Ancillary Services: Hey, Doctors Need to Make Money, Too

As you’ve read about in my previous posts, the economic climate in the medical profession is hostile. Physicians must justify to insurance companies almost every single thing they do. The treatments and procedures that are approved with no hassle are usually ones that are very cheap or ones where the physician does not make much money. Thus, physicians must force themselves to earn their living through other income streams. Enter “ancillary services.”

In medical speak, ancillary services are services that are part of medical care but not the actual treatment or procedure. For example, if a patient has an injury and needs further evaluation to help decide to have surgery, a diagnostic study such as a CT scan or an MRI may be needed. The surgeon probably will make less doing the surgery than the cost of the actual diagnostic study. How can this be? Well in medicine, technology pays. Insurance companies don’t think that surgical or procedural skills are “advanced technology.”

Thus, as you can imagine, the lucrative segment of the industry known as ancillary services is a huge source of revenue for physicians who invest in these services. These ancillary services include imaging centers, surgical centers, diagnostic labs, dialysis centers, infusion centers, physical therapy and rehabilitation facilities, etc. The list really can go on and on. Some doctors actually make more money off these ancillary investments than they do from their own clinical care of patients!

The era of ancillary services does not come without its own set of moral and ethical challenges for the physician. The physician must always do what is best for the patient. The patient’s interest must come before the financial interests of the physician. The Stark laws against self-referral clearly highlight the point that the government will not allow a physician to get paid for a service or treatment or procedure via a self-referral where the physician has a financial interest. For example, he cannot order an MRI for a patient and send the patient to an MRI center that he owns.

The era of ancillary services clearly indicates that we are at an inflection point in healthcare finance. Perhaps the continued reimbursement difficulty will attract individuals into the field of medicine who are not money driven. Perhaps the era of ancillary services will attract individuals who are interested in the business of medicine. One thing is clear – the era of ancillary services will pose signficant ethical and moral challenges for physicians looking to capitalize on those services to make up for meager clinical reimbursements.

For The Sake Of Something Else

I was living in Mexico in the mid-1980s when I decided to get serious about my health and fitness. I began by sponsoring a basketball team in a city league in Merida, Yucatan.

Running the court with kids half my age helped to get me in the best physical condition of my life. Paying for uniforms and post-game snacks out of my own pocket made it an expensive way to do aerobics, but the benefits were well worth the cost.

As a “thirty-something” in a league of athletic twenty-year-olds, it got harder for me to keep up with the competition as the season wore on. When I retired from the city league, I based my decision more on a desire to preserve my knees than on a need to cut down on my leisure expenditures.

Jogging offered a less punishing way to stay fit. After training for two years, I completed a marathon. I joined a tennis club after that, where I took lessons with a young man who had played in the U.S. Open Junior Championship in Forest Hills, New York.

Although every hour with my coach did wonders for my game, I soon stopped taking lessons and gave up my club membership. I was juggling too many commitments in my professional and personal life to enjoy what little time I spent on the tennis court. Squeezing trips to the club into an already hectic schedule was wearing me out.

It was time for a serious lifestyle assessment. I was living in a part of the world where the tempo was slow, at least in comparison with the pace of life in my native United States. But I couldn’t hide from the truth any longer. I had become a member of “the harried leisure class.”

The phrase is from The Harried Leisure Class, a little-known book by Swedish economist Staffan Linder who taught at Yale and Columbia.

As Geoffrey Godbey pointed out in a 2003 review in the Journal of Leisure Research, “Linder was perhaps the first economist to understand and predict the frantic pace of modern life and leisure.” Long before I overloaded my life with increasingly frantic leisure activities, Linder saw the warning signs on the horizon.

How Are We Doing Today?

“Wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else,” Aristotle wrote in Nicomachean Ethics. How are we doing today by Aristotle’s standards?

Not well, said Linder. As Geoffrey Godbey noted, the main message of The Harried Leisure Class is that “the pace of life has sped up and has caused the ways in which leisure is used to change.”

