Why the U . S . Manufacturing Industry has shrunk to its lowest percentage revenue level of GDP and how to create a supportive financial environment

At its lowest in modern history, the U.S. manufacturing industry is now at 11% of GDP, down from 24.3% in 1970. The U.S. health care expenditures are higher than the average of the 35 Organization for Economic Co-operation and Development (OECD) members. This expenditure is two and a half times the average of OECD countries.

On a closer look, the cause must be the healthcare industry and its rising overhead to the

manufacturers. A simple comparison of the percentage change in the healthcare industry's GDP versus the manufacturing industry shows a direct correlation between the growth of one and the shrinkage of the other, percentage point for a percentage point. No other sector besides manufacturing has seen such a decline during this period.

The cause is the growth of the healthcare industry and how the U.S. pays for it. The U.S. is the only industrial country where the employer directly pays a substantial share of employees' health care benefits. In other nations, citizens themselves and businesses foot the bill through income taxes.

The decline of the U.S. economy's manufacturing sector is even more evident looking back further in time. In 1998, there were 18.1 million manufacturing jobs, 11% of total employment, and 5.6 million more than in 2018. Also, while real GDP increased 47% from 1998 to 2018, the manufacturing sector increased just 5%.

This chart illustrates the Gross Domestic Price percentages of the Manufacturing Industry and the Healthcare Industry over forty years. The graph clearly shows the direct relationship between the increase in healthcare spending and the decrease in the manufacturing industry's revenues.

The cycle of Manufacturing Organization

A manufactured good is made through several steps to get to the finished product, with each step

adding the subsequent employee healthcare benefits cost to the finished product. These costs are

referred to as indirect healthcare costs. For instance,

Step one: in the manufacture of a car, the ore miners have direct healthcare costs marked up and

passed along in the ore price.

Step two: the ore is purified and shaped in the steel mills, which adds one more indirect healthcare

cost and one direct healthcare cost, then included in the price.

Step three: all the various components are assembled by the auto manufacturers, adding two more

indirect healthcare costs and one direct healthcare cost, then passed on.

Step four: the retail auto sale force sells the cars, adds one direct healthcare cost and three indirect

healthcare costs to the selling price.

Each group must sell its products above its break-even point of costs to stay in business and then add

amounts to cover its profits and taxes. By eliminating the direct and indirect employer's healthcare

costs, the final finished good's break-even point is much lower and can be competitively priced. All

international manufacturing competitors have eliminated employer-paid health care costs. For the

United States to compete, we must eradicate employer-paid health care insurance costs.

Eliminating the Affordable Care Act will only increase healthcare costs in the country and overwhelm

Medicaid programs; an additional twenty million individuals will be put back on Medicaid. The number

of personal bankruptcies caused by medical claims will revert from today's half a million back to 1.5

million. The solution is to go further than the Affordable Care Act and cover every man, woman, and

child, and pay for the coverage with income tax revenues

Congress may yet have to deal with the ACA, if the Supreme Court strikes down or severely weakens

the law when it rules on California v. Texas, the case challenging the constitutionality of the individual

mandate. There are relatively easy paths for Congress to avoid a wholesale undoing of the ACA, but

there will have to be the political will to forge bipartisan compromise.

How U.S. spending on healthcare Changed over time

Health spending totalled $74.1 billion in 1970. By 2000, health expenditures reached about $1.4

trillion, and in 2019 the amount spent on health more than doubled to $3.8 trillion. Total health

expenditures represent the amount spent on health care and related activities (such as administration

of insurance, health research, and public health), including expenditures from both public and private

funds

On a per-capita basis, health spending has increased over 31-fold in the last four decades, from $353

per person in 1970 to $11,582 in 2019. In constant 2019 dollars, the increase was about 6-fold, from

$1,848 In 1970 to $11,582 in 2019

Another way to examine spending trends is to look at what share of the economy is devoted to health.

In 1970, 6.9% of the gross domestic product (GDP) in the U.S. was spent toward total health spending

(both through public and private funds). By 2019, the amount spent on healthcare has increased to

17.7% of the GDP. Health spending as a share of the economy often increases during economic

downturns and remains relatively stable during expansionary periods. From 2016 through 2019, the

GDP percentage attributable to health spending decreased slightly from 17.9% to 17.7%. Although

health services spending has fallen in the first three-quarters of 2020 relative to the same period in

2019, GDP has decreased more in 2020 over 2019. Therefore, health spending may represent a larger

portion of the economy in 2020 than in prior years.

From 1970 through 1980, the U.S. economy's average annual growth was 9.3% per year, compared to

health spending growth of 12%. Although health spending growth has since moderated, it generally

continued to outpace the economy's growth, though by somewhat smaller margins in recent years.

However, the periods from 2010 through 2013 and 2016 through 2018 saw an average annual growth

rate in health expenditures similar to growth in GDP. Health spending did pick back up in 2014 and

2015 with the Affordable Care Act's coverage expansions, and growth has been stable in the years

since.

Hospital spending represented close to a third (31%) of overall health spending in 2019, and

physicians/clinics represent 20% of total expenditures. Prescription drugs accounted for 10% of total

health spending in 2019, which is up from 7% of total expenditure in 1970

Most of the recent health spending growth is in insurance programs, both private and public. Private

insurance expenditures now represent 31.5% of total health spending (up from 20.4% in 1970), and

general insurance (which includes Medicare, Medicaid, CHIP, and the Veterans Administration and

Department of Defence) represented 41% of overall health spending in 2019 (up from 22% in 1970).

Although out-of-pocket costs per capita have also been rising, they now make up a smaller share of

total health expenditures compared to previous decades. Per enrolee spending by private insurance

grew by 51.3% from 2008 to 2019 — much faster than both Medicare and Medicaid spending growth

per enrolee (26.2% and 16.4%, respectively). Generally speaking, private insurance pays higher prices

for Healthcare than Medicare and Medicaid.

On a per-enrolee basis, the average annual growth of Medicare spending was similar to that of private

insurance throughout the 1990s and 2000s. Average yearly expenditures per enrolee in Medicaid were

similar to change for Medicare and private insurance in the 1990s but slowed in the 2000s while

spending growth accelerated for the other major payers. More recently, per-enrolees spending in

Medicare and Medicaid has grown somewhat slower than per-enrolee spending in private insurance.

Effect of COVID-19

Early in the COVID-19 pandemic, it was not clear how healthcare utilization and spending would

change. Although one might expect health costs to increase during a pandemic, there were

other factors driving spending and utilization down.

In the spring of 2020, healthcare use and spending dropped precipitously due to cancellations of

elective care to increase hospital capacity and social distancing measures to mitigate the coronavirus's

community spread. Although telemedicine use increased sharply, it was not enough to compensate

for the drop in in-person care. As the year progressed, healthcare use and spending began to rebound

as in-person care resumed for hospital and lab services, and COVID-19 testing became more widely

available. However, overall health spending appears to have dropped slightly in 2020, the first time in

recorded history.

As of December 2020, health services spending was down about 2.7% (seasonally adjusted annual

rates), and it remained suppressed in January 2021. When adding in spending on prescription drugs,

total health spending was down by just about 1.5% as of December 2020 compared to the same time

in 2019. The US GDP fell by 3.5% by the end of 2020, meaning that, although health spending dropped,it likely represented a larger share of the economy than in past years.

The drop in health spending in 2020 reflects a decrease in utilization for non-COVID medical care.

Particularly early in the pandemic, it appears many people delayed or went without the medical care

they otherwise would have received. Although healthcare use picked up toward the end of the year,

it was not enough to compensate for the missed care earlier in the year. Additionally, the cost of

COVID-19 vaccine administration will likely have an upward effect on claims costs in 2021, as

several insurers noted in their rate filings to state regulators.

