Posted by: notdeaddinosaur | May 1, 2014

Healthcare Derivatives

I just realized what all these new insurance intermediaries and programs and organizations (all composed of people who don’t provide medical care to other people) remind me of: Derivatives! And we all remember how well that worked out for stocks a few years back.

Let me ‘splain.

A few years back, a bunch of Wall Street crooks financiers came up with a bunch of new ways to package various stocks and securities that were intended to be too convoluted for anyone to figure out that they were nothing more than a way to relieve gullible investors of their money. It worked. Really well. Well, until the housing market collapsed and the country plunged into near economic collapse. But hey; these things happen. Remember, it was all legal. It just wasn’t a very good idea. Take home message for investors: stick to owning pieces of real companies. Whatever else happens, there will always be people who need things like houses, cars, food, and other goods and services.

Now look at what’s happening to medical care: first we had insurance companies bully their way into the doctor-patient (financial) relationship, and over the years, boy have they thrown their weight around. “Administrative costs” have generated such enormous profits, many of them have cast themselves as major philanthropists in their markets. They have to; technically they’re “non-profit” organizations. Nice work if you can get it.

Back in the 1990s, they tried something called Managed Care. The stated aim was to improve patients’ health (whatever that means), but the real object was to shift financial risk back onto the doctors. Before this, if a patient visited the doctor five times in a year. the insurance company would have to pay five times as much as if he only went once. So they came up with something they called Capitation: they paid the doctor a certain amount per person per month, and that was it. The only other pay the doctor got was a small co-pay from the patient (they started at $2.00) whenever she came in. If a patient came in ten times a month, the doctor only got an extra $20. Sweet deal for the insurance companies.

They also instituted things like Referrals, turning physicians into Gatekeepers. They withheld part of the physician payments (called “withholds”, of all things) which the docs could earn back by not spending (technically but not authorizing spending) too much on labs and other testing, specialists, and hospitalizations. As a practical matter, money withheld was rarely seen.

This didn’t work. Well, it worked great for the insurance companies. Lots of people made boatloads of money. But doctors and patients hated it; so much so that it mostly disappeared. Mostly. There are still two huge capitated programs I’ve been with for twenty years now, and I can’t drop them because the companies’ standard contracts (summary of negotiations: options include taking it or leaving it) include something called “all products” clauses. Have to take the capitated plans to participate in the others. Also, I still have lots of long-term patients in those plans, and wouldn’t you know it: referrals remain the bane of my existence.

But doctors and patients hated it. Eventually, the large employers moved away from them as the prices increased. Because golly gee: turns out they didn’t really save any money. Imagine that!

Now here we go with round two. Apparently not content to just siphon off money paid by patients intended to pay for their medical care, now the insurance companies are trying to get the doctors aboard, mainly by paying the early adopters tons of money to recruit their gullible peers. Things like the Medical Home, Team Care, Accountable Care Organizations, and so on are nothing but a shell game designed to divert funds away from the people who provide medical care (doctors) to people who are sick or hurt (patients).

Now these huge companies (and some smaller ones, but the bigger ones have better marketing departments) have even got government suckered in. They use words like “evidence” and “data”, promising that somehow the more bits and bytes of information they collect (most of which are completely meaningless) will result in spending less money for medical care while improving outcomes (another term they never define).

Guess what: It’s not going to work. Oh, the companies are going to do great (defined as “making a boatload of money”; investors take note.) But patients are not going to benefit materially. Doctors (the ones taking care of the patients, not the ones who defect to Administration) are not going to benefit. The system will dissipate, hopefully without collapsing too badly. And the doctors and patients will be the ones left to pick up the pieces.

You want better medical care? Find a way to pay doctors a fair compensation for their services. (Single payer works well in much of the rest of the world.) Get the insurance companies and other middlemen out of medical care financing. Let Medicare negotiate drug prices (at the moment, by law, they have to pay whatever the drug companies charge.) Ban direct-to-consumer pharma advertising. While you’re at it, ban hospital advertising as well. Use the money to pay for more nurses.

