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Jeff Barke: I challenge anybody who’s watching this next time you go into your doctor’s office, ask the receptionist or ask your doctor, if you’re there for a sore throat, or a physical, or whatever you’re there for, “Hey, what’s the cost of this visit?” And you’ll probably get a puzzled look like, “Well, what do you mean?” And then you’ll hear something like, “Well, it depends. What kind of health insurance do you have?” What does that have to do with anything? If you walk into a grocery store to buy a steak and you say, what’s the cost of this sirloin? They’re not going to say, “Well, it depends. What are you paying with? What are you paying for it with?” So imagine going to a grocery store where you shop, fill up your grocery basket, but you don’t know what the cost of the groceries are. And you don’t find out for a month until you get your EOB or your explanation of benefits from the grocery store that says, “Well, you owe $8,000,” and you’re like “What?!”
Siyamak Khorrami: Healthcare costs are increasing, while the benefits are decreasing. Whether you get your health insurance through your employer, purchase it yourself, or have government benefits, understanding how the healthcare system works can be difficult. When we don’t know enough, we end up spending a lot more. My guest Dr. Jeff Barke will help us understand the challenges in the healthcare system and offer some potential solutions. My name is Siyamak Khorrami and welcome to California Insider. Jeff, it’s great to have you on the show today. We want to talk about something that affects everybody that’s very important: healthcare.
Jeff: Absolutely.
Siyamak: And you’re a doctor. Please tell us a little bit about your background.
Jeff: Well, first of all, thanks for inviting me. It’s an honor to be here and happy to share with you my perspective. So I’ve been a doctor for a lot of years. I’m a primary care doctor. I practice in Newport Beach. I’ve been doing that for a long time. I practice out of Hoag Hospital where I serve as the physician wellness committee director. I also have previously served on the Orange County Medical Association Board of Directors, which is the largest multi-specialty medical organization in the country. So I enjoy doing that, and I got to learn a lot about the politics of health care, and the ins and outs of of primary care and how we deliver care.
Siyamak: Which we’d love to learn more about, because we want to see how we can lower the cost of health care and bring the quality up.
Jeff: Oh, absolutely.
Siyamak: Our audience would love to learn how we can do that because it’s really affecting everyone.
Jeff: It does, you know, and just like you, I’m a patient. So sometimes I need health care. I’ve had orthopedic problems, and I’ve needed to see orthopedic surgeons and so forth. And even as a physician, I’ve been burdened by the experience of filling out paperwork, of waiting a long time to see a doctor, of waiting in a waiting room, of waiting in a doctor’s office, and then a very brief visit by the physician who’s too busy to spend a lot of time, even as a physician seeing doctors that I consider my friends. I struggle with that process like everybody does. And it’s a very difficult thing. It’s particularly bad in California. And I think it’s getting worse, unfortunately. Now, the good news, though, is I think there are some very simple solutions that we can look at, to try to create a better healthcare experience, a more cost-effective experience for everybody.
Siyamak: Which we would love to learn from you today, what those solutions are. One thing that I actually want to get into, and could you tell us a little bit more about the problem? Why is it that the cost of healthcare is going up every year, and eventually the cost of healthcare is hitting our pockets, whether it’s through the employer or another way, it’s hitting us.
Jeff: 100%? Well, first of all, the problem is that the healthcare market is shielded from free market forces. Ultimately, it’s free market forces that will allow healthcare to be affordable and increase the quality. We need to kind of go back a little bit in history to understand how we got here. So during World War Two, the federal government was very worried about the post-war inflation that they believed was coming, because that happened in World War One. As a result, they put in wage controls. So if you were an employer, you were limited by what you were allowed to pay somebody that you hired. Now, they made an exception for that, because a lot of people protested against it. And the exception was health care benefits. So they said, “You know what, we’re not going to put price controls on the benefits that you provide your employees.” And it was sort of an accident, if you will. It was a loophole. So now as an employer, I could compete in the marketplace by providing you my employee with a benefit: health care. And then the IRS came along and said, “Well, you know what, we’re going to exempt the cost of health care to the to the company, it’s going to be tax free.” So now I can spend money on you, I don’t have to pay taxes on that money. It’s a business expense. And as a benefit to you, you don’t have to pay taxes on it either.
