Free Markets, Free People

Daily Archives: January 16, 2012


Medicare’s Doctor (and patient) trap

John Goodman poses a scenario for you to consider:

Suppose you are accused of a crime and suppose your lawyer is paid the way doctors are paid. That is, suppose some third-party payer bureaucracy pays your lawyer a different fee for each separate task she performs in your defense. Just to make up some numbers that reflect the full degree of arbitrariness we find in medicine, let’s suppose your lawyer is paid $50 per hour for jury selection and $500 per hour for making your final case to the jury.

What would happen? At the end of your trial, your lawyer’s summation would be stirring, compelling, logical and persuasive. In fact, it might well get you off scot free if only it were delivered to the right jury. But you don’t have the right jury. Because of the fee schedule, your lawyer skimped on jury selection way back at the beginning of your trial.

This is why you don’t want to pay a lawyer, or any other professional, by task. You want your lawyer to be able to reallocate her time — in this case, from the summation speech to the voir dire proceeding. If each hour of her time is compensated at the same rate, she will feel free to allocate the last hour spent on your case to its highest valued use rather than to the activity that is paid the highest fee.

None of us would ever want to pay a lawyer by task, would we (not talking about a will or legal document production here, but instead some form of defense against charges which necessitates a jury trial and requiring the accomplishment of many tasks)?  We’d instead insist upon paying them for a package of services designed to do whatever is necessary to defend us to the best of their ability with the ultimate goal of us walking free.

Right?

So why is it we can’t demand the same of doctors?  Why can’t we demand a package of services designed by them to address all of our medical problems?

Well if your stuck with Medicare or Medicaid, you’re stuck with government price fixing and payment by task, that’s why.  First the price fixing:

Medicare has a list of some 7,500 separate tasks it pays physicians to perform. For each task there is a price that varies according to location and other factors. Of the 800,000 practicing physicians in this country, not all are in Medicare and no doctor is going to perform every task on Medicare’s list.

Yet Medicare is potentially setting about 6 billion prices across the country at any one time.

OK?  Bad enough that Medicare has completely removed the price mechanism from the process. As economist Dr. Mark Perry notes:

These problems sound a lot like the deficiencies of Soviet-style central planning in general when the government, rather than the market, sets prices, see Economic Calculation Problem.

Exactly and stultifyingly obvious, correct?  In fact, it’s something one shouldn’t have to point out.  Nor, would it seem, should it be something that we’re doing either.  But we are.  You just have to remember, our government doesn’t care about history, because, well, you know, it will get it right where all these other governments have failed.  Just watch.

If the price fixing isn’t bad enough, it has also hit upon a procedure that actually inhibits the delivery of good health care rather than incentivizing it.

Medicare has strict rules about how tasks can be combined. For example, “special needs” patients typically have five or more comorbidities — a fancy way of saying that a lot of things are going wrong at once. These patients are costing Medicare about $60,000 a year and they consume a large share of Medicare’s entire budget. Ideally, when one of these patients sees a doctor, the doctor will deal with all five problems sequentially. That would economize on the patient’s time and ensure that the treatment regime for each malady is integrated and consistent with all the others.

Under Medicare’s payment system, however, a specialist can only bill Medicare the full fee for treating one of the five conditions during a single visit. If she treats the other four, she can only bill half price for those services. It’s even worse for primary care physicians. They cannot bill anything for treating the additional four conditions.

So, for example, if you have diabetes, COPD, high blood pressure or any combination of a number of other chronic diseases, tough cookies, your doc can only treat one per visit – unless, of course, he or she wants to work for free on the others.

Don’t believe me?

[When Dr. Young] sees Medicare or Medicaid patients at Tarrant County’s JPS Physicians Group, he can only deal with one ailment at a time. Even if a patient has several chronic diseases — diabetes, congestive heart failure, high blood pressure — the government’s payment rules allow him to only charge for one.

“You could spend the extra time and deal with everything, but you are completely giving away your services to do that,” he said. Patients are told to schedule another appointment or see a specialist.

Young calls the payment rules “ridiculously complicated.”

That has nothing to do with being complicated.  It has to do with stupidity overruling common sense and the stupidity being enforced by an uncaring bureaucracy.  “Rulz is rulz, Doc”.   Do what is best for your patient and do it for free – that’s one way to lower costs, isn’t it?

But don’t forget – government involvement will mean better care at lower cost.  That’s the promise, right?

