AAPS News November 2011 - Honesty

Volume 67, no. 11 November 2011

“Transparency” is the politicians’ mantra, but it lacks the moral overtones of “honesty.” Lack of transparency muddies, obscures, clouds, conceals, covers up, or complicates, resulting in misdirection and deception. It is, in a word, dishonest.

To have a free market, honesty is essential. Without honest prices, rational decisions are impossible.

One can determine the price of almost everything on the internet—except the true price of most medical services: that is, the price that is actually paid. When prices are freely available—for example, the price of gasoline posted prominently at service stations—and competition is permitted, there is downward pressure on prices, and eventually the variation in the price of comparable goods or services is fairly narrow. Yet the price of medical insurance or medical services seems to move ever upward, and variations even within the same region can be enormous.

We are buried in numerical data, but there can be no meaningful use of meaningless numbers.

Percentage of What?
It sounds as though 50% is more than 10%, that a 30% discount or reduction in mortality is very significant, or that a 50% surgical mortality rate is unacceptable. But without a denominator, no conclusions can be drawn: obvious, but easily forgotten.

If the hospital doubles the bill, then gives a 30% “discount,” the patient is still paying 1.4 times the honest price. If 3 people out of 100 are expected to die of a heart attack, and an expensive drug with many side effects decreases the rate by 30%, only about 1 in 100 persons is expected to benefit from treatment. If a dishonest peer reviewer focuses on two high-risk patients, one of whom dies, the surgeon’s performance looks much different than it would with a denominator of 1,000 good outcomes.

One needs to look at absolute numbers, and absolute versus relative risks, rather than just percentages.

The Patient Protection and Affordable Care Act (ACA) demands that insurance products have a medical loss ratio greater than 85%, i.e. that health plans spend at least 85% on benefits. Certain administrative costs are fixed, and will be a lower percentage of a huge revenue stream. Thus, the ACA puts smaller plans, or plans that cover only catastrophic costs, at a huge disadvantage.

The medical director of Arizona’s much acclaimed managed-care-for-all Medicaid program states that the plans have an MLR “greater than 85% to 90%,” and thus “low” administrative costs (10% - 15%). Just how much is that? The financial statements for one of the largest plans, Care 1st, shows revenue of $651.8 million and expenditures of $554.3 million (85%) for “healthcare services” for California and Arizona combined. This means that in just one year, nearly $100 million is spent by one plan for something other than “healthcare services.” According to data supplied by the Arizona state legislature, 20% of managed-care expenditures are for paying physicians. Thus, taxpayers pay only 50% more for physicians’ services to Medicaid beneficiaries than they pay to managed-care plans for handling the money.

What Does the Money Buy?
From the accountants’ reports, it is impossible to know what the term “healthcare services” really means. How many chest x-rays or physician visits were included, at what unit cost? Keep in mind that physicians’ overhead for filing claims, checking eligibility, compliance activities, etc., is part of “healthcare services.”

The best source we know of—perhaps the only source—for a list of all-inclusive package prices charged to self-paying patients for ambulatory surgical procedures is the website of Surgery Center of Oklahoma (www.surgerycenterok.com). These are true free-market prices. The Center gladly accepts them as payment in full, and patients are glad to pay them. Some patients had been quoted prices as much as ten times higher by other hospitals.

The astonishing conclusion is that often only 10% to 20% of the hospital’s “chargemaster” price is needed to pay an efficient, excellent U.S. facility to perform the services, if unencumbered by insurance-related overhead or Medicare rules. What does the remaining 80% to 90% buy?

One answer is that almost nobody, aside from billionaires who aren’t on Medicare (e.g. Arab sheiks), pays the full price. So why cite a grossly inflated price? Perhaps to generate huge paper “losses” in order to qualify for tax-exempt (“nonprofit”) status or to collect government money for “uncompensated” care. Perhaps to create a margin for sharing with brokers or re-pricing services. Perhaps to “encourage” people to buy costly insurance to “protect” against charges they could afford if they were paying the same price as the plan. On a recent visit to Washington, D.C., Dr. G. Keith Smith was told that people might drop their insurance because a month or two of premiums would be enough to pay for many of the procedures on his Center’s list!

