Today's sign of a rosy future

Clearly, reports of the increasing crappiness of world airlines have been overblown (see all Indonesian airlines, all US airlines...etc.). From Nepal, comes this gem. And I am all for religious freedom, being a hybrid abrahaimic-atheist-agnostic-animist myself, but this seems to lead me to ask MORE questions about the company, not instill deep confidence:

Officials at Nepal's state-run airline have sacrificed two goats to appease Akash Bhairab, the Hindu sky god, following technical problems with one of its Boeing 757 aircraft, the carrier said Tuesday.

What if Alitalia had a technical problem and then they trucked the pope around to all the planes in the hanger and had him bless each one? That would be funny.

Quote of the weekend

"Now is the time for all good men to come to"
Walt Kelly

Lies everywhere

I ran across two completely unrelated, yet seemingly identical instances of data manipulation recently that I thought I would call out.

The first, from the NYT, suggests that the Pentagon and Bush Administration revised upwards the casualty totals from last winter, to retrospectively show a decline in violence during the much ballyhooed Surge-that-will-win-the-war (who the f calls a military strategy a surge? Eisenhower or Roosevelt would've laughed in his face).

"There were significant revisions to the way the Pentagon’s reports measure sectarian violence between its March 2007 report and its June 2007 report. The original data for the five months before the surge began (September 2006 through January 2007) indicated approximately 5,500 sectarian killings. In the revised data in the June 2007 report, those numbers had been adjusted to roughly 7,400 killings – a 25% increase. These discrepancies have the impact of making the sectarian violence appear significantly worse during the fall and winter of 2006 before the President’s “surge” began."

Another example comes from the publicly reported filings of Overstock.com, which have been analyzed by Sam Antar, reformed white-collar criminal. Overstock has been engaging in similarly sketchy machinations, this time with its inventory. In accounting, you track the value of your inventory-on-hand by estimating the lower of two numbers: either its cost, or its current market value. IF you don't sell your inventory, and it sits around and becomes unfashionable etc., then your inventory reduces in value. Typically companies will institute 'inventory reserves'. I'm going to use Sam's example:

In the first quarter, a company buys merchandise for $120, its books and records will reflect $120 of inventory.

In the second quarter, the company, under GAAP, reduces the value of its merchandise by increasing inventory reserves by $50 to reflect diminished future demand and market conditions. Therefore, in the second quarter, the company reduces its gross margins by $50. The net inventory book value on its balance sheet is reduced to $70 (original cost $120 less $50 inventory reserves).

In the third quarter, the company sells the merchandise for $90. Since the net value book value of the merchandise was previously reduced to $70, (as a result of taking a $50 reserve against its original purchase price of $120 in a previous quarter), the company recognizes gross margins of $20 (Sales $90 minus net book value $70).

The company, under GAAP, had gross margins of $20 in third quarter after selling the previously written down inventory. It would seem on its face to be an improvement over the reduction of gross margins by $50 in the second quarter resulting from the inventory write down. However, in reality the company lost $30 on its merchandise. The original cost of the merchandise was $120 and they sold it for $90.

Therefore, taking inventory reserves increases future gross margins.

Sam has put together a 3-part post (warning, pretty technical part 1, part 2, part 3) on the sleight-of-hand being done by the company behinds the scenes. In recent conference calls, the Overstock.com company executives have been touting their recently high margins. Well, as is convincingly demonstrated by Sam, overstock.com cooked the books by taking too many inventory reserves in previous quarters, which reflects positively on margins when they actually sell the inventory in later quarters, but is still a net loss for the company. Sound familiar? Like...maybe what the Bush Administration just did?

My First Wonky Post

Most people who read this blog know I'm a ridiculous policy wonk, all the more so when it comes to health care. Well, I'm going to make my first pharma-healthcare post, so feel free to skip if you are already glazing over. That being said, as the Economist put it (to paraphrase): 'what the 20th C was to physics (you know, the discovery of the atom, nuclear bomb, space etc.), the 21st C will be to biology'. (with the central premise that DNA really means very little, compared to RNA).

Sack-up, it's coming. The next generation will get 'risk reports' evaluating their lifetime potential of developing every major cancer and chronic disease known to mankind, and then will quantify each diet or lifestyle change that can quantitatively reduce your individual risk to develop any specific disease. Personalized medicine is here; Selzentry (Pfizer's new HIV drug, maraviroc, which my infectious-disease-specialist friend CS thinks is unimpressive) requires a genetic test to determine the eligibility of the specific mutation of your virus for the therapy. All right, technically that's not that personalized...but targeted.

Anyway, what got me started is this post here at a random blog. The CMPI (Center for Medicine in the Public Interest, great blog here at DrugWonks; not to be confused with those morons at Nader's Public Citizen, who have proclaimed doom on innumerable drugs which have subsequently proven their worth), originally sent me there through their blog.

