Medicare drives up cost
You don’t believe me? Would you believe the guy that help set up the medicare doctors pay tables then?
DAVID KESTENBAUM: Califano was President Lyndon Johnson’s adviser for domestic affairs. And the government was about to get into the health insurance business in a huge way – about to launch the largest health insurance plan we’ve ever had: Medicare. But the idea made doctors nervous, so LBJ, Califano and lawmakers made what seemed like a small concession. The government told doctors: We will pay you for every procedure you do. How much will we pay you? Whatever you think is right.
KESTENBAUM: Why were you worried they wouldn’t participate? You were going to pay them whatever they wanted.
Mr. CALIFANO: They were so opposed to it. I mean, they reluctantly – believe me, within two years, they love it. But they really didn’t understand what a bonanza this was going to be for them.
KESTENBAUM: Turns out, doctors had been giving out a lot of free care to old people and now they were going to get paid for that, and within limits, whatever they asked for.
So Government intervention crowds out pro-bono charity work. Who wouldn’t take money for something they were doing for free anyway right?
Dr. LUCIAN LEAPE (Surgeon): We found out what the general fee for our service was and charged that or maybe added 10 percent, ’cause of course I’m better than average. And so it was an incentive for doctors to charge what they thought was reasonable for them, and then of course to increase it every year by, say, 5 or 10 percent.
KESTENBAUM: Medicare solution for how to pay doctors put into cement this idea of fee for service, paying doctors per procedure for every test, every scan. That sounds reasonable, but it served as a nudge to err on the safe side – to do more tests, to do that exploratory surgery.
JOFFE-WALT: LBJ and Califano, all their people, all realized they created something of a monster right away. I mean, two years after Medicare passed, LBJ is pleading with Congress to let him change the way Medicare pays physicians.
It only took two years for reality to hit the politicians. When you pay doctors for every little test, some of which they used to do for free, costs go up. Any person with an ounce of common sense could figure that out. No wonder the politicians couldn’t figure it out.
Mr. CALIFANO: I know it. But we saw what was happening with costs so fast. So fast.
KESTENBAUM: But they couldn’t change it. Doctors now like the system. They were getting paid for work they’d previously done for free. And that was that. This system, with all its problems, stayed in place for almost 30 years. Meanwhile, medicine got more expensive.
So you have a system in place with rampant price inflation, created due to Government interference with the market. So what does the Government, in it’s infinite wisdom decide to do?
KESTENBAUM: And yet, in 1986, one man was convinced he could calculate the prices. An economist at Harvard by the name of William Hsiao; an economist with a small voice and a big, kind of weird idea.
Professor WILLIAM HSIAO (Harvard University): So the question is: Can we find a rational method that could be used to set physicians’ fees?
Now this next part is the best. Anyone read their Das Kapital lately, if you did you’ll recognize their solution right away.
JOFFE-WALT: Professor Hsiao decided, okay, the market does not work for health care services. So I will calculate the right prices for each and everything a doctor does.
KESTENBAUM: Hsiao brought in groups of doctors and asked them some pretty crazy sounding, almost philosophical questions like: How much mental work does a regular checkup require? He had them compare everything they did to one reference point. For surgeons, it might be a hernia repair: How technically hard is it, how stressful, how many supplies? Hsiao had doctors do this for thousands of procedures.
JOFFE-WALT: While Hsiao was creating his Relative Value Scale, he’d invite groups of doctors in to advise him. And the doctors would bring their own advisors, consultants – lobbyists, really. Hsiao wouldn’t let them in the room, so they’d sit outside. And then those consultants started coming out with their own relative value studies that were more favorable to whatever group of doctors they represented.
Relative Value System? Using measures like mental capacity, equipment used, stress….well it’s our old old friend the Labor Theory of Value, the workhorse of every Marxian economist.
You might want to ask Russia, Cambodia, Cuba and North Korea how well that has worked for them.
JOFFE-WALT: In 1992, Congress adopted Hsiao’s Relative Value Scale, that enormous spreadsheet. And it worked for a while until just a few years later, it didn’t anymore.
Gee I wonder why it didn’t work anymore? Maybe it’s because you can’t set arbitrary prices and expect efficient use of resources? If they would have read their Mises and Hayek, they would have known that an arbitrary price system doesn’t and never will work. (If they had read their Mises and Hayek, they’d have seen the Housing bust coming too.) It’s the Economic Calculation Problem. It’s the reason why every socialist economy is doomed to failure.
Don’t believe me? See how well off they are in Cuba, or North Korea.
Anyway, the point of this post is that Government interference makes the problems much worse than they otherwise would have been. Markets aren’t perfect, but they are a thousand times better than government planning. Also, we can see how Government intervention directly causes rent seeking. The best part of the whole piece is that it was from NPR!
I consider it a good use of my taxpayers money to show the public how inept and asinine government intervention really is. Unfortunately, I think that message will be lost on most Leftists and Statists. Instead of saying; “Man, it worked better before the Government got involved.” They will be sayings something like, “Man, We need more government intervention because the first round wasn’t enough!”
Where have I heard that?… Oh yeah…it’s the same logic they use for needing more stimulus.
If they’d only read their Mises and Hayek…..
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