Why ObamaCare Will Drive Up Costs

Here is an excellent article on why Medicare (and ObamaCare, which is designed just like it) only drives up the costs of medical services

The government price controls in America’s healthcare system always push prices up. Here’s why.

The Wall Street Journal reports that Medicare pays too much for specialist services and too little for primary care—even though doctors themselves decide how the money should be divvied up. That drives up the cost of the program and intensifies the shortage of primary-care doctors needed to care for the 32 million people who will get health coverage over the next few years.

This is neither surprising nor new, at least to me. I oversaw the study that created Medicare’s physician payment mechanism during the 1980s; I oversaw the implementation of that mechanism during the early 1990s; I am currently an appointed member of a state commission that sets prices for hospitals—and for those 25 years, I have been arguing that price controls are the wrong way to go.

Faulty Premise, Faulty Prices
Medicare’s physician payment system was developed by Harvard professor William Hsiao and put into place in 1992. The Resource-Based Relative Value System (RBRVS) is founded on the simple, but incorrect, view that higher payments are justified for services that require greater inputs—ignoring the consumer side of the market.

The problem for a government price controller is that he can never know when the price structure is ‘right.’ The bias is always to raise prices, not lower them. The RBRVS makes sense, superficially. It pays more for services that require more physician work or that involve higher costs to maintain a practice. Compared with routine primary care, heart surgery is more physically demanding, with long hours in the operating room, more stressful since the patient’s life may depend on how well the surgeon does his job, and requires more advanced training. Heart surgeons also have higher practice costs, including more expensive medical liability coverage. Five minutes of a heart surgeon’s time requires greater resource use than five minutes with a pediatrician, and in a properly functioning market the surgeon would receive greater compensation.

Read the whole thing.