You want healthier citizens? Increase tobacco taxes to decrease smoking. Find ways to increase seat belt and helmet use. Enact sensible firearm laws to keep kids from dying from rampant gun violence. Address income disparity to ease the intolerable socioeconomic stressors of intractable poverty. Notice that none of these things actually involves doctors or medical care.

But please: pay attention to the man behind the curtain. Keep your eye on the ball. Medicine is about people called doctors taking care of people who are sick or hurt. Always was. Always will be.



  1. Reblogged this on Ann Friedmann MD and commented:
    Words from the wise.

  2. Is it just me or does anyone else feel like public health shouldn’t be a publicly traded commodity. It seems like the only people making money in medicine any more are insurance companies and drug companies. And doctors are left having to wrestle every dime they earn from companies doing the best they can to deny treatment.

  3. So basically fewer rules and more money for doctors, less income inequality and more rules for others?

    I’ve got a brain that I’d like to keep it so I wear a full face helmet when I ride. I quit smoking decades ago, barely drink and prefer smoke-free restaurants. But I also shoot, and I recognize that freedom has to include people making choices different than mine so I don’t support mandatory helmet laws, mandatory smoke free businesses, or higher taxes on cigarettes and alcohol. Taxes should rarely if ever be the majority of the price of an item. (I am in favor of mandatory muffler laws though

    A lot of the problems we have with health care (Possibly most of them) are caused or increased by lack of choice. Tax rules coupled with restrictions on out of state insurance companies effectively reduce my choices in insurance companies to the ones my employer picks.

    Using public payment of health care costs to justify restricting more and more behavior frightens me. If we’re going to have “common sense” restrictions on guns, how about “common sense” restrictions on unapproved speech, so Jenny McCarthy can’t spread her idiotic anti-vaccination message? Why allow motorcycles or other dangerous activities at all?

    Instead of banning hospital ads, maybe allow competition, allow consumers to choose between nonprofit and for-profit. Maybe let the drug-seeking ER frequent fliers get their narcotics without wasting ER time.

    We keep trying more and more rules without getting better results. Maybe we should see about eliminating some rules and letting people choose more for themselves.

    (BTW–I don’t object to high incomes for doctors, I just don’t think they should be complaining about income inequality)

  4. Ah yes: enter the libertarian gun troll trying to change the subject.

    “I make good choices, but others should be allowed to make bad ones.” That about sum it up? (I presume your “mandatory muffler laws” was a joke.)

    As it happens, we do have “common sense” restrictions on speech: like not being allowed to shout “Fire!” in a crowded theater. Regarding Jenny McCarthy, I direct you here:

    Anyone who claims not to believe that income inequality is the driving force behind many, if not most, of the social problems in this country today is a Koch brothers sock puppet. I’m not talking about doctors’ incomes, btw, rather the widening gap between the 1% and the rest of us, as they gleefully spend tiny fractions of their fortune to pit the next 9% against the lower 75%.

    This post is about greedy insurance corporations diverting money from people who are sick and hurt who need medical care, and those who provide it. Go take your ultra-libertarian views somewhere they agree with you. How about Somalia? I hear the beach is lovely this time of year.

  5. Wow, that was really good (both the essay and your response above)! I try to stay as far as possible from the current medical industry as possible as I don’t think anyone is interested in my health except myself. Thankfully, I am in good health and hope to remain so!!

  6. My comment on muffler laws wasn’t a joke–Straight pipes affect other people at least somewhat, while lack of a helmet doesn’t (or at least shouldn’t). I’ve made some bad choices, sometimes paid the consequences–and the consequences help me make better choices. Quite a few people think riding a motorcycle is a poor choice. When I had kids to support so did I, so I gave it up for a couple of decades.

    I’d be fine with medical insurance companies being allowed to charge extra to cover motorcycle related injuries. I might look for other coverage, I don’t expect you to pay the extra costs…but that’s not the same as the government banning them. I fully agree with the XKCD cartoon you linked–I don’t want the government to shut Jenny McCarthy up, I want enough people to boycott whatever it is she does to cause her to lose work, and I want intelligent people to counter her absurd speech with truth.

