Profit in Health Care

At the root of the debate over ObamaCare is the Marxist notion that all profit is waste, and if we can just take profit out of health care, we can reduce costs and improve services.

          -- Congressman Tom McClintock R-CA
              (4th District) April 26, 2013

Over the last several decades I've become accustomed to the dismissal of wacko notions from California as emanating from the "fruit and nut crowd."  I've also become keenly aware that there are nuts on both the left and the right.

I don't know much about Congressman McClintock, so I won't characterize him as a right-wing nut job, especially since some of my best friends might describe me using that term.  But if he thinks what this quotation suggests he thinks about profit in health care, he really is a nut.

I am inclined toward the decidedly non-Marxist idea that the profit motive drives efficiency and innovation and a strong inclination for a business to find out what the customer needs or wants and give it to him at the lowest possible price, assuming sufficient competition.  In the case of Apple, led by the visionary Steve Jobs, it even drove the company to figure out what the customer wanted but didn't yet realize he wanted.

But after three decades practicing medicine, I am convinced that the profit motive in health care yields many behaviors that are counterproductive.

It is sometimes difficult to tell whether profit-driven behavior is real or merely suspected by the cynical. Would a gastroenterologist really recommend a procedure for which he gets paid well by a patient's insurance when the patient could clearly do just as well without it?

That has been the assumption underlying some of the decisions made by governmental policymakers. They have, for example, tried since the Carter Administration to limit the supply of doctors, based on the belief that in health care supply generates demand - instead of the way it works in other parts of the economy, in which abundant supply relative to demand drives down prices.  Only much more recently have they realized that this muddle-headed approach has created a shortage of doctors, with dire consequences.

From that same perspective the feds created the sustainable growth rate formula, in which increases in the volume of services provided to patients by doctors are compensated for by lowering what doctors get paid by Medicare for providing those services if certain targets are exceeded.  This assumes that doctors have complete control over how much they do for patients.  For doctors in my specialty, emergency medicine, who have absolutely no control over how many patients we see or how much care they require, and who are generally driven to practice as efficiently as possible so we can take care of everyone who comes to see us, this is singularly ridiculous.

But there is no question that the profit motive does distort behavior in certain sectors of the industry.  In an earlier essay I wrote about the "60 Minutes" exposé on a hospital chain that pressured doctors to admit more patients to the hospital to increase revenues.
No, not to admit patients who clearly didn't need to be hospitalized, because then Medicare wouldn't pay.  But please do admit every patient for whom it can be justified, even if the doctor thinks outpatient treatment might work just as well.

The best example of the potential for the profit motive to promote undesirable behavior, quite fully realized, is in the pharmaceutical industry.

Drug Company Revenues

Just watch some TV commercials. Do you think you're seeing all those ads for agents used to treat erectile dysfunction because we have an epidemic of women whose men cannot meet their needs?  Hardly. (Yes, pun intended.)  No, it's because of the swollen profits on these drugs.  (OK, I'll stop.)  And why are there so many different drugs in each class used to treat (and over-treat) common conditions like high cholesterol and indigestion?  These are called "me-too" drugs.  Imagine yourself running a drug company.  Do you spend a little money to develop a new drug in a class that has already shown great profitability for the ones already on the market, and then a bigger chunk of money to get your share of that market, and reap big profits?  Or do you spend a lot more money to develop an entirely new drug for a disease that cannot currently be treated very effectively, not knowing whether there will be significant profit realized if you get FDA approval?

Is the money that is going to pay stockholder dividends - which is all profit - "wasted," in that it it is not reinvested in the business and therefore cannot benefit the customer - meaning the patients? Well, we could argue about that.  I'd rather see the money reinvested in new plant and equipment or research and development, but it is harder to attract money from investors if they realize gains on their investments only through rising stock prices and never through payout of dividends.

