Friday, January 30, 2009

Recovery of the Medical Market

American health care is in trouble. America's dependence on third-party payers and courtrooms to determine medical practice and price has placed us on the short path to health care bankruptcy. The simple doctor-patient relationship, a system where the patient pays for physician services and where the physician is responsible to the patient for services rendered must be reestablished. Our current path leads to economic failure, socialism, and a loss of American freedoms extending far beyond the realm of health care. True principles of economics must be applied to revolutionize medical field. We must recover the medical market.

We've been asked what it will take to return to this simple medical market. Here are FMP's keys to the return of the medical market and the return of health care availability and affordability to all Americans.

1) The return of the market must take place by market forces. We will return to the market because it is a system that works and sells itself. There may be laws abridging freedom and market forces that need be amended. Legislators can be won over for this purpose, but no fake economics of tax incentives or federal subsidies should drive the return to a medical market. Functional, profit-earning, fee-for-service clinics should attract customers and patients not because these consumers have subsidized health savings accounts, but because these clinics offer prices and services superior to that of their competitors.

2) The market will return as America escapes the standard of care. We've spoken of this in the past. The standard of care should rest in the hands of patients, not doctors. Patients should hold doctors responsible to their personal standard of care and deny them their business if they do not perform to that standard of care. The current high price of health care can be partly attributed to doctors treating patients by generalized, expensive, and self-serving standards of care that are established by courtrooms. These standards serve to protect the doctor and not necessarily serve patients. Patients are not and should not be responsible to the standard of care, but should only pay for health care that meets their personal standards.

It is worth suggesting that this independence from the standard of care will allow patients to seek non-traditional health care. It is quite possible that many, many consumers would choose the lower prices and competent services of nurse practitioners and physicians assistants if the states were to allow these practitioners due practice rights. It is also quite probable that this injection of medical supply into the market would significantly reduce the price of health care. That's food for thought.

3) The market will return when doctors realize they can escape the medical rat race. Doctors need to discover that they can determine for themselves the scope of their practice. They can escape from the bureaucratic crush of insurance company and government regulation. They can set their own hours and call schedules. For each doctor who wants his or her life and profession back, there are loads of patients who want affordable health care. Doctors just need to step out from the safety of government and insurance reimbursement to meet these patients and strike up a contract where each party gets what they want.

4) The market will return with idealism, sacrifice, and foresight. Once our medical revolution has begun and the medical market returns, the profiteers and followers of the Invisible Hand will get on board. But the path to medical freedom may require physicians who act because they see the oncoming waves of socialism, godlessness, and the loss of American freedom. It requires physicians who see the future and personally strive to change that future. It requires physicians who let integrity and the welfare of their patients dictate their actions. It requires physicians who are willing to ennoble mankind, educate him, and make him the master of his own destiny and health. May we be and inspire others to be such physicians.

Rusty Scalpel

Friday, January 23, 2009

Schiffonomics Concerning Inflation and Healthcare

The Little Book of Bull Moves in Bear Markets by Peter Schiff, reviewed by Cato

I recently had the opportunity to read a book by Austrian economist Peter SchiffThe Little Book of Bull Moves in Bear Markets. In this book Schiff makes the case that the U.S. economy has transformed from a manufacturing economy that produces to a service economy that consumes. He points out that 47% of the new jobs created since 2000 have been in the service industry related fields and that economic growth along with wealth creation can only be made through production, Schiff argues that these elements have created a bubble economy that will deflate with the collapse of the dollar. The dollar collapse will occur when foreign investors, who are currently financing our annual deficits through credit, lose confidence and demand payment of the treasury bonds. Schiff cautions that the only way to preserve wealth with declining value of the dollar is to move wealth in non-dollar based assets such as precious metals and stocks traded with foreign currency.

Being an individual with not very much wealth, most of his suggestions about wealth preservation did not apply to me. The one suggestion that I did find applicable was his advice towards those with student loans. Schiff advised if you have variable rate student loans you should consolidate them at a fixed interest rate before the dollar collapses and interest rates rise.

