92 Percent of Nurses Are Dissatisfied with Electronic Health Records



nurseAlthough we have discussed their dissatisfaction with electronic health records, hospitals and physicians are not the only victims of the federal government’s $30 billion adventure in underwriting poor IT investments. Nurses are almost uniformly disappointed in EHRs, according to a new survey by Black Book Market Research:

Dissatisfaction with inpatient electronic health record systems among nurses has escalated to an all time high of 92%, according to the Q3 2014 Black Book EHR Loyalty survey results to be published later this month. Disruption in productivity and workflow has also negatively influenced job dissatisfaction according to nurses in 84% of US Hospitals. 85% of nurses state they are struggling with continually flawed EHR systems and 88% blame financial administrators and CIOs for selecting low perfomance systems based on EHR pricing, government incentives and cutting corners at the expense of quality of care.. 84% of nursing administrators in not-for-profit hospitals, and 97% of nursing administrators in for-profit hospitals confirm that the impact on nurses’ workloads including the efficient flow of direct patient care duties were not considered highly enough in their administration’s final EHR selection decision.

Allow me to point out that even nurses working on the front lines of health care, who should be too busy taking care of patients to concern themselves with the goings on of politicians and bureaucrats, are aware that “government incentives” are a major cause of the problems that they face dealing with EHRs every day.

The federal financing of bad investment in EHRs is coming to an end. Soon, hospitals and physicians’ offices will be “ripping and replacing” the EHRs that the government bribed them to implement. As long as the government does not insert itself into the process again, the next generation of EHRs will be implemented based on patients’ needs instead of government’s priorities.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

 

Is Humanitarian Aid Strengthening ISIS?



Protest against the military operation in FallujahRecent reports on U.S. efforts to confront the Islamic State in Syria and Iraq revealed something disturbing. As U.S. forces launch attacks against ISIS, a vast array of U.S. and other western aid has been flowing into the region...and directly to the jihadist fighters.

Reports state that in order for aid to travel through certain areas, groups like the U.S. Agency for International Development (USAID) have paid ISIS leaders (in some cases as much as $10,000) “transportation costs” (i.e., bribes) in order to move their cargo through ISIS-controlled areas. This provides the group a steady source of income, in addition to many supplies. In some cases ISIS insists on distributing the aid, withholding the supplies from civilians and instead using the materials to supplement their efforts.

While this story is timely, it is certainly not the first case of foreign aid gone wrong. In the summer 2009 issue of The Independent Review, Christopher J. Coyne and Matt E. Ryan explore the U.S.’s extensive history of questionable aid decisions in their article, “With Friends Like These, Who Needs Enemies? Aiding the World’s Worst Dictators.” 

In the piece, they explain how the U.S. has provided millions in assistance to the some of the world’s most brutal regimes. Those who have received aid include Cuba’s Fidel Castro, Iran’s Sayyid Ali Khamenei, Libya’s Muammar al-Qaddafi, North Korea’s Kim Jong-il, and Zimbabwe’s Robert Mugabe, among a variety of others.

We can now add ISIS to the list.

When discussing my skepticism of foreign aid, I am frequently confronted with looks of confusion, disapproval, and—dare I say—utter horror? These looks are typically followed by a variety of questions: How can anyone be against sending aid to those desperately in need? Don’t you want to save the people under control of some brutal tyrant? Certainly you can’t suggest we do nothing?! Some aid has to be better than no aid, right? Wouldn’t you have to agree that if one needy person gets the aid we send, then it’s worth it?

In my last post, I pointed out a very important concept in economic analysis, the idea of “means and ends.” If we take our ends, or goals, as given, do the means (proposed solution) solve the problem? In the current conflict, the goal is to destroy ISIS and assist civilians living in the conflict zone.

Undoubtedly, innocent people are being harmed and killed by ISIS. This is absolutely abhorrent. But as the above points out, the aid the U.S. and others are supplying may not in fact be helping to achieve either of the U.S.’s supposed goals. In fact, these efforts are likely making matters worse. Instead of relieving the suffering of the innocent, the massive influx of aid prolongs their plight by propping up the very group that threatens their well-being. The aid intended for civilians may never reach them, but instead provides ISIS with the physical and monetary resources to further sustain their campaign. As Coyne and Ryan pointed out, this is only one of many times this scenario has played out across the globe.

