Obama Healthcare

7/27/2019 Obama Healthcare

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absent some clear warning sign to the contrary, +r# Elings empiricaltreatment rather than premium treatment would be the norm#

Fven in the larger regional hospitals, costs would be limited not only byflat"rate fees but by the removal of patents on drugs and machinery#

In a genuinely free market, licensing cartels would no longer be a sourceof increased costs or artificial scarcity rents# !here would be far morefreedom and flexibility in the range of professional services and trainingavailable# 2ome of the neighborhood cooperative clinics might prefer tokeep a fully trained physician on 3oint retainer with other clinics, withprimary care provided by a mid"level clinician#

r imagine an (merican counterpart of the *hinese barefoot doctor,trained to set most fractures and deal with other common traumas, performan array of basic tests, and treat most ordinary infectious diseases# 8e mightbe able listen to your symptoms and listen to your lungs, do a sputumculture, and give you a run of Xithro for your pneumonia, without havingto refer you any further# (nd his training would also include identifyingsituations clearly beyond his competence that required the expertise of a

nurse practitioner or physician#&rofessional licensing systems would be voluntary, based on competingcertification regimes in a free market# !he guild which trained and certifieda practitioner, an independent certification body 6like the competing bodieswhich certify kosher foods9, or a networked rating system like *onsumereports or ate0y+octor#com, might provide market signaling for would"be consumers#

!he idea is not to reduce the skill level or technological sophisticationof healthcare where it is necessary, but to stop forcing the patient to pay forit when its not necessary#

!he emergence of such institutional forms is likely to be influenced byother intersecting trends: growing levels of unemployment andunderemployment, the decoupling of the social safety net from both wageemployment and the fiscally exhausted state, and the resulting tendency ofpeople to aggregate into household income"pooling arrangements#

ntroduction

Grocery insurance is a popular analogy among free market advocates,for explaining why third party payments eliminate price competition andcontribute to medical inflation: when your insurer only requires a smalldeductible for each trip to the supermarket, youll probably buy a lot more!"bones#

$nfortunately, what we have now is a system where the government,%ig &harma, the license cartels, and bureaucratic high"overhead hospitals actin collusion to criminali'e hamburger and make sure that only !"bones areavailable, and the uninsured wind up bankrupting themselves to eat# ( lotof uninsured people would probably like access to less than premium servicethat they could actually afford#

(nd despite rising deductibles and copays)exactly the kind ofincentives the libertarian grocery insurance critics would regard as idealfor encouraging frugality)low"cost alternatives are simply unavailable in

many cases#( central problem of all the healthcare reform proposals circulating in*ongress is that they focus almost entirely on finance)giving theuninsured the wherewithal to buy insurance and otherwise increasinginsurance coverage to pay for healthcare)without addressing the cost ofhealthcare itself# %ut if healthcare itself were cheap, much of the debate onfinance and insurance would be moot#

+r# (rnold elman, in !ikkun, argued that the versions of health carereform currently proposed by progressives all primarily involve financinghealth care and expanding coverage to the uninsured rather than addressing

the way current models of service delivery make it so expensive:


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-hat are those inflationary forces. # # # /01ost important amongthem are the incentives in the payment and organi'ation of medical carethat cause physicians, hospitals and other medical care facilities to focus atleast as much on income and profit as on meeting the needs ofpatients# # # # !he incentives in such a system reward and stimulate thedelivery of more services# !hat is why medical expenditures in the $#2#are so much higher than in any other country, and are rising more rapidly## # # &hysicians, who supply the services, control most of the decisions to

use medical resources# # # # !he economic incentives in the medical marketare attracting the great ma3ority of physicians into specialty practice, andthese incentives, combined with the continued introduction of new andmore expensive technology, are a ma3or factor in causing inflation ofmedical expenditures# &hysicians and ambulatory care and diagnosticfacilities are largely paid on a piecework basis for each item of serviceprovided#4

(nd as easons 5esse -alker points out, even the most progressivehealthcare proposals, right up to and including single payer 6or even directgovernment delivery of service, along the lines of the %ritish 7ational8ealth9, leave the basic institutional culture of healthcare entirelyuntouched# ( single"payer system, far from being radical,

would still accept the institutional premises of the present medicalsystem# *onsider the typical (merican health care transaction# n oneside of the exchange you;ll have one of an artificially limited number ofproviders, many of them concentrated in those enormous, facelessinstitutions called hospitals# n the other side, making the purchase, isnot a patient but one of those enormous, faceless institutions calledinsurers# !he insurers, some of which are actual arms of the government

and some of which merely owe their customers to the government;s taxincentives and shape their coverage to fit the government;s mandates, areexpected to pay all or a share of even routine medical expenses# !he resultis higher costs, less competition, less transparency, and, in general, asystem where the consumer gets about as much autonomy and respect asthe stethoscope# adical reform would restore power to the patient#Instead, the issue on the table is whether the behemoths we answer to willbe purely public or public"private partnerships#?>?ABBB=B?C#

< 5esse -alker, bama is 7o adical, eason, 2eptember B>, >?http:@@reason#com@archives@>?@>?@B>@obama"is"no"radical#

thousand members 6thus filling in most of the gaps in 0uneys menu ofservices9# (s we saw above, many fraternal orders provided regional hospitalsas a direct extension of contract practice# !he entire hospitaladministration might consist of a single office manager, perhaps with acouple of office assistants, directly responsible for hiring a part"timedietitian, a 3anitor, and a few nurses and orderlies#

!he most expensive, high"tech and speciali'ed forms of care might beoffered at regional hospitals 6but with far fewer beds and less bureaucraticoverhead, since most primary care has been shifted to neighborhoodfacilities9# !hese hospitals might be funded through some 3oint arrangementof the cooperative clinics, or operate independently of them with fundingmainly by cheap, high"deductible catastrophic care policies#

Ideally, even if independently funded by patients catastrophic careinsurance, these regional hospitals would be organi'ed as communityfacilities on some sort of stakeholder cooperative basis 6and not, like mostexisting community non"profit hospitals, run by the same otary *lubyahoos who run everything else in the community9# !heir chosen business

model, instead of investment in the most expensive and costly facilities tocompete in the high"end markets, would be to offer the kinds of basicmedical care needed by most people, efficiently and affordably, with a highquality of personal service# 2uch a hospital would brand itself as a placewhere the vast ma3ority of people could go for most medical problems, andget their call lights answered in a timely fashion and get a bath every day,without the high rates of 02(, falls, and med errors that result fromunderstaffing# (s the slogan on the 8ein' ketchup bottle says, they woulddo an ordinary thing extraordinarily well#

%ut regardless of the internal culture of these large regional hospitals,

any tendency toward creeping bureaucracy would be mitigated andcontained by the fact that the vast ma3ority of patients were hospitali'ed inthe small, low"overhead facilities operated by the cooperatives and mutuals#

-hatever financial machinery existed for funding these hospitals, itwould specify flat payments based on the condition 6with some flexibility,of course, for unusual severity or other extenuating circumstances9 henceno incentives to maximi'e the number of procedures performed or tomultiply the number of specialists taking a cut# +efensive medicine wouldbe mitigated by some combination of reasonable caps on punitive damages,contractual waivers of expensive *L( testing under the terms of

membership, or placing the burden on the patient to explicitly approveadditional tests after being counseled on their costs and benefits hence


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2o what kind of low"cost healthcare model would the free market offerin place of this insanity. Im convinced the only way to fix it is to tear itdown and start over#

It would mean, almost certainly, a shift to decentrali'ed delivery ofservice and cooperative finance: small, neighborhood clinics and associatedsmall hospitals as the main source of primary care, bypassing the insurancesystem altogether and operating on the same flat"fee membership basis as5ohn 0uneys clinics in 7ew Lork and Pliance in 2eattle#

!his would have two primary benefits: first, because of the flat"rate fee,there would be no incentive to mutual logrolling between specialists, orpadding the bill with a OC>>> *! scan second, as 0uney pointed out, iteliminates the


