Follow by Email

Saturday, August 15, 2009


By JC Leahy, RN, BSN, MA
Sigma Theta Tau's "100 Most Extraordinary Nurses" Award

It breaks my heart to see the Media's portrayal of legislators bracing for health-care forums. In tenor and content, the media portray Congress as under siege by angry mobs. My own local paper complained that these mobs are "more intent on being heard, than asking questions about the Democrats' proposals." It gave front-page voice to assertions that those with different ideas are "hard-right tea-baggers and birthers." How polarizing! What we need is a calm discussion.

Make no mistake, health care has not failed in America!! Medical professionals have crafted the finest health care system in the world. We know this because the sickest from around the world fly to American hospitals and specialists when their personal chips are down. I know. I'm a registered nurse. I work in hospitals evey day.

What actually has failed in America is the health care FINANCING system. Health care financing's failure, in turn, has created failures with health care distribution and delivery . These failures have killed many Americans, including my neighbor Bill.

Let's attempt to understand the health care financing and distribution system by understanding underlying fundamentals. Fundamentals define the system. Focus your attention. This is really important to you and your family.

The most important underlying fundamental is the principle of third-party reimbursement. Third-party reimbursement is the wellspring from which failure flows. Look at it this way: When folks buy a new automobile, 100% of them want to know how much it costs. They may haggle. They may shop around. They will consider the price, the automobile's benefits, and their available funds. They will also consider other things on which they want to spend money, such as food, mortgage payments, clothing, recreation, etc. In the end, they may decide to buy a different kind of new car, or to buy a used car, or to keep using their existing car. They may even decide to rely on public transportation. That is why General Motors and Chrysler could not simply jack up prices to recover their bloated union health care costs. It's called competition in a free market.

Free market competition in health care has not failed. On the contrary, it has actually not been tried. For example, in my nursing career, including clinic, intensive-care, and medical/surgical hospital units, I have cared for approximately 8,000 patients. Unlike buyers of automobiles, fewer than 10 of my 8,000 patients or their families have ever even asked what their hospital services would actually cost! No, I don't mean 10 percent; I mean 10. Only one of them, a desperate father, ever whipped out his VISA card and offered to pay. Why is this figure not 100 percent, as with automobiles, groceries, movie tickets, or almost anything else? The reason is that most health care expenses in America are paid not by the patient/family buyer to the doctor/hospital seller. Instead, most expenses are paid by some third party – usually an insurance company or government program. Only 5% of hospitals' income flows from patients or their families. At the time they make actual buying decisions, most patients and families don't shop around or haggle because they don't much give a hoot how much it costs!! This leads to over-consumption of health care. Over-consumption artificially raises demand and leads to rising prices, rising total costs, and rising health insurance premiums. Prices will tend to rise until the system collapses. We see this collapse in the General Motors and Chrysler bankruptcies and in Wal Mart's urgent advertising for health care reform.

Another way to look at the problem of third-party reimbursement is to consider that, in principle, doctors and patients who are unconcerned about cost could spend an almost unlimited amount of money on every headache in America.. That would be a tremendous mis-allocation of resources. Here's a real-life example of how this works. I, myself, went to see an ear-nose-throat specialist and asked him to evaluate my persistent cough. He put a small endoscope down my throat to see what was there, and said to me: Don't worry!  It is merely a mild case of gastroesophageal reflux disease (GERD)!  Just stop eating dinner so late at night, cut down on your coffee drinking, and take these pills once a day until you are better! I had imagined cancer, so I was pleased with my good fortune. My primary physician, however, steeped in the tradition of malpractice lawsuits, was less than jubilant. He said, "It may, indeed be GERD, but there are other possibilities. Why not eliminate them? Why not have a chest x-ray? Why not a chest CT? Why not a pulmonary function test? Why not a cardiac consult and an echocardiogram? And, indeed, why not an esophagastroduodenoscopy? And in case the problem is just a simple case of GERD, why not redouble the number of pills you are taking? And, indeed, why not? I had health insurance. I was in-network. It would cost me nearly nothing to spend $10,000 of health care resources. And, just to be safe, I did. As it turned out, the problem was a simple case of GERD. This is the way health-care resources are spent in America.

Of course, third-party payers do not sit idly by while doctors and patients make such profligate spending decisions. In an effort to control health care costs, third-party payers resort to disguised rationing. This is the second fatal flaw of health care financing.  They don't call it rationing. Folks wouldn't stand for rationing! Third-party payers disguise rationing with complex rules, waiting lists, and health insurance claim denials. For another real-life example, take my neighbor Bill.  Bill was a really nice guy.  He was a productive citizen.  He was fairly young. He had a wife and two sons, a shiny black car, and a pretty little house. He took reasonably good care of himself. When Bill got sick, his doctor said that what he really needed was a lung transplant. Bill thought he had pretty fine health insurance. He had been paying money into it for years, and he felt that he was about due for a little payback. And so, he filed for insurance pre-approval of a lung transplant. To his surprise, his insurance company was very sorry, but it did not consider lung transplants, actually, to be health care at all! No, lung transplants were more like experimental procedures. Bill's insurance didn't cover experimental procedures. Sure, lots of lung transplants had been performed successfully. Bill could appeal, said the insurance company, but unfortunately, an appeal would take time and money. I visited Bill at home. He died waiting in his living room for health care. The cause of Bill's death was health care rationing.

