Obamacare: The Coming Labor Shortages and Inevitable Outsourcing

Now that we have surfaced that a price that is below where the supply and demand curves meet will spur consumption of a good, create shortages and reduce quality, and the focus on managing to the numbers can produce undesirable results, what does the inability to increase price do when costs rise?

This happens – from the UK Telegraph:

The number of shifts filled by the temporary workers has risen by more than 50 per cent in a year – with private agencies receiving more than seven times the rate paid to nurses on the pay roll.

Experts said the disclosures show how hospitals’ attempts to improve their efficiency have backfired, with jobs being cut, only for temporary staff to be hired at vastly inflated rates.

The scale of job losses is fiercely disputed, with unions claiming thousands of frontline posts have gone since 2009 while ministers say less than 500 posts lost involve nurses.

Meanwhile, the number of nurses from overseas who have registered to work in Britain has soared by 70 per cent in just two years.

Disclosures under the Freedom of Information Act show that since 2009, private agencies have been paid up to £1,600 per shift to provide the health service with specialist nurses, compared with an average rate of around £212 a day for those on the NHS pay roll.

A shortage of labor.

Health care delivery is not just medicine and fixed assets (i.e. hospitals, laboratories and equipment), it is largely people…the “soft” assets that hold the knowledge and deliver the services. Labor is a substantial component of health care cost (aside from lawsuits, we needed tort reform because it would have saved as much as O-Care was purported to with virtually no added cost). The incentive from the government is to increase salaries across the board, so labor costs will inevitably rise.

The NHS in the UK is already at a tipping point. As the NHS cuts budgets to save money, they are caught in the squeeze between price and demand. As we posited yesterday, the inability to raise price due to the government price controls will create shortages – in this case, labor shortages – and since the fixed price (i.e. free) is driving excess demand, the government has to meet that demand.

What happens? They turn to the free market that exists outside their control and they pay more than the market would have demanded in the first place…and they are hiring more and more health care employees from outside the UK, thereby paying more for jobs that could have been filled by people already living in the country – a form of de facto “outsourcing” by government.

As I wrote yesterday, this system of socialized health care delivery inherently and implicitly guarantees either waste or rationing. There is no way around it. The most basic laws of economics, supply and demand, still apply – even in socialist systems.

Actually there is a way around it – raise taxes – but the supporters of O-Care have so boxed themselves in with cost management promises that tax increases beyond those imposed to implement it aren’t a viable option without admitting total defeat. As a benchmark, I just received my P60 form from Her Majesty’s Revenue Service (the end of year tax statement equivalent to the US W-2) and with VAT and other government “fees” considered, I paid an effective tax rate of approximately 58%.

For evidence of the cost cutting and reduction of care in the UK, this article in the Daily Mail details how A&E departments (what we call emergency rooms or trauma units) are being closed to shunt patients to “urgent care” clinics that really don’t provide “urgent” care:

Revealed: Shocking truth of axed A&E wards (and where it will now take you an hour to reach casualty)

  • Full extent of ‘Beeching-style’ closures of major casualty units that leave millions with huge journeys for emergency care
  • Documents reveal ‘urgent care’ centres which will replace them can’t even treat anyone who needs routine pain-relieving drugs

A massive – and until now unreported – programme of closures of accident and emergency departments will leave millions forced to use so-called ‘urgent care centres’ that in reality cannot provide urgent care, a Mail on Sunday investigation has found.

The centres are allowed to handle only the simplest injuries and mild illnesses. An NHS document obtained by this newspaper reveals they are legally forbidden from treating a vast array of serious and life-threatening conditions, including shock, internal bleeding, most types of broken bones, breathing difficulties, stab or gunshot wounds, heart attacks, strokes and head injuries.

Extraordinarily, they are also banned from treating patients suffering from ‘severe pain’ – defined as anybody who needs medications not commonly prescribed by GPs, such as intravenous  pain-relief drugs.

Why are they closing? Why, to cut costs, of course.

Opponents also argue that the real purpose of the ‘slash and burn’ approach – as it was described by one London hospital consultant – is to save money. The NHS must cut £20 billion from its budget by 2015.

Artificially low price points, inability to actually control costs, labor shortages, reduced quality, attempts to decouple the laws of supply and demand, rationing, outsourcing of labor – these are all “features” of the NHS in the UK and it is simply unrealistic to think that America will not see the same thing.

I think it is paradoxical that even as Obama tries to tie Mitt Romney to outsourcing, his signature piece of legislation almost guarantees it. I’m all for privatization, don’t get me wrong. I just don’t want to pay for a new bloated social program in addition to private services just to get what I would have had without it…and when a socialist program has to go to the private sector to fulfill its obligations, that is exactly what is happening.

Man can temporarily bend and stretch the laws of physics and economics but they cannot be broken. Like a stretched rubber band, they will snap back to equilibrium and the greater the distortion, the greater the pain when they do.