When discussing foreign aid, when confronted with the looks of confusion and disapproval, I come back to the concept of means and ends. I explain that I am skeptical of foreign aid because I care very much about people. Images of starving children, refugees displaced by war, and people living in unsafe environments invoke feelings of discomfort and genuine concern. But I refuse to blindly advocate policies because they make me feel good. I would argue such actions can be downright dangerous.

People often advocate counterproductive policies because they appeal to our sense of morality. We have done something and, therefore, have fulfilled our obligation to our fellow man. To do nothing is simply unfathomable and makes us terrible people. Allow me to argue that, in some cases, doing nothing is better than doing something. If our aim is truly to help those in need, we should first ensure that our efforts are in fact helping or, at the very least, are not making a situation worse. To do otherwise is irresponsible and, I would argue, truly immoral.

(Note: Coyne has written extensively on the topic of humanitarian aid failure. I highly recommend his most recent book, Doing Bad by Doing Good: Why Humanitarian Action Fails. You can also find a link of Coyne discussing his book with the Independent Institute here.)

Obama Appointee Supports Individual Rights



VanitaGuptaI’ve been critical of the Obama administration in the past, so it’s nice to find something positive to say. This article says that President Obama’s new acting head of the Justice Department’s Civil Rights Division, Vanita Gupta, “supports decriminalizing cocaine, heroin, LSD, methamphetamine, ecstasy and all dangerous drugs, including marijuana.” It’s nice to see that someone in government supports individuals’ rights to make their own choices, rather than having the government tell them how they have to live their lives.

My personal view is that it is a bad idea to take any of these drugs, but just because that’s what I think, or that’s what some politicians think, doesn’t mean it should be illegal for you to do things other people think are bad for you. “Freedom” is meaningless if you have the freedom to make only the choices that your government thinks are good choices.

The article says Ms. Gupta has argued that the misnamed war on drugs “is an atrocity and that it must be stopped.” The article goes on to say that she objects to what she perceives as draconian mass incarceration, which has resulted in a bloated prison population, and the war on drugs that she perceives as a failure.

I don’t know anything about Ms. Gupta beyond what is in that article, and the article focuses on her supporting freedom for individuals to make their own choices with regard to drug use, rather than have government dictate those choices for them.

Based on that article, everything I know about her is positive, and I’m happy to see the president appointing people who stand up for individual rights.

The article I linked to came from The Daily Signal, an internet publication of The Heritage Foundation. One would expect the conservative Heritage Foundation to be at odds with the Obama administration on most issues, but I admit that I am disappointed that The Heritage Foundation, which claims on its website to support public policies based on limited government and individual freedom, is taking a stand against individual rights, and in favor of more government oversight and interference in our lives.

People are not free if they are prohibited from making what those in government perceive are bad choices. In this case I am happy to see the Obama administration standing up for individual rights, and disappointed that a prominent conservative organization supports the nanny state.

Australia to Raise $5 Billion by Privatizing Its Biggest Health Insurer



AustraliaHealthCareAustralia’s federal government is aiming to raise almost $5 billion by privatizing the country’s largest health insurer:

Australia hopes to raise up to Aus$5.51 billion (US$4.82 billion) through the sale of the country’s largest health insurer in an initial public offering, Finance Minister Mathias Cormann said Monday.

Cormann said the sale would remove the current conflict where the government is both the regulator of the private health insurance market and owner of the largest market participant. Medibank provides cover to 3.8 million people.

The government has previously said Medibank is one of 34 competing funds in the private health insurance market in Australia and that a scoping study had found no evidence that premiums would rise as a result of the sale. (AFP via Yahoo! News)

Australia has been shrinking the role of government in health care. Although a national single-payer scheme was established in 1975, the federal government re-introduced private choice within a few years. Indeed, Medibank Private is the descendant of the original single-payer plan, Medibank.

Today, almost half of Australians have private health insurance. Largely, this was a result of the federal government partially re-introducing underwriting in the late 1990s so that insurers could charge premiums that were more actuarially accurate to an applicant’s age. Previously, age could not be considered in setting premiums. The reform encouraged people to buy hospital insurance by age 30. Every year of delay results in an increase of 2 percent. So, if one dawdles until age 50, one will pay about 40 percent more. This is far from pure actuarial accuracy, but in a health system run by politicians, it is quite a strong achievement.

Obamacare does the opposite: Discouraging people from signing up because they can enroll every year starting November 15 through February 15 of the next year. So, a healthy young person can risk the consequences of being uninsured for no longer than ten months. This is one reason why healthy young people shun Obamacare coverage.

