The incentives of a third-party payer system.

Ezekiel J. Emanuel, an oncologist and former White House advisor, writes this morning of “what is wrong with American health care today.” He cites the construction of two new proton beam treatment facilities at the Mayo Clinic, one of our greatest hospitals. These facilities are part of a “medical arms race for proton beam machines, which could cost taxpayers billions of dollars for a treatment that, in many cases, appears to be no better than cheaper alternatives.”

The therapy, which Emanuel describes, is roughly twice the price of other forms of radiation.

The higher price would be worth it if proton beam therapy cured more people or significantly reduced side effects. But there is no evidence showing that this is true, except for a handful of rare pediatric cancers, like brain and spinal cord cancer.

To justify the expenses, the facilities need more patients, thus doctors over promote the treatment for those with other forms of cancer, for which there “is no convincing evidence that proton beam therapy is as good as — much less better than — cheaper types of radiation for any one of these cancers.”
So why would the Mayo Clinic spend this money? Because several other hospitals have them. But is the competition really necessary? “With Medicare reimbursement so generous, and patients and doctors eager for the latest technology, building new machines is sane, profitable business for hospitals like Mayo.

But it is crazy medicine and unsustainable public policy.”

On that point, Dr. Emanuel and I agree: it is crazy and unsustainable. As usual, the disagreement is not over the cause but the solution.

The most promising option is a new approach called dynamic pricing. Medicare would pay more for proton beam therapy, but only for diseases that are proven to be treated more effectively by the therapy than by other forms of radiation. For cancers like prostate, it would pay only what it pays for the cheaper alternatives. But if studies were done showing that proton beam therapy was better than other treatments, the payment would go up. If no studies were done, or the new evidence demonstrated no advantages, then coverage would continue, but at the lower reimbursement.

I am not so convinced. First of all, there will be studies that prove the efficacy of all forms of treatment. The government would be left as an adjudicator, and will almost certainly cave in to pressure to approve more expensive treatments, if only in the name of equality.

Second, people are good shoppers; the government is not. There are innumerable health problems and treatments, not a few high-profile ones. How many bureaucrats will it take to monitor and adjudicate these therapies? Moreover, health care services would be slowed by the glacially slow speed of the federal government. Why put this additional burden on Washington?

People, contrary to the tenets of Western liberalism, are not stupid. They can shop and judge and discriminate between competing alternatives. My solution? Write them a check.

I do not know how much others value certain things; the government certainly does not either. If people had money that was theirs to spend as they chose in the form of a health savings account – partially funded by the government in accordance with a progressive formula – they would be able to choose what is and is not worth their money.

Under the current system, we the people are clients of the government and demand more and more but are willing to pay for less and less. Give us ownership of our health – it is ours, after all – and money to support ourselves, and then let us shop. We do it for care insurance and life insurance and home-owners insurance… and can do it for health insurance. We can shop for cars and schooling and housing… and health care. People will have the incentives to shop around for alternatives that provide a better value, based on innumerable relevant factors, instead of always demanding the latest and (unproven) greatest from the “generous” (and broke) Medicare program. This both controls costs and imparts responsibility to free citizens. Can bureaucrats in Washington do the same? Knowledge is decentralized; decision-making should be as well.



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