Featuring Lutts’ Logic:
Healthcare … Reader Stories and Suggestions
A Winning Medical Stock
Opportunities in Small-Cap Stocks
Back on Monday, I tackled the big challenge of our healthcare system once again, beginning with a few personal stories–including the $840 bill for my wife’s sliced thumb–and finishing with a prediction that the big pharmaceutical companies were in for tough sledding once Washington begins a serious effort to reduce costs.
The responses to the column were numerous and excellent, and I share the best with you here.
I can remember back to 1956. Ding-dong, Dr. Houston is at the front door. Saw all three of us kids. Pulled a prescription out of his case for all of us and was on his merry way. Hospitals? Why? We had a large doctor clinic available that included an anesthesiologist. Had my tonsils out there. Went home six hours later to the traditional ice cream. You cannot convince me what we have now is better.
Kinston, North Carolina
Healthcare “professionals” have become weak and gutless, slaving to complete heaps of senseless paperwork instead of caring for patients. As an RN with 31 years of experience and a masters degree, I say the answer is a return to basics–staff caring for patients and documentation that records care to accomplish a successful outcome and not to rewrite a textbook or please the whims of an accrediting body. Also, less supervising staff and more direct care staff–less specialists and more special direct care staff–more truth and less cover-your-ass care. Quite honestly a single payer system is not out of the question; let’s put all the insurance and billing staff to work in the hospitals, too.
Oak Forest, Illinois
I’m a recently retired family doc.
1. Why would anyone think that government-run health care would be a bargain … oh, perhaps it’s all the good press generated by Medicare and Medicaid? And, the high quality of care promoted by said government programs?
2. If you fall down, you will get an X-ray, even if you’re a young, healthy individual who lacks point tenderness over any bony prominences and who has no risk factors for premature osteoporosis. You’ll end up with at least a coupla-hundred dollars “worth” of X-rays. “Oh, they’re normal–that’s good.” Speaking from my vantage as a teacher of family physicians, I’d say, “Horse crap! If you asked some pointed questions, did an excellent physical exam, then used logic and statistics, you’d never have ordered X-rays in the first place! And what if you missed something? Well, that’s why we do something truly archaic, call “talking to our patients about possibilities that may need to be addressed in follow-up.”
There are decision-making rules that would spare a huge percentage of X-rays taken in ERs, but these rules won’t be utilized … fear of lawyers and lawsuits.
All this to support my assertion–we need tort reform. We need realistic caps on pain and suffering. We need to get rid of the ridiculous notion that a “jury of peers” is capable of adjudicating a complex medical issue that challenges the understanding of physicians and statisticians.
3. Our serious need is for universally AVAILABLE catastrophic coverage…it kicks in after a five or 10 thousand-dollar deductible. The annual cost would be low, ’cause not a lot of us actually NEED five or 10 grand of medical care in the average year.
The administrative costs would be low … as many fewer claims would be filed/paid per year. Quality of care is not the issue, here. This is called “insurance,” not “pay for your every need plus every wish and we’ll cover 50% of your orthodontia, too.” It’s called “insurance,” not “let us take control of doctors, hospitals and industries, and dictate standards for all.”
Generally, physicians want to do a good job–oh, sure, there are bad apples and greedy folks, but by and large docs aren’t out to fleece people … and, if we felt we were working more directly for people than for their insurers, I think relationships would be better still.
I could also tell you stories about health care. I was born and raised in Hungary (socialized health care) and l escaped from the socialist paradise following the crushing of the 1956 uprising. In early 1957 I started a new life in England (socialized health care) where my two sons were born respectively in 1958 and 1960. In December, 1963 I had came to the USA with my family, in 1966 my third child was born, in 1980 my wife had a hysterectomy operation, in 1995 an open heart surgery at Cleveland Clinic (mitral valve repair) and in 2007 another mitral valve repair at the University of Michigan Health System. Over the years we had smaller procedures (broken bones, cataract surgery, etc.). I have “war stories” to tell with comparative perspectives between the American system (as we have been accustomed to it) and socialized health systems both communist and capitalist type. Given the choice I would put my nickel on the American system any day.
