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Private Practice Corner

PP Corner

Episode 28:  Dark Empires: Whose Fault Is It Anyway

“You are not a failure until you start blaming others for your mistakes.” -Coach John Wooden

There is an approaching singularity. Constant pressure and deft messaging from physician advocacy groups and grassroots efforts are slowly starting to erode the rhinestone-studded facade of the healthcare farce. The pressure from both the hospital and payer lobbies remains powerful, but it has become fairly salient to the general public that as doctors are forced to drop insurance, close their doors, join mega groups, or become employed, physician compensation is not the driver of the cost of care. The evidence is fairly clear even to the most ardent doctor-hater that if doctors were making a ton of money still, why would they want to be employed? The efforts of hypoxic “think tanks” mostly paid for by current or former insurance executives to sell anti-doctor policy to Congress and the willing ears of the Department of Health and Human Services, headed by one of the more ardent doctor haters this millennium, and providing cover for mysteriously unaccountable Centers for Medicare. So what’s next?

There is an approaching singularity. Constant pressure and deft messaging from physician advocacy groups and grassroots efforts are slowly starting to erode the rhinestone-studded facade of the healthcare farce. The pressure from both the hospital and payer lobbies remains powerful, but it has become fairly salient to the general public that as doctors are forced to drop insurance, close their doors, join mega groups, or become employed, physician compensation is not the driver of the cost of care. The evidence is fairly clear even to the most ardent doctor-hater that if doctors were making a ton of money still, why would they want to be employed? The efforts of hypoxic “think tanks” mostly paid for by current or former insurance executives to sell anti-doctor policy to Congress and the willing ears of the Department of Health and Human Services, headed by one of the more ardent doctor haters this millennium, and providing cover for mysteriously unaccountable Centers for Medicare. So what’s next?

In a recent editorial and social media post, Dr. DiGiorgio seemed to lay the blame at the feet of the hospitals.

In a post on X June 14, 2024 he said:

“Price controls are simply lazy. Lazy policy leads to unintended consequences. There are enough price controls in healthcare. More administrative pricing will just make things worse.

…Price regulations cause unintended consequences. They cause shortages. They cause workarounds. They cause other problems.

Instead go after the causes of consolidation. It’s not as politically expedient but it’s more effective.

In healthcare, that means going after facility fees, 340B, quality metrics, meaningful use, certificate of need, and the prohibition on physician ownership.

In healthcare, that means going after facility fees, 340B, quality metrics, meaningful use, certificate of need, and the prohibition on physician ownership.

It Is NOT Time to Consider More Price Regulation in Health Care.”

In this post, it seems that the health systems have profited and maybe even accelerated consolidation to their benefit. Dr. DiGiorgio rightly states that facility fees, metrics, CONs, and physician ownership prohibitions from vestigial legislation such as Stark have exacerbated the problem. While this seems elementary, naturally there is a problematic core assumption that a free market in healthcare is achievable.

The forces working AGAINST a free market in healthcare: Naomi Oreskes took the notion of the “free market myth” to task in The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market. In a discussion held on May 19, 2023, she distills the myth of the free market into three fallacious assumptions:

  1. The free market exists unto itself. It assumes the market is a living thing that would exist without human intervention, direction, or interaction. Like nature. This is obviously not true.
  2. Markets have wisdom. The market can make decisions that are in its best interests just so long as you get out of the way. But the market is a collection of rules and interactions. Change those, you change the market.
  3. Economic freedom protects political freedom, and if you compromise economic freedom, you’re on a slippery slope to totalitarianism. This was, per her, an end-effect of propaganda beginning at the turn of the century with manufacturers ginning up support for their unbridled capitalism and continuing on with the New Deal and later Reaganomics, where the terrifying specter of Communism was raised when corporate profits were dare be affected.

Many proponents point to Hayek as the savior of economics and hard-core champion of the free market. Oreskes explained that Hayek did decry government intervention but was very much in favor of “regulation of pollution, deforestation, (working) conditions, and the need for social security.”