Below are some excerpts that I found interesting:

Health Care

“In the face of these harsh realities, legislators on both sides of the aisle have begun calling for universal health coverage, but that won’t solve the problem either. The government doesn’t have enough money to provide health care for all Americans, and it won’t be able to keep borrowing. The only way to pay for universal health coverage would be to tax a populace that is already reeling from economic setbacks, an idea that’s sure to be deeply unpopular. Indeed, in the coming years, the government will have a hard time funding Medicare and Medicaid, the two national health plans already in place.” Pg194 The Little Book of Bull Moves in Bear Markets

“In the end, it may not be the quality of health care that contracts, but the quantity, as a poorer United States seeks to economize and some of the excesses get wrung out of this bloated system. For that to happen, however, the government will have to get out of the health care business and return this important segment of our economy to the private sector, subject to free-market forces—where it should have been all along.” Pg 195 The Little Book of Bull Moves in Bear Markets


“I pointed out that mailing checks straight to the taxpayers instead of channeling money through the banking system meant that consumers could bid up consumer prices immediately. This avoids the usual time lag when the Fed’s expansions of the money supply, such as the $436 billion injected recently, have to filter through the asset markets before eventually affecting consumer prices. I’m being sarcastic, of course but the point is valid.” Pg 18 The Little Book of Bull Moves in Bear Markets

Why the Government Likes Inflation

  • Inflation is used for political reasons to stimulate the economy and counteract down-cycles that are perfectly normal and corrective of excesses but are unpopular with voters.

  • Government debt and other obligations such as social security become more manageable when payable with cheaper dollars.

  • Inflated incomes increase government revenues by forcing people into higher tax brackets.

  • Inflation helps finance entitlement programs that would otherwise cause tax hikes.

Pg 27-28 The Little Book of Bull Moves in Bear Markets

The motive for choosing to print money is purely political. The other way to do it would be to raise taxes, which would cause a public uproar costing elected officials their jobs. Not that the voters would stand for any reduction in social programs. The voters want it both ways, and the elected politicians have found a way to accomplish that.” Pg 46 The Little Book of Bull Moves in Bear Markets

Inflation is a concept that I am still trying to understand. I remember in college learning about M3, a statistic that The Federal Reserve released each year denoting the total money supply. Schiff mentions that since 2006 The Fed quit reporting that statistic. Steve Morris of the Wall Street Journal recently reported that it looks like the money supply has been increased by 70% since last October! By not reporting M3 and by doing other maneuvers the government is able to misrepresent the actual rate of inflation, which has been said to be “the greatest tax on the poor.”

I think Schiff’s book does a great job of explaining what is going on with our economy. His arguments and the Austrian view fit very well in line with those of FMP. Like many I hope the dollar does not continue to lose value and collapse. However with the current trend of unfunded stimulus packages, government entitlement programs, and current war in Iraq and Afghanistan, one can only wonder how much insult the United States dollar can stand.


Friday, January 16, 2009

Immediate Savings of Cash-Only Practices

In the past I've argued that America's health care problems can be boiled down to price. The price of health care is too high. Unequal access to health care, patient dissatisfaction, and the rising price of health insurance are all a result of this high price. I believe that cash-only clinics can bring down the price of health care, making it more affordable and available to all Americans.

For those who may not be familiar with them, cash-only clinics are clinics where patients pay for services at the time they are received. Generally speaking, these clinics do not accept any health insurance. Patients simply pay the doctor (cash, check, or credit card) when they go to the doctor. Both the patient and the doctor immediately save money for the following reasons:

1) Physicians do not have to hire extra staff to work with insurance companies. Many offices have more employees working with insurance companies than they have physicians. Simply dropping those salaries can translate to significant savings.

2) Physicians save money by avoiding insurance claim denials, costs associated with bill collection, and lag time in waiting for reimbursement from insurers, Medicare and Medicaid.

3) Patient compliance improves, decreasing visits to the physician and cost of their personal health care. When faced with directly paying for medical costs, patients are more likely to value and comply with the care recommendations they receive. For example, patients paying for each prescription out-of-pocket will be less likely to blow off taking meds for their full course than insured patients who can get another prescription for a recurring infection with a $5 copay.

4) Patients are more likely to proactively improve their own health. A patient directly confronted with the cost of health care is more likely to use means immediately available to improve health before visiting the doctor. These means may include dieting, exercise, better sleep, and reduced recreational drug intake to improve their health. Patients who make these self-improvements are likely to save thousands of dollars in medical bills. Having to physically pay at the doctor's office can make this difference. Which patient with diabetes is more likely to control blood sugar through weight loss and exercise- the patient whose insurance plan insulates them from the cost of their health care or the patient who must write a check for every insulin shot and doctor's appointment?

