Wednesday, July 30, 2008

Reader Recommendation: The Cato Institute

The Cato Institute is a libertarian think tank in Washington D.C. It's mission is to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace. Toward that goal, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in questions of policy and the proper role of government. Cato provides great resources such as "The Cato Daily Podcast" and "Cato Events" which can found directly at their website or via iTunes.

The Cato Institute was founded in 1977 and is named for Cato's Letters, a series of libertarian pamphlets that helped lay the philosophical foundation for the American Revolution.

The Grass Is Not Always Greener: A Look at National Health Care Systems Around the World, is a policy analysis by Micheal D. Tanner, the director of health and welfare studies at the Cato Institute. It is a 35 page analysis that critiques arguments made for national health care system in the US. To back these claims the author includes 13 pages of 300+ references. The length may seem daunting, but take the time and read the first 7 pages where the meat of the article is. You will find such statements as - "To a large degree, America spends money on health care because it is a wealthy nation and chooses to do so." & "When you compare the outcomes for specific diseases, the United States clearly outperforms the rest of the world." It definitely is a must read.

Monday, July 28, 2008

An ALDI sort of health care

In the town where I live is a branch of a German-owned, discount grocery store chain. It's ALDI. ALDI takes on interesting strategies to fulfill a simple goal: delivering high quality goods at discount prices. The end result is a quirky little grocery store that fulfills it's goal nicely. The quality of their goods are generally above average and their prices are low, usually lower than Walmart.

So, how does a business achieve rock-bottom, low prices without compromising the quality of their product? In ALDI's case, they focus on this goal and cut out normal grocery store functions that don't lend themselves to fulfilling the goal. The result is a store with less widespread appeal than a Walmart or Krogers, but with lower prices and a devoted customer base.

A person entering our location of ALDI will spot several departures from normal grocery store setups. For example, the customer has to supply a quarter to get a cart that is chained to the front of the store. They get their quarter back when they drop their cart off. That eliminates the expense of lost and stolen carts and the need for employees to gather them up. The customer saves money.

ALDI doesn't supply bags. The customer can buy bags from them or bring their own. And of course, ALDI has no baggers. Thus, ALDI saves paying additional employees. The customer does a little work but saves money.

I don't think I've ever seen more than two employees at any given time at our ALDI. But with a small store and no responsibilities other than checking people out, they are able to push people through at a good rate. I would imagine that ALDI has a much lower employee to customer ratio than most grocery stores. That may sound like a bad thing when considering customer service, but it's a lot less paychecks to pay and those savings are passed on to the customers.

ALDI carries a limited assortment of goods. They buy privately and in bulk and ship out to their stores. Their are able to beat national prices and end up with an impressive (and interesting) assortment of products. Of course their German products are good. Their produce is fresh and beautiful and their breads above average. Customers learn the nuances of their products, find their favorites, and get hooked.

So, ALDI may not be for everyone. But they fulfill their goal: high quality goods at low prices. They reach that goal by cutting out the peripheral services. They may not appeal to customers who like to be waited upon, but for bargain shoppers and those on tight budgets they can't be beat.

Now, we've said it many times on Free Market Physician, but the national health crisis (if such it can be called) can be boiled down to high prices. America is unhappy with the price of health care. For those of us who are business oriented, why not make our goal the ALDI goal: to provide high quality service at the lowest price possible?

To do so, I would like to suggest the ALDI method of price slashing: eliminate peripheral services. Doing so may make us quirky and limit some of the general appeal of our practices, but it will fulfill the crucial need to make health care affordable. What health care features could we slash?

Our favorite feature to slash at FMP is working with insurance companies. In some clinics, employees assigned to insurance billing outnumber physicians. I recently spoke with physicians at a practice who said that they could save up to 30% of their cost by accepting cash only. (Imagine the devoted customer base you would have if you delivered your services at 30% below other physicians' costs.) Patients who have insurance can pay at the office and later contact their insurance companies and be personally reimbursed. It's a hassle for some patients, but saves significant money for all of them.