Another way to look at health spending trends is to use the personal consumption expenditure (PCE)

data from the Bureau of Economic Analysis (BEA)

At the lowest point in April 2020, personal consumption expenditures on health services (not including

pharmaceuticals) were down by -31.9% on an annualized basis. This lowering of expenses was

unprecedented, as year-over-year personal consumption expenditures on health services have grown

every month since the data became available in the 1960s. Personal consumption expenditures

plunged in the spring 2020, but rebounded, and by January 2021, was down just -2.4% from the

previous year (seasonally adjusted at annual rates).

The chart above does not include spending on pharmaceuticals and other medical products, which

was up 5.0% year-over-year in December 2020 and up 1.0% year-over-year as of January 2021 over

the same time the year before. Prescription drug revenue has not suffered from the pandemic the

way health services revenue has. The latter fell primarily due to social distancing and the delay or

cancellation of elective procedures. Combined spending on health services and prescription drugs was

down by -1.53% as of December 2020 and by -2.2% as of January 2021 (seasonally adjusted annual

rates, relative to the same month in the prior year).

As of the fourth quarter of 2020, US GDP was down by -3.5% (seasonally adjusted at annual rates),

relative to the fourth quarter of 2019. This suggests health spending may represent a somewhat more

significant share of the economy in 2020 than in past years. The National Health Expenditure Accounts

(NHEA) are the official source of health spending in the U.S. The NHEA counts a broader set of health-

related spending compared to the BEA methodology. The NHEA data showed health spending as a

percent of the U.S. economy was 17.7% in 2019. The NHEA estimates of health spending as a share of

the economy in 2020 will be updated later in the year. Based on BEA data, we estimate health

spending as a percent of the U.S. economy might have increased by 0.1 percentage points in 2020.

Inside Healthcare Industry

USA healthcare sector is in many ways the most consequential part of the United States economy. It

is a fundamental part of people's lives, supporting their health and well-being. Moreover, it matters

because of its economic size and budgetary implications. The healthcare sector now employs 11

percent of American workers (Bureau of Labour Statistics [BLS] 1980–2019b and authors' calculations)

and accounts for 24 percent of government spending (Centres for Medicare & Medicaid Services [CMS]

1987–2018; Bureau of Economic Analysis 1987–2018; authors' calculations). Health insurance is the

most significant component (26 percent) of nonwage compensation (BLS 2019b), and health care is

one of the largest categories of consumer spending (8.1 percent of consumer expenditures; BLS

2019a). The United States has a healthcare system that primarily consists of private providers and

private insurance. Still, health care has become a more significant part of the economy, a higher share

of healthcare funding. As of 2018, 34 percent of Americans received their health care via government

insurance or direct public provision

The Healthcare Industry providers are paying considerable kickbacks to insurance companies in the

revenue form of cancelled debts. These kickbacks are in the premiums charged to employers. The

providers and insurance companies violated the tax laws, antitrust laws, federal and state kickback

laws and destroyed the nations' manufacturing Industry. The price discrimination concept also

prevails in:

• the different amounts collected from private-pay patients, insured v. uninsured,   

• the different amount collected from different insurance companies, the kickback amounts are

separately negotiated,

• the different amount collected, within same insurance contract, for different services; this is

what is known as cost shifting, many times the charges reflect the demographics of the

insured members, not the average cost to price ratios of each service; this is especially true

when increasing the charges for the elderly where the government picks up the payments.

The amounts collected from different insurance companies are due to the amounts of the negotiated

kickbacks. The practice of paying kickbacks is done to get access to the insurance companies' insured

members. The kickbacks are called trade secrets and hidden from competitors. The provider's

competitors, many times, are lower in price, but with the kickbacks paid, the insurance company gets

a better financial deal. The standard charges do not reflect the actual price, except for the uninsured.

Still, the charges determine the insurance companies' premiums to their customers, the employers.

The healthcare industry quickly realized that by increasing the amount listed on the beneficiaries' bills,

the government would increase the Medicare reimbursements. The healthcare insurance companies

and the healthcare providers worked together to improve the billed amounts, thereby shifting the

payment of healthcare costs to the government. The insurance companies would not pay the

increased amounts, so the providers had to cancel the debt partially. Instead of recording it as

cancelled debt, which violates the price discrimination statutes, it is recorded as a contract

adjustment. To justify these accounting practices, the insurance companies and providers entered into

contracts with an agreement to pay less than the standard charge.

The insurance companies went even further, requiring any provider who wished to access its insured members must give them a kickback in the form of a partial cancelation of debt. The anti-kickback statutes and Stark laws bar the practice of referring patients, for cash or cash equivalents. The contract also requires all patients to be billed the standard charge, including Medicare and non-insured patients. Presently non-insured patients are paying seven times more than the amount collected from insurance companies. Since the healthcare provider's customer is the patient, the difference in the amounts collected is price discrimination. All patients, private-pay or government beneficiaries, must be charged the same lowest price, the actual amount collected.

The insurance companies created a list of approved providers, known as the in-network providers.  They gave substantially financial penalties to the insured patient if they took their business to an off network provider. The insured patients are financially coerced to boycott any provider not listed as an  in-network provider. The coercion is simple. Instead of paying a 10% co-payment, the insured member  must pay at least a co-payment of 20% of the billed amount. This increase is a 12-fold increase of the  co-payment. Let us say both the in-network provider and the off-network provider standard charge is  $100. The insurance company has an agreement to pay only $15 to the in-network provider, so the  co-payment is $1.50. The off-network provider bills $100, and the new co-payment is $20divided by  1.5 is 12. These actions are all restraint of trade and illegal.

As time went on, the providers increased the billed amount of insured patients and the billed amount  listed on the public beneficiaries' bills. At first, a few percentage points increase the difference  between the amounts billed and the amounts collected each year. The difference is now greater than  85%. Thus, as prices rose, the contribution to GDP also kept on increasing. The following table,  prepared by the Florida Healthcare Finance Administration showing the growth of hospital revenues  and the growth of hospital billings:

1987 – 2011	Percentage Changes
Hospital Gross Billing	1354%
Hospital Revenue	372%
Consumer Price Index	95%

The healthcare industry has been following an oligopoly structure, and hence conscious parallelism will be bound to happen. Conscious parallelism is a term used in competition law to describe pricing strategies among competitors in an oligopoly without an actual agreement between the players. Instead, one competitor will take the lead in raising or lowering prices. The others will then follow suit, raising or lowering their prices by the same amount, understanding that greater profits result. We have seen a sharp increase in price across all competitors due to this.

This practice can be harmful to consumers who, if the firm's market power is used, can be forced to  pay monopoly prices for goods that should be selling for only a little more than the cost of production.  Nevertheless, it is tough to prosecute because it may occur without any collusion between the  competitors. Courts have held that no violation of the antitrust laws occurs where firms independently raise or lower prices. A violation can be shown when "plus factors" occur, such as firms being  motivated to collude and taking actions against their economic interests. 

The term has also been used to describe industry-wide assumptions of terms other than price. For  example, all competitors in an industry might make only long-term leases of products such as heavy  machinery, leaving lessors with no opportunity to make a short-term lease of that product from any  competitor.

U.S. Debt to GDP Ratio – A lagging indicator

When a country defaults on its debt, it often triggers financial panic in domestic and international markets. As a rule, the higher a country's debt-to-GDP ratio climbs, the higher its risk of default becomes. Although governments strive to lower their debt-to-GDP ratios, this can be difficult to achieve during periods of unrest, such as wartime or economic recession. In such challenging climates, governments tend to increase borrowing to stimulate growth and boost aggregate demand. This macroeconomic strategy is a chief ideal in Keynesian economics.

Economists who adhere to modern monetary theory (MMT) argue that sovereign nations capable of printing their own money cannot ever go bankrupt because they can produce more fiat currency to service debts. However, this rule does not apply to countries that do not control their monetary policies, such as European Union (E.U.) nations, which must rely on the European Central Bank (ECB) to issue euros.

