Volume 69, no. 9 September 2013
In the Age of Regulopathy, hospital routine must include exercises like daily Foley Rounds, writes assistant professor of surgery Peter K. Kim, M.D., of Albert Einstein School of Medicine. Whenever one is found, “a cracker-jack team of simulator-trained and credentialed experts arrives to deactivate the Foley catheter before the clock strikes 48 hours post-op. SCIP (Surgical Care Improvement Project) triumphs again, and a potential UTI has been averted” (General Surgery News, June 2013).
But there are consequences. The urinary tract infection rate went down, but so did the Foley catheter day (FCD) denominator, so the UTIR/FCD rose and had to be reported, Kim writes. Also, central line infections went down because central lines were removed, but patients became malnourished and wounds dehisced.
The Burden of Regulation
As of Apr 30, 20,000 pages of regulations implementing the Affordable Care Act (ACA) had been issued by Health and Human Services, Treasury, the Department of Labor, and the IRS. As many as several hundred thousand pages more are expected.
Team Obama is now the red tape record holder. In 2012 it posted 78,961 pages in the Federal Register, and the all-time record number of 81,405 in 2010. These are largely the progeny of Dodd-Frank, ACA, and the EPA’s anti-carbon-fuels agenda that even a Democrat Senate won’t pass. In 2012, the cost of federal rules, which affects the cost of everything, was about $1.8 trillion. At $14,768 per household, red tape is the second largest item in family budgets after housing (WSJ 5/20/13).
The decline in America’s institutions and the related rise of red tape is what Niall Ferguson calls the Great Degeneration (WSJ 6/7/13). Instead of a rule of law, we have a rule of lawyers—the class that, along with crony capitalists, benefits from red tape. The U.S. ranks as sixth worst in the world for making it more difficult rather than easier to do business. For increases in red tape, the U.S. is in a class with Zimbabwe, Burundi, and Yemen.
Compliance costs are only a fraction of the effect. Economists John Dawson and John Seater studied opportunity costs and estimate that regulation over the past 6 decades has cut economic growth by an average of 2 percentage points per year. The result is that we are 75% poorer than we might have been under the 1949 regulatory regime. We could have had a GDP of $53.9 trillion rather than $15.1 trillion, and an average family income of $330,000 instead of $53,000. (Reason 6/21/13).
Dawson and Seater take into account potential offsetting positive effects of regulation on output, but what about unmeasured effects on health and safety? John Goodman’s Law of Regulatory Impact states: “Most economic regulation, most of the time, imposes social costs on people without changing any fundamental behavior.” He argues that most health and safety regulation follows the same law. For example, in the years leading up to the Occupational Safety and Health Administration (OSHA), workplace injuries and fatalities were falling at the same rate as in the years after its passage.
The Outer Limit
The U.S. Supreme Court decision that opened the floodgates to regulation was Wickard v. Filburn, a 1942 decision on which the Obama Administration based its case that ACA is constitutional under the Commerce Clause (AAPS News, May 2012). The Supreme Court held that that decision was the outer limit, and the government could not reach beyond it to compel someone to engage in a commercial activity; i.e., it could not regulate inaction.
Roscoe Filburn was a farmer who grew more wheat than the 200 bushels that were exempt under the Agricultural Adjustment Act of 1938. He exceeded his quota of 233 bushels by about 240. He withheld this for future sale or used it to feed livestock, which was unregulated when sold. Feeding regulated wheat to unregulated livestock destined for market would allow farmers to evade the quota system, and in the aggregate such activities could substantially affect interstate commerce. Thus, the Court protected a government-sanctioned cartel (American Spectator 3/14/12).
Although the decision in the NFIB case challenging the ACA placed a limit on the Commerce Clause (AAPS News, August 2012), Wickard still stands. Liberty Legal Foundation argues that this case enabled the explosion in regulation, and that its reversal could bring instant economic recovery. Robert Bork wrote, however, that the decision is “too thoroughly embedded in our national life to overrule”—such is the power of precedent.