Instead government is now redefining “better” to mean “their way or the highway”.  It has nothing to do with what is better for the patient or the doctor.  It has to do with what is better politically.  And, of course, better for the bureaucracy.  In this case, that means squeezing the doctor for everything they can get at the expense of the patient.  Since you don’t have a choice about Medicare when you reach 65, any doctor you see doesn’t have a choice about how he or she treats you.

The only choice you have? 

Live with it … if you can.

~McQ

Twitter: @McQandO


One more time: The unemployment numbers in context

Context is one of those tricky words for some.  Because, when applied, it tends to trip up their attempts to shade news a certain way.  Without it, they’re much more able to do their shading than when context is added to their formulation.

Take the unemployment numbers – the “official” unemployment numbers.  We’re supposed to believe that everything is getting better because that number has come down from 10% to its current “official” level of 8.5%.  

But when one digs into that number, it becomes apparent that one can only get to 8.5% if one is willing to write off over a million American workers who’ve somehow “vanished” from the labor force.

Or in other words, in context, with those workers being added back in as they should be, our unemployment rate is much higher than 8.5%.  Dale has explained this many times.  I’ve pointed it out a few times.  Investors Business Daily does it this time:

In the 30 months since the recession officially ended, nearly 1 million people have dropped out of the labor force — they aren’t working, and they aren’t looking — according to data from Labor’s Bureau of Labor Statistics. In the past two months, the labor force shrank by 170,000.

This is virtually unprecedented in past economic recoveries, at least since the BLS has kept detailed records. In the past nine recoveries, the labor force had climbed an average 3.5 million by this point, according to an IBD analysis of the BLS data.

"Given weak job prospects, many would-be workers dropped out of (or never entered) the labor force," noted Heidi Shierholz of the Economic Policy Institute in her analysis of the BLS jobs report issued last Friday. "That reduces the measured unemployment rate but does not represent real improvement."

According to the BLS, the "labor force participation rate" — the ratio of the number of people either working or looking for work compared with the entire working-age population — is now 64%, down from 65.7% when the recession ended in June 2009. That’s the lowest level since women began entering the workforce in far greater numbers several decades ago.

That “labor force participation rate” hasn’t changed significantly.  In fact, given our expanding population, it has probably remained at least the same.  What the “official” number does is ignore the missing million plus workers and thereby misrepresent the true level of unemployment in this country.   That official number also hides the real problem that IBD’s chart shows us – something unprecedented in past recoveries:

 

WEBa1jobs0113.gif

 

Labor force growth, as you might imagine, is one of the indicators of a recovering economy.  Instead we seem to be in the middle of fooling ourselves that such a recovery is happening by viewing a falling “official” unemployment number as an indictor of progress in that area.  I’m not sure how one can make that argument – in context, as provided by this chart.

IBD goes on to outline what this all means in the long run:

Not only does the shrunken labor force mask the real size of the unemployment problem in the country — since only those actively looking for work are counted as unemployed — it likely means that economic growth will be subpar going forward.

[…]

The weak job market has also helped depress wages. Real median annual household income has dropped 5.1% since the recession ended, more than the 3.2% decline during the recession itself — according to a new Sentier Research report.

The smaller labor force is just one of the problems with the current unemployment number. The other is that the jobs being created aren’t keeping pace with population growth. Since June 2009, the economy has added 1.4 million jobs, which is below the more than 2 million needed to keep up with population growth and far below the gains experienced at the same point in the previous 10 recoveries — which saw job gains average more than 4 million.

So, what has happened?  Well there are all sorts of explanations being bandied about – Baby Boomers choosing retirement instead of seeking work, etc.  But the fact remains, as IBD points out, “the labor force had been climbing until Obama took office. In fact, it peaked in May 2009, the month before the recession officially ended.”

That sort of dampens the “Baby Boomer retirement” explanation and leaves us again searching for an answer.

The whole point of this post, however, isn’t so much wrapped up in the answer, but the context of the problem.  Or said another way, you’re being led down the primrose path with the “official” unemployment number and here’s why. 

Context.   A dirty word to those who would prefer to feed you false sunshine via their “official” numbers.  But when you look at their numbers remember that you’re mostly looking at contextless nonsense. 

Oh, and if you’re not depressed enough:

The Economic Policy Institute calculates that when you add the number of jobs lost in the recession and the growth in the working age population over the past few years, the "jobs deficit," as EPI calls it, "remains well over 10 million."

There’s also the problem of people who want full-time work not being able to find it. The BLS offers a different unemployment measure that counts not only those currently looking for a job, but those who’ve given up looking, as well as those who are underemployed because of the soft job market.

That measure has unemployment at a whopping 15.2%.

