Posted by
John Caile on Sunday, March 28, 2010 1:13:13 PM
Health Care and Detroit: Killed by Government
by Gary
North, M.D.
To understand what is going to happen to America's
health care delivery system, we must first understand what has happened
to Detroit.
Detroit is dying. Yes, I know that there are lots of
books on "The Death of. . . ." That word sells books. But Detroit really
is dying. It is the first metropolis in the United States to be facing
extinction. We have never seen anything like this in American history.
It is happening under our noses, but the media refuse to discuss it. To
do so would be politically incorrect. Two factors tell us that Detroit
is dying. The first is the departure of 900,000 people – over half the
city's population – since 1950. It peaked at 1.8 million in 1950. It is
down to about 900,000 today.
In 1994, the median sales price of a
house in Detroit was about $41,000. The housing bubble pushed it up to
about $98,000 in 2003. In March 2009, the price was $13,600. Today, the
price is $7,000. Check the price chart.
There has never been a
collapse of residential real estate values of this magnitude in
peacetime history, anywhere. Detroit is dying.
We are unfamiliar
with anything like this. The media are silent. The Powers That Be are
not interested in reporting on this, because readers might ask the
obvious question: "How did this happen?" Obvious questions tend to lead
to obvious answers.
Detroit has been killed by flight out of the
city. The 2008 Clint Eastwood movie, Gran Torino dealt with this
problem. Eastwood plays an 80-something Korean War veteran who will not
leave the neighborhood. His children keep bugging him to sell and move
into a retirement home. He will not hear of it. He is alienated from
them and from his immigrant neighbors: Hmong refugees from South
Vietnam. The Hmong have trouble with the Blacks. Every group is
essentially trapped in a neighborhood, with the gangs running the show.
There
is no surge of buyers to take advantage of fabulously low prices in
Detroit. Can you imagine buying a home for cash for $13,600 in 2009 – a
house that had sold for $98,000 six years earlier – and losing half your
money? It's incredible.
The Wall Street Journal recently ran one
of the most creative stories I have seen in years. The journalist told
the story of the history of a 5-bedroom home in Detroit, from the land
purchase to its recent sale. It was built by one of the most influential
man you have never heard of, Clarence Avery. Avery was on the Ford
Motor Company team that conceived of implementing an assembly line for
Ford's factory. He copied the idea from a hog-slaughtering operation.
His
home was a very nice home for the time. The journalist located his
daughter, now age 91. She said that she always thought the home was the
best home she ever lived in.
As recently as 2005, the home sold
for $250,000. It was purchased by a woman who was lent $200,000 to buy
it. It was financed by a subprime loan. The asking price was $189,000.
Where the other $61,000 went, the woman has no idea. She defaulted.
The
deteriorating house was bought by a Christian organization that is
renovating it. The house sold for $10,000.
This is simply
inconceivable to anyone who is unfamiliar with Detroit since 2005.
Nothing like this has ever happened. How can we conceive of a lender
lending $200,000 to a woman to buy a $250,000 home offered at $189,000?
How can we conceive of a fall in price from $250,000 to $10,000?
This
is the sign of a dying city. This does not happen in a normal
environment. Even with the mania created by Fannie Mae and Freddie Mac,
in conjunction with Alan Greenspan's Federal Reserve, nothing like this
has happened anywhere else.
If you had predicted anything like
this in 2005, you would have been dismissed as a crackpot on crack. You
would not have been taken seriously by anyone. Yet it has happened.
The
city planners, the Federal government's subsidy defenders, and the
welfare state aficionados are all discreetly silent about Detroit.
The
city funds its schools with property taxes. Property taxes have
collapsed as sources of revenue. An honest property tax system will
generate less than ten cents on the 2003 dollar.
Last week, the
school board announced the closing of one-quarter of Detroit's schools.
The city is out of money. The central agency of propaganda by the
government is in the process of closing up shop. This is not
"anti-business as usual." This is collapse. The American public does not
perceive what is happening in Detroit.
When a city simply shuts
down from the effects of government mismanagement, the media say
nothing. Detroit has become the poster child of government regulation,
welfare systems, and a population that has given up hope.
The
media say nothing because they are caught in a dilemma. If they say that
the local government's welfare programs are not really to blame, what
does that leave? The unmentionable issue: 82% of the city is Black. So,
that means blaming white employers, who discriminate, despite 40 years
of Federal anti-discrimination laws. But the main non-employers today
are the region's auto companies, and two of the three are partially
owned by the U.S. government. One – GM – is mainly owned by the
retirement fund of the United Auto Workers. So, the media are not about
to blame the auto companies – not now.
That leaves that other
politically incorrect issue: the rate of illegitimacy, which is in the
80% range. That social phenomenon represents a moral collapse, but the
participants were all educated by the tax-funded schools.
Who ya
gonna blame?
The media pundits cannot decide, so they simply
ignore the collapse. "Detroit? Never heard of it."
The lesson of
Detroit is this: the experts do not see a collapse coming. They assume
that next year will be like today, give or take 3%. They do not believe
that anything as complex as a city can collapse. So, they believe that
things will continue, as they always have. Taxes need not be cut.