As Lawrence Gostin writes, the decision to uphold ACA “allows the country to continue on its chosen path” (JAMA 8/8/12). This started with the New Deal, which also brought us the Economic Stabilization Act of 1942 with its wage ceilings and requirement of federal approval for changes. This led to employer-sponsored health insurance and the discontinuous coverage that brought us the pre-existing conditions problem (Manhattan Institute Issues, October 2012).
The regulatory legacy of price controls and quotas appears to know no limits—except possibly the collapse of the economy. With the ACA equivalent of a Healthcare Adjustment and Stabilization Act—and electronic coding and reporting, it will be easier to control medicine than wheat production.
Obama Regulations
- Philosophy: In May 2008, then-U.S. senator Barack Obama said: “We can’t drive our SUVs and eat as much as we want and keep our homes at 72 degrees at all times, and then just expect that other countries are going to say OK.” (http://tinyurl.com/mhsr8dl).
- Cost: By October 2012, cost was $27.6 billion and 30,000 jobs. At risk: 3.2 million jobs at franchise businesses, 43,000 in medical device industry (http://tinyurl.com/mmeqt5z).
- Mechanism: ACA exempts the Independent Payment Advisory Board (IPAB) from the administrative rule-making requirements that apply to all other executive agencies. This goes far beyond “fast-track authority” (Cato Policy Analysis No. 700, 6/14/12, http://tinyurl.com/6wk6t89).
- Compliance: To build an exchange for Idaho (pop. 1.7 million), Leavitt Partners, founded by former HHS secretary Michael Leavitt, asked for $70 million. Global accounting and consulting firm KPMG asked for $77 million. For what? “It’s hardware, it’s software, there’s infrastructure, there’s people and staffing…. There’s a lot of stuff, but it’s hard to be specific” (Austin Hill, Townhall.com 11/25/12).
- Government Compliance: An unpublished Congressional Research Service memorandum finds that the Administration has missed half of ObamaCare’s legally imposed deadlines (Avik Roy, Forbes 8/18/13).
Physicians Divorce EHRs
One in five physicians may be filing for divorce from their electronic health record. Derek Kosiorek of MGMA’s Healthcare Consulting Group notes that the EHR asks physicians to change processes they have used throughout their professional lives: “We are taking the paper chart and every piece of information in that chart and we are shuffling it up like a deck of cards and putting it on a computer screen in different places” (Med Econ 6/25/13).
Cost is one of many reasons for disgruntlement. An in-office system may cost $33,000 upfront and $4,000 per year; a web-based system $26,000 upfront and $8,000 per year (ibid.).
According to a survey of Arizona Medical Association members conducted by Louisiana State University, fear of federal government penalties was the driving force for adoption of an EHR in 42% of adopters. Although adopters tend to have a more positive view of this technology than non-adopters, 28% of adopters report that their system crashes frequently, and 35% that it is unstable. Just over half (52%) of adopters see advantages to the EHR, and only 17% of non-adopters. Only 32% of adopters think their vendor is capable, and only 28% that their vendor works in their best interest. Physicians distrust the motivations of the federal government in how it will use the data (74% of non-adopters and 55% of adopters), and there is even greater distrust of insurance companies (77% of non-adopters and 66% of adopters).
Of 2,639 physicians who received the survey, 141 responded.
“Socialism in all its forms—from Wall Street subsidy seekers to bureaucratic profiteers—is in practice a conspiracy of the greedy to exploit the productive. The beneficiaries of the government’s transfers of wealth and income smear their betters with the claim of avarice that they themselves deserve.”
George Gilder, Knowledge and Power, 2013
Flashback: Medical Practice Organization
In 1983, one-tenth of the national economy was in health services, wrote Ernest W. Seward, M.D., and E.K. Gallagher, M.P.A. (“Reflections on Change in Medical Practice: The Current Trend to Large-scale Medical Organizations,” JAMA 11/25/83). It was recognized that the U.S. economy had finite resources after all. Insurance companies had taken on the role of contractual provision of medical services rather than indemnification. Cost containment had become the central issue. The “completely planned concept…proved difficult…[owing partly] to “the fundamental diversity of our nation.” It became clear that “it is far easier to regulate a few hundred large medical care organizations than to regulate the hundreds of thousands of medical practitioners.” It was predicted that the individual practitioner would be in the minority by the end of the 1990s.
