Did lawyers cause the crisis in medical costs?

Writing for Slate Timothy Noah suggests that Goldfarb v. Virginia State Bar
laid the foundation for one of the major causes of the present medical costs crisis. The reasoning is that the cause of the constantly rising cost of medical care is the physician owned hospital and excessive and unnecessary referrals for expensive testing. Goldfarb held that the practice of law and other "learned professions" constituted commerce as defined by the Sherman Act and therefore the lawyers of Virginia could not fix prices as this was "anticompetitive conduct." The entrepreneurial doctors, with no doubt the help of their lawyers, convinced the American Medical Association that the previous practice of restricting doctors from advertising, to selling drugs, or owning a financial interest in any lab or machinery they used to perform tests constuted an unlawful restraint of trade. What resulted was the unrestrained increase is medical costs. Great for doctors and the insurance trade, but driving the rest of us to bankrupcy.
The one reason the "silent hand" of the market place does not work to efficiently keep medical care costs down is that entry ino the the market of the "learned professions" is restricted by the state. The state controls entry in to the professions by requiring licenses to practice them. It is recognized that to practice the "learned professions" it is in societies interest that they have minimum levels of training. This monopoly is the reason the Sherman Act should not have been applied the Virgina lawyers. Perhaps the Court should have said that because the lawyers have a legal monopoly that they should not be allowed to fix prices to the injury of their clients. Now that the "learned professions" have sipped the honey of entrepreneueship, it is going to be difficult to get them to restrain themselves. Perhaps, the way to control medical costs is to either abolish their monopoly or for the government to take over some regulation of the profession by restricting their activity to practicing medicine.

Medical Costs

Although the central thrust of this blog is toward legal issues, I have submitted a number of posts concerning medial care costs and billing. Since most law firms are small and if they provide health insurance coverage for their employees, we are saddled with the highest medical insurance premiums as are other small businesses. Congress is debating reforms in the health insurance industry. The cost of health care has been rising at a rate far in excess of the general price index some where in the area of 7% per year. We have learned in Texas that restricting the rights of Texans by "med mal reform" has not reduced the cost of health care in Texas. Our health care costs are among the highest in the country. The expenditures for health care varies widely across the country. An article of in the New England Journal of Medicine outlines the problem. They have found the enemy and as Pogo said, "They is us". That is we just use more medical resources than the rest of the country. We use medical procedures that are more complex when simpler, and cheaper, procedures would be better. But we are healthier because of the use of these procedures, wrong. According to the Dartmouth study cited above by Katherine Baicker and Amitabh Chandra: "In fact, the four states with the highest levels of spending—Louisiana, Texas, California, and Florida—were near the bottom of the national rankings on the quality of patient care." We are not only not healthier, but are somewhat less healthy because of the procedures. All medical procedures carry a element of risk, hence, the lower result.
Another article, this time in the New Yorker magazine, pins the cause of the high costs of medical care on the doctors and their "entrepreneurial spirit". That is, where doctors act more like businessmen and less like doctors, their incomes increase, medical costs increase and patient care declines. Like most New Yorker articles it is long, but worth the read.

The cost to you of the uninsured

Cost shifting is adding $1100 per year to your health insurance premium.

How cost shifting by hospitals is killing the middle class

Hospitals are like hotels, there is the rack price (retail price), which is paid by to the uninsured, wholesale price, which is paid by the insured , and the government price that is imposed on the hospital. The system is not too bad for the poor as they will not pay the bill anyway and there is no way to force them to. Those uninsured with some assets faced with these outrageous bills are forced into bankruptcy. One third of all individual bankruptcies are caused by medical bills. This system fails those with modest assets and no insurance.
Those with insurance pickup the tab for the uninsured who do not pay their bills and the underpayment by governments by increases in their health insurance premiums. The employees of small employers are forced to pay the price reductions in health insurance that the large employers by their bargaining leverage are able to extract from their insurers.
In an article, “Predatory Hospital Billing: Dynamic Cost Shifting to the Uninsured” Robert S. Walsh M.D. presents how the middle class is being killed by hospital billing practices:

“Over the past year, aggressive billing practices have been exposed at a number of hospitals in the United States. Despite the fact that a widower had paid $16,000 of his late wife's bill of $18,740, some 20 years after the incurrence of the bill a teaching hospital held a lien on his home for $40,000 in interest. Many years earlier the hospital had seized his bank account, and now the 77-year-old man was destitute. Only tremendous publicity caused the hospital to back down. That same week, another nonprofit teaching hospital reportedly drove a 25-year-old uninsured woman from New York City while dunning her for a $19,000 bill for a two-day stay for an appendectomy. In California, a patient was forced into bankruptcy in 2000 by a for-profit hospital from a day-and-a-half stay in the hospital that did not include any surgery but totaled $48,000 in hospital bills. These have become common stories as hospitals aggressively market, bill, collect, and foreclose, just like any other corporation. The uninsured are facing the brunt of the hospital industry's billing practices.”