Since the end of World War II, futurists have predicted that people will have more goods to enjoy and more time to enjoy them. But where is the surplus of time that all the futurists have been predicting? Linder pointed out an obvious fact that most economists continue to overlook today: it takes time to consume goods, and people have limited time.

According to Linder, “Consumption is being accelerated to increase the yield on time devoted to consumption.” The “increased goods intensity” of leisure activities leads people to desire “ever-larger sets of commodities.” As a result, satisfaction becomes increasingly elusive: what good is a lake without a pleasure craft?

Linder divided the economic process into three periods:

1. The constructive growth phase (the poor countries are still at the beginning of this period)

2. The period of decadence (economic improvement comes to be regarded as a goal in itself instead of as a means to a goal)

3. The phase of reformation (in which people reevaluate their goals and acquire new purposes)

In the third period—which may or may not come about—the level of human well-being can no longer be raised by raising the level of consumption. A century and a half ago, John Stuart Mill predicted that economic growth would not make people happier. Mill would have been saddened but by no means surprised by Linder’s findings.

The more we depend on consumption as a means of enhancing our leisure, the less we value pursuits that truly add value to life. The result is a society in which people only feel happy when they’re consuming something in the ill-fated attempt to squeeze more pleasure out of their free time.

Has Growth Become an End in Itself?

When I completed my first marathon, a good pair of running shoes accounted for the total “goods intensity” of my pastime. By joining a tennis club and taking private lessons with a local celebrity, I increased the apparent “yield” on my leisure consumption even as the enjoyment I derived from it diminished.

As I watched President Bush speak to the United States on July 15, I was reminded of an obvious fact: leaders of wealthy nations view growth as an end in itself, not as a means to “something else.” Staffan Linder was right. It’s likely that wealthy nations will continue to desire economic growth even when continued growth offers no further increase in well-being.

In my next article, I’ll take a closer look at the questions Linder raised in The Harried Leisure Class. In the meantime, I hope you’ll spend more of your own time thinking about the ultimate purpose of our economic growth.

Even if it means you’ll have less time to spend on the tennis court.

Federal Bail-Outs and the Rest of Us: What Does It Mean?

As I write this, Treasury Secretary Henry M. Paulson’s announcement that the Bush administration will indeed shore up Fannie Mae and Freddie Mac is all over the news and still sinking in. After opening slightly higher Monday morning, Wall Street dipped back into negative territory as analysts attempted to digest the bail-out news.

What can it mean for the average person?

If you’ve been listening to the news, you’ve probably heard that it means that the American taxpayer can expect at some point to carry the brunt of the subprime lending debacle losses. That is, if the Bush Administration is able to ram their plan through Congress (and they almost certainly will be able to do this), at some point the money to back the bad loans currently bundled into Fannie Mae and Freddie Mac securities will literally come from our own individual pockets in the form of tax dollars.

That price tag could be as high as 5.5 trillion dollars. In fact, the price tag could end up being so high, that along with Congressional approval for the bail-out itself, the Bush administration will also need permission to bump up the ceiling on the federal debt by as much as 50%. The national debt is already so large that at the current rate of spending we will not be able to pay even the interest portion on it by 2050, and at that point it will actually exceed our gross national product.

So how can we possibly bump it up 50%? As the title of this website points out, I’m an amateur economist, so maybe I am missing something here, but didn’t we just borrow a load of money from China so we could send out economic stimulus checks that were refunds on the taxes most of us paid last year? We borrowed that money, the money for our tax refunds, so again, I have to ask, where is this money for these bail-outs coming from? Are we just going to print some more up?

I have looked all through my bank accounts and I confess, I can’t pick up even a few pennies of Fannie Mae and Freddie Mac’s problems, and it gets worse every day here in Michigan, where I live, where the unemployment rate is over 10% and growing and gas is currently about $4.30 a gallon.

