Built In, Guaranteed Shortage

If the Baucus bill goes into law as written, all those promises about never having to ration health care services are going to come back to haunt the congress that passes it.  There is a built in, guaranteed shortage in that bill.

Then there are $400 billion in benefit cuts that are frightening seniors. Jeffrey A. Anderson of the Pacific Research Institute has pointed out that the Baucus bill cuts Medicare payments to physicians by 25% within two years and keeps payments at that level forever, without adjusting for inflation. If this becomes law, doctors who take Medicare patients will see their real income decline each year.

There's no mystery here.  This cut in Medicare payments will have the same effect as any other price control.  Price ceilings inevitably causes shortages.  Let me quote myself here.  It's from a post of a couple of years ago when I up on the soap box preaching the benefit of a good course in microeconomics to a proper understanding of history.

Having gotten a flavor of microeconomic theory in college in the mid 1960s, I had the great good fortune to be treated to a demonstration of this, played out in real life and on the nightly news with the oil crisis of the 1970s.  Wisdom from Washington had it that gasoline prices should be kept low so there could be a plentiful supply of it at an affordable price.  They made a law setting a maximum price for gasoline.  Nowadays there is a greater awareness of what this does because we could see what happened then.

Producers looking at a low return had to rethink how much in resources they could afford to devote to supplying gasoline.  It's quite possible they would have reached the point where they wouldn't be able to produce any.  For consumers the picture was quite different.  Gasoline was very affordable because the price was low.  With demand high and incentive to supply low, a classic shortage occurred.  Gas stations ran out of gas.  Cars lined up for miles to fill up.  Politicians castigated the evil greedy oil companies.  There were stories of conspiracies.  Tankers were said to be waiting off shore for prices to go up again, while people fought with each other in the gas lines.  There was even the brief appearance of a gasoline black market.

The part about the black market is important.  In Medicare terms we're talking fraud.  Consider the doctor who is confronted with a patient in dire need of a particular treatment which, unfortunately, is reimbursable at a rate so low that it's going to cost money instead of make money to provide it.  You can expect a high number of doctors to simply start phasing out that business.  How cruel and unpatriotic.

But before they give it up, you might find some doctors willing to try submitting their bills to Medicare using other billing codes for which they will get a higher reimbursement.  That's fraud.  But it's fraud committed in the interests of their patients.  The doctor gets paid, the patient gets treatment, and everybody's happy till the feds find out. 

The below market reimbursement rate hurts everybody except congress.  Patients can't get care.  Doctor's can't get paid.  And congressmen?  Well, they get to rail at the injustice of it all, and then go off and propose legislation that will make it worse.  Naturally there will be lots of lobbyists looking to influence the legislation on behalf of their clients, and they'll have lots of money to spend.