Of course there are all sorts of other features that could do with some slashing. The goal is high quality service at rock-bottom prices. The current alternative is allowing the government to take control of the industry. So, what can we do to make our services more affordable? We'd love to hear your slashing ideas- post them in the comment box or send them to us at

Rusty Scalpel

Friday, July 25, 2008

What is the SGR?

The SGR is the Sustainable Growth Rate Forumla that determines physician pay rates for Medicare B patients. The plan is meant to control overall Medicare B spending.

For the last several years physicians have been seeing an increase of Medicare B patients and have been billing more for those visits year in and out.The SGR adjusts for this increase in spending by reducing payments to physicians- by about 4 or 5% a year. These cuts come to a field where prices generally increase about 7% each year. As a result physicians are increasingly underpaid for their Medicare patients.

For the last 5 years, those paycuts have been overridden by legislation. This year's threat of "Medicare Meltdown" was another SGR scheduled paycut. Currently, about 90% of physicians will take Medicare patients. The "Meltdown" occurs if paycuts are implemented and physicians find the Medicare patients to be too much of a financial burden and begin to turn them away. Annual overrides postpone this "Meltdown."

The problem with these temporary annual fixes is that they are refactored into the SGR. Each time a paycut is postponed, it is factored into the future Medicare budget. If the SGR remains as currently stands, annual paycuts will increase to higher percentages that will continue to have to be overridden year to year.

Scheduled paycuts that must be overcome by annual legislation: another reason I don't want to be part of a U.S. Government-run health care industry.

Rusty Scalpel

Wednesday, July 23, 2008

Medicare Bill Passed and We Smell a Rat

As our readers already doubtless know, last week President Bush vetoed the Medicare Improvements for Patients and Providers Act of 2008 (HR 6331), a veto which was promptly overturned.

President Bush’s move certainly did not make him popular with the AMA and AOA, which had been whipping their constituents into a frenzy to get the act passed. Of course, both organizations responded to the veto with an even greater vigor, calling for another volley of communication to representatives. As stated by ACOFP President Ronnie Martin in the July 15 newsletter, “The danger lies in not letting our voices be heard loudly and often as we face this final hurdle in our attempt to reform Medicare and the SGR.”

The AMA and AOA had their way and physicians have avoided their scheduled Medicare pay cuts again this year. They’ve done their annual civic duty. But what else did they do in getting HR 6331 passed?

The money to cover not cutting physician fees from the Medicare budget had to come from somewhere. The source of that funding probably passed unnoticed in the radar of many AMA and AOA constituents. That funding came from the Medicare Advantage program, which will now lose $14 billion in funding over the next five years.

Medicare Advantage, or Medicare C, is the branch of Medicare that allows its enrollees to use Medicare funding to select a private insurance plan instead of using Medicare A and B. The plan is sort of stepping stone towards privatizing Medicare, allowing enrollees to let insurance companies compete for their business, potentially driving down prices and improving quality.

Analysis of the aftermath of the bill by insurance rating and analyst company A.M. Best shows that less insurance companies may now participate in Medicare Advantage plans and that many enrollees may switch over to Medicare A and B. It stands to reason that with less funding available to purchase private plans, the quality of plans available decreases and that more seniors will be back on government-prescribed health care.

Free Market Physician won’t go so far as to call foul play on the act. The physician cuts for Medicare patients are ridiculous and needed to be dealt with. However, the means of fixing it in HR 6331 were only a temporary fix and played perfectly into the hands of those who advocate increased government control in the health field. For example, the AOA received a special letter of congratulations and thanks for their leadership and work in securing passage of the legislation by Senate Majority Leader Harry Reid of Nevada.

Free Market Physician won’t go so far as to out rightly condemn the AMA or AOA for using the Medicare pay cuts to motivate their constituents to fall in with a political agenda at this time, either. However, this act is just one of many examples of how the professional organizations have contributed to higher prices for health care, physician shortages, and increased government meddling in the industry.

Nancy Nielson, MD, President of the AMA thanked the physicians who had fallen in line for preventing a “Medicare meltdown.”

“I am so grateful to all of you, the patients and physicians of America. Without your effort this victory would not have been won,” she wrote on the AMA website.