5) It costs less to directly pay for health care than it does to pay for health insurance. We might fret after reading points 3 and 4, worrying that patients might put off needed health care when they have to directly pay for it. However, let's remember that health care actually costs less than health insurance. By saving the cost of the middleman, patients can afford more and better health care.

6) Doctors save money by focusing on patients' needs, not on insurance company protocol. Doctors are able to tailor care to patient's needs and budgets. They do not have to run excessive diagnostics. They are able to prescribe the precise medications that patients need and are not confined to the list of meds covered by patients' insurance policies.

A cash-only system redefines the role of doctors and patients. It restores patients' direct responsibility for their health care and doctor's direct responsibility to patients. Patients save money by shouldering this responsibility and by physician competition in a real medical market. In this way cash-only clinics address the real medical problem, making health care immediately more affordable and available to Americans.

Rusty Scalpel

Friday, January 9, 2009

The Economic Burden of Standard of Care

During our life experience we sometimes make startling discoveries about the institutions and devices that we trust to protect us and benefit us. We discover that some inventions of man, usually without malice by those who implemented them, are hurting us and limiting our progression. Such discovery is normal in the medical field. We regularly discontinue medications and treatments that we discover are doing our patients harm. But sometimes we are surprised and don't know what to do with the truth when it is presented to us.

I believe that our current concept and application of standard of care is one of these long-trusted devices is harming patients. I believe that it must be reconsidered and discarded.

Standard of care consists of the care that experts would consider to be best practice. The standard of care guides physicians as they make treatment plans for their patients. The purpose for having a standard of care is to prevent patients from being mistreated by negligent or malicious medical practitioners. If a court establishes that a physician caused damage by not following a standard care, that physician can be convicted of malpractice. Despite its protecting purpose, I believe that standard of care has contributed to patients' ultimate harm. It has made and continues to make health care inaccessible to them.

To prove this point, let's look at it from an economic standpoint. We've discussed supply and demand in the past. The price of any commodity is a function of the relationship between supply and demand. When demand for commodity increases with regard to supply, the commodity becomes scarce and costs more. When demand decreases with regard to supply, the commodity becomes less scarce and costs less. Now let's examine a scenario to see how standard of care effects the relationship between supply and demand.

Let's assume that American family practitioners read in the New England Journal of Medicine that extensive meta analysis of multiple studies proves that medication XYZ is hands-down the best treatment for ear infection. Within a short time, the data is almost universally accepted by family practitioners and a new standard of care has been established. Medication XYZ is a relatively new product and significantly more expensive than older antibiotics, but a course of XYZ is now the standard of care for ear infection.

Now when the doctor sees patients with ear infections, he prescribes XYZ. It is the standard or care. The medications he used formerly are not less effective than they were. But, if he practices something other than the standard of care he will expose himself to malpractice suits if those treatments fail. In this scenario, what has standard of care done to the price of health care?

First of all, the price of treating ear infections has gone up because the medication used is more expensive. Patients paying cash will feel that cost immediately. Patients on insurance may not immediately feel the change, but they notice it when their insurance premium goes up the following year. Those receiving government assistance may not recognize the change, but everyone's taxes will go up because of it.

Doctor's dedication to the new product will have some effect on the relationship between supply and demand as well. Because doctors are now universally using the XYZ, demand rises dramatically with regard to supply. Scarcity will increase and prices will go up. And so the cost of treating an ear infection has gone up for two reasons: first, because the new standard of care calls for the use of a more expensive medication and second, because the standard of care has created a demand for the product that has driven up its price.

The above scenario characterizes a complex process, but accurately summarizes what may be the leading cause for the rising cost of health care over the last thirty years. Standard of care, a device meant to protect patients from negligence and malice, has made health care unaffordable and inaccessible to them.

What must we conclude then, is it economically impossible to provide Americans with good health care? We've shown that if all doctors use the hottest new medications, the price of health care will continue escalating. Does supply and demand require that quality health care be reserved for the few?