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nsurance ,egulation

f course theres no getting around the fact that the present model ofhealthcare finance plays an important role in the problem#

Dong before the modern model of health insurance became prevalent,self"organi'ed working class mutuals functioned to spread healthcare risksand costs among their members# It was part of a broader movement, a

welfare state organi'ed voluntarily and from the bottom up by workers forthemselves) sick benefit societies, burial societies, and myriad otherfriendly societies# (lthough volunteerism and civil society are currentlybu''words of the right wing, they have impeccable left"wing credentials:they are central themes of &yotr Eropotkins !he 2tate and 0utual (id, aswell as extended chapters in F# !hompsons !he 0aking of the Fnglish-orking *lass# !o grasp their essential difference from the bureaucraticwelfare state and the plutocrats charities, *olin -ard wrote, one need onlylook at their respective names:

n the one side the -orkhouse, the &oor Daw Infirmary, the7ational 2ociety for the Fducation of the &oor in (ccordance with the&rinciples of the Fstablished *hurch and, on the other, the Hriendly2ociety, the 2ick *lub, the *ooperative 2ociety, the !rade $nion# nerepresents the tradition of fraternal and autonomous association springingup from below, the other that of authoritarian institutions directed fromabove#B

!he welfare state and the tax"exempt charitable foundations of the richare integrated into the larger state capitalist system, and serve its ends# !hey

B *olin -ard, (narchy in (ction 6Dondon: Hreedom &ress, 4?A


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couple the relief of destitution, homelessness and starvation, to the extentnecessary to prevent political threats to the power of the corporate rulingclass, with social discipline and supervision of the lower orders#=

!he workers own libertarian welfare state, on the contrary, served theends of workers themselves# +avid Green writes:

!he friendly societies were self"governing mutual benefit associationsfounded by manual workers to provide against hard times# !hey strongly

distinguished their guiding philosophy from the philanthropy which layat the heart of charitable work# !he mutual benefit association was notrun by one set of people with the intention of helping another separategroup, it was an association of individuals pledged to help each other

when the occasion arose# (ny assistance was not a matter of largesse butof entitlement, earned by the regular contributions paid into thecommon fund by every member and 3ustified by the obligation to do thesame for other members if hardship came their way#

In short, the friendly societies of the nineteenth century were part of an

emerging, distinctively working class culture with its own institutions#In regard to healthcare in particular, as -ard writes, history shows thatJthe self"organisation of patients provided a rather better degree ofconsumer control of medical servicesJ than was achieved under the 782# C

!he !redegar 0edical (id 2ociety, founded in 4AK>, was a goodexample# It was funded by a subscription of Jthree old pennies in the poundfrom the wage"packets of miners and steelworkers,J and at one timeemployed Jfive doctors, a dentist, a chiropodist and a physiotherapist,Jalong with a hospital that served >> people#K

!im Fvans quoted an estimate by the *hief egistrar of Hriendly

2ocieties in 4A?< that B#A million of K million industrial workers wereinsured against sickness through a registered friendly society, while at leastanother B million belonged to unregistered societies#A0embership in

= 2ee Hrances Hox &iven and ichard *loward# egulating the &oor 67ew Lork: Mintage%ooks, 4?K4, 4??B9#

+avid Green, einventing *ivil 2ociety 6Dondon: Institute of Fconomic (ffairs,8ealth and -elfare $nit, 4??B9, p# B>#

C -ard, J!he welfare road we failed to take,J in 2ocial &olicy: (n (narchist esponse6Dondon: Hreedom &ress, 4??C9, p# 4=#

K Ibid#, p# 4#A !im Fvans, J2ocialism -ithout the 2tate#J &olitical 7otes 7o# ?? 6Dondon: Dibertarian


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registered friendly societies grew from 6in addition to those in unregistered societies9, and Greene estimatestotal friendly society insurance coverage in 4?4> at ? to ?# million out ofthe 4< million covered by the 7ational Insurance (ct of 4?44#

!he first nail in the coffin of the workers self"organi'ed healthcaresystem was the 7ational Insurance (ct# Dloyd George originally envisionedit as Ja way of extending the benefits of friendly society membership,already freely chosen by the vast ma3ority of workers, to all citi'ens, andparticularly those so poor they could not afford the modest weeklycontributions#J?r as -ard put it, the goal was to create Jone big!redegar#J

Georges original proposal was distorted beyond recognition in the8ouse of *ommons by a coalition, Jhostile to working"class mutual aid,J ofthe %ritish 0edical (ssociation and an insurance industry trade associationknown as the *ombine# (mendments obtained under their influenceeliminated all vestiges of democratic self"organi'ation, and instead vestedadministration in Jbodies heavily under the influence of the medical

profession#J !hey limited panel doctors to registered practitioners, thusgreatly strengthening the licensing bodies monopoly# !hey also eliminatedany threat that working"class bargaining power would be used to keepphysicians fees within a range affordable to ordinary manual workers)from the physicians standpoint, the worst outrage of the old friendlysocieties# Instead, doctors incomes were doubled and financed by aregressive poll tax#4>!he organi'ed medical profession also used the G0*,the primary licensing body, to Jban conduct which helped the consumer todifferentiate between doctors,J like advertising#44

!he final blow came from the 7ational 8ealth 2ervice, established in

4?=A, which nationali'ed delivery of service in addition to finance#(lthough mutual provision of healthcare was not as extensive in

(merica, it still included a considerable portion of the population#*ertainly, as +avid %eito points out, self"help efforts organi'ed throughmutuals Jdwarfed the efforts of formal social welfare agencies#J4??#pdf#? +avid Green, -orking"*lass &atients and the 0edical Fstablishment: 2elf"8elp in

%ritain from the 0id"7ineteenth *entury to 4?=A 6(ldershot, $E: Gower@!emple,4?AC9, p# Ibid#, pp# A#

44 Ibid#, p# 4B"4?CK 6*hapel 8ill and Dondon: !he $niversity of 7orth *arolina

blurred, a new logic is assumed: the more treatment there is, the better arethe results#### !he pupil is thereby JschooledJ to confuse teaching withlearning, grade advancement with education, a diploma with competence,and fluency with the ability to say something new# 8is imagination isJschooledJ to accept service in place of value#### 8ealth, learning, dignity,independence, and creative endeavor are defined as little more than theperformance of the institutions which claim to serve these ends, and theirimprovement is made to depend on allocating more resources to the

management of hospitals, schools, and other agencies in question####/2chools teach the student to1 view doctoring oneself as irresponsible,learning on ones own as unreliable and community organi'ation, whennot paid for by those in authority, as a form of aggression or subversion####/1eliance on institutional treatment renders independentaccomplishment suspect####?C

?C Illich, +eschooling 2ociety, pp# 4"B#


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erects against transforming ones labor directly into use"value 6IllichsJconvivialJ production9, and the increasing tolls levied by the licensingcartels and other gatekeeper groups#

&eople have a native capacity for healing, consoling, moving,learning, building their houses, and burying their dead# Fach of thesecapacities meets a need# !he means for the satisfaction of these needs areabundant so long as they depend on what people can do for themselves,

with only marginal dependence on commodities####!hese basic satisfactions become scarce when the social environment

is transformed in such a manner that basic needs can no longer be met byabundant competence# !he establishment of a radical monopoly happens

when people give up their native ability to do what they can do forthemselves and each other, in exchange for something JbetterJ that canbe done for them only by a ma3or tool# adical monopoly reflects theindustrial institutionali'ation of values#### It introduces new classes ofscarcity and a new device to classify people according to the level of theirconsumption# !his redefinition raises the unit cost of valuable services,differentially rations privileges, restricts access to resources, and makespeople dependent#?=

!he overall process is characteri'ed by

the replacement of general competence and satisfying subsistenceactivities by the use and consumption of commodities the monopoly of

wage"labor over all kinds of work redefinition of needs in terms of goodsand services mass"produced according to expert design finally, thearrangement of the environment### /to1 favor production andconsumption while they degrade or paraly'e use"value oriented activities

that satisfy needs directly#?

