Healthcare Debate – Pseudo Solutions from Academia

posted by Nima

July 25, 2009 · Posted in Government 

When people spend their entire lives writing papers, looking at numbers, pondering theories, all on behalf of government sponsored institutions, they will inevitably be out of touch with reality sooner or later. Such is the case with many people in academia. One perfect example is the author of a piece called A German Import That Could Help U.S. Health Reform. It shows with clarity, how blindly some people trust the government apparatus, attempt to engineer seemingly brilliant structures and organizations, and assume it will all work exactly the way they want it to work:

After a three-hour meeting at the White House on Tuesday, fiscally conservative Democrats in the House of Representatives — the so-called Blue Dog Democrats — got a tentative agreement on an addition to the health reform bill. The new provision would give an outside panel of health policy experts and stakeholders the power to make cuts to government-financed health care programs.

Although brushed off by some as a “pint-sized breakthrough in an ocean of concern,” Peter Orszag, the White House budget director, called it “probably the most important piece that can be added” to the health care bill in the House.

I could not agree more. Such a provision, if part of the final bill, would be the proverbial camel’s nose under the tent for a more rational approach to America’s health policy.

It would be a very big deal.

More often than not, Congress has been ineffective when it comes to health policy, paying far more attention to the income needs of the supply side than to the health of the American people. It can explain why for over two decades Congress has never shown any interest in the question of why Medicare spending per beneficiary in some parts of the country is more than twice the level in other parts, and why millions of low-income of Americans — children included — have been left without the benefit of health insurance for decades.

An outside body of health policy specialists and stakeholders would be able to inform America’s health policy. It could provide insights from detached research and a consensus among experts and stakeholders, in place of the campaign contributions of powerful interest groups that now drive policy.

The Medicare Payment Advisory Commission, for example, could serve as such a body.

To understand how such a body might function, Americans could learn from Germany’s experience with precisely such a body — Der Gemeinsame Bundesausschuss or, in English, the Joint Federal Committee.

Germany’s joint committee was established in 2004 and authorized to make binding regulations growing out of health reform bills passed by lawmakers, along with routine coverage decisions. The ministry of health reserves the right to review the regulations for final approval or modification. The joint committee has a permanent staff and an independent chairman.

Fees paid to providers in Germany are negotiated among regional associations of providers and corresponding associations of sickness funds (self-governing, non-profit insurance plans), so the joint committee does not have to set payment rates. Its main tasks include making evidence-based coverage decisions for ambulatory and inpatient services and medical products and furthering disease-management programs.

To arrive at its coverage decisions, the committee seeks scientific input from its nonprofit subsidiary, the Institute of Quality and Efficiency in Health Care. It conducts cost-effectiveness analyses for particular procedures or medical products, mainly on the basis of research done by academic or other outside research institutes.

In a lengthy interview on Germany’s health system, the country’s minister of health, Ulla Schmidt, explained the role of the committee:

This is the approach we prefer in Germany — consensus building under a form of self-regulation, but under general government oversight. The federal government provides a general legislative framework for our universal health insurance system. But precisely how to implement it is left to the experts and representatives of the various stakeholders in health care. No political committee can decide whether a new medical procedure should become part of universal coverage or not. We feel that this should be left to the experts who, in our case, are hospitals, physicians, dentists and sickness funds. The Joint Federal Committee also has patient representatives as well, so that patients can be heard, too. … It is our experience that the decisions rendered by the J.F.C. are widely accepted, including by patients. Generally, we then have no additional problems.”

Americans have traditionally been too proud to learn anything from the health systems of other nations. All told, however, this country’s legislatures have not served Americans well in health care. They have permitted and actively facilitated the uncontrolled growth of an unwieldy system that costs far too much for what it delivers.

The genesis, modus operandi and practical experience of Germany’s committee could serve as a role model for the more rational approach to health policy sought by the Blue Dog Democrats.

This is a perfect example of how one attempts to solve all the inevitable problems that ensue from government bureaucracy with pseudo market solutions. In the end all that is being recommended to add yet another government office to the existing structure and make it appear independent. How do we appoint people to such a body? Who is to say that they themselves have no political agendas in mind? How are they motivated to perform without entrepreneurial profit incentives? There is only one true solution to the Trouble with Bureaucracy, all other suggestions are mere patchwork and solve nothing. In his book Socialism, Mises wrote in 1932:

Capitalism the Only Solution

But let us disregard the fact that up to now all socialist efforts have been baffled by these problems, and let us attempt to trace out the lines on which the solution ought to be sought. Only by making such an attempt can we throw any light on the question whether such a solution is possible in the framework of a socialist order of society.

