A History of Political Malpractice: From Good Intentions to Cartels
By Robert W. Geist, MD
Geist RW. A History of
Political Malpractice: From Good Intentions to Cartels
MN Physician, October 2015
http://issuu.com/mppub/docs/minnesota_physician_oct_2015?e=2538202/30749083
Abstract:
It was political malpractice, when the U.S. government wrote prescriptions for the nation’s medical sector that caused the abrupt onset of tax-subsidized demand inflation after 1965. Political malpractice was compounded by futile efforts to ration subsidized open “free” access to care.
Resolving the problem of medical inflation without resort to Draconian managed care rationing will require a new medical marketplace prescription, where the consumer is king and where money (not political or corporate authority) is used to distribute goods and services.
What are patients and doctors to make of the bevy of acronyms that seem to increase daily? HMO (health maintenance organization) has been a commonplace set of initials, as have HSAs (health savings accounts) and PBM (pharmacy benefit management). But now we have ACA (the Patient Protection and Affordable Care Act, aka ObamaCare), which may be easily confused with ACOs (Accountable Care Organizations), one of the ACA’s means of cost control.
So how did it happen that all of us are now subject to the ACA, its ACOs, and an alphabet soup of other acronyms, e.g., EHRs (electronic health records); P4P (typically pay for “value” performance, aka payment reform); FFS pay (fee-for-service); or a threatening IPAB ( the federal Independent Payment Advisory Board)? Recently, huge health insurance corporation mega-mergers have been featured in the news. Flying below the radar are mini mergers between ACOs (hospital/medical staff insurance corporations) and HMOs.
What happened, what’s going on, and how do all these things work…or not work?
Good intentions became inflationary
U.S. cost-price inflation began abruptly after 1965 (for the first time in nearly 100 years) following passage of Medicare and Medicaid laws.[[1]] This was a tipping point in time: 85% of the populace (employed workers since 1942 plus the official old, poor, and disabled) suddenly had inexpensive tax-subsidized insurance—a piecemeal U.S. version of National Health Insurance (NHI).
The good intentions behind using tax subsidies to artificially decrease the price of insurance meant that untaxed insurance dollars were used to pre-pay even affordable and expected medical care.[[2]] As care appeared “free” (the boss or government paid for it), unrelenting demand for services was met by a rise in prices to expand the supply of both clinic and hospital services. When no one asked the price of care, wealth was transferred to medical sector expansion from other economic sectors—the market worked.
Since repealing popular tax subsidies was considered political suicide, culprit economic sloganeering was invoked. “Market failure” was allegedly due to ignorant patients in the hands of profligate providers practicing in an inefficient “cottage industry” doing “sick care” instead of “well care”.
Well-intentioned as it was to reduce the price of a quality good via subsidized insurance dollars, it was nonetheless economic political malpractice.
The move toward corporate control—Managed Care (MC) 1.0
The political response to the 1970 first ever medical inflation “crisis” was passage of the Health Maintenance Organization Act (HMO) of 1973.[[3]] The hype was that inflation would be controlled via corporate efficiency profit-driven to maintain health.
Of more practical importance could HMO corporations, Managed Care 1.0, halt inflation by emulating the successful delay and denial regulatory strategies of socialized National Health Service (NHS) managed care organizations abroad?
Since nationalizing industry was anathema in American politics, using the alleged efficiency of profit-driven corporations was palatable compared to using the presumed inherent inefficiencies of any nonprofit socialist system of managed care rationing. Health insurance corporation stocks sold on Wall Street gave a reassuring patina of free-market capitalism to HMO socialist-like rationing controls. These powerful controls legalized by the HMO Act gave medical insurers the perverse power to control the use of the benefits they insured—something not-allowed any other casualty insurance company.[[4]] The same power is used by NHS managed care organization cousins abroad to control the use and costs of open “free” care access.
Following passage of the U.S. HMO Act of 1973 there was an accelerating transition from a professional medical marketplace, in which services were sold to patients, to a commercial marketplace in which populations (or “covered lives”) of HMO insurance corporations and government agencies (the mega “payers”) were sold at auction to providers for servicing[[5]][[6]]—the essence of Managed Care (MC)1.0.
Auctions of patients for services were most often for fees administered at progressively lower prices; negotiations were often “our way or the highway”,[[7]] as HMO prices mimicked low government service prices. In addition, auctions of patient populations through capitation fees[[8]] (sometimes coerced) transferred to many clinics the insurance risk of caring for a corporation’s clientele—many capitated clinics went broke.