Ann Arbor, Michigan
Re: MEDICAL CARE -we truly have the world’s BEST in spite of what we DO need–I’m unhappy to NOT hear more people saying this–but it isn’t politically “popular” with 90+% of the people in CONgress coming from the “LEGAL” END
Unfortunately, the spiraling cost of medical care is largely because of a lack of tort reform. Let’s get the lawyers out of “practicing” medicine–not add more to the pile.
The most disgusting thing on TV day after day is the ads of lawyers asking people to call so a new lawsuit can be added to the cost. A 50% tax on these ads might pay for a lot of care for uninsured persons.
J.S. Indianapolis, Indiana
One of the most important things for people to understand is that there is a problem. I heard some politician saying in opposition to Obama’s plan, “He’ll be ruining the best medical system in the world.” What is this guy talking about? By any measure, our healthcare system is inefficient and performs poorly.
Here is what I think is the best argument for universal health care. No matter what side you are on in the health care debate, you have to admit that health care is a big political issue in the United States today. Now, look at countries like Germany and France, which have universal health care. Not only is health care not a political issue there, no one even thinks about it and everyone probably takes it for granted. The only people who actually care about health care policy in Europe are policy wonks as they tweak different parts of the system to ensure it continues to function optimally.
I got a charge out of your medical story. In Canada we have a good medical and hospital plan but we all pay into it each month whether we use it or not.
Traveling in the USA about seven or eight years ago my wife got what appeared to be a heat stroke. Well I took her to the nearest hospital where they kept her overnight but she was OK in the morning. That one night cost over $2,000.00. Then when we arrived home I kept getting bills from other doctors, specialists and other professionals. I think every doctor in Wisconsin must have walked past her bed that night. You see they know we have pretty good medical insurance and just kept sending bills until I threatened an investigation. I refused to even submit their costs to my insurance and I never heard from them again. It is sad that some medical professionals are so greedy. Hospital administrators like to get on the bandwagon, too. I hope this indicates the tough road your president will have to peruse a universal medical plan in the USA.
I live in San Diego. Not too long ago while running I fell and cut my hand with the keys I was holding. Went to the local doctor’s office, told them I will pay for their services in cash. Within 20 minutes I received five stitches and the bill was $175.00. Instead of going back to remove the stitches (make sure I don’t get another charge) I removed the stitches myself and now I run with the keys in my pocket. I believe there are times when we should be responsible for our actions.
I don’t live in the US, although I did 25 years ago and wasn’t particularly happy with the diagnosis and treatment I received. Neither was I happy with diagnosis and treatment in the UK, which has an entirely different system–universal healthcare supported by taxation. In recent times, the UK system, specifically hospitals, have been quasi-privatized to “make them more efficient.” There has been the growth of private insurance and treatment, particularly dental. The problem I first reported in the U.S., daytime sleepiness, which was diagnosed as “must be stress” was finally successfully diagnosed as sleep apnea in Australia six years later, after eliminating all other possibilities. Australia has a kind of hybrid of taxation-supported universal healthcare combined with additional patient contributions for GP visits and taxation subsidized private insurance. There are few private hospitals, but there is a waiting list for free elective treatment, so you need private insurance to jump the queue.
Here in Switzerland, health insurance is compulsory for everyone, whether you can afford it or not. There is an elective deductible and you also have to pay 10% of treatment cost up to a maximum per year. What the mandatory insurance covers is being reduced year by year and the premiums have skyrocketed by about 200% over the last 10 years. The problem is that there is too much capacity and not enough demand. The capacity is expanding and has to be paid for. Unfortunately, politicians can interfere with what appears to be a private system, although hospitals tend to be owned by communities and recover costs from patients or insurance companies. Health insurance companies are in competition, but operate under a regulated system, which makes them inefficient.
I do agree that prevention of ill health is a priority, but this needs to start in the education system. But how can it, when there is so much childhood obesity?
I am currently a resident physician in Radiology; my father and my two siblings are all doctors. I have multiple cousins and uncles who are doctors as well, and as a result, I have long known about the rising cost of healthcare in the U.S.
