No Market in Healthcare

James Freeman is shedding some much needed light on the Healthcare debate. Finally someone (James) points out that there is no market in healthcare in America. The entire system is a single party run system. The distinction between public (Medicare, Medicaid, Obamacare) and Private ('private' healthcare companies like UHC) that is the hallmark of the discussion since the cold-blooded murder, execution-style, of the CEO of United Healthcare, is a delusion.

How so?

Healthcare prices are fixed. There is no market whatsoever for healthcare as the price controls are equivalent to what Germany had in place after the end of WWII, which were removed by Ludwig Erhard against the desires of the occupying powers (the occupying powers had left in place the economic controls of the Nazi regime!!!), leading to the German economic miracle.

Remember those famous exchanges?

Lucias Clay: Herr Erhard, my advisers tell me that you have made a terrible mistake. What do you say to that?

Erhard: Herr General, pay no attention to them. My advisers tell me the same thing.

US Army Colonel: Herr Erhard, how dare you relax our rationing system when there is a widespread food shortage?

Erhard: But, Herr Oberst, I have not relaxed rationing. I have abolished it! Henceforth, the only rationing ticket the people will need is the Deutschemark. And they will work hard to get these Deutschemarks, wait and see.

And the German economy rose like a Phoenix from the ashes of post-war Germany.

All prices in the US are directly linked to the Medicare pricing of healthcare services. All private insurers pay based on a fractional increase in Medicare-allowed reimbursement, for not just Medicare Advantage products but all insurance products. Medicare produces prices (and price adjustments annually), with variations for regional costs, but all reimbursement is directly tied to Medicare payment policies. That a discussion of healthcare in America can ensue without an acknowledgment of this circumstance is beyond ridiculous, and indicates that our thought leaders are idiots and we do not have a serious country.

How did this come about? Most directly when RBRVS (Resource-based Relative Value Scale) was enshrined. This was a way to "calculate" the value of medical services. Imagine that! A centralized authority can CALCULATE the value of all medical services. Who would have ever guessed? In this case, it was Dr. Hsaio, a public health expert at the Harvard School of Public Health, along with his "team." Oh, the arrogance! Oh, the abuse! But in this case, he was working at the behest of the...you guessed it, a Conservative Republican administration under Reagan (in 1988), soon to be a little less conservative under GHW Bush. Those RBRVS calculations included a factor for training, for equipment and infrastructure, for time and effort, for ancillary costs, for regional cost of living factors, even a factor for malpractice, etc.

The formula was long, but everyone in the GHW Bush administration had full confidence in the ability of Harvard experts to CALCULATE the value of medical care. There was no factor for outcomes, of course. Or severity of illness. This was a significantly distorted, but nonetheless, Labor Theory of Value on steroids! And of course, for all who heard it, there was the unforgettable testimony of the esteemed Marxist economist, Gail Wilensky, head of the HCFA (now CMS) to Congress in the Reagan administration, in which she excoriated the "...perverse incentives inherent in a fee-for-service system." She sounded like a member of the Soviet Politburo in the final years of the Cold War. (Did the Soviets win that?). Of course, what she meant was the perverse incentives in a fee-for-service system paid for by the deep pockets of the federal government with no questions asked. Which is how Medicare operated up to that point.

Which is why Medicare ushered in the Golden Financial Age of Medicine. No controls. No limit on billing. No nothing. So, of course, doctors and hospitals jacked up their fees. Medical inflation exceeded general inflation by a factor of 3. Of course, there were many supporting actors. Doctors and hospitals first set up Health Insurance (in 1929, in Dallas, Texas) at the Baylor Hospital, which established an insurance program whereby for $5 a month, one could buy insurance that would cover inpatient hospital services should the person need hospitalization. The first organization to jump on this opportunity to cover its employees was the local newspaper. The hospital administration and hospital medical staff controlled the pot of money used to pay themselves from this subscription service, so, of course, their fees rose. This became the first Blue Cross medical insurance plan. It proved such a boon financially to the hospital and staff physicians that it was quickly replicated across the country. All, of course, nonprofit, community-rated, etc., etc. Later on, when family doctors saw surgeons (who were hospital-based in those days) driving Bentleys or Rolls or Mercedes while they were driving Fords and asked what happened. As it was explained to them, they wondered if they could do the same on an outpatient, non-hospital basis. Of course, they could, and so Blue Shield was born. And medical inflation has outpaced general inflation by a factor of 3 ever since.

But things really got going when the feds paid the bills with no questions asked. In those halcyon days, in a town in which I practiced, a general internist built his own personal 50-bed hospital and admitted Medicare beneficiaries. He kept it filled continuously, whether the patients needed to be there or not, ran every test available, then fired off the bills to Medicare and got paid. He became a multimillionaire. That scenario was played out across the country. At that time, medical practices and medical facilities exploded. So rampant was the process that states (such as California) began requiring a "certificate of need" before allowing the construction of new hospitals.

Again, when Medicare passed in 1965, it was estimated that costs per year in 25 years would be $10 billion. Those costs in 1990 were on the order of $90 billion, and the upward spiral continues. Total Medicare spending for 2023, a third of a century later, was $1.029 trillion, 11 times what it was in 1990. Medicaid's total spending was $871 billion. "Private" spending was 1.464 trillion.

Rob Long thinks all of this spending is just wonderful. He needs to go back to his Koine Greek and stay out of the discussion, particularly as the American public is being mostly scammed with overutilization, among many other things. Take the case of my brother-in-law, who is from Uruguay and travels back and forth several times a year. He had a coronary stent placed several years ago. He will always go to his cardiologist and demand a cardiac catheterization before he travels to South America, just to make sure the stent is open, despite the fact that he has no symptoms of angina. His cardiologist always accommodates. Both should be sanctioned for waste, fraud, and abuse.

