December 20, 2005

Medical Price Controls

Next time you are waiting for a doctor in the US, you might pass on the outdated newsweeklies and ask a bit about how prices are determined. The results should shock you. For the vast majority of medical practices, their prices are set for them the institution ultimately setting them is the federal government. The entity doing it is called HCFA, commonly known as Medicare. They don't do it alone but they do the heavy lifting. The American Medical Association (AMA) defines a long list of numeric codes for each mainstreatm recognized medical procedure. Medicare then takes each of those procedures and assigns both an resource value unit (RVU) and a price for each of those CPT codes. You are, by law, not allowed to charge patients more than those tables permit whether you participate in the Medicare program or not. Your doctor's participation only moves him from one reimbursement column to another.

Since a huge chunk of medical dollars are run through the government, that's a socialist pricing model that has broad influence. But the RVU system is far more pervasive than that in its real-world effects. Most health insurers do nothing more than take the Medicare RVU values and blanket raise or lower them by a set percentage. This means that if a government bureaucrat misprices a procedure, every private health insurer will also misprice that procedure.

This, in short, is insane. The longer version is that nobody has ever successfully allocated resources via government pricing in any field and there is no reason to think that medicine is priced correctly. Our only salvation is that our systemic transparency makes the insanity clear a bit earlier than most other countries that adopt socialized medicine and spend a great deal of effort in propagandizing in favor of the system and hiding the inequalities and injustices of government pricing.

This propagandizing/hiding function can have drastic, real world consequences. The timing of the invasion of Poland has been alleged to have been at least partially driven by the need to hide the coming collapse of the Third Reich's disastrous economic policies Germany, under Hitler, made tremendous strides by eating up its seed corn and juggling the books in the most shameless ways. You can't hide that forever but you can hide it a lot longer if you start invading other countries and robbing them of their wealth.

Germany's present day malaise can largely be explained by its political class being unwilling to be honest with the German people and explain exactly how much past administrations of all parties have robbed future generations of a decent standard of living. The same can be said of all the european social-model states on the continent. Fortunately, their malaise extends to their militaries and thus the old solutions of the last century are no longer practical. But nobody seems to have a better solution than to kick the problem down the road and hope for a miracle.

A major driver of that future impoverishment across the 1st world is the state provision of healthcare. It's not the only one, state pensions are also a huge problem. Healthcare is the largest component of the problem and even though President Bush was willing to try to reform Social Security, his contributions to healthcare reform have been very modest indeed.

Posted by TMLutas at December 20, 2005 12:30 PM