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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.


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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Comments (18)

Doctors don't want to take ... (Below threshold)
jim m:

Doctors don't want to take Medicare/Medicaid patients? Shocker. Why wouldn't you wnat to take patients where you get reimbursed at under 50% of your charges?

Maybe if the government wants these patients to get treated better they could start reimbursing at a competative rate. Oh, that's right, the government is cutting the cost of health care by paying less for it than it is worth. How's that working out? Not so well it seems.

Barry is learning a hard lesson. When you don't pay for something people stop wanting to sell it. You can't force doctors to treat patients at a rate where they lose money. They will just stop practicing. Doctors can find jobs in the R&D industry and elsewhere. What we will be left with is the only doctors who will see patients are the ones that are so poor they cannot find work elsewhere.

Any rational person reading... (Below threshold)

Any rational person reading this information will understand that the inevitable result of Obamacare is price control. No need to analyze, because we have the empirical results coming from Medicare/Medicaid.

The inevitable result of price control will be that qualified, experienced doctors will leave the profession, and (worse yet), the best and the brightest will no longer be interested in going through what is needed to become doctors.

That's how it is now: only the very best and brightest get to go to medical school. And only the best and brightest of those get through it and become doctors. It's very competitive. Those days will soon be gone.

The inevitable result will be that stupider people will then be allowed to become doctors and/or they will have to undergo far less rigorous training.

The inevitable result will be that, when you are about to be put under for your bypass operation (assuming you survive long enough to get the top of the list to get one), you will be looking up at a surgeon and an anesthesiologist who are barely able to qualify to serve you burgers at McDonalds.

Good luck!! See you on the other side!!!

Thanks, Obama!!!!

Seventy years later and Dem... (Below threshold)
Tsar Nicholas II:

Seventy years later and Democrats still haven't figured out the law of supply and demand. Honestly, calling Democrats as dumb as rocks really is an insult to rocks.

Saying that price controls ... (Below threshold)
jim m:

Saying that price controls are the inevitable result does not really do justice to the intent of the dems. By saying it is the inevitable result allows one to think that the result is unintended consequence.

There is nothing unintentional about this. The dems want price controls. The only way socialism works is when you can control the price for everything. (OK it still doesn't work, but yu can keep the balls in the air longer that way than you possibly could otherwise)

The goal is to control the prices of goods, services and labor. The only way you can sustain the spendthrift government is to reduce everything else and confiscate what's left for the government.

I use to like the color red... (Below threshold)

I use to like the color red.

Too bad the libs have never... (Below threshold)

Too bad the libs have never read that nasty Constitution thing. Where it says that each man OWNS his own labor.

Or are they thinking they can repeal that?

garandfanWhy repea... (Below threshold)
retired military:


Why repeal it when Obama can get rid of it via executive order fiat?

Let's see. The govt declar... (Below threshold)
retired military:

Let's see. The govt declares that noone can be licensed unless they see X% of medicare medicaid patients. I am sure that they will work it in somewhere.

RM:A number of jur... (Below threshold)
James H:


A number of jurisdictions do something similar with attorneys. Each year, you are supposed to devote a certain number of hours to pro bono work.

Let's do the same thing wit... (Below threshold)
Jay Guevara:

Let's do the same thing with Dem politicians. We'll pay them what a panel of experts think their labor is worth.

Anyone got change for a $20?

Each year, you are suppo... (Below threshold)
Jay Guevara:

Each year, you are supposed to devote a certain number of hours to pro bono work.

Gotta work for the collective, comrade.

Btw, is "pro bono" work was Weiner was doing?

A number of jurisdiction... (Below threshold)
jim m:

A number of jurisdictions do something similar with attorneys. Each year, you are supposed to devote a certain number of hours to pro bono work.

It used to be that physicians would donate a portion of their practice to charitable work, but when medicare became law it became illegal to not charge people for services if you were collecting from Medicare. The left effectively outlawed charity.

Of course obama could just declare that part of the law invalid and declare that physicians must do a certain amount of free work. He no longer needs the Congress to determine what is law.

"Btw, is "pro bono" work wa... (Below threshold)

"Btw, is "pro bono" work was Weiner was doing?"

No, that was pro boner.

Sep14,I must beg t... (Below threshold)
Rodney Graves Author Profile Page:


I must beg to differ with you. That was at best semi-pro boner.

"He no longer needs the Con... (Below threshold)

"He no longer needs the Congress to determine what is law."

Barry passed that point seconds after being sworn in.

Isn't he the bestest evah!

The information is already ... (Below threshold)

The information is already out there, they just think most doctors are lying scum and don't trust them, so they want to do the Secret Shopper thing. Which is truly stupid, as the findings will mirror already self-reported rates OR they'll show the situation IS worse than the self-reporting, which you can see by the graph above is pretty damn bad.

So DHHS will look pretty bad either way.

We CAN'T afford to match paying doctor rates to private practice as long as the plans are also paying out huge amounts to hospitals and pharmacies. Anyone care to guess what the proportion of doctor fees are compared to the entire market for Medicare and Medicaid payouts? Proportionally less than the "HUGE" savings the Dems have touted in their Fed Budget Plans. Get the picture? Further demonize the docs until no one trusts them at all and then you can get the populace to agree to the government dictating how medicine is practiced in every sphere (so they can control costs). Hello Death Panels (with much sweeter NewSpeak names).

Price controls and rationin... (Below threshold)
Jim Addison:

Price controls and rationing are inevitable components of any command economy system. They only postpone the day of reckoning, although sometimes they manage to postpone it a long time, especially if free speech can be contained to restrict inquiries.

Sooner or later, the market rules, though. You can't sell products that cost $100 to produce for $50 to the consumer forever, however you rig the system.

We're already seeing it with Social Security and Medicare. We figured it out in the '80s that "defined benefit" retirement plans needed full funding to be secure, and required it for private plans. But federal, state, and local plans were allowed to continue the Ponzi scheme, and did. The bills are coming due on that now, as they have on the real estate bubble caused by financing people who couldn't repay their loans.

If not repealed, Obamacare will hasten the collapse. But even repealing it gives no shelter from the effects of the other busts.

Rationing is already at wor... (Below threshold)
clear mind:

Rationing is already at work with Medicare.

Treatment that I have been receiving for 5 years are now rejected. The Medicare processor (the lowest bidder, of course) now claims that another physician calls them unneeded - Dr. Frankenstein, of course. Then they provide the doctor a list of reasons and, whoops, none of them refer to the treatment.

Yup, review panels are now at work. Why wait for 2014 when you can start thinning the population today?






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