Health Care Reform and “Dr. Avarice J. Greed, M.D., P.C.”

I hadn’t decided whether to bring “the design of government” to health care reform, but at the request of Anna D. (“Thanks, Anna!”) and having seen this WaPo article on Dr. Avarice J. Greed, M.D., P.C., and his confreres, and having received a long email from my sister, a retired nurse (see below), I think I’ll give it a shot.

Over the next few posts, I’ll comment on several issues:

1. Supply. The AMA (American Medical Association) closed half the medical schools in America about the turn of the last century. And, ever heard of “barefoot doctors”?

2. Demand. How much of obesity is due to low incomes? The Danes have a saying, “You have to be rich to be thin.” Would encouraging unions reduce obesity more than education? The GINI Index again.

3. System inefficiencies. Two flavors: Opportunities for information sharing and insurance company profits.

4. Medical mal-avarice. See below for starters.

My sister was first in her class in nursing school, and is now retired and raising show quality dogs. So she’s experienced hospital pricing from the inside and vet pricing from the outside. Her observations:

I never had a job in any “company.” Obviously hospitals try to make money, and particularly in Union [SC] they invited the head RN’s to the top staff meetings. Such things as the base room rate being as low as possible-around $105 a day at that time — 1990 — because they said people call around if a procedure is non-emergency, and what they ask is the base rate. So then you just add higher prices for everything else, and I do mean everything.

At that time, a bag of IV fluid cost the hospital $1.00, we charged the patient $10.00. A foley catheter cost us $5.00, the patient paid $57.00. But then of course, they added for 1-1 RN care, etc.

Same basic thing at my previous job in Psych at MUSC, [Medical University of South Carolina, in Charleston] the base room rate was low, but they had at least 5 therapies for each patient, and I mean the group ones like physical therapy, music therapy, this isn’t counting the medical student seeing the patient, the intern, the resident, the MD, the staffing, etc, etc.

But what got me the most was in Union. I worked there about the time Office Max and that type of store opened. Of course they sent catalogs to everyone. I knew the prices we paid in Central Supply for packs of 3 x 5 cards, pens, all sorts of stuff, and of course there are hundreds if not thousands of those things. Some of the prices that hospital paid for office supplies were 10X what Office Max charged. So I went to the head of that department with the catalog in hand, marked, but he said they liked to order everything from one supplier, so paid whatever that supplier charged.

The darn vets are the same now. If I buy a bag of IV fluids from my vets, it is $35.00. They are exactly, and I mean brand, label, everything, the same as we used in Union, and every other job I have had. IV fluids are considered a prescription drug, whereas the tubing and the needles are not. I can get the identical fluids for $3.99 a bag from KV vet but the Vet has to call or fax the prescription in. They do allow for the vet to tell them what you can have in a year, and you can order it however you want. Of course the shipping is fairly high, so I order maybe 12 at a time, which that lasts me usually a year. And I can buy if from a site that is supposed to be for vets, but I have a password, every breeder I know uses it, for $4.99. The same stuff, Propofol, that Michael Jackson used IV, it is on that site.

The lady that is the financial head of my Vets’ 2 offices, told me the same identical thing, they want to order everything from one place. I have a catalog that the medicine for preventing the dog version of Alzheimer’s, called Old Dog Encephalitis, Selegiline, 5 mg twice a day, costs $5.99 for 500 tablets. The first time I had Huey, Andrew’s father, to the vet for confusion, maybe 2 years ago, the vet told me she had read it helped, but had offered it to 3 clients, but the $200 a month caused them not to get it. I had her write down the name and dose, (just so I could remember it) — the dose is the same for people – and when I went to Wal-Mart it was $46.00; I called Pet Care RX, it was $26.00. Then I saw it in a catalog for vets for $5.99 for a huge size. I can order anything from that catalog except for prescriptions. I got a box the size that a pair of high top sneakers would be shipped in, absolutely stuffed with IV tubings, for $4.99 the other day, 100 of them.

Would it not pay a hospital or a busy vets’ office, really 2 offices with 7 vets, one full time person’s pay to check prices and order things from different suppliers? In IV fluids alone they could pay that person a week’s salary a month. They even order packages of sweetener and sugar and instant coffee from the same place!

 How do things like this fit into the direction of having a great company? And of course I only see a few things!

And all I’ll add is that (a) if you can pass on all your costs to the patients (customers) AND add a percentage for profit, who cares what things cost? And that (b) when your customers or patients have no idea of your costs, you can charge them whatever you like!

When I worked for DOD, back in the 1960’s, we had both “cost-plus contracts” and “contractor-furnished lunches.” I loved CFLs – can you guess who paid? It was you, the American taxpayer!

Both are now outlawed in DOD – now how about health care? Duh!

Robber Barons, Great Depression, or Three Mile Island?

Do you think that our current economic mess is more like the age of the Robber Barons of the late 1800s, the Great Depression of 1929, or the nuclear power plant accident at Three Mile Island on March 28th, 1979?

Regardless of YOUR opinion, don’t you think that the government’s response(s) to the crisis should be based on thorough analysis? The best theories available? Diagnosis before prescription?

I. Let’s look first at the oligopoly thesis.

The theory here is that market concentration often generates behavior that’s at odds with the general welfare. Does the name OPEC ring a bell? Worldwide, the four firm concentration ratio defines “oligopoly” as existing when four firms have more than 60% of their market. The Big Four banks in America are the Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo. Does anyone know of any other banks? Of course, the big investment banks like Goldman, Sachs have had their rivals, like Bear, Stearns just “disappeared” by the Federal government. Can it be long before there’s just one brokerage, following the path shown by Morgan Stanley Smith Barney?