But if you're talking about hospitals that are classified as non-profit, that means they have no stockholders, and all of their "excess revenues" (can't call them profits, by definition) have to be reinvested to make things better for patients. Except for what they pay their executives.  We can't forget about that.  Because no one is telling them - yet - that they cannot pay their executives multi-million dollar salaries.  But that's going off on a tangent, and I'll save that for another essay.

What about health insurance companies?  Do you want them to spend all of their money on health care for the folks who are insured?  You know they have business expenses, but shouldn't they have to tell us what fraction of the premium dollar goes to administrative costs and how much of it gets spent on health care?  You'd rather they didn't pay their executives huge salaries and bonuses.  Whatever it takes to get the talent, sure, but be reasonable.  And payouts to stockholders? Well, that won't be an issue for a nonprofit.  So it only stands to reason that you'll be getting more for your premium dollar if you go with a nonprofit health insurer.

Now you can see that what Congressman McClintock describes as the "Marxist notion that all profit is waste" is, in the broadest economic terms, surely nonsense, exactly as McClintock says it is.

But in the health care industry, the profit motive drives some very undesirable economic behavior, and really does divert money from being used efficiently to finance health care and to drive innovation in the most useful directions.

He Stopped Loving Her Today

This week George Jones was laid to rest at the age of 81.  His autobiography, published in 1996, was co-written with Tom Carter and titled I Lived to Tell it All.  He may not have lived to tell it all, but he surely lived longer than many of us expected.

Philadelphia in the late '60s and '70s provided the narrowly-defined musical culture in which I was raised.  Folk, folk-rock, and soft rock were the sound track of my adolescence.  Simon & Garfunkel, The Beatles, Judy Collins, Joni Mitchell, Janis Ian, and Harry Chapin populated the record shelves of my peer group.  On numerous occasions I heard my grandfather say to my grandmother, wondering what she had in mind for dinner, "Hey, good lookin' - Whatcha got cookin'?"  It would be many years before I knew those words came from a famous song by Hank Williams, Sr.

Then in the early '90s I was driving to work, fiddling with the radio tuner, scanning for music.  I was out of range of Pittsburgh's classical music station, which was the only one that was reliable in offering a soothing acoustic environment for my commute.  I was trying to find a station playing a song with words I could understand.  I found one!

The song was called, "You Know Me Better Than That."  A funny song about a fellow from a rural background whose new girlfriend was urbane but whose old girlfriend came from roots like his and understood him much better.  As I heard the refrain that was the title, I thought, well, she surely knows you better than I, because I have no idea who you are, but I like the song.

That was George Strait.  At the time I didn't know George Strait from George Jones, having no clue whatsoever about country music.  But my radio stayed on that station because all of the songs had words I could understand.  Soon I realized what genre of music this was and found myself more than a little surprised that I liked it so much.  Before I knew it I was buying CDs by George Strait and Reba McEntire, and it just took off from there.

George Jones took a bit of getting used to. He was past 60 then, and his voice had lost a bit of the smooth lustre it had had earlier in his career.  It could be a little reedy, even squeaky.  But the lyrics were compelling.  In time I realized he had been around for many years and had contributed much to the history of country music.  And there would be no retirement for him.  Not only was he still performing on concert tours and recording studio albums, but he was waging a campaign to get older stars the airplay they deserved on the country radio stations that catered to a mostly younger listening audience.  One thing that helped was that some of the young stars understood what they owed to the legends, and they paid tribute in their music.  Alan Jackson's "Don't Rock the Jukebox" was a fine example of this.  He didn't want to hear rock music on the jukebox; he wanted to hear some Jones.

