Can We Get ‘Price Controls’ Out of Medicare?

by Veronique de Rugy

Here are some provocative paragraphs about doctors who treat Medicare patients and the rules they have to abide by:

So in other words, abiding by these “price controls” is a condition of receiving Medicare reimbursements – and many doctors turn down the deal.  How is this any different from public schools hiring teachers subject to the condition that they (a) don’t charge their students extra fees, and (b) don’t moonlight? 

Not only do I see no problem philosophically, but I actively favor such rules.  I wish there were more rules!  How about a rule that doctors can’t collect any Medicare payments unless they got a perfect score on their MCATs?  Recite the entire Ring cycle from memory?  Stand on their heads for a hour every day?  Make the rules onerous enough, and Medicare effectively disappears – as it should.

The author is George Mason University professor Bryan Caplan, writing in response to his EconLog co-blogger David Henderson, who argued that Medicare imposes price controls on health care. Henderson explains the strict pricing rules put on doctors who see Medicare patients:

. . . the Reagan administration took the next step of imposing price controls on doctors under Medicare. Doctors were no longer allowed to do what was variously called “extra bill” or “balance bill.” They couldn’t charge even a penny more than Medicare paid. That’s what made it a system of price controls. Moreover, under later regulations, if a doctor takes even one Medicare patient, then he has to charge Medicare rates to all his Medicare patients even if those patients would rather ensure access by paying the whole bill (Medicare plus a doctor’s additional charge) out of their own pocket. It is this system of price controls that is causing many doctors to take no Medicare patients.

Caplan responds that  if doctors agree to see Medicare patients, then they implicitly agree to play by the rules imposed by the government. If they don’t want to play by the rules, then they shouldn’t see Medicare patients; they should agree to treat only those seniors who have opted out of Medicare and forfeited Social Security payments. It certainly is a provocative idea (like most of Caplan’s ideas).

Here is my question: Wouldn’t some of these issues go away if Medicare started reimbursing patients rather than doctors? Medicare could set a reimbursement schedule for each procedure, prescription drug, etc. Doctors could charge whatever they want and patients could choose which doctors to see based on their fees or their preferences (like we do for other goods). The patient would pay the difference between the doctor’s fee and the Medicare reimbursement if need be. I would think many doctors would decide to charge exactly or just a little above what Medicare reimburses, to attract more patients. Other doctors may decide to charge more and would attract patients willing to pay more for the service. Doctors would probably have to offer patients a choice between different drugs depending on their price, e.g. generic versus non-generic.

That’s how some countries do it — France, for instance.

Beyond the price-control issue, a possible benefit of having Medicare reimburse patients rather than doctors is that the demand for health care may go down at least a little. I have always wondered whether the current system — where patients don’t have to pay much or at all for a consultation or a drug — creates an incentive to consume more. Also, I am assuming that we would see the emergence of supplemental insurance policies — like they have in France — to cover the difference between Medicare reimbursements and doctors’ fees or procedures’ costs. It would also put the burden of dealing with the program on the patients who are using the service rather than doctors — which seems to make more sense to me.

The question is, what do we do about low-income patients (cash-flow-poor seniors) who can’t afford to pay the doctor in the first place, even if they will be fully reimbursed later? The solution there could be to give poor patients a health-care credit card, which would be charged to the government. I am not sure what mechanisms would have to be put in place to avoid too much fraud, but certainly that would be a concern. I have to look into the way the French deal with this issue. I am sure that there’s a lot of fraud, but there’s a lot of fraud in the system we have now.

Anyway, I am just throwing this idea out there. What do you think would happen if Medicare reimbursed patients rather than doctors? Is it even doable?

The Corner

The one and only.