A study by the World Bank found that countries whose debt-to-GDP ratios exceeded 77% for prolonged periods experienced significant slowdowns in economic growth. Pointedly: every percentage point of debt above this level costs countries 1.7% in economic development. This phenomenon is even more pronounced in emerging markets, where each additional percentage point of debt over 64% annually slows growth by 2%.

Key Takeaways

• The debt-to-GDP ratio is the ratio of a country's public debt to its gross domestic product(GDP). • If a country is unable to pay its debt, it defaults, which could cause a financial panic in the domestic and international markets. The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default. • A study by the World Bank found that if the debt-to-GDP ratio exceeds 77% for an extended period, it slows economic growth.

Debt-to-GDP Patterns in the United States

According to the U.S. Bureau of Public Debt, in 2015 and 2017, the United States had debt-to-GDP ratios of 104.17% and 105.4%, respectively. Putting these ratios into perspective, the U.S.'s highest debt-to-GDP ratio was 121.7% at the end of World War II in 1946. Debt levels gradually fell from their post-World War II peak before plateauing between 31% and 40% in the 1970s—ultimately hitting a historic 31.7% low in 1974. Ratios have steadily risen since 1980 and then jumped sharply, following 2007's subprime housing crisis and the subsequent financial meltdown. With the decline of the GDP due to the COVID 19 pandemic and the needed stimulus packages, the U.S. ratio should be greater than WWII. All that said, manufacturing remains an essential component of U.S. GDP: at $2.33 trillion in 2018, it drove 11.6% of U.S. economic output, and comprise half of the country's exports. And, while the sector is likely in for record lows during March amid the coronavirus pandemic, there may be hope for a speedy recovery from rival China's manufacturing rebound: Chinese manufacturing expanded slightly in March as the country begins slowly rebounding from the coronavirus.

Limitations of Debt-to-GDP

The landmark 2010 study entitled "Growth in a Time of Debt," conducted by Harvard economists Carmen Reinhart and Kenneth Rogoff, painted a gloomy picture for countries with high debt-to-GDP ratios. However, a 2013 review of the study identified coding errors and the selective exclusion of data, which purportedly led Reinhart and Rogoff to make errant conclusions. Although corrections of these computational errors undermined the central claim that excess debt causes recessions, Reinhart and Rogoff still maintain that their findings are nonetheless valid.

The U.S. national debt is more than $23 trillion. That's greater than the economic output of the entire country. The U.S. began heading toward a debt default after threats to raise the debt ceiling and the U.S. debt crisis in 2011. It continued with the fiscal cliff crisis in 2012 and the government shutdown in 2013. While a debt default has yet to happen, the national debt continues to reach unprecedented levels.1

Key Takeaways

• The debt-to-GDP ratio gives insight into whether the United States can cover all of its debt. • A combination of recessions, defense budget growth, and tax cuts has raised the national debt-to-GDP ratio to unsustainable levels. • The United States cannot afford to default on its debt without major global economic consequences.

How to Look at Debt by Year

It's best to look at a country's national debt in context. During a recession, expansionary fiscal policy, such as spending and tax cuts, is needed to spur the economy out of recession. During national threats, the U.S. increased military spending.

The national debt by year should be compared to the economy's size as measured by the gross domestic product. That gives you the debt-to-GDP ratio.

The government creates debt with either excessive spending or deep tax cuts. If this expansionary fiscal policy boosts growth enough, it can reduce the deficit. A growing economy produces more tax revenues to pay back the debt. The theory of supply-side economics says the growth from tax cuts is enough to replace the tax revenue lost. But that only occurs if taxes are too high—more than 50% of income, for example. Spending by the government that increases the national debt without a plan to pay off the debt is just puffing up the economy and letting future generations pay off the debt or suffer its consequences.

Other events can also increase the national debt. For example, the U.S. debt grew after the Sept. 11, 2011 attacks as the country increased military spending to launch the "War on Terror." Between fiscal years 2001 and 2020, those efforts cost $6.4 trillion, including increases to the Department of Defence, Homeland Security, and the Veterans Administration.

Ways to fix Manufacturing Industry in terms of % revenue

There are many causes of the U.S. Manufacturing Industry has shrunk to its lowest percentage revenue level. Still, the main reason is the healthcare industry's growth and how the U.S. pays for it, and the manufacturers cannot cover the spiralling healthcare benefit costs.

The basic of any manufacturing industry is that each group must sell its products above its break-even point (No profit and no loss) of costs to stay in business and then add amounts to cover its profits and taxes. By eliminating the direct and indirect employer's healthcare costs, the final finished good's break-even point is much lower and can be competitively priced. All international manufacturing competitors have eliminated employer-paid health care costs. For the United States to compete, we must eradicate employer-paid health care insurance costs.

Firstly, the problem can be solved if we revise our taxation policy, the new tax proposal in terms of competitive pricing, and the elimination of FICA taxes.

When these recommendations for a single-payer system and revised tax system are implemented, there will be many changes taking place, some good and some bad.

On the good side, everyone will be covered for health care, people with pre-existing conditions will be covered, and people will have their choice of healthcare provider. Employees with existing illnesses or disabling skills will be able to get jobs and hold on to them with their abilities to produce. The money allocated to the employees for health care will be paid to them in higher wages, about $10 thousand per employee, plus FICA taxes. The salary increase will be the biggest recorded in our nation's history while creating a vast consumer group flush with money. The 1.7 million bankruptcies personal bankruptcies due to health care costs will be eliminated. The 25 percent of administrative health care expenditures for billing and collecting will be eliminated. The national health care expenditure will be cut in half or lower. The trade deficit will be eliminated. The National Debt will be lowered. With universal healthcare, all employees will have greater freedom of choice of where they work and not have to worry about changing jobs with a loss of medical coverage. The state's Medicaid expenditures will be eliminated and should immediately be moved to offset the cost of free higher education, like every other industrial country.

On the downside, the bad news is based on a comparison with the insurance companies' employees per capita of Canada, 250,000 insurance sales jobs will be lost; there is no need for salespeople; these sales jobs should easily be moved to the manufacturing industry. Taxes paid for The Federal Insurance Contributions Act (FICA) will be substituted by a flat tax added to the corporate and personal income rates. The total FICA tax is 15.3%, that percentage will no longer be deducted from income. The New tax system adds $15,000 to cover the average health care employee expense and the FICA taxes. The $15,000 is now taxable income; therefore, the United States' tax revenues have increased. The lower- and middle-income classes see an increase in their take-home wages. The New tax rates are the 2017 Tax rates plus 3% for each tax group. Although this seems a tax increase, it is lower for the lower- and middle-income groups because it has eliminated the 7.5% FICA taxes; therefore, it is lowering their taxes by 4.5%. The upper-income groups will have a 3% increase. The amount of tax revenues will be substantially increased; all lower- and middle-income groups will be taking home larger pay checks but pay more significant taxes.

In this case, the employer and employee each pay 7.65%. Here is the breakdown of these taxes. Within that 7.65%, the OASDI (Old Age, Survivors, and Disability program, AKA, Social Security) portion is 6.2%, up to the annual maximum wages subject to Social Security. The Medicare portion is 1.45% for each employee on all employee earnings.

The new amount of the flat tax will have to be determined by the General Accounting Office and should be added to all earned income tax levels, which will ensure all people pay their fair amount of taxes. The medical portion should only rise 3% to 4%, raising each contribution from 10.65% to 11.65%. Included will be the government's obligation to our military veterans. The rise in the amount collected for the new taxes will be far lower than each person's income increase.

Our progressive personal income tax system is fair. We realize specific individuals will always make more than others, allowed to keep most of it, which is a strong motivator for success. We also realize that when more is given to an individual under our capitalistic system. Robust financial system is required for maintaining our freedom, therefore in the short run, more has to be given to the government for the maintenance of the country and the maintenance of our capitalistic system. In the future, we will pass legislation for the supervision of a balanced budget. When the initial transition is finished, we must allow market forces to stabilize all industries and keep government interference to a minimum.

