Price Controls on Medicare and Medicaid – Coming to a Health Plan near you?

Both Medicare and Medicaid determine the fees paid to medical providers using a panel of experts. These bureaucrats have a table of values, sometimes called a Diagnosis Related Group, or DRG, and they pay doctors and hospitals based on a formula determined by experts so as to compensate fairly for the value delivered. Or at least that’s the plan.

But over the years, the reimbursements have not kept up with what the market, such as it is, for services. Each year or two Congress passes a “Doc Fix”, to restore payments closer to market rates. If they did not do that, doctors would stop taking Medicare or Medicaid patients. In fact, they already have in many areas. That’s what happens when you impose government sanctioned price controls: the supply goes down as the price paid decreases, assuming demand is rising, which it is.

Now we find that the government is not taking those personal decisions by physicians lying down. No, our HHS team has decided to send out spies to see who is being naughty and who’s nice. As the NY Times reports:

Alarmed by a shortage of primary care doctors, Obama administration officials are recruiting a team of “mystery shoppers” to pose as patients, call doctors’ offices and request appointments to see how difficult it is for people to get care when they need it.

The administration says the survey will address a “critical public policy problem”: the increasing shortage of primary care doctors, including specialists in internal medicine and family practice. It will also try to discover whether doctors are accepting patients with private insurance while turning away those in government health programs that pay lower reimbursement rates.

If you distort the market, you will get non-market effects. As Tevy Troy notes in the Corner yesterday:

Anyone wondering why HHS might engage in a spy operation to determine if doctors are denying appointments to Medicare and Medicaid recipients should read this fascinating article in the Summer National Affairs by Avik Roy called “Saving Medicare from Itself.” Roy includes a table showing physicians who accept no new patients, by form of insurance. According to the chart, doctors are less likely to take new Medicare patients than privately insured patients, and even less likely to take new Medicaid patients than Medicare ones. He also shows that things are likely to get worse for Medicare patients, as “thanks to last year’s health-care law, Medicare payment rates are set to fall below those of Medicaid in the latter part of this decade, according to Medicare’s chief actuary, Richard Foster.”

For this reason, as well as a host of others, HHS is right to be worried about doctor acceptance of Medicare patients. As I noted yesterday, though, a spy program is not the answer. We need significant reforms to Medicare in order to ensure that seniors can get the medical care they need. As Roy argues regarding Medicare, “Unless the program is reformed to rely less on such price controls, Medicare patients will find it increasingly difficult to get care.”

Here’s the chart of physicians no longer taking new patients:

Roy, Physicians, Summer 2011 (very small)

And these are the fools we wish to entrust with our entire medical system. What could go wrong. After all, the experts designed it.

Update:

Oops.

Surprise, HHS has cancelled the program. I guess when your allies at the NY Times think you might have over reached, it is time to rethink your methods.

Repeat to yourself: Price controls lead to rationing. What can’t go on forever, won’t.

While markets sometimes fail some people, I always recommend that we use *more* markets to allocate resources. Governments always fail, so always use *less* government.

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