Readers respond

Philip Betbeze, Senior Editor, Finance , September 10, 2007

As I write this, it's Labor Day week, so I'm gratified that you, the readers, were willing to do my labor for me this week. By way of explanation, I asked for your input, and you've responded. Thanks to all of you for your recent comments--whether they be positive or negative--regarding the subjects I've tackled in this still-new healthcare finance e-newsletter.

I hope those of you who have written will continue to write. I also hope that those who haven't written will do so when something strikes a nerve.

Here are a few recent responses to my columns that I thought you might enjoy:

Subprime slime's halo effect (August 13)

The Moody's article recaps exactly the trends we're building into our newest long range financial plan. But here are some ways in which the mortgage market problems have rippled through to affect us.

First, we've been planning an off-balance-sheet support services building off our main campus, constructed by an independent developer with outside financing and leased back to us under an operating lease. The financing for that building has become much harder to predict as the liquidity dry-up in the personal mortgage packaged securities market has moved into the commercial market.

Secondly, our foundation, in order to generate higher endowment fund yields much as Harvard has done in its investment strategies, moved more heavily into private equity and hedge fund investments (a total of about 20 percent to 25 percent of investments). While we had only about 2 percent direct investment in mortgage-backed securities, the liquidity crunch has affected the ability of hedge funds to leverage their investors' money and generate significantly higher yields. That affects the overall return on our investment portfolio.

So, yes, there is a significant impact on us, even though we weren't significantly directly invested in mortgage-backed securities.

Food for thought.

Bradley N. King

Vice President & Chief Financial Officer

Oregon Health & Science University

Providers should worry, not docs (August 20)

(Editor's note: I took a lot of heat on this one for saying "providers" when I was talking about hospitals and other healthcare ancillaries, not physicians)

As a physician, I know we will be cut and continue to be cut. As a radiologist we will see our fees cut even further as we get taken down with the self-referring machine that Congress is supposed to be trying to eliminate.

What you and others don't understand is the way to save money and reduce the trend is to raise physician fees back to 1987 levels. Do you really think that an orthopedist wants the hassle of running an MRI in order to augment his income if he didn't perceive this as necessary to make back the cuts he has seen over the last 15-20 years?

Same holds for all practicing MDs who have rationalized the self-referral scheme to make back "lost" money.

For example, the government (and third-party payers who follow the Medicare fee schedule) cut reimbursement for hip replacements by 25 percent. Same holds across the board. The orthopedic surgeon who once made $700,000 now sees his income eroded, for no appropriate reason, to $500,000. He now opens an MRI, where he now orders an extra million dollars worth of imaging to make back the $200,000 he has been cut. The net effect is that the cut of $200,000 has led to $800,000 more expenditures.

While this is just one example, it exists everywhere. Why do you think imaging by non-radiologists has grown exponentially? Because it can--as a result of self-referral.

Those involved in self-referral rationalize it away as "good" medicine when in reality they are just trying to make back what has been cut. It is a vicious cycle that can only be stopped by raising, not lowering, physician fees. But those in the know in Congress and the White House are just too stupid to understand it.

Meanwhile, the insurance companies are raking it in and the for-profit hospitals have bilked the system and are leaving behind shells of what were once great hospitals. I have to disagree. The patients and doctors are the ones who are now being cut.

Howard Butler, MD

Hospital operating pressures mounting (August 27)

Reducing hospital-based care would be a blessing. The 1999 Institute of Medicine report on hospital preventable deaths, the Centers for Disease Control report on fatal hospital-acquired infections, and the 2006 IOM report on hospital ER abuses more than justifies scrapping the least effective delivery model on the planet--the U.S. acute-care hospital. You might save as many as 200,000 lives every year and the $300-$500 billion wasted every year in unnecessary or ineffective health spending could be better spent elsewhere.

My 27-year medical practice experience, along with my training as an attorney and economist, informs me that acute-care hospitals are the epicenter of a significantly worsening problem of expensive and often unnecessary health spending. Keep in mind that for more than two decades hospital "systems" have been buying up much of the primary-care base (physician and non-physician) in the U.S.

As much as 80 percent of "hospital care" is for outpatient medical services that is routinely provided more effectively and less expensively outside the traditional bricks and mortar hospital. And what about the folks that "certify" U.S. hospitals? JCAHO (now The Joint Commission) has been placing its blue ribbon seal of approval on facilities that are infecting and/or causing the preventable death of hundreds of thousands of patients acting on the misplaced belief that a Joint Commission certification means something.

Put the Joint Commission in the pole position for a list of endangered health organizations that are scheduled for extinction. Congress is unspeakably negligent in allowing an organization like The Joint Commission to have any role in hospital certification. The record of unsafe care in U.S. hospitals is a testimonial to the sheer ineptness of our regulatory framework.

And if we downsize the U.S. hospital industry, a vibrant and flexible economy will promptly sponge up the displaced outcasts from the multiple layers of ineffective and unneeded bureaucrats, administrators, regulators, "patient care specialists," paradigm shifters, Sigma Sixers and others to the benefit of doctors and patients alike.

My prediction-this ain't going to happen. The hospital associations, trade groups and lobbyists and their friends in Congress just have too much to lose. We are talking about hundreds of billions in misplaced spending by a hospital industry and its captive providers that prefer letting our citizens get sick, and then treating the litany of preventable conditions in the most expensive, least effective site for health delivery.

Good health just doesn't pay and hospitals will go to the wall to prevent desperately needed reform that would spell the end of hospital-centric health delivery.

Craig E. Clark MS, MD, JD

Cedar Rapids, Iowa

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at

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