Government Heal Thyself; D. Senese

dispensed by government, and re duce the quality of health care. The U.S. government uses the dol lars of taxpayers to provide health care to the elderly (Medicare), to aid states via grants to provide aid for the poor (Medicaid), and to subsidize hospital construction (e.g., Hill Burton). The federal government also operates hospitals to provide care to veterans, merchant seamen, military personnel, and American Indians. 1 Advocates of government regula tion in the health care field main tain that health care is a Uunique good" and that the principles of the free market, especially the law of supply and demand, do not apply to it. Since it is Hunique," only those wise and all-knowing government bureaucrats are qualified to plan and allocate health resources. These officials demean the free market and 423 424 THE FREEMAN July promise, through more govern mental intervention, better health care services at lower costs. The per formance, however, never meets the promises. As governmental regula tions increase, a poor medical pro duct is delivered at greater and greater costs to the patient, either directly through higher premiums or indirectly through higher taxes.

The health care field is not im mune to the laws of the market place. Experience has shown that more governmental intervention leads only to chaos and confusion. Cost Containment The major effort of the current national administration to deal with rising health care costs was by plac ing government-mandated price re straints on the nation's hospitals. While outwardly rejecting controls for other sectors of the economy, the federal government imposes on one industry its Hinflation control" pro gram. Citing hospital costs as rising faster than the Consumer Price In dex, these advocates of expanded centralized control would set an amount for cost increases before mandatory federal controls would go into effect. The proposed solution, by ignor ing certain economic facts in the health field, would create more problems than it would solve. It is a fallacy to compare the hos pital cost increases with the rate of increase of the Consumer Price In dex. The comparison ignores two important factors in the health care field: (1) the provision of services to a growing population, and (2) the growth in ((service intensive" costs including capital investment in diagnostic and remedial equipment.

The great advances in medical ser vices in the United States such as kidney transplants, cardiac surgery, and coronary care and burn treat ment units have come about because the incentive has been available to develop and produce new medical technology. Better and more effec tive treatment increases the cost of specialized care; such a climate of freedom to develop new medicines and better machines for health care prevents stagnation in the health care field and brings about greater advances for mankind. The United States devotes about nine percent of its Gross National Product to health care, a percentage similar to that of other countries like Germany, Sweden, and the Netherlands. 2 Despite the claims of some politicians that the poor in the United States do not receive adequate health care, Dr. Harry Schwartz of the research depart ment of the Department of Surgery at the Columbia University College of Physicians and Surgeons has documented that the poor in the U.S. get on the average at least as much medical care from physicians 1980 GOVERNMENT, HEAL THYSELF 425 in hospitals as do those in higher income groups. 3 Regulatory Measures Restrictions on costs in patient care and on development of new health care equipment can lead to a rationing ofhealth care. This ration ing will place the best interest of a free people secondary to the cost policies of government bureaucrats.

Even in the hospitals where waste and inefficiencies exist, govern ment-mandated controls will only have a limited effect because relative cost cuts will look impressive on the surface. It will be the efficient and cost-conscious hospitals which will be forced to cut costs to meet govern mental guidelines-and the area for the quickest cost cutting will be in the area of serving patients. A large measure of the health cost increases comes not from deficien cies in the free market but as a direct result of governmental con trols. Personnel costs occupy a sig nificant part of a hospital's budget, and government-mandated in creases in the minimum wage have significantly increased costs in the hospital industry. Increasing gov ernmental regulations through Medicare and Medicaid have placed additional costs on hospitals through an abundance of new regu lations. A two-year study by the Hospital Association of New York state revealed that government regulation was a major factor in in creasing health costs. This study, focusing on hospitals in the state of New York, estimated that twenty five percent of hospital costs were attributable to meeting government regulatory requirements at an an nual cost of one hundred fifteen mil lion man hours or over one billion dollars per year! The report noted that each of four hospital depart ments (administration, personnel, social services, and utilization re view) devote over fifty percent of their costs to complying with government-ordered regulations. 4 Additional Government Controls A careful examination of the health care industry shows a myriad of government controls which hamper the operation of the free market in medical care-and drive up costs for the consumers.

