Government Drives Up Health Care Cost

In the Journal of Nov. 28, economist Robert Samuelson claims that health care costs are “out of control.” Quite the opposite: They are totally in control – by the government.
That is a problem.

Health care refers to goods and services delivered by hospitals and providers to be consumed by patients. Costs to providers and institutions are driven more by government regulation and bureaucracy than by labor costs or MRI machines. Meanwhile, payments to providers and institutions – what Samuelson calls “costs” – are controlled by government.

Note that when the Patient Protection and Affordable Care Act (“Obamacare”) cut “Medicare costs” by 21 percent, they cut Medicare payments to providers. Therefore, they cut services to patients. As Robert Moffit of the Heritage Foundation testified before Congress, “you cannot get more of something by paying less for it.”
Meanwhile, the spending on – the costs of – the federal health care bureaucracy went up by six whole new agencies, hundreds (thousands?) of bureaucrats added to the payrolls, and multithousands of new rules and regulations.
So the government controls and increases spending to/on itself, while it controls and decreases spending on patients.
Want proof? Of all the money spent on “health care,” 40 percent – that is over $1 trillion in 2010 – disappears. It goes to health care but provides no care.

That statistic is before adoption of the health care act, which could raise the disappearing dollars to half of all health care spending!

Samuelson goes on to use the recent Office for Economic Cooperation and Development report to explain U.S. overspending: steep prices and abundant provision of expensive services. Hogwash! As Samuelson knows, “price,” also known as charge or bill, is meaningless in health care, meaningless in terms of what gets paid.

As a doctor, I can charge whatever I like for a cardiac catheterization in a baby. The actual bill can read $2,000, $4,000 or as is commonly true, over $5,000. Regardless of my “price,” I get paid $387. That is what the government pays. So the price may seem steep, but the payment is peanuts.

For Medicare, just like for my caths, payments are now lower than the cost-of-staying-in-business. So if you want to know why you can no longer see your Medicare doctor, it is because the more Medicare patients she or he sees, the quicker the doctor goes broke.

The prices may seem out of control or steep, but payments to providers are tiny and shrinking.
How much of the true cost of health care (goods and services) to hospitals and providers is for administration and for regulations? No one knows because no one measures that, either. The administration guesses its own cost, and government conveniently ignores the costs of regulations. To make matters worse, the public sees rules and regulations as no-cost items.

Samuelson very rightly asserts that, “the system needs a fundamental overhaul to deliver more value for money.” No one disagrees – except those in charge. In order to determine value, one must measure cost and compare it to benefit. Does the government measure the benefits of health care? The answer is a resounding No! So how can you-the-consumer, whom I call We the Patients, assess value? If you know only part of the numerator and none of the denominator of a cost/benefit ratio, you can’t.

Finally, Samuelson practices really bad medicine. He jumps directly from symptom identification (overspending) to treatment plans (vouchers or single payer) without going through the critical step of root cause analysis.
If you want to cure something, be it a sick person or a sick system, you must treat the cause of illness. Financing is only one part of the sickness in health care. If we try to fix it (overspending) without recognizing its root cause as well as others, we are certain to fail, just as Obamacare – with its expanded control – is certain to make health care, We the Patients and America sicker.

Dr. J. Deane Waldman is the author of “Uproot U.S. Healthcare” and an Adjunct Scholar with the Rio Grande Foundation