Morally wrong and fiscally unsound.

The New York Times this morning in a curious combination of op-ed pieces combines a plea by Nicholas Kristof for animal rights with a piece advocating no rights for people who do not buy health insurance by Ramesh Ponnuru.

Ponnuru concludes his article opposing universal health care with the statement; “Some people would, of course, chose to go with out it (health insurance). But that would be their call, as it should be in a free country.” In addition being a rather appalling moral judgment, it ignores those who would be without health insurance regardless of how cheap it is, because they would rather eat, those who are mentally so confused they cannot make a rational judgment, those too ignorant to understand they are making a choice, the spouse of a person who is too cheap to buy the insurance, those who because of their age do not have the right of choice, or the unborn who die because their mother or father gambles wrong.

There is good reason to question the assertion that cost shifting from the uninsured to the insured amounts to an increase in premiums of only 1.7%. In The Cost Shift from the Uninsured the writers claim the shift is 8%. The writer of the Times article does not name the article that is the source of his figure. The writer goes on to assert that government mandated insurance would specify the type of coverage that must be afforded as this was an evil. Without some criteria as to what constitutes “health insurance” the mandate would be meaningless. He then drifts off into speculation that these mandates would include fertility specialists and massage therapists and that we would end up with costs-shifting and no savings. Of course, there would be costs-shifting that is the whole purpose of mandated insurance coverage. To place the cost on medical care on those that elect not to buy health insurance rather than force the insured to pay the cost of the uninsured as the present system does.

Ponnuru then admits that a strong case can be made for universal coverage to see that the poor and near poor have decent medical care. He then seems to say that the cost would be less if we used clinics, reducing medical errors or nutrition. Government funded clinics would be an effective method of providing some medical services to the destitute, poor or near poor, but that is a more radical solution than mandated health insurance. It would involve an army of government employed doctors, buying the necessary equipment and housing the clinics. Reducing medical errors would certainly reduce medical costs, but how would the be accomplished, by another army of beurocrats to police the doctors. Lots of luck with that. Better nutrition would certainly help the poor, but that involves case workers to teach the poor how to cook and eat. This was done in the south in the 30’s with great success, but was abandoned when the war started. I doubt that it would reduce medical costs much. None of these things, good as they might be, address the cost shifting in hospitals where most of it currently occurs. The poor simply don’t go to individual doctors or clinics because of the cost.

Ponnuru asserts that universal coverage reduces the quality of health care or retards medical innovation. Since we rank 15^th in the world by the commonly used standards of health care and 1^st in the amount of money spent on health care, I don’t see that the present system is doing such a hot job. I do not think our lowered life expectancy, and high infant mortality rates are because our doctors or hospitals are inferior. They are because of the misdistribution health care.

Ponnuru would replace our present employer based health insurance with private individual policies. He proposing abolishing the tax deduction to employers and substituting a tax credit for individual policies. No employer would maintain a costly health insurance program if it was not tax deductable. A tax credit does no good if you aren’t paying any taxes. Who would pay for the health insurance if an individual is unemployed?

This is one of the worst articles written in a major publication concerning health care issues. It is both morally and fiscally unsound.

The Texas Supreme Court on April 3rd in Entergy Gulf States Inc. v. Summers has revisited a controversial decision allowing a premises owner to avoid common law liability by purchasing a workers compensation policy for the benefit of employees of a contractor. The decision is a mixed bag for employees. It will as the majority suggests encourage premises owners to buy workers compensation insurance covering a contractors employees while denying them the right to sue the premises owner. If the injury is not the result of the negligence of the premises owner then this is a good thing. If the injury is the result of the negligence of the premises owner, then it is bad. Whether the trade off benefits the employee more than the premises owner is difficult to measure. I suspect that premises owners will not rush out to buy workers compensation insurance. It is generally more expensive than premises liability coverage. It might have been nice for the employees to get both workers comp. and legal liability, but that does not strike me as fair. In reality there probably was no legislative consideration of the trade off since apparently the legislature was thinking about some other problem when they changed the statute, but this happens all the time. The legislature attempts to fix some specific problem, but inadvertently changes something else. The courts should, of course, not legislate, but the legislature should be more careful. "Words mean what I say they mean, said the mad hatter, "nothing more, nothing less".

Single-payer health care

If you are interested in a single payer health care plan take a look at HR676.org, Inc. A small investment of $10.95 could save you or your business a fortune this year. Employer provided insurance for a small business is experiencing an expected 23% increase in premiums this year. Single payer health care is the only thing that makes any sense. Make a contribution. You may not get another chance for 10 years.