Academic

Epstein & Hyman on Deregulation & Medical Costs

By Lawrence Solum

Richard A. Epstein and David A. Hyman (University of Chicago - Law School and University of Illinois College of Law) have posted Controlling the Costs of Medical Care: A Dose of Deregulation on SSRN. Here is the abstract:

In Beyond Learned Helplessness, Professor Gregg Bloche surveys the wreckage of past attempts at health care cost containment, and responds with a typical inside-the-Beltway solution: an expert independent agency. The agency will "set a national agenda for clinical outcomes research, support this research in dependable fashion, develop cost-benefit trade-off principles for medical coverage, and formulate coverage protocols based on these principles." The resultant scheme would place "binding limits on covered services for Medicare and other federally-funded insurance programs, including extension of coverage to the uninsured. . . [and] a model for the private sector, state Medicaid programs, and state efforts to reduce the numbers of the uninsured."

Count us doubtful. The history of expert independent agencies does not inspire optimism. Industrial policy has not succeeded in any other area in which it has been tried; price and wage controls, telecommunications, airlines, ground transportation, and agriculture all count as notable failures. If the history of administrative agencies has taught us anything, it is that expertise offers no shield against the corrosive effects of bias - particularly when government regulation is beset by the same problems with information and coordination that make markets difficult to operate.

Decentralized market actors are often better able to identify and use relevant information than a single sclerotic government agency that is beset with administrative and political problems of its own. There is little to be gained by attacking the intractable problems of modern health care policy with process oriented solutions. A direct attack on the substantive issues is necessary.

In section I, we offer a brief critique of the system of positive rights and merit goods that underlie the case for most forms of universal health care coverage. In section II, we identify three practical problems that no working politician can wish away in the effort to implement universal health care coverage: the fundamental principle of diminishing marginal utility; the destabilizing impact of heavily subsidized government-provided coverage on the private market; and the treatment of the full range of existing regulations affecting the delivery of health care services as an exogenous given. We address each of these deficiencies in turn. In section III, we examine briefly six areas where we think massive deregulation is in order: medical malpractice, HIPAA, federal tax law, fraud and abuse, health insurance regulation, and certificate of need/scope of practice limitations.

We anticipate that our proposals will be met by howls of protest from those who benefit from the status quo and their apologists. Such complaints should be seen for what they (mostly) are - a defense of rent-seeking by incumbent providers. The whole point of deregulation is to limit the opportunity and rewards of rent-seeking, thereby increasing consumer surplus. No administrative agency or committee of experts, no matter how well intentioned and knowledgeable, will be able to do a better job of meeting consumer demands than the private market. To think otherwise is to repeat the mistakes of the past, instead of learning from them.

Highly recommended.

Full post as published by Legal Theory Blog on July 16, 2008 (boomark / email).