adical monopoly, as Illich pointed out, is associated with a generalshift in cultural values by which the individual comes to see services asnaturally the product of institutions:

0any students### intuitively know what the schools do for them#!hey school them to confuse process and substance# nce these become

?= Illich, !ools for *onviviality, p# =#

? Illich, Mernacular Malues 64?A>9, J&art ne: !he !hree +imensions of 2ocial *hoice,Jonline edition courtesy of !he &reservation Institutehttp:@@www#preservenet#com@theory@Illich@Mernacular#html#

study by the *onnecticut %ureau of Dabor 2tatistics found that membershipin fraternal insurance orders was 4N of the general population# f these,C>N were sick and funeral benefit orders, and


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sickness among the relatively poor#J4AIn 2eattle, lodge members eligible fortreatment by a lodge physician amounted to some N of the adult malepopulation#4?!his was, remember, in addition to the number of people whoobtained medical insurance through friendly societies and mutuals#

!he cost of coverage through lodge practice averaged around O< a year)roughly a days wage) and some lodges offered coverage for familymembers at the same rate# (nd this was the typical charge for a single housecall by a fee"for"service physician at the time# -hats more, the competition

from lodge practice probably resulted in lower fees for the services ofphysicians in private practice#

!hat was, perhaps, one reason for the medical professions strongresentment# 7evertheless, the practice appealed to many doctors, especiallythose starting out, by offering a large and stable patient base#, the number of physicians per 4>>,>>> people shrank from4C= to 4= and 4?


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In addition, the goods supplied by a radical monopoly can only beobtained at comparably high expense, requiring the sale of wage labor topay for them, rather than direct use of ones own labor to supply ones ownneeds#

!he state"sponsored crowding"out makes other, cheaper 6and oftenmore appropriate9 forms of treatment less usable, and renders cheaper 6butadequate9 treatments artificially scarce# *entrali'ed, high"tech, and skill"

intensive ways of doing things make it harder for ordinary people totranslate their own skills and knowledge into use"value#

2ubsidi'ed fuel, freeways, and automobiles mean that J/a1 city builtaround wheels becomes inappropriate for feet#JAK( subsidi'ed and state"established educational bureaucracy leads to Jthe universal schoolhouse,hospital ward, or prison#JAA

In healthcare, subsidies to the most costly and high"tech forms ofmedicine crowd out cheaper and decentrali'ed alternatives, so that cheaperforms of treatment)even when perfectly adequate from the consumers

standpoint)become less and less available#!here are powerful institutional pressures for ever more radicalmonopoly# (t the commanding heights of the centrali'ed state andcentrali'ed corporate economy""so interlocked as to be barelydistinguishable""problems are analy'ed and solutions prescribed from theperspective of those who benefit from radical monopoly# 2o we see elitescalling for Jmore of the sameJ as a cure for the existing problems oftechnology#

It has become fashionable to say that where science and technology

have created problems, it is only more scientific understanding and bettertechnology that can carry us past them# !he cure for bad management ismore management#

Illich described it as an Jattempt to solve a crisis by escalation#JA?Itswhat Finstein referred to as trying to solve problems Jat the same level ofthinking we were at when we created them#J r as F# H# 2chumacher says ofintellectuals, technocrats Jalways tend to try and cure a disease by

AK Illich, +isabling &rofessions 67ew Lork and Dondon: 0arion %oyars, 4?KK9,p#


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losing their 3obs, and therefore, their health insurance coverage#(bout >> people have registered for 0uneys OK?"a"month plan,

accounting for 4 percent of patients at the practice, which has offices ineach of 7ew Lorks five boroughs#

!he monthly OK? fee### covers unlimited preventive visits and onsitemedical services such as minor surgery, physical therapy, lab work andgynecological care#

Ilana *lay, a > a month#

JI hadnt been to a doctor in a couple of years at that point,J she toldeuters# 2he had a scar removed in a quick onsite procedure that wascovered by the plan#

0uney said another patient came in with a tumor on her finger:J2omebody else asked OB,>>> to remove it# !he first visit, we were ableto remove it, 4 minutes it took us#J

2o far the program has not turned a profit, but 0uney said heestimates that it could be profitable with =,>>> patients# In themeantime, he said, his motive is to give something back and provide a

model of how healthcare can be more efficient#Jur healthcare system lends itself to abuse, fraud and waste,J he

said, adding that bypassing insurers saved on administrative costs, whichhe said were about ?>>K#

*onclusion

!he cumulative effect of all these policies is what Ivan Illich calledradical monopoly#

adical monopoly exists where a ma3or tool rules out naturalcompetence# adical monopoly imposes compulsory consumption and

thereby restricts personal autonomy# It constitutes a special kind of socialcontrol because it is enforced by means of the imposed consumption of astandard product that only large institutions can provide#A=

adical monopoly is first established by a rearrangement of societyfor the benefit of those who have access to the larger quanta then it isenforced by compelling all to consume the minimum quantum in whichthe output is currently produced####A

!his quote from 0arilyn Hrye, in Jppression,J is a good statement ofhow radical monopoly feels from the inside:

!he experience of oppressed people is that the living of one;s life isconfined and shaped by forces and barriers which are not accidental oroccasional and hence avoidable, but are systematically related to eachother in such a way as to catch one between and among them and restrictor penali'e motion in any direction#AC

A= Ivan Illich, !ools for *onviviality 67ew Lork, Fvanston, 2an Hrancisco, Dondon:8arper S ow, 4?KB9, pp#


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chest pains# !ypically, as %aker noted to us, these devices are billed to thepatient at O4,>> to O>> each Y yet the actual cost of manufacturingone of these is more in the ballpark of O4#AB

!he cost savings that could be achieved through open"source, reverse"engineered versions of expensive proprietary technology like the *! scanmachines are suggested by the work of hardware hackers inmicromanufacturing machinery, who can frequently make homebrew

versions of *7* tools like B"axis milling machines and cutting tables with aHactor !wenty cost reduction#

AB 5ohn 8anrahan, &atent system adds hundreds of billions every year to health care

costs, 7ieman -atchdog, ctober 4B, >?http:@@www#niemanwatchdog#org@index#cfm.fuseactionT%ackground#viewSbackgroundidT=>,>>>N markups forsupplies and drugs, may well be the future of medicine# (bsent the perverse

incentives and high overhead that prevail in bureaucratic hospitals, its reallynot surprising 0uney can do it for OK?#

Pliance, a new clinic in 2eattle, is attempting to provide primary careoutside the insurance system on something like 0uneys contract practicemodel#

( 2eattle clinic for people fed up with insurance, started by doctorsfed up with insurance, has gotten O= million in private venture capitalmoney to expand, it announced on 0onday#

Pliance says it has a profit"making solution to the problems of long

waits, rushed doctors and cursory care that bother patients, at the sametime that it eliminates the paperwork and pressure that plague primarycare doctors####

!he new venture funding comes from 2econd (venue &artners withparticipation by 7ew (tlantic Mentures and *lear Hir &artners, bringingtotal capital raised to about OK# million#

*o"founder 7orm -u said per"patient revenue is triple that ofinsurance"based clinics# 8e said many costs are fixed so the firm, nowlosing money, will turn to profit as business grows#

0ore than > noninsurance clinics operate in 4A $#2# states, based

on different business models, -u noted####Pliance says it is a private alternative to the failures of insurance,which have made health care &resident bamas top legislative priority in*ongress, with a price tag of O4 trillion or more#

Pliance customers pay O?? to 3oin, then a flat monthly rate of OB?to O44?, depending on age and level of service# &atients can quit withoutnotice and no one is re3ected for pre"existing conditions####

Pliance patients get unrestricted round"the"clock primary care accessand B>"minute appointments####

/*linic co"founder +r# Garrison1 %liss said dumping rigid,convoluted insurance requirements and paperwork saves large amounts

of money#


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!he Ithaca 8ealth (lliance, a cooperative health insurance systemcreated by &aul Glover and other founders of the Ithaca 8ours communitycurrency, has also experienced considerable difficulty with the insuranceregulators#

