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Feeding at the Trough

Why much of the health-care industry is backing Obamacare.

12:00 AM, Oct 7, 2009 • By STANLEY GOLDFARB
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Did you ever wonder why there are so many elements of the health-care industry supporting Democratic health-care proposals? Doctors, hospitals, pharmaceutical companies, academic medical centers, and Bill Frist are all pro-"reform." Certainly there can be truly admirable instincts at work here: helping the sick, providing high quality care to the disenfranchised, improving the overall quality of our health care system. People being people, however, it is also worth considering another basis to understanding their motives: "Follow the money" and you will find good reasons for their support. In addition, you can find the seeds of conflicts that will develop between these various entities and the federal government as more intense efforts at reining in health care spending develop in the future.

Doctors- Every year for the past 10 years or so, Medicare is supposed to reduce the amount of money paid for each unit of medical work carried out by physicians. These units are called RVU's or relative value units. The reason that this reduction is mandated is that the amount of money Medicare pays out to doctors is limited by a rate of growth in costs that is said to be "sustainable". But every year, under intense lobbying pressure, Congress has canceled this reduction and actually voted an increase in payment. Next year, unless something changes, the reduction will be 20%. One of the "deals" worked out in the new proposals is that this annual reduction in Medicare payments will be permanently eliminated.

This is not to say that many doctors are not philosophically aligned with the Democrats' health-care reform, many are. But most have not really contemplated the reality of a single-payer system, surely the "end-game" of the health care overhaul. In such systems, physicians have no bargaining power. While they do not generally like health insurance companies since the companies have been difficult payers of the health care bill, at least the physicians could decide either not to accept the subscribers to a given insurance plan or not to accept insurance at all. The government will be pretty difficult in any negotiations. In fact, there will be no negotiations. Since all the patients will be in one plan, all the doctors had better be in the plan as well. One plan, no negotiation.

Hospitals- Hospitals have complained for many years about providing "free care" to the uninsured. In the new world of universal coverage, there will be no free care so hospitals will nicely benefit. Again, there are those hospital leaders who philosophically favor the Democrats' reform, often in the name of equality and justice. However, one wonders what will happen when communities in which the hospital, often the leading employer in town, contemplate the lack of business tax and real estate tax revenues from their non-profit hospitals and start to reassess the utility of the not-for-profit status. Heretofore, the freedom from the burden of taxation was based on the fact that the hospitals provided free care to the poor and uninsured and hence benefited the community. But with health care reform and universal coverage, there will be no need for free care and no rationale for non-taxed status. Oops.

Pharma- The deal with Pharma has been well described and has infuriated many House Democrats. The Medicare "donut hole" for seniors will be reduced by 50% as drugs will be re-priced to allow that outcome. The deal has been cut to allow Pharma to maintain exclusive control over certain types of biological drugs such as anti-cancer antibodies for a dozen years and a promise that the government will not negotiate drug pricing in Medicare. This benefit will be worth billions. However, if the federal government recants and decides to negotiate drug prices as do European countries, then one of the nations most profitable industries will be a lot less profitable. Less profits, fewer jobs.