Many years ago, when farm subsidies were still something of a novelty, an Iowa representative named H.R. Gross used to tell of a letter he got from a constituent. The writer, as I recall, had heard that the government was paying people not to raise hogs and, since he thought that was a trade for which he might have some talent, he wanted the congressman’s help in applying for the program. His plans were modest, not raising a few dozen head to start. But after he got the hang of it, he thought he could build up to a substantial nonscale.
Of course, not raising hogs can be a pretty smelly business (not!). Nowadays, the constituent could aspire to more antiseptic digs. He could enter the not-training-doctors profession–though he’d have to move to New York state if he wanted to get in on the ground floor of this promising industry. And he’d have to find a place at one of the 41 teaching hospitals that have volunteered to participate in the Medicare Graduate Medical Education Demonstration Project approved this week by the federal Health Care Financing Administration. The project will pay some $400 million in cash to these schools. In return, they have agreed not to train between 20 percent and 25 percent of the medical residents they would otherwise have trained over the next six years. Hospitals in other states were quick to complain that they had not been offered the same opportunity for sacrifice to the cause of medical progress. But HCFA’s administrator, Bruce Vladeck, explained that the effort was necessarily limited in scope until the success of the strategy had been tested. This is, after all, a demonstration project.
You might have thought that the proposition that when the government hands out money someone will take it had already been amply demonstrated. Or, you might have wondered why, if the country is faced with an imminent glut of doctors, this is something the government should worry about. Weren’t we taught in Economics 101 that if supply of a product exceeds demand for it, the price will fall? And that demand will then pick up, and/or suppliers will cut back, and things will return to equilibrium? Don’t we want lower medical prices? Isn’t that what the whole nasty fight over managed care and restraining Medicare costs is all about? Why not just let the market’s invisible hand perform the necessary surgery?
But that would presume that we had something like a competitive market operating in the medical sector. Of course, we do not. In fact, we could not. Even the best-educated consumer probably can’t be expected to shop intelligently for all but the most basic health services. Inevitably, physicians and other care providers will dictate both the type and quantity of treatments that their patients receive–as long as they are able to pay. And since health care is rightly regarded as a public good, a country as wealthy as ours will inevitably provide a host of subsidies, both public and private, to encourage us to swallow a good deal more medicine than we would if we paid for it out of our own pockets.
In the end, we pay the bill in the form of lower wages, higher prices, and higher taxes, but it doesn’t feel that way. Markets operate on felt signals, and it is taking too long for the signal that there is an excess of doctors (especially very high-priced specialists) to impinge upon the supply-producing parts of the system. Bright young people, attracted both by the satisfying aspects of caring for their fellow citizens and by the high net income (an average in excess of $190,000) that doctors receive, are still queuing up to undertake the grueling and expensive training that the profession requires. And hospitals, encouraged by Medicare subsidies, are all too willing to provide that training.
So generous are the government subsidies for resident training (as much as $100,000 a year), that hospitals have reaped nice profits by using these journeymen doctors to do things that less-skilled personnel could do as well. And since the longer a resident trains, the larger the total subsidy, the system has also encouraged doctors to extend their educations and become specialists rather than lower-paid general practitioners. Now with managed care and government regulators cracking down on in-hospital care, residents are facing a shortage of patients to practice upon.
Cutting back on resident subsidies seems the obvious solution. But teaching hospitals, the undisputed crown jewels of the medical system, are already under great financial strain. (And in New York, they are guarded by two senior U.S. senators and a politically potent union.) As in the case of agriculture–in which a complex edifice of subsidies has also succeeded in developing an industry whose products are unmatched in quality, quantity, and variety–reform is rarely straightforward.
So HCFA has settled on a convoluted solution: continuing the subsidies for the residents that are trained, but paying the hospitals additional amounts not to train as many. This, the agency calculates, will save it some $300 million over the six years of the “demonstration.” “Brilliant and bizarre” is how experts characterized the scheme in the New York Times.
Where will it all end? HCFA’s Vladeck has already entertained extending the program, noting that if jealous congressmen from other jurisdictions “think this is a good deal, they have the power to make it more available.” Really? How widely? Surely, most of us can take credit for not having trained a legion of doctors?
And why limit payments to the medical sector? Many will feel that the case for subsidizing the nonproduction of doctors is weak when law schools are still cranking out lawyers by the caseload. Others may feel that the money would be better spent in paying the defense industry not to produce the latest round of high-tech weaponry, thus saving us the expense of generating still more lethal weapons when the current crop inevitably falls into the hands of our enemies. Why not pay poor people not to be poor? Come to think of it, that’s what the welfare system was meant to do.
Which may bring us to the moral of our story: When you start paying for nonproduction you are almost sure to reap a bumper crop.