An article written in 2008 by a former colleague of mine gives American readers more details and context about Australia’s increasing privatization of its health sector.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Is Medicaid-Associated Overuse of Emergency Departments Just a Surge?



Research14092480_S from the UCLA Center for Health Policy Research suggests that rising Medicaid dependency does not result in a secular increase in use of hospitals’ emergency departments. Rather, the jump in ED use is just pent-up demand being satisfied, and drops off. This is the conclusion of a study that examined ED visits by California patients newly enrolled in a government program similar to Medicaid, called the Low Income Health Program (LIHP).

This suggests different consequences to Medicaid expansion than the Oregon Medicaid experiment showed:

Although our results are not directly comparable to those of the Oregon Health Insurance Experiment, they suggest that the higher costs and utilization among newly enrolled Medicaid beneficiaries is a temporary rather than permanent phenomenon. To the extent that California’s experience with the pre-ACA HCCI and LIHP programs is generalizable to other states, policymakers and service providers can expect a reduction in demand for high-cost services after the first year of Medicaid enrollment.

If true, this contradicts the story I’ve been telling, and should make us happy that the new Medicaid dependents will get timely, quality, preventive care that will reduce their need to go to EDs:

“We found that the surge doesn’t last long once people get coverage,” said Nigel Lo, a research analyst at the UCLA Center for Health Policy Research and the study’s lead author. “Our findings suggest that early and significant investments in infrastructure and in improving the process of care delivery can effectively address the pent-up demand for health care services of previously uninsured people. Fears that these new enrollees will overuse health care services are just not true.”

Unfortunately, this conclusion is unconvincing.

In the first three months after enrollment, there were six ED visits for every ten new beneficiaries in the “highest-demand” group. This is the group which was previously uninsured but had not used county indigent services prior to enrolling in the government program. It comprised 37 percent of the newly insured. However, there was no barrier to them using the ED when they had been uninsured: Nine percent of the newly insured had used EDs before getting coverage. (The rest of the newly insured had been on another government program, Health Care Coverage Initiative, which was cancelled.)

What is important to remember about Medicaid and similar programs is that you can sign up when you need care. People with private insurance can sign up only during open-enrolment periods.

Sure, the people who sign up for Medicaid will consume a lot of medical care and then dial it back. But they will also drop out of Medicaid until they need it again. Meanwhile eligible people who become sick will sign up next quarter. It never stops.

And it certainly does not address the problem that Medicaid provides poor access to physicians. If it did, the newly covered would not have had to flood hospitals’ emergency departments.

 

 

The Case for Drugstore Clinics



healthcareIn The Atlantic, Richard Gunderman, MD, PhD, has delivered “The Case Against Drugstore Clinics.” It is a weak case. Let’s take his strongest argument first:

A woman with a sore throat went to a retail clinic and received a prescription for antibiotics. After a few days, she hadn’t gotten better, so she went to her family physician. The physician determined that the sore throat was probably due to a viral infection. He also, however, talked to her about her overall health and life. This conversation led to a previously unsuspected diagnosis of clinical depression. The patient is now in treatment and doing much better.

A case like this illuminates three important differences between the retail clinic and the physician’s office. First, the retail clinic prescribed an antibiotic, but in the physician’s judgment the infection was not bacterial. Overusing antibiotics can promote the development of antibiotic-resistant strains of bacteria. Second, the minute clinic focused exclusively on the sore throat. And third, the physician’s more comprehensive evaluation led to a diagnosis with important implications for the patient’s overall, long-term health.

Dr. Gunderman’s implicit assumption is that if the retail clinic were outlawed, the patient would have gone to her doctor first. However, there is a reason she did not go to the doctor first: The doctor’s hours were inconvenient; the patient could not get an appointment; or the physician’s fee was too high for such an apparently simple problem. Without the option of a retail clinic, the patient might not have been treated quickly at all, and when she did finally go to her physician he would not have known that the antibiotic had not worked. Dr. Gunderman implies that overprescribing antibiotics is a problem unique to retail clinics. On the contrary, it is a longstanding practice of U.S. physicians, confirmed by research published just last year.

It gets worse: Dr. Gunderman describes a clear benefit of retail clinics as a drawback:

One is the fact that they tend to siphon away many of the simpler, quick-to-treat conditions from physicians’ offices and hospitals—these common problems help keep costs down and keep hospitals in business. If retail clinics handle a growing percentage of the relatively straightforward cases, doctor’s offices and other facilities that offer more complex care will find their average patient becoming more complex, driving up their costs even further.