Ithaca 8ealth was created in 4??K, beginning simply as a discountnetwork in which, in return for the O4>> annual fee, members wouldreceive discounts from participating providers# !he next step, when the

system accumulated sufficient funds, was to begin offering payments for alist of specified conditions# (s funds continued to accumulate andmembership increased, Ithaca continued to expand its list of coveredconditions and the scale of payments on claims from one year to the next#!he (lliances choice of conditions to cover has been based on anassessment### of the frequency of selected in3uries by the 7ew Lork+epartment of 8ealth# *onditions covered began with fractures andstitches, and expanded to include burns# !he list has since further expandedto include appendectomies, ambulance rides, rabies inoculations,

Fmergency oom visits, and a number of dental procesures# 2omeindication of the I8(s success may be inferred from the fact that the cityof Ithaca enrolled =>> municipal employees in Ithaca 8ealth#


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&harma funded a OC million advertising campaign to promote thehealthcare bill#A4

A4 *hris Hrates, &h0( plans OC million pro"reform ad buy in BA 8ouse districts,

&olitico#*om, 0arch 4K, 4>http:@@www#politico#com@livepulse@>B4>@&h0(WplansWCWmillionWproreformWadWbuyWinWBAW8ouseWdistrictsWWEucinichWannouncingWvoteWdecisionWatW4#html

Lork;s O4>#>># -e request waiver of this fee#2econdly, &I+ requires O4,>>,>>> initial capitali'ation# (s in

Ithaca, 7L, we proceed by gathering small membership fees# In&hiladelphia we will begin with O4>>,>>>, by gathering O4>>@each fromour first 4,>>> pledges# !his will suffice as foundation upon which tobuild as Ithaca did####

!hirdly, &hila8ealthia;s grassroots process enables us to pay forgradually expanded categories of medical and dental need as moremembers 3oin and renew# -e do not begin with capability to covermandated categories# 7or do we grow pyramidally, but stabili'e thepayment menu when enrollment stabili'es# (dministrative staff are paidnot more than twice the region;s livable wage, regardless how big thisplan gets#B4

2o ordinary people cannot organi'e a cooperative health insurancesystem with their own money, without meeting a high initial capitali'ationburden, paying a high application fee, and covering the entire range ofmandated conditions# (ny such cooperative program must raise the capitalto operate on a large scale at the outset, or not be allowed to operate at all itmust be able to cover the full range of mandated conditions, or covernothing# !o start small, with the capital available to members, and thengradually expand coverage as the system grows, is illegal#

(pparently a voluntary, affordable insurance policy that covers fewerconditions than the state mandates is worse than nothing, because thechoice facing &hiladelphias uninsured was not between &hila8ealthia and amore comprehensive system, but between &hila8ealthia and nothing at all#2o if an uninsured person cant afford what the state considers a minimumacceptable level of coverage, hes not allowed to have any coverage at all#

!his is 3ust another example of how the mendacity of regulatedindustries intersects with the naivete of liberal do"gooders, in the%ootleggers and %aptists model of public policy# %etter than nothing isnot in the liberal vocabulary# 8ence, for example, local restrictions onhomeless people living in their cars# Diving in a car is substandard housing#7ever mind that, from the standpoint of the person whose life is affected, acar is about as much of a step up from the sidewalk as a house is from a car#(ll that matters is that a car is substandard housing whether its better thanthe alternative, or whether such coercive mandates have unintended

B4 &aul Glover, letter to osemary &lacey, 5uly 4, >K, in 8istory of correspondencebetween &hila8ealthia and &ennsylvania Insurance +epartment 6&I+9#


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consequences, is beside the point#BK#

2tarting in 4


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Dicensing *artels

&rofessional licensing regimes, in practical effect, are cartels, outlawingcompetition between multiple tiers of service based on the consumerspreference and resources# !he licensing cartels outlaw one of the mostpotent weapons against monopoly: product substitution#

0uch of what an 0+ does doesnt actually require an 0+s level of

training# %ut to get any kind of treatment, no matter how simple andstraightforward, you cannot simply pay a price that reflects the amorti'ationcost of the level of training it actually requires to perform the service youneed# Lou must pay the amorti'ation cost of an entire medical schoolcurriculum and residency#

!ake, for example, restrictions on independent practice by mid"levelclinicians# !wenty"seven out of fifty states in the $#2# do not allowindependent practice by advanced practice nurses and physicians assistantswithout a doctors Joversight or collaboration,J although most allow nursepractitioners to write prescriptions#KBIn fact, the 0+s Jsupervision,J morelikely than not, will consist of sanctifying the clinic with his presencesomewhere in the building for part of the day 6and adding the cost of hismedical education and living expenses to the clinics overhead cost9 as thenurse practitioner single"handedly examines and evaluates the patient andprescribes treatment# 2tate medical and dental associations fight, tooth andnail, state legislation to expand the range of services that can be performedindependently by mid"level clinicians# ( good example is the proposal toallow dental hygienists to clean teeth in independent practices: the dentalassociations are death on the sub3ect# !he mid"level clinicians themselves are

KB 2hirley 2vorny, J0edical Dicensing: (n bstacle to (ffordable, Puality *are,J *ato&olicy (nalysis 7o# C


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new telephone system when the one it replaced was satisfactory in everyway# !housands were spent replacing a perfectly acceptable photocopier#!he hospital spent an enormous sum of money remodeling thepostoperative care ward, changing the entire floor plan within the limits setby the location of girders, in a way that made it less functional than beforethe staff on that ward are unanimous in hating it# 2everal years ago theadministration remodeled another floor and furnished it with the mostluxuriously appointed rooms in the hospital, at enormous cost, in order to

house an (*F 6(cute *are of the Flderly9 ward but because the ward wasdesigned with insufficient input from physicians, it was subsequently3udged inadequate for the purpose and closed off for several years# 0ostrecently, the hospital announced an OA million expansion of F# !hat OAmillion would have been enough to increase staffing to the pre"downsi'inglevels of the early ?>s)five or six patients for each nurse and orderly)forfive years#

7ationwide, according to 0aggie 0ahar, /i1n the past two years thehospital industry has embarked on a building boom, the likes of which wehavent seen since 4?C?# %etween 4??? and >, hospital constructionexpenditures increased by more than half, from O4=#= billion to O,>>>N#


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provided greater competition for their business# Instead, the *harlestonhospital successfully prevented the possibility of this competing open heartprogram# !he state authorities never had the opportunity to decide whetherunder the *7 laws that second program would have been approvedbecause of the unlawful agreement among the hospitals#

In the second -est Mirginia case, two closely competing hospitalsdecided to allocate healthcare services between themselves# !he informalurging of state *7 officials led them to agree unlawfully that only the one

hospital would apply for an open heart program and only the other wouldapply to provide cancer services# (gain, the state took no official action andconsumers were deprived of the potential competition between thesehospitals#

( third example comes from the 2tate of Mermont# !here, home healthagencies entered into territorial market allocations, again under cover of thestate regulatory program, to give each other exclusive geographic markets#!hat states *7 laws prevented competitive entry, which normally mighthave disciplined such cartel behavior# -e found that Mermont consumerswere paying higher prices than were consumers in states where home healthagencies competed against each other#K"bed for"profit hospital serving a metropolitan area of several hundred thousand in7orthwest (rkansas 6along with two other large nonprofit regional hospitalsand a M( hospital9, typically has a patient census ranging from A> to 44># Ifthis is common, it seems likely that hospital licensure, ostensibly aimed atpreventing an excess of beds, results instead in the concentration of excessbeds among a few providers# !he number of beds the state considers

legitimate for a market, instead of being divided between thirty hospitals oftwenty beds each, is divided between three hospitals of two hundred each#In that case, the effect is not so much to reduce excess supply of beds, as todivide up the excess beds among a smaller number of hospitals in acarteli'ed market that are able to pass the overhead cost on to patientwithout any real price competition#

