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Wednesday, September 08, 2010


Healthcare Scare

As a former healthcare finance manager with 15 years of experience in the industry, I'd be remiss if I didn't start this post with the admission that I MAY be a bit biased on this issue. My perspective comes from being an industry insider as well as a student of economics. That being said, as we read The Logic of Collective Action, I can't help but consider the healthcare reform legislation in terms of what we are learning about group behavior as it may apply to the providers of care; doctors and hospitals. Looking at some of the changes through a narrow view finder focused on incentives, I am growing more concerned about the unintended consequences we are bound to see materialize.

Every doctor I have ever worked for had ZERO financial incentive to provide care to Medicare or Medicaid patients. The reason is that Medicare reimburses 73 cents on the dollar and Medicaid 52 cents on the dollar of COST. Every patient a doctor sees with a governmental payer is treated as a loss. Thus as I read Olsen, I find myself wondering why they do. Olsen's ideas on incentives led me to do some research and although the answer is obvious after our readings, before it was not so apparent. The simple answer is force/coercion. In order for a hospital to obtain a business license, they must accept Medicaid, any doctor affiliated with said hospital is also thusly coerced, and private practice doctors cannot be granted privileges to treat patients at hospitals without Medicare and Medicare certifications.

So then, what can we expect as a result of the new rules, regulations, and incentives/disincentives in the new law? Following the process through to its logical conclusion, I see only two possible outcomes; A) a breakdown in the provider function of our heathcare system. Adding millions of people to a system using force to provide care without EQUAL force to create the neccessary providers will result in providers leaving the market and a critical excess of demand will arise. Or B) the providers will elect to leave the insurance market and become cash only ( because as of right now, there is no governmental coercion under contract law to force them to remain), which will also create an excess of demand for services among the people the law was most intended to help, those that cannot afford healthcare to begin with. Either is unacceptable.

I'm not sure about your last paragraph, and I think this is because you don't explain the specific changes found in the new statute that you are considering.

Perhaps there is another aspect of the health care statute that might be related to Olson's analysis that would be interesting to consider. Unless I misunderstood something, I believe the AMA supported the statute. I certainly think it is plausible that this statute will mean fewer doctors, but if so, I wonder if this is consistent, or perhaps inconsistent, with the AMA's support? Is it possible the AMA believes doctors will earn more with the statute than without it?
Well, the AMA represents only about 17-25% of doctors in the US, and the vast majority are hospital based and research physcians, who did support the bill because their funding comes from the government and under the new law, research grants were increased exponentially. ( heres a pretty good article on this with excellent comments http://www.politico.com/livepulse/1209/AMA_supports_Senate_bill_.html)Private practice docs do not belong to the AMA in large amounts anymore. ( I will be talking about this in my essay ) The AMA supported the bill because they stand to gain quite a lot from it in terms of their hospital based clients AND just like AARP, they sell a Medi-Gap insurance plan that will be given preferential treatment in the "exchanges". Private practice doctors stand to lose. No, I don't think anyone believes doctors will be making MORE under the new healthcare laws since one of the provisions reduces reimbursments by 21%.

The easiest way to explain the convoluted system is that every private insurance company bases their payment rates off Medicare. For example...Blue Cross pays 119% of Medicare rates. With a 21% reduction in Medicare payments rates, which are already below the cost of doing business, doctors stand to lose a lot. That is why the talk of doctors leaving practice in droves has been front and center since the debate began. As of right now, there is no mandate doctors MUST accept either Medicare or Medicaid other than as I outlined in the original blog, but I believe that is coming next out of HHS's new authority to regulate under the new law.
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