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Universal Coverage Kills
Don't resist innovation.


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Michael F. Cannon

In the final presidential debate, Barack Obama and John McCain continued to slug it out over health-care reform. McCain accused Obama of wanting to put all Americans in the type of single-payer system that exists in Canada and England. “Senator Obama wants to set up health care bureaucracies, take over the health care of America,” McCain warned. “As he said, his object is a single-payer system.”

McCain, Obama, and the voters would do well to keep in mind what this month — October 2008 — has to say about the quality of medical care when government is in charge.

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Federal bureaucrats have announced that, as of this month, the Medicare program will no longer provide financial rewards to doctors and hospitals who harm patients.

That is not a typo. For more than 40 years, Medicare has provided financial rewards to providers when a patient requires follow-up care following a medical error.

Medicare is Americas experiment with universal coverage. Operated by the federal government, it provides health insurance to more than 40 million elderly and disabled Americans.

When Congress created Medicare in 1965, physicians feared the new program would reduce their incomes and autonomy. To reduce physician opposition, Congress adopted the dominant way of paying physicians at the time, known as “fee-for-service” payment. As the name suggests, when a physician provides a service, he collects a fee. Provide another service, collect another fee — ad nauseam. Physicians like fee-for-service payment, and have lobbied to preserve it.

Yet providers often make mistakes that harm patients. A nurse allows an air bubble to enter a patients bloodstream. A patient receives a transfusion with the wrong type of blood. A hospital fails to prevent pressure ulcers in a bed-ridden patient, or allows a patients surgical site to get infected. A surgeon operates on the wrong body part, as recently occurred at Beth Israel Deaconess Medical Center.

Indeed, medical errors have reached epidemic proportions in Americas health-care sector. The Institute of Medicine estimates that as many as 100,000 Americans die in hospitals every year due to medical errors. Thats more than 20 times the number of Americans who have died in the five years of the Iraq war. Medication errors occur at a rate of one for every day a patient spends in a hospital, and injure an estimated 1.5 million Americans each year.

When a patient requires follow-up care to repair the damage done by a medical error, how does Medicare respond? It pays providers for the “care” that injured the patient, and then pays them again to repair the damage. Imagine paying your contractor more because he knocked down the wrong wall.

Since Medicare is the largest purchaser of medical care in the nation, private insurers typically follow its lead, which means that all providers pay much less attention to medical errors than they should.

Starting this month, Medicare will fix that. Sort of.

After 40 years of rewarding providers who harm patients, Medicare will now force providers to bear some of the cost of their own mistakes. Yet Medicare will still reward hospitals for many medical errors, including infections and medication errors, and will continue rewarding physicians for even more types of error.

It doesnt have to be this way. More than 60 years ago, markets devised health plans that discourage medical errors by forcing doctors and hospitals to bear the financial costs of all such errors. You know them as plans like Group Health Cooperative and Kaiser Permanente. Doctors and patients who choose those plans tend to like them, and the plans receive high marks for quality, which suggests the financial incentives they use serve patients better.

Why does it take Medicare more than 40 years to take such baby steps? Especially when the market developed a solution to this problem over 60 years ago?

The answer is that Medicare — like all universal-coverage schemes — is operated by the government, and government resists innovation. In this case, resistance to innovation kills.

McCain and Obama should remember what October 2008 symbolizes. Especially Obama, who has voted to make it harder for seniors to choose private plans that reduce medical errors, and who wants to put everyone in a single-payer, Medicare-for-all program.

Thats a frightening thought considering that Medicare — Americas experiment with universal coverage — has caused much unnecessary suffering.

– Michael F. Cannon is director of health-policy studies at the Cato Institute and co-author of Healthy Competition: Whats Holding Back Health Care and How to Free It.



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