Fast forward: The ACA regulates a wide range of medical areas in minute detail: “The secretary shall develop oral healthcare components that shall include tooth-level surveillance” (Tevi Troy, “The Secretary Shall,” Hudson Institute, May 2012). Doctors are joining larger groups to have more leverage with insurers and to handle the growing regulatory burden. The percentage of doctors owning their own practices dropped from almost half in 2005, to 43% in 2009, and to a projected one-third in 2013 (ibid.)
Economic Time Bombs
- Social Security Disability. Supplemental Security Income (SSI) is slated to run out of money in 2016. The number of Americans on SSI increased from 2.7 million in 1970 to almost 11 million now. The 75-year unfunded liability: $44 trillion (WSJ 7/15/13; CJ Cantoni, J Am Phys Surg, Fall 2013).
- Federal Revenue: About $2.58 trillion in FY 2007, it is projected to be just S2.7 trillion for FY 2013 (Michael Pento).
- Derivatives: The notional value of derivatives held by the 25 largest U.S. banks: >$212 trillion. Total assets: $8.9 trillion combined (Michael Snyder, James Cook Market Update 6/13).
- Debt Death Spiral: Nearly half the debt of the word’s 10 biggest debtors ($15 trillion, ≈ U.S. GDP) has to be rolled over by the end of 2015 (economicnoise.com 7/24/12).
- Private Sector Implosion: In the 2008 crash, the private sector imploded, losing $1.3 trillion, and the government sector instantly increased from 35% to 43% (D Amerman, James Cook Market Update 6/13).
- Production Capacity: Since 2001, the U.S. has lost 56,000 manufacturing facilities. Our share of global GDP declined from 31.8% in 2001 to 21.6% in 2011 (Michael Snyder, James Cook Market Update 6/13).
AAPS Calendar
Sept 25-28, 2013. 70th annual meeting, Denver, CO.
Oct. 9, 2013. FDA v. Patients, Briefing at National Press Club, Washington DC
Nov. 1-2, 2013. The Physicians Summitt 2013, Dallas, TX
Sept. 2-6, 2014. 71st annual meeting, Charleston, SC.
FDA v. Compounding Pharmacies
For more than two decades, the FDA has sought to extend its power to regulate “industrial-scale” compounding. Thousands of U.S. compounding pharmacies are not registered with the FDA, are not subject to FDA recordkeeping and reporting rules, and can use litigation to block FDA inspections for months.
This helps to explain why compounded drugs may be 30 times less expensive.
The FDA has gained its power as a result of crises. In 1937, the Food, Drug, and Cosmetics Act (FDCA) was passed after a sulfanilamide disaster killed 100 people. FDA power to require proof of efficacy—which brought us overwhelming reliance on randomized controlled trials—was the result of the 1952 Kefauver-Harris Amendments, which likely would have been defeated except for the thalidomide tragedies (NEJM 10/18/12). Now the crisis of an outbreak of fungal meningitis traced to epidural injection of a methylprednisolone preparation made by the New England Compounding Center (NECC) may enable passage of the Pharmaceutical Quality, Security, and Accountability Act (S. 959).
“It’s possible that…the tragedy at NECC could have been averted” if a 1997 amendment to the FDCA (section 503A) hadn’t been struck down by the U.S. Supreme Court in Thompson v. Western States Medical Center. This was “an early example of the use of free speech against public health regulation,” writes Kevin Outterson, J.D. (NEJM 11/22/12).
Outterson also blames doctors for the meningitis outbreak because epidural injections for back and joint pain lack high-quality evidence of efficacy.
Section 503A prohibited compounding drugs that were “essentially copies of a commercially available drug product,” as would S. 959. “Compounding is not necessary if a drug is commercially available from an FDA-regulated facility.”
AAPS has pointed out that one product that would be affected by S. 959 is the non-patented product 17-alpha-hydroxyprogesterone (“17P”), which is a synthetic form of progesterone used to prevent premature births. At-risk women have been able to get 17P from compounders for $15 to $20 per weekly injection, or only $300 to $500 per pregnancy. The FDA-regulated version, Makena, has a list price of $690 per injection, or $13,800 per pregnancy. Its maker, KV Pharmaceutical, is involved in the coalition group lobbying for S. 959 headed by former HHS secretary Tommy Thompson.
