One Simple Way to Reduce Health Care Costs, And Why It Won’t Happen

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Despite the cynicism that life in Washington breeds, I am almost constantly aghast at how many obviously good, non-controversial policy ideas never get made into law. It obviously has something to do with the fact that good, otherwise non-controversial policy ideas often hurt the economic interests of powerful lobbies or constituencies. Of course, if money didn’t buy results in Congress, that wouldn’t be such a problem. So it goes. (We’ll come back to this.)

One of the problems that our health care system faces is the fact that some areas have way too many doctors and specialists, while other areas have too few. Oversupply of doctors, however, doesn’t reduce costs in the way you might expect if you know some basic economics. Instead, it increases costs, such that each additional specialist per 100,000 people in a given region increases health care costs per person. That’s one reason why Medicare spends so much more per person in New York than it does in, say, Oklahoma. Peter Bach, a doctor and former Medicare adviser, has an idea about how to fix this:

Here is how it would work. Later this year, the agency would set a 2010 target number for each type of specialist in an oversupplied region. Then it would offer to sign up those doctors at a certain payment rate. The starting rate would be, say, $30 per doctor work unit. (Work units are a measurement that Medicare uses to set its rates; each procedure is assigned a specific number of work units.) This is lower than the $36 per work unit that Medicare pays all doctors today. If too few specialists signed up, the rate would go up, and it would keep rising until there were enough doctors for the area.

“Wow, what a good idea,” you might be saying. Don’t get too excited. This is exactly the kind of idea I was talking about earlier. It sounds all well and good until you realize that it threatens powerful entrenched interests: doctors and hospitals. Both are big political donors. So even though this idea makes intuitive sense, isn’t intrinsically “liberal” or “conservative,” and would be in the best interests of almost everyone, it will be very hard to make into law. That’s your political system, folks.

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