31 thoughts on “Obamacare: The Coming Labor Shortages and Inevitable Outsourcing

  1. Pingback: Obamacare: The Coming Labor Shortages and Inevitable Outsourcing « Outsourcing Yes

  2. Tort reform has been touted a s panacea since Hippocrates’ time, but there is no evidence that it will bring down costs. In fact, a study by a corporate-sponsored research group show no correlation between tort reform and costs http://www.justice.org/cps/rde/justice/hs.xsl/1957.htm

    There is still a step missing, one between hiring directly and paying triple for an agency to do that for you. Seems to me, they could raise the wages 10-20% and fill those jobs cheaper and faster than an agency charging exorbitant fees, As I say there is something I am missing here, probably a lack of incentive on the part on managers to control costs is part of the problem.

    58% ?!? Now you know why Jagger lives in this country!

    • Gee. The “corporate study” you reference was conducted by the former Association of Trial Lawyers of America…ambulance chasing, contingency filing, class action clowns who benefit from the system as it is.

      Ask a doctor about how much malpractice insurance cpsts.

      From OpenSecrets.org:

      Formerly the Association of Trial Lawyers of America (ATLA), this group of plaintiffs’ attorneys and others in the legal profession now goes by the name of the American Association for Justice (AAJ) and boasts 56,000 members worldwide. A lobbying heavyweight, the association has been battling any attempt at tort reform, including recent proposals to cap awards in medical malpractice lawsuits. AAJ also lobbies Congress on any legislation that may inhibit the ability of consumers to bring lawsuits, particularly against health care providers, asbestos companies or insurance companies processing claims related to terrorism. The association favors Democrats, who oppose most attempts to initiate tort reform.

      Look at where the donations go…95% to Democrats.

      If I was a trial lawyer, I would love Obamacare – it ties the hands of medical professionals and insurance providers and sets up thousands of new regulations and opportunities for these bozos to sue.

      The study you cite is far from credible.

      • No, Utah, the study was done by Pacific Research institute, a group funded by corporations seeking tort relief, but even they can’t hide the truth. The insurance companies want less risk, and they want their customers to keep paying high premiums.

        • Wrong again, Greg. Sorry…

          Maybe you should read the study instead of the interpretation of a bunch of ambulance chasers. The report was about the current conditions in 2008 and the actual conclusion of the report was this:

          Meaningful tort reform will improve a state’s ranking in future editions of the U.S. Tort Liability Index. But more important, a reform state will be a more favorable place to invest human, physical, and financial capital—the ingredients for new businesses, new products, new jobs, and an improved standard of living for everyone. States that maintain an onerous legal environment, on the other hand, might as well hang a sign at the state line saying “Businesses Not Welcomed.”

          Since you have admitted to the credibility of PRI, then you might be interested in this conclusion from their 2009 report:

          This study examines 25 reforms adopted by American states in an effort to control tort lawsuit losses and tort insurance premiums. These reforms were mostly introduced beginning in the mid- to late 1990s, and the analysis examines whether, and by how much, specific reforms reduced tort losses and tort insurance premiums. We measure the effects of reforms on losses and premiums in specific categories such as medical malpractice and commercial self-insurance.

          The analysis of the loss and premium data from 1996 through 2006 reveals potentially large savings from 18 of the 25 reforms. These findings provide strong evidence that tort reforms can and do work, contrary to the public relations campaign of the personal-injury plaintiffs’ trial bar.

            For some categories of tort cases, specific reforms cut payouts more than 50 percent. The cumulative effect of reforms across all categories of tort liability is a 47-percent reduction in losses and a 16-percent reduction in insurance premiums for consumers. That is, these are the estimated savings if a state implemented all of the reforms that are effective. Some tort reforms are highly effective at reducing costs in certain tort categories, but are ineffective in other tort categories.

          So it appears that your friends at the Ambulance Chasers Association of America misstated the reports to fit their preconceived notions and to support their reason for existing.

          • I never said that PRI was credible. The point is that even the companies’ own shills cannot hide the fact that tort reform is not keeping down costs.
            Tort reform won’t bring down our health insurance rates by much. Ohio rates are climbing at 19% /year since they passed a tort reform bill, the nat’l average is 22%. But Kentucky, right next door, has no reforms in place, and their costs are not rising near as fast.
            But Kentucky probably has a lower per capita income, fewer city-dwellers, etc. There are so many variables, it is hard to make comparisons as to which side has the better numbers.
            So, we have to make sure that the patient’s rights are not impinged by any laws passed. Corporations are in it for their survival, they will not look out for you. You may not like trial lawyers, Utah, but wait until you need one before you strip them of any power to help the individual get his due in court.