By the late 1990s regulatory cost control panaceas had failed.[[9]] Draconian HMO rationing of care tried in the early 1990s, such as drive-by deliveries and mastectomies, was a political bust; HMOs were seen to wear the black hat of rationing. The dilemma of managed care on a fixed budget was exposed: “Cost, access, quality—pick any two.”[[10]]
The failure of political panaceas was incomprehensible for those blissfully (or hypocritically) ignorant of NHI “free” care demand inflation. Admitting political malpractice or corporate incompetence was equally incomprehensible. The HMO industry promptly produced new scapegoats for public indignation: a self-indulgent, smoking, soda-drinking, obese population; greedy drug and technology companies; and, yet again alleged profligate irresponsible providers.
Doctors were (and are) speciously accused of practicing poor quality care, since supposedly driven by FFS profiteering avarice to do “too much”.[[11]] The lack of FFS-driven inflation in any other industry is always ignored; equally ignored is the role of managed care’s fatal flaw.
Why did MC 1.0 fail? The fatal flaw.
All managed care organizations dispensing the appearance of free care, whether they are HMOs in the U.S. or National Health Services (NHSs) abroad, have a fatal flaw. As pointed out by the economist, John Cassidy years ago, no central authority, however brilliant [or good willed] the managers, can accomplish the functions of freely determined prices for the allocation of labor, capital, and human ingenuity.[[12]]
No panacea can fix a system with no real consumer prices to guide production and distribution of goods and services.[[13]] Microeconomic systems (including medicine) where millions of transactions take place daily between millions of people with millions of goals have proved too complex to centrally plan and manage. For example, the fatal flaw of post-World War II experiments with mixed industrial socialism in Western European nations necessitated deregulation after 1980 to avoid economic collapse.[[14]] Popular nationalized “free” care NHSs could not be touched politically; its inflation remained hidden in queues, subsidy props, and infrastructure deterioration.
Meanwhile, in the U.S. the politically favored HMO industry, despite public distrust, was able to parlay decades of failed cost control into unparalleled profits, and profits into political power. With failure a new panacea to control cost inflation was deemed a political necessity.
The rise of cartels—MC 2.0
Our misfortune is that the story of many failed cost control panaceas from 1965 to 2010 may be replicated by a more powerful, yet still fatally flawed, managed care panacea of government-protected corporate cartels following the passage of the PPACA in 2010—MC 2.0.
What are cartels? Public medical system cartels consist of government-managed care organization collusion aimed at market control of prices, utilization of services, and at franchising certain providers of goods, services, and insurance. Typical examples are the well-intentioned parliamentary-NHS cartels abroad. Their hope is to properly control access to “free” care.
Private cartels on the other hand are regarded as sinister profiteering cabals intent on achieving only their own interests. Typical examples are the cronyism found in the Organization of the Petroleum Exporting Countries (OPEC) and in one-party nation states such as Venezuela, Cuba, the old Soviet Union, and the new Russia. Private domestic cartels have been outlawed by antitrust laws in most national jurisdictions including the U.S., and U.S. states.
With implementation of PPACA the shift to a U.S. public medical cartel system consists of federal-corporate partnerships. The government mandates by law that we all buy the corporate partners’ insurance. To increase corporate power massive corporate mergers and collusion are legalized through waivers of antitrust law and waivers of anti-fee-splitting and anti-self-referral laws[[15]],[[16]]—the essence of MC 2.0.
The federal government has recently winked at rotating executive leadership roles between the public’s Medicare/Medicaid regulator becoming the executive of the national medical insurance trade association and an HMO insurance executive being appointed as the government regulator. When does interlocking executive leadership cross the line into sinister state-private cartel collusion instead of proper public utility-like regulation and/or anti-trust enforcement?
Specious, if not sinister, political-corporate arguments have been successful in vilifying as greedy the medical workforce and technology companies. Thus, have politicians been convinced to mandate “payment reform”, the transfer of insurance risk from HMOs to ACO bedside gatekeeper doctors with “bonus opportunities” to those successful in restricting patient care and “negative payment adjustments” for those ordering too much care[[17]] (industry language, not mine).
A big box medical home cartel picture
What might a cartel system of centralized power look like? Centralized state power abroad can be harsh in rationing care in order to control costs. Long queues (even care denials) in many nations are testimony to this fact.