The country must make the changes advocated, or we will be facing financial ruin. Manufacturing creates wealth. Without a strong manufacturing industry, we will become a third world country, with our primary Industry becoming agriculture. Our production cost of our produce will keep rising because other rich nations will be buying our products and inflating our prices.

A massive stimulus program will give employees more money directly and the first steps to rebuild the United States manufacturing industry. The employers are to cancel all health insurance contracts for employees; the employers are to pay each employee an average salary increase of the amount allotted for health care benefits. Medicare is going to cover all medical expenses.

The highest-rated government-sponsored health care system is in the United Kingdom; it is the least expensive and provides good service. This system controls its doctors' salaries, which will be reduced. Moving to this health care system means the U.S. national health care costs will be$1.5 trillion. This amount will cover medical services, medicines, hearing aids, and glasses.

To improve the quality of our lives, substantially lower the nation's healthcare costs, cover all individuals, including those with existing conditions, improve employees' salaries, make our manufacturing industry competitive with other countries, we must eliminate employer-paid health care benefits and have a single-payer healthcare system, with universal coverage and change the tax system to pay for healthcare and Social Security benefits.

Top 5 Countries with the Biggest Manufacturing Output (2018) 1.China: $4T (28.37% of world total) 2. United States $2.3T (16.65% of world total) 3. Japan: $1T (7.23% of world total) 4. Germany: $806B (5.78% of world total) 5. South Korea: $459B (3.29% of world total)

China became the superpower of manufacturing because the U.S. manufacturers shipped their production of manufactured goods to China. Much of President Trump's focus on manufacturing has laid with China: in August 2019, Trump ordered U.S. companies to begin looking for an alternative to manufacturing in that country. Calls for decreased dependence on Chinese manufacturing have intensified with the coronavirus outbreak, as lawmakers have questioned the natural security implications of relying heavily on a foreign country for essential supplies like pharmaceuticals.

While new data indicates that U.S. companies are indeed shifting production from China, the effects to the U.S. manufacturing economy remain unclear. Ironically, the manufacturing sector has been adversely impacted by tariffs on Chinese imports enacted by the Trump administration. As a whole, factory production in the U.S. shrank by 1.3 percent in 2019, a ten-year low.

Some Legal and Taxation terms

Tax evasion is using illegal means to avoid paying taxes. Typically, tax evasion schemes involve an individual or corporation misrepresenting their income to the Internal Revenue Service. Misrepresentation may take the form either of underreporting income, inflating deductions, or hiding money and its interest altogether in offshore accounts. For perspective, the federal budget deficit in 2018 was $779 billion, so the tax gap could plausibly have been 70-80 percent as large as the entire budget deficit in 2018.

Individuals involved in illegal enterprises often engage in tax evasion because reporting their true personal incomes would serve as an admission of guilt and could result in criminal charges. Individuals who try to report these earnings as coming from a legitimate source can face money laundering charges.

In the United States, tax evasion constitutes a crime that may give rise to substantial monetary penalties, imprisonment, or both.

Section 7201 of the Internal Revenue Code says,

"Any person who wilfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution."

Tax Evasion Penalties

There's a long list of potential penalties and consequences for tax evasion. Paying your taxes is a better deal than having any of the following happen to you.

• Face Criminal Charges o Tax evasion is a felony criminal offense. If you are charged with tax evasion, the United States Attorney's Office will prosecute you in federal court. • Pay a Penalty o If you act with the purpose of avoiding or defeating any tax owed to the IRS, you could be fined up to $250,000. Even if you're not formally charged with tax evasion, you will be assessed fines if you file your return more than 60 days after the due date. The failure-to-file penalty is 10 times more than the failure-to-pay penalty. So, the IRS recommends that even if you can't pay in full, you should file your tax return and pay as much as you can. • Pay Interest o The IRS is required by Law to charge interest when you don't pay on time. The interest accrues from the due date of your return (regardless of extensions) until you pay the amount you owe in full, including all interest and any penalty charges. Interest rates are variable and may change quarterly. • Go to Prison o If you're found guilty of tax evasion, you can go to federal prison for up to five years. • Top of Form o If you owe the IRS, 15 percent of your Social Security benefits can be taken each month until the debt is paid in full. The government uses the Federal Payment Levy Program to garnish your payments. • Tax Lien on Your Property o A federal tax lien is a legal claim to your property. The tax lien arises automatically when you don't pay in full the taxes you owe within 10 days after the IRS makes a tax assessment. It will then send a notice of taxes owed and demand for payment. The IRS may also file a Notice of Federal Tax Lien in the public records, which notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the filing of the Notice of Federal Tax Lien. Once a lien arises, the IRS generally can't release the lien until the tax, penalty, interest, and recording fees are paid in full or until the IRS can't legally collect the tax. • Lose Your Property o A levy is a legal seizure that takes your property (such as your house or car) or your rights to property (such as your income, bank account, retirement account or Social Security payments) to satisfy your tax debt. When property is seized ("levied"), it will be sold to help pay your tax debt. Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. In pure price discrimination, the seller charges each customer the maximum price he or she will pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.

Price Discrimination Under Federal Law

Under federal Law, the core provisions of the Robinson-Patman Act (15 USC §§ 13(a)–(f)) prohibit various forms of discrimination by sellers of commodity goods. This Depression-era statute's legislative history makes clear the intent to protect small retail grocers in competition with then- emerging supermarket chains. With its focus on goods to the exclusion of services and its regard for individual competitors, the Robinson-Patman Act is, on its face, very different from other U.S. antitrust laws. The Act has consistently been enforced primarily by voluntary compliance and, with mixed results, private litigation. To recover treble damages and attorneys' fees, a private plaintiff must satisfy Section 4 of the Clayton Act (15 USC § 15) by proving he has been "injured in his business or property by reason of" the defendant's unlawful, anticompetitive conduct. It is by no means rare for a Robinson-Patman Act damages case to be dismissed because of the plaintiff's inability to satisfy this requirement. Efforts to bring class action lawsuits on the Robinson- Patman Act are rare—and rarely successful. There has been no significant government agency enforcement of the Act for over twenty years. Although there are provisions of the Act that make price discrimination a criminal offense (see 15 USC § 13a), the U.S. Department of Justice has publicly stated it has no intention of prosecuting such claims.

The Elements of Illegal Price Discrimination

Different prices must have been obtained from two different purchasers unrelated to the seller. The sales must also have been made by the same seller. Whether sales are "contemporaneous" requires consideration of industry-specific sales patterns and practices and the course of dealing between the parties. Favorable credit terms, and promotional allowances above the value of promotional services rendered by the buyer, may also be viewed as facilitating "indirect" price discrimination in the form of disguised discounts. The purchasers must be actual purchasers, not prospective customers, terminated customers, lessees, licensees, parties to swap agreements or consignees. The statute does not apply to the sale of services or mixed transactions in which a sale of goods is merely incidental to the sale of services. The state statutes do cover services. To determine whether a transaction involving both goods and services falls within the Act's scope, U.S. courts perform a fact- based analysis of the "dominant nature" of the transaction. The requirement that commodities be of "like grade and quality" looks only at whether the items are sufficiently physically similar and ignores differences in packaging, branding, and warranties. The competing buyers' element focuses on whether the buyers were actually and directly competing for resales among the same group of customers. The Supreme Court describes the "different prices" element as "merely a difference in price." A difference is established by comparing the net prices, after all, discounts, for which the subject goods were sold. The interstate commerce requirement merely requires that at least one of the two sales at issue cross state lines. The last element, the competitive injury component, can occur at different competition levels, including the primary line—i.e., in competition between a discriminating seller and its competitors; or the secondary line—i.e., in competition between favored and disfavored buyers of the discriminating seller. There can be claims involving tertiary line violations, i.e., injury to competition between the customers of favored and disfavored buyers, or even fourth-line violations, i.e., damage to competition between the customers of the favored and disfavoured buyers. Actual harm to competition is not an element of the prima facie violation; only "a reasonable possibility that a price difference may harm competition" is required. However, as noted above, the mere showing of a prima facie violation does not automatically entitle a Robinson-Patman Act plaintiff to recover damages or equitable relief.

