The True Face Of 'Health Reform'
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2017-05-07 14:05 by Karl Denninger
in Health Reform , 1055 references Ignore this thread
The True Face Of 'Health Reform'
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If you want to know why fixing "health care" is so difficult you need only read this article.

From Akron to Youngstown and Canton to Cleveland, as in cities and towns across the country, workers who once walked out of factories at the end of each shift now stream out of hospitals.

While manufacturing employment has fallen nearly 40 percent in northeastern Ohio since 2000, the number of health care jobs in the region has jumped more than 30 percent over the same period. In Akron, the onetime rubber capital of the world, only one of the city’s 10 largest employers still makes tires. Three are hospitals.

If these were doctors and nurses that might be understandable.  But they're not.

They're nearly all paper-pushers who contribute exactly zero to actual consumer care.

The problem is that all of these people draw salaries and thus drive up the cost of medical care by ridiculous amounts.  In fact last month some 20,000 people were added to the "health care" employment rolls and nearly all of them will never provide one second of actual care to an actual person -- but every one of them has and will massively drive up your health care costs.  In fact if the average "administrator" in that group makes $40,000 in the last month alone a whopping $800 million per year before their health insurance and employment tax cost was added to your medical bills and yet not one single person got one minute of additional actual care out of that expense.

Next month there will be another $800 million added on which you will be forced to pay.

The next, and at least as-large problem is found in the continual bleating of hospitals and similar that "Medicare doesn't pay what X costs" as their justification to gouge private parties.  But this claim is false; if you look at many of the so-called "non-profits" you can find myriad examples of this being a flat-out lie, and nowhere is it easier to find than in the hospitals' lab sections.

Direct operating costs are usually about 10% of the revenue amounts!

In other words the hospitals are making 1,000% profit in their labs, net-net including all expenses, on balance.  That is, Medicare and Medicaid, when you look at the actual operating cost of these labs, is paying a price that approximates cost plus a bit.  And oh by the way that's what the law governing Medicare and Medicaid requires.  If private parties paid 10% more that would be a rational profit margin.

1,000% more is a******job.

This is why alleged "non-profit" hospital administrators frequently get seven-figure salaries even when they're associated with a university system where the head of said school makes 1/5th to 1/10th as much.

No competitive business can maintain 1,000% net profit margins in any segment of their business for any length of time at all, because as soon as someone figures out that you're making that sort of profit they come in and open a competing business.  It will happen every time, simply because the new entrant can undercut the other guy by half on price and still make 500%!  There will be dozens of new business entrants within days.

The only way to keep that from happening is to do anti-competitive things, such as conspire with others to fix prices or form "networks" that forcibly lock out competitors.

All of those acts are illegal under law that has stood for more than 100 years yet both State and Federal governments refuse to enforce said laws.

We can solve the "Health Insurance" problem in a literal day by enforcing those laws against everyone in that sector of the economy.  But if we do so then the 1,000% profit margins collapse by at least 90% in an afternoon and along with the screwing on the billing end goes a lot of jobs.  Health care collapses as a share of the economy from over 19% today back to about 3-4% and this is recognized as the mother and father of all recessions -- because it will be.

That recession won't last long though because with the amount of money that now remains in consumer pockets instead of being stolen through extortionate "health insurance" schemes America becomes the most-competitive place to run a business in the Western World.  We would see an enormous influx of firms to the United States beginning within days and it would not be long at all before all of the jobs displaced would be recovered and then some.

If you want an example of what this would look like from the economic point of view have a look at 1920-21.

But the fact of the matter is that those who would lose during that transition whine big, they whine loud, and they lie.

They scare you with knowingly false claims that you'd have no doctors, nurses or hospitals, and thus would die.  This is trivially seen to be a bald-faced lie when one simply looks at the growth of administrators .vs. physicians in medical practice -- the latter actually diagnose and treat persons, the former do not and if nearly all of them disappeared tomorrow there would not be any impact on the number of physicians and nurses -- and thus there would be zero impact on the ability to deliver medical services either.