Spending need not be cut. Schools should be allowed to educate.
Tax-funded welfare programs should be increased. When it comes to tax
revenues, "there's always more where that came from."
And then,
overnight, the system collapses. The assumptions were wrong. Real estate
prices collapse, indicating an irreversible flight of capital from the
city. The ability of the government to collect taxes collapses.
OBAMACARE
This
brings me to the other subject: the health care law. It is not law yet,
but it soon will be.
I know what is going to happen.
1.
Cost overruns
2. Fraud
3. Additional coverage extended to groups
4.
Rising deficits in the program
5. Lower payments to physicians
6.
Lower payments to hospitals
7. Delays in payments
8. Rising taxes
on the rich
9. Rationing by doctors, hospitals, government
10.
Delays in treatment
11. More HMO care: assembly line medicine
12. A
search for scapegoats [hint: everyone except the real culprit - big government interference]
In 1977, I was involved in an early
warning operation. Three teams of physicians and economists toured the
country. We hit 30 cities in two weeks. We warned physicians in poorly
attended meetings that something like Obamacare was coming. It has now
arrived. The physicians we spoke to are mostly retired. They saw some of
this happen on a minor scale, but they escaped.
I spoke about
the percentage of the GDP (then GNP) devoted to heath care: about 7%.
Today, it is 15%. Medicare and Medicaid have increased costs. The care
is no better. Except for technology, it is arguably worse.
Obamacare
will lead to an expansion of these forms of medicine:
1.
Concierge
2. "Wal-Mart"
3. ER
4. HMO
5. "Mexican"
CONCIERGE.
The rich and very rich hire their own physicians. They pay top dollar.
The physicians do not take third-party payments, either from the
government or insurance companies. They are independent practitioners.
They make house calls. The houses they call on are very large.
For
the upper middle class, there are fee-for-service physicians. They take
no third-party payments. They do not make house calls.
WAL-MART.
These are the walk-in clinics. They are price competitive. They treat
minor ailments. They sell services on a one-time basis. They take credit
cards. They may or may not cater to the Medicare crowd. They are
assembly-line clinics. There are no major surgeries or other high-cost,
high-risk services.
ER. Large hospital emergency rooms are
mandated by law. The poor get treated there. In a life-and-death
emergency, they work. People who would otherwise die in a couple of
hours are saved. For walk-in patients, the ERs ration by time. Patients
demonstrate their patience.
HMO. This style of medicine is
efficient. It cuts costs by cutting services and cutting time. You see
the physician on duty. You may not have seen him before. His job is to
get you in and out as fast as possible. Time is monitored by the
company. Computers make this easy.
MEXICAN. This is off-shore
medicine. In Canada, when you can't get treated for months or years, you
come to the United States and pay. This will not be possible for
Canadians much longer, except for rich ones. Mexico will serve upper
middle-class Americans as the USA has served Canadians.
It is
possible to get very good surgical care in Asia and Latin America. You
have to know who the good practitioners are. Asian hospitals sell for
25% the same level of services. There is less regulation there. Plane
fares are cheap. A stay in a hotel is cheap.
There will be
entrepreneurs who set up Websites off-shore that direct Americans to
practitioners abroad. The Web allows this sort of advertising.
Physicians
who practice alone or in small limited liability corporations will find
that they cannot compete under the new payment system. Assembly-line
medicine will replace the traditional doctor-patient relationship.
TRAPPED
Most
physicians are trapped. They cannot sell their practices. The price of
practices has been dropping.
Foreign-trained physicians who can
pass the U.S. tests are coming to America. They are competitive.
Technical
Services that can be digitized are being outsourced to India and other
Asian nations.
Young American physicians begin with a lot of
debt. They need income fast. They will be hired by the HMOs and clinics.
They will not reach the salary level of this generation of physicians.
They will be upper-middle-class income-earners.
There will be
specialists, of course. Plastic surgeons who specialize in making rich
women better looking will not be part of the new system. They will be
able to do well. But for the typical practitioner, his career options
have been dramatically restricted by the new law.
I think most
physicians will stick it out until they retire at age 67. They owe
money. They need the income. The law's most restrictive provisions will
not kick in until 2014. They will adjust.
Residents of Detroit
also adjusted. Then, without warning, the economy changed. Those who
were still living in the city saw their capital disappear.
People
put up with the devils they know. They do not look for a lifeboat when
they hear the ship scrape the iceberg. They assume that it will be
business as usual.
Then, one fine day, it isn't.
CONCLUSION
You
had better decide which kind of medical care you can live with. Then
you had better locate a practitioner soon. This is especially true if
you want a fee-for-service physician. People with money will go to them.
They are already hard to find. They charge more. It's not easy to
become a patient. They are booked up.
If you have an existing
physician, do what you can to become an above-average patient.
You
had better start getting into shape. You can no longer afford to be
vulnerable to the diseases and afflictions of a flabby lifestyle.
ObamaCare has changed the risk-reward ratio. Risk has just gone up. It
will continue to go up.
There will be no roll-back of this law.
It is going to be enforced for as long as the U.S. government has money.
That
may not be as long as Obama thinks.