Siyamak: So you save a lot more.
Jeff: You save. So the demand for employer based health care grew exponentially, and understandably because that which gets rewarded gets repeated. So they rewarded this system of employer based health care and the tax advantages that went along with it. So everybody now wanted employer based health care. And that’s where we got into problems. So it’s like everything, the unintended consequences. So what were the consequences? So in part, what happens now, I had a disproportionate benefit if I was employed, and I got benefits through my employer, well, what about the person that is an independent contractor? How’s that person supposed to get health insurance? Well, they got to buy it on their own. But wait a second, if they buy it on their own, they don’t get a tax advantage. They have to pay after tax dollars to buy that benefit. And so there is a disparity between the two. And that disparity grew and grew and grew over time.
Siyamak: And they don’t know the cost, right? That’s another I see that could be another problem.
Jeff: They don’t, well, anytime you have a third party paying for something, the cost is shielded from free market forces. So for example, and I challenge anybody who’s watching this next time you go into your doctor’s office, ask the receptionist or ask your doctor, if you’re there for a sore throat, or a physical, or whatever you’re there for, “Hey, what is what’s the cost of this visit?” And you’ll probably get a puzzled look like, “What do you mean?” and then you’ll hear something like “Well, it depends. What kind of health insurance do you have?” What does that have to do with anything? If you walk into a grocery store to buy a steak, and you say, “What’s the cost of this sirloin?” They’re not going to say, “Well, it depends. What are you paying with? What are you paying for it with?” So imagine going to a grocery store where you shop, fill up your grocery basket, but you don’t know what the cost of the groceries are. And you don’t find out for a month until you get your EOB, your explanation of benefits from the grocery store that says, “Well, you owe $8,000,” and you’re like “What? Don’t I have grocery insurance?”
Siyamak: You don’t even really think about, you don’t know where to go, what place is better, what’s the most cost effective.
Jeff: And in the medical field, you can’t cost shop. So you can’t call up offices and say, “Well, you know, I need my appendix taken out. What’s that gonna cost?” “I don’t know. Depends.” “What do you mean it depends?” “What kind of insurance do you have? What’s your deductible? Well, you got to pay for the hospital. You got to pay for the surgeon. Got to pay for the anesthesiologist. You got to pay for a facility fee.” You got all these charges and nobody understands. There’s no price transparency.
Siyamak: That’s a big issue. That’s a big problem.
Jeff: Huge issue. So the answer is we’ll just have the government pay for everything and then we won’t to have to worry about it.
Siyamak: And then the health insurance companies are subsidizing. So part of the reason is we also don’t care about the cost. The consumers don’t care about the cost because they know the health insurance company’s paying for it. So we don’t even ask, right?
Jeff: Nobody ever undereats at a buffet. And that’s what happens. What do I care? You know, “I sprained my knee last week. I want an MRI.” Well, do you even know what it costs? No, you know, Blue Shield is going to pay for it. I don’t care. I’ve got insurance. You know, my deductible. This is the time of year. Towards the end of the year.
Siyamak: Oh, I can use my deductible dollars.
Jeff: I have patients that come in and go, “You know, I’ve met my $5000, $10,000, whatever it is, I met my $5,000 deductible. I’ve got a couple months left in the year, hey, you know, can you just order that MRI of my knee? It’s been bothering me for a while, we might as well get it done now that my deductibles met,” or my back, or whatever tests that they want. They want me to do that, because you know, from a dollars and cents standpoint, their deductible’s met, they don’t really care what the test costs, somebody else is going to pay for it.
Siyamak: And that’s going to increase our costs, everybody else’s cost.
Jeff: It increases everybody’s cost. Because anytime you have a third party paying for something, cost by definition is going to go up. And that’s part of the problem. And that problem originated when we had employer-based health care. You’re no longer paying for your health care. Somebody else is paying for your health care, and you are now immune from and distanced from the actual cost of that which you are paying.