And where is Medicare looking for savings? Not from the money-changers in the den of thieves in many of our temples of healing and associated health plans. Rather, in the 20% of the medical dollar that pays for physicians’ services. The threatened 30% SGR–mandated cut could cut at most (0.3)(0.2) or 6% of Medicare expenditures, but 60% of physicians’ payment for Medicare patients (if their overhead is 50%).

It is the truth that makes us free. One Center posting honest prices could be a national game-changer.

Dr. Smith Goes to Washington

In a congressional briefing on Oct 13, Dr. G. Keith Smith told Rep. Marsha Blackburn (R-TN) and some staffers the story of the Surgery Center of Oklahoma (youtube.com/watch?v=0XRM4pPBNF0).

“We’ve never taken a dime of government money, so I’m not in Washington asking for anything; I’m just delivering a message,” he said. “We’re an example of how the free market can work.”

He explained how the introduction of pricing honesty has caused shock waves in Oklahoma City. Honesty has been the policy since the Center opened in 1997, and despite charging about 80% less than hospitals in the area, the Center makes a profit. Patients come from Canada, remote States, and other nations, as well as Oklahoma City.

“I’ve never been more excited about the practice of medicine than I am now.”

Other video from the briefing includes Rep. Blackburn’s message on how government-run medicine has been a failure in Tennessee.

Talks by physician members of Congress, Rep. Paul Broun (R-GA) and Rep. Tom Price (R-GA), from our annual meeting, and video from our Nashville town hall are at youtube.com/watch?v=qIVGAOOBNV4 and youtube.com/watch?v=VxvAJou5IEk.

Clinton Redux

In the early 1990s, hospitals in Oklahoma City tried to capitalize on physicians’ fears, but the Clinton Plan failed before the unholy alliances were finalized. Now, they’re back, writes Dr. G. Keith Smith (see blog at blog.surgerycenterok.com).

One hospital is aggressively hiring doctors. This will not end well for the hospital, Smith writes, since doctors will not work as hard when they are salaried and relieved of much of their overhead. It will not end well for doctors when upon contract renewal they will be offered half their salary and saddled with a malpractice tail so expensive that they cannot realistically separate.

Another hospital is reviving the old PHO (physician-hospital organization) idea. Smith’s advice: “Look for your exit strategy.”

The ICD-10 (and ICD-11) Reign of Fear

The unfunded ICD-10 mandate is said to be the biggest task in healthcare information technology history, and “there will be suffering,” stated Bedirhan Ustun of WHO’s informatics department (Modern Healthcare 10/4/11). The cost for a small practice is estimated to be $84,100 (www.govhealthit.com 10/2/11). Training requires about 50 hours. Productivity of coders, in charts per hour, could fall by as much as 64%, and remain down 20% for 8 months or more (Modern Healthcare 10/3/11). The VA’s electronic medical records system has 58 packages that require remediation to comply with ICD-10. Cisco, IBM, and Microsoft will make a lot of money. But just think of the value, wrote a certified coding trainer to the Wall Street Journal: Since there’s a code for every artery, “a patient who is hemorrhaging can get lifesaving care more quickly when the physician can immediately identify precisely where the broken suture is located.”

“It’s laughably absurd,” writes AAPS past president Tamzin Rosenwasser. And ICD-11 is coming soon, in 2015. (See Action of the Month.)

