The Economics of Medical Care; G. Yossif

406 senti ally voluntary markets tends to be accessible and affordable. Sus tained price inflation in medical care is always a result of direct or indi rect political intervention. The lately much-touted competition between providers is not the genuine com petitive bidding for the satisfaction of the actual consumer of care, the patient, as a free market would have it. On the contrary, this politically created competition will further en hance and centralize the bureau cratic controls on medical care, thus compounding, instead of reducing, the inflationary effects of the mul tiple and pervasive political inter ventions already in operation. The Voluntary Market This pattern of trade refers to the exchanges that take place between consenting parties, free from coerTHE ECONOMICS OF MEDICAL CARE 407 cion, whence the more familiar term of free trade. Mutual advantage for the trading parties follows necessar ily, since neither would consent to the exchange if some form of gain were not expected. For free trade to exist, the obvious preliminary con dition is that the participants in the exchange be the legitimate owners of the goods and services exchanged, since only the owners can legiti mately dispose of property. This is why regulation of trade by other parties than the owners amounts to var ious degrees of expropriation and in·, voluntary servitude.

Medical care is a type of individual service consisting of skilled assis·· tance to a person's recovery from ill-· ness. The essence of this recovery is an inherent process of self-healing which cannot be supplanted, but only assisted (or induced, or pro moted) by human interventions. The provider of such skilled assistance is usually called a physician, and the receiver a patient. Medical care also incl udes some types of assistance to manage chronic conditions, some types of disease prevention, and some incidental activities (such as relief of pain). It does not include as sistance to terminate life or induce disease, or the conversion of humans into industrial products and major invalids. Medical care is far from being a high priority in voluntary markets, except on rare occasions. For the most part and in most individuals it ranks way below nourishment, san itation, education, entertainment, and so on. Most medical treatments can be deferred for various periods of time, and spontaneous healing often takes place. Lifestyles mark edly affect the susceptibility to ill ness and the ability to heal. Effec tive help in case of illness can be, and often is, provided by family and friends. One's general practitioner can provide most of the professional medical care for affordable fees, or he can refer the patient to specialists he deems competent and affordable.

Further, friends, acquaintances, books and advertisements provide a wealth of both general and specific information about diseases, emer gencies, medicines and specialists. Even tentative choices made under pressure or away from home can later be converted into preferred choices. Let the Customer Choose Thus, the paternalistic idea that the patient or his family cannot make a proper choice of medical care because they are too ignorant or too worried to explore the market is ut ter ly false and has been promoted by bureaucrats and some physicians for the egregious purpose of portraying themselves as indispensable. It also follows that ordinary medical ex penses are not an insurable risk. They are too optional and too afford408 THE FREEMAN July able, while the respective illnesses are too preventable and too subjec tive to provide an actuarial basis. In surance for catastrophic medical ex penses would be the only viable medical insurance on the free market.

In voluntary markets, the pa tient's freedom of choice is necessar ily complemented by the providers' freedom to compete. Thus, the pa tient obtains the best medical care that he is able and willing to pay for and medical fees, as well as the med ical technology prices,. tend to drop overall. Yet, lower prices are not necessar ily the winners in the free market. For one thing, medical services are seldom comparable between practi tioners' because of differences of training, experience, manner, skill, judgment, reliability, discretion, and the like. For another, idiosyncratic intangibles, such as a familiar wait ing room and set of fellow patients, a distant office picked for its close ness to a shopping mall or to the chil dren's home, an attraction for the specific psychopathology of the phy sician or the staff, often can and do make the patient choose the appar ently more expensive alternative, which is, however, a very different product from the impersonal manip ulations which bear the same name in the "Emergency Room" next door.

There is little doubt that banning competition or success in the marketplace makes for a hampered, non free market condition. But the re verse is not true; that is, competition (especially if imposed) does not nec essarily lead to a free market. Glad iators, who were slaves for the most part, used to compete fiercely for vic tory in combat sports. And many of us compete just as fiercely for gov ernment handouts. Neither of these types of competition has led to free markets, but the difference is, of course, in the fact that victorious gladiators were freed every now and then, while those of us who win the handouts wind up with even more government controls. In a monetary economy, advanced specialization of labor and rapid ac cumulation of capital become possi ble if prices fluctuate freely, to re flect the otherwise immeasurable utilities of the myriads of actors in the market. Contrived price stabil ity, such as wage and price control, is the deadly enemy of the essential tool of the free market, the economic calculation. Capitalism is the nick name offreedom in the marketplace, because it leads to capital formation and growth, which means less labor and more leisure, capital goods of in creasingly higher order, consumer goods of increasing newness, variety and abundance.