George Jones was serious about this.  And I took him seriously.  I started listening to Hank - Senior, although I listened to Junior a little bit, too.  That's how I found out about the song my grandparents liked.  Hank, Sr. had been born about eight years before Jones but died at the age of 29, having written many songs in his short career, quite a few of which were later recorded by others again and again.  And the list went on from there: Kitty Wells, Buck Owens, Loretta Lynn, Lefty Frizzell, Patsy Cline, Conway Twitty, Dolly Parton, Merle Haggard, Johnny Cash, Roger Miller, Ray Price....

with Tammy Wynette

Learning that before George Strait in the '80s there was George Jones in the '60s and '70s, and all of what came to be called "traditional" country music before there was "modern," or "contemporary," or "new" country was a remarkably enjoyable odyssey.  The year I started listening to country (1992), Jones released the hit single, "I Don't Need Your Rockin' Chair."  He certainly didn't need it then, and I'm not sure he spent any time in it over the next twenty years, either.

Hank, Sr. was an alcoholic, and that was largely responsible for his early, tragic death.  Jones wrestled with demons, too, in the form of bourbon and cocaine. When I read I Lived to Tell It All, I frequently had to put it down because the addictions he was fighting seemed to be winning, and the story just got too depressing.  His stormy relationship with Tammy Wynette produced some fine duets, but his later marriage to Nancy Jones seemed finally to put him on a promising path to sobriety, and he was ultimately able to free himself of the vices that plagued his performing life with the nickname "No-Show Jones."

Besides Tammy Wynette, Jones did some fine duets with others, my favorite being Merle Haggard.  In fact, I would say that if you have never been steeped in Haggard and Jones (separately), you don't know country music at all.  And the material they worked on together was sterling.
I especially commend to your ears the album "Yesterday's Wine."

A George Jones musicography would by itself be quite a lengthy essay.  I won't try to write that one.  There were so many songs he sang and recorded that were never big hits that I thoroughly enjoy, and others that were big hits, and still famous, that don't do much for me.  "The Race is On" and "White Lightning" are two examples of the latter.  But there was one, the name of which I took for this essay's title, that was wildly popular, about a man's enduring love for a woman, that ended only when he died.

Now, like the man in that song, Jones is gone.  But not from my memory.  I will load up my car's CD player with some of my favorites among his albums and fill my commuting to and from work with his extraordinary twang.


Country music is full of themes of love and loss, faithfulness and infidelity, and wrestling with inner demons. George Jones did not really live long enough to tell it all, notwithstanding the title of his autobiography.

He had planned a Grand Tour of concerts in 60 cities during 2013, and no doubt his fans were eager to hear him use his music to tell his story.

And then he was going to retire at the age of 82 to spend more time with his family.  I am saddened that he didn't live long enough to do that.  But he did live long enough to win all of life's important battles, and for that I am grateful.

In Government We Do Not Trust

Who could be against more comprehensive background checks for the purchase of firearms?

First, notice the way this question is phrased.  There is a difference between being against something and not being for it.  The old adage, "if you're not with us, you're against us" isn't always correct.  So there may be a difference between opposing more comprehensive background checks and not supporting them.

Let us begin with the assumption that one supports the right to keep and bear arms but believes that this right should not extend to persons who have engaged in criminal activity that marks them as dangerous to the safety of others or to persons who have been found to be dangerously mentally ill.  The question then is simple.  Is there a way of keeping guns out of "the wrong hands?"  The short answer is no, because criminals will always find a way to obtain guns.  However, it stands to reason that we could make it more difficult for them, while not simultaneously imposing an undue burden on law-abiding purchasers, if we intelligently devise a screening system.

We currently have a database against which intended purchasers are checked to see if they have a felony record.  This National Instant Check System (NICS) may occasionally prevent the transfer of a firearm that would have been used in the commission of a crime.  It's hard to know that, but not unreasonable to surmise.  The NICS does stop many purchases each year.  Some of those intended purchases represent attempts by convicted felons to buy guns from licensed dealers.  That attempt is itself a felony, but those identified by the system as doing so are almost never prosecuted - a fact that is repeated endlessly by those who say this is all a charade or a waste of time.

At present the NICS is entirely ineffective in preventing purchases by those who should be disqualified because of mental illness.  This is an area in which improvements might really make a difference, because the mentally ill, unlike career criminals, may be stopped from obtaining firearms if they cannot do so through ordinary channels.

