Schiff @ Freedomain Radio

While Fox, CNN, and MSNBC discuss why independents’ favorability toward Obama during his State of the Union address went up by 3% during the 10th and 11th minues of his speech, and why Republicans disliked the 15th minute, it’s time for a well deserved dose of truth:

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US Health Care in Crisis – Where is the Outrage?

A very informative interview with research scientist Mary Ruwart about the US health care system:

First off, I would like to add one more extremely crucial point to my “Fixing US Health Care Once and for All“: Repealing the Kefauver Harris Amendment from 1962.

It is being estimated that drugs could cost about 80%(!!) less if it weren’t for these burdensome regulations. In addition to that, innovation has been stifled immensely. Most people don’t even begin to realize what a great health system would be possible if our government simply reduced its excessive meddling.

I will go on a rather emotional and political rant now. So if you are not into that kind of stuff, consider yourself warned.

Where is the Outrage?

Anyone who closely examines the facts about US health care, or even just watched the interview above, has to wonder: What is going on? Where is the outrage??

Burdensome and often times outright ridiculous FDA requirements, decrees, and restrictions account for as much as 80% of drug costs! Without those, can you imagine how cheaply you or your friends and dear ones might be able to obtain certain, direly needed, drugs? Where is the outrage?

The supreme court told individuals who were suffering from a terminal disease that they could not obtain drugs in an early FDA stage, even through it was their last hope, even through they themselves were fully aware of the risk they were taking! Where is the outrage?

The lifecycle before a drug can go to market has gone up from 5 to 15 (!!) years. Where else does something like this exist? Who would be willing and able to work on complicated drugs, make all the necessary investments, under such circumstances? Is there any other industry where after over 40 years a process actually takes 3 times longer than it used to?? Wouldn’t we expect the opposite to be the case? Where is the outrage?

The AMA continues to do everything in its powers to limit the number of health practitioners while people are suffering, dying, going bankrupt from medial bills, and seeking treatment in emergency rooms. It does so through its control of the governmental State Medical Boards who have a monopoly on medical licenses. Why is nobody examining this relationship and practice more closely? Where is the outrage?

It is estimated that the loss of innovation in the field of drug and medical research may be linked to as much as 16 million health related deaths! This is a number that dwarfs US deaths from wars any day. Where is the outrage?

Burdensome and complicated government rules and restrictions have led to a health care system in shambles, an unmanageable system that is sooner or later headed for a complete collapse. At this point, one would think that there is absolutely no way the people would let their leaders get away with one more bit of the same. Some mentality of hitting the brakes would be expectable. But what has happened now? House Democrats have introduced a 2000 (!!!) page bill that gives the government more powers to issue decrees, restrictions, and make health care expenditures. It recently passed the house. They are NOT hitting the brakes. If anything, they are accelerating full throttle!

I searched for all important keywords in this bill. “Importation”, “Regulations”, “American Medical Association”, “FDA”. But all I can find is either nothing at all, or the granting of more powers to the very culprits. Is anybody out there looking at this closely? Do people realize what is happening?

What does the media have to say about this? They are talking about petty, uninteresting, and completely irrelevant subjects, such as the “public option“, “death panels”, “free health for immigrants”, and what have you.

The CBO estimates that this bill will cost about $1.2 trillion. Based on that alone, I estimate it will cost about $12 trillion instead. Money that the government simply doesn’t have. Money that you and your grandchildren will be on the hook for for many many years. Where in the world is the outrage??

If this bill ever makes it through the senate, the train towards a completely nationalized, and thus all the more disastrous health care system can no longer be stopped. There really is no easier stance to take for you if you care about your own and your friends’ and family’s health, completely regardless of party affiliation: This bill, or ANY derivative of it, has to fail in the Senate, bar none.

This is not a game. It is not a fun little platform for activism. It is crucial. It is probably one of the most important and far reaching political decisions in decades that is being voted on. It will determine whether we completely abdicate from fixing what is wrong with our system, or whether we are capable of hitting the brakes and changing course.

Call both your Senators, call them every day of the week until they do what is right: Vote Nay!

