THE MONOPSONY GAME

(a single payer health care system… a true story)

By: Jerry L. Rhoads, CPA, LNHA, FACHCA

 

While America is number ONE in cost per capita we are thirty-eighth in quality; statistically, Americans spend more money on their health care than anything else but food. But the consumption of the health-care dollar is predominately not paid for by the consumer. The middlemen, so to speak, make the forces of free enterprise moot. Consumers are bystanders in the relationship between purchase and quality because they do not directly pay for the product. However, every American actively participates in the Monopsony Game every day in how they live and seek health, happiness and prosperity.

 

This phenomenon is called Monopsony. The consumer is not the buyer. But the buyer is almost singly dominant. Through a vertical consolidation of the purchasers of health care the monopsony is formed. This is the reverse of monopoly, where the single seller has the last say. This is not Microsoft at work. It is the federal and state Medicare and Medicaid programs that buy upward of seventy five percent of all health-care service products. Under the Obama-Nation, government will be the purchaser of last resort for all Americans health care and eventually everything, as Socialism raises its head defiantly for health care to be a single payor system, a right not a privilege.

 

Ingeniously, early on the insurance industry (Blue Cross) convinced the federal government in 1966 that the only fair and equitable manner to fund and pay for health care for the elderly and disabled was to pay Medicare on reimbursable costs including a markup for overhead and return on equity. Most of the providers, in those days, were not-for-profit hospitals and sole-practitioner doctors and small mom and pop rest homes (nursing homes). This method lasted until 1989 as health care became big business, when it was changed, in terms of payment, for hospital care and the emerging continuum of care services for the elderly population. The new reimbursement method was to pay 469 prices using diagnosis groups based on average estimated lengths of stay and average costs per day from cost reports.

 

There under, DRGs (diagnosis-related groupings) set an average price for a diagnostic group without regard to what it costs the hospital to produce an outcome (recovery, recuperation, rehabilitated, restored to home) for each diagnostic episode. This political maneuver has turned the tables on the providers and forced them to only look for the best diagnosis and length of stay based on money not treatment nor the result (income rather than outcome). The same method is now being imposed for all facets of health care: DRGs for inpatient care, OPUs for outpatient care, RUGs for long-term care, RVUs for physician care, RUGs for nursing-home care, and RIUs for rehabilitative care.

 

I call this inductive health care not deductive Enterprise health care. Why in the world would we base our whole health care reimbursement system on input units not outcome units? As a result, there is no accountability for a result or quality before getting paid. Why because the government wants to control the flow of taxpayer Insurance and Medicare money without regard to paying for episodes of care that decentralizes the control.

 

Congress should have converted the entire health-care industry from a cost-plus economic equation to a managed competition where providers are pitted against government-fixed prices for episodes of care. Unfortunately, now all health care providers don’t have to be accountable for what it costs each stage of the service product and price their services like any other business enterprise. Factoring in managerial effectiveness and efficiency. Instead they get paid for average prices based on esoteric input units not output units that depict outcomes or positive results. The game is to just find the best diagnosis group and get paid to play monopsony. Resulting in a vertical integration of the providers into the single payer monopsony. Thus, Americans are less healthy with life expectancy on the decline.

 

In order to make an alternative Enterprise Model work, and get paid for an episode requires integration of the continuum of care by multiple providers (horizontal integration), it requires standardization of terms, product-type definitions for cost controls, and activity-based cost accounting systems to value the product costs and manage the margins against the incentive pricing for positive outcomes. Then the free enterprise model has to learn how to win the monopsony game in spite of the biggest bully in the game—Uncle Sam and his fifty governors lording over the money. We, the voters must decide what America needs … capitalism or socialism when it comes to health care.   Capitalism represents our free enterprise market approach used in our present economy and should be the approach to health care. An Enterprise Model rather than the Institutional Medical Model … this is the essence of this position paper.

 

First to define the problem and what are we dealing with in this polarized political environment with the capitalists claiming jurisdiction and socialists demanding a single payer system of Medicare for All.   We the voters have to choose … an Enterprise model or Medical Model … a free market driven by individual savings account funded by the purchasers of services or a monopsony-single payer system driven by the single buyer being the purchaser of last resort (without being accountable to the patients for outcomes to cover their skyrocketing costs, waste and prices).  There is lip service being given to evidence-based medicine and a new value-based purchasing Patient Driven Payment System touted to pay for performance using bundled payment models but still dependent on averages and input units not episodic output units.

 

In American Free Enterprise parlance, we do not have perfect capitalism when we have the government purchasing 75 percent of everything. You have a monopsony (an oligarchy). When you put the government in charge of being the purchaser of last resort for anything, you have waste, loss of personal freedoms, misappropriation, and everything is average to below average results.

 

The eventual impact can best be illustrated by trending the people to below average: the guy who has a bare foot in the bucket of ice-cold water and the other in a bucket of boiling hot water and on average he should feel great. But in reality, relegating everything to averages that become maximums is wasting away valuable resources on average to below average work ethic and guaranteed low quality.

 

Imagine this … a single buyer Monopsony, no competition, no standards, no incentives, no quality standards, no flagships, no limits on prices or waste … that’s the end result of a monopoly and a monopsony In a non-patrician analysis … the question of which you would rather be: the chicken or the egg.

 

The underlying question we face in today’s political environment will it be Capitalism or Socialism. What Is Capitalism? The chicken or the Egg . . . author unknown

 

The best way I’ve found to justify capitalism is to compare it to other forms of socioeconomic and political systems. To do this, let’s look at how the fruits of a chicken’s labor are produced and disbursed under Nazism, Fascism, Socialism, Communism, Capitalism or Enterprise.