AAPS Annual Meeting

Election: Alieta Eck, M.D., of Somerset, NJ, an internist, assumed the office of President. Juliette Madrigal-Dersch, M.D., of Austin, TX, who is board certified in internal medicine and pediatrics, was chosen to be President-elect. Charles W. McDowell, Jr., M.D., of Johns Creek, GA, an ophthalmologist, continues as Secretary, and W. Daniel Jordan, M.D., of Atlanta, GA, a vascular surgeon, as Treasurer. Elected to the Board of Directors are: Curtis W. Caine, M.D., of Brandon, MS (anesthesia); James F. Coy, M.D., of The Villages, FL (general practice); Wayne Iverson, M.D. of San Diego, CA (internal medicine); Thomas W. Kendall , Sr., M.D. of Greenville, SC (family practice); and George R. Watson D.O., of Park City, KS (general practice).

On Treatment of Family Members: Therefore, be it resolved: That AAPS support noninterference with patient care, whether it comes from government agencies, hospitals, insurers, the AMA, or any other entity.supports any family member being free to choose his/her physician, regardless of the familial relationship with such physician, and that physicians be completely free to treat any family member in whatever fashion is mutually acceptable to physician and such family member.

On Mandates: Therefore, be it resolved: That the Association of American Physicians and Surgeons totally repudiates federal medical care mandates of any and all kinds, and specifically the ones embodied in the Patient Protection and Affordable Care Act (PPACA), and rebukes the American Medical Association (AMA) and the American Osteopathic Association (AOA) for their unethical support of government-forced medical mandates, and for their self-serving submission to the proposed government takeover of medicine.

Stuart Spitzer Running for Texas Legislature

Stuart Spitzer, M.D., a general surgeon who has been an AAPS member since 2008, announced his candidacy for the Texas house of representatives (http://stuartspitzer.com).

“There is truth, and we should seek it,” he writes.

AAPS Calendar

Jan 20-21, 2012. Workshop, board meeting, Las Vegas, NV.
May 18-19, 2012. Workshop, board meeting, near Newark, NJ.
Oct 4-6, 2012. 69th annual meeting, San Diego, CA.

“The Obama Administration is charging ahead to the…further implementation of the unpopular and unwieldy law because, as Woody Allen described in Annie Hall, the health law is like a shark that has to constantly move forward or it dies.” Thomas Miller


Submit your entry in the contest for the most ridiculous ICD-10 code or the most needed new ICD-11 code.

CLASS Act “Indefinitely Suspended”

After 19 months of research, actuaries could not find a way to make the long-term care program in ACA fiscally sustainable, so Secretary Sebelius told congressional leaders: “I do not see a viable path forward for Class implementation at this time.”

One economist estimated that the program would have to enroll more than 230 million people—more than the entire U.S. workforce—to be paid for. Recently released e-mails show that HHS was aware of the program’s unsustainability and deliberately withheld the information (Health Policy Matters 9/16/11).

Simply repealing the program is, however, problematic, because removing the phantom savings achieved by front-loading the program with 5 years of revenue collection would add $86 billion to the deficit, according to the Congressional Budget Office’s perverse scoring system (Wall St J 10/4/11).

Advocates for the program say they want to hear it from the President if it’s really over. “They have the authority to move forward and twist this Rubik’s Cube until a solution pops up,” said Connie Garner of AdvanceClass (Bloomberg.com 10/14/11).

Judge Strikes Mandate and Other Provisions

Federal District Court Judge Christopher Conner is the first judge to strike down the individual mandate in the ACA and also provisions that require insurance companies to cover everyone and refrain from discriminating against those with pre-existing conditions. He ruled that these were inseparable as a matter of law, and not just of policy.

The case, Goudy-Bachman v. HHS (1-10-cv-00763-CCC) was filed Apr 10, 2010, in the U.S. District Court for the Middle District of Pennsylvania by owners of a bait and tackle shop.

Plaintiffs decided to drop their health insurance when premiums increased from $600 to more than $1,200/month, exceeding their mortgage payment. They determined it was more cost-effective to pay medical bills when they came due, and had paid all bills incurred since dropping coverage in 2001. They argued that the mandate is already affecting them, as they had to forgo the purchase of a new car because they would not be able to afford the payments once they were forced to buy insurance in 2014.