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Fixing US Health Care Once And For All – 5 Crucial Steps

The root causes of the problems with health care in the US

The problem with health care in the US, but in virtually every other country in the world as well, is a simple one: The goods (products and services) offered on the market that address illnesses and and improve our well being are offered at prices that are so high that most consumers are unable to afford a sufficient amount to address their demands.

On top of that, these prices are continuously rising. All other health care issues stem from this simple fact. Health insurance premiums, for example, are charged based on the prices that competing insurers expect to end up paying for health care goods. Thus, naturally, health insurance premiums are on the rise as well, even in the current deflationary environment. The rapid increase in government expenses for its entitlement programs Medicare and Medicaid, too, is simply the result of these ongoing price increases. It is thus not a coincidence that today the US government spends more than any other industrialized nation on health:

On the market, such imbalances are, under free competition, swiftly addressed via a simple process: High prices for certain consumer goods indicate a high demand and an insufficient supply. Thus profit seeking entrepreneurs have an incentive to shift from what they are currently doing to focusing on producing more of such highly demanded goods, by employing more commensurate factors of production that turn out the demanded goods. This leads to a decline in their prices, moving the market closer to equilibrium and thus restoring balance.

But when a group of people which obtains its means of operation via aggression and theft, the government,  imposes decrees that prevent the voluntary market participants to perform such balancing acts, and threaten them with imprisonment and fines should they not oblige, the imbalance will persist. If that group’s actions are such as to bring about even more shortages for the demanded goods, the imbalance will grow, prices will keep rising.

As an outcome of such an interventionist policy, there will always be a small group of entrepreneurs that benefits from the protection awarded against competition and voluntary action on the part of consumers and new entrepreneurs. They naturally reap the benefits from the ability to charge prices that are not being bid down by potentially competing entrepreneurs. It is important to keep this fact in mind when members of such groups utter statements that attempt to justify the policies that have brought about and continue to maintain the imbalance.

If those who run the government desire, as they profess, to remedy such an imbalance, the course of action they need to take is just as simple as the problem: lift all those decrees that hinder consumers and entrepreneurs from fixing the imbalance.

Moving forward, I will outline 5 simple steps that the US government needs to take in case it is interested in addressing the precise pain points that have precipitated the imbalance outlined above:

5 steps toward affordable health care

1. Get rid of government enforced AMA privileges, restrictions, and monopolies

The American Medical Association (AMA) has, over the course of the past 160 years, done everything possible to utilize government power in order to restrict the amount of health care services, the number and efficiency of health education facilities, the access to drugs in pharmacies, price transparency and negotiation, and the practice of alternative health approaches. It has deliberately and happily reduced the availability of goods that address consumers’ health care needs, leaving many consumers in a desperate situation at the benefit of those doctors whose privileged position it has been protecting.

It is certainly not easy to back up such an outrageous charge against the AMA. Fortunately we have a rather reliable companion to corroborate our accusation – the AMA itself:

… in 1901 the Journal of the American Medical Association released the following statement: “The growth of the profession must be stemmed if individual members are to find the practice of medicine a lucrative profession.”

In order to achieve these objectives, the AMA lobbied heavily with state and federal government institutions – with remarkable success. As Lew Rockwell notes:

To help bring about a higher-paid profession, the AMA in 1904 created the Council on Medical Education, which sought to shut down more than half the existing medical schools by rating them on a scale of A to C. In cooperation with State medical boards composed of what Arthur Dean Boran, head of the council, called the “right sort of men,” the AMA succeeded in cutting the number of schools to 131 by 1910, from a high of 166.

Then the council’s secretary N.P. Colwell helped plan (and some say write) the famous 1910 report by Abraham Flexner. (…)

The Flexner Report was more than an attack on free competition funded by special interests. It was also a fraud. For example, Flexner claimed to have thoroughly investigated 69 schools in 90 days, and he sent prepublication copies of his report to the favored schools for their revisions. Homeopaths noted that his authority derived solely “from an unlimited access to the pocketbook of a millionaire.” Homeopaths did not use synthetic drugs, of course. John E. Churchill, president of the Board of Education of New York, called the report a “menace to the freedom of teaching.” Years later, Flexner admitted that he knew nothing about medical education. But he did not need to in order to serve his employers’ purposes.