She also stated that only the health insurance industry, for purely selfish motives, opposed the bill. She can put Free Market Physician on the list of those who are at least a little cynical about it. FMP will certainly have a more skeptical eye out in 18 months when Congress proposes its next “solution” to Medicare pay cuts.

Rusty Scalpel

Friday, July 18, 2008

Opposing Tides

While Free Market Physician advocates free market solutions and shaking off debilitating government restrictions to resolve health care problems, other entities continue to push increased centralization to try to control the industry. For such entities, a "smoldering crisis" justifies increased government control. We affirm that these efforts to control the industry are the core cause of its current dysfunctions, and further efforts to do so will cause increased dysfunction.

An example of these attempts to control is evident in a new publication from the Association of Academic Health Centers (AAHC) addressing problems in the healthcare workforce. The publication is available from the AAHC site. The stated premises are as follows:

• The dysfunction in public and private health workforce policy and infrastructure is an outgrowth of decentralized decision-making in health workforce education, planning, development and policymaking;
• The costs and consequences of our collective failure to act effectively are accelerating due to looming socioeconomic forces that leave no time for further delay;
• Cross-cutting challenges that transcend geographical and professional boundaries require an integrated and comprehensive national policy to implement effective solutions;
• The issues and problems outlined in the report have not been effectively addressed to date because of the inability of policymakers at all levels to break free from the historic incremental, piecemeal approaches; and
• Despite many challenges, the prospects for positive change are high.

We encourage our readers to examine the publication and comment on its merits and downfalls.

Rusty Scalpel

The Invisible Hand

A Concept All Too Often Forgotten or Not Understood and Left Out of the Debate

(Free Market Physician welcomes its first guest contributor, CATO, to the forum. Thanks for your submission.)

Earlier this week I watched a documentary, made by a physician, addressing the problems facing our medical system. I was hoping that the physician would reach a free-market based conclusion. However the documentary appeared to be more of an elitist version of Michael Moore’s “Sicko.” The producer/physician made the following statement: “Our healthcare system is a bizarre blend of the worst of capitalism and the worst of socialism. It isn’t a system at all. We need to get over our fear of the government and embrace the idea that in healthcare somebody needs to be in charge so we can keep our eye on the prize which is health, not profits.”

I’ll have to admit the first part of his comment tugged at my heart strings. I remember thinking - has capitalism failed us? After all, the only logical approach to fixing healthcare is the free market system, right? After much thought I realized that we don’t even have a capitalistic system and I guarantee that we don’t have the worst of a socialistic system. We should call our system for what it is - interventionism and corporatism. Capitalism implies that a free market is in place. Our healthcare system is so heavily regulated from state and federal agencies that hardly any free market forces exist.

Another statement in the movie that I found to be disturbing was when a former editor of the New England Journal of Medicine said “I don’t believe that Americans are born as greedy cowboys who don’t care about the community and who’s aim in life is to be richer than anyone else. This happens to many Americans because they are bathed in that ideology.” After hearing these comments I started to wonder if they had forgotten, do not understand, or have lost faith in the “invisible hand.”

The invisible hand is a fundamental economic concept that is all too often forgotten and left out of the debate. Adam Smith, the father of economics, described this concept in his magnum opus The Wealth of Nations. Smith said that when man intends only to increase his own gain he is “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” In other words when everyone does what is in their best interests, society benefits as a whole. It is as if by pursuing individual self interest there is an invisible hand pushing society towards it’s best interest as well. Smith did not state that when government does what appears to benefit itself it in turn benefits society. He was referring to individuals.

Capitalism is one of the purest forms of democracy. With each dollar, individuals are able to vote and give proper value to the goods and services they consume. Our current healthcare system is almost void of capitalism and it is not surprising that there is not an invisible hand pushing society towards an optimal state. Consider these questions - Who owns your healthcare dollars- your vote in the system? and - Do you own the decision what to do with those healthcare dollars? More than likely, half of it is owned by an employee-based health insurance company, and the other half is owned by government to fund Medicare and Medicaid. The decision on how the dollars are spent are left up to those respective single payer systems.