Discrimination in Providing Monetary and Non-Monetary Promotional Benefits Related to Resale

The Act prohibits a seller from paying different allowances or furnishing different levels of benefits or services to promote the resale of the seller's product. This does not include claims based on allegedly discriminatory allocation or delivery practices. There is no liability concerning promotional funds and benefits governed by the Act if they are offered to all competing buyers on "proportionally equal" terms. And although the "meeting competition" defense does not expressly extend to discrimination in promotional funds and benefits, the FTC's interpretive rules make clear that a seller may offer promotional payments, services, or facilities in a good faith effort to match payments, services, or facilities offered by competitors. In contrast to price discrimination, discriminatory promotional practices are per se violations of the Act that do not require any showing of actual or potential harm to competition. Cost justification is also not available as a defense.

Buyer Liability for Inducing Unlawful Price Discrimination

The Robinson-Patman Act prohibits buyers of goods from knowingly inducing or receiving unlawfully discriminatory prices. However, a buyer is not liable for obtaining a discriminatory price if any available defense justifies the price differential.

Sham Brokerage and "Commercial Bribery" Claims

The Act makes it unlawful "to pay or grant, or to receive or accept, anything of value as a commission, brokerage or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediaries. Historically, this provision was enacted to prohibit so-called "dummy brokerage" arrangements, under which large buyers receive discounts disguised as brokerage fees or commissions without providing any real services. Liability is strict; none of the statutory defenses (e.g., cost justification, meeting competition) may be invoked. The only exception arises when a defendant can show that the allegedly unlawful payments were "for services rendered."

Price Discrimination Under State Law

Only a handful of states (for example, Connecticut, Florida, Idaho, Oklahoma, Utah, and Wyoming) prohibit the same types of discriminatory conduct as the Robinson-Patman Act. Some state price discrimination statutes apply to sales of services and commodities when the seller engages in "locality discrimination," i.e., selling services or commodities at prices that discriminate against buyers in certain towns or cities in the state. Examples of such statutes can be found in Arkansas, California, Colorado, Maryland, Mississippi, New Mexico, Oregon, Virginia, and Wisconsin.

The ability to bring private lawsuits under these statutes varies from state to state. Although such claims sometimes appear alongside claims under the Robinson-Patman Act, they are not a significant, independent private litigation font. State regulators have the authority to enforce these laws, but there is little civil or criminal enforcement activity in this area.

There are state anti-discrimination laws that apply to specific industries. For example, almost every state has enacted laws to protect new motor vehicle "franchisees" from discriminatory wholesale pricing, and many states have detailed restrictions against discrimination concerning promotional and incentive programs. In private litigation, remedies for violating such provisions often authorize recovery of multiple damages, attorney's fees, and costs. By eliminating some of the more challenging elements of federal Robinson-Patman Act claims—such as potential harm to competition—these laws offer more protection to individual competitors than the Robinson-Patman Act.

Legal and taxation laws

I am sure that everyone is wondering about the possibility of the points mentioned above, and there are many questions from a legal and taxation standpoint. The first question that comes to mind is Can a secret contract between two parties be above the Law? The simple answer to that is No. However, it depends upon which law enforcement agency you are referring to. The Department of Justice would not legally allow you to contract a killer to murder someone or will enable you to hire an arsenous to burn down your business to collect the insurance money. On the other hand, the IRS does allow health care providers to pay kickbacks to insurance companies to have access to their insured members, as long as the providers call the canceled debt a contract adjustment to the patient's contract. The tax code not enforced is 26 USC 162(c)(2). Secondly, when is income recognized, when the bill is issued, or when the cash payment is made? Typically, the organizations use the accrual method for such transactions. Accrual accounting is a method of keeping accounts that shows expenses incurred and income earned for a given period, although such costs and income may not have been paid or received. Right to receive and not the actual receipt determines inclusion of the amount in gross income.

Revenue Recognition Principle and the Matching Principle are fundamental of accrual accounting. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable and are earned (usually when goods are transferred or services rendered), no matter when cash is received. Our laws require the healthcare providers and insurance companies to be on the accrual accounting method because it is the most accurate method. This is so because it relies on the actual amount on bills and checks and does not consider the real cash paid. Once the patient's debt is created, the tax code only allows two possible writing methods off of the amount not paid by the insurance company, either as a bad debt or a canceled debt. The Law does not allow the amount to be written off as bad debt because it is being done voluntarily; therefore, the unpaid amount is canceled debt. The canceled debt must be reported to the IRS on an information tax return, form 1099C canceled debt. The insurance company must record the amount not paid as forgiven debt income and pay taxes on it. The IRS does not recognize the accrual accounting method, the billed amount for a privately insured patient. The IRS believes the cash payment of the insurance company determines the realized income. The IRS does not recognize the difference between the billed amount and the amount paid by the insurance company as canceled debt.

Thirdly, Legal Discounts are given to customers and shown on the bill when issued. Whose bill did the discounts show up on, the patient's bill or the insurance company's bill? Neither one! Health care providers do not give anyone a discount. The only medical bills issued list the patients' names. There are no bills listed in the insurance companies' names. The insurance companies are independent third-party payers, which spread the medical costs of their insured members. The insurance companies are paid to cover the medical bills of the insured members. Fourthly, the difference between billed amount and amount paid, is it a business expense, or bad debt, or cancellation of debt?

The private insurance companies send Explanation of Benefits Forms (EOB) to the insured members that clearly state it is not a bill but show how much the patient was billed (Patient's Debt), how much the insurance company pays. The co-payment and deductible the insured member owe the insurance company. An example of what we are talking about: A provider bills a privately insured patient $100, the actual amount recognized, for income purposes but only collects $25 in cash; the difference is $75 of debt owed to the provider. Is the $75 a business expense, or bad debt, or canceled debt? The first determination is who owes the $100 to the provider. Through contract determinations between the insured patient, insurance company, and provider, the insurance company accepts the medical debt's legal obligation of $100. In legal parlance, it is a novation, where one debtor, through contractual agreements, is substituted for another.

The $75 is not a bad debt because it is mutually agreed between the insurance company and the provider that the actual amount paid in cash is $25. The $75 is debt owed by the insurance company to the provider and not collected, thereby making it a canceled debt of the provider and forgiven debt income for the insurance company. But if it is a canceled debt, the Law requires the provider to send in an information tax return, 1099C, to the IRS to identify the insurance company's forgiveness of debt income. The $75 is forgiveness of debt income to the insurance company.

The contract between the insurance company and the provider states their legal relationship is that of a subcontractor and employer. The provider is treating the $75 write-off as a business expense. Their contract shows that the $75 paid is because it steered the insured member to the provider. The $75 is a kickback. Kickbacks in the Healthcare Industry are illegal. Kickbacks are not deductible as a business expense.

26 USC § 162 (C)(2) (c)Illegal bribes, kickbacks, and other payments "No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1)) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. Fifthly, why the contract adjustment account can be used for the government business side but cannot be used for the private business side?

The private business side's billing and contractual procedures look very similar to the government business side but have different tax considerations. On the private business side, the billed amount listed on the customer's bill creates realized income, a legal debt, and gross income. The bill does not create realized income or a legal debt on the government business side, but the amount is in the provider's gross income. The provider's realized income from the government, the income account is reconciled with what the government pays.