It is hard to over emphasize how wrong, wrong, wrong this accusation is. The “too big to fail” nature of general hospitals is one reason why they are so inefficient: They do not specialize. This is a major reason why costs are so opaque in U.S. health care. In a functioning market, no enterprise would try to mix easy and complex cases in order to average down its costs. An operation that specialized in high cost procedures would bring those costs down, rather than disguise them by cross-subsidizing from low-cost procedures. We see increased specialization in the practice of medicine itself. The family physician described above, who diagnosed his patient’s cough and depression, likely referred her to a psychiatrist. If she had a tumor in her brain, he would not have performed surgery. By Dr. Gunderman’s logic, neurosurgeons should spend much of their time in low-cost family practice, in order to “keep costs down” when they do a brain operation every month or two.

Few things would be better for U.S. health care than physicians forming collaborative relationships with retail clinics in their communities, in order to improve continuity of care. However, this relies on identifying and breaking down regulatory barriers, not professional turf protection.

Happy Birthday, Tea Party!



"TAXING CHOICE exposes the fiscal rot 'targeted' taxes represent." --James M. Buchanan, 1986 Nobel Laureate in Economic Sciences

“TAXING CHOICE exposes the fiscal rot ‘targeted’ taxes represent.” –James M. Buchanan, 1986 Nobel Laureate in Economic Sciences

October 16, 2014, marks the 241st anniversary of an event that helped launch the American Revolution against King George III, eventually leading the thirteen colonies to independence from the British Empire. On that same fall day in 1773, the first public assembly to protest the Tea Act convened in Philadelphia. (The more famous Boston Tea Party took place two months later, on December 16.)

At first the Tea Act was less controversial than the Stamp Act, which had required colonists to buy and affix an official stamp on documents related to transferring real property, getting married, or legally enforcing other contractual obligations. However, the men who organized the public meeting about the Tax Act were deeply aggrieved by the Crown’s unilateral decision to export the “hated excise” to its North American colonies. Plans were afoot to block the unloading at Philadelphia of tea shipped on the Polly, but that plan later was aborted when news arrived that while en route the ship’s cargo had been dumped unceremoniously into the water when the vessel was docked in Boston Harbor.

The Philadelphia meeting’s main achievement was to appoint a twelve-man committee charged with asking Britain’s tea agents to resign their commissions. The Tea Act had awarded four firms exclusive rights to import tea into the colonies and imposed a duty (what today we usually call a “tax”) on those imports. The British agents were responsible for collecting the duty and for ferreting out and seizing tea shipments smuggled into America by tax evaders.

Selective excise taxes on distilled spirits, tea, coffee, salt, soap, and other goods had already been imposed in England. Those taxes were highly unpopular. Samuel Johnson, in his authoritative Dictionary of the English Language (1775), defined excise as “a hateful tax levied upon commodities, and adjudged not by common judges of property, but by wretches hired by those to whom the excise is paid.”

Britain’s colonial tea agents were kissing cousins of the wretches who assessed and collected excise taxes on the other side of the pond. Rewarded for carrying out their responsibilities assiduously, the agents often entered private businesses and homes without permission to search for contraband on which taxes had not been paid. In that respect, the agents of the British excise-tax regime seem to have been no more considerate of private-property rights than the heavily armed SWAT teams who enforce today’s war on drugs.

In any case, the public meeting at Philadelphia on October 16, 1773, was one of the sparks that lit the fuse of the Revolutionary War. Perhaps less momentous than rebellion, the Tea Act also helped give Americans a taste for coffee, which Britain did not tax here.

But it also is important to recall that President George Washington’s first treasury secretary, Alexander Hamilton, reintroduced the hated excise not long after the victorious Rebels might have thought they had thrown off King George’s yoke for good. In order to help pay off debts the newly independent state governments had incurred during the Revolution, Mr. Hamilton convinced the president and Congress to agree to impose a selective excise tax on “ardent spirits.”

Hamilton’s action triggered the Whiskey Rebellion, which was quelled without loss of life only after President Washington personally led troops into western Pennsylvania to subdue the tax-protesting corn farmers. Nowadays, the hated excise is alive and well in the nation’s capital and state capitols nationwide.

Do not just “Remember, remember the fifth of November.” October 16th merits commemoration as well.