Siyamak: And the decision-making and evaluating the service and the level that you’re getting.
Jeff: That is absolutely correct.
Siyamak: What about the malpractice? So doctors, from what I could gather is that sometimes doctors have to offer a lot of different tests, right, because you may get sued.
Jeff: So it’s generally referred to as the defensive practice of medicine. So we’re so worried about lawsuits, and we end up ordering tests that we might not otherwise order in our judgment, because we’re worried if we don’t order that test, and there’s a bad outcome, that we’re going to get sued. And it’s hard to put a price on that. But I’ve heard the price put as high as 20-25% of the cost of health care is a result of defensive practice of medicine. Now, of course, we’re talking here in California, and California has a lot not going for it. But the one thing California did do right back in the 70s, they passed a law called MICRA: Malpractice Insurance Compensation Reform Act. It’s a lot of words, but what it did is it capped the non-economic damages for malpractice suits to $250,000. Now the lawyers hate it, because they can’t just sue for endless amounts of money, but the doctors love it. And as a result, malpractice insurance in California is some of the lowest there is in the country. So I’m a I’m a primary care doctor, I pay approximately $12,000 a year for my malpractice. That’s not bad. So you’d have to pay about twice that much in other states in the nation.
Siyamak: What about other things that California has done, like we have the Affordable Care Act that was passed, and as a result of it, a lot of people got access to health insurance. But I guess it didn’t work.
Jeff: Right. So California throws a lot of regulation at health care that directly raises the cost of health care. So some of the things they do are, they limit the the mechanism by which I practice medicine from a business standpoint. So for example, if you’re an innovative businessman, and you think there’s something in my medical practice that I could do better, and you want to come in, invest some of your money and time to help me do things better to make my business more effective, more profitable, to increase quality, to lower costs of the patients, you can’t do that, because you’re not allowed to invest in my business, because you’re not a doctor. So only doctors can own a medical practice. And that’s unique to California. There are a few other states that do that as well. So it inhibits the structural case of how doctors set up their practice. And as a result, by the way, if I want to grow, and I want outside money to help me grow, to do innovative things, then I have to set up other corporations to get investor money and do things that make it more expensive and more complicated in running a medical business, like a business. And so California does things like that. They also create hurdles like mandating, there’s a system in California called CURS, C-U-R-S. It’s an online system. So if you came in you’re up playing basketball, you hurt your knee badly and I want to prescribe a handful of Vicodin for you to take over a couple days, a narcotic to help you with your pain, or you’ve had surgery. And now I’m refilling a prescription for a narcotic for your surgical pain, before I can do that, I have to go online to a very cumbersome system to look you up to make sure that you’re not getting other prescriptions for narcotics from other doctors. So I might do that or I’ll have a nurse do that. But if I have to do that a handful of times a day for patients, there’s a cost to that, there’s a cost of employee time, of my time, etc. The system is not uncommonly down. Log on, it doesn’t work. Please try back in an hour. So it takes time to do that. I have to hire an employee and it takes my nurse’s time or somebody’s time, and then if I’m prescribing regularly to you, a controlled substance, and there’s a lot of them that people use on a regular basis and don’t abuse. I’m required by law on a monthly basis to go into that CURS system to be sure that you’re not doctor shopping and getting that prescription from somewhere else. Now, it’s fine. The system makes sense. We want to decrease abuse, certainly with narcotics. But there’s a cost to that. And so when California and other states mandate certain structural changes on physicians, what they don’t do is look into the unintended consequences. What is the cost of doing that, and it raises costs. So there’s things like that and access to care. Health care, health insurance companies are limited in what they can provide to you.
Siyamak: In terms of their reimbursement.
