Book of rules and regulations. Concept of law, rules and regulations. 3D illustration
Want to win votes from members of Congress to pass a health law? Add government spending programs that benefit the hospitals represented by those members. Want to extend the windfall for those hospitals? Increase campaign contributions for their representatives in Congress. A new study by Yale professor Zack Cooper and his co-authors reveals the intriguing interplay between politics and federal health care spending.
Published in Journal of Health Economicsthe study found that: (1) hospitals represented by members of Congress who voted “yes” on the Medicare Modernization Act of 2003 were more likely to receive increases in Medicare payments (the Section 508 program); (2) this program was designed to be manipulated for political gain; and (3) campaign contributions from individuals associated with these hospitals to hospital representatives increased both before and after Congress extended the program.
This politically motivated spending program, as the authors write, “did not simply lead to a reallocation of care across hospitals; It increased aggregate health spending. ” Members of Congress are seeking re-election. This goal is not necessarily aligned with fiscal responsibility to taxpayers. It’s no coincidence that hospitals experienced higher profits and lower credit risk as a result of the Affordable Care Act.
In general, because of the political dynamics involved in creating laws and regulations intended to shape health care prices and behaviors, unintended consequences are common. Recent economic studies have provided convincing examples:
Many countries have adopted cost-effectiveness thresholds to determine coverage and prices for prescription drugs. These bureaucratic decisions encourage collusive, anticompetitive behavior among incumbent drug manufacturers, thus limiting patient access. They also do not acknowledge the diverse value propositions and preferences of individuals, impeding innovation that is especially valuable for sicker patients.
When it comes to quality of care, strict hospital treatment guidelines—ignoring comparative advantages across hospitals—cause inefficient care. In contrast, hospitals exposed to market competition proactively reduced all-cause mortality rates and length of stay.
Certificate of need laws, which require government approval before health care providers can enter a market or offer new services, have been found to increase heart attack mortality. On the other hand, policies that prevent hospitalization from a market will impose significant costs on taxpayers without providing mortality benefits.
Economists have also provided evidence on competition-oriented, patient-powered approaches, some of which may initially seem counterintuitive: high-deductible plans can reduce overall health care spending, especially on low-value outpatient services , and greater sharing of patient costs can reduce both both can reduce both Out-of-pocket costs and premiums. These benefit models limit patients’ moral hazard, including overvaluation of care and price insensitivity.
Additionally, narrow network insurance plans may direct patients to low-cost, premium-bearing providers. Price transparency can lower prices because some patients actively use such information, motivating providers to adjust their prices.
Almost all health rules and regulations have laudable purposes; However, the opaque policymaking process—variable to political motivations and industry capture—often compromises efficiency, distorts incentives, and subverts competition, ultimately harming the very individuals the policies are intended to help.
Our nation has not experienced significant health improvement since 2010, as evidenced by life expectancy. As University of Chicago economists Kevin Murphy and Robert Topel analyzed, the societal economic gains from improved health are huge. The best health policies to get us, there may be those that rely more on the market.