Health Care Reform – Price Controls Fatal Flaws

The following are excerpts from a spot on analysis from Scott Howard on March 1st 2010 (Fox News Online)

Obamacare creates a new entitlement program that we can’t afford. Ostensibly, it does this by slashing reimbursement rates for physicians and hospitals, and then using the “savings” to subsidize insurance for low and middle class uninsured. The expectation is that if we just inflict more price controls on providers, the health care sector will suddenly become much more productive and health care prices will fall.

Price controls never seem to go out of favor, no matter how often they fail. Medicare started out paying physicians and hospitals directly for their costs and that didn’t work. Spending exploded. To try and rein in costs, Medicare shifted to a “diagnosis related group” (DRG) system – a type of price control — that bundles payments for procedures (like a heart bypass operation). Hospitals learned to game that system by doing more, and more expensive, tests and procedures to make up for lower payments for some services. Spending exploded again.

 

Price controls don’t control spending, but they do affect access to care. Medicaid pays docs just a fraction of that offered by private insurance; about half of all physicians won’t see Medicaid patients because the payments are so low. Medicare pays more (about 80 cents on the dollar), but the number of doctors who don’t accept Medicare is rising. The Mayo Clinic, which the president which Obama holds up as an example of what he’s trying to achieve, recently declared that it’s no longer accepting Medicare patients at its Glendale, Arizona clinic. (In late December, Mayo reported that it lost $840 million treating Medicare patients in 2008 alone.)

What is the value of insurance if you can’t get access to physicians and hospitals? This will shortly become more than an academic question for the 15 million Americans that the legislation forces into the Medicaid program.

As access problems increase, policymakers will just throw more money at the problem – exploding the deficit and driving up taxes.