Jeff: In terms of what they have to cover. So there are laws that dictate what an insurance company has to cover. So they have to cover things like mental health care. So now what if somebody’s never had any mental health issues and they don’t want mental health insurance. They don’t have a choice. It’s included in their health insurance. So it’d be like, here’s the example I use when I talk about this. Imagine going into In and Out Burger, you order that double double. And the person behind the counter says, “Well, that’s great. I’m going to get you this double double, but it comes with fries.” “No, I’m not interested in the fries. I just want the double double.” “No, you don’t understand, sir, I’m required by law to sell you fries with that double.” So instead of it being three bucks, now it’s five bucks whether you want the fries or not. So health insurance is a lot like that, you can’t pick and choose the items that you want to include. I mean, here’s an example. I recently got a new cat, love cats. And I thought maybe I’ll get my cat insurance, because we had a cat that got very expensive towards the end of their life. So like there’s a couple different companies that offer cat insurance. And you can pick and choose what you want it to cover from basic things to surgery to unlimited coverage.
Siyamak: So this is a complete private.
Jeff: It’s a private company that’s offering pet insurance but you can pick and choose.
Siyamak: It’s not really regulated the way.
Jeff: Oh, heck no, so it’s cost-effective. There’s competition. There’s multiple companies offering very similar products, you can price shop, it’s very difficult to do that with health insurance.
Siyamak: What about Medi Cal and what they are, they intended to get a lot of people insurance.
Jeff: So Medi Cal. So the federal government has a system called Medicaid. Medicaid is a health insurance product for the indigent, for people that don’t make a lot of money. I forget what the income qualification is for that. The California version of that is called Medi Cal. So that’s what we have here in California. The problem is Medi Cal reimburses at about half the rate of Medicare. And as a result, you can imagine there’s not a lot of doctors that want to participate in Medi Cal, because the reimbursement is very low. So even though you may be indigent and I can get you health insurance in California for relatively inexpensive, and you now can carry around in your wallet, your Medi Cal card, good luck finding a high quality doctor that will provide you care, because most doctors, I shouldn’t say most, but somewhere around, you know, 40-50% of doctors do not take Medi Cal. Why? Because they don’t pay very well. You can’t make money, you can’t pay your nurses and rent and overhead.
Siyamak: It’s half the cost. And you mentioned half your cost is administrative costs.
Jeff: That’s half the cost of Medicare. And it’s probably even less than half the cost of private insurance. And we were talking earlier about, well, what is what is my overhead expense in general? So for every dollar that I get from an insurance company, what does it cost to run the office? And it’s a broad generalization, but it’s about 50%.
Siyamak: So essentially, you may you may not make any money if you’re taking patients.
Jeff: Medi Cal, I don’t, now, don’t get me wrong, I feel a very strong obligation to give back to people. So my office is affiliated with a nonprofit called Pathways to Independence. And that’s a nonprofit organization that helps women at risk, almost all of whom have been abused, and now want to get their life back together. So we and other primary care doctors and specialists provide free medical care to these young women. We don’t take a penny from them, we’re happy to do so.
Siyamak: That’s great. Thanks for doing that.
Jeff: Of course, that’s one way that I try to give back because I do feel obligated. And, I mean, some doctors and I’ve talked to them, they feel like participating in Medi Cal is in effect doing some charity work, because they’re losing money taking care of those patients. Some of those patients are the most challenging to take care of, because often they’re not very healthy. And they have difficulty with prescriptions and access and care and specialty care and so forth.
Siyamak: Sure. And could you now get into some of the solutions that, you had some ideas how we can solve this problem?
Jeff: Yeah, for sure. So I think from a solution standpoint, we need to look at this like any other business, whether it’d be, you know, I’ve got an iPhone and I’m competing with Galaxy and various other phones. So there needs to be free market competition in order to lower the price and increase the quality. And there are several examples in health care. A lot of people go, “No, healthcare is unique. You can’t just do that. Greedy doctors and corporations are just out to make money. You can’t just open it up and unregulated or it will rip off everybody.” But here’s the reality. If you look at some specific examples in healthcare, like vision correction surgery, so my brother is an ophthalmologist, he practices in Dallas, Texas, and he does vision correction surgeries, did the surgery on my wife as a matter of fact, and because that’s not an insurance reimbursable procedure, there are a lot of people that are doing it that are competing for your business. It’s a cash and carry business. And as a result over the last decade, the cost revision correction surgery has gone down and the quality has gone up. Why is that? Well, because third party is taken out of it, we’re exposing that medical care to the free market, to competition, and competition always creates a better product for a cheaper price. There are other examples as well.
