Monday, June 15, 2009

It’s NOT the Prices Stupid!

Out here on Kent Island, the federal government says that I like to watch the Baltimore TV stations and therefore forbids my satellite provider to give me access to the local DC channels. (We’re about an hour from both Baltimore and DC.)

There is reason number one never to put the government in charge of any more than absolutely necessary.

While my new digital converter box had been working just fine for months, enabling me to switch over and get my favorite weatherman from DC, on Friday that signal was lost. Losing Doug alone is a reason to become a libertarian.

But fiddling with the converter box Friday night (there is a health care story here), I came across an interview between former Clinton Labor Secretary Robert Reich and Bill Moyers.

Reich was arguing that it's necessary to have a public plan as part of a health care reform bill because only then will government have the ability to pool enough people together to negotiate for lower prices. And, lower prices are the route to a sustainable health care system:
"Well, there's a very simple test. And that is the public option big enough and is it going to have bargaining leverage to get drug prices down and keep private insurers on their toes, forcing them to cut prices.

"There's nothing actually pushing the system unless you have a public option that gives the insurers and the pharmaceutical industry and the hospitals a real run for their money"

Setting aside concerns that government ever negotiates anything, Reich’s focus on prices is just plain wrong.

Medicare now pays doctors and hospitals prices that are 20% to 30% lower than what commercial insurers and HMOs pay them.

So, if we follow Reich’s logic, the current Medicare plan, paying much lower prices, should have health care under control. Of course, Medicare is as unsustainable as the private health care system.

Uwe Reinhardt has done lots of great research finding that America’s health care prices are higher than those in the rest of the western industrialized world.

But the more immediate problem here is utilization—the often-made Dartmouth Atlas argument. The very same argument the President very properly made in Green Bay last week.

The first things we have to tackle are the structural over-utilization problems that have evolved for decades. If we just go and start cutting prices 20% or 30%, we'd create a chaotic situation. Can you imagine the cost shifting that would ensue from even more underpaid providers in the form of even higher utilization rates?

Sustainable health care reform has to be about incentives that will fundamentally change practice patterns.

Reich, and the other public plan proponents, need to explain why, if getting lower prices through a public plan is the solution, isn't Medicare already a model of health care efficiency?


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