Georgia’s Ivory Tower Behavior Modification-istas



51411This month a campus-wide smoking ban is supposed to take effect at the University of Georgia. Students objected that the ban was not passed with adequate student or faculty input and planned to protest with a “smoke-in.”

Reasonable people can agree that smoking is not healthy—but forcing smokers to quit is a “cure” that’s worse than the disease. UGA officials aren’t going quite that far, but their rationale for the ban reveals a troubling paternalism that seems as rampant on college campuses as it does the halls of government these days. As the Daily Caller reported:

Several Regents have been outspoken on their support for the ban. “This is about behavior modification. That is what we’re all about in higher education,” Regent Larry Ellis told the Athens Banner-Herald in a January interview.

Chairman Phillip Wilheit has also spoken out. Talking to the Chattanooga Times Free Press, he said, “I personally feel a great responsibility to protect our students from their own devices and also to protect the students from secondhand smoke.”

All this behavior modification mumbo jumbo traces its origins squarely back to progressive and radical theories about education that have far less to do with actually teaching students anything than with indoctrinating them.

The radical years of the 1960s and 1970s come to mind.

Of course today, the former college-campus radicals now hold esteemed positions of power and respectability—that’s one reason why we don’t see them smoking weed and dancing barefoot in the mud as high as a kite anymore. Old age probably has something to do with that, too.

Needless to say, those who long ago relished “fighting the man” are now very much “the man.”

And their present-day “social consciousness” is still as narrow and one-sided as it was back then. It’s just cleaned up a bit to be more mainstream and respectable.

But make no mistake: the last thing the Ivory Tower behavior modification-istas want is for anyone else to have the freedom to choose what they wouldn’t (publicly) choose.

Higher education is supposed to provide students of all ages with the required knowledge and skills they need to complete their chosen degree programs. It is categorically NOT about “modifying” the behavior of grown adults OR protecting them from themselves.

That’s what parents do on behalf of their minor children.

There are better ways to promote healthy living—and one’s point of view—besides extinguishing personal freedom.

If UGA officials had the courage of their anti-smoking convictions, they would have been upfront with current students: As of the current academic year, UGA is a smoke-free campus—and no, you don’t get any meaningful say about that—but be sure your tuition checks are in on time.

If UGA officials were truly as “concerned” about the health and welfare of their students as they claim, they would ban smokers as well as smoking from campus. UGA officials should advertise that smokers and their taxpayer-subsidized tuition dollars are no longer welcome on campus. They would also prominently list all of the other behaviors and beliefs they find objectionable and refuse to accept tuition dollars from those offending parties as well.

What’s more, UGA behavior motification-istas should take their crusade beyond the Ivory Tower walls. They should storm the state legislature and demand that elected officials outlaw all tobacco and e-cigarette products (because even though there may not be any documented harmful health effects, e-cigs sure look a lot like the real thing, and that’s offensive). UGA officials should proclaim that they who represent Big Education no longer want to be the beneficiaries of Big Tobacco or any other Big sin-tax proceeds.

But don’t hold your breath waiting for the buck to stop here—or on any other taxpayer funded college campus.

However much higher education officials may chafe at the idea, theirs is very much a money-driven enterprise, with UGA receiving more than $10,000 per student in state government funding alone.

In the final analysis, dishonest and undemocratic paternalism stinks more than the cigarettes UGA’s trying to ban.

Evading Ebola? Don’t Seal the Border



In its latest report, the United Nations health agency stated some 4,033 people have died of confirmed, suspected, or probable cases of Ebola. So far, 8,399 cases of Ebola have been reported. Most of these cases have occurred in West Africa. The outbreak began in December 2013 in Guinea and has since spread to neighboring Liberia and Sierra Leone. Cases have been reported in Nigeria, Senegal, and Democratic Republic of the Congo.

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Source: The Economist

However, Ebola has made its way to the United States. Thomas E. Duncan, a Liberian man living in Dallas, came to the U.S. having contracted the virus. He later died. One of Duncan’s nurses, 26-year-old Nina Pham, has tested positive for Ebola. Now, a second nurse in Dallas has tested positive for the virus.

With the number of Ebola cases in Africa climbing, and three confirmed cases in the U.S., many are calling for the U.S. to seal its borders. Arkansas Senator Tom Cotton said in a recent statement that, “We’ve got an Ebola outbreak, we have bad actors that can come across the border; we need to seal the border and secure it.”