Siyamak: The good players would get rewarded for doing a good job. And they get more customers.
Jeff: Yes, and the lousy ones go out of business right. There are other examples, like what about dental care, so if you want to go have your teeth whitened, not covered by insurance, you’ll shop around, you’ll comparison shop, you’ll price shop, you’ll quality shop, and as a result over the years, the ability to go into a dentist and you have your teeth whitened or some other cosmetic dentistry procedure, quality has gone up and prices gone down, because there’s competition. Cosmetic surgery. So we’re not far here from Newport Beach, California, and Newport Beach probably has the most cosmetic surgeons per capita. Maybe Beverly Hills rivals us. So if you want some cosmetic procedure, there’s a lot of competition, and as a result, you can pick and choose, you can pick the quality, you can pick the cost, and the cosmetic industry is exposed to the free market. And we get improved quality, and we get reduced cost as a result. And people always clamor, “Well, you know, we’ll reduce costs by getting out waste and inefficiency in a single payer system. Corporate greed, insurance companies making profits, we can eliminate all that by the government taking over.” We have some examples, by the way, in this country of single payer systems that is run by the government. We have the VA medical system, the VA medical system is a disaster. Now, don’t get me wrong. There are individual doctors there that do a wonderful job. I trained in a VA. There’s wonderful nurses and administrative staff there, but it is a giant bureaucracy. I have many vets in my practice that have access to the VA. They don’t go there. They pay me and come to me because they can get in right away. They trust me. I can provide better care in a more time-effective manner for them. The other system we have that is a single payer system is Medicare. Now a lot of people like Medicare, the problem with Medicare is Medicare is going bankrupt. So the Medicare trustees that manage this thing have acknowledged this in another 10 to 15 to 20 years, the Medicare system is running out of money. So the systems that the government currently manages, single payer systems, are failing. The third example, the Indian Health Care System, a government run single payer system is failing. But the government certainly if they take over the entire system, maybe can do a better job. It will be just like going to the DMV to get medical care. And we don’t want that, I think there’s a better way.
Siyamak: Because that that doesn’t work. And now you’re mentioning competition and and kind of going directly, for the patients to go directly to get the care. What about incidents like hospitalizations that are very costly. Do you see insurance providers playing a role there?
Jeff: Why? Listen, I think insurance. First of all, what is insurance? The problem is what we’re talking about isn’t insurance anymore. What we’re talking about is prepaid medical care. So insurance traditionally has been that you’re insuring yourself against a health risk, catastrophe, to prevent financial ruin in the event that such a catastrophe happens. Your appendix explodes, and you have to spend two weeks in the hospital and it costs hundreds of thousands of dollars, you can’t otherwise afford that. Think of it like car insurance. So we don’t expect car insurance to pay for your oil change. New windshield wiper blades, your car wash, what do we have car insurance for? In case we get sideswiped and our car gets totaled, so we may not be able to afford to replace the entire value of the car. We don’t get prepaid car insurance to fix everything on the car. Imagine how expensive that would be? But right now we don’t have I don’t have the ability to go into an insurance company. Say, “Here’s the deal. I want to pay for everything myself except disasters, because I can’t afford it if some foreseen disaster occurs.” I can’t buy that kind of insurance. It’s not allowed. No, I have to have a whole lunch. I’ve got to take the double double with the fries and vanilla shake. Right? I’m not allowed to just get the double double animal style, you know, without the add ons, right? I can’t do that. So that’s what we need to do, too. So the other part of this solution is allow insurance companies to provide care that patients want. Let them choose. Here’s the list you want this check, check, check, check. It’s going to cost this much. You only want a bare bones minimum?
Siyamak: Do you think the patients can do that. Do you think their patients are able to?