Health care financing's third fatal flaw is restriction of fixed costs. As every accountant knows, before the first patient is even evaluated, there are certain costs that must be paid simply to have a hospital open and available with equipment and staff for patient care. Accountants call these "fixed costs." They include such things as the cost of the building, the cost of medical equipment, and the cost of a basic complement of administrative and clinical staff. As each patient is treated, the hospital must recover not only the direct cost of actually treating another patient and processing his insurance claims, but also fixed costs. If fixed costs are not recovered, the hospital eventually cannot continue to offer health care. This is a mathematical certainty.

Third-party payers restrict fixed costs in two ways: by regulation, and by simply refusing to pay for them. Yes, big players in the health care financing jungle can simply refuse to pay for legitimate fixed costs. The biggest gorilla in the jungle is Medicare-Medicaid. Having the muscle of government, Medicare-Medicaid simply sets reimbursement rates that are too low for health care providers to recover their fixed costs. The next biggest gorilla in the hierarchy of the jungle are the private insurance companies. They use their muscle to extract low reimbursement rates – not as low as those of Medicare-Medicaid, but still, not enough to recover the balance of fixed costs. What's a poor hospital to do? It must recover all of its fixed costs to continue serving patients! Who will pay for the balance of fixed costs? The obvious answer is: all the little people of the jungle. Health care analysts refer to this phenomenon as "cost shifting."

The individual patient who comes to a health care provider expecting to pay a fair price for his own treatment is in for a rude shock. Take, for example, my friend Lisa. Lisa's doctor suspected that she might have Lyme disease. He sent her to a medical lab company to have blood drawn and tested for Lyme disease plus some other basic blood chemestry tests. When the lab company sent the bill, it did not realize that Lisa had health insurance. The bill was $950. After Lisa phoned and recited her insurance information, the lab company sent a revised bill priced at her insurance company's reimbursement rate: a total of $135, which insurance paid in full.  We can only imagine how low the Medicare-Medicaid rate would have been!!! The really sad part is that if Lisa did not have health insurance, the lab company would have wanted the full $950! It would have sicced its collection agency on her, ruined her credit, and taken every practical legal measure to extract $950. Even sadder is this: The average little person in this predicament is sufficiently torpid that she does not even realize she has just been raped by a large gorilla!!

Another way that third-party payers restrict fixed costs is by sheer regulatory fiat. This is often accomplished by the "certificate of need" process. Unlike most individuals who can simply go to the store and buy a loaf of bread, hospitals often need pre-approval to buy certain items. Approval is called a "certificate of need." If the third-party payer is a government, or a big enough gorilla to influence a government, it can restrict fixed costs by simply refusing to issue a certificate of need. If the certificate of need is denied, health care costs are aborted. What a scheme! The effect is to reduce health care costs by reducing health care availability, and then for those health care facilities which do exist, shift the costs to the little people!!

In summary, our current health care financing system must be changed because of the fundamental way it is set up. Consumers attempt to consume health care services with no point-of-sale concern for the price. This increases demand. As every economist knows, when demand increases, other things being equal, providers naturally want to raise prices. Third-party payers resist increases by regulatory fiat and low reimbursement rates. This has the effect of shifting costs to the little people, who may find their credit ruined, their wallets emptied, and their homes consumed by artificially high medical or long-term care bills. Meanwhile, health care providers are under siege by the powerful trial lawyers, constantly under threat of large malpractice lawsuits. High malpractice awards and malpractice insurance premiums naturally have to be passed on. This, again, raises health care prices. Third party payers further attempt to control rising costs by rationing - delays, denials, and complexity. The resulting mismatch between needs and resources allows the healthy man to spend an extra $10,000 on a minor cough that has already been diagnosed, while his sick neighbor dies in his living room without care.

Health care financing reform is the most important legislative issue of our lifetimes. How can the Media possibly believe that the citizens' role is merely to ask questions about what one party or another is planning to do? The Obama/Pelosi plan is based upon third-party-payment health-care financing. This is like old leftovers rewarmed. This approach has failed. We know it has failed because it is collapsing under its own weight, bringing along with itself our employers and our jobs. Doing more of the same thing, with greater intensity, will not produce a better result!! As in life in general, what got us here just won't get us there, no matter how we wish!! So let's talk about it calmly, without deamonizing each other? Okay?

About the author: JC Leahy is a registered nurse in Washington, DC. He blogs at


rezide said...

Hi John,

Good job! But the blog may be too long for a very busy guy to read, suggesting therefore to make one major point in one blog and remember the K.I.S.S. to drive home the point.

It may be a general practice everywhere that when someone is 'paying' for the bill, as in a restaurant for example, there is a tendency to order more than what one can eat, without realizing that the bill ultimately goes back to him, as in the case of insurance, the next year's premium goes up unnoticed, be it in health care, automobile or fire coverage.

Please take a look also, at some point, on the propriety of medical practitioners requiring unnecessary tests and services, including medicine, simply because the same medical practitioner, in some way or another, is directly or indirectly benefited financially, by way of commissions or certain point systems, enabling them to travel on vacation under the guise of conventions, fully paid for by the health care providers - and of course, the general public in the end.


Edizer E. Amandy

JC Leahy said...

Thanks for the well considered comment, Edizer! I am struggling against including TOO many points in a single post. Health care financing reform has SO MANY angles!! Keep in touch on this, would you?

Rob Maeder said...

Read the article, and though it was long, I'd recommend it as a good primer to the core issues of the health-care debate.

I have been in Korea for the past two months with my wife. I went for a simple health check-up, much like the yearly ones I do in America.

I received:
-Weight and Height Check
-Blood Pressure Reading
-Eye Check
-Chest X-ray
-Blood Test
-Urine Test
-Dental Check
In 15 minutes. In America I would have still been flipping through reader's digest.

I wonder what the difference is?