Health Care BS

Shortages follow price controls just as surely as night follows day. This is not a meaningless rhetorical flourish. It is a fact of life that is manifesting itself with increasing frequency in American health care. The latest proof of this grim reality can be found in Detroit, where Riverview Hospital is about to close. And why is it closing?

Because roughly 90 percent of its 11,000 annual inpatients are covered under the Medicare or Medicaid public assistance programs, Riverview has struggled economically, said Bob Hoban, a senior vice president for St. John Health, Riverview’s parent company.

But how can that be? If almost all of the patients are covered under programs that the advocates of government-run health care keep telling us are wonderfully efficient, how can the hospital be in money trouble? Short answer: price controls.

Medicare and Medicaid pay for hospital stays by means of a Byzantine price control scheme called PPS, which assigns a fixed payment amount for a given service. This payment amount is often not enough to cover the hospital’s costs. Thus, a hospital serving mainly Medicare and Medicaid patients is virtually guaranteed to lose money and will eventually have to close its doors. And that is what is happening all over America:

New York City, Philadelphia and parts of New Jersey have seen waves of hospital closings in inner-city neighborhoods, said Siegel, who directed a 2004 report examining the phenomenon for the Robert Wood Johnson Foundation.

This is what happens when you allow Washington bureaucrats to “control” costs by arbitrarily deciding what a medical service is worth rather than allowing the market to determine the correct price.  Providers of care disappear. If we allow these bureaucrats to take over the entire system, the inevitable result will be widespread provider shortages.

UPDATE:

Ironically, as discussed in this post at Economist’s View, Medicare price controls are failing to keep its costs under control. Thus, our masters in Washington have contrived to give us the worst of both worlds: provider shortages and unsustainable budgets. Ah, the wonders of government-run health care.