If you get the force, fraud and extortion out of the medical system at all levels from pharmaceuticals to hospitals to the local imaging center and testing company you'd find that most of those administrators would lose their jobs -- under a competitive market they would produce far less in value than they cost.

Indeed, you only need to look at the quarterly filings for virtually any public company that operates in a competitive market and you will find that SG&A (that's sales, general and administrative expenses) typically runs about 10% of revenue and most of that is G&A.  Businesses in a competitive market can't spend more because if they do someone will come in, compete with said firm and destroy it by undercutting their prices.

Really competitive business (e.g. Amazon) have G&A costs of ~2% of revenue!  That's how they hammer their competition and how you get better prices -- they keep their costs down.

Now look at any of the health care public firms. Aetna, for example.  Their G&A is 23% of revenue, and the only reason they get away with it is that they are protected from competition.  In other words they blow 2 and a half times what a business in a competitive market does, and 10 times what Amazon does on administration as a percentage of revenue without fear -- because they can without having their head cut off by a competitor.  And oh, by the way, there's plenty of creative accounting too; health-related firms have every reason to understate their actual G&A expense lest the pitchforks and torches come out.

We will never get health care under control nor will it ever be affordable until and unless the underlying issue -- cost -- is addressed.  Cost is only addressed through market forces, and that means enforcing the law by hammering every single anti-competitive agreement and practice that these companies engage in.

If we do that the cost of medical care will drop like a stone -- 80 to 90%.  There will no longer be a "pre-existing condition" problem because for virtually every situation you will be able to pay cash.  For the few where people literally cannot because even when the $90,000 annual cost of treatment is $500 (as is the case for many MS patient drugs if you buy them outside the United States) our "social safety net" can afford $500 -- but not the $90,000 tab today that escalates at 10% or more a year.  In the case of people with Type II diabetes the cost of treatment for most of them would drop to an actual zero were they to stop eating carbohydrates other than green vegetables.  That sounds like a hard sell given how many people like pasta and pizza unless you explain to the 250 (or 400!) lb diabetic that if they do this not only do they spend zero on meds in addition all their extra weight will come off without being hungry or exercising to death and they won't have a heart attack, stroke or destroy their hips by trying to carry an extra 100+ lbs around either.

What will said Type II diabetic choose if the options are (1) pay for testing strips and medication out of his pocket (albeit at a much lower cost than today) while eating pizza or (2) pay zero for testing strips and drugs because you no longer need either but don't eat pizza?  The obvious choice is to eat the steak, forego the pizza and as a result drop both the medication and the extra 100+ lbs while keeping the money you used to spend on meds and testing supplies in your pocket.

Those who are screaming about "pre-existing conditions" and similar have a choice to make.

You can either continue to support the blatant rip-off of the current medical system in this country which thus compels you to argue for stealing from others or you can argue for putting the monopolists and extortionists in prison using existing, 100+ year old law which will collapse the cost of your medical care by 90% or more in an afternoon.

Oh, and one of those choices can't work because there simply isn't enough money to continue doing it no matter who you steal it from, while the other both can work and will, after the adjustment in the economy takes place, lead to much higher productivity employment throughout America.

That choice, if you take it and demand that it happen right here, right now, today means your wages will go up, your cost of living will go down and your life will dramatically improve.

If you take the other choice -- to either sit on your hands or make more and more demands for "single payer" and cost shifting instead of collapsing the monopolies and extortion rackets you will not only fail to obtain the health care you desire you will cause the collapse of our Federal Government, State budgets and the nation's economic future.

Read here for the answer.

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Posts: 64
Incept: 2010-12-21

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The graph says it all.
Was just wondering what the definition of "Physicians" is, for instance is it only MD's? In Canada we have Nurse Practitioners (NP) which do many of the tasks an MD does, but not all. Also what about a nurse (an RN), are they included in "Physicians"? I would expect not. Anyways, defining "Physicians" would help one better understand the graph. Nonetheless, the graph still makes quite a statement about too many paper pushers... amazing.
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What Happened in 1990 that led to the dramatic increase in Administrators?
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A True American Patriot!
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If you smooth it you'll find that it's actually a fairly normal-looking exponential growth curve. Yes, there are fits and starts in it as is true with most but the underlying nature of it is pretty clear.

