The “Costs” of Medical Care …

Ken’s Take: Economists are trained to focus on “real” costs. 

One of my major complaints about the current healthcare “reforms” is that — except for electronic medical records — there are, for all practical purposes, no structural changes proposed.  No gov’t clinics, no additional medical schools, no tort reform. 

Just more money being thrown at the problem and more obfuscation of real costs.

* * * * *

Excerpted from RCP: The “Costs” of Medical Care, Thomas Sowell, November 3, 2009

We are incessantly being told that the cost of medical care is “too high”– either absolutely or as a growing percentage of our incomes.

But nothing that is being proposed by the government is likely to lower those costs, and much that is being proposed is almost certain to increase the costs.

There is a fundamental difference between reducing costs and simply shifting costs around, like a pea in a shell game at a carnival.

Costs are not reduced simply because you pay less at a doctor’s office and more in taxes– or more in insurance premiums, or more in higher prices for other goods and services that you buy, because the government has put the costs on businesses that pass those costs on to you.

Costs are not reduced simply because you don’t pay them. Letting old people die would undoubtedly be cheaper than keeping them alive– but that does not mean that the costs have gone down. It just means that we refuse to pay the costs. Instead, we pay the consequences. There is no free lunch.

Despite all the demonizing of insurance companies, pharmaceutical companies or doctors for what they charge, the fundamental costs of goods and services are the costs of producing them.

If highly paid chief executives of insurance companies or pharmaceutical companies agreed to work free of charge, it would make very little difference in the cost of insurance or medications.

If doctors’ incomes were cut in half, that would not lower the cost of producing doctors through years of expensive training in medical schools and hospitals, nor the overhead costs of running doctors’ offices.

What it would do is reduce the number of very able people who are willing to take on the high costs of a medical education when the return on that investment is greatly reduced and the aggravations of dealing with government bureaucrats are added to the burdens of the work.

In short, reducing doctors’ income is not reducing the cost of medical care, it is refusing to pay those costs. Like other ways of refusing to pay costs, it has consequences.

One Response to “The “Costs” of Medical Care …”

  1. Chris Says:

    Electronic records represent the largest and most complex IT project in history. There are several hundred government agencies, almost two thousand insurers, tens of thousands service and equipment providers and over 300M customers with perhaps close to a billion records.

    You have no data standards currently defined. There are no security protocols in place. You have to capture much of this data from paper notes and the rest must be converted. Then you have to create the governance and processes to maintain records and describe diseases and treatments we don’t currently know about.

    Well run private companies can take 2-3 years for an ERP or portal program. These are projects in controlled environments with processes and data that are much less complex than the human body and a stakeholder group several orders of magnitude less than the US health care system.

    The National Health Service in the UK has had huge cost over runs and lost a prime contractor due to poor governance over data and metrics. The IRS is years behind on their new audit system. The FAA has been after a new ATC system since the Reagan administration.

    So my guess is electronic health records won’t drive savings for a while – and certainly not by 2015 as currenlty promised.

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