By JOHN C. GOODMAN, PhD
The other day I ran across five items of interest:
1. A news article about Medicare paying $800 to rent a wheelchair that could have been purchased outright for $350;
2. An article in The Atlantic arguing that the United States spends more on renal dialysis and gets worse results than other countries because of the nonsensical way we pay for dialysis;
3. A Uwe Reinhardt explanation of how Medicare pays hospitals (via an approving pointer from Austin Frakt) along with Uwe’s defense of the system; but nonetheless linking to
4. A Reinhardt Health Affairs interview with former CMS director Tom Scully who opines that “Medicare is a dumb payer;” and
5. A Reinhardt explanation of how Medicare pays doctors (7,000 physician tasks, each with a price that varies for every city, town and hamlet in the land), along with a challenge to readers to come up with a better way.
Okay. I accept the challenge.
I sometimes wonder if health economists actually understand how other markets work. Let’s try a thought experiment. Suppose you ran a business that purchased lots of wheelchairs and you had the misfortune of paying the way Medicare pays. What do you think would happen?
The minute your presence in the market was generally known — probably before the first wheelchair was even delivered — you would be visited by a rival vendor offering to meet your needs for, say, two-thirds of what you were paying. Then another rival would offer to top that — say, cutting your costs in half… and before long the cost of the wheelchair to you would be a fraction of what it started out to be. This is how normal, sensible people function in typical markets, day in and day out.