Capitalism is thus the market ar rangement which provides for the honest channeling of the profit mo tive, the motive of acquiring better 1985 THE ECONOMICS OF MEDICAL CARE 409 value than the value given up in ex change. While still in good health, private medicine was a superb illus tration of the success of capitalism. In medicine, even more than in any other areas of human action, any third party is profoundly unable to guess the utility of any service to the actual recipient, or the costs in curred (in terms of forgone oppor tunities) by those who pay the bill. The bureaucrat learns nothing from, the diagnostic and procedure codes, because they cannot communicate the very thing they are supposed to: the value of the medical service rendered. Involuntary Markets Markets are hampered if the mar·· ket actors are prevented, through the use or threat of physical force, from acting according to their own trade decisions, or if the information on which they have to base such deci sions is deliberately scrambled, through various forms of fraud, by some other people who, thereby, ac quire property or use of at least a part of what the first group involun tarily gives up. Those in the first group are the victims of the invaders from the second group. In involun· tary markets many people switch back and forth between these two roles.

From the standpoint of the natural law, invasion is unjust and injustice is criminal. Either the property of the victim or its use, including the possible irreversible use, is seized by the criminal, for his own or his friends' benefit. The harmony, co herence and efficiency of the volun tary exchange are disrupted and re placed by conflict, fragmentation and waste. Private criminals hamper the markets illegally. But governments can pass laws to protect themselves and their friends from criminal and civil liabilities, whenever they re sort to force or fraud to interfere with the free market. As they exceed their only legitimate function, that of de fending the natural rights of the in dividual, governments have to re sort to force, fraud, and an expanding body of statutes to make such ac tions legal. Socialist and communist govern ments expropriate their subjects outright. The more insidious Welfare State, a pseudo-democratic version of older forms of paternalistic despot ism, obtains the same end result through regulation, subsidies, infla tion and taxation. And individual freedom is also lost in the process.

All areas of economic activity are af fected this way, sooner or later, but in this century medicine has been the archstone of the edifice of power of the Almighty State, behind curtains of iron and behind curtains of decep tion alike. In what follows here, only those government interventions will be 410 THE FREEMAN July examined in some detail which have more importantly contributed to the spiraling medical expenditures, while others will be mentioned only briefly. Monopolies Monopolies are grants of exclusive privilege to engage in certain eco nomic activities, given to individu als or groups by the political power. This means that entry into the re spective field of activity is prevented or made difficult by using force. The simplest procedure is to eliminate the violators and confiscate their property outright, but modern insti tutions are more refined. In the case of medical licensure, there is a first component, ideologi cal, designed to deceive the public into believing that licensure is op erated to protect the consumer, the patient. The second component is an exclusive, expensive and time-con suming training, wherein painstak ing efforts are made to inculcate in the trainee a sense of obedience, and even devotion, toward the "profes sion." The third component is the bureaucratic ritual of getting li censed, quite expensive when the te dious tests which precede it and the unnecessary repeat registrations which follow it are considered. De licensure is used occasionally against the more bothersome polit ical opponents in the profession, but only exceptionally against incompetent physicians. The fourth com ponent is the actual use of force against those who practice without a license: criminal penalties, includ ing prison terms, are provided for the violators, but are seldom necessary, given the ideological processing of the minds- "brainwashing" -both within and without the profession.

Indeed, as shown in the previous sec tion, the free market can provide all the information the patient requires to purchase medical care, through directories, advertisements, refer rals, word of mouth and the price system. The sole purpose of licensure is to prevent the emergence of uncon trolled competition. The privileged elite can thus charge premium fees, the so-called monopoly prices. While these fees do not necessarily maxi mize the receipts of the individual physician, they do maximize the re ceipts of the profession as a whole over the long run, which is why price-cutting doctors are often ostra cized or otherwise punished by their colleagues. A second major impediment to a free market in medicine is the enor mous edifice of government subsi dies. The best known, though not usually thought of as a means of sub sidizing the medical profession, is the National Institutes of Health.