Before World War II American’s paid cash for medical expenses. Rich and poor received care regardless of ability to pay and government intervention. During WWII the government implemented wage restrictions to reduce incentives to work in the private sector. To counter that obstacle the private sector offered health insurance to compete with government restrictions. In 1965 the Medicaid and Medicare was signed into law. Then in 1973 the Health Maintenance Organization Act was passed.

All these programs have transferred ownership of healthcare dollars from individuals to a select minority with the promise of managing healthcare dollars more wisely. Unfortunately this has not been the case. With the convergence to single payer systems our healthcare system has been insulated from free market forces, driving up costs and thwarting the invisible hand. To counter and restore capitalism to the healthcare industry, health savings accounts are starting to appear, returning ownership of healthcare dollars to the individual.

The concept of the invisible hand may seem contrary to utopian ideals because it implies that individual greed is good. The concept that American’s “aren’t born greedy and it is explained by an ideology they were taught” is completely erroneous. It is human nature to pursue one’s personal interests. We need to get over the concept that greed, doing something for personal benefit, is a bad thing. We need to embrace the idea that individuals, not government will serve the best interest of not only themselves but society. Putting everybody in charge by giving individuals ownership and the power to decide how their healthcare dollars are spent, returns the incentive to reach the prize which is health and profit.


Thursday, July 17, 2008

Reader recommendation-

Here's a great recommendation sent to us by one of our readers- The site has great arguments for why government-run health care is not for America. Thanks for the submission!

Wednesday, July 16, 2008

Congress Overrides Medicare Veto: So Did America Win?

We're looking for some feedback from our readers. As we all know, the AMA and AOA were pushing pretty hard to have this bill passed and now they've had their way. Doctors are now protected from a 10.6% funding to treat Medicare patients. One of many adequate news pieces on the subject is available at:

So did doctors, patients, and America win on this one? Let us know what you think! Please post your comments in the comment box or email them to

Maytag and Rusty Scalpel are doing some additional research on the subject and their take may surprise you. Check back in the next couple of days for their analysis of the bill and veto.

Rusty Scalpel

Thursday, July 3, 2008

Economics Dictate the Health Care Solution

The fact of the matter is that many Americans feel that the price of health care is too high. Lawmakers and pundits have confused this problem with the price of insurance, but that price is secondary to the high cost of health care.

Why then, is the cost of medical care high? Let’s boil it down to the simplest answer. Economically speaking, medical care, like all other commodities, is scarce. It is limited. Like every other good or service on this planet, there is only so much medical care to go around. There are only so many doctors who can work only so many hours. There is only so much staff to help those doctors. There are only so many pharmaceutical companies making so many medications. The price of health care reflects this scarcity.

Realizing that commodities are scarce is the bedrock concept of economics. Only accepting the fact that health care is a limited or scarce commodity and understanding its implications will allow Americans to crack the nut of health care prices.

Such a degree of emotional irrationality has been connected with health care, that let’s simply refer to it as Commodity A in this commentary. Commodity A is expensive because it is scarce. What can be done about it?

First and most obviously, we can produce more of it. To produce more of Commodity A, America needs more physicians, nurses, medical staff, pharmacists, chemists, research, chemical resources, etc. It needs more educational institutions and it needs greater focus from the consumer population. Without going into long economical explanations, we can with complete assurance say that if the market is undisturbed by external tinkering and if health care remains a priority for American consumers, then more of Commodity A will be produced. It’s availability will increase, scarcity will decrease, and prices will drop.

What else can be done to deal with the scarcity of Commodity A? Let’s think of a shortage in another commodity, say oil. That’s one we can comprehend. If America was faced with a shortage and thus high prices in oil, how would consumers respond?

Americans might be a little bit slow to respond to the price changes at first, but they would eventually become more frugal in their use of oil. They would try to use less of it. The high price of oil would force them to determine which uses of oil were most important. Is the use of oil for heating important? Is the use of oil for transportation important? Are there substitutes for oil that might be more cost efficient?