Winding it down.
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This is why alleged "non-profit" hospital administrators

I've always felt that "non-profit" was one of the most misleading terms in existence. What it really means is that management does not have to satisfy stockholders or worry about a stock price. That way, management can keep more of the "non-profits" for themselves.

Does anyone else feel that our country has turned into one giant scam?


Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
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Orange County, CA
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Flap, that reminds me of a comment I first read in the 90's by Lester Thurow, a Democratic Party economist (not the legal novel author):

"The difference between a for-profit hospital and a non-profit hospital is that a non-profit pays out its profits as salary."

It's not an issue of "cooperation" vs "go it alone": it's a question of involuntary vs voluntary relationships.
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arkansas ozarks
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Parkinson's Law that 'Work expands to consume the time available to do it'

has a corollary:

'Bureaucracy expands to consume the money available to pay for it'

Only cure is to cut off the money.


Never trust a computer with anything important.
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East of Sheol
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Interesting graph. Look at the slow escalation of the fraud then look at its double leap around 1987 an again in 1991. Amazing what anti-competitive practices can do especially when laws are not enforced.

From the graph origin this when the current rendition of the current medical insurance scam started to come into play.

This is the game that companies played to initially beat wage and price controls under the Nixon administration. By offering such 'employer' health care as part of the benefit package did it actually help the employees? It was initially thought by offering benefits that would be under utilized would keep money in the company's pocket. Little did they learn.
Did it work? No since it was such a commodity the price started to escalate - everyone has it forced on them. Everyone was now grouped into a policy. The good risks made to suffer with the bad risks.

Don't have the insurance and a simple hospital bill could leave you bankrupt. Then they found new reasons why people should use the medical******system - annual or 6 months check up...... blah blah blah. It is an excuse to create a revolving door of escalating costs as the system is being used even more.

Honestly how many times has a doctor caught some type of life or quality of life threatening issue that the patient didn't realize something was wrong to start? He might diagnose a reason but its kind of like taking your car to a mechanic for an annoying squeak or engine fail light. Then we have the probability game of "early detection". I'd like to see the odds for that one from the house casino manual versus the actual cost to the consumer. Who is winning here? Let's look at breast exams.... some sources say they are actually harming women and driving up the probability of cancer due to the testing schedule.

Once the medical piggies had a captive user population no longer was the 'value' of that policy hid from government as part of wages they were also hidden from the public by not posting prices. Surprise here is your outrageous bill.

The providers then collude with the health care providers to make sure all the people needing medical care were now groomed to feed their ravenous greed. By letting you purchase insurance from them they are doing YOU a 'favor'.

This is what happens when the laws are not brought down like a hammer at the very beginning on those that would cheat the public through collusion and anti-competition. If enforced from day one the 'bezzle would not have been big enough to cause a recession issue. The is total failure of government and elected officials and the people to hold them accountable.

Stolen bread is sweet only for a short while.

"Mass intelligence does not mean intelligent masses."
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What do you think all the college is for a why there are so many socialist snowflakes?

The bureaucracy works for the bureaucracy. The purpose of the bureaucracy is to milk the system. The rest of us need to wake up to the fact or we will be their slaves. I venture 70% of health costs go down this drain.

The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
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I turned on Mike Gallagher this morning (why I still do that I don't know) and he was interviewing HHS Secretary Tom Price who was falling all over himself praising Trumpcare and guaranteeing people that preexisting conditions would still be covered.

Gallagher is a hack and Price yet another addition to the swamp.

At least Rush Limbaugh has come around, he was blasting coverage of preexisting conditions the other day almost as eloquently as Karl. Not that it's going to matter though, Trump is just like the rest of the RINO's and if AHCA passes the Senate he owns the whole enchilada.
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thank goodness the justice dept finally caught up with bumble bee tuna that was colluding with others to charge me 20 cents extra per can. think maybe now they will look into why my health insurance is 15,000 per year and covers nothing!
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Any dealings I ever had with the health care industry always reminded me of the defense industry. There always seemed to be 3x as many people working there as were needed. Both just one big jobs program.
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