The biggest problems from what I have perceived:
1. Defensive medicine–Malpractice lawyers have ruined the cost of practicing medicine in this country. In 99% of scenarios, medical tests and imaging are over-utilized simply because people are afraid of being sued, especially in the emergency room. A patient comes into the ER with a headache? Boom! CT scan–“just to make sure” … If a patient comes in with a headache every week, he will surely get a CT scan almost all the time, even if it is likely to be nothing. Why? Because it’s better to be safe than sorry–the cost to the doctor to order a scan or test, is virtually nothing…but if he decides there is no need for a CT, and that one time, the patient has a bleed or other emergent finding, the lawyers will pounce on him–“Why didn’t you order that test?” And getting sued–whether you win, lose, or settle–will cost you $.
The juries in malpractice cases are NOT medical professionals … We call it a trial by peers, but that is hardly the case. The malpractice lawyer is a master of garnering sympathy from jurors; it doesn’t become a case about whether or not the doctor was within the standard of care, but more about the loss the patient/family suffers.
In my opinion, the best way to limit this is tort reform and a jury of peers–composed of medical professionals.
2. Uninsured patients–The majority of uninsured patients do not see primary care physicians on a regular basis; as a result they receive no preventive medicine, and the ER becomes the place they run to for anything from a cold to a headache, to worse problems. I don’t know how much of the lack of insurance is due to misprioritization of funds; i.e., instead of saving money to buy monthly insurance, buying unneeded luxuries … It happens a lot more than you think; my uninsured hairdresser was telling me she spent five years paying off a $40,000 automobile, but that she could not afford insurance. It’s a learned behavior–many people just think it’s never going to be a problem until it does … As a result, all American taxpayers are paying for it.
People need to take responsibility for their actions; and since we cannot have them do it voluntarily, maybe a systematic deduction from one’s paycheck to fund their insurance is needed. We can’t drive cars without some form of insurance. Why not extend that to some form of minimal basic insurance coverage?
Are you kidding? $840 for that stuff? Now I understand why you Americans are scared of the universal healthcare project. That kind of “First Aid” intervention in Italy is free (nobody will see a bill for this, even if you are a U.S. citizen here on vacation; Public Healthcare is founded with a percent of the income taxes). And, while that intervention certainly would have costs for the Public Healthcare, it would be maybe $84 not $840.
Of course it is highly probable that the Public Healthcare would have paid maybe $10 for the cyanoacrylate glue instead $0.2 (I believe it is the real price for a micro-dose) or an excess price for the wire used for the points … but the staff is on hire, and the costs of the building of any public hospital is also paid by the Public Healthcare (also based on statistics: you must have a kind of productivity or they will resize your hospital).
From the numbers you quote I see we are spending less % GDP of what you spend for a non-universal service, and instead we have universal quality service almost everywhere (except a few hospitals in the south Italy for historical reasons/mafia/criminality–regrettably; we are not proud of this but any government finds it hard to eradicate this). I believe that, in spite of the (universal) public inefficiency, we are spending less because there is not the difference of people with good/rich insurance and ones with bad/poor insurance, and this added to the near-monopoly of the public service means that here in a small/medium city instead of, say, three hospitals with different equipment and quality standards, there is only a big one with quality equipment. In a few words, that’s simply economy of scale.
The main problem with our model is that here in the hospitals all workers are “public workers” (the government’s Department of Health is the employer) so they have a special labor contract too nested with politics, and this doesn’t work (there are people who work as “administrative director” in hospitals because of their link with political big boys, and they sleep at work, if not “better”). Then there is corruption (example: when the public director has to decide where to purchase that glue, or better yet some nice $200,000 medical hardware, well some sellers may try to “help” him decide) and similar “nice” things.
That said, I believe that universal healthcare is a useful thing (if I have an accident everywhere in Italy and I am without credit card and even without documents they will move me to the best nearest center specific for my accident–no matter what accident, including a hearth transplant–and they will cure me for free and no questions asked; while if I fly in the USA I must buy insurance, and must pray to be lucky – God save me if somebody robs me the documents or I lose them–and I must pray also that I won’t manage to have an accident not properly covered).
