That "Can't Do" Spirit

Why owning your own business is no loner a recipe for independence.

When Charlie Bacall arrives at his office in the morning, he is very careful about where he hangs up his coat. Very careful. Not because his boss is looking over his shoulder; he's the boss. Not because his secretary is a neatness maniac; she isn't. He is careful because if he hangs his coat next to his lab coat, agents of the federal government can close his office down. Charlie Bacall is a doctor. His practice is regulated by the government.

Invasive government regulation is a direct consequence of the notion that government knows best and that social and economic goals can be achieved by bureaucratic fiat. That notion took hold during the super-normal economic growth of the 1960s which coincided with the acceptance, among Democrats, of an economic theory known as Keynesianism. This theory argued that government could manage the economy to produce strong and consistent growth. Thus, when strong growth actually occurred, people were convinced (mistakenly) that it was due to Keynesian economic management. Indeed, the coincidence was so compelling that by the early 1970s even Republicans had become true believers. And the delusion that government was the Superman of Good Outcomes spilled over into microeconomic and social issues.

The drive to regulate began slowly in the 1960s, raced along during the 1970s, held its own during the 1980s, and accelerated in the early 1990s. So far, the Republican Congress has done little to slow it. The result of 30-plus years of bureaucrats with the power to direct events has been the near suffocation of everyday activity for many businesspeople, especially those with small firms.

If that sounds too dire to you, then you are part of the lucky portion of the population who is insulated from this daily intrusion. Your direct brushes with the government are probably confined to specific and discrete events--paying taxes, being licensed to drive a car, or getting a call for jury duty. And although it's hard to think of an industry or profession in which government regulation is absent, the experience for some is more intense than for others. If you work for a big employer, for example, the chances are that your job has little to do with government regulation--that is usually the province of specialized employees in the company--but if you work for yourself, the government is in your face. The extent of the damage becomes clear when the direct impact of regulation is examined. So here are some real stories of what happens when the government mucks about in the way we do business.

First, I've chosen two doctors. Charles J. Bacall and Roy Levit are small businesspeople who bear the brunt of the good ideas gone bad embedded in government regulation--cost, daily frustration, and demoralization. I've known Dr. Bacall for many years because I am one of his patients. I know him to be a dedicated physician and not particularly a whiner or a complainer. I don't know Dr. Levit, but he is respected, successful, and was amenable to an interview. Like many doctors, neither is interested in or knowledgeable about business practices or management.

Bacall, 45 years old, became a doctor for predictable reasons: He had an aptitude for science and, preferring people to lab work, chose to be a physician rather than a researcher. But he had other reasons as well. As the child of a poor immigrant family, his father told him more than once: Be your own boss. He says: "My getting a medical education was a way of developing independence in the system, a way of assuring me middle class status." Did he think it was also a way of getting rich? "On no, when I was training in the 1970s, I thought if I could make $50,000 a year it would be the best thing that ever happened to me."

Bacall graduated with an M.D. in 1975 from New York Medical College. When I interviewed him, he was an assistant professor of obstetrics, gynecology, and reproductive sciences at Mount Sinai Hospital in New York City, with an appointment at the Mount Sinai School of Medicine. His practice, which he shares with four other doctors, employs three medical assistants, two office managers, and three medical receptionists.

One of his office managers, Linda Wilhelmy, describes her work as "a ton of paper work and millions of phone calls." She handles patient billing, disability forms, operating-room bookings, blood donations, and off-site appointments for consultations. She works from 8:15 a.m. to 6:00 p.m., eating lunch at her desk. That's her job and she likes it, feeling she gets double satisfaction from helping the doctors and their patients.

Bacall's practice is, for New York City, a fairly old-fashioned one. He doesn't, as many of his colleagues do, demand payment for surgery in advance. "We operate on a handshake. If patients can't pay, we assume they are telling the truth." And if they don't pay? "As long as they send some regular, small payment as a gesture of goodwill, we let it go." He doesn't take credit cards. "It doesn't seem professional," he says.

Three years ago, Bacall's office spent $30,000 for a computerized billing system. This concession to modern medical practice was late in coming but finally necessary because to bill the old way meant longer waits from insurance companies and the federal government for reimbursement.

It is clear that the office is set up as a business out of necessity and not as a primary object. "There's a fine line between medicine and business. We can't make it feel like a business to patients, but still we want to get paid," says Wilhelmy.

While Bacall doesn't take Medicaid patients at his office, he does treat them through his hospital as an attending doctor two days a month and on-call one or two nights a month. The hospital bills Medicaid in his name but keeps the money.

As for Medicare patients, given the nature of his practice, he has a relatively large share. Many are patients who started coming to the office in the 1940s. Although the doctors who treated them are now retired, Bacall keeps them on because he likes them and views them as a legacy of the founders of the practice. (They are called the "fountain pen ladies" because their early record entries are written in fountain pen.)

On a 24-patient day, five will be obstetrics, 19 will be gynecological--of whom four are fountain pen ladies. When Bacall started practicing medicine, Medicare reimbursement rates were comparable to costs. Now, they cover 80 percent of "allowable charges." Bacall charges, on average, $140 for a routine check-up; Medicare allows $47.63. He figures that he loses money on every Medicare patient. Not just on the dollar rate, but the time spent. While he could be spending an average of 15 minutes with a private patient, Medicare patients take about twice that long --both to undress and dress and because they have multiple complaints. "Their visit is a very important part of their day, their week," says Bacall, "so they can't be rushed and I don't want to rush them."

There is of course no way to see Medicare patients at a reasonable rate--even if they are rich and wish to reimburse him privately. "If I know they are over 65, I can only charge them the Medicare rates and these rates are capped. No reasonable fee-for-service is allowed. The wisest business decision I could make would be to stop taking Medicare patients," says Bacall. Many of his colleagues already have.

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