OUR SOVIET HEALTH SYSTEM
June 5, 2007
In their book, "The Turning Point," Soviet economists Nikolai Shmelev and Vladimir Popov focused on key factors which undermined the Russian economy during the communist era. They concluded that Goskomtsen, the agency responsible for setting prices, was simply incapable of setting and tracking prices on the myriad of goods and services under its purview.
The failures they describe sound disturbingly similar to challenges faced by Medicare, says Robert A. Swerlick, an associate professor of dermatology at Emory University School of Medicine:
- Assessment of the accuracy of pricing is always difficult, time consuming, costly and more often than not, methodologically flawed.
- No matter which formulas and variables are used at any given moment, the information derived will generally be inaccurate; it will either be wrong to start with or will be applied in the wrong context, or become dated so rapidly it is of little use.
- Many prices will be too high or too low, and political forces tend to keep inappropriate prices in place -- specialists in fields with excessive payments will resist cuts, and there will not be enough specialists in low-paid fields to become an effective counterlobby.
- New physicians will react to existing prices, and so the misallocation of human resources will be self-perpetuating.
Nevertheless, those who control public policy and public policy debates treat pricing as something trivial. Yet the dilemma of administrative pricing causes problems for the allocation of resources today that would only be amplified if the United States moves toward even more government intervention in health care than already exists.
While markets are far from perfect, more choices are available when people are able to use free markets to interact with each other. Markets may not get the prices exactly correct all the time, but they are capable of self-correction, a capacity that has yet to be demonstrated by administrative pricing, says Swerlick.
Source: Robert A. Swerlick, "Our Soviet Health System," Wall Street Journal, June 5, 2007.
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