            • I didn’t strip them of anything. I said that they were lying. I wouldn’t dream of taking their rights to be as big a scumbags as they want to be.

              Corporations and businesses are in it to make money so that they can continue to provide services that make them money. The defend their contracts with people and the lion’s share of the time the individual is suing to recover something that is outside the contract. It is s death spiral, the harder the trial lawyers push the more aggressive in defense these “evil corporations” get. I do not deny that there are legitimate claims but to ignore that a lawyer working on a contingency claim isn’t motivated to get the highest monetary award to benefit himself is ludicrous.

              If you condemn one for being motivated by money, you just made the motivation of the other side relevant.

              And here’s a news flash as you try to squirm out from under your point that was proven false – you either did validate PRI as a credible source or you validated the Ambulance Chasers of America. If you accept PRI’s report, you are wrong. Based on my presentation of the facts of the reports, if you accept the trial lawyers interpretation, I have also proven that you are wrong. You can’t have it both ways.

              Read the reports. The indications of the reports say that the tort reforms don’t go far enough and the ones that were put in place were gutted by court rulings in individual cases.

    • A bit of background for how physician’s get paid by Medicare (which is the base of Obama care under this new law). Payment is determined by a complex formula requiring all three components of the relative value for a service—physician work relative value units (RVUs), practice expense RVUs, and professional liability insurance (PLI) RVUs—to be adjusted by the corresponding GPCI for the locality.

      Work RVU1 x Work (GPCI)2
      + Practice Expense (PE) RVU x PE GPCI
      + Malpractice (PLI) RVU x PLI GPCI
      = Total RVU
      x CY 2012 Conversion Factor of $34.0376
      = Medicare Payment

      So for those not medically inclined, it is easiest to consider that we have to “code” our charts, and bill Medicare for the various diagnosis of the patient we are treating. An example of codes (called ICD codes) would appear as this example for high blood pressure:

      HYPERTENSIVE DISEASE (401-405)
      401 Essential hypertension
      Includes:
      high blood pressure
      hyperpiesia
      hyperpiesis
      hypertension (arterial) (essential) (primary) (systemic)
      hypertensive vascular:
      degeneration
      disease
      Excludes:
      elevated blood pressure without diagnosis of hypertension (796.2)
      pulmonary hypertension (416.0-416.9)
      that involving vessels of:
      brain (430-438)
      eye (362.11)

      401.0 Malignant

      401.1 Benign

      401.9 Unspecified

      In 1992, our conversion factor was $31.0010, and as of this year our conversion factor is $34.0376 (not much of a raise over 20 years). However, it is the removal of reimbursements such as all hypertensive diseases (as of Jan 1, 2012) from the billable codes that represent our biggest pay cuts. This trend continues, without the benefit of increases to the conversion factor.

      Many physicians are near, or already reimbursed below the costs of operating their practices. Some begrudgingly hold on to their patient’s despite losing money to provide their care, but there is a breaking point … and for many, that time has already arrived. Physicians are already limiting their medicare patient’s and some local to Panama City (such Dr. Steven Mullis, are no longer accepting Medicare patients to their practice). More are sure to follow.

      This is but one example of why a Tort reform of government price fixing is needed.

      • Augger, thank you for that, I am beginning to see why the billing departments at doctor’s offices are such a big part of the business.

        I don’t mean to be sarcastic here, but I can’t help it sometimes. I don’t have any doctors living in my neighborhood, where the average house runs 150-200k. Doctors live in gated communities, they drive real nice cars, send their kids to university, go sailing, etc.
        I am all for doctors doing well, I want my doctor to be thinking about my case, not his mortgage payment. But when you say many are at the breaking point, you lose me to an extent. We are all getting our wallets smacked, and I am supposed to sacrifice my rights to sue for damages, i am supposed to take less than I deserve, because Doctors are feeling the pinch?
        I have a lot of sympathy for the problems we face. The less bureaucracy between me and ol’ Doc, the better

        Another thing, you all are against wage minimums, But you get all statist when it comes to limiting lawsuit awards. It would seem that there is a schism in the philosophy of limited government here, non?

        • Tort reform does not mean that awards must be limited. What needs to be changed is the burden of proof to sue or to certify a class action lawsuit.

          • Unfortunately, the “unintended consequences” of tort reform often result in unforeseen & unjust catastrophic consequences to individuals along the way.

          • Tort reform will not matter with the eventual shortages of doctors that is sure to result from the basic economics you all have explained so eloquently in the various posts.

            • I said that they didn’t have to deal with caps, that reform has multiple dimensions.

              And the damages that are capped are punitive, not compensatory. Punitive damages are open to the interpretations and emotions of a jury and can be stupidly outrageous – punitive damages are where you get the 5 million dollar awards for a broken toe, etc. These damages can have formulas that still can calculate them to be many times what the compensatory damages are.