The federal government adopted the certificate-of- need program as a control mechanism to prevent hospi tals from putting resources into ((ex_ cessive investment" in health care facilities. The passage of Public Law 93-641 in 1974 required states to establish certificate-of-need pro grams in order to qualify for federal subsidies for health planning and other federal grant programs. What has been the result of this govern ment cost control program? The pro gram did not reduce the total dollars for hospital investment but merely 426 THE FREEMAN July changed the direction from invest ing in hospital beds to investments in more sophisticated medical equipment. In addition, the certificate-of- need program failed to reduce substantially the rise in hos pital costs per capita and to bring about ~ny significant sayings in health care costs.5 Government intervention in the medical market place brings de cisions by government bureaucrats rather than medical experts. These government bureaucrats have added non-health criteria before even granting the certificates-of-need. In the District of Columbia, a private nonprofit hospital received approval for a renovation· and modernization project only on the condition it would change the sexual and racial composition of its governing body. In New Jersey, an attempt was made to coerce a certificate-of-need applicant to allow an outside organization to select members of its governing body. In Colorado, a hospital was told its certificate-of-need would be granted only if the applicant re duced its number of obstetric and pediatric beds.6 All of these exam ples, as well as others, show that the certificate-of- need program has been used by government bureaucrats to do certain things which are unre lated to the original purposes of the program. These bureaucrats prac tice political medicine by imposing arbitrary and unfair requirements on those hospitals which seek reno vation, modernization, or additional facilities.

Professional Standards Review Another government-promoted cost containment proposal led to the adoption of the Professional Stan dards Review Organization (PSRO) as part of Public Law 92-603 in 1972. The promoters of this reform sought to reduce unnecessary medi cal procedures while minimizing the length of stay in hospitals; they sought to encourage· the use of out patient and extended care facilities. The omnipotent government reg ulators aimed to accomplish this ob jective through a detailed review procedure in implementing the PSRO. However, studies by the In stitute of Medicine and medical pro cedure experts concluded that PSROs had not appreciably reduced costs or brought about a significant improvement in the quality of care. In fact, the limited amount of sav ings appeared insufficient to cover the cost of the review process.7 Even government promoted tax incen tives to employers to encourage in dividuals to buy health insurance policies have had the effect of pro moting the buying of packages of health insurance without any care ful analysis of needs or costs since the program is government sub sidized.

During the very time a major ef1980 GOVERNMENT, HEAL THYSELF 427 fort was underway to promote the adoption of a hospital cost contain ment program, another branch of the Health, Education and Welfare complex issued preliminary regula tions for a new government regula tory measure-the SHUR (System for Hospital Uniform Reporting) program. This totally new govern ment-mandated method of keeping hospital records would have greatly increased administrative costs for all hospitals. The other attempts to interfere with the free market in health care to contain costs have all been fail ures resulting in more regulations, additional costs, and a threat to the quality of medical care. It is assured that any hospital cost containment program will bring the same failure. One Congressman, Representative David E. Satterfield III of Virginia, predicted the failure of such a mea sure to his colleagues during debate on the bill on the floor of the U.S.

House of Representatives: It is not a bill which would contain hospital costs. It is a hospital revenue control bill, and the real growth in hospi tal revenues is not due to inflation. The only savings [this bill] could achieve would be through reduction· in the amount and quality of hospital care made available to the American people.8 The Intervention Record Those advocates of increased gov ernment power over the health field prefer to ignore the lack of ac complishment and the new problems such intervention brings. Voluntary efforts by the hospital industry succeeded in limiting the increases in health costs-a de crease from 15.6 per cent in 1977 to 13 per cent in 1978 and 13.4 per cent in 1979. Yet, the hospitals operated by the federal government experi enced in 1977 a cost increase of between 19 and 22 per cent. The federal government has a poor record in estimating and con trolling costs even in programs it directly controls. The Department of Health, Education and Welfare es timated that the cost for Medicare hospitalization for the first year would be less than one billion dol lars. The actual cost was three bil lion four hundred million dollars-more than three times the original estimated cost. The tenth year cost estimate was $1.7 billion but actually was $12.6 billion, or seven times the original estimate.

The cost for Medicaid in 1977 was $17.1 billion or more than sixteen times the original estimate. 9 View ing the Fiscal Year 1981 budget, the estimated outlays for Medicare are $37.3 billion and $15.9 billion for Medicaid. 10 The evidence of experience with centralized medical systems such as those of Canada and Great Britain should be a lesson for Amer icans. While eliminating the price 428 THE FREEMAN July barrier by a government controlled system, the government has caused the following long-term results: a net reduction of resources chan neled to health care, an increase in the maldistribution of doctors, no new doctors produced, and no new hospitals built or even fi nanced. 11 The lessons are clear that further intervention will increase, not decrease, health care problems. J. Enoch Powell, who served the British government as Minister of Health for three years, has pointed out that under a government controlled medical system where demand is unlimited and where medical care is ~~free," there has to be a method to squeeze demand to equal supply: In brutal simplicity, it has to be rationed; and to understand the methods of rationing is also essential for under standing Medicine and Politics. The task is not made easier by the political con vention that the existence of any ration ing at all must be strenuously denied.