Judge Conner ruled that “Congress cannot mandate or regulate in anticipation of conduct that may or may not occur in the future.” Further, “the mere status of being without health insurance, in and of itself, has absolutely no impact whatsoever on interstate commerce.”

He did, however, make a point of not endorsing plaintiffs’ emphatic language, calling it “unproductive and unpersuasive.” They called the law “tyranny,” which would transform the President and Congress into the “financial slavemasters of the American people.” They also called the law a “virtual lynching of the Constitution,” and noted that Obama, on signing the law, “received hearty congratulations from the hemisphere’s most notorious despot—Fidel Castro.” The ACA, they said, impairs the right of younger, healthy citizens to make fundamental choices concerning their own lives, “in servitude to the...interests of the more numerous, politically powerful...‘baby boomer’ generation.”

In a Mississippi case, Judge Keith Starrett ruled that plaintiffs could bring a challenge against ACA on grounds of privacy violations as citizens must surrender data to private insurers.

Ambush Interviews

Government agents are more frequently and aggressively approaching physicians or employees in parking lots, at home, or at health clubs, in search of incriminating information. No search warrant or subpoena is necessary, and a Miranda warning is needed only if a subject is being taken into custody. People are under no obligation to talk, but they often do. It might be wise to alert staff and advise them to take the agent’s card, then say goodbye (Medical Practice Compliance Alert 9/19/11).

Crimes Grow, Guilt Threshold Declines

In 1790, there were fewer than 20 federal crimes. Today, there are 4,500 in federal statutes, plus thousands more in regulations. Traditionally, prosecutors had to prove, under English common law principles, that someone had not only had committed a bad act, but also had a criminal intent or mens rea. But what used to be considered a mistake is now punished by imprisonment. One ex-con, who was trying to go straight, received a mandatory prison sentence of 15 years for possessing a bullet he had found under a carpet while doing a remodeling job. This was held to violate a federal statute against felons possessing firearms, and the sentence was upheld in appeals court even though acknowledged to be “extreme” (Wall Street J 9/27/11).

Nov 1 Deadline for ePrescribing Exemptions

Physicians who failed to meet the Medicare requirement to issue and report at least 10 electronic prescriptions during the first 6 months of 2011 will have all their Part B Medicare payments under the 2012 fee schedule reduced by 1%—unless they qualify for an exemption and apply for it by Nov 1.

The payment “adjustment” (penalty) for noncompliance increases to 1.5% in 2013 and 2% in 2014. See www.cms.gov for information on hardship exemptions.

Check times for withdrawing from a Medicare participation agreement if you want to become non-par and consider opting out. According to the Texas Medical Association, half of physicians are thinking of opting out if the 25.5% fee cut goes through. Penalties for failure to adopt costly technology, plus the ICD-10 coding requirement, additional audit threats (including new semi-automated reviews that will allow RACs to demand more records), and stepped-up prosecutions for miscoding, are making participation in Medicare increasingly difficult and risky.
See: How to opt out of Medicare.

Data Privacy Insurance

Additional coverage for “cyber liability” is being offered by malpractice carriers because data breaches are increasingly common, while HITECH and HIPAA impose costly burdens for notification and remediation, plus the defense costs of a possible government investigation. The definition of a HIPAA “non-covered entity” has not changed, and even physicians who keep electronic medical records in-house may want to avoid electronic claims filing that subjects them to HIPAA—and imperils privacy.