Flexner’s attack, stepped up by the AMA’s Council on Medical Education and its State medical boards, closed 25 schools in three years, with more over the years to come, and cut the number of students attending the remaining schools in half. All non-mainstream practitioners were targeted. For example, from the early part of the century, consumers preferred optometrists to ophthalmologists on grounds of both service and price. Yet the AMA derided the optometrists as quacks, and in every State, the AMA-dominated medical boards imposed restrictions on these and other “sectarian” practitioners when they could not outlaw them entirely.

Homeopathy still had a remnant of about 13,000 practitioners, supported by a fiercely loyal customer base, but decades of well-financed attacks had taken their toll. The battle-weary Homeopaths eventually gave in, conceding major parts of their doctrine, but the AMA was not satisfied with anything less than total victory, and today, American Homeopaths practice mostly underground.

With its monopoly, the AMA sought to fix prices. Early on, the AMA had come to the conclusion that it was “unethical” for the consumer to have any say over what he paid. Common prices were transmuted into professional “fees,” and the AMA sought to make them uniform across the profession. Lowering fees and advertising them were the worst violations of medical ethics and were made illegal. When fees were raised across the board, as they frequently could be with decreased competition, it was done in secret.

The AMA, in its constant quest for higher incomes through lower competition, also battled churches and other charities that gave free medical care to the poor. Through lobbying, it attempted to stamp out what it called “indiscriminate medical charity.” A model 1899 law in New York put the control of all free health care under a State Board of Charities dominated by the AMA. To diminish the amount of free care, the board imposed fines and even jail terms on anyone giving treatment without first getting the patient’s address and checking on his financial status.

Then there was the problem of pharmacists selling drugs without a doctor’s prescription. This was denounced as “therapeutic nihilism” and the American Pharmaceutical Association, controlled by the AMA, tried to stamp out the low-cost, in-demand practice. In nearly every State, the AMA secured laws that made it illegal for patients to seek treatment from a pharmacist. But still common were pharmacists who refilled prescriptions at customer request. The AMA lobbied to make this illegal, too, but most State legislatures wouldn’t go along with this because of constituent pressure. The AMA got its way through the federal government, of course.

There were other threats that also had to be put down: “nostrums,” treatments that did not require a visit to the doctor, and midwives, who had better results than doctors. Also a danger was “contracting out,” a company practice of employing physicians to provide care for its workers. This was “unethical,” said the AMA, and should be illegal. Fraternal organizations that contracted out for their members were put out of business with legislated price controls, and hospitals – whose accreditation the AMA controlled – were pressured to refuse admittance to patients of contracting-out doctors.

By the end of the Progressive Era, the orthodox profession as led by the AMA had triumphed over all of its competitors. Through the use of government power, it had come to control education, licensure, treatment, and price. Later it outcompeted fraternal medical insurance with the State-privileged and subsidized Blue Cross and Blue Shield. The AMA-dominated Blues, in addition to other benefits, gave us the egalitarian notion of “community rating,” under which everyone pays the same price no matter what his condition.

Thus, more importantly than anything else, the federal government needs to lift all federal laws, rules, and decrees that restrict the supply of health care services and stifle competition between health care providers. Regulatory hurdles for alternative medicine and services performed by non-doctors, such as registered nurses need to be removed.

There is a hole slew of health services that can be performed without knowledge of biochemistry, neural sciences, or similar fields. Lots of diseases can be diagnosed rather easily and treated just as easily.

Interestingly, nurses are very popular with many people because they are known to take a more holistic and personable approach to dealing with patients’ concerns.

Anyone in favor of the status quo, such as AMA members will come up with an entire list of arguments against such changes in the system. This should not surprise us, as I outlined above: There will always be a small group of entrepreneurs that benefits from the protection awarded against competition and voluntary action on the part of consumers and new entrepreneurs (in this case alternative practitioners and nurses).

There will be the most popular argument of safety and protection against quacks. But how about we let the consumers and independent rating agencies make this decision? What gives us the right to force them into arrangements? If these potential competitors are all quacks, then surely their customers and professional raters  will post horrible reviews on and other sites and drive tons of traffic back to AMA approved doctors. On top of that, how do we know the state commissioners are such better raters than the customers and competing agencies?