The first step which would be necessary would be to form sections inside the socialist community to which the management of definite branches of business would be entrusted. As long as the industry of a socialist community is directed by one single authority which makes all arrangements and bears all the responsibility, a solution of the problems is inconceivable, because all the other workers are only acting instruments without independent delimited spheres of operation and consequently without any special responsibility. What we must aim at is precisely the possibility not only of supervising and controlling the whole process, but of considering and judging separately the subsidiary processes which take place within a narrower sphere.

In this respect at least, our procedure runs parallel to all past attempts to solve our problem. It is clear to everyone that the desired aim can be achieved only if responsibility is built up from below. We must therefore start from a single industry or from a single branch of industry. It makes no difference whether the unit with which we start is large or small since the same principle which we have once used for our division can be again used when it is necessary to divide too large a unit. Much more important than the question where and how often the division shall be made is the question how in spite of the division of industry into parts we can preserve that unity of cooperation without which a social economy is impossible.

We imagine then the economic order of the socialist community to be divided into any number of parts each of which is put in the charge of a particular manager. Every manager of a section is charged with the full responsibility for his operations. This means that the profit or a very considerable part of the profit accrues to him; on the other hand the burden of losses falls upon him, insomuch as the means of production which he squanders through bad measures will not be replaced by society. If he squanders all the means of production under his care he ceases to be manager of a section and is reduced to the ranks of the masses.

If this personal responsibility of the section manager is not to be a mere sham, then his operations must be clearly marked off from that of other managers. Everything he receives from other section managers in the form of raw materials or partly manufactured goods for further working or for use as instruments in his section and all the work which he gets performed in his section will be debited to him; everything he delivers to other sections or for consumption will be credited to him. It is necessary, however, that he should be left free choice to decide what machines, raw materials, partly manufactured goods, and labour forces he will employ in his section and what he will produce in it. If he is not given this freedom he cannot be burdened with any responsibility. For it would not be his fault if at the command of the supreme controlling authority he had produced something for which, under existing conditions, there was no corresponding demand, or if his section was handicapped because it received its material from other sections in an unsuitable condition, or, what comes to the same thing, at too high a charge. In the first event, the failure of his section would be attributable to the dispositions of the supreme control, in the latter to the failures of the sections which produced the material. But on the other hand the community must also be free to claim the same rights which it allows to the section manager. This means that it takes the products which he has produced only according to its requirements, and only if it can obtain them at the lowest rate of charge, and it charges him with the labour, which it supplies to him at the highest rate it is in a position to obtain: that is to say it supplies the labour to the highest bidder.

Society as a production community now falls into three groups. The supreme direction forms one. Its function is merely to supervise the orderly course of the process of production as a whole, the execution of which is completely detailed to the section managers. The third group is the citizens who are not in the service of the supreme administration and are not section managers. Between the two groups stand the section managers as a special group: they have received from the community once and for all at the beginning of the regime an allotment of the means of production for which they have had to pay nothing, and they continue to receive from it the labour force of the members of the third group, who are assigned to the highest bidders amongst them. The central administration which has to credit each member of the third group with everything it has received from the section managers for his labour power, or, in case it employs him directly in its own sphere of operation, with everything which it might have received from the section managers for his labour power, will then distribute the consumption goods to the highest bidders amongst the citizens of all three groups. The proceeds will be credited to the section managers who have delivered the products.

By such an arrangement of the community, the section manager can be made fully responsible for his doings. The sphere for which he bears responsibility is sharply delimited from that for which others bear the responsibility. Here we are no longer faced with the total result of the economic activity of the whole industrial community in which the contribution of one individual cannot be distinguished from that of another. The “productive contribution” of each individual section manager is open to separate judgment, as is also that of each individual citizen in the three groups.

It is clear that the section managers must be permitted to change, extend or contract their section according to the prevailing course of demand on the part of the citizens as indicated in the market for consumption goods. They must therefore be in a position to sell those means of production in their section which are more urgently required in other sections, to these other sections: and they ought to demand as much for them as they can obtain under the existing conditions….

But we need not carry the analysis further. For what are we confronted with but the capitalist order of society—the only form of economy in which strict application of the principle of the personal responsibility of every individual citizen is possible. Capitalism is that form of social economy in which all the deficiencies of the socialist system described above are made good. Capitalism is the only conceivable form of social economy which is appropriate to the fulfilment of the demands which society makes of any economic organization. Advertisement: Get your shortlink before someone else does at

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