Free Enterprise and Health Care

First Published: 2005-10-28

Any discussion of free enterprise or of the free market requires a clear definition of these terms. Free refers to freedom of choice, not freedom from cost or responsibility. Free refers to freedom from regulation and restriction, other than those laws necessary to protect individuals from force and fraud. The free market implies the willful exchange of goods or services, either directly or through the intermediate utilization of a stable measure of value, such as money.

This country’s economy was originally based upon such a system, and prospered in direct proportion to the extent of adherence to the principles involved. From the very beginning, there were those who realized the advantages to individuals or pressure groups of selected interference with the process which would benefit some, at the expense of others. The miracle of market exchange and pricing is that it tends to bring supply and demand toward a balance. The steadily increasing intervention of government into the process has deprived the free market of the pricing mechanism indispensable to its success. It is the ultimate irony for those responsible for our current dilemma to justify further intervention by claiming that the free market does not work, when in reality it is government which created and continues to intensify the problems.

Inflation, once it is understood, illustrates most clearly how government creates problems, and then deceitfully uses its access to the media to shift the blame onto the victims of its action. Inflation is purely and simply the expansion of the money supply. By printing worthless paper dollars to pay for deficit spending, previously circulating money is diluted and devalued. Rising prices, rising wages, and the rising cost of living are not the cause of inflation; they are its results. Appeals to "fight inflation" by voluntary or mandatory restraints constitute a smokescreen.

To obtain votes, essential for election and reelection, and ensure the power and benefits to which their offices entitle them, our elected officials, in varying guises, have brought into being innumerable programs for the involuntary transfer of wealth. Since there are more poor than rich, even in our affluent society, it is effective political practice to appeal to the masses with the "soak the rich" approach. The truly rich have the influence and means to avoid most if not all of the burden supposedly aimed at them. As it turns out, the "rich" who are being "soaked" are you and I.

Every additional governmental rule and regulation created in the past fifty years can be readily shown to offer an advantage to some individual or group, at the expense of competitors and the general public. Subsidies, bailouts, wage and price controls, minimum wages, "free" services, and the like further disrupt and destroy what is left of our no longer free market.

When Wealth Is Dissipated

The socialist egalitarian concept of redistribution of wealth requires a wealth to be redistributed. What happens when that wealth, in our case the product of the free market, has been dissipated, and no new wealth created? More "funny money" from the federal printing press will not forestall for very long the inevitable economic collapse and subsequent social chaos.

Health care is a rather vague term that is interpreted in many differing ways. There are some well-documented facts that must be understood in order to intelligently discuss the subject. Of the physical and emotional problems for which people seek aid, about 80 per cent are directly or indirectly self-induced, and as such, with adequate understanding, are amenable to self-correction.

Since it is often easier to have someone else correct the problem through the use of medication, surgery, or any of the prevalent methods of mind control, such services must represent a value to the recipient. Willingness to pay for such services with part of the in come from one’s productive efforts is in keeping with the free market principles. When that service becomes "free at the point of consumption" demand becomes infinite, exceeds supply, and astronomically increases the actual cost of provision.

As a rather simple example of the above, let us assume that you come to me for relief of what we will both eventually agree is a common head cold. You present with a runny nose, a headache, a slight temperature elevation, a cough, and "generalized malaise," which means you feel lousy all over. I now order a complete blood count, and since we have drawn the blood, a battery of blood chemistry tests. A chest X-ray and X-rays of your sinuses come next. Since your headache could be an early symptom of a brain tumor, a C.A.T. scan is ordered. Assuming none of these studies show any significant abnormalities, I might now prescribe a cough medicine, a "strong" pain reliever, a nasal decongestant, and an antibiotic, useless for a cold, but occasionally justified as preventing further complications. Hopefully, I will also suggest that you go home to bed and drink plenty of fluids.

If I were to tell you that there was no charge for all of these services, you might consider me very thorough and efficient. Were I to demand the going rate, you would certainly view me as a charlatan. Am I any less a charlatan because you fail to realize that ultimately you or your neighbor will pay that bill through higher taxes or higher insurance premiums?

Irresponsible Promises

Medicare and Medicaid were proposed to cost a fraction of their present expense. Part of the problem was the unrealistic projection by would-be experts who had little understanding of the unlimited demand that arises for anything presented as free of charge. A far greater responsibility should be borne by those who were aware of this fact, but for political benefit gave their support, confident that they could eventually shift the blame for failure to the would-be providers of these services. This in turn would justify additional expenditures and further intrusive regulations by a bigger bureaucracy to control the scapegoats. When this predictably failed, still another round of the same would maintain the upward spiral of cost, while assuring the comparable degree of deterioration in the quality of care.

We are well into the scenario I have just outlined, and the oft-repeated accusations against the scapegoat providers are gradually gaining credibility through mere repetition. I have long contended that physicians, and health providers in general, are made up of a relatively small percentage of truly dedicated and highly ethical individuals, an equally small but far more evident number of rip-off artists, with the vast majority spread between the two extremes. Unfortunately, as the realities of the situation become more obvious, those near the lower end of that middle group are opting to become dishonest in order to survive in a dishonest system.

These defectors have discovered that in our contemporary society crime not only pays, it pays well. Faced with unrealistically low remuneration for their services, they have used the easy expedient of additional short unnecessary visits and rarely or barely indicated tests and procedures to resolve the inequity. I do not offer this observation as any justification for their actions but simply as a sad commentary on the results one might easily have predicted for these pie-in-the-sky programs.