I don’t even know how we are going to pay for fuel oil this winter. I ordered it early, hoping to head off whatever ungodly price will be charged come September or October, but so many people had the same idea that the oil company still hasn’t delivered it. They can’t keep up with the phone calls let alone the oil deliveries in the dead heat of summer, and now I hear all of us red-blooded, can-do types are going to bail out the fat cats at Fannie Mae and Freddie Mac too.

Wow, talk about piling on the pressure.

After 9/11, the President urged the American people to go shopping and go on vacation as if nothing had happened; to spend money and keep spending, or the terrorists win. So people did that. We spent money. We spent money we didn’t have. We spent money that didn’t exist in any universe, not even in the alternate Bizzaro Universe at Bear Stearns. Now, having spent up all the money, we are supposed to come up with some more money to help out giant lending institutions.

Like I said, I’m still waiting on my fuel oil: I’m a little light in the wallet this week.

Talking heads universally agree that the federal government almost has to bail out these giant institutions or risk destabilizing not just U.S. markets but the markets of the entire world. And yet, as we lurch from one economic disaster to the next in this country, each one bigger and scarier than the last one, we are bleeding credibility. Does anyone seriously think that anybody is at the wheel anymore? I don’t think so. And as that sinks in, things will begin to fall apart in a very big way.

OPEC is about a hair away from changing over to euros instead of dollars because of our instability and waffling, and once that happens, the dollar will fall harder than a fruitcake on December 26th.

Here are a few other implications of the “solution” to the latest catastrophe on Wall Street:

More Bank Failures. The FDIC is out reassuring the world that just because it shut down IndyMac Bank Saturday and just because it expects up to 150 more bank failures in the coming year, this is really nothing to be concerned about since during the savings and loan fiasco in 1994 its list of troubled institutions topped 575. In 1994 I made quite a bit more money than I do now, and so did most of the people who work for a living in the U.S. Not a good way to make me feel better, FDIC, try again.

Loss of Confidence in the U.S. We are living on borrowed money, literally. We borrow from China and Japan and the Mideast just to pay the basic costs of running our government. So far, these countries continue to loan us money because we are a major market for their products. But as we continue to not manage our own finances in any kind of sane or coherent way, they will begin to rethink their lending. No law exists that says they have to keep lending us cash. In fact, as developing nations buy more and more of their own products (as in China, where a consumer middle class is now emerging), these nations will have less and less reason to lend to us.

Higher Mortgage Rates. It is going to get more expensive and more difficult now to get a mortgage anywhere in the U.S., and it will be nearly impossible in some places. This will only make the housing crisis worse, which will only terrify Wall Street even more.

More Assets Sold. On the other hand, our current situation makes commercial real estate in the U.S a fabulous bargain for overseas investors. As more U.S. corporations resort to selling off their assets to raise cash, this will result in more cash flowing out of the U.S. and into the already deep pockets of foreign bargain hunters.

Violence. Seriously, at some point it will get ugly here. Working people in the U.S. are already stretched to the limit, and more and more people are not working. In a city close to where I live, a bicyclist was recently stopped by a motorist who was frustrated with having to suddenly share the road with so many non-motorized vehicles. The motorist beat the bicyclist within an inch of his life. Biking accidents that involve bikes being struck by cars are up 80% in some parts of the state this year alone.

When my kids were little, they used to complain about having to clean up the kitchen when they didn’t make the mess. I’d point out to them that I spent the better part of most days cleaning up after them, and I was glad to do it; that part of being a family means you clean up after each other and you don’t gripe about it.

OK, but in this case, I guess I want to know, when are the big guys going to cut us little guys some slack? When do I get to borrow the family Mercedes?

When do I get my multi-million dollar golden parachute?

I’m not greedy. A single million would be plenty, that’s all I really want or need. Send it in care of www.amateureconomists.com. And Quatar? Stop calling me.