This name is brilliantly deceptive, because health is not at all what this huge bureaucracy usually pro1985 THE ECONOMICS OF MEDICAL CARE 411 duces. Its main products are a hor rendously expensive technology which serves the interests of the medical and political establish ments-and a coherent body of the oretical and methodological dogma which makes competition by rival schools of thought extremely diffi cult and even very unlikely. This major mechanism is closely coordi nated with the system of govern ment grants to the academic estab lishment represented by the faculties of "approved" medical schools, further complemented by grants to various medical care facil·, ities (hospitals, clinics, HMO's) and to the patients themselves (through Medicare, Medicaid, Veterans' Ben-· efits), which create the "market" re quired by the expensive technology and methods of practice. Incentives for Patients The third major impediment to a free medical market has been the po·· litical creation of incentives for the patients to buy large amounts of medical care and for the physicians to push the expensive kind. Both of these mechanisms are brought into play through one of the most fien dish tricks yet invented by the in surance industry in collusion with the government: the employee bene fits. This, of course, is a. system of harnessing the healthier employees and the employers to subsidize the not-so-healthy employees, as well as those who have a proclivity to abuse handouts of any kind, whether they are called "health care" or not. En ticed by apparent tax advantages, the employees are simply herded into huge populations of captive cus tomers for the insurance industry.

Moreover, they are virtually never offered the option of taking cash in stead of these benefits, that is, the possibility to opt out of the system and shop for sickness insurance in the open market. In a free market, lower prices, catastrophic insurance and private charity would insure ad equate access to medical care even for the improvident, although the current system of expectations and incentives might make the return to free market behaviors very difficult for a while. The mechanism by which even the least abusive patient's incentives are perverted is widely known as "first dollar coverage" and consists of in surance coverage for all sorts of mi nor expenses for even the most op tional kinds of medical care, with only token amounts of deductible ex penses. Thus, it is not surprising that in some metropolitan areas sex therapy with surrogates has been advertised as covered by "health insurance."

The mechanism by which the phy sician's incentives are perverted, again through the "health insur ance" schemes, consists of the more favorable coverage and preferential 412 THE FREEMAN July compensation ofhighly technical and expensive methods of diagnosis and treatment, complementing the sys tem of institutional grants and cou pled with the virtual exclusion of the patient from the transaction through the so-called assignment of benefits to the physician. In the process, the insurance carrier (or some agent it hires) undertakes to establish allow able fees for standardized and codi fied diagnoses and procedures. This is the inception of rationing and of the bureaucratic control ofquality in medical care. Naturally, detailed in formation about the patient, both medical and non-medical, has to be made available to the payer of ben efits. The confidentiality of the con sultation and treatment, the hall mark of Hippocratic ethic, is thereby compromised. Thus, private medical care has been replaced by imper sonal procedures and a system of surveillance even before the govern ment takes over nominally.

Other Ideological and Legislative Interventions The escalating operation of the types of government intervention described has been facilitated by a plethora of other ideological and leg islative interventions, such as: • promotion of the concept that "health care" is a human right; • tax policies, mostly within the frame provided by the income tax system; • creation and expansion of various public medical facilities; • massive regulation of medical care, especially in institutional set tings, which, like taxation, is a form of expropriation of the private sector; • protection of the inefficient and punishment of the successful enter prises through the arbitrary appli cation of the body of vague statutes and incoherent court decisions known as the "antitrust law"; • the exemption of the "business of insurance" from the antitrust law; • massive inflation of the money supply, often through deficit-spend ing, gargantuan bond issues and loan guarantees.

This is an enormously complex system of fraud and waste, which serves various special interests by using the police powers of the gov ernment, especially its regulatory and fiscal powers. Some of the par ticipants in the scheme use it delib erately for their predatory purposes. Others contribute to the operation without grasping its meaning, ded icating themselves to the avowed humanitarian goals. In a somewhat different context, V. I. Lenin re ferred to such unfortunates as "use ful idiots." A third category of con tributors consists of those who have some vague notion of the wrong they commit and who engage in con temptible attempts to demonstrate that it is not their fault, or that it 1985 THE ECONOMICS OF MEDICAL CARE 413 could not be avoided, or that it is right, or that they are not actually doing what they are doing. There are many semi-literate artisans in this category, among them quite a few dedicated and competent physicians.