To bring up an example in a different field, when you are looking for a good restaurant, whom do you trust more? Private raters such as Zagat and Michelin, or the FDA? Who trusts a monopoly institution which has no pressure of performing over a profit seeking entrepreneur whose very existence depends upon making successful recommendations? I will not here delve into the terrible judgment that the FDA has displayed again and again when it came to approving drugs, and the many people whose lifes have been destroyed, if not taken, due to malpractice on the part of these bureaucrats.

In fact, ironically, under free competition consumers would be a lot more safe than they are under a system where the current sellers are constantly protected against and unchecked by potential competitors. If state licensure were so indispensable, why don’t we do away with free competition in all other fields? Why not let all services be sanctioned by a federal board and protected against more apt service providers? Because it doesn’t make any sense at all.

All other arguments you will hear against free enterprise from those who are privileged by a government enforced monopoly can be debunked just as easily and need not concern us at this very point.

2. Legalize importation of drugs

What I wrote regarding doctors and the AMA applies almost verbatim to pharmaceuticals and the The Food and Drug Administration (FDA). Pharmaceutical corporations in the US have, over decades, pushed through federal regulation that shields them from competition. The Food and Drug Administration (FDA) acts as their protector and deliberately restricts the supply of pharmaceuticals that are available on the market, all in the name of “drug safety”.

An important part of limiting the supply of goods is always restricting importation from abroad. Federal legislation, as per US Code Title 21, 384 prohibits and restricts the importation of prescription drugs from abroad. Where it permits it, it imposes burdensome rules and restrictions, the compliance with which costs time and money which, again, makes these goods more expensive to the consumer than they could be.

The quickest and most effective way to put an end to this would be to lift the ban on the importation of drugs from abroad. If our domestic drugs are so much better an safer, then surely the domestic producers should be delighted about an influx of inferior products which will only reaffirm their position as producers of quality. But what if the imported drugs are actually just as good, or better, or cheaper than domestically produced drugs. Well, this would precisely constitute the other piece of our puzzle.

While the AMA has, through federal and state legislation, restricted the number of practitioners available, and prolonged the process of educating such professionals, the pharmaceutical corporations have, through the FDA, limited the amount of drugs on the market and prolonged their approval processes, shutting out small innovative entrepreneurs with less means at their hands, and foreign producers who might have better and certainly cheaper drugs to offer.

Allow at least pharmacists and doctors to import pharmaceuticals from abroad, and prices for such goods will fall rapidly, getting us closer to a state of affairs where medication is affordable to everybody.

3. Allow Medicare/-aid to negotiate prices with drug companies

The federal government collects Medicare and Medicaid taxes from employees to pay for these two programs. This in itself is bad enough. But at the very least, if they do so, they should assure us that they put this tax money to proper use and that they will try to get the best deals out of any purchases they make on our behalf. This in itself is virtually impossible due to the Trouble With Bureaucracy. But it is downright destructive if the law completely prohibits Medicare/-aid purchasers from negotiating with the drug companies. Such is unfortunately the case, due to a program called Medicare Part D:

By the design of the program, the federal government is not permitted to negotiate prices of drugs with the drug companies, as federal agencies do in other programs. The Veterans Administration, which is allowed to negotiate drug prices and establish a formulary, pays 58% less for drugs, on average, than Medicare Part D. For example, Medicare pays $785 for a year’s supply of Lipitor (atorvastatin), while the VA pays $520. Medicare pays $1,485 for Zocor, while the VA pays $127. Former Congressman Billy Tauzin, R-La., who steered the bill through the House, retired soon after and took a $2 million a year job as president of Pharmaceutical Research and Manufacturers of America (PhRMA), the main industry lobbying group. Medicare boss Thomas Scully, who threatened to fire Medicare Chief Actuary Richard Foster if he reported how much the bill would actually cost, was negotiating for a new job as a pharmaceutical lobbyist as the bill was working through Congress.

This creates nothing but a giant bonanza for these corporations, and ends up driving up costs to everyone.

Change these nonsensical laws, allow the DHS to negotiate drug prices and another important step toward lowering health care cost is taken.