!he total effect of all these forces is the near"total absence of cost

K< 5oseph 0# 0iller, (ssistant *hief, Ditigation I 2ection, $#2# +epartment of 5ustice(ntitrust +ivision, *omments on *ompetition in 8ealhcare and *ertificates of7eed# 2tatement of the (ntitrust +ivision, $2 +epartment of 5ustice %efore theHlorida 2enate *ommittee on 8ealth and 8uman 2ervices (ppropriations# 0arch A http:@@www#3ustice#gov@atr@public@comments@


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corporations#=


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than 4=>,>>> people and pro3ected population growth of at least 4>percent during the next 4> years to immediately qualify for an additionalhospital#CA

!he explicit ob3ective of protecting existing providers from competition,by the way, is indicative of the theoretical incoherence of mainstreamliberalism# !he people who draft regulatory legislation with the expresspurpose of preventing the evils of destructive competition or cutthroat

comeptition, by and large, are the very same people who complain of theevils of monopoly#

7evertheless,giventhe preexisting tendencies toward concentration andcarteli'ation of local healthcare markets, and given the failure ofmanagement accounting metrics to restrain wasteful capital expenditures, itmay be that the certificate of need requirement serves a useful function)i#e#, limiting the ability of a handful of large hospitals to overbuild and thencollusively pass on the overhead from vacant rooms as a markup to theirpatients#C?0arket incentives are no doubt lacking, under presentcircumstances, to avoid wasteful capital expenditures and the construction

of superfluous new capacity#$nder present conditions, certificates of need may serve to ameliorate

conditions created by the state in the first place# %ut in a free market,certificates of need would be moot, at best duplicating the preexistingincentives of the market# !he natural tendency, in a genuinely free marketwith vigorous cost competition, is toward conservatism in capitalinvestments# It is only corporatist institutions, that can either count on aguarantee of sufficient demand to fully utili'e their capacity or pass theoverhead costs on as a markup to their customers, that carelessly sinkmoney into new facilities without a high degree of confidence in marketdemand# In a local healthcare market with genuine cost competition amonga large number of small hospitals and clinics, a small hospital would berestrained by realistic estimates of how many beds it could fill, and by the

CA (ssociated &ress 6live %ranch9# J0iss# board considers hospital licensing changesJ !he&icayune Item, 5anuary , >?http:@@picayuneitem#com@statenews@localWstoryW>4AB4=#html 6link dead recoveredvia Internet (rchive9

C? Indeed, +aniel 2herman argues, *7 regulations are predicated on the lack of pricecompetition and cost control incentives among hospitals, and their tendency towardoverinvestment and competition mainly in terms of adding services 6especiallycompetition in adding high"cost specialties9# 2herman, !he Fffect of 2tate *ertificateof 7eed Daws on 8ospital *osts, p# 44#

shareholder ownership is a myth# Hrom the standpoint of management, thereal owners and the only stakeholders who really count, managementsalaries and perks)administrative overhead)are the purposeof theorgani'ation#

thers point out the number of hospitals running in red ink# %ut suchclaims treat fixed costs and overhead as a fact of nature, when they reallyresult from a choice of organi'ational model# ( hospital that spends thetypical amount of money on white elephant capital pro3ects and

administrative overhead that a typical hospital spends deserves to gobankrupt#

!he enormous overhead cost resulting from bloated administrativebureaucracies, capital spending boondoggles, and so forth, are the mainreason for all these enormous markups# (dministrative costs and capitalpro3ects are considered part of general overhead rather than direct costs#(nd in an environment of third"party payments and near"'ero pricecompetition between hospitals)to repeat) there is little restraint onhospitals ability to pass on such overhead cost by simple markup, with nocompetitive ill effect#

8ospital management, typically, pays lip service to &hilip *rosbys costof low quality,=?without any sign it grasps the significance of the idea#!hey regurgitate statistics, in employee propaganda handouts, about how02( infections, medication errors, and falls increase costs# !hey mightadmit, in theory, that understaffing is a contributing factor to such costs,and maybe even admit that such side"effects of understaffing more thanoffset the ostensible savings on direct labor# %ut they dont really internali'ethe practical implications their accounting metrics militate against it# Ifsuch costs were included on the same ledger with the direct labor savings

from downsi'ing, to create a unified cost"benefit metric for staffing cuts, theaccounting metric would provide a healthy incentive# %ut given amanagement accounting system that maximi'es I by minimi'ing directlabor hours in isolation, management will minimi'e direct hours)ruatcoelum# Fven if the resulting increase in infections, falls and med errorsmore than offsets the savings on labor costs, those other numbers dontshow up anywhere that matters under the conventional accounting rules#!hey are entirely academic# -hats real is the metric they learned at 0%(school, by which labor cost savings and increased costs of poor quality fromunderstaffing dont show up on th same bottom line# !his means the 0%(s

=? &hilip *rosby, Puality is Hree: !he (rt of 0aking Puality *ertain 67ew Lork:0cGraw"8ill %ook *ompany, 4?K?9#


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are unable to understand, in practical terms, that understaffing increasescosts#

ather than thinking of increased staffing as a human capitalinvestment that would quickly pay for itself through reduced errors andcomplications, they count it as an operating cost# %ut capital expenditures,no matter how wasteful or counterproductive, are an investment, so theyreE# (nd since capital expenditures and capital pro3ects go to overhead,they are invisible# !here is no separate line"item on a patient bill for his pro

rata share of the OA million F expansion, or for the salary of the personwho oversaw HishQ &hilosophy or rewrote the mission statement for theumpteenth time#

!he conventional business model in healthcare is riddled with perverseincentives# %esides the lack of management incentives to minimi'e overheador any cost other than direct labor, a central cause of healthcare inflation, isthe insulation of the purchaser from price signals# %etween 4?K> and >K,the average portion of healthcare costs paid out of pocket fell from =>N to4=N#>!he direct result has been the relentless creep of standards ofpractice toward the highest"cost tests and procedures#

In the Hebruary healthcare summit with *ongressionalepublicans, &resident bama dismissed G& proposals for high"deductible health insurance policies limited mainly to catastrophic care,with most routine care and non"catastropic costs being paid out of pocket#bama asked, in response, how practical such a proposal would be forsomeone with a O=>,>>> annual income# !hats a good point, as far as itgoes but it reflects something of a *atch" when =>N of expenses were paid out of pocket but one reason costs

have risen so fast in real terms is precisely because the purchaser is insulatedfrom the real cost# ( healthcare finance model based on insurance forcatastrophic care, with most ordinary costs paid out of pocket, isunsupportable precisely because the costs of the most routine procedures areso enormous compared to their prices in constant dollars a generation ortwo ago# %ut one reason for this enormous cost inflation, and for theconstant creep toward more expensive technology and more tests even whentheyre not necessary, is the consumers insulation from direct costcomparisons#

bamas remarks assumed the continuation of a conventional

> 8ealth *are *osts: ( &rimer Eey Information on 8ealth *are *osts and !heirImpact 6!he 8enry 5# Eaiser Hamily Houndation: 0arch >?9, p# 4B#

when such policies reflect a total disconnect from the situation and acultural atmosphere of *L( and plausible deniability9# 2eriously)everytime 5*(8 comes around, hospital management coaches us to memori'ethe mission statement in case they ask us but Ive never once heard, in allmy years of working in healthcare, of 5*(8 asking about hospital staffingratios or whether nurses can provide adequate patient care without stayingover three hours every night to catch up on their paperwork# I2"?>>>certification requirements, similarly, include often completely idiotic forms

of documentation#!he problem is that such regulations presuppose a large bureaucratic

hierarchy in which the people at the top of the pyramid are divorced fromdirect experience of the work process# Given this assumption, it stands toreason that senior management must rely on arbitrary metrics to make theproduction process legible to them, and rely on -eberian work rules andbest practices to ensure quality in a process of which they have no directknowledge# It presupposes the separation of management from production,the stovepiping of functions, and the lack of direct quality feedback fromthe work process itself)an environment in which quality feedback and theaggregation of knowledge between departments can only be achieved byreducing the knowledge of one department to paper for transmission toother departments# In short, it presupposes a particular bureaucratic form oforgani'ation, and then imposes paperwork burdens that can only be metwith the resources of large bureaucratic organi'ations#

