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Monday, April 25, 2011 6:32 PM


Conversation with a Surgeon on Health Care Costs; Why "Atlas Shrugged" for One Skilled Doctor


Last week I received an email from Ed Schmitt, a surgeon regarding the value (or lack thereof) of various health care practices in the US.

Ed Writes ....

Hello Mish

I am a shrugging surgeon, having left practice in disgust that the medical system has no concept of value. Instead of seeking results of therapy, the system focuses on how to pay for the inefficiencies.

The general government mantra is simple: If are you for the kids, the poor, the teachers, the police, the military, the farmers, etc., then it is necessary to keep throwing money at targeted programs without questioning whether the increased spending ever does any good.

While it is obvious to anyone paying attention that most of this spending is a waste, it is unpatriotic to point it out. Yet until there is some accounting for what we get, and a genuine incentive to control costs and add value, we will just keep spending more and more while getting less and less.

I tried to introduce sanity in the form of global fees for operations and outpatient centers that could provide operations for a fraction of the prevailing cost at the local hospitals.

Unfortunately, such programs are feared, even banned by government bureaucrats (and other beneficiaries of governmental bureaucratic waste) who fear genuine competition. I was harassed every step of the way in my efforts to provide value to patients.

Thanks, Ed Schmitt
The above email from Dr. Schmitt raised many questions.

  • What did you do that was so threatening to the system?
  • How did you attempt to provide value?
  • What kinds of harassment are we talking about?
  • Can I quote you?

I sent an email to Dr. Schmitt asking him to expound upon the last paragraph in his email to me. Here is the reply from Dr. Schmitt ...
Hello Mish

It is a long story but I believe I can summarize it for you.

I am a surgeon. I am not practicing now, but once one has invested as much as is needed to become a surgeon, the surgical personality is ingrained into my life. Thus I am still a surgeon.

The early part of my career was consumed by learning the trade, when to operate and how to operate. Once I was in practice it was clear that excellence in practicing medicine was not enough.

Many doctors are not aware of the financial implications of what they do. The thinking is "if insurance pays, then who cares what it costs?"

However, I was too observant of what was really going on around in the hospitals and for my patients. There were huge financial implications for anyone who touched the medical system whether or not they had insurance.

I hate waste and respect value. I saw lots of waste and little value in my daily practice. It became clear that common sense issues regarding a diagnosis were important but overlooked.

For example, when facing a patient's medical problem, the thinking should be along the lines of "What is the most effective way to treat this problem, that causes the least disability, quickest recovery, and is a reasonable in cost"?

While most people lump all medical costs into the category "doctors' bills", it is actually the facility fees and extras that cost far more than I billed.

Since I controlled everything that went on in the operating room, it was up to me to decide what instruments and supplies I needed. In this respect there were huge differences in the cost and functionality of the different options.

I had to have total control over these things to make an impact. The myth is that hospitals control these things for everyone. That is false. They have a contract with huge companies to provide whatever the company offers without a true understanding of what really works.

I had an eye toward getting the job done perfectly for the least cost. I was one of the first general surgeons to put an operating room in my office. I was able to realize great savings on drapes, equipment, and supplies. I love to operate so I could quote a very reasonable price to patients for something that was satisfying and fun to do.

Unfortunately, I couldn't put these global fee packages together for insured patients because the insurance companies didn't have a mechanism to deal with any creative new ideas.

I was even on the boards of some insurance companies. The conversations were extremely frustrating. I was constantly asking questions like "You will let me do these procedures in a facility of lesser quality, a facility that costs five times as much as my office, when my office is fully licensed and inspected, and I will do the operation itself for less than half of what you are used to paying, and you won't let me?"

Mish, I could offer these global fees for patients that didn't have insurance. For example, I charged $750 for a hernia repair, ($1250 for both sides), and this included everything associated with the repair of the hernia and came with a guarantee.

It was obvious to me that the usual way of doing medicine was absurd from the patients point of view. They had a problem they wanted solved and were interested in how much it would cost and how long they would be laid up.

Business as usual would have them see multiple doctors prior to the procedure with lots of lab work that was unnecessary, then have an operation with no warranty and prolonged follow up, with every encounter ringing the cash register.

As long as someone else paid it was just frustrating and wasteful, but when the patient had to pay out of their pocket, it was intolerable. That was what I was trying to address.

Unfortunately, hospitals immediately targeted me. Hospital executives told family doctors not to refer patients to me, anesthesiologists on the staff were forbidden to work in my office, and I was increasingly harassed by the administration.

One hospital threw me off their insurance panels and tried to sanction my medical license. I continued in the outpatient and hospital setting.

An independent surgery center opened in town and rather than continue the fight to have the one in my office, I started using them. That lead to increasing distance from the hospital and my practice becoming almost exclusively outpatient. I started to resent my affiliation with the hospitals. Eventually I let all my hospital privileges go to the least level of involvement.

To make matters worse, credentialing laws require doctors to have some hospital privileges even to had an outpatient surgical practice. Since credentials have to do with how competent one is, you might think that economic affiliation with a surgery center would not have any bearing on hospital credentials.

You would be wrong.

Colorado made it acceptable for a hospital to deny privileges for economic reasons. One city hospital offered me privileges as long as I would sign a document that said I would never in any way criticize the hospital and that if anyone ever thought they heard me doing so, I would surrender my medical license.

This was from a hospital that wouldn't let me have any say in the gloves I wore, bandages I applied, or sutures I used. I figured it was a good time to shrug.

I love fly fishing and have had a lot in Alaska on the best river in the world so I built a house and live up north fishing, skiing, kayaking, and reading. It is sad because most doctors know the system doesn't work and are very frustrated. They don't dare do anything to try to fix it because of the things that have happened to me and many other creative docs who are also shrugging.

You are very welcome to quote me, I wish there was some creative way to help move the medical system toward value.

Thanks, Ed
Competition Needed

Take a good look at those emails and ponder the massive waste in our healthcare system, especially Medicare and Medicaid.

If government needs to be involved at all, the goal should be to provide healthcare at reasonable costs to taxpayers or patients. The only way to do that is increase competition.

Instead, the system is geared toward reducing competition as described by Dr. Schmitt, and also by absurdities like Nancy Pelosi's statement "We have to pass the health care bill to see what's in it."

We have now seen it, and polls show few are happy with it. Why should anyone be happy with it? No inefficiencies have been addressed.

Doctors like Ed Schmitt ought to be addressing Congress. Instead our laws are written by industry lobbyists, for the benefit of the industry, not for the benefit of patients or taxpayers.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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