From our experience (Italy and you can see also the rest of the EU) you can learn good and bad sides: then I believe you can learn from our mistakes and improve (just like we do sometimes for the endless ideas we import from USA).
I have spent my entire career in the healthcare industry. I don’t have a solution to US healthcare other than national healthcare. Nor do I know how else we get out of the mess we are in. There are about 600 payers (insurers) in the US all with their own plans, different coverage, different deductibles, etc. The payers are middlemen raking off a fee for paying your bill. Who needs them?
I have written to U.S. senators (including Obama when he was one of them since I’m from Illinois–got the obligatory drivel in return) and representatives on the subject of Medicare payments for laboratory tests. Do you know that Medicare pays more than twice what UnitedHealthcare (UHC) pays for the same laboratory tests? Why? UHC gets competitive bids its laboratory tests. Medicare wanted to do the same. About two years ago the lab industry got Congress to outlaw competitive bidding. The lab industry cheers this as a great victory! How stupid. We the taxpayers are paying for the largesse of this action.
Lake Forest, Illinois
The main problem we have in this country is that the insurance companies, pharmaceutical companies, etc., have too strong lobbies. When an insurance company tells a doctor what drug to prescribe, and how long patients should stay in a hospital, something is wrong. I am a dentist, and I tell patients, when they complain how little their insurance pays, that the main objective of insurance companies is to make money, collect more in premiums that they pay out in claims. I cannot tell you how many mistakes we get from insurance companies in their processing of claims, how many claims they say are lost. It all adds up to millions not being paid daily, and they make extra money on that amount not being paid in timely fashion.
Howard Beach, New York
Wow… You got off easily with the emergency bill.
I had what they called a very simple same day surgery. I went in at 7:30 a.m. and came home at 1 p.m. and the charges were over $30,000.00!!!!!!
I have been in the alternative health care field for over 40 years. In the past 15 years, most patients coming to me have had symptoms directly linked to side effects of prescription medicine.
I see two problems in medical care. The insurance CPT codes do not allow for individual evaluation of patients, and there are too many specialists!!! When you have a problem you are referred to several different doctors to “find” one that can help you. And specialists are very expensive!!!
Also, there can be no improvement in the health of U.S. citizens without a change in diet. The wide use of high fructose corn syrup and hydrogenated vegetable oil are making many people sick. Many tests show a direct link to high fructose corn syrup and obesity and Type 2 diabetes. Hydrogenated vegetable oil has been linked as a cause of cancer.
More insurance, more drugs and more doctors are not a good solution to the health care problem. But I suppose there are an infinite number of investments that will be profitable if we continue to make patients sick from food and prescription medications.
Franklin, New Jersey
Here is the solution–set up a national, non-profit co-op that people could choose to join. Premiums would be paid based on the level of coverage a person wants, deductibles, and so forth. A dollar maximum of coverage per year could be applied; beyond that a person would need separate catastrophic insurance which is usually quite reasonably priced as such policies aren’t used all that often. Everyone who pays into the co-op has coverage. Those in the health care industry get paid on the basis of “usual and customary,” and these amounts would need to be negotiated for something reasonable. That would be the most complicated part.
Here’s the simple part. Those in the co-op are regarded as share-holders. If the co-op makes a profit over the premium, that profit is returned to the shareholders calculated as a ratio of their premium paid. Since the organization would intentionally be non-profit, there would be no reason to refuse to cover people or to jack the rates the minute someone has to have care.
We are in an electric co-op in South Carolina for our electric (and gas, if we had gas). The co-op purchases power from Duke, SCE & G, and whoever else. If the co-op makes a profit on what we pay in electric bills, we get a refund. We get a check or a credit on our bill every two or three years. It works nicely for the electric co-op. I see no reason why it wouldn’t work for health care.
Newberry, South Carolina
My wife was dying from a terminal cancer. She collapsed in her doctor’s office and was rushed to the hospital. Her doctor was instructed “no heroic measures.” My wife and I had reconciled ourselves to the inevitable and were prepared for her death. My wife wanted to die at home and was returned to our house three days later. She died at home as she wished, six weeks later and never complained once about being uncomfortable in her own bed. No heroic measures over those three days cost me $8,400.00. God help me if any heroic measures had taken.
