Prices Matter

What happens when we pay too little? Ask anyone covered by Medicaid—whose payment rates have historically been well below Medicare and private insurers—how easy it is for them to find a regular source of care other than the local hospital’s emergency department. A similar dynamic helps explain…the difficulties that some Medicare beneficiaries are experiencing in securing access—including the recent announcement by the American Medical Association that there are 22 “patient access hot spots” where access to care for Medicare patients “is already at risk.”

What happens when we pay too much? Inefficient unbundling and re-bundling of the delivery system as providers maneuver to capture the “excess” revenue. It is no accident that we have seen the emergence of physician-owned cardiac and orthopedic specialty hospitals, but no similar physician-owned hospitals for the treatment of trauma, burn care, or AIDS.

Full report by David A. Hyman (Cato Institute) here.

Comments (4)

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  1. Greg says:

    Get ready for a tsunami of underpayment.

  2. Tom says:

    Hyman forgot a paragraph on what happens when we pay juuuuuuust right.

  3. Devon Herrick says:

    When prices are being set outside of a market, the chances of regulators picking the appropriate, market clearing price is not very high. When regulators inevitably fail to set appropriate prices, misallocation of resources occurs.

  4. Bruce says:

    It’s hard to get things just right:

    At the table in the kitchen, there were three bowls of porridge. Goldilocks was hungry. She tasted the porridge from the first bowl.

    “This porridge is too hot!” she exclaimed.

    So, she tasted the porridge from the second bowl.

    “This porridge is too cold,” she said

    So, she tasted the last bowl of porridge.

    “Ahhh, this porridge is just right,” she said happily and she ate it all up.