Compelled by high prices to make responsible decisions, American consumers would decrease their dependence on oil. They would find other fuels for transportation. They might decrease their overall need for transportation, perhaps by working from home and carpooling when necessary. They would find new ways to heat their homes and produce synthetic goods.

It may require a lifestyle change, but through conservation and substitution, Americans would reduce their need for oil if prices stayed high. Demand would decrease. Supply will be better suited to meet demand and the price of oil would fall as suppliers were forced to entice a now diminished number of demanding consumers. The oil crisis, if that’s what it is, would be over.

Let’s assume that the market for Commodity A were similar to what it is for oil. Commodity A is limited. The product is scarce. Demand exceeds supply and as a result, prices go up. American consumers for Commodity A are forced to start making decisions. How important is Commodity A to them? Are there ways that they can reduce their need for Commodity A? Are there substitutions for Commodity A? Are there some uses for Commodity A that are more important than others?

American consumers might be slow to respond and adjust, but they would be compelled by the high price of Commodity A to start making responsible decisions. They would find ways to decrease their dependence on Commodity A. High prices may compel them to better eating, exercise, reduced alcohol, tobacco, and other drug consumption. High prices would compel them to determine which uses of Commodity A were more important than others.

Eventually, through conservation and substitution, overall dependence on Commodity A would decrease. As demand fell to more closely match supply, scarcity would decrease. Prices would drop as suppliers were forced to entice a now decreased demand. The health care crisis, if that’s what it is, would be over.

Unfortunately, it is the sad truth that the market for health care (calling it now by its true name) is not a normal market. Americans have attempted to insulate themselves from the price of health care in order to avoid tough decisions about substitution and conservation. They try to avoid allowing cost to play into their health care decisions. They argue that health care should be obtained regardless of the cost and then complain about the cost.

Their philosophy is apparent in the health insurance industry. Americans choose comprehensive insurance plans that cost more than the actual price of health care, but allow them to be insulated from and thus escape facing the cost of each purchase of health care. Americans on comprehensive health insurance plans often behave as though health care were not a scarce commodity. They make office visits and obtain procedures without regards to cost, trying to "get their money‘s worth," since they have already paid their premium. As they use up available health care, scarcity increases. Supply decreases. The price of health care and thus their insurance premiums go up.

The philosophy is apparent in Medicare and Medicaid. Americans are opposed to certain populations going without health care. These populations are insulated from cost or even given free health care. As a result they do not seek substitution or conservation as they otherwise would and consume health care at an increased rate. The scarcity of health care increases. Supply decreases. The price of health care goes up.

Many politicians propose solutions to the “crisis” in health care. Such solutions generally involve more extensive insulating of consumers from the price of health care. For example, Hillary Clinton proposed that all Americans have access to the same level of health insurance that members of congress receive as a means of bypassing price and increasing access to health care. However, it is apparent that such a plan would only encourage an increased consumption of Commodity A. It does not address scarcity, nor encourage conservation or substitution for the commodity. Supply decreases. Scarcity increases. The price of health care goes up.

The same result can be anticipated with any plan to socialize health insurance or directly socialize health care. Any plan that treats health care as if it weren’t scarce will increase its scarcity. Price fixing, price subsidization, and increased numbers enrolled in Medicare and Medicaid- all these will encourage consumption, increase scarcity and thus raise the price of health care and likewise insurance premiums.

So, what can be done to decrease the price of health care? Of course, supply should be and is increasing. However, a rescue by increased supply will seriously lag as it becomes apparent that government tinkering in the market will increase.

The principal solution for the scarcity and thus the high price of health care is found in allowing the consumer to be exposed to and thus compelled by high prices to make responsible decisions about health care. There is no terror to be found in conservation and substitution. Consumers will face the scarcity in health care as they do with any other commodity- by limiting their use of the commodity to the most important purposes. As consumers shoulder this responsibility, they will find financial prosperity, increased health education, and an overall increase in good health.

And of course, demand will decrease. Scarcity will decrease. Supply will be better suited to meet demand and suppliers will be compelled to entice consumers to use their product. And the price of health care will fall.

Rusty Scalpel