But don’t look for this administration to ever tell you that.

~McQ

Twitter: @McQandO


Was Solyndra just the tip of a failed taxpayer funded “green energy” iceberg?

It appears so.  CBS News’ Sharyl Attkisson (yes the same Ms. Attkisson who has been the only reporter following up on Fast and Furious) has checked and it seems Solyndra was just one of many “green companies” which the Obama administration attempted to pick as “winners” by “investing” your money via loan guarantees:

Take Beacon Power — a green energy storage company. We were surprised to learn exactly what the Energy Department knew before committing $43 million of your tax dollars.

Documents obtained by CBS News show Standard and Poor’s had confidentially given the project a dismal outlook of "CCC-plus."

Read the documents

Asked whether he’d put his personal money into Beacon, economist Peter Morici replied, "Not on purpose."

"It’s, it is a junk bond," Morici said. "But it’s not even a good junk bond. It’s well below investment grade."

Was the Energy Department investing tax dollars in something that’s not even a good junk bond? Morici says yes.

"This level of bond has about a 70 percent chance of failing in the long term," he said.

In fact, Beacon did go bankrupt two months ago and it’s unclear whether taxpayers will get all their money back. And the feds made other loans when public documents indicate they should have known they could be throwing good money after bad.

That’s one.  But there are more:

Others are also struggling with potential problems. Nevada Geothermal — a home state project personally endorsed by Senate Majority Leader Harry Reid –  warns of multiple potential defaults in new SEC filings reviewed by CBS News. It was already having trouble paying the bills when it received $98.5 million in Energy Department loan guarantees.

SunPower landed a deal linked to a $1.2 billion loan guarantee last fall, after a French oil company took it over. On its last financial statement, SunPower owed more than it was worth. On its last financial statement, SunPower owed more than it was worth. SunPower’s role is to design, build and initially operate and maintain the California Valley Solar Ranch Project that’s the subject of the loan guarantee.

First Solar was the biggest S&P 500 loser in 2011 and its CEO was cut loose – even as taxpayers were forced to back a whopping $3 billion in company loans.

Anyone – does the Constitution have a “venture capitalist” clause in it that we somehow missed?  Is it the job of our government to pick winners and losers in a market using taxpayer dollars?

Well according to the brilliant Steven Chu, Secretary of Energy, no politics were involved in any of this.  But:

Nobody from the Energy Department would agree to an interview. Last November at a hearing on Solyndra, Energy Secretary Steven Chu strongly defended the government’s attempts to bolster America’s clean energy prospects. "In the coming decades, the clean energy sector is expected to grow by hundreds of billions of dollars," Chu said. "We are in a fierce global race to capture this market."

The government is blowing it big time.  Why?  Because, despite Chu’s claim, it is all about politics.  And ideology. 

In fact this administration has no trust in markets to develop the technology they desire so they’re sold on the idea that the central government should be used to facilitate their ideology.  And that is precisely what this is all about.  Solyndra, Beacon Power, Nevada Geothermal, SunPower and First Solar are just failed indicators of the bankruptcy of their approach.  Given a treasury and the ability to spend money almost unchecked, they’ve committed to implementing their ideology on the back of taxpayers.  And, unsurprisingly, they’re failing miserably.

But we’re assumed to be so dumb we can’t see through their political scheme.

Unfortunately, as it has been for quite some time, no one will be held accountable for this fiasco that has cost us billions in money we simply don’t have.   If anyone ever wanted a case study of how out-of-control and outside the Constitutional box government has become, the failed “green energy” sector loan program provides the perfect scenario.

Meanwhile, in Canada:

Canada is now looking to Asian countries to market its abundance of oil, natural gas and minerals as plans to build the proposed Keystone XL pipeline have stalled with the U.S. administration.

Prime Minister Stephen Harper will travel to China next month to discuss selling Canada’s bounty to the rapidly growing nation.

The preferred initial plan was to build the $7 billion Keystone pipeline to deliver Alberta’s oilsands crude to refineries in Texas on the Gulf of Mexico.

Harper reasoned that the U.S. government would prefer to deal with a friendly neighbor to help meet its energy needs while creating thousands of jobs.

With widespread opposition by U.S. environmentalists, the Obama administration has delayed its decision on whether to approve the project proposed by energy giant TransCanada Pipelines.

The new plan would market to China and Asian countries through the proposed Northern Gateway pipeline that would transport Alberta’s oil and natural gas to British Columbia for shipment by tankers.

Yup, no politics at all.

~McQ

Twitter: @McQandO