There’s waste in health care!

Too much cancer screening, too many heart tests, too many cesarean sections. A spate of recent reports suggest that too many Americans—maybe even President Barack Obama—are being overtreated.

Is it doctors practicing defensive medicine? Or are patients so accustomed to a culture of medical technology that they insist on extensive tests and treatments?

A combination of both is at work, but now new evidence and guidelines are recommending a step back and more thorough doctor-patient conversations about risks and benefits.

Defensive medicine, which is a response to so many frivolous lawsuits, is no doubt part of it.  But the problems are deeper and systemic.

The third-party payer system is the biggest contributor.  When patients are insulated from the costs of treatments, they have less incentive to ensure their necessity. Overconsumption is guaranteed under such a setup.

Some will use this and put forth the wrong solution.  “We need greater government involvement,” they’ll say, “to set guidelines and provide information on what treatments are really needed.”  This approach is destined to fail.  Government processes are necessarily political, and any attempt by government to create such guidelines will only encourage the stakeholders – manufacturers of medical equipment, drug companies and doctors – to spend more time lobbying government to ensure the guidelines benefit them.  Who will lobby for patients?

The better solution is to bring the patient back into the equation.  Phase out the third-party payer system by reforming Medicare, eliminating tax distortions that give employer provided insurance an advantage of individual coverage, and remove the onerous regulations that prevent more innovative care models from emerging.

We also have to realize that there will always be a certain percentage of treatments that are not strictly necessary.  It is the nature of the industry that it’s not always clear what works and what does not.  The important thing is to have a system where each agent – patient, doctor and insurance – has appropriate incentive to examine the suitability of both the quality and quantity of care provided.

Ezra Klein thinks the health care debate is uninformed.  Not to worry, the savvy commentator offers the antitidote: an explanation for why health care costs are high in the U.S.  He has a miraculously simple explanation.  Health care costs are high in America – I hope you’re paying attention – because the per unit costs are higher than other countries!

There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care.

Don’t you feel so much more informed?

He goes on to attribute the difference to our lack of price controls.  Quelle surprise!

It’s a neat trick he pulls off in trying to assume price controls as the default model. Price controls are a policy choice – a restriction of freedom – that must be justified on grounds beyond just an assumption of existence (they have price controls and we don’t, thus our prices are higher!). Of course, I don’t buy that any justification exists for such an unconstitutional policy, but its advocates owe those without principled objections an affirmative case that weighs the advantages and disadvantages. For instance, other countries that use price controls have an advantage that we would not if we attempted to do the same: the existence of a U.S. market that subsidizes their policies. Canada can dictate drug prices because drug makers can recoup that money by raising prices in the lucrative U.S. market. Take that away and health care across the world suffers a tremendous blow.

Other American industries without controls  see price reductions over time. An astute observer would ask why that is, rather than simply pointing out the obvious fact that price controls reduce prices. Of course, the answer wouldn’t suit big government pushers like Klein, who also makes no mention whatsoever of costs that are not strictly financial (prices and costs are not synonymous).  He looks at none of the other costs (insufficient capacity, reduced innovation, rationing and intolerable wait times) placed on systems by price controls. These are costs that Americans are simply not likely to accept.

If Klein were serious about having an informed debate, he would ask about all the government distortions placed on health care that prevent normal market forces from working to hold down prices.