Jeff: They already do that. They do that with their car insurance. They do that with their life insurance. They do that with pet insurance or I’m about to do that. And they do that with a lot of other areas in their life. I have more faith in the American citizen to do what’s in their own best interest. I don’t have faith in the government to mandate what’s in your best interest.
Siyamak: Sure. You’re mentioning how we could, instead of having health insurance, we would have patients directly go and get the care that they need. Now what about the people that have precondition issues and they they may have challenges getting insurance.
Jeff: So ,what what happens, you’re a pretty young guy, by no fault of your own, you have some condition, genetic or you come down with cancer. Let’s assume you’re young and you’ve made a decision not to get health insurance, often a very cost-effective measure when you’re young and healthy, but something bad happens to you, no fault of your own. And now you have some condition, and now you go to an insurance company, they go, “Well, sorry, you know, you got cancer and diabetes, and I’m not going to insure you.” What do we do about people like that? There are there are a lot of novel, creative approaches to that that I think could work. One is in California, another system in California that works pretty well. So I’m a homeowner, my wife and I lived here all our life. We have a pre-existing condition as a homeowner, we live near an earthquake fault. I can’t go buy earthquake insurance, what insurance company in their right mind would want to insure me against an earthquake? Well, California has that problem. We have earthquakes. So what do we do? Well, there’s a system called the California Earthquake Authority. It’s privately funded, okay, publicly managed earthquake cooperative system, where now it’s affordable. We have this, we can go into this, this California Earthquake Authority, buy reasonably priced earthquake insurance, we could do the same for people with pre-existing conditions. The other thing we could do with pre-existing conditions. As I said, I provide a lot of charity care. Why don’t we incentivize that charity care. So for example, there’s a free clinic down the street from where I work that’s sponsored primarily by Hoag Hospital, they pay a lot of money to get it up and running, it takes care of the indigent. I used to volunteer there years ago. So if if I take out my checkbook, and I write them a check for $1,000, let’s say, that goes to the free clinic, I can get a deduction for $1,000 because they are a nonprofit. But if I spend a day there, volunteering my time, and I used to do this, I feel really good about it. And I’m happy to do that. But I don’t get any deduction for that. What if we created a system and we put limits on it, that you as a physician could donate so much of your time providing charity care, and you would get either a tax credit or a tax deduction for that. And we could extend that not just to primary care, why don’t we do that to surgeons and hospital systems as well? Part of that system that I’m part of where I provide charity care from time to time, one of those young women needs surgery and I’ll call up a surgeon. I’ll say listen, I’ve got Mrs. Smith here and she needs this kind of orthopedic surgery. I provide care for free. This is their situation. Can I get you to do the same, to provide a free surgery for this person? Never once have I been denied. “Absolutely, I’ll do that for you, Jeff.” I’ll call up the anesthesiologist, same answer. I call up the CEO of Hoag Hospital, Robert Braithwaite, “Robert, I’ve got this patient, this is a situation, she’s a charity patient, I take care of her. I’d like the hospital fee to be waived for this doctor who’s going to do the surgery for free, and this anesthesiologist who’s also agreed to do the surgery for free.” “Absolutely, Jeff, that’s part of our mission to provide free care to charity patients.” So with a couple phone calls, we can do that. Now what if the orthopedic surgeon, the anesthesiologist, and the hospital got a tax credit or a tax deduction for doing that, we could incentivize that.
Siyamak: That would be a big help for them.
Jeff: Whether you have cancer or diabetes or some genetic condition and you can’t otherwise get insurance, I think that’s one avenue or allow the insurance company a deduction for providing you that insurance that they otherwise wouldn’t provide for you in a free market situation. So, you know, I mean, listen, after a few minutes, you and I could create some interesting solutions. And if we get some really smart people sitting around and business people sitting around, we can come up with some really creative ideas to solve some of the difficulties in simply exposing the healthcare market purely to the free market, but I think it could easily be done, and it would certainly be more cost-effective than what we have now and the quality of care in my opinion would go up as a result.
Siyamak: Dr. Barke, thank you for being here.
Jeff: It’s my pleasure. I’m a big fan of The Epoch Times, and it’s an honor for me to be here. Thank you.
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