Also looking back at Adam Smith’s Wealth of Nations, later editions of his book left out by the University of Chicago edition by economist George Stigler and per Orestes:

“he’s (Smith) talking about why you cannot have a successful capitalist economy unless you regulate banks for all the reasons that we know today. This was completely removed from the Stigler version. There’s a discussion in The Wealth of Nations of why workers have to be paid fair wages [and] why it’s reasonable for workers to unionize, although he doesn’t use that word. But he talks about collective agency [and] how factory owners will pay starvation wages if they can get away with it. All of that is removed from the Chicago School version of The Wealth of Nations.”

So before the free-market folks have a coronary, it’s important to note that competition lowers prices. Lack of competition reflexively raises them.

The other bit I would throw in is that there is too much money to be made and so folks don’t want a free market to lower those profits. It’s against their own interests. There is a lot of lobbying power behind hospitals to keep the gravy train going. So even if you could get to this The other bit I would throw in is that there is too much money to be made and so folks don’t want a free market to lower those profits. It’s against their own interests. There is a lot of lobbying power behind hospitals to keep the gravy train going. So even if you could get to this

mythical Shangri-La of the Free Market, there will be a Golden Wall guarded by powerful hospital-lobby fed sentry preventing you from getting to the Promised Land.

Source: https://casi.stanford.edu/news/exposing-big-free-market-myth-author-naomi-oreskes

Full disclosure: I am not an economist nor do I pretend to be one. Having been tasked with reading “Atlas Shrugged” by our intrepid editor but having not done so yet.

That being said, there is definitely an argument to be made for the blame to be laid at the feet of hospitals as well. The extreme price differences between cases done say at a surgery center and a hospital are due to extreme bloat in the hospital system. There is significant cost center inflation at the hospital. The money is obviously being used to keep the lights on, the water bills, the nurse salaries and of course – the biggest bloat of all – C-suite compensation.

There have been many calls to end programs such as the 340B program. This program as it is right now amounts to corporate welfare for gigantic hospital systems. The 340B program rose on the coattails from the Medicaid Rebate Program of 1990. Pharmaceutical companies were required to offer rebates to states on purchases of medicines based on sales to those on Medicaid. Prices increased due to the customary loopholes exploited by large money-making organizations. After some hearings in 1992, Congress created the program as part of the Public Health Service Act in section 340B of the law. It required the pharmaceutical companies to provide specified discounts to “covered entities.” The big idea here was to save those clinics money while they are saving the lives of indigent and underinsured patients. Keep in mind on-call physicians were still “getting discounts” as these HMOs and IPAs pay a fraction of Medicare rates and continue to. As stated in a Forbes article just published June 25 (https://www.forbes.com/sites/ritanumerof/2024/06/25/what-it-will-take-to-end-the-battle-over-340b/) the program is now costing more than $54 billion. The pharmacies can buy the discounted meds but don’t necessarily pass the savings on to Medicaid recipients. Oops. And “(i)t’s transitioned from a program designed to lower drug costs to the underprivileged to a dependable revenue stream for hospitals that subsidizes their core operations.”

We see naturally that there are two healthcare “kaijus” battling it out now that physicians are essentially 75-80% employed and most have been absorbed into hospital systems, bought by insurance companies, or private equity. The best way for physicians to survive this battle is to eschew the temptation to be dragged into the fight. Many current healthcare headwinds are there not only because of bad legislation compounded by the inability of governing parties to engage in meaningful policy change but also the sheer amount of money to be made. The wonderful truth that has emerged from this battle royale is it has become even to the most uninvolved layperson – doctors’ fees are not the main driver of healthcare spend – it never has been.

As physicians, we watch these two giants slug it out, it’s best we bide our time, advocate for more autonomy and push back against the false narratives that doctors are driving the cost of care. Let them fight.