The idea behind isolating the U.S. is straightforward. If the U.S. government prevents people from traveling to countries with serious outbreaks and bars entry to those who have been in the outbreak zone, then it can prevent the spread of the virus.

When evaluating a government policy, I tell my students to keep in mind something we learn on day one of class. Do the suggested means (policy) work to achieve the desired ends (goals)?

In the case of trying to contain Ebola, the idea of sealing the borders would not only fail to stop the spread of the virus, but would likely make the outbreak worse. One of the major problems in West Africa (as far as Ebola is concerned) is the lack of basic medical care and a dearth of trained medical personnel. Families do not know what to do when someone becomes ill and do not take the needed steps to prevent contracting the virus themselves.

When taking loved ones to the hospital, the situation may not markedly improve. Reports from the most impacted regions in Africa state that local hospitals are overwhelmed. In this recent broadcast, reporters found infected patients waiting outside the hospital, unable to get treatment. Infected patients sat inside cars with family members and even out in the open on the outside of the hospital.

Sealing off borders would only make this situation worse. It would cut off vital supplies and personnel to a region already in dire straits (not to mention it would completely devastate the economy of the region).

Still, some may argue that Africa shouldn’t be our top priority. We should be working to keep Americans safe. We need to keep Ebola away from here. Again, sealing the borders is a bad idea. Health experts and epidemiologists are in unusual agreement that sealing the borders would be a disaster. Keeping personnel from traveling to the region will allow the outbreak to grow. The longer the Ebola outbreak continues, the more likely it is to spread and jump its current geographical boundaries—creating a global pandemic.

Sealing the borders also won’t stop determined people from entering the U.S. Think about it this way. You are exposed to Ebola in country X. You know that if you stay in country X, you are likely to die. If you make it to the U.S. for treatment, however, your survival rate increases significantly. So our choice boils down to the following:

a. Stay in X and probably die

b. Get into the U.S. and probably live

I don’t know about you, but I would be pretty determined to get across the border even if it meant shooting myself out of a cannon. This leads us to a scenario where people are still entering the country with Ebola, but now we don’t know who they are, how many there are, where they are, or when they got here. It’s easy to see how this is more problematic than allowing people to enter normally where we have record of who has entered, when, and where.

Concern about Ebola is understandable. No one likes the idea of a global health crisis, and there is bound to be a variety of suggested remedies. But before we advocate any radical solution to the problem in the name of fear, we must remember to ask, “Does this policy achieve the desired goal?” In the case of sealing the borders, not only do we fail to obtain the desired outcome, but we likely make the problem worse.

Hospital Administrative Costs Are Highest in the United States



The Commonwealth Fund has sponsored yet another study that concludes that the U.S. health system is less efficient than others. This time, the measurement is specifically hospitals’ administrative costs. As always, it recommends single-payer, government monopoly as the solution. Readers of this blog know that I am not about to defend hospitals’ bloated administrative costs. However, the Commonwealth Fund’s scholars go way off-base when it comes to capital costs:

Differences in how hospitals obtain capital funds also appear to affect administrative costs. The combination of direct government grants for capital with separate global operating budgets—as in Scotland and Canada—was associated with the lowest administrative costs. (Wales has recently transitioned to such a system, reversing previous market reforms.) Hospitals in France and Germany, where direct government grants account for a substantial share of hospital capital funding, have relatively low administrative costs despite per patient, DRG-based billing.

Administration is costliest in nations where surpluses from day-to-day operations are the main source of hospital capital funds: the United States and, increasingly, the Netherlands and England. In such health care systems, the need to accumulate capital funds for modernization and expansion stimulates administrators to undertake the additional work that is needed to identify and pursue profit opportunities.

The authors ignore that these surpluses, in U.S. hospitals, are used to pay creditors. Borrowing money from the capital markets, even if at a preferred coupon because the lender does not have to pay tax on his interest income, is more “expensive” than getting a capital grant from the government, which appears to be “free.” Even if we take into account the government’s interest rate to borrow funds, it will be higher than the private non-profit’s rate. However, that is a benefit to society, not a cost. Because investors must look at the credit risk of each project separately, the cost of capital will be more accurately priced. If the capital budget is funded by government grants, there is no telling how the money gets handed out.

It is not clear how much differences in the apparent cost of capital (and the related transaction costs of raising capital) amount to in the Commonwealth Fund study. They need to be pulled out if we are to make good sense of this international comparison.

himmelstein_comparison_hosp_admin_costs_ha_09_2014_itl_exhibit