their lobby. Henceforth all outpatient facilities had to have 51% ownership by a neighboring hospital to obtain a “Certificate of Need.” Studies started appearing in journals that outpatient facilities were not providing safe procedures. They tried and successfully convinced the political laity that “outpatient infection was a never event!” the public was sold and the American Hospital Association rejoiced in their Gotcha moment! More and more doctors unable to meet the demands of the mandates got hired by hospitals. The Hospital Revenues in 2012 are below:
Total net revenue: $821.3 billion
• Total expenses: $756.9 billion
• Cumulative profit: $64.4 billion
• Average revenue per hospital: $164.3 million
• Average profit per hospital: $12.9 million
• Average profit per inpatient bed: $80,465

Graphic representation of the Revenue/Income streams of Doctors (in Black & Yellow) and the INTERMEDIARIES (in Red).

Administrators and CEOs enjoy the growth bonanza...

Meanwhile the Physician salary continues to implode:

The Curbs:
The privateering was about to stop soon however. The culture of excess could not ripen and like pears or apples, not rot off the tree. The physician services started getting denied and more and more physician offices had to hire extra help to keep up with the “Medical Revenue Cycle” created by the bureaucracy. The resulting hires expanded exponentially and a two person office soon became a 10-person soon. The costs borne of such expansions resulted in lowering of the margins and the doctors had to work harder to maintain their revenues to keep their “offices” open. Eventually the income stream grew smaller and the doctors had to get bank loans to stay operational due to delays in payments by the bureaucracy.

Hospitals were called out by whistle-blowers for their engineering of the code-billing techniques and some hospitals had to pay back the government in millions of unjustified reimbursed claims considered “outliers” by the government. The coding and billing clerks were being taught to spot any "fraudulent-billing" procedures and report to the government in hopes of procuring the 30% reward and a trail of doctors saw themselves march in handcuffs towards incarceration. Billing for services became more than a "cross the t and dot the i." It became a sport for the prosecutors to indict physicians for errors and mistakes and have them accept responsibility through consent so the prosecutors could enjoy the satisfaction of successful prosecution and a climb up on the rungs of their proverbial ladder of success.

The Public Mismanagement Begins:
The private mismanagement had just about come to a close. The doctors started closing practices, unable to make the payroll and hospitals had to cut staff and go lean and try to survive the stringent dogmas of the public sector.

As the new century rolled in, it brought with it the public management to curtail the excesses of the private mismanagement in medicine. EMRs were mandated by the government, pseudo-quality measures through PCORI and PQRS were initiated. Meanwhile, the hospitals took the mantle first and exploited the coding mechanisms to increase their reimbursement rates.

Where could these experts with little or no medical care experience go to stop the bleed of tax payer dollars that had reached 17.9% of GDP and constituted 1/6th the economy? The problems all agreed was the “doctor.” It was he or she who provided all the care, therefore logically controlling his or her actions would limit the expenditure too, the experts figured.

The Middle Manager Bonanza

Suddenly “peer reviewed journals” with “high impact values” started printing the need for austerity in healthcare. The dictum changed from “Do” to prevent disease to “Don’t do” to prevent harm. The paradigm was turned upside down virtually overnight. The acronymically based Societies in Medicine started the “Choosing Wisely” program. But they did not seem to tell that to the lawyers who were still sharpening their pens to bring their grief to the courts. This scenario continues to ripen as we speak.

Now for a little digression, allow me to use the economic debacles that have occurred as metaphors to what has been happening in medicine. There is virtually no difference…

The Great Depression:
The 1929 was a privateer’s boom year with asset bubbles growing at an astronomical rate. Seeing the prices skyrocket,  a change in public policy resulted in the Balance Sheet Problem with the bubble bursting on the nation. The Great Depression started and one year’s U.S. GDP was wiped clean. Unemployment reached 25% nationally and in some sectors it was as high as 50%. Photographs are a great reminder of that calamity.

When the screw of economy stops turning...

If not for WWII the depression would have continued longer. But the WWII caused a massive public spending campaign to build armaments and incur public debt with war bonds to ease the disaster. The heady days of the '50s and '60s were as a result of the belt-tightening in the '30s and '40s and the boom in public spending, private saving and risk taking by new enterprises.

And then starts turning again.

The Housing Bubble and the Global Financial Crisis:
Leaving aside the tech bubble of 2000, the 2008 housing bubble started when speculators were claiming there was no more land available for building homes and thus existing houses were priced at well above what median income could afford. People went into a buying spree and “flipped” for the sport of making money. The housing bubble started a Global Financial Crisis that brought the world to its knees. Some countries like Greece continue to flounder while Ireland and Iceland have picked up growth once again and righted their respective ships. This housing bubble was not all privateer’s doing, the government had a part to play in it too. The well-meaning politicians encouraged everyone to take a loan with “cheap money” so everyone could afford a “picket-fenced home.” Ah the glory of the progressive thought was the call of the day.

As realization dawned, the bubble burst and privateers could no longer afford to pay for their homes due to collapse of the home prices. Foreclosures and bankruptcies rose. The banks had collateralized the loans CDOs, CLOs and the CDSs were created and existing loans were converted into Mortgage Backed Securities by mixing high and low risk combinations in tranches and no one knew who held the loan in the end. Inside the crusty baked pie was a major uncooked ingredient!

This started Mortgage Holding Companies to vanish into bankruptcy overnight. Fannie May and Freddie Mac, the two government sponsored mortgage entities suffered huge losses that needed bail outs from tax payer dollars.