In general, the blog summarizes a typical situation for americans dealing with their insurance companies. These are companies steeped in processes and bureaucracies, each instituted originally to pry 1% off a specific subgroup of customers, or limit costs from rare procedures, or limit customer interaction with out-of-network providers. In the end, they are comedically inefficient. See this article that originally started the blog I cited:

Imagine American healthcare spending as a dollar bill divided into 100 pennies. How many pennies do you think represent spending on prescription drugs? Sixty? Eighty? Wrong. The answer is 10.5. The other 89.5 represent everything else—from doctor visits and hospitalization to administrative charges and insurance.

WAYYYYY toooo much money is being spent in ALL healthcare systems (not just the US) on useless administrative fees. The NewsOverCoffee blog from Pennsylvania (cited above) notes a personal experience:

Most recently for service in May I got a bill in August for close to $7000.

1. I called the doctors billing and was told it was rejected by my insurance.
2. I called my insurance, Capitol Blue Cross, and was told they had no record. The doctor, whom we've had and been receiving treatment from for nine years, was in Philadelphia, though, and must first be submitted to Independence Blue Cross who forwards to Capitol Blue Cross. The woman at Capital took my information and said she'd call me back.
3. Insurance investigates by calling Highmark Insurance.
   
4. She called me back and said that Highmark and Independence joined and Highmark handles professionals. She called them and they told her that the doctor's office was waiting for me to provide information to them.
5. I called the doctors' billing and explained what I was told.
6. Doctors' billing called Highmark and was told it was rejected for more information by Highmark, who then never asked anyone for more information.
7. The doctors office then called me and said they would walk Highmark through the code, happens all the time.

Previously we had a payment that went a year without being paid and on the very first phone call I had explained to Capitol what the problem was, but the customer service rep wouldn't believe me. A year later and several levels up we got it resolved and the problem was what I'd indicated in the beginning and the bill was paid in full.

This is intolerable. I would highlight the part played by administration costs in this article here (may have to register), from a doctor on the Medscape called "Breaking Even on 4 Visits a Day."

Essentially, this doctor came up with a novel practice concept, which I think perfectly illustrates how far away current systems (be they single-payer or fully private) have gone from providing true healthcare:

Seven years ago, I began exploring ways I could practice medicine without the hassles and pressures of managed care. I also wanted to find a way to reduce fees significantly for uninsured and underinsured patients.Here's how it works:

• We charge our patients a flat rate for office visits. Currently, the fee is $45.
• We do not file insurance; our patients pay at the time of their visit.
• We do not sign contracts with insurance companies.

I call this the "Access Healthcare" model, after my practice's name. The model is based on the idea that by significantly reducing overhead and improving collections to nearly 100 percent, you can charge much lower fees, improve access for patients who might not otherwise be able to afford care, avoid excessive patient volume and still have a profitable practice. We've been practicing this way for more than five
years, and we are thriving.

Great plan. Seems like the plan any family doc would want. The article's well worth a read, but a few things jumped out at me, that I'd like to highlight along with the theme of this post:

Our overhead has been consistent at 25 percent of total revenue. That compares favorably to the typical practice's overhead of 40 percent to 60 percent of total revenue.

WHAT? AT TYPICAL PRACTICE'S OVERHEAD IS 40% to 60%!!! With all due respect to the incredibly smart doctors who own and work in these practices......WTF!!! Are you kidding me? This is why healthcare costs are so high! OVERHEAD! man.

Our charges average $82 per patient visit. This includes the $45 office visit fee and an average lab and supply charge of $37. We require our patients to pay their full balance at the time of service. As a result, our collection rate stands at better than 99.5 percent, and we have shed many of the costs associated with trying to collect unpaid balances.

Another telling statement. How many healthcare costs are associated with the convoluted multi-party nature of the payment system? Check this out:

With one staff person and two providers, our ratio of 0.5 staff per provider is considerably lower than the national average of 3.9 staff members per FTE provider

Oh man...I'm beginning to think that not only should economics be taught in high school, but maybe in med school too. This is utterly preposterous and untenable. I cannot fathom an economic rationale for four staff per provider. Check out what this guy has done though, in leveraging his cash-up-front advantage:

Lab companies are willing to negotiate lower lab rates with me because their payment from us is guaranteed, and they realize savings from not billing patients or insurance companies. Discounts may be as much as 50 percent to 90 percent off list price, meaning that a prostate-specific antigen (PSA) test has cost me as little as $4. Other tests have cost even less. Most patients pay an average of $25 for lab tests that would have cost more than $100 if the lab company billed the patient or the insurance company directly.

Even taking his conservative number, he's saying that local labs will CUT HIM, A STOREFRONT 1-MAN PRACTICE, A 50% DEAL on tests because he does not present the administrative challenges of insurance companies. OMG. OMG.

Brilliant post from one of Andrew Sullivan's honeymoon replacements

My absolute favorite blogger in the world (and the favorite blogger of like 1 million people), Andrew Sullivan, recently got married and is away from his blog, however his guests have really stepped up to the plate. Check out this diatribe about Democrat cowardliness based on a Washington Post editorial. My favorite quote:

Dear God, Democrats: grow a spine. Figure out that if there's no principle for which you would willingly lose your office, then you don't deserve to hold it in the first place. The liberties enshrined in our Constitution matter more than your political careers.

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