CLASS Act. Reality is a hard thing to ignore. You can pretend to give people something for nothing, but eventually the reality that Ponzi schemes are not sustainable destroys the myth. The Community Living Assistance Services and Support Act was to be another government-run Ponzi scheme. When the “why should we even have a federal debt ceiling” tax-and-spend purveyors of Ponzi schemes start to pull back, you know that its raining Reality big time, and despite their claims of being high and dry, the redistributors of other peoples’ wealth are all wet.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

Trying to Empathize. Yesterday I woke up determined to try to see the world through the eyes of the Wall Street demonstrators. I began by reflecting on how bankers have been vilified throughout history, sometimes fairly, including the Biblical injunction against money changers in the temple. Then I thought about all of the lies that the demonstrators have been told all of their lives, especially by government K-12 schools. Students were misled to believe that the New Deal and Great Society were about social justice, fairness, and the elimination of poverty. Now they’ve found out that they will be paying for all of this generosity the rest of their lives. By this point, I was feeling very empathetic. But then I saw a TV interview with one of the demonstrators, who said that all student loans should be forgiven, meaning that people who had nothing to do with his decision to take out a student loan and major in [nonsense] should be punished for his gullibility and lack of inquisitiveness. Not only was he endorsing theft, but he also was endorsing a bailout for himself while demonstrating against the Wall Street bailouts. As you can sense, my attempt to empathize with the demonstrators wasn’t successful (http://menckensghost.com).
Craig Cantoni, Scottsdale, AZ

Escape from the Rip Current. In private medicine, we are faced with a rip current (sometimes called a rip tide or undertow). You want to reach safety on shore, but the rip tide keeps dragging you into deeper water. Many swimmers only offer themselves two choices in the situation: swim against it and burn out, or surrender to it and let it drag you away. The third strategy, the most successful, is often overlooked. That is, swim at right angles to the current (parallel to the shore). Although you initially won’t come to shore, the current won’t drag you out to sea, and once out of the current you can make your way back. Private physicians are finding alternate ways to cope with a system that is increasingly out of whack, without letting it drag them down.
Michael Riesberg, M.D., Pensacola, FL

Some Physicians Like the Canadian System. The reason is that they get a budget. When they have seen patients up to the amount of that budget, the system will pay them no more, so they stop working. This results in long vacations, and some people like a lot of leisure time. Of course, Canada has a tremendous physician shortage, with an estimated 4 million people unable to find a primary practice willing to admit them, but some consider it a small price to pay for a system that pretends to guarantee health care to all and to provide equal access to all.
Linda Gorman, Ph.D., Independence Institute, Golden, CO

Where Berwick Wants to Go. Under the British National Health Service, much admired by CMS director Donald Berwick, the number of patients who had to wait more than 6 months for treatment shot up by 43% in the last year. Despite an increasing elderly population, the NHS treated 16,201 fewer patients as in-patients in March 2011 than in March 2010.
Louis Keeler, M.D., Cherry Hill, NJ

Compare the Ads. “You’re in good hands with Allstate,” is the voiceover at the scene of a catastrophic auto accident. But the ads during open season for health insurance picture young families with no apparent health problems. An honest summary of how the health insurance market works would be, “You’re in good hands with us unless you really need us, and then we wish you would go somewhere else.” In such a world, comparative effectiveness research, FDA rulings on drugs, and end-of-life counseling provide needed cover for insurers who want to deny claims.
John Goodman, Ph.D., Dallas, TX

ObamaCare Job Killer. Our hospital, a joint venture between Texas Health and physician investors, had a $15 million expansion ready to go, but this became illegal on Mar 23. Based on the hypothesis that physicians are unethical and will perform procedures in hospitals they own solely for their own profit, our community lost $15 million in new construction and 75 full-time jobs.
Robert Sewell, M.D., Southlake, TX

Non-transparency. The “privatization” of Medicare means that the rules and processes of rationing care become “proprietary” or “trade secrets,” not subject to public scrutiny. Medicare HMOs, no matter what they have been called, have never saved money. They just make money for insurance executives who promote them. Ask the great “innovators” to publish their risk-adjusted outcomes to see how their rationing protocols work out for sick people with multiple chronic diseases.
Brant S. Mittler, M.D., J.D., San Antonio, TX