I am a radiologist. You can negotiate directly with me and many imaging centers, and your cash price will be 25-40% less. This is just so we don’t have to deal with insurance! Not only do they play a shell game of what something costs and what is paid, you have to add in our overhead for filing the claim. My specialty is not the only affected one affected by this–I just read a report that concluded insurance overhead costs of primary care MDs are 40%-60% of every dollar they collect.
If you got rid of private insurance, you would instantly knock at least 33% and as much as 60% of the cost of healthcare.
New Orleans, Louisiana
Being a Salem Hospital graduate and working for many years in the emergency room at Salem, I agree those charges seem totally out of whack. I’m forwarding your letter to the head of the finance dept at the hospital; I’ll be interested in his take. Nurses providing the services don’t know how the charges go, and when the doctors submit their bills to the insurance companies they know they are not going to get what they are charging; it’s all a game.
The abuse of the ER is what ties it up for everyone. Salem Hospital recently opened a freestanding day center. Some 25%-30% of our insured patients will now go there. As a result, we will be doing layoffs of nurses for the first time in years. Again, it’s another game to get more dollars out of the health insurance companies; freestanding facilities get more money per patient.
I don’t have a solution but I know what I don’t want which is health care like they have in Ireland. My wife and I have friends in Ireland. Their daughter was in the hospital, appendix I believe. We went to visit her and she was in an open ward with about 20 beds all around the room. Later in the U.S., I saw a picture of a similar room on the wall of our local hospital. The picture was of a hospital ward at the hospital from circa 1919!! The ward in Ireland was a replica of that room complete with the white pipe beds with the little wheels, the room at one end with a large glass window where the nurses look out at the ward, and the linoleum floors.
On another trip I had a chance to visit the hospital as a patient. I arrived at Casualty (Emergency Room) in the evening and they took blood samples and put me on a gurney. My wife noticed the priest going by and found I was being given the prayers of “last rights”. She talked with the doctor and found that I might not survive the night. She asked about the blood tests etc. and the tests could not be done until morning because the lab had no electricity!
I spent a total of 6 days in the men’s ward, which was a small room of six beds. The patient opposite me was found to have dementia after being there three days. There was a belligerent alcoholic who finally had to have security sit in the room. I wanted to take a shower so our friends brought in the soap and towels. You bring in your own pajamas. The food was fair and you got what you were served. The nurses and doctors were excellent but in the U.S. I believe I would have been discharged not later than the third day. The entire bill was about 2,500 Euro for everything, which was covered by my insurance.
I talked with my friends and even though medical care is free they have insurance as it was explained to me that patients with insurance are treated better than people without.
Let me share an experience of my own in Europe, where socialized health care has been a part of the scenery since the war. As a white collar professional, I had the “privilege” of paying a higher percentage of my pre-tax revenue in social security taxes, which I was of course told would result in a better class of hospital care.
But when I was hospitalized for salmonella food poisoning, whom did I get to share a room with but a drug addict in hospital for pneumonia (and someone who was proud to say that he had never contributed to the social security fund). Four things were memorable about the stay: 1) from day one, my roommate was delighted to be able to plan on having at least one month’s worth of hospital care to look forward to; 2) it was cocktail time for him every time the orderly came around with medications: he asked for, and was allowed, to pick and choose a number of pills, and he went for pretty much anything except for the laxatives, using color as one of the main criteria for selection. As you can imagine, the social security fund financed the choices; 3) he created employment for security, which had the joyful task of searching for him whenever he sloped off for a cigarette or to explore the premises; and 4) one of the main factors in my being released early was that I would be able to afford to take care of myself outside of hospital.
It was an odd experience. While I do not begrudge the fellow the help he clearly needed, I reckon that keeping him in hospital for one month without addressing his drug problem was really just enabling him to keep up his bad habits. He was very lucid about the fact that he was effectively on an all expenses paid stretch of R and R, and boasted about how astute he had been in getting admitted to hospital for what was going to be the third long stretch in just a few months. Personally, I have since then never been pleased to see increasing health care deductions from my income.