The Pain of Deleveraging:
The past eight years have been spent in deleveraging by the private companies that gambled in excesses and lost huge capitals for their clients, an example of the Insurance Company with excess weighted CDSs was AIG that also required a government bail out to stabilize its balance sheet and slowly deleverage the excesses. This cost the tax payers $134.35 Billion. The AIG Bailout (in billions)
Fed Reserve Credit Facility (~$60B) $43.458
Fed Reserve Securities Purchase(II)$19.8
Fed Reserve Securities Purchase(III)$29.6
Treasury Preferred Stock Investment$40
Treasury Credit Line (Max $30B)$1.5

Deleveraging is indeed painful. Both the private citizen and Corporations save to get rid of debt. As they do, the wheels of borrowing, investment, and entrepreneurship suffer. Commerce stagnates, unemployment rises, wages stagnate, Treasury Bonds stay low and GDP gets stifled. The “Quantitative Easing” a FED mechanism of printing money to keep liquidity in the marketplace and also to absorb the bad mortgages off the balance sheets of the private firms allowed the ball to keep rolling, seems to have muddled the economy onto firmer grounds recently even though we are not out of the woods yet. Meanwhile the FED Balance Sheet bloats further...

 Talk of austerity at this juncture would create the Hashimoto debacle that crushed the Japanese recovering economy and pushed back several years into 2 decades of deflationary spiral.
The Japanese ended up losing 3 years of their GNP. Yet without consideration to history, the Hashimoto Principle of “Austerity and Taxation” that extended the 1985 Japanese Balance Sheet Problem into two lost decades and because of FDR/Hoover's desire not to allow the debt increase through austerity in spending, pushed the recession further in time, which is now being swiftly applied to the Healthcare industry's Balance Sheet problem, especially to its most important components; the physicians. The Austrian School seems hell bent at just about the wrong time. 

Austerity comes to Medicine:
In medicine the austerity principle of not doing things that may be deemed necessary under the guise of “Choosing Wisely” and some other diktats are being laid down as dogmas. The problem of invoking such policies in medical care is, ultimately the patient suffers when the doctor’s hands are tied. The experts remain double blinded in their thinking, cost in medicine is not going up due to payments to physicians as they envision, as the recent “Medicare Data Dump” clearly showed that out of $1 Trillion expensed by Medicare in 2012 only $77 Billion was paid out to the physicians or 7.7% but by the excesses of the intermediaries; the Hospitals, Pharmaceutical Companies, Medical Device Companies and other armchair administrative types who are given the authority to say yes and no.

The Doctor Data Dump was hypercritical of the physicians but did not take into account all the factors in the healthcare costs.

Austerity principles are good when there is privateer excess and micro-strategies can be employed. It is a public excess of policies and mandates that stifle an enterprise if used unwisely.  Discouraging doctors from practicing the art of medicine on an individual through the lens of population health measures, handcuffing them from their art  is tantamount to control and obfuscation of the reality and hurting the basic principle of…Primum non nocere.

The False Conditionals:
Here is where the story gets even more interesting… The SGR that keeps calling for the 21% cut in physician reimbursements for delivered care, well if one were to add some neurons to this conundrum one would find that cutting 21% off the $77 billion paid as revenue to physician practices will essentially close down the majority if not all the physician practices in the country. Interestingly enough the "SGR fix" is nothing more than a dressed up governmental bureaucracy to help the middling managers to gain a larger share of the healthcare dollars through "Management." The marginalized physicians will gravitate towards the hospitals, who will pick and choose off the litter at bargain basement prices and reel in mega dollars from their expert coding practices. Medicine as we know it will be based on the cheapest and leanest delivery in patient care at the most expense to the tax payer, while keeping the physician in line with threats of pink slips and “there are plenty who will want to fill your shoes,” threats. And everyone will rejoice unless it is them in the hospital bed. It is already happening as 83% of the newly minted physicians climb aboard this "hospitalist" trend and are told what to write on their EMRs in order to maximize returns and minimize expense. The “Private Practice of Medicine” is in a steep decline! The glare will turn towards the real wasteful agencies ultimately, then what?

The Cost of earning a Medical Degree continues to increase, yet the income to payoff the debt continues to decline...

To recognize a structural problem created by private excess requires strategic micro-manipulation. As an example in medicine would be limit the middling managers skimming the top who are providing NO services to the patient care except logistics of where to go and what to do. These intermediaries are not completely unimportant but they do not need the tax payer wealth thrown at their feet in bushels.  The Administrative section in Healthcare has grown nearly 4000% in the past two decades while in 2025 a physician shortage of 125,000 is expected in Primary Care alone as the population continues to grow, aging and disgruntled physicians retire prematurely. If one thinks this far enough one comes to an understanding that there is an imbalance of thought and action and the strategies employed have now created a mega Balance Sheet Problem in Medicine both economically and in physician participation rate. The assets (physicians) are declining and their expertise is being marginalized while the liabilities ( Expensed Costs for all various and sundry items) are increasing.

The private sector in medicine has long been corralled and now the public sector is in full metal gear. The only problem is the over swing to either side that creates larger calamities. In fiscal terms, raising the interest rates to excess stifles demand, while lowered interest rates spur demand for innovation but if low interest rates are left too long that creates hyper- inflation. Maybe some in medicine sitting on the thrones of power might realize this conundrum and can help ease the weighty burdens that are currently squeezing the life-blood out of patient care!

Back in the Medical Staff Lounge:
The air in the medical staff lounge, a four-walled, small decrepit space where even the coffee machine worked only when slapped around a bit, two colleagues; a young recent graduate and a seasoned silver-haired sit looking vacantly at nothing, “so this is medicine?” the young one mutters, his thick coke-bottled glasses perched delicately atop the tip of his nose, “all computer work and little patient interaction?”

“It is. It is…” the older colleague’s words trails off. “A Faustian bargain,” he says almost imperceptibly in his hushed silence to himself.
“What did you say?” the young one asks.
“Nothing, nothing…”

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