              We don’t allow the jury to determine sentences either, so setting legal limits for punitive damages isn’t much of a stretch.

        • Greg, there may have been a time when doctors were “rich”, but in all honesty, many live beyond their means. Go to the local courts, and start punching in names of physicians, and see how many of them have ended up in court over debt. Perception isn’t everything. 🙂

          Now you can dispute the numbers all you like, but the facts are there. Physicians are getting paid a lot less for more work, and in some cases working for free, or even having to pay staff without any compensation for the care they are providing.

          If you were in business, would you do a job for free, or even at expense? If so, how many, and for how long?

          Test your market. Grab your own phone book, and start calling your local doctors. Tell them your a medicare patient, and see how many of them remain with their practices open to you. It’s actually going to be wise to do so prior to Obamacare going live. You are going to need a P.C.P., and you better have one now. 🙂

      • Doctor Mullis was my doc when I lived in PC. Good guy. Good doc.

        Augger – In extension of your comment, it occurs to me that a practice that doesn’t accept Medicare could theoretically offer cheaper services to their patients because then the other patients wouldn’t have to cover the gap between the Medicare payments and the real costs.

        People think that a doctor’s practice is just them and a building. I used to think so, too, until I watched my sister-in-law’s hubby set up his practice after he graduated. His is a medicare free reconstructive surgery practice but the legal and insurance web of the business is just crazy. The things that he has to do to legally protect he and his practice partners would blow a casual observer’s mind.

        Doctors are a lot like oil companies, they do make a lot of money but it takes a lot of money just to stay in business and one mistake can end them. People do not understand the risks that have to be mitigated to be in either business and that one risk becoming and event (or a lawsuit) could shut down a livelihood.

  3. Pingback: NHS: Doctors and Nurses Must Agree to Pay Cuts or Will Be Sacked | The Rio Norte Line

  4. One of my friends who is a MD, recently explained, the medicare reimbursement rate is below his overhead rate, before he even considers his own pay. MD explained he is “donating” his time every time he sees a medicaid patient. Yet he still sees those patients. The MD has to make enough money from his self paying and insured patients to allow him the “luxury” of seeing the medicaid patients. How long will Doctors be able to afford to do that? Not long once everyone is on govt. healthcare….

    • I’ve been preaching this for years now Tex, and not to just pick on Greg, but he is the example of the misunderstanding of how “free” healthcare isn’t really “free”. Recently he opined negatively about the loss of his “free” healthcare in the 1980s at the hands of Reagan, and how that disappointed him.

      That actually saddened me … because he was mad that someone else was no longer paying for his healthcare.

  5. All I see here is proof that those who believe they can control any market, let alone an entire economy are fooling no one but themselves. they are not that smart, and, even if they were, they could not possibly know everything they need to know to do so competently because they can NEVER know what they don’t know but need to know – you know? 😉

    Or, in other words, this is what happens when you let pointy-headed idiots who have never worked outside theory and/or govt. run a real business/industry/economy: F-A-I-L-U-R-E-R — every time. Just take a quick trip through memory lane and you’ll see.

    Thanks, Utah, good post.

    • We have been told all along how well all this “universal” care is working out. Having lived in it for almost 2 years, seen it first hand and talked to people who work in the system, I know that these sources are not distorting the facts…they don’t have to, there is no organized move to change the entire system over here, but there is a growing private health care market, complete with insurance.

      Obamacare is wrong on its merits and wrong for America.

  6. Lawyers need far more than caps on case judgements. They need to be accountable for what they charge their customers.
    Several years ago I had to file a lien on a construction job that I wasn’t totally compensated for because the customer got mad at me because his wife was flirting with my crew. The case went to trial and my bill from my lawyer came to $40,000. Looking at his bills I found where I was charged for 18 one hour phone calls and 31 half hour phone calls to the other side’s attorney over a 5 month period at $300 per hour. It is completely impossible that these 2 lawyers talked for 33 hours about my case.

  7. That is beyond the pale, Dusty. But watcha gon’ do? The ones who could do something curtail the practice, our representatives, are almost all lawyers themselves. May I ask if you challenged any of the costs?

    • You are dead on correct, Greg. No I figured he had cooked his books to show it anyway……………. In the end because of a crooked judge it ended up costing me $72,000.

  8. Government organizations are facing economic crisis and in such scenario raising salaries is not a good option. Outsourcing work is cheap and it is costing less to government and saved money can be used somewhere else. The Government employees are paid good and to save money only job cutting is an option as reduction in salary is not possible.

  9. Pingback: March Twenty-Third, Two Thousand And Ten | The Rio Norte Line

  10. Shortage of labor is the number one problem being faced by health care services in most countries. Alan I totally agree with you about raising salaries of employees during such a time when the government organizations are reeling under a financial crisis. The best way is to outsource employment, which is a cheaper option.

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