Our problem does not lie in seeking the best health care. It lies in dictating “the best health care” and then force feeding it to Americans. “Best care” cannot be dictated to doctors. Doctors cannot dictate it to patients. Doctors should exert themselves to stay abreast of the latest studies and the best data. They should be held responsible if they do not provide truthful and complete information to their patients. Patients will choose from doctor recommendations a treatment plan that that suits their needs and their budget. They will determine the best care.

I believe that the current concept of standard of care is harmful, both to America as a whole and to patients as individuals. I believe that it does not protect patients, but makes health care inaccessible to them. Consensus of best practice as seen in standard of care has gone too far in bridling physicians and their patients. Freedom must be maintained in all fields, especially health care. As we jettison obstacles to this freedom, American health care, the very best health care in the world, will become accessible to all American citizens.

Rusty Scalpel

Wednesday, January 7, 2009

FMP Back Online

After a long break for finals and the holidays, Free Market Physician is back in action with our weekly entries. We start off 2009 with a piece from our guest contributor, Cato.

Rusty Scalpel

The Third-Order Approach to Solve Hunger, Poverty, and Healthcare

There are many different ways we can approach the problems in the world. Many of the approaches can be classified as good, better, or best. Like many, I want to make the world a better place which has led me to ponder the Chinese proverb: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Giving a man food because he is hungry a first-order approach to a problem. It’s simple a simple one-variable equation: if someone is hungry, give them food – problem solved. The third-order approach may be less intuitive and even more complex because it involves asking “Why are they hungry?” or even “Why I am not hungry?” Instead of one variable there are three variables that have to be met which allows the third-order approach to solve the problem and prevent it from recurring.

The third-order approach requires three essential components: a republican form of government, rule of law, and economic freedom. A classic example of a country that overcame poverty by following these components is Hong Kong. In the 1950s Hong Kong looked like most struggling third world countries. Today it boasts of an average annual income above European countries such as Great Britain and Italy. Hong Kong has a land area of roughly 400 square miles with no natural resources to sustain it’s population of 7 million people. Yet its citizens maintain a high standard of living.

We can look at Hong Kong and also at the United States of America as an example of prosperity and freedom. Our founding fathers established the framework for this country to become the richest country in the world. They understood the importance of a limited government and rule of law. In their wisdom they decentralized power and gave us a republic which provided economic freedom, the framework for the “American Dream.”

On the other hand we can look at countries who have centrally planned economies and limited economic freedom. Countries such as India and Sierra Leone have centrally planned economies, yet despite extensive government intervention they have some of the highest rates of poverty in the world. It is counterintuitive to think that government leaders, albeit experts in their fields, can cause such poor outcomes. Milton Friedman once commented on having government officials directing an economy by saying “There is nothing that does so much harm as good intentions.”

Several years ago I had the opportunity to live in the Dominican Republic and was able to see the influence of these principles at work. Like many Latin American governments there is corruption there, but the government is improving and foreign investors are noticing. The government has certain places called “Free Trade Zones” where foreign companies can build clothing factories and take advantage of the cheap labor with limited tariffs. These factories give people work and allow their children to have a better future. The economic pie is not fixed but grows because the universal law of comparative advantage prevails.

So how should one respond to issues such as severe poverty, hunger, and healthcare? I would suggest that it comes down to education, education, and more education. An individual must educate him or herself first and then educate others. Ayn Rand’s philosophy holds that historical trends are the inescapable product of philosophy. Fighting for the victory of ideas can defeat widely held ideologies that threaten liberty, private property rights, economic and individual freedom.

The major battlegrounds in this fight are the very places where students learn ideas that shape their lives such as high schools and universities. There are many organizations that are trying to spearhead a cultural renaissance and reverse trends of anti-freedom and anti-individualism such as the Mises Institute, the Cato Institute, the John Birch Society, etc. Learning from these institution can give an individual the tools necessary to promote the third-order approach.

As mentioned before there are many approaches to solve the problems in the world. The first-order approach is very satisfying for everyone involved, but it is not sustainable and does not address the underlying cause of the problem. The third-order approach, although more difficult to measure, is the best approach. It is incumbent for everyone to learn about these ideas and promote them, whether it be through financial contributions to these organizations or through educating other individuals. I am not suggesting we neglect the needs of people today in order to promote ideas we hope they will grasp tomorrow. By the same token we should not be distracted by doing something good or something better, when we can be working towards the best solution which solves the problem and prevents it from happening.