After the horrific shootings in Aurora, Colorado and Newtown, Connecticut last year, there was a tide of public support for new gun control measures and much talk about improving background checks and banning semi-automatic rifles and high-capacity magazines.  Support for the bans quickly waned, however, for reasons described in earlier essays in this blog.

But what about background checks?  Why not try to improve the current system, and why not extend these checks to all transfers?  What about this "gun show loophole?"

Currently at gun shows, licensed dealers must use the NICS just as they do when they are in their stores.  But private transfers, involving a seller and a buyer neither of whom holds a federal firearms license as a dealer, are not subject to background check.  So a gun can be bought and sold between two complete strangers without a background check.  Various statistics are bandied about in relation to these "private sales."  Claims have been made that 40% of all transfers are "private" and thereby circumvent NICS.  On the other side of the argument is the assertion that only 1-2% of guns used in crimes were purchased at gun shows.  The obvious fact is that guns used in crime were bought somewhere, and the question is whether we can stop a significant proportion of those transactions, and - a very important and - reduce the number of guns obtained by criminals.  Merely increasing the effort or the dollars they must expend to obtain guns is not the endpoint; we want to reduce the number of guns they obtain.

Should there be a background check for all private sales?  What about between family members?  The bill just defeated in the Senate excluded transfers between close relatives, including in-laws and first cousins.  One can always criticize any exclusions as imperfect.  Your first cousin could have a felony record, and you could deny having known that when you sold him a gun.  A close friend and colleague who has in his collection a specimen that I covet offers to sell it to me because he has another much like it.  Sorry, that has to go through a dealer and the NICS.

Why did this latest effort to improve the system of background checks fail?  I believe there are a few reasons.  First is that most people don't really think it will make a difference.  And so, while the polls say such a measure was supported by 90% of the public and 70% of members of the National Rifle Association, that support is lukewarm.  When supporters are lukewarm and opponents are passionate, senators figure they have more to lose by voting "yea" than "nay."

Second - and more important to an understanding of the opposition - is that we just don't trust the government.

What happens when a purchase is denied by NICS?  The purchaser can appeal this.  It may turn out to be a clerical error.  But it may turn out that the intended purchaser is, in fact, classified as a prohibited person by the system.  And then he may wish to appeal that prohibition.  Such an appeal is labor-intensive, which means processing it costs money.  Currently the system for processing such appeals is essentially unfunded.  And that is because pro-gun-control legislators have stood in the way of funding.

At one point, the Citizens Committee for the Right to Keep and Bear Arms (CCRKBA) supported the Toomey-Manchin Amendment to improve the background check system.  But that support was contingent on including funding for these appeals.  When such funding didn't make it into the final version of the measure that went to a vote on the Senate floor, CCRKBA withdrew its support. Vote counting is a complicated matter, but that might just have made the difference between passage and defeat.  Why did it play out that way?  What happened to politics as the art of compromise?

Perhaps the most important reason for the measure's defeat is that there remains strong opposition to gun registration.  This issue was also addressed in an earlier essay.  It is abundantly clear that a background check system funnels information about all purchases into a central database.  Gun owners don't want the government to keep a record of who owns what guns, organized by owner. Sure, it's fine to have data enabling the tracing of a gun used in a crime from the manufacturer to its last owner of record.  But government agents should not be able to query the system to find out what guns I own.  You may support registration, but I don't, and neither do most Americans.  This is because we do not trust the government.

This measure to strengthen the background check system prohibits its use to consolidate and centralize the data into a registry.  Anyone who understands computerized databases will be highly amused by that.  But do a Google search for the actual text of the bill and read the passage that prohibits a registry. I read it after the bill failed, because I'd heard that many pro-gun-rights groups thought it was inadequate.  I'm no expert on legislative language, but it seemed awfully flimsy.  However, the bill does say a registry is prohibited.  So what if the language spelling that out is fraught with potential ways of getting around it?  Why should we worry about that?

The answer is simple.  I gave it to you in the title.