I don’t answer my phone anymore.

How Can Economics Mean So Many Things to So Many People?

During the first week of Amateur Economists, MJH raised the very real question of why there are such enormous differences and contradiction between economic theories and economists themselves.

“I am confused by people like Paul Krugman, and many of the left leaning economists. They seem to say that markets are good, but let’s use the government instead.

How is it that economists from Harvard, Chicago or George Mason all make radically different policy recommendations, yet are still all studying economics?”

No tongue-in-cheek intended, the answer in its simplest form is “people.”

If economics was, in fact, a pure, quantifiable science that could be proven one way or the other solely by mathematical or scientific formulas, it would be fairly simple to prove a theory as “right” or “wrong.”

Take, for example, the basic supply and demand graph. Under existing assumptions, supply and demand should behave in fairly predictable fashion. The general assumption, of course, is that people want more as price drops and are willing to supply more as price rises. All well and good in a fairly free society where such individual choices can be freely exercised.

However, if we look objectively at the current energy crisis, we quickly see that simple supply and demand do not necessarily result in the present price of crude. Rather, individual people rather than economic equations impose much more influence.

We know that a cartel controls output and prices of a commodity. This is a political question rather than a purely economic puzzle. Economics may explain what a cartel is and does so in terms of quantifiable data. In terms of efficiency, it immediately raises the question of “efficiency for whom?” You must decide whether it is for your interest or someone else’s.

Current versus future consumption factors into the equation. Economics may quantify for us that “what if?” question, but it does not solve the fundamental dilemma..

Increasing populations in newer markets increase the demand factor. Can these newer markets and populations be entitled to the same low prices the United States enjoyed for decades? The answer again is a political rather than economic question.

Existing technology hampers rapid expansion. That is a simple fact, subject to ceteris paribus. Lack of consistent and logical planning is a “people” problem. It becomes an economic one when dollars and cents, current versus future spending, and personal or national priorities come to the forefront.

The list is virtually endless yet comes down in each instance to people’s decisions.

That simple exercise of looking at the present energy crisis, however, is predicated on the general assumption of human nature. It intrinsically assumes that people will automatically want “more” of virtually anything. Whether that is true or not is certainly open for discussion.

While the majority of early philosophers and economists wrote reams of secular and religious treatises over the centuries, did the assumption hold equally true for Asia, Africa, or the various American Indian tribes? You can be sure that there are philosophers on all ends of the spectrum who will concur or dissent.

Equally philosophical is the argument about freedom in economics. The late Nobel Prize winner, Dr. Milton Friedman, made the case for human freedom in his book and PBS television series, Free To Choose. He lived to see the tremendous economic changes in China and the Soviet Union as elsewhere. A century and a half earlier, Karl Marx wrote an equally important work, Das Kapital. Both men, among many others, left an indelible footprint on the world’s social, political, and economic history. At debate was not really the structure of economic theories but rather the political structure of mankind in the then extant environment.

Is economics at fault for contradictory and dissenting opinions in textbooks, media, or even blogs on the Internet?

Rather than economics, it seems more that mankind’s outlook on its fellow denizens is slowly changing the world’s political makeup.

Logic, education, communications, and the unmistakable fact of scarce natural resources (ceteris paribus!) are some of the aspects that have brought the “dismal science” to the forefront of discussions from the classroom to the boardroom.

Unfortunately, the resolution of the fundamental questions of economics remains begging.

Should we espouse Friedman’s theories, we will undoubtedly follow his precepts.

Should we adhere to the philosophy that government can make better decisions than each individual in a marketplace, no doubt you will follow an economist (or political candidate) that will buttress your beliefs.

Adherents of either are apt to disagree or dismiss the other’s philosophy. In most cases, they tend to use normative judgments which stray far from the quantitative facts presented by pure economics.

In either case the arguments devolve to a perspective of mankind not unlike the classic Locke – Hobbes debate. Only you can decide where you stand.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.