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Medical Economics

Health care policy wonks tweak the levers of government to incentivize us (the patients and care-providers) to behave as the Washington Bureaucracy wills.

The regulations are being formulated for Obamacare.

Herewith is the story of how the Planners plotted to reduce the income of physicians by subsidizing the medical schools to double their enrollments--calculating that "supply and demand" would cause cutthroat competition amongst the docs.

In Colonial French Indo China, the Hanoi planners sought to reduce the rat population by paying a bounty for each rodent pelt that was turned in by the citizens.  The perverse result was that the grandfathers of the vietcong started farm rats to turn in for the the rewards. 


There was a time when, if you wanted to become a physician, acquiring the requisite funds required more than the mere velleity of making the choice and having the financing appear, as it does today.

Then in the 1950’s and 1960’s the (then) HEW came up with what seemed a simple solution to the health care conundrum: financial aid to medical schools.  They planned to flood the market with new MD’s and so cause increased competition to lower the cost factor attributable to doctors’ incomes.

In the mid 1970’s I was a dinner guest of a brilliant couple of Washington health apparatchiks.  He was (among other things) guiding the nascent EPSDT program.  And she (the sister of one of the Brookings Institution’s leading economists) was eventually to become the Director of the National Center for Health Statistics.  In short, not only were they broadly wired into the beltway health establishment, they had their hands on the steering wheel.

Another guest that evening was the wife of a health economist who had recently been jilted by her co-researcher husband.  And she was getting back at him by blabbing about the results of their latest research prior to their publication: financial support of medical education was having the opposite effect on health costs than had been anticipated (and hoped)!

Although the increased support given to Medical Schools had worked to increase the supply of physicians, there hadn’t been the expected depressive influence on doc’s incomes.  They had found that wherever there were new MD graduates, they would produce more medical procedures and earn a handsome income while doing it.

By producing more Docs, Washington had increased the supply of industrious medical care providers who continued to command a gratifiying return on the investment the government had made in their education.

There was amused consternation around the dinner table.  Medical Economics had not responded to the “Law” of supply and demand.   “Well, maybe we’ll do better with this new entity, the HMO.”

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