    “Common sense gun laws” is a great slogan, but like “affordable care” the details matter a lot. We currently have quite a bit of “common sense” gun laws that are the equivalent to “shouting fire” when none exists–With rare exceptions you can’t shoot at people or threaten them with a gun, purchase is limited to adults, violent felons can’t have them, etc. What’s usually meant by “common sense laws” that we don’t already have is full registration and a ban on most features invented after about 1905.

    I think the pre-Obamacare insurance system including both the corporations and the regulations (largely written by those corporations) are mostly responsible for the health care mess. It astonishes me that the “solution” is even more regulation to force us to buy insurance from those same companies. Wouldn’t it make more sense to at least remove some of the legal framework that perpetuates this system? At minimum, there should be no tax penalty for buying your own insurance instead of having your employer pick it for you and you should be allowed to buy out of state.

    You really have a problem with that?

    The difference in living standard between poverty level and you or me is bigger than the difference between you or me and a 1%er in reality, if not in strict financial terms. I’ve got a decent, safe home, never worry about where my next meal is coming from and if I miss a paycheck or two or my car dies none of that changes–that’s more important to me than driving a BMW or taking fancy vacations. Most Americans are in the 1% worldwide. It would be great if the minimum standard of living could be raised..but that isn’t as simple as raising the minimum wage, or giving out more benefits. Quite a few benefits that appear to be helpful short term are harmful long term. Free food for Haitian hurricane victims for example–necessary short term, but done too long drove farmers and other normal food sources out of business. Results matter more than intentions.

    Somalia doesn’t have support for property rights, a key element of libertarian philosophy, and a key difference between libertarian and anarchist. “Go to Somalia” is the equivalent of saying that anyone to the left of George Bush is a communist and should go to Cuba or North Korea.

  7. Oh dear. That’s what I get for feeding the trolls.

    You concede my point about commonsense speech laws but throw up your hands at the idea of regulating firearms. Universal background checks, strict enforcement of statutes against straw buyers (a major source of guns for inner city carnage), and limitations on high capacity magazines are supported by responsible gun owners.To quote: You really have a problem with that?

    I agree that the the third party medical payment system is largely responsible for the mess we’re inn (that was the point of my post), but I never said I thought Obamacare was a solution. Far from it. But trying to put words into my mouth is a time-honored trolling technique.

    I also never said anything specific about *how* to address income inequality. It has far less to do with what you would call “benefits and handouts” and a lot more to do with reforming tax laws and election laws to reverse the financial oligarchy the 0.1% have already achieved.

  8. I didn’t intend to imply that *you* supported Obamacare, that’s putting words in my mouth.

    I support reforming tax laws (although I suspect not in the same way as you do, I want simpler and far lower rates) and reforming election laws in theory…but almost all election law reform proposals I’ve seen benefit incumbents far more than challengers, counterproductive to reducing the influence of the 1%.

    Common sense gun laws is a term with baggage similar to States Rights–there’s a valid concept in there somewhere, but it is usually meant as a code word to refer to something else. Many gun owners would accept a properly crafted background check system as a compromise along with eliminating some other restriction, but most proposals are a disguised form of universal registration or add unnecessary hurdles to purchasing a gun. Most of us already support prosecution of straw buyers. Most of us however don’t think there are enough crimes requiring 12 uninterrupted rounds to justify arbitrary restrictions. (or NY state’s new law of 7) Hardly any of us think that bayonet crimes were so prevalent that we needed the additional common sense restrictions on bayonet mounts we had for 10 years.

    I’m sorry you consider me a troll. If you prefer your comments to be limited to people who agree with you, let me know and I’ll abide by that.

  9. This is not a comment related to your article. I read your article about OB/GYNs not being primary physicians ( and I am in agreement with you. However this seems to have changed since I had my children. Recently I’ve heard 2 cases where pregnant women were refused care by ERs or primary care offices because they were pregnant. I am trying to find out why that is now the case. Are there regulations regarding that? (I do live in the USA.) Thanks, Mary

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