4. Repealing the Kefauver Harris Amendment from 1962.

I outline why in more detail here:

It is being estimated that drugs could cost about 80%(!!) less if it weren’t for these burdensome regulations. In addition to that, innovation has been stifled immensely. Most people don’t even begin to realize what a great health system would be possible if our government simply reduced its excessive meddling.

… ideally, just scrap the entire monstrosity that is the FDA and be done with it.

5. Abolish Patent Laws

Patent laws are mostly favored by supposed free marked economists. But patent legislation leads to nothing but another state enforced monopoly. Pharmaceutical companies have been the biggest beneficiaries of US patent law as can be seen in their margins and profitability, keeping away competition and pushing up prices. Moreover, there is no historical evidence or tenable conceptual logic that corroborates the notion that patent laws foster competition, in fact, quite the opposite is true.

By the way, here is a very informative and entertaining lecture on patent law by patent lawyer and Austrian economist Stephen Kinsalla.

Moving forward

There are many other things that can and must be done in the long run. The government will have to get out of the way of restricting competition between health insurance providers across state borders, Medicare and Medicaid will have to be phased out for new workers who join the workforce, by enabling them to choose between paying taxes or paying the money into their own health savings account. And there are probably myriad other things that the government needs to be removed from in order to allow for a dynamic and efficient health care market.

But without addressing the 5 steps I outlined above, all other efforts will be completely and absolutely futile. Without addressing the root of high health care costs, it does not matter whether we let government alone take care of health insurance, or whether we completely liberalize the health insurance market. Nothing would change substantially. We would still be paying high premiums that go into a pool that pays for overly expensive health care products and services. We would still be faced with an inherent shortage of health care goods and services.

If the cost for medical products and services were to come down significantly, it won’t even be necessary to have an insurance for regular treatments and checkups. Most expenses could be paid out of pocket. There exists no other market where routine procedures and operations are so expensive that people need insurance to cover them. Insurance, by its very definition and in every other field, is supposed to be for rare and catastrophic events only.

Only by tackling the root structural, regulatory, and political causes of our problems will we make the dream of affordable health care for everyone a reality.

Update: I added points 4 and 5 after publishing this post.

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The US Health Care Myth

A refreshing piece by Shikha Dalmia that echoes exactly what I keep on saying, The Myth Of Free Market Health Care In America:

ObamaCare is in retreat. That much was clear the moment the president started springing B-grade Hollywood references to “blue pills and red pills” in its defense during his news conference last week. But before ObamaCare can be beaten back decisively, its critics need to answer this question: How did his plan for a government takeover of roughly a fifth of the U.S. economy get this far in the first place?

The answer is not that Democrats have a lock on Washington right now–although they do. Nor that Republicans are intellectually bereft–although they are. The answer is that both ObamaCare’s supporters and opponents believe that–unlike Europe–America has something called a free market health care system. So long as this myth holds sway, it will be exceedingly difficult to prescribe free market fixes to America’s health care woes–or, conversely, end the lure of big government remedies.

The fact of the matter is that America’s health care system is like a free market in the same way that Madonna is like a virgin–i.e. in fiction only. If anything, the U.S. system has many more similarities than differences with France and Germany. The only big outlier among European nations is England, which, even in a post-communist world, has managed the impressive feat of hanging on to a socialized, single-payer model. This means that the U.K. government doesn’t just pay for medical services but actually owns and operates the hospitals that provide them. English doctors are government employees!

But apart from England, most European countries have a public-private blend, not unlike what we have in the U.S.

The major difference between America and Europe of course is that America does not guarantee universal health insurance whereas Europe does. But this is not as big a deal as it might seem. Uncle Sam, along with state governments, still picks up nearly half of the country’s $2.5 trillion annual health care tab.

More importantly, contrary to popular mythology, America does offer public care of sorts. It directly covers about a third of all Americans through Medicare (the public program for the elderly) and Medicaid (the public program for the poor). But it also indirectly covers the uninsured by–at least in part–paying for their emergency care. In effect, anyone in America who does not have private insurance is on the government dole in one way or another.

This is not radically different from France, where the government offers everyone basic public coverage, of course–but a whopping 90% of the French also buy supplemental private insurance to help pay for the 20% to 40% of their tab that the public plan doesn’t cover.