2tate hospital licensing requirements, and in particularly the certificateof need requirement, interact in complex ways with the above"mentionedcentrali'ing tendencies# !he ostensible purpose of certificates of need is toprevent excess bed capacity in any market from driving up costs# Its also to

prevent destructive competition that might reduce profits for the ownersof existing beds#

0ethodist has proposed a 4>>"bed, four"story patient tower on a "acre site along $#2# 8ighway KA#

!he %oard of 8ealth issues certificates of need to control costs, avoidduplication of services and protect existing health care providers fromcompetition# !he board also considers new medical pro3ects based partlyon how much they are needed within a region#

(lliance 8ealth*are 2ystem and %aptist 0emorial 8ealth *are, twoarea hospital groups, have opposed 0ethodist;s application#

!he %oard of 8ealth also is considering allowing counties with more


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*82# !he total debt incurred in the takeover was roughly two yearsrevenue for *82# !hat kind of debt takes a lot of OB>> bags of salinesolution to pay off#

Government acts in all sorts of ways to increase overhead andcapitali'ation cost, and thereby to promote the concentration of hospitalservice among a handful of large providers in each market#

ne important way is through the paperwork burden it imposes, whichgives hospital administrations no choice over a ma3or part of their

administrative overhead# Fnormous billing and medical recordsdepartments must exist in order to satisfy the documentation requirementsof the state, private insurance companies, and government insuranceprograms like 0edicare and 0edicaid#

Government regulations also contribute directly to)indeed in somecases explicitly require)the kind of +ilbertesque culture &aul Goodmanmocked in &eople or &ersonnel# It does it through its own mandates,imposing specific management fads on hospitals# (ccording to documents Iread in my employers quality improvement handbook, (rkansas state lawspecifically requires every department in a hospital to have a processimprovement committee# (nd despite the assortment of flavors of theweek in that handbook)which amounts to a geological cross"section ofevery fossili'ed management theory fad from the ?>s, including !P0 and2ix 2igma)from what Ive seen the hospital administration doesnt havethe slightest clue what +eming or other Puality thinkers are about# Iveseen endless bulletin boards full of slogans and graphs parroting Ewality3argon 6including &lan +o *heck (ct9, coupled)on the very same board)with behavioral approaches to minimi'ing variations that amount towhat +rucker called management by drives and +eming called slogans,

exhortations and revival meetings# In short, the pointy"haired bosses parrot+eming the same way 2oviet &arty hacks parroted Denin#Government does the same thing indirectly, though quasi"independent

bodies and processes like 5*(8 whose certification is for all intents andpurposes a mandatory condition for continuing to operate 65*(8certification is a requirement for hospital licensing and 0edicaidreimbursement in a most statesCK9# 5*(8 certification, as I have witnessedit in my workplace, involves among other things asking employees if theycan regurgitate the companys mission statement, or regurgite managementhappy talk about the policies in place to address quality problems 6even

CK 5oint *ommission, -ikipedia http:@@en#wikipedia#org@wiki@5ointW*ommission#

healthcare model in all aspects except the narrow G& finance proposal#%ut if combined with an innovative, low"cost vehicle for delivering primarycare 6like +r# 0uneys clinics bypassing the insurance system altogether andoffering flat fee coverage9, high"deductible catastrophic plans might workvery well#

$nder the present healthcare business model, the consumers maincontact with rising costs is in the form of rising premiums# !he state,through regulatorily carteli'ed systems of insurance and delivery of service,

breaks the direct market relationship between purchaser and supplier# !hesystem runs on third party payments and cost"plus accounting, whichmeans that those making the decisions regarding healthcare delivery haveprecious little incentive to economi'e# It is almost never standard practice,in making healthcare decisions, to be informed of both the costs andbenefits of a test or procedure at the time of the decision, or for the patientto be given a choice between higher and lower cost options with theattendant risks explained# Har from it#

0ichael *annon and 0ichael !anner argue that third"party paymentdistorts or conceals the price signals that would be sent in a free market bypatients shopping for services with their own money# (s Jpatients take lesscare to weigh the expected costs and benefits of medical care,J providershave far less incentive to minimi'e costs per unit of service in order to offera competitive price# ather, with fixed payments for service from third"party payers, providers have an incentive to minimi'e quality and pocketthe difference# JIt should come as little surprise, then, that in practice,patients often receive substandard or unnecessary care#J (n 7F50 studyfound that patients received Jthe generally accepted standard of preventive,acute, and chronic careJ only N of the time# (nd third"party payments

increase the incentive to pad the bill with unnecessary procedures, sincepatients do not bear the cost#4!he medical ethic is replaced by aJveterinary ethic, which consists of caring for the sick animal not inaccordance with its specific medical needs, but according to therequirements of its master and owner, the person responsible for paying anycosts incurred#J9,pp# "C#

< Ibid#, p# K


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lists of tests and procedures that the patient has no memory whatsoever ofauthori'ing, and will be followed by a long series of bills from clinics fortests and consultations which the patient likewise never explicitly approved#(nd as someone whos experienced the system both as a hospital workerand as a patient, Im quite familiar with the practice of mutual logrollingbetween physicians, calling each other in for consultations# !he patient seesone white coat after another poke his head in the door, and sees an endlessseries of techs drawing one bodily fluid after another, with no idea whatever

what its about until he gets home and his mailbox is filled daily with billsfrom clinics and insurance company refusal of payment notices# 8e receivesbills from doctors he couldnt identify in a police lineup 6and probably viceversa9#

!he incentive, both for hospitals and practitioners, is to maximi'e thenumber of procedures charged for, which means it is the opposite of theirrational interest to inform the patient of his options and their relative costat the time of the decision#

!hese perverse incentives are reflected in the shift from what (rnoldEling calls empirical medicine to premium medicine 6see below9#(ccording to a 7ew Lork !imes article by (lex %erenson and eed (belson,hospitals invest in extremely expensive *! scanners, despite the fact thatmost *! scans are unnecessary and have little or no proven benefit# J*!scans, which are typically billed at O>> to O4,>>, have never been provedin large medical studies to be better than older or cheaper tests#J %uthospitals nationwide have invested in thousands of the million"dollarmachines and as 2an Hrancisco cardiologist (ndrew osenblatt says, /i1fyou have ownership of the machine, ###you;re going to want to utili'e themachine)even if it means a provider has to Jgive scans to people who

might not need them in order to pay for the equipment#J !his pressure tofull utili'ation of capacity on the 2loanist model may have something towith (merican per capita healthcare costs being about twice the average inthe developed world#

7o one knows exactly how much money is spent on unnecessarycare# %ut a and *orporation study estimated that one"third or more ofthe care that patients in this country receive could be of little value# Ifthat is so, hundreds of billions of dollars each year are being wasted onsuperfluous treatments####

!he problem is not that newer treatments never work# It is that oncethey become available, they are often used indiscriminately, in the absence

payments#CB

7ot to mention in the form of OB>> bags of saline solution#(ccording to a report from the *enter for 2tudying 8ealth 2ystem

*hange 682*9, 8igh and ising 8ealth *are *osts: +emystifying 8ealth*are 2pending,

too many small facilities that invest in bleeding edge technologiesrun Jwell below capacity#

!he problem is this: rather than collaborating to share newtechnology, hospitals and outpatient centers all invest in the sameequipment as they vie for well"insured patients# (s a result, costs inoutpatient settings are higher than they need be, and higher than inmany hospitals because of subscale operation of facilities#C=

(ll this is possible only in an atmosphere of little or no real costcompetition between hospitals, in which overhead costs from idle capacitycan be passed on to patients as a markup# !he tendency towardconsolidation in local hospital markets has been strongly associated with

rising costs# (s long ago as 4?AA, a study by +aniel 2herman found that/c1osts for for" profit and government hospitals appear to be higher whenthese hospitals are either owned, leased, or managed as part of a hospitalsystem#CFvent studies)i#e#, empirical case studies before and aftermergers, to determine the effect of consolidation on price)find =>N priceincreases are common following consolidation of hospitals in a single localmarket#CC