As proposed, S. 959 would exempt blood transfusions, but not use of adult stem cells, and would empower FDA to end most remaining uses of this highly promising method.
“S. 959 is the most anti-life bill headed for passage since 2010,” states AAPS.
Contamination problems also occur in FDA-regulated facilities. More than half of the 178 drug shortages occurring in 2010 were related to product instability or contamination. When facilities are shut down by the FDA, it may take up to 3 years for the FDA to approve an alternate source (AM News 10/3/11). By 2011, 246 drugs were scarce, a new record. A key reason is the lengthy and unpredictable approval process, limiting manufacturers’ ability to develop reliable production schedules (Michelle Malkin, Townhall 11/4/11).
In 2013, shortages imperil care as facilities delay treatment, skip doses, or switch to second-tier substitutes. Compounding pharmacies often help to fill the gap.
FDA War on Innovation
A single FDA scientist, Dr. Robert Smith, was able to block approval of digital mammography machines for several decades, despite a study of 42,760 patients showing it was significantly better at finding cancer in women under 50. Smith’s lawyer claims he was “an honest and rigorous regulator,” who was merely following proper FDA procedure—in contrast to many other regulators who have an improper “cozy relationship” with medical device manufacturers (Paul Hsieh, Forbes 8/8/12).
A new obstacle, the ObamaCare tax on medical devices, could translate into an annual loss of one million life-years by blocking innovation (ibid.)
Although a joint implant may cost $350 to manufacture, hospitals might pay up to $7,500 for a hip implant. A costly FDA approval process is part of the problem. Then there’s the 13 layers of vendors between the patient and the physician, and the hospital mark-up, which mean that a hip implant can account for $37,000 of a $100,000 hospital bill (NY Times 8/3/13).
Resign; Get Reported to NPDB
Lawrence Huntoon, M.D., Ph.D., chairman of the AAPS Committee to Combat Sham Peer Review, reports on what appears to be a new tool for Medicaid managed care plans.
Based on two complaints, by patients who had been denied prescriptions for controlled substances, a “liaison person” and the medical director of utilization review showed up at a physician’s office with a “corrective action plan” [guilty plea] typed up before hearing a word of the physician’s response. The plan reportedly provided that any further complaint would be treated as proof of culpability, with dire consequences, and so he decided to resign immediately. The plan reported him to the National Practitioner Data Bank (NPDB) for “resigning while under investigation.” Another Medicaid managed care plan then terminated him, claiming that he had not notified them of being terminated from the first plan (although he had resigned).
The physician states that he is “willing to handle any psychiatric impasse,” is qualified to prescribe Suboxone to patients with an addiction problem, and was popular with Medicaid patients.
He writes: “Just because Medicaid pays you a bare minimum, it does not mean they feel grateful to you.” Instead, Medicaid may act in a vicious manner to remove physicians from the panel if they see too many patients who cost a lot of money.
Dr. Huntoon warns: “the insurers now have a tool that can terminate the physician’s contract with the plan for alleged quality care reasons, thereby ruining his career. Physicians will either do as they are told—or else.”
AAPS Appeal Filed in D.C. Circuit
Documents are available at: http://www.larryjoseph.com/dockets/AAPSvSebelius.html. On Medicare, AAPS argues that it is structured like a Ponzi scheme, that pays off “early ‘investors’ handsomely with the funds of new entrants until the system collapses…. [A]s the recent bankruptcy of the City of Detroit demonstrates, the post-World War II entitlement state and deficit spending have [rendered the political branches] institutionally unable to acknowledge the scope of unfunded…commitments.”