The provider's deviation from Generally Accepted Accounting Principles for the government business side is allowed because the Social Security laws for Medicare and Medicaid require it. The government business side accounting is a cash accounting method of accounting, not an accrual accounting method. The providers utilize two accounting methods. The Social Security law requires the providers to be on the accrual accounting method for the private business side. The tax problem is that the providers and the Internal Revenue Service (IRS) do not recognize the distinction between a provider's two business sides.

The use of the write-off of contractual adjustment account has been around since 1965 when the Medicare and Medicaid programs were started. No place in the Tax Code or Code of Federal Regulations allows for a contractual adjustment write-off. What happened was that the Financial Accounting Board created the contractual adjustment account designation to identify the difference of the amount listed on financial reports of the billed to the beneficiaries of the government programs of Medicare and Medicaid and what Congress approved for payment. In business, for the accrual accounting method, the difference not collected is a cancellation of debt. The party receiving the forgiveness of debt income must pay taxes on it, but the federal government does not pay itself taxes. The private business side's billing and contractual procedures look very similar to the government business side but have different tax considerations. On the private business side, the billed amount listed on the customer's bill creates realized income, a legal debt, and gross income. The bill does not create realized income or a legal debt on the government business side, but the amount is in the provider's gross income. The provider's realized income from the government, the income account is reconciled with what the government pays.

The provider's deviation from Generally Accepted Accounting Principles for the government business side is allowed because the Social Security laws for Medicare and Medicaid require it. The government business side accounting is a cash accounting method of accounting, not an accrual accounting method. The providers utilize two accounting methods. The Social Security law requires the providers to be on the accrual accounting method for the private business side. The tax problem is that the providers and the Internal Revenue Service (IRS) do not recognize the distinction between a provider's two business sides. Sixthly, we hear a lot many times about balance billing. What is the concept of balance billing? Is it legal? Balance billing is a practice where a health care provider bills a patient for the difference between their charge amount and any amounts paid by the patient's insurer or applied to a patient's deductible, coinsurance, or co-pay. It is important to note that billing a patient for amounts applied to their deductible, coinsurance, or co-pay is not considered balance billing. When a patient and a health insurance company both pay for health care expenses, it's called cost-sharing. Deductibles, coinsurance, and co-pays are all examples of cost-sharing, and these amounts are pre-determined per a patient's benefit plan.

Example: A healthcare provider bills $500 to insurance for service. The insurance pays $200 and applies $100 to patient responsibility for the deductible, coinsurance, or co-pay. This leaves a remaining balance of $200. If the healthcare provider bills the patient for the remaining $200 balance, balance billing would be considered.

In some circumstances, Balance billing is legal, and in some, it is not. In-network healthcare providers have agreed to accept the insurance plan's negotiated fees. Balance billing would not be permitted under an in-network agreement. The healthcare provider has agreed to accept the negotiated fees as payment in full plus any applicable deductible, coinsurance, or co-pay. In the above example, this would mean that the healthcare provider would accept the $200 plus the $100 (deductible, coinsurance, or co-pay amount) as payment in full and would adjust off the remaining $200 balance. In this situation, balance billing is NOT legal.

Out-of-network healthcare providers have not agreed to accept the insurance plan's negotiated fees and balance bill the patient. Without a signed agreement between the healthcare provider and the insurance plan, the healthcare provider is not limited in what they may bill the patient and may seek to hold the patient responsible for any amounts not paid by the insurance plan. In this situation balance billing I.S. legal. Unlawful Activities & favouring laws in Healthcare Industry In the United States, seventy percent of all patients are private-pay insured patients; they are covered by private health care insurance, paid mainly by employers. The delivery of health care and payment consists of two parts; the providers perform medical services, and the insurance companies are legally obligated to pay for the services.

The main business of providers is to provide medical services and goods to their customers, the patients. Usually, upon completing medical services, the provider issues a bill, listing the standard charges for both insured and non-insured patients. All patients are the same, which is a requirement of state and federal price discrimination laws. The providers are on the accrual accounting method; when the bill is issued, income is recognized and included in gross income. The recognition of income has nothing to do with when the provider receives payment for the services provided or pays. The insurance company's primary business is spreading the risk of an individual's sizeable medical bill among many individuals. The majority of the payments to cover these medical bills come from employers, and the employers call them medical benefits. When an insurance company receives a bill for an insured member, it recognizes the debt as an expense. The insurance company is liable for the full debt. In most cases, the insured member is partially responsible to the insurance company for co- payments and deductibles, and these expenses are not medical expenses. Through business agreements, the insurance companies have managed to make the providers collect these co- payments and deductibles from the insured patients. The tax problem happens when the co-payments, deductibles, and the amount the insurance company pays is less than the amount billed, the insured patient's legal debt. The tax code is very clear, once the patient's debt is created, the amount is added to gross income, the amount not collected can only be written off as a bad debt or a canceled debt. Since it is mutually agreed between the provider and the insurance company, the uncollected amount cannot be written off as bad debt to be deducted from gross income. The only accepted method recognized by the tax code is a cancellation of debt for the provider and forgiveness of debt income for the insurance company. A close examination of the contract's consideration shows the provider is paying the insurance company to steer its' insured members to the provider, which is defined as a kickback payment. Usually, the provider would be allowed to deduct canceled debt as a business expense from its' gross income. In the Healthcare Industry, kickbacks are illegal and are not legally deducted, even for not- for-profit corporations. The insurance company is performing an unlawful service on behalf of the providers on its network, but it has value. The provider must recognize the value as barter income and pay taxes on it. The purpose of making kickbacks illegal in the Healthcare Industry is to keep costs as low as possible. Not collecting taxes on the kickbacks defeats the purpose of the Law. Several IRS Technical Advisory Memos (TAMs), written about using contract adjustments for writing off the partial canceled debt or forgiven debt, have two premises. The contract between the insurance company and the provider must be legally enforceable and must be in effect before the bill being issued to the insured patient. The later requirement is false! The Universal Commercial Code Parole Evidence Rule states a prior agreement cannot be used to change a new contract, the patient's contract, or the amount listed on the patient's bill. The patient's contract and the patient's billed amount supersede any prior contract with the insurance company. The insurance company and the provider are two separate entities that have no legal relationship. The insurance company cannot modify the contract between the provider and patient or readjust the standard billed amount. The second part is false. An insurance company cannot receive a discount, it is not a customer, it purchases nothing, and the provider cannot give a discount because of our price discrimination laws. A legal discount must be listed on the patient's bill at the time of issuance. The providers do not record any discounts on the patients' accounts. Not-For-Profit Hospitals' normal income would not be taxed, but the Law is clear that the illegal payment of kickbacks cannot be deducted from gross income; therefore, these corporations must pay taxes on these kickbacks. These corporations participate in unlawful activity; therefore, their tax- exempt status is revoked, and all profits become taxable income. The Tax Code recognizes the provider's income under the accrual accounting method when the provider performs the patient's medical services, has a right to be paid, and issues a bill to the patient, where the amount can be easily identified. The patient's bill is paid in several manners, either by cash, credit card, check, or through a third-party insurance company. The bill's cash payment does not have any effect on the recognition of income for the provider under the accrual method of accounting. When an insurance company is utilized, the bill's full amount, the sum certain, or the patient's debt or legal obligation is transferred to the insurance company. The insurance company has an authoritative role in steering patients to providers by classifying the providers as in-network or out- of-network and using financial duress of charging different amounts of co-payments for the various providers. For the provider to gain access to the privately insured members, the provider must pay a kickback to the insurance company of partial cancellation of debt, which is a cash equivalent. In the healthcare industry, paying kickbacks by the provider is illegal. The Tax Code does not allow any deduction from income for the payment of kickbacks. To hide the unlawful practice of paying kickbacks, the providers record them as "contract adjustments." The Tax Code does not recognize contract adjustments as a legitimate deduction to gross income. The canceled debt given by the provider becomes the forgiven debt income of the insurance company. To hide the forgiven debt income, the insurance company lists the amount as a contract adjustment and does not recognize the revenue.