In the olden days, the Federal Justice Department had an Anti-Trust Division that was charged with policing anti-competitive behavior, and indeed breaking up firms with undue market concentration. That was long ago, before economic theory (especially the Chicago School) bowed to industry practice. The ideological shift happened between the 1982 breakup of AT&T and the 1999 settlement allowing Microsoft to continue as one firm.

It would appear obvious on its face that the salaries and bonuses paid on Wall Street demonstrate oligopolistic profits. The “value-added” simply isn’t there. In 1979 Ezra Vogel published his book “Japan as Number One: Lessons for America” which notes that at that time Japanese CEOs took home salaries only ten times those of their shop floor workers. Can you imagine?

An argument can be made that the societal concern about the increasing concentration of Wall Street’s financial institutions is not their unwarranted profits, but the systemic risk associated with having so few firms. That is, if we had more firms, we could allow a few to fail without inviting disaster. This in turn could reduce the moral hazard associated with the Federal government backstopping them.

So, if you believe that today’s problems are due at least in part to oligopolistic behavior or its associated risks, you might recommend breaking up the large (and growing larger) financial institutions on Wall Street.

II. A Reprise of the Great Depression?

If upon reviewing the history of the years after the Great Depression, in which the business cycles were substantially dampened, you might (A) associate those successes with the government policies responsible, and (B) wish those policies to be continued in the future. Most economists DO associate the dampened business cycles with government policies.

Sadly, much of the Federal government’s economic policy was degraded over time, due perhaps to people saying “Look, we haven’t had more economic crises, so we don’t need those policies!” Doesn’t there seem to be a logical fallacy in there somewhere?

A good start towards reimposing controls on the markets would be to reinstate the Glass-Stegall Act and reinstitute serious margin requirements, among other actions. After all, “If you want to keep the economy between the ditches, you may have to impose some speed limits.” Been there, done that. Worked for three generations.

III. Or Is Wall Street really like Three Mile Island?

Wikipedia has a good account of the Three Mile Island (TMI) accident. In part, it states:

“The Three Mile Island accident of 1979 was a partial core meltdown in Unit 2 of the Three Mile Island Nuclear Generating Station in Pennsylvania. It was the most significant accident in the history of the American commercial nuclear power generating industry.
“The accident began on March 28, 1979, with failures in the non-nuclear secondary system, followed by a stuck-open pilot-operated relief valve (PORV) in the primary system, which allowed large amounts of reactor coolant to escape. The mechanical failures were compounded by the initial failure of plant operators to recognize the situation as a loss of coolant accident due to inadequate training and ambiguous control room indicators.
“The scope and complexity of the accident became clear over the course of five days, as various officials tried to understand the problem, communicate the situation to the press and local community, decide whether the accident required an emergency evacuation, and ultimately end the crisis.
“In the end, the reactor was brought under control, although full details of the accident were not discovered until much later, following extensive investigations by both a presidential commission and the NRC. The accident was followed by essentially a complete cessation of the start of new nuclear plant construction in the US.” [as abbreviated]

In fact, the “scope and complexity” were not so clear. Charles Perrow, now an emeritus professor at Yale, spent years researching the TMI accident, and created a theory about highly complex and interrelated entities or systems.

His book, Normal Accidents, was published five years after TMI. His conclusion was that if a system’s components are both highly complex and tightly interrelated, failure is inevitable. That is, a system’s structure and design determine whether it will (not whether it may!) fail.

Most recently, Perrow wrote an Op-Ed for the Washington Post about the system failures involved in the fatal Metro crash in June, 2009.

Perrow has also contributed to the study (and theory!) of High Reliability Organizations (or HROs). HROs have both a wikipedia entry and a website.

HROs have things in common, per the Wikipedia entry: “There are 5 characteristics of High Reliability Organizations that have been identified as responsible for the “mindfulness” that keeps them working well when facing unexpected situations:
– Preoccupation with failure
– Reluctance to simplify interpretations
– Sensitivity to operations
– Commitment to resilience
– Deference to expertise

Does “mindfulness” sound like Wall Street to you? Not to me! And what’s sauce for stand-alone organizations must be sauce for tightly coupled groups of organizations – as in a 21st century financial system, with information and money sloshing around at the speed of light!

So if the structure and design of the financial system will determine whether it will (not whether it may!) fail, and if failures of the financial system cause major societal crises, then either (A) those in the financial system must show the rest of us that their system is a highly reliable system, or (B) the government must assure that the financial system is so designed and operated.

We now have the government involved in redesigning the financial system and its controls. What troubles me is that there has been NO discussion of the theory and practice of designing High Reliability Organizations in the public discourse, and I’m not convinced that it’s being discussed in private either!

So as far as the design of the Federal government’s response to the financial crisis is concerned, what we’re seeing is not transparency as promised, but “translucency.” Translucent means “permitting light to pass through but diffusing it so that persons, objects, etc., on the opposite side are not clearly visible.”

And given the influence of Wall Street veterans in the governmental design process, I’m worried that not only are ‘persons and objects not clearly visible,’ but that they’re really ‘on the opposite side’ – from the rest of us.

(I am indebted to The Teaching Company and Michael Roberto’s magnificent course, The Art of Critical Decision Making for introducing me to Charles Perrow and High Reliability Organizations)