We’re all familiar with the left-wing narrative about Trump botching the coronavirus response by the government. Their major charge is that the government failed to ramp up testing for coronavirus fast enough. That may be true. But why?
The explanation lies in government reimbursement to labs for processing the tests.
Medicare and Medicaid will pay $51 for each test. But it costs the labs $67 to process the results. How many tests would you process if you lost $16 every time?
A recent expose in USA Today highlighted how Medicare “lowballed payments” to labs for coronavirus tests, leading those labs to restrict the number of tests they performed. An executive at one lab, Aaron Domenico, told the paper that “I’m an American first, and if I could do it for cost, I’d be happy to do it for the people at cost.” But Medicare initially reimbursed laboratories only $51 for a coronavirus test, much less than Domenico’s costs of $67 per test.
Paying $51 for a diagnostic test sounds like a lot, but Medicare gives laboratories nearly twice that amount, or approximately $96, to test for the flu. And government bureaucrats setting unrealistically low prices meant that private insurers followed Medicare’s lead. Little wonder that the head of the National Independent Laboratory Association said “a number of labs are holding back” on performing additional tests “because they didn’t want to lose money.”
When the government decides how much a drug or a medical procedure is worth rather than the market, everybody loses — including the patient.
Donald Berwick, a former CMS administrator who helped develop Sen. Elizabeth Warren’s single-payer proposal, once said, “I want to see that in the city of San Diego or Seattle there are exactly as many MRI units as needed when operating at full capacity. Not less and not more.”
Berwick’s comments suggest that the federal government can determine the “right” amount of MRI units in each city, and use policy levers to achieve that “correct” outcome. But the coronavirus testing fiasco demonstrates how federal bureaucrats often do a poor job of trying to micromanage health care from Washington. Paying doctors and laboratories too much will encourage over-consumption of care, while paying too little discourages providers from even offering the service.
That’s what Biden means when he said he will have government “negotiate” with doctors and drug companies to lower their prices. Since the government pays about 60 percent of all medical bills in the U.S., they have enormous leverage to dictate how much they will reimburse health care providers. In medical insurance, it’s the government’s way or the highway.
It’s not just reimbursement that skews the market. It affects labor as well.
The pay cuts and furloughs affecting many front-line health workers—the health-care sector lost 1.4 million jobs during the month of April—provide a preview of the future. Instead of suffering temporary revenue declines due to the coronavirus pandemic, hospitals and medical practices would face permanent reductions in revenue from lower-paying government programs.
Medicare, Medicaid, Obamacare, S-Chip, the VA — it’s a $3 trillion industry whose prices, products, and procedures are driven by government bureaucrats who make inexplicable decisions that can affect millions of people. “Bending the cost curve” of medical care would be a lot easier if the government got out of the way and allowed market forces to dictate prices.
Of course, that would mean taking all sorts of government goodies from the people. It won’t happen as long as there are Democrats and liberals to tell people they’re better off with the government running our healthcare industry and demonizing those who believe differently.
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