(nd of course the debt burden from consolidation is another exampleof a phenomenon we considered earlier: the inflation of hospital costs byoverhead from irrational capital expenditures# Hor example, the previous

corporate parent of the hospital where I work, !riad, was bought out by

CB 0ahar, 8ealth *are 2pending: !he %asics 8ow 0uch +o -e 2pend on 8ospitals.&art II, 8ealth %eat, (pril A http:@@www#healthbeatblog#com@>A@>=@health"care"s"4#html#

C= Puoted in 0ahar, !he !ruth about 2piraling 8ealth *are &rices in the $#2#: 0edical!echnology, Dow &roductivity and &aying 0ore for Fverything 6&art 4, 8ealth %eat,ctober A http:@@www#healthbeatblog#org@>A@4>@the"truth"about#html#

C +aniel 2herman, !he Fffect of 2tate *ertificate of 7eed Daws on 8ospital *osts: (nFconomic &olicy (nalysis 2taff eport of the %ureau of Fconomics 6Hederal !rade*ommission: 5anuary 4?AA9, pp# Mi"vii#

CC *laudia 8# -illiams, -illiam %# Mogt, &h#+#, and obert !own, 8ow has hospitalconsolidation affected the price and quality of hospital care. !he 2ynthesis &ro3ect,obert -oods 5ohnson Houndation, &olicy %rief 7o# ? V 6Hebruary >C9#


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rooms at 0ontgomery General in lney#J;-e want /patients1 to leave here and then brag about it,; 5ohn

Hit'gerald, president of Inova Hair aks told the &ost# U!heres acompetitive nature to health care, and we want to be first# (nd part ofthat is the service#;

6Its interesting that they dont mention patients bragging about staffingratios or how frequently they were bathed#9 !he article continued:

J!his trend has its critics,J the &ost noted, Jincluding industryconsultants who caution hospitals to remember that their primarymission is to treat patients # # # 2ome hospital administrators, too, areleery of overspending on frills# %rian (# Gragnolati, president of2uburban 8ospital in %ethesda, says: I would rather put money intonursing care and staffing and making sure our doctors are there# (t theend of the day, its about taking care of patients#;

8ealth%eat reader Disa Dindell, the author of 4>A +ays, the story ofher husband;s struggle to survive an accident which left him severelyburned agrees: -hen youre at your darkest hour, Ugood service; is no

longer defined by valet parking, posh suites, waterfalls and gleamingmarble# -hat you care about is staffing ratios# !here is no legislativemandate with regard to nurse@patient ratios in $#2# hospitals, Dindellnotes#

(s it happens, Dindell works as an accountant in the constructionindustry, and so, in a comment on 8ealth%eat, she offers an insider;s lookat constructions costs: I live in a city with a ma3or health care industry,quite possibly the largest in the country# Its nothing short of obscene theamounts of money pouring into the U8ospital %uilding %oom#; !heresnothing wrong with growth and meeting the needs of the community,and I note how all the press releases boasting of these state"of"the"art

works of art always make some reference to Userving the community#;%ut nobody in my community cried out for a ?> million dollar

vascular institute# 7obody in my community displayed a desperate needfor custom imported marble# I made a comment to a co"worker of mine

with regard to part of one large"scale pro3ect# I said: ULou know, you and Iare paying for this#; 8e said: Uh, this isnt even any part of the patientareas, this is the faculty room#;

Dindell is right: much of the spending on amenities has nothing todo with promoting healing# (nd the costs are passed on to you and me inthe form of higher insurance premiums and higher 0edicare co"

of studies to determine which patients they will benefit####(lready, more than 4,>>> hospitals and an estimated 4>> private

cardiology practices own or lease the O4 million *! scanners#### ncethey have made that investment, doctors and hospitals have everyincentive to use the machines as often as feasible# !o pay off a scanner,doctors need to conduct about B,>>> tests, industry consultants say#

Hees from imaging have become a significant part of cardiologists;income ) accounting for half or more of the O=>>,>>> or so thatcardiologists typically make in this country, said 5ean 0# 0itchell, an

economist at Georgetown $niversity who studies the way financialincentives influence doctors####

0itchell said cardiologists simply practice medicine the way thehealth system rewards them to# Given the opportunity to recommend atest for which they will make money, the doctors will#

!his is not greed, she said# !his is normal economic behavior#B

!he incentive to maximi'e use of the *! scanner, by the way, isexacerbated by its high cost)which in turn results from the role of patents6about which more below9 in driving up their price# !he artificially high,

patent"driven cost of medical equipment)like the high cost of product"specific machinery in a mass"production auto factory)creates an incentiveto maximi'e I by increasing throughput#

%ut even given the high capital outlay for patented machines, its stillabsolutely ridiculous to claim that its necessary to charge thousands ofdollars per *! scan to amorti'e that cost# In India, where (merican"made*! scanners are subsidi'ed some =>N below their price in the 7orth(merican market, the average scan ranges from O?> for a straight scan andO44 for contrast in a small city, to O> or so in ma3or metropolitan areas#*ompare that to OC>> billed for a *! scan in an (merican hospital#=egardless of the price of the *! scanner, the price the hospital charges is acost"plus markup resulting from the lack of competition in a local market inwhich a few large hospitals share the same organi'ational culture, and thepatient is a captive client with no ability to shop around for pricecomparisons# 6ne partial solution might be the increased transparency the

B (lex %erenson and eed (belson, J!he Fvidence Gap: -eighing the *osts of a *!2can;s Dook Inside the 8eart,J 7ew Lork !imes, 5une


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Internet makes possible, with consumer websites comparing the cost ofvarious services at competing hospitals in an area#9

veruse of such testing also results, to some extent, from defensivemedicine: i#e#, what happens when doctors order too many tests becausethey are afraid of missing a diagnosis and later losing a multi"million dollarlawsuit for malpractice# +efensive medicine these days is so pervasive, someestimate its yearly cost at more than O4>> billion#

Hor example, *%2 7ews reported the story of a doctor who was

astonished to find that his daughter had been diagnosed with an ovariancyst via a OC>> *! scan, even though a O4=>> ultrasound would haveworked 3ust as well# !he Fs medical director defended the use of a *! onthe grounds that the ultrasound might have missed appendicitis or a kidneystone# !hats defensive medicine, and the risk of a malpractice suit makes itunderstandable# %ut is defensive medicine, by itself, responsible for thestandard practice by which F physicians dont even raise the issue of costor give the patient the choice of waiving excessive tests. !he college studentat the heart of the controversy says she was left completely out of thepicture:

Fxperts tell *%2 7ews you should ask basic questions#Hirst: -hy is this test needed. (sk about the cost and if theres a less

expensive, alternate test# (sk if the test results might change yourdiagnosis " or treatment# (nd, Jwhat is the risk if I dont have the test.J

!hey didnt really talk to me about doing anything else, (lexandraMaripapa said#

In Maripapas case, the hospital insists her *! scan was medicallyrequired, given her symptoms#

%ut in the end, the hospital did present an OA,>> dollar bill " for a

condition that went away on its own#C

-hats more, the father mentioned in the story 6again, himself adoctor9 weighed in in the comments to a blog post about the story,suggesting the attending physicians never did even the minimalinvestigation to determine risk of appendicitis or kidney stones beforeordering the *!:

-yatt (ndrews, +efensive 0edicine: *autious or *ostly. *%2 Fvening 7ews,ctober K@4>@C, the -ashington &ost described what sounded like a verynice resort: -alk past the free valet parking, past the woman at the frontdoor welcoming visitors with an attentive smile and into the light"filledlobby, where soothing tunes waft from a baby grand piano andmacchiatos are brewed at the coffee bar#

Jnly the patients in wheelchairs give away that this is a hospital#(ll five of 0ontgomerys community hospitals are in various stages

of expansion, the &ost noted# (s they increasingly compete with eachother # # # flat"screen televisions and *+ players are standard in many