The isolated rebel is barely worth a mention here, as he is either de stroyed or converted to one of the three categories in good standing. As to the dupe, we all take turns at playing that role, full-time or part time. The humanitarian guise of medi cal care and, even more so, "health care," is an excellent opportunity for the politician to obtain votes and for the bureaucrat to increase his power by deficit-spending in high gear, while bestowing favors to sundry friends along the way. The role played by Medicare and other Fed eral medical programs in the growth of the Federal budget, even though only partially known or acknow 1 edged, is staggering. Furthermore, numerous areas of government in tervention-such as occupational safety, clean air, food and drug safety-are health-related. At TaxpayerExpense These multiple interventions in the marketplace are ultimately sup ported by the taxpayers, by the peo ple on fixed incomes and, more dan gerously and increasingly so, by eroding the capital base of the econ·· omy, that is, the savings-investment portion of the national income.. The economic decline is further acceler ated by the commitment our govern ment has demonstrated to various international giveaways. When hy per-stagflation will, eventually, take a definitive and deadly hold of the economy, the federal government will-messianically and presumably at our request, as expressed, for ex ample, in the declaration of a state ofemergency by the President-have to assume total control of the dwin dling rubble and mandate the gen eral and immediate pursuit of hap piness ... or else!

But individual liberty can be lost much earlier by regulations alleg edly aimed at protecting people's life and health. On the one hand, the economic intricacies of medical care extend deeply into the most varied industries, with insurance and phar maceuticals as the most obvious ex amples. On the other hand, once the individual health becomes a matter of "public interest," nothing that could even remotely affect it could escape the jurisdiction of the sover eign. Clean air requirements and mandatory safety belts have been only timid inroads. "You ain't seen nothin' yet!" But rejoice! All re quirements will most certainly have to serve the dignity of human life, as defined by the best government ex perts, naturally. If, say, the Depart ment of Health and Human Services will continually monitor your bio414 THE FREEMAN logical functions-quite remotely and privately, of course-you can rest assured that not only the public in terest will be served, but your best interests also, even if you may hap pen not to fully grasp this now.

The Freaks Since the price exacted by the in terventions of the government in the market is huge, both in monetary terms and in terms of costs which in clude personal freedoms still very dear to many of us, it would stand to reason to ask the government to back out of our pockets, businesses and private lives. They would if we asked. Some of our Representatives and Senators still respond to the opinions expressed by their consti tuencies' even though decreasingly so. The others can be formally or dered to obey, or they can be re called. But instead, we continue to delude ourselves that we can pull it through by making the next guy bear the brunt of the "sacrifice," al though it should be clear by now that we are all to be sheared, unless we manage to shake off the yoke of big government and our predatory hab its together. A rather strange instance of let ting ourselves be mesmerized into delusional thinking is the recent fad for "competitive new forms of med ical care" (such as PPO's, PPI's, HMO's, etc.). Their competitiveness consists of their ability to secure, or take advantage of, favorable leg islative treatment, government grants, tax exemptions and reserved markets-that is, captive patient populations-in exchange for their higher compliance with the rules of the sovereign or his surrogates, in particular with the procedures-sur veillance approach to medical care.

These freak entities-bureaucratic medicine cloaked in free market pre tenses-have absolutely nothing to do with voluntary markets, or with any genuine competitive bidding for better patient care. Presenting them as free market phenomena is an out and-out fraud; or the expression of a delusion, at best. They are a death trap, for physicians and patients alike, the death of individuality, freedom and medical professional ism. To rejoice in joining them is like rejoicing in entering the gas cham ber because they are playing your fa vorite tune. @) (DEASON LIBERTY Nationalized Health Service IT TAKES SOME TIME to undermine a good medical system and particularly to destroy the long-established traditions of trust between doctor and patient which the older British doctors remember. Nevertheless, the British National Health Service is doing both. GEORGE WINDER, 1962 Kenneth McDonald For Workof Comparable Worth IN the State of Washington, the American Federation of State, County and Municipal Employees got a court ruling that requires the state to pay the same wage to men and women for work of "comparable worth."