Saturday, August 04, 2007

Market versus Planned Economy

The socialist concept of a planned economy may have been pretty well abandoned around the world, but it is still alive and well in the U.S. health care system.

Recent years have seen the development of ambulatory surgery centers (ASCs) - free-standing facilities in which surgery is performed on patients who do not have to remain in the hospital overnight. Hospitals understandably have objected to losing this financially lucrative business, offering up a host of arguments as to why privately owned ASCs are a bad idea. The American Hospital Association has lobbied strongly against them.

Proponents of ASCs claim they are more efficient than hospitals. Medicare must agree, because the rates it has been paying ASCs are 83% of the rates it has been paying hospitals for the same services. Now there is a proposal to reduce that to 65%. All of this is reported in the July 23, 2007 issue of Modern Healthcare. The reason given for the change was “to make [the ASC payment system] more in line with hospital outpatient departments or physicians’ offices.”

How and on what basis do such decisions get made? A clue is provided in a later article in the same magazine about a proposal to revise the wage index system that Medicare uses to set the rates it pays for services in different parts of the country. When asked to comment, the head of the Federation of American Hospitals declined, suggesting that “a political debate about this” would be premature.

In other words, decisions by Medicare about payment rates are political decisions. The justification offered for them may include a boatload of numbers, but at bottom the decisions are political.

Many are apprehensive about subjecting the health care economy to market forces, believing that matters of sickness and health ought not to be dealt with in terms of profit and loss.

But the alternative to the market is politics. In the market, economic strength matters. In politics, it is political strength. The argument, therefore, ought not to be only against one or the other, but why one is better than the other.

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