 

Nazism: This is where the government commandeers the hen before the eggs are hatched and raises the offspring as a perfect line. Only the bad eggs are given to the people. And the chickens eaten.

 

Fascism: This is where the government captures the eggs as they’re laid, eats the yolk, and gives the shells to the people.

 

Socialism: This is where the government gives the people the hens. The eggs are laid according to the letter of the law and given to the people for one-half their wages in the form of Social Security benefits. The bad eggs are given back to the producers for recycling in accordance with environmental protection laws and the chickens paid minimum wages.

 

Communism: This is where the hens are owned by the government. The eggs are commandeered by the government for equal distribution to all. Only the average eggs are given to the people. The best eggs go to the politburo. The good eggs go to the Olympic team. If the annual quotas for production aren’t met, the people are fed to the chickens.

 

Capitalism: This is where the people own the chickens. They buy the feed and risk their capital. The eggs are sold and the profits, if any, are taxed. The chickens are overworked and underpaid, but protected by unions. The unions guarantee collective bargaining, pensions, and equal opportunity for each and every chicken. The good eggs end up in the omelets served to the lawmakers, the bad eggs are chastised by Rush Limbaugh and called Fascists, Nazis, Socialists, and Communists.

 

What would you rather be the chicken or the Egg? Capitalism or Socialism,

 

Or American Enterprise where, though not really free, is the driving force behind the American economy safely in the hands of 160 million enterprising Americans (the chickens) who deposit their enterprise (eggs) in the bank. Then, without this pursuit of the American dream we would have a Venezuelan, Russia, China, Japan, Greece or Libya.

 

Our free to choose society has allowed the Monopsony’s regulators to water down our standards by using the concept of minimum standards. We have left the definition of quality to the left and right side of the Congressional aisle.   That’s the impact of a Monopsony as a single purchaser of health care… putting the small players our of business. Medicare for all and will continue to force the healthy to pay for the unhealthy and deny coverage to the chronically ill. And the unhealthy demand quality health care as a right, without internalizing the privilege of personally paying for it with their healthier lifestyle habits, thereby earning it.  Then prevention becomes the best outcome.

 

This dawned on me in 1975 as a consultant to the nursing home association and the state of Illinois when The Battelle Institute, a health care think tank, had offered up that health care is this economic phenomenon called Monopsony, a one-buyer market where the buyer (the government) dictates quality and price regardless of profit margins, initially putting small suppliers out of business and encouraging consolidations to capitalize on economies of scale, whereas, in the game of Monopoly, a single selling force can skew market forces to the point of putting small sellers and resellers out of business. Unfortunately, the economies in the service industry are more limited because of the extensive variables and the lack of technology in providing personal-care services.

 

In 1979, as the expert on Medicare and Medicaid reimbursement, I did a seminar “How to Win the Monopsony Game” for the Illinois Health Care Association on the one-buyer market. Little did I know that we would be losing the monopsony game in 2011 when Obama Care was passed. We now have a government-owned one-buyer market.

 

Our best current example of the impact of single payer health care is the Department of Veteran Affairs (lovingly called the VA hospitals). The debacle of waiting lists and vets not having their own doctors and therapists hit a panic mode after 9/11 and during the impending wars in Iraq, Afghanistan and Syria.

Nearly 894,000 appointments completed at VA medical facilities from Aug. 1 to Feb. 28 failed to meet the health system’s timeliness goal, which calls for patients to be seen within 30 days. That means roughly one in 36 patient visits involved a delay of at least a month. Nearly 232,000 of those appointments involved a delay of longer than 60 days.

 

Those clinics and hospitals represent just a fraction of the more than 1,000 VA facilities nationwide, but they were responsible for more than one in five of the appointments that took longer than 60 days to complete.

A quote by a Veteran: “You’re gonna get crushed” by VA health care bureaucracy

Ismael Bruno, a New York City firefighter who served in the Navy and the Marine Corps, told CBS News last year that he no longer goes to VA hospitals because he felt like the administrative staffs there showed such little respect for veterans. He says scheduling appointments sometimes took several months and office employees display nothing but apathy while veterans wait alone for hours. “It’s always poor service,” Bruno said. “I think I’ve gotten better service at the DMV.”

 

As a solution, why wouldn’t the VA Hospitals contract with skilled nursing facilities that have upwards to 200,000 empty beds nationally? Spread the problems around rather than limiting access to VA hospitals and clinics. Since, returning veterans predominately need long term rehabilitation and restorative services, their own doctor and socialization while renewing meaningful family relationships, not just Government run acute care. Why, because the VA has built a bureaucratic vertical medical model of their own making without regard for timely admissions, effective treatment pursuing positive outcomes … rather than a horizontal restorative model that’s more cost effective and outcome driven.

 

Why would I bring this up? During the last two decades skilled nursing homes were active in getting certified to provide rehab and restorative services to returning vets. However, under the Medical Monopsony this was converted to a government contract requiring a $16,000 consultant fee and payment of a 15% share of billings just to get certified. During this time my wife, son and I owned three skilled nursing homes that applied for a contract with VA and were prevented from getting the opportunity to help solve the wait time problem because they weren’t a 3 to 5-star provider using the Government’s flawed performance rating and cannot meet their arbitrary financial stability standards; sounds systemic doesn’t it?