— Advertisement —
It’s Time to Buy
So says Cabot Market Letter, the investment advisory that has called every new bull market advance since the 1970s. And it’s declaring once again … It’s time to buy!
From the market’s bottom in March 2003 to the recent low in March 2009, the S&P 500 lost 18% in total and the Nasdaq lost 3.5%. Cabot Market Letter, however, left them in the dust: Advancing a total of 94% during the past six years (nearly 12% per year).
Don’t miss out on the new bull market. Get started today!
Thanks to all the readers who wrote in. I didn’t expect an easy solution and no one pretended to provide one, but I do think we’re all a little better informed now, and that’s never a bad thing.
Normally, at this point, I’d give you a recommendation of a favorite medical stock. But I can’t today, and the reason is simple. The group’s performance stinks.
Technology stocks are looking good today. Commodity stocks are strong. And Chinese stocks are on fire. But medical stocks are languishing.
Does this poor performance in the midst of a broad bull market reflect fears investors have about the future profitability of the medical industry? I’d have to say it does. Investors fear uncertainty, and there are huge uncertainties today about the future of the medical industry, all revolving around money.
If we’re truly going to rein in expenses in this industry, a lot of companies are going to be hurt. On Monday, I named the obvious, the big pharmaceutical companies (mainly because their stocks have come so far in recent decades that they might provide great short targets on the way down), but there’s no doubt the pain will be felt far beyond them. And the widespread realization of that does appear to be weighing on the group today.
But there is one medical stock I want to mention.
It’s BioDelivery Sciences (BDSI), based in Raleigh, North Carolina. This little company has been laboring for the past decade to develop innovative new drug delivery technologies. The company has no real revenues and no earnings. But the big idea is Onsolis, the company’s treatment for pain in opioid-tolerant patients with cancer, and which is being evaluated by the FDA for approval.
The key to Onsolis is its BioErodible MucoAdhesive (BEMA) delivery technology, which consists of a small, bioerodible polymer film the patient can apply to the inside of his cheek. This delivery technology can quickly deliver precise amounts of pain-management medication into the bloodstream, bypassing the stomach and thus avoiding all the side effects that come from working in that hostile environment.
BioDelivery Sciences (BDSI) was initially recommend by Thomas Garrity, editor of Cabot Small-Cap Confidential, back in November, when it was trading around 2 1/2. It’s had a good run since then, and in the past week, it’s spent most of its time trading between 6 and 7, and Tom has been advising subscribers to take some profits.
In fact, his latest update read, “Any day now, BioDelivery Sciences should receive word from the FDA about Onsolis approval. We advise exercising caution ahead of the FDA’s decision. If you haven’t already taken some profits, we recommend selling into strength. We think you should always pay yourself for a job well done, but leave something on the table so you still have a stake if the stock powers higher on a favorable FDA ruling. Given the extreme volatility that can accompany any news, we think you should add shares only after assessing how BDSI acts once the news is out. Hold.”
So I’m not recommending you buy it here. After a positive FDA approval, maybe. I’m intrigued by the thought that in the new cost-conscious healthcare industry that may be just around the corner, pain management might be more attractive financially than actually curing something.
What I am recommending is that you subscribe to Cabot Small-Cap Confidential so you can get Tom’s current recommendations. The key to small-cap investing the way Tom practices it is to find companies with great mass-market potential, to buy them early and to hold them patiently, all while avoiding being carried away by the daily gyrations of the stocks or the latest news.
So give it a try.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory
Editor’s Note: The stocks currently recommended by Cabot Small-Cap Confidential are up 49% in the past 13 weeks, confirming loud and clear three facts.
#1: We are now in a strong bull market.
#2: Undiscovered small-cap stocks are once again leading the way.
#3 Cabot Small-Cap Confidential is your best source of advice when it comes to investing in this under-illuminated sector.
Over the past 79 years, small-cap stocks have outperformed large-cap stocks by 165%. The time to get back into the market is NOW. Click below now to get started!