I think of the old days, as when the surgeons in Los Angeles went on strike due to high malpractice insurance premiums. An epidemiologist tracked the death rate in the city before, during, and after the strike. The death rate was at a certain level but fell dramatically during the strike. As soon as the strike was called off, the death rate statistics went back to their higher baseline. Fortunately, or unfortunately, depending on your perspective, the strike didn't last very long. Or consider the fact that studies have shown that Medicaid patients have worse health outcomes than people without health insurance (there could be many reasons for that, not all of them due to the mistakes or incompetence of treating physicians).

Mostly the American healthcare system stymies innovation and improvement in care (and that's completely apart from the disasters that Marty Makary details in his frightening book, Blind Spots). For my entire career, the incidence of obesity and type 2 diabetes has been skyrocketing (that is over 40 years). That entire time, we have been instructed to prevent disease. Everyone bemoans the lack of prevention. Well, now we have the means to really prevent type 2 diabetes and treat obesity, and we are not allowed to use those means.

Medicare famously doesn't cover treatments for weight loss. As a consequence, neither do "private insurers" because they follow Medicare guidelines. Further, treatment of pre-diabetes (a condition in which blood sugars are above normal but do not meet diagnostic criteria for overt type 2 diabetes mellitus) is off-label, and since Medicare does not cover that, private insurers do not cover that. Mounjaro has been shown to prevent type 2 diabetes in patients with pre-diabetes to the tune of a 95 + percent reduction in progression to overt type 2 diabetes. Sounds like it should obviously be used, right? Not a chance. In ancient days, physicians could prescribe medications off-label and insurance would cover them. No longer. Today, everything that is not permitted is forbidden.

Currently in the news is the fact that Lilly has just received FDA approval for the use of Mounjaro to treat obstructive sleep apnea (which is, essentially, a complication of obesity). That is regardless of whether the patient has type 2 diabetes, or pre-diabetes, or not (many of them will). One might assume that such FDA approval would result in Medicare and private insurance coverage. One would be wrong. FDA approval does not override Medicare policy. We shall see if Medicare allows it. Medicare, surprisingly, will now cover Mounjaro for patients with coronary artery disease, as weight loss with this agent results in improved outcomes of coronary disease! Not surprising. So we can treat pre-diabetes or polycystic ovary disease (a pre-diabetes condition generally) if clinical coronary artery disease is present. One might ask, why wait until coronary disease is present (also a complication of obesity, and pre-diabetes, and doubly of type 2 diabetes)? The answer is: because Medicare says so.

I spend most of my day in the office processing or responding to "Prior Auths" — or their denials. A Prior Auth is now the bane of medical practice. Again, everything that is not permitted is forbidden, and on virtually everything we do, on virtually every prescription that I write, a prior authorization is required. This is a permission slip given if the insurer agrees with your care. Mostly they don't. The insurers want 1950s care while we are trying to provide current care. GLP-1 analogs are part of the management of polycystic ovary syndrome, per Endocrine Society guidelines (but then again, so are puberty blockers and surgical "gender-affirming care" of minors, though there is good scientific evidence for the PCOS guidelines but none for the latter care). Never mind. The insurers have no idea what polycystic ovary syndrome is, nor the complications (type 2 DM, heart disease, increased mortality, shortened longevity, gestational diabetes, etc.). So they continue merrily denying our efforts to manage the disease.

The worst insurers for PAs and denials are the Obamacare "market" insurance plans. Whoever called this a "marketplace" should be prosecuted in The Hague for crimes against humanity.

But the fault is not in health insurance CEOs. The fault is in ourselves. We tolerate this insanity, because we fear the consequences (trivial though they may be) of managing and paying for our healthcare ourselves. We cannot see the uplands of self-sufficiency, innovation, and improvement — those unseen benefits of markets — until they appear through actual markets. We will never see these in our current malaise.

I am still ridiculed by my wife for what I did almost 40 years ago. When medical savings accounts became available, I rejected my employer-provided health insurance and bought a high-deductible medical savings account insurance product and began saving for and managing mine and my family's healthcare. Due to some primary care costs, my wife strenuously objected, so my dreams of my own medical savings account bit the dust, sacrificed on the altar of marital harmony.

Today, at age 75, I am 3 years into coverage by Medicare, with a medicare advantage plan. I was very much with Dick Armey when he sued to be allowed to stay off Medicare and keep his (gold-plated) "private" insurance plan, which was much better than Medicare. He was denied in court. The Collective will have its way. All must cooperate with the Collective. I stayed off Medicare until it was no longer legal to do so.

About 15 years ago I had the opportunity to have a conversation with Thomas Saving, who had been a trustee of Medicare and SS under George W Bush. This was after his tenure at these agencies. He had a well-developed and well-thought-out plan to transition to a privatized Medicare as well as Social Security systems, via private accounts started early in life. That went nowhere. It would be enlightening if we could even allow choice in these programs during our working years: Choose to contribute to Medicare or to one's personal healthcare savings account. Choose to contribute to Social Security or to one's own IRA or 401k. But, alas, like education, no choice is to be allowed under our collectivist systems.

Medicare and SS are going to sink the nation, and not in 100 years. Much sooner.

We need to do a Milei on our collectivist systems. Otherwise, we will wind up worse than Argentina. Indeed, if Argentina sticks to its current course, and we to ours, we will all be heading south through the Darien Gap trying to get there.