C< 0ahar, 8ealth *are 2pending#


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radiation oncology at the 0edical *ollege of -isconsin recently told the0ilwaukee 5ournal 2entinel#

7evertheless, roughly a do'en proton therapy centers have beenproposed throughout the country, including northern Illinois, the paperreported# *entral +u&age 8ospital in -infield, Ill#, about 4>> milesfrom 0ilwaukee, is seeking state approval to build a center at a pro3ectedcost of O4=> million# (nd more centers are likely to be announced in thecoming year#

&ro*ure !reatment *enters, a privately held company founded in

> by a particle therapy physicist, plans to partner with hospitals anddoctors throughout the country to build proton therapy centers# !ommy!hompson, the former governor of -isconsin and former secretary ofthe $#2# +epartment of 8ealth and 8uman 2ervices, is a director of thecompany#

!he pending boom was set off in part when 0edicare andcommercial health plans began paying for the treatment# eimbursementfor proton therapy is B> percent to > percent higher than for currenttreatments# &ro*$F believes that the big market will be in treatingprostate cancer# %ut so far, no clinical studies have been done that prove

proton therapy is more effective than existing and less costly treatments#Let hospitals are installing the equipiment as if this were a done deal#J!here isnt any question that it is technology that should be

explored,J +avid Manness, a health care economist and professor at the$niversity of -isconsin"0adison told the 0ilwaukee 2entinel# J%utthere isnt any evidence yet it performs better for common cases#J

-hat is clear is the cost of the equipment)and the treatment# !heparticle accelerator, which fills a building as big as two football fields,requires ma3or construction 3ust to be installed# (t 0assachusetts General8ospital, 44>"ton, three"story"high cranes reach up from the contraptionand aim the radiation at patients lying on robotic beds# Fach treatment

then costs O>,>>>># (ccording to a recent report in *ongressionalPuarterly -eekly, 0edicare reimbursements to hospitals for this servicehave soared by a factor of > in the past four years, from OA,>>> in>= to O4># million in >K#

JIf the technology is not much better than what you have, is that awise use of resources.J asks Manness, whose research includes assessingnew technologies####

%ut hospitals are eager to invest in big"ticket items that promiselucrative returns# Indeed, as &aul Ginsburg observed recently in 8ealth

(ffairs: Interviews with hospital executives suggest that the profitability

of the services is the key to developing a service line, with cardiacprocedures often topping the list# (s one hospital chief executive officer

I am the +ad"+octor in the *%2 piece# 8ere is more clarification:4# 7o fever,>>>each, I*+s are cost"effective only in patients most likely to suffer cardiacarrest, research shows#

!echnology creep is also at work in imaging, where the number of*! and 0I scans charged to 0edicare increased more than 4 percentannually between >> and >=# *onsider *! angiograms, which usemultiple R"ray images to form a picture of blockages in arteries and cancost more than O4,>>># !he most accepted use is to evaluate patients inthe F with chest pain, says edberg, but some physicians use them toscreen people with no symptoms# Let theres no solid evidence theyprolong or improve the quality of life or that theyre cost"effective,according to 2teven 7issen, chair of cardiology at the *leveland *linic#

K obert Maripapa, quoted in 0argaret &olanec'ky, 0+, -as it +efensive 0edicine ora 7ecessary !est. !he %log !hat (te 0anhattan, ctober Khttp:@@theblogthatatemanhattan#blogspot#com@>K@4>@was"it"defensive"medicine"or"necessary#html#


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!he odd economics of health also abet the spread of technology#8ealthcare providers are paid for each procedure or service rather thanfor improving the total health of patients, which means theres anincentive to offer more tests and treatments# 8ospitals, meantime,compete to attract doctors and patients in part by buying advanced tools,

whether or not theyre needed in the community# J2ay 8ospital ( has a&F! scanner and an 0I# If 8ospital % in the same locale doesnt havethem, 8ospital % loses in reputation and volume,J says 0elanie7allicheri, a partner and member of the global health team at

management consultancy %oo' S *o#nce a piece of expensive equipment is in place, it will be used#

&roton"beam therapy, a kind of radiation requiring an investment of asmuch as O4> million, has soared in popularity in recent years# J-ith thecurrent regulations###you can use it for any malignancy that needsradiation,J says !heodore Dawrence, chair of radiation oncology at the$niversity of 0ichigan 0edical 2chool# Its being offered for pediatriccancers and certain rare tumors, which Dawrence feels is appropriate, butmostly for prostate cancer, for which it has never been compared in ahead"to"head trial against conventional radiation treatments#A

(rnold Eling observes that medical conditions which, thirty years ago,would have been treated JempiricallyJ at low cost, now routinely rely onexpensive *(! scans and 0Is# 8e mentions the case of a patient with aneye inflammation# !hirty years ago the low"cost empirical treatment wouldhave been to send her home, in the absence of a firm diagnosis, withantibiotics and prednisone and see if that took care of it# !hanks to moderntechnology, she was put through a battery of inconclusive tests, then given aseries of *(! scans 6also inconclusive9)and finally sent home, in theabsence of a firm diagnosis, with antibiotics and prednisone#?Eling also

describes his own experience:

+uring a routine physical examination, the lab that examined myurine sample found microscopic amounts of blood# !his condition,known as microhematuria, can be a symptom of a number of seriousillnesses, including bladder cancer#

A Eatherine 8obson, *ost of 0edicine: (re 8igh"!ech 0edical +evices and !reatments(lways -orth It. $#2# 7ews, 5uly 4>, >?http:@@health#usnews#com@articles@health@best"hospitals@>?@>K@4>@cost"of"medicine"are"high"tech"medical"devices"and"treatments"always"worth"it#html.&age7rT4#

? (rnold Eling, *risis of (bundance: ethinking 8ow -e &ay for 8ealth *are6-ashington, +#*#: !he *ato Institute, >C9, pp# A"?#

8owever, the incidence of bladder cancer is very low amongnonsmoking men under the age of ># 0oreover, microhematuria ispresent in between 4> and 4 percent of the healthy population# Hinally,I had a history of occasional microhematuria, going back to mychildhood# $sing %ayes !heorem###, I calculated that my chances ofhaving bladder cancer were lower than that of a male age C> withouthematuria# 7onetheless, after much argument back and forth, my doctorinsisted that I undergo a cystoscopy procedure# !he results werenegative#C>

-hat Eling calls Jpremium medicineJ has completely crowded outempirical treatment, and become the routine practice for everyone)eventhough it benefits only a very tiny minority of patients who would not haveresponded to empirical treatment# Hor example, everyone with a severecough is likely to be sub3ected to a chest R"ray, despite the fact that ??A outof a thousand likely have a bronchial infection that will respond to simpletreatment with antibiotics#C4Its quite likely that the tens of millions ofuninsured would love to have access to a policy that covered the low"cost,empirical options, provided at cost but to return to our Jfood insuranceJanalogy, the system skews delivery of service so that only !"bones areavailable, even for those who can afford only hamburger#

!echnology creep is the primary driver of healthcare cost increases, theprimary reason for the increased capital expenditures described above, andalso the primary area of competition between hospitals#

(s &aul Ginsburg, &resident of the *enter for 2tudying 8ealth2ystems *hange, explained in the 5anuary@Hebruary issue of 8ealth

(ffairs: hospitals have been increasing capacity, not predominantly byadding new beds but by expanding speciali'ed facilities 6such as operatingrooms and imaging facilities9 needed to serve patients with the latesttechnology#

*onsider, for example, what may be the worlds most expensivemedical device: a particle accelerator with a total price tag well over O4>>million# !he machine, which employs protons to bombard canceroustumors, can deliver higher and more precise doses of radiation, and wehave evidence that it is effective in treating certain rare cancers#

%ut we don;t know whether it offers any benefits when it comes totreating common cancers#J!hats far from established, and theres a gooddeal of controversy about it,J said 5# Hrank -ilson, a professor of

C> Ibid#, p# B?#C4 Ibid#, pp# 4

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