In 1965 the Medicare/Medicaid programs were created; the government made a pot of gold in the federal budget to pay for the allocated costs of medical services given to the beneficiaries. For Medicare, the reimbursements relied on the allocation of provider costs based on the proportionate amount of beneficiary bills compared to the total patient billings. This method created for the first time a difference between the billed amount and the actual amount paid to or collected by the provider, this deviation was only done for government programs. There was no provision for profits! The Industry quickly began allocating or creating new medical costs or facilities associated with the benefices' medical services, causing prices and costs to spiral upward. The Medicaid program started a federal money pool, divided into twelve regions, with each area getting a weighted amount determined by average charges. A region's share of the money-motivated a competition for growing charges or matching the other areas increases. Through this writer's efforts, this competition has been stopped.

The government programs designed a breach of accepted accrual accounting principles for the first time in our history. The amount listed on the beneficiary's bill was not the actual debt owed to the provider; this is unlike the amounts listed on the private-pay patients' bills. The government programs created two accrual accounting systems. The government's invoice was and still is a fake invoice that only contains medical and billing information but does not create a debt or legal liability owed to the provider. In 1973 Congress passed the HMO law, allowing insurance companies to create provider networks, to select and direct their insured members to the lower charging providers in a geographic area. The idea was that the providers would compete by lowering their charges to get access to the insurance companies' members. The Law was and is a restraint of trade. HMOs did not take off until the late 1980s. Still, for a different reason, the insurance companies began choosing higher charging providers rather than lower charging providers but demanding that the provider accept a smaller payment amount than the standard charges listed. The difference not paid was nick-named a "secret discount"; the insurance companies and providers called these "secret discounts" trade secrets, removing medical billing transparency.

A provider may have a contract from one to a hundred insurance companies, but an insurance company may be contracted to one million providers. "Conscious parallelism" is a term used in competition law to describe pricing strategies among competitors in an oligopoly without an actual agreement between the players. Instead, one competitor will take the lead in raising or lowering prices. The others will then follow suit, raising or lowering their prices by the same amount, understanding that greater profits result. The providers appear to establish their prices in a "consciously parallel" fashion; also known as the "interdependence theory" of oligopoly pricing. Once the healthcare industry realized the IRS was not properly enforcing the tax code, they took advantage of it to enrich themselves.

In 1983, to control the spiralling beneficiary costs, Medicare went from the proportionate reimbursement of medical costs to the Prospective Payment System. The government grouped related procedures (DRG) based on diagnostics and set a fixed reimbursement amount for each group. The idea was that a provider could make a more significant profit by lowering its costs. It sounds like a great idea, but there was a flaw built in the reimbursement methodology. The Social Security Law, 42 CFR 1395, Prohibition against any Federal Interference, mandated the federal government not to interfere in the providers' administrated practices. The government paid the providers trillions of dollars but could not audit the providers to ensure they followed proper administrative procedures or accounting practices.

The Social Security Law mandates all the providers be on the accrual method of accounting. The Health Care Financial Administration (HCFA), now known as the Centres for Medicare/Medicaid Services (CMS), relies on the Internal Revenue Service to do its audits and ensure the billing practices followed GAAP, for the private side of the providers business. The new Law required an annual increase in the reimbursement rates; the new amounts would be determined based on a breadbasket full of indexes, with each index having different weights. The heaviest weighted indexes are under the Industry's control; they are the medical charges, the physicians' pay, and the Consumer Price Increase (CPI); the CPI included the fees listed on the patients' bills actual amount collected. Since 1983 medical charges index has always been higher than the CPI, bringing the CPI higher. So, by increasing medical charges and physicians' pay, the government pays out more money, and each year the pot of gold in the federal budget gets more significant, and so does our taxes. From this point in time, health care revenues begin to climb; the major contributing factor is an increase in medical charges. The designers of the Prospective Payment System relied upon the enforcement of other laws. Under the Consumer Protection Law, also known as the Antitrust Law, the prices are the same for all private- pay patients. The legal definition for the price is the actual amount paid or collected. The Department of Justice (DOJ) is responsible for enforcing these laws, especially price discrimination and price-fixing. It is easy to look at the providers' bills and decide all patients have identical amounts listed, especially since there are no discounts listed on any patient's bill. The DOJ failed to recognize that different actual amounts collected determine price discrimination, not the charges listed. The ratios of the actual amount collected compared to the cost of the service or medical good create price discrimination. When the provider collects more from the un-insured patient than from the insured patient, the provider is violating the price discrimination laws, which makes them subject to criminal and civil lawsuits.

The IRS is responsible for auditing providers and insurance companies; it is their job to collect taxes on kickbacks. It is their responsibility to know GAAP for an accrual method of accounting The IRS believes the insured patient's bill and the contract are false; the insurance company's contract determines the taxable revenue. The providers swear the amounts are legitimate debts when they go to court to enforce the medical bills. The IRS lost sight that under the accrual accounting method, the private-pay patient's bill determines gross income. They lose sight that the insurance company is not acting as an agent for their insured members but are requesting a partial cancellation of debt from the patient's obligation transferred to the insurance company. The IRS failed to understand that under the Universal Commercial Code for contracts, the parole evidence rules state any prior agreements cannot change the amounts on a new bill or the new contract's terms. Therefore, the patient's medical bill supersedes any prior agreement between the provider and the insurance company.

In the healthcare industry, the providers instantly add the amounts billed to their gross income. After receiving the Explanation of Benefits form (EOB) from the insurance company, deduct the difference not collected from the insurance companies as a contract adjustment. The IRS does not know the tax code, which only allows three deductions from gross income, operating expenses, bad debts, or canceled debts. Contract adjustment is not an allowable deduction, and it is not in the tax code. The IRS director is unfamiliar with GAAP for accrual accounting. The IRS is the only agency that thinks that all insured private-pay patients' bills are false. Somehow, they forgot that the amount listed on the patient's bill creates a legal debt and has never experienced going to the state and federal claims courts where the providers swear the amounts listed on the patients' bills are accurate. These courts treat the invoices as prima facie evidence, listing the sum certain and that seventy percent of the cases are against privately insured patients. A patient's contract states they are liable for the full amount charged.

When an insured member goes to an out-of-network provider, the insurance company charges the patient a higher variable co-payment, a percentage based on the billed charges rather than a low fixed amount required by the HMO law. This practice is the economic duress. Its requirement is in the contract between the in-network providers and the insurance company; its sole purpose is for the insured members to boycott the out-of-network providers. This practice is a restraint of trade.

The auditors should be aware of the following: • In all fifty states, it is illegal to submit a claim to an insurance company that is false, therefore the amount listed on the patient's bill, the standard charge must be a legal charge, • The providers file medical claims in both federal and state courts and use the billed amount as prima face evidence, • In both federal and state statutes, price discrimination for services, services being recognized as a commodity, must be the same for all private-pay patients; therefore, the provider must collect the same amount from both insured and uninsured patients, • The tax problem's subject matter is how the two separate financial transactions should be handled under the accrual method of accounting. The transactions are the creation and recognition of the amount listed on the patient's bill for income tax purposes and the deduction or write-off of the kickback or canceled debt, insurance company income. Under the accrual accounting method, the amount listed on a customer's bill is recognized for income tax purposes. • All private-pay patients' contracts call for the full payment billed for medical goods and services. • Under contract law, only the contract principles can make an effective change to the contract and billed amount, but there are no changes made to the billed amount. The insurance company is not a party to the agreement of the patient and provider. The contra account "contract adjustment" can never be used to write off the difference of the amount billed and the actual amount the insurance company pays, the canceled debt the insurance companies' contracts call for, • The contra account "contract adjustment" is used only for financial reporting. This write-off account is not recognized in the tax code; therefore, it is illegal to use it for tax purposes to write off the difference between the billed amount and the amount the insurance company agrees to pay, • The insurance company is a third-party payer, whose function is to spread the risks of medical expenses among many, not to solicit kickbacks from providers to allow them to access its insured members, • The third-party payer's function is to pay off the insured member's medical bills in full. • The technical advice memorandum, or TAM, is guidance furnished by the Office of Chief Counsel upon the request of an IRS director or an area director, appeals, in response to technical or procedural questions that develop during a proceeding. TAMs are not Law and are issued for one taxpayer and cannot be used as legal precedence. • The Industry Director's Directive made it mandatory that all Healthcare Industry auditors must review all contracts involved with a "contract adjustment" write-off. The auditors do not review contracts. The auditors have no training in contract law.