The public are encouraged to believe that rationing in medical care is im moral and repugnant. Consequently when they, and the medical profession too, come face to face in practice with the various forms of rationing to which the National Health Service must resort, the usual result is bewilderment, frustration and irritation. 12 He noted that the people desiring medical care are put on the waiting list. If they are on long enough, they will die, usually from some cause other than that for which they joined the line. Or, they ~~frequently get bored or better, and vanish."13 Conclusion Government attempts to inter vene further in the health field will erode the quality of medical care and will substitute bureaucratic de cisions which should be made by health experts-in the market place. Cost containment will result in ~~price control," leading to a ration ing of health care. Considering the past record of governmental inter vention in the health (and other) fields, the results will be negative and individual choice will be nar rowed as the power of government is expanded in the decisionmaking process. Controls will not curb infla tion or bring beneficial results to the U.S. economy; the prospect offailure is the same even if they are only applied to the hospital industry.

Emphasis needs to be placed on expanding the opportunity for com petition in the health care field, not expanding government controls. The free market solution is to in crease competition through such ini tiatives as certification of health providers rather than occupational licensure, repeal of fair practice laws, more advertising of services, and greater use (and direct reim bursement) of health professionals (e.g., nurse practitioners) and em phasis on preventive care and the 1980 GOVERNMENT, HEAL THYSELF 429 individual's responsibility to main tain his or her own health. 14 When government administrators come forth with a complex set of interv en tionist measures to ~~solve" the government-created health care crisis, advocates of freedom need to resist and give these government planners the admonition: ~~Govern ment, heal thyself." @ -FOOTNOTESlH. E. Frech ITI and Paul B. Ginsburg, Public Insurance in Private Medical Markets: Some Problems of National Health Insurance, Washington, D.C.: American Enterprise Insti tute for Public Policy Research, 1975, p. 1.

2Jack A. Meyer, Health Care Cost Increases, Washington, D.C.: American Enterprise Insti tute for Public Policy Research, 1979, p. 9. 3u The Health Care Myth," Indianapolis News (editorial), March 3, 1980. 4John D. Lofton Jr., ttHow Government In flates Your Health Costs," Conservative Digest (February, 1979), p. 39. 5David S. Salkever and Thomas W. Bice, Hospital Certificate-of-Need Controls: Impact on Investment, Costs, and Use, Washington, D.C.: American Enterprise Institute for Public Policy Research, 1979, pp. 4, 75. 6Representative David E. Satterfield III, Congressional Record, July 19, 1979, H6235 H6236. 7uA Policy Analysis of Hospital Cost Con tainment Programs," Center for Health Ser vices and Policy Research, Northwestern Uni versity, Evanston, Illinois, 1978, p. 7. 8Representative David E. Satterfield III, Congressional Record, November 15, 1979, HI0821. 9ltNationalized Catastrophic Health Insur ance is a Trap," Association of American Physicians and Surgeons, Inc., p. 12.

lO'J'he United States Budget in Brief, Fiscal Year 1981, Washington, D.C.: Government Printing Office, 1980, p. 48. llCotton M. Lindsay and Arthur Seldon, ltMore Evidence on Britain and Canada," in Cotton M. Lindsay (editor), New Directions in Public Health: A Prescription for the 1980s, San Francisco, California: Institute for Con temporary Studies, 1980, Third Edition, p. 76. l2J. Enoch Powell, Medicine and Politics: 1975 and After, London, England: Pitman Medical Publishing Ltd., 1976, pp. 37-38. l3Ibid., p. 39. l4Rita Ricardo Campbell, uYour Health and the Government," in Peter Duignan and Alvin Rabushka, The United States in the 1980's, Stanford, California: Hoover Institution, 1980, pp. 300-337. IDEAS ON LIBERTY Arguments Against Socialized Medicine IT is a mistake for the government to consider the problems of the sick apart from those of society as a whole .... The broader problem is, in a moral sense, one of promoting respect for the individual and the furtherance of initiative and self-providence; in an economic sense, one of increasing production for the benefit of all citizens; and in a political sense, one of removing government as a battlefield for special favor and substituting cohesion and solidarity for division and disintegration.

DARRYL W. JOHNSON, JR.