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"Bringing Down" the number of insured?

The Editor's Column
Posted by WhosPlayin on 2007/6/7 4:11:11 (4215 reads)

Imagine my surprise last night when I was literally flipping through the channels on my hotel room TV, here in New York, looking for the replay of Sunday's "Sopranos" episode, when I see our hometown Congressman, Dr. Michael Burgess (R TX-26) talking on C-Span late at night to a mostly empty house. I did a double-take, going a couple of channels forward before backing up and catching most of his speech - literally the last speech of the day, before adjourning the house.

You can find the full text of Burgess's remarks here. (PDF) And here (page 2 - PDF)

In his speech, Burgess basically talks about the problems with Medicare (and our healthcare system in general) being flawed because of Medicare's flawed pricing system. He quotes a Wall Street Journal article by Robert Swerlick, "Our Soviet Health System":

"The roots of this problem lay in the use of administrative pricing structures in medicine. The way prices are set in health care already distorts the appropriate allocation of efforts and resources in health care today...
The essential problem is this. The pricing of medical care in this country is either directly or indirectly dictated by Medicare; and Medicare uses an administrative formula which calculates "appropriate" prices based upon imperfect estimates and fudge factors. Rather than independently calculate prices, private insurers in this country almost universally use Medicare prices as a framework to negotiate payments, generally setting payments for services as a percentage of the Medicare fee structure."

Burgess basically uses the article to bolster his opinion that "administrative pricing" will never work because unlike the free market, which is self correcting in pricing, government committees (presumably including his own) and federal agencies mess it up. He argues that because the supply of medical services is "insulated" from market forces, the supply does not correct itself.

Burgess goes on to talk about the flaws in Medicare's reimbursement schedule:

"Medicare payments to physicians are modified annually using a formula called the Sustainable Growth Rate. I won’t bare you with the intricacies of that formula tonight, I may do that at some other time. But because of flaws in the process, physicians get a mandated fee cut every year, year over year for several years to come. If no long-term congressional action is implemented, the SGR will continue to mandate fee cuts. Unlike hospital reimbursement rates, unlike reimbursement rates to HMOs or drug companies, those closely follow the cost of living index, but the physician’s formula does not. In fact, Medicare payments to physicians cover only about 65 percent of the actual cost of providing the services. Can you imagine, Mr. Speaker, any industry or company that would continue in business if they received only 65 percent of what it cost to cover the care? Currently, the SGR links physician payment updates to the gross domestic product, which has no bearing in reality as to what it costs to deliver those services."

It may surprise you to hear this, but I think Burgess makes some good points here.

We absolutely MUST fix Medicare's payment system. The SGR is a stupid idea, and the time has come to repeal it. The SGR is responsible for physicians leaving the Medicare system, and making it difficult for our seniors to find a doctor. But I want to address what I think is a glaring inconsistency in Burgess' argument here, and that of Swerlick: That the solution to all of these problems is to turn it over to the private sector.

The article states that healthcare insurers base their reimbursement schedules use Medicare reimbursement rates as a framework. When one uses the term "framework" they mean something that is a starting point, modified as needed. One would assume that insurers trying to win the business of large employers looking for good physician networks would adjust the payments by increasing or less likely decreasing the payments for certain specialties and/or services. By implying that insurers compound Medicare's problem by relying on its SGR-based formula, both of them inadvertantly make the case that the free market (read: insurers) are haplessly bound by Medicare. (bad, bad government!) If this were the case, then my answer to his suggestion of a private sector solution would be not only no, but "Hell NO!".

But this is nonsense. They're finding a way to blame Medicare for Swerlick's difficulty in finding a non-pediatric endocrinologist for his daughter. As Dr. Burgess is no doubt aware, our nation is in the throes of a full-blown diabetes epidemic. Even the free-market cannot manufacture endocrinologists to keep up with demand - not as quickly as we would like.

The fundamental problem here is when government intentionally screws something up, and then throws up its hands and says "see, I can't do *anything* right - somebody else do it!". There is nothing inherently inefficient about Medicare or government itself. When politicians use formulas like the SGR to force a government agency into absurd policies, we will get absurd results.

The real solution is for us to fix the formula and pay fair market rates for Medicare. In fact, I believe our government can do it, and do it more efficiently than private insurers. Medicare consumes about 3% of its budget on administration. Insurers must make at least a market rate of profit - probably in the range of 12 - 20%.

I have many more thoughts about how we can fairly compensate free-market healthcare providers through a government system of Universal healthcare. Some of them can be found in my article: Universal Health Care - You're soaking in it! When I have more time, I hope to add to this article with some specifics, but I am too tired to keep writing tonight. Look for more comments later. But before I go, I just thought I'd share this snippet with you - this is not a typo - I heard the words from the man's mouth: (emphasis mine)

"We must devote our work in Congress to building a stronger private sector in health care. History has proven this to be the tried and true method. We can bring down the number of insured, we can increase patient access, and we can stabilize the physician workforce, modernize our technology, and bring transparency to the system. All of these things are within our grasp if we have the foresight, the determination, the courage and the political will to get things done."

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