Meanwhile, in Germany, about 12.5% of Germans who are civil employees or above a certain income opt out of the public system altogether and rely solely on private coverage–even though they know it is well nigh impossible to return to the public system once they switch. And more Germans likely would go private if they were not legally banned from doing so.

The most striking similarity between America, France and Germany, however, is the model of “insurance” upon which their health care systems are based. In other insurance markets, the more coverage you want, the more you have to pay for it. Consider auto insurance, for instance. If you want everything–from oil changes to collision protection–you’d have to pay more than someone who wants just basic collision protection. That’s not how it works in health care.

For the same flat fee–regardless of whether it is paid for primarily through taxes as in France in Germany or through lost wages as in America–patients in all three countries effectively get an ATM card on which they can expense everything (barring co-pays) regardless of what the final tab adds up to. (Catastrophic coverage plans are available in America, but the market is extremely limited for a number of reasons, including the fact that most states have issued Patients Bill of Rights mandating all kinds of fancy benefits even in basic plans.)

Thus, in neither country do patients have much incentive to restrain consumption or shop for cheaper providers. In America and Germany, patients don’t even know how much most medical services cost. In France, patients know the prices because they have to pay up front and get reimbursed by their insurer later–a lame attempt to ensure some price consciousness. But since there is no cap on the reimbursed amount, the French sometimes shop for doctors based on such things as office decor rather than prices, according to a study by David Green and Benedict Irvine, researchers at Civitas, a London-based think tank. (Green and Irvine reported this as a good thing.)

So what are the consequences of this “insurance” model and how are the three countries coping with it?

America, as Obama continuously reminds us, spends 16% of its gross domestic product on health care–the highest percentage in the world. If current trends persist, in 75 years health care will consume about 50% of the GDP–and all of the federal budget. But France is not doing a whole lot better. Its health care system is the third most expensive in the world with over 11% of its GDP going toward health care–nearly three times more than the amount in 1960. The French fork over more than 20% of their income in taxes for public coverage (and another 2.5% to purchase supplemental private coverage)–yet their public program suffers from chronic deficits. Germany, similarly, spends about 11% of its GDP on health care with Germans contributing more than 15% of their income toward buying health care.

If France and Germany are not spending even more on health care, one big reason is rationing. Universal health care advocates pretend that there is no rationing in France and Germany because these countries don’t have long waiting lines for MRIs, surgical procedures and other medical services as in England and Canada. And patients have more or less unrestricted access to specialists.

But it is unclear how long this will last. Struggling with exploding costs, the French government has tried several times–only to back off in the face of a public outcry–to prod doctors into using only standardized treatments. In 1994, it started imposing fines of up to roughly $4,000 on doctors who deviated from “mandatory practice guidelines.” It switched from this “sticks” to a “carrots” approach four years later, and tried handing bonuses to doctors who adhered to the guidelines.

Meanwhile, in Germany, “sickness funds”–the equivalent of insurance companies–have imposed strict budgets on doctors for prescription drugs. Doctors who exceed their cap are simply denied reimbursement, something that forces them to prescribe less effective invasive procedures for problems that would have been better treated with drugs. But the most potent form of rationing in France and Germany–and indeed much of Europe–is not overt, but covert: delayed access to cutting-edge drugs and therapies that become available to American patients years in advance.

The point is that there is no health care model, whether privately or publicly financed, that can offer unlimited access to medical services while containing costs. Ultimately, such a model arrives at a cross roads where it has to either limit access in an arbitrary way, or face uncontrolled cost increases. France and Germany, which are mostly publicly funded, are increasingly marching down the first road. America, which is half publicly and half privately funded, has so far taken the second path. Should America offer even more people such unlimited access through universal coverage, it too will end up rationing care or facing national bankruptcy.

The only sustainable system that avoids this Hobson’s choice is one that is based on a genuine free market in which there is some connection between what patients pay for coverage and the services they receive. That is emphatically not what America or any Western country has today. Looking to these countries for solutions as Obama and other advocates of universal health coverage are doing will lead to false diagnoses and false cures.

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Healthcare Debate – Pseudo Solutions from Academia

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.

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