Correspondence
Join the Network—or Else. After insurers were caught fraudulently manipulating UCR charges for out-of-network physicians, the attorney general of New York filed suit. Insurers paid millions to set up the Fair Health data base to replace Ingenix, but they didn’t have to use it. Instead, they switched from UCR to Medicare-based fees, and charges to patients doubled or more. Hospital administrators, some of whom sit on the board of insurance companies, have encouraged patients to file complaints against physicians for “excessive” fees. There is likely a quid pro quo: insurers lower physician fees but do not oppose increased payments to hospitals. Paul Macielak, of the New York Health Plan Association, said: “In an ideal world, everyone would be in network, subject to a contracted rate” (NY Times 4/23/12). D. Brian Hufford, an attorney who represented doctors in class-action lawsuits against Ingenix, said: “They want to get them trapped, and then limit care…. They’re simply trying to shift all the risks to the doctors while they take all the profits.”
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
ObamaCare PR Spin. According to a Jun 12 Bloomberg News headline, “Obamacare Shows Hospital Savings as Patients Gain.” The article claims that “hospitals are improving care and saving millions of dollars with one of the least touted but potentially most effective provisions of the law.” Some 252 physician groups and hospitals had signed up with the Accountable Care Organization (ACO) program “in which they share the financial risk of keeping patients healthy.” Note: data collection doesn’t start until January 2014. There are 5,724 registered hospitals in the U.S. Thus, some 93% of hospitals have not signed up to share risks that mostly result from patient demographics and behavior. Already, 9 of 32 “Pioneer” hospital systems have withdrawn.
Stanley Feld, M.D., Dallas, TX
What’s Different about Cosmetic Surgery? The inflation-adjusted price of cosmetic surgery has actually fallen since 1992, while quality has improved. Patients pay out of pocket. There are few barriers to market entry, and doctors rush in to fill the demand. While emergency cardiac care is different in that patients can hardly shop for the cheapest price from the ambulance, only $1 out of $20 is spent on patients who enter through the emergency room door. For most medical care, the only difference is that cosmetic surgery has a competitive market and transparent prices paid by the customer, and “insurance”-paid care does not. Direct payment for a CT scan can reduce the price by 85%.
Devon Herrick, Ph.D., National Center for Policy Analysis
The American System. As the Ludwig von Mises Institute points out, until recently there has never been much of a movement to bring full-fledged socialism to America. The ideological battle was not so much capitalism versus socialism but capitalism and freedom versus interventionism and paternalistic regulation and taxation. The interventionists won out; today’s system is best described as participatory fascism, to borrow a phrase from Robert Higgs. It is crony capitalism financed by a central bank, government borrowing, and pervasive taxation: a system of plutocratic elites, for plutocratic elites, and by plutocratic elites. The massive welfare state is merely used to buy enough votes to maintain the “legitimacy” of the system.
Craig Cantoni, Scottsdale, AZ
Obama and the Middle Class. Saul Alinski’s principles advocate the destruction of the backbone of capitalism—the middle class, namely, small business owners. Obama’s “you didn’t build that” comment reflects his mentoring by Alinski and Frank Marshall Davis. The destruction of private medicine and the overburdening of small businesses by ObamaCare will further the cause of destroying the middle class.
Michael Riesberg, M.D., Pensacola, FL
The SGR “Fix.” The AMA and the AOA talk about eliminating the sustained growth rate but never spell out a detailed payment system. They’re leaving it up to politicians and special interests to design a pay-for-performance system. Physicians need to quit the third-party system and bill like dentists. No one could stop us if we all did it. Why do we permit the abuse to continue?
Craig Wax, D.O., Mullica Hill, NJ
The Electronic Records Scam. When I sent my patients a letter offering a copy of their medical records, fewer than 1% accepted. More than 99% of patients are not clamoring for access to their records, electronic or otherwise. This is a bogus issue; it’s really about control of the population.
Christopher Lyon, M.D., Ph.D., M.Sc., Newport Beach, CA
Schizophrenic about Wages. How can someone support labor monopolies that lead to above-market wages in every other industry but favor the government’s using its buying power to obtain below-market wages for everyone who works in health care? One of the arguments for single-payer national health insurance is that the government monopsonist (single buyer) can pay below-market prices. Economist Paul Krugman thinks this is what Medicaid does, and he approves. Yet he is pro-union in all other sectors.
John Goodman, Ph.D., National Center for Policy Analysis