In the U.S. ACA publicly protected HMO/ACO corporate cartels have the potential for increased collusive rationing of care and profiteering mischief. Could this be the ultimate profit-driven, low-utilization, federally protected, big box medical home cartel system where patients and their physicians are seen and policed as annoying cost centers?
If not deflected, ACA-favored government-corporate cartels can attain centralized power and size equal to socialized NHS cartels abroad.
Unsolved medical inflation
Medical inflation will remain an unsolved policy maker’s problem (of their own making) until popular subsidized open (“free”) access to care is addressed.[13] As long as the political command and control mindset is unchanged and mired in an alphabet soup of regulation, nations are stuck with various models of managed care organizations playing zero-sum rationing games to balance fixed budgets. Their strategies of political necessity include popular free “well care” for the many inexpensive healthy voters and queues for the few costly ill requiring “sick care”.
The ill were once the primary object of medical care. And consumers were once kings in a professional medical marketplace. Can patients regain their power? Maybe.
Conclusion
It was political malpractice, when the U.S. government wrote prescriptions for the nation’s medical sector that caused the abrupt onset of tax-subsidized demand inflation after 1965. Political malpractice was compounded by futile efforts to ration subsidized open “free” access to care.
Resolving the problem of medical inflation without resort to Draconian managed care rationing will require a new medical marketplace prescription, where the consumer is king and where money (not political or corporate authority) is used to distribute goods and services.
Robert W. Geist, MD, is a retired urologic surgeon.
8-28-15
[1] Anderson OW. Part One, Chap. III. The liberal-democratic political and economic matrix. In: Health Care: Can There Be Equity? New York: John Wiley & Sons, 1972:32.
[2] Phelps CE, Parente ST. The economics of US health care policy. Rutledge, NY and London.2018.
[3] Brown LD. Chap. 9. Policy analysis and disembodied incentives: HMOs as idea and as strategy. In: Politics and Health Care Organization: HMOs as Federal Policy. Washington, DC: The Brookings Institution, 1983:477-478.
[4] HMO Act of 1973. US Code chapter 42 sec. 300e (b) (1,2,3,4,5) and (c) 2D. http://www.harp.org/300e.htm#a
[5] Woolhandler S, Himmelstein DU. Annotation: patients on the auction block. Am J Public Health.1996;86:1699-1700
[6] Alok Gupta, Stephen T Parente, Pallab Sanyal. Competitive bidding for health insurance contracts: Lessons from the online HMO auctions. UMN Carlson School MIS Quarterly. Dec 2012. https://experts.umn.edu/en/publications/competitive-bidding-for-health-insurance-contracts-lessons-from-t
[7] Jacob JA. “Doctors told: take risk or take a walk”. AMNews. Nov. 8, 1999, p. 13, 16
[8] Woolhandler S, Himmelstein DU. Annotation: patients on the auction block. Am J Public Health.1996;86:1699-1700.
[9] Iglehart J. Changing health insurance trends. N Eng J Med..2002;347(12):956-962
[10] Bodenheimer T. The Oregon health plan—lessons for the nation. Parts 1 and 2. N Engl J Med. 1997;337:651-655, 720-723.
[11] Hillman AL. Financial incentives for physicians in HMOs. Is there a conflict of interest? N Engl J Med.1987;317:1743-1748.
[12] Cassidy J. The price prophet. The New Yorker. February 7, 2000:44-51.
[13] Phelps CE, Parente ST. The economics of US health care policy. Rutledge, NY and London.2018.
[14] Yergin, D, and Stanislaw J. In: The Commanding Heights. New York, NY: A Touchstone Book. Simon and Schuster; 1998:128-129, 137, 222-232.
[15] FTC 67026 Federal Register / Vol. 76, No. 209 / Friday, October 28, 2011 / Notices
[16] CMS 67992 Federal Register / Vol. 76, No. 212 / Wednesday, November 2, 2011 / Rules and Regulations
[17] SGR Repeal and Medicare Provider Payment Modernization Act Section by Section. Prepared by the House Committees on Energy & Commerce and Ways & Means March 15, 2015. Available at: https://www.wisconsinmedicalsociety.org/_WMS/resources/medigram/2015/03262015/SGR_section_101_201.pdf
Geist, RW.
A History of Political Malpractice: From Good Intentions to Cartels.
MN Physician. October 2015.
http://issuu.com/mppub/docs/minnesota_physician_oct_2015?e=2538202/30749083