We hear much about the high cost of health care, which I freely admit is exorbitant. At present, hospitals are under attack with threats of "mandatory cost containment," a concept as anti-free market and short-sighted as one will find. It is another name for the old wage and price control approach. Even the "liberal" economists have, after observing repeated failures of such programs, conceded that they do not work. There is a limited short-run effect that has appeared politically advantageous, but is impossible to sustain. The best description is to liken the process to locking the lid on a boiling pot. Unless you put the fire out, an explosion is inevitable.

High Hospital Costs

Let me give you my analysis of the causes of high hospital costs. These opinions are not something I dreamed up, but the result of my study of those free market economists whose advice has been so much scorned and suppressed by "liberal" politicians and communications media.

1. Inflation. Government caused, it is reflected in the higher prices of supplies, labor, and capital improvements.

2. Compliance with governmental regulations. Recent estimates of the cost of compliance with those regulations not directly related to patient care in New York range between $45 and $50 per patient day.

3. Minimum wage laws. This greatest single cause of unemployment strikes particularly hard at hospitals. The biggest single item in any hospital budget is payroll. While most of us agree that nurses are underpaid, the relegation of increasing numbers of them to paperwork may reopen that old argument. Rules, regulations, and attempts at giving adequate service necessitate the employment of many individuals not directly involved inpatient care. Many of these have menial jobs with productivity that in the free market would not merit the $3.10 hourly minimum wage. Mandatory employer contributions to social security, unemployment and disability funds raise this hourly cost excluding "fringe benefits" to between $5 and $6. Do you still wonder where your money is going?

4. Excess beds. This frequently distorted factor, originally created by governmental promises and subsidies, would be readily correctable, were it not for governmental regulations and job security considerations.

These four major factors are government caused, and can only be made worse by government takeover. Removal of government involvement would resolve, or at least vastly improve, the problem in each category.

5. Cost of technological advances. To some degree, this is a necessary price for progress. Injudicious exploitation can only be controlled by individual responsibility on the part of beth doctors and patients. Declaring a moratorium on progress is a poor solution.

6. Overutilization and unnecessary surgery. Both abuses exist, the degree depending upon definition. The cause is shared by mercenary providers and irresponsible patients. Since this subject is so often distorted in its presentation, it deserves discussion.

Let me start by not merely conceding, but deploring the fact that there are far too many doctors who mis-diagnose, or worse yet, misrepresent in order to perform what I call "remunerative surgery." I am not advocating the abandonment of fees. The term "remunerative surgery" is reserved for those cases where the sole indication for the operation is the fee. In this same category are those physicians who hospitalize patients for non-surgical conditions when hospitalization is not essential to the treatment. The current policy of third party payers which rejects claims for the same services if per formed on an out-patient basis is a major contributing factor. These same doctors are often guilty of extending hospital stays for no better reason than the prospect of payment for additional daily token visits.

In most better hospitals, these practices are kept to a minimum by means of the long- standing peer review process. This requires but a few of the staff members to be willing to expend the time and effort needed to police the activities of all the staff members through the appropriate review committees. Sadly, there are innumerable obstacles, legal and otherwise, to the exposure and control of the guilty. However, persistence and what can only be described as harassment have proved effective. Real punishments are rare, but the deterrent effect is indisputable.

Real Demand Stems from the Individual Consumer

Probably the most vital factor in the health care equation is the consumer. Since it is the demand for services that governs the amount, quality, and cost of provision, let’s examine the word demand. As used in the law of supply and demand it represents a desire or need for a product or service. In reference to a hold-up man, tax collector, or the holder of a promissory note, it is a more forceful term. The respect of such demands, backed by law or force, or both, becomes mandatory.

As with so many political perversions of our language and our constitution and bill of rights, you may be surprised to learn that there is no such thing as a "right to health care." Nor is there a "right to food," a "right to clothing," a "right to shelter" or any of the other wrong rights being advocated. Where health care is concerned, the unconstitutional application of majority rule to provide benefits to almost everyone at the expense of relatively few gains wide acceptance. In the free market, on the other hand, one gets what one pays for. As such, responsibility for the nature and degree of demand rests with the individual consumer.

Remember that individual responsibility, or lack of it, is the determining factor in the preservation or loss of individual freedom. If an individual desires to live his life as he chooses, so long as he does not infringe upon the equal rights of others, he must accept full responsibility for himself. If good health care were freely available, we could then afford the waste of government allocation and control. But because it is so scarce and costly is precisely the reason why concerned individuals should rely upon the efficient market process of bringing supply and demand toward balance.

My solution to the problem of medical indigency is, as you might guess, the same as my solution to the problem of health care in general: a return to the free market throughout our economy. Freed of governmental restrictions, we would rapidly approach full employment. Without the huge involuntary plans of wealth-sharing, we would be financially able to exercise our well-established charitable instinct to help the incapacitated and the truly needy.

The late Frank J. Primich, M.D., was an obstetrician and gynecologist in New Jersey. This article originally appeared in the May 1980 issue of The Freeman and was subsequently reprinted in the July/August 2005 issue. Reprinted with permission, Foundation for Economic Education, Irvington-on-Hudson, NY 10533, All rights reserved.

The views expressed are those of the author, and not necessarily those of the Nassau Institute (which has no corporate view), or its Advisers or Directors.

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