Transparency Information of U.S. Healthcare

Hospital Price Transparency Rule Effective on January 1, 2021 but Will It Be Struck Down? On November 27, 2019, in compliance with Executive Order 13877, HHS issued the "Price Transparency Requirements for Hospitals to Make Standard Charges Public" final rule, which reinterprets the ACA's requirement that hospitals disclose their "standard charges" to require information beyond chargemasters to include negotiated rates with third-party payers, delineating hospitals' publication requirements, and laying out an enforcement scheme (Hospital Rule). The American Hospital Association and other hospital groups filed a lawsuit challenging the Hospital Rule on various grounds. On June 23, 2020, the U.S. District Court for the District of Columbia upheld the Hospital Rule. The plaintiffs appealed the case to the D.C. Circuit, which heard oral argument on October 15, 2020.

Transparency in Coverage Final Rule Issued on October 29, 2020 but Will There Be a Challenge? On October 29, 2020, in response to Executive Order 13877, HHS, the Department of Labor, and the Department of Treasury (Departments) released the Transparency in Coverage final rule (Coverage Rule), which is effective on January 11, 2021 with staggered compliance dates for various requirements. The Coverage Rule, among other mandates, requires group health plans and health insurers in individual and group markets to disclose to enrolees' personalized out-of-pocket cost information, and the underlying negotiated rates, for all covered health care items and services, including prescription drugs, through an internet-based self-service tool and in paper form upon request. The recognition of both standard rates and negotiated rates shows that HHS and the entire government do not recognize that these rates are contrary to state and federal price discrimination laws. The customer of the provider is the patient and all patients have to be charged the same price.

Future trends in USA Manufacturing Industry

2020 has been a year like no other in recent history, and the U.S. manufacturing industry has felt the impact. Along with declines in production, forced shutdowns in the pandemic's early days caused a significant dip in manufacturing employment levels. In our 2021 outlook, we look at the future of manufacturing and outline four trends for the year ahead.

In 2021, the recovery may take longer to reach pre-pandemic levels, as Deloitte projections based on the Oxford Economic Model (OEM) anticipate a decline in annual manufacturing GDP growth levels for 2020-2021, with a forecast of -6.3% for 2020 and 3.5% for 2021.

Reeling from the effects of a global pandemic-driven shutdown, U.S. industrial production (-16.5% year over year) and U.S. total factory orders (-22.7% year over year) saw a steep decline in April by suppressed improvement. The current U.S. Industrial Production Index stands at 105.7 in December (the most recent month available), a substantial dip from its pre-pandemic level of 110. Production and order levels are still below 2019 levels, but the trajectory of the decline has slowed. Total industrial capacity utilization improved to 74.5% in December, up from 64.1% in April; however, it's still below pre-pandemic levels of 77%.

In 2021, there are four manufacturing industry trends which are: navigating disruption in the manufacturing industry, digital investment, supply chain resilience, adapting to the new workplace plays a vital role in the success of the USA manufacturing industry. How these trends help the USA manufacturing industry explain below:

The year ahead (2021) will vary for manufacturers depending on where they have felt the pandemic's most significant impact. It will focus on rebuilding lost revenue streams; for others, it could require recalibrating supply networks to serve different market demands. But for all manufacturers, it should include a commitment to increasing agility in operations. By continuing to invest in digital initiatives across their production process and supply network, manufacturers can respond to the disruptions caused by the pandemic and build resilience that can enable them to thrive.

Conclusion

The kickback process has been going on since 1983, with devastating results to the U.S. Kickbacks started at 1%, but today stands at 85%. To cover the payments given to the insurance companies, the providers have continuously raised their charges. Our healthcare costs now stand at three times the average of all other industrial countries. The Industry has continually grown, increasing its portion of the Gross Domestic Product in two and a half decades by 11.2%. When one Industry grows, another shrinks, in this case, the manufacturing industry that has shrunk by 11.2%, eliminating over hundred- thousand manufacturing companies and millions of manufacturing jobs. With the loss of manufactured goods made in the United States, we created a humungous trade deficit; the trade deficit is sending the wealth overseas. Manufacturers are moving to Canada and Mexico, where all these countries have lower health care costs, and the employers do not pay for employee health care benefits. The health care system has two accounting systems, one for the private business side and one for the government business side. When a provider bills a patient the standard charge and the government pays a lesser amount, there is no violation of the Law.; for tax purposes, the amount the government pays is the recognized income; the actual amount collected is different than from a private-pay patient, but it is not considered price discrimination because Congress dictates the amount paid. When the provider bills a private-pay patient, the standard charge and the insurance company pays a lesser amount there are several violations of Law; for tax purposes, the amount billed to the patient is recognized for tax purposes income, the difference between the billed amount and the amount collected is a partial cancelation of debt and forgiven debt income to the insurance company for tax purposes and the actual amount collected is used to determine if there is price discrimination. The amount of the canceled debt is a kickback paid to the insurance company to steer their insured members to the provider.

The tax evasion problem started when the IRS believed that a private contract between a provider and an insurance company, a third-party payer, could override Congress's tax laws. The IRS thought that the amount stipulated in the contract was the actual amount recognized for determining realized income. The IRS belied the exact amount paid by the third-party payer was the legal obligation, not the amount listed on the private-pay insured patient's bill.

In the healthcare industry, the insurance companies gained a lot of control over the insured patients, demanding the insured members go to the medical providers they selected, designated as in-network. A provider could only be listed in-network if the provider pays a kickback to the insurance company. The payment was a cash equivalent, in the form of partial cancellation of debt; the canceled debt was the difference between the patient's debt and the amount the insurance company paid. The provider records the kickback payment as a contractual adjustment. This type of accounting resembles the same accounting methods used for the government business side. This accounting practice does not follow GAAP or the United States Tax Code.

Employers' present economic system for paying for social benefits has been destructive to our free enterprise system in the past. The U.S. financial deuteriation will continue until the people decide a change is needed and we take a more progressive approach. The present system is corrupt, froth with unlawful trade practices, tax evasion, fraudulent billing, and a fraudulent accounting system. Law enforcement has not enforced our laws but supported the violations. To stop the downward economic spiral and become more competitive, the U.S. must adopt other international industrial countries' cost-effective approaches. To bring back manufacturing from other competitive countries, the U.S. must create a more supported financial environment than theirs. The U.S. must adopt a universal healthcare system, revise its tax system, and pay for healthcare through a citizen-based and company- based income tax.

DISCLAIMER

The information covered in this research paper is based on my analysis and interpretations of my research. Information is designed to help users better understand the unlawful activities, tax evasion and price discrimination in health care system and in insurance companies. It is stated that not all healthcare providers or insurance companies participate in the unlawful activities. Information on this research paper is only intended as general summary information that is made available to the public. No healthcare service provider or insurance company has been found guilty of the unlawful activities outlined in this research paper. The reader agrees to indemnify me, my contractors, employees, information providers and suppliers from and against any claims, lawsuits, proceedings, costs, attorney's fees, damages or other losses resulting from your use of this research paper.