Medical care in the US exemplifies how the perverse effects of accumulated, self-reinforcing economic errors can render a system dysfunctional for consumers. As CEO of Medicus Healthcare Solutions, Joe Matarese has seen the current system from the inside — working and interacting with thousands of hospitals and thousands of providers, primarily doctors, around the country, dealing with processes, bureaucracies, government reimbursement procedures, and the full gamut of the producer side of the medical care system. In Part 1 of a two-part podcast series, he gives us the informed insider’s view.

Key Takeaways and Actionable Insights

Many forces combine and interact to produce the medical care system we experience today.

Politics: As in almost all cases of market destruction, politicians are highly responsible. They have decided that the medical care of individual citizens is an appropriate field for their interventions, and they meddle in their usual ignorant and incompetent fashion. Dr. Scott Atlas of Stamford University was one who documented some of this glaring incompetence and its resultant creation of the crisis response to the COVID-19 pandemic in his book A Plague Upon Our House. The impact of political incompetence on individuals’ experience of medical care is not limited to COVID-19, but Atlas’ book provides one excellent example.

Regulation: Politicians don’t just meddle; they legislate and regulate. The Affordable Care Act of 2011 is a particularly significant milestone. It created a regulatory environment in which it became virtually impossible for independent physician groups to function. Smaller and rural hospitals could not survive the regulatory burdens imposed, and many closed or were acquired by larger hospital groups. The resultant consolidation and anti-decentralization led to centralized decision-making (particularly evident in the COVID-19 pandemic, but much more broadly impactful than just that event) to the effect that individual doctors are told how to practice and how to treat their patients. The one-on-one doctor-patient relationship that flexibly exercises the experience of the doctor on behalf of the individual needs of the patient and their particular condition Is no longer operative. Doctors now apply a centrally designed pre-determined “standard of care” (and are even told by the AMA what “woke” language to use when interacting with their patients).

Bureaucracy: With regulation comes bureaucracy. Central to the medical care system is the CMS bureaucracy — The Centers For Medicare And Medicaid Services. (You can visit the behemoth at cms.gov — it’s instructive to see the breadth and depth of its reach.) This is the home, for example, of the code lists that govern medical care billing and payment policies. Every doctor must code every patient interaction and every procedure, and the code triggers a specific billing amount. The care that doctors can give patients is governed by these codes and standard-of-care protocols rather than the heuristics an experienced doctor uses to treat individual patients in individual circumstances.

Perverse incentives: Out of the regulatory bureaucracy comes a cascade of perverse incentives. The billing code system leads to one of them: hospitals and doctors will lean towards treatments and billing codes that result in the best billing and revenue outcome for them, rather than what is best for the patient. Similarly, with the fee-for-service model of the Affordable Health Care Act, there’s always the incentive to provide the service or procedure that generates the best fee.

Financial Engineering: The worst financial engineering of the medical care system is the tying of health insurance to employment, and the general misuse, misunderstanding and mispricing of insurance that results. Insurance is appropriate for classes of events (like car accidents or house fires) which are known to have distributed incidence but unknown in terms of where and when they will take place. Individuals pay into an insurance pool that can be drawn on when an unlucky individual encounters an incident; we all hope we will never have to draw on it. In health care insurance, individuals pay for coverage which they know they will draw on. They expect insurance to pay for routine things they should really pay for out of individual income or savings. Medical insurance coverage is appropriate for rare or catastrophic events, but not for everyday health maintenance. In fact, insurance totally obscures the market for health care.

The combined result of all these forces is the elimination of economics from medical care.

No free market: Medical care is the epitome of interventionism. There are no unregulated voluntary exchanges between buyer and seller, in this case patient and doctor. Every interaction is regulated, bureaucratized, coded, and distorted by financial engineering. Most importantly, there is no free market pricing. Prices are the indispensable signaling and information exchange mechanisms of markets; when they are suppressed, markets can’t function. The medical care system is, as Joe Matarese puts it, price-less.

No entrepreneurship: The function that solves consumer problems in markets is entrepreneurship. Entrepreneurs identify customer dissatisfactions and devise and present solutions for consumers to choose from. Entrepreneurship can’t operate in regulated healthcare. It is suppressed. Joe pointed out that, in the few corners where an entrepreneurial breakout has occurred — he mentioned medical tourism, Lasik eye surgery, cosmetic surgery, and The Surgery Center Of Oklahoma (SurgeryCenterOK.com) — prices have been lowered, quality increased and value spread wider and wider in the market, reaching more and more consumers.

Repressed Innovation: A major output of freely priced entrepreneurial markets is innovation. Entrepreneurs bring improvement in the form of new services and offerings, improved processes, and the application of new scientific discoveries. The innovation process is highly repressed in US Health Care, as in, for example, the FDA’s long and arduous bureaucratic process for approving new drugs resulting in delays in their adoption costing millions of lives.

Replacing the free market is an edifice of massive, plodding, constraining entities.

The top of the monstrous pile can probably be assigned to Big Pharma. The massive amount of funds flowing through the pharmaceutical companies empowers their commandeering of the medical community. Government healthcare agencies such as CMS, FDA and VA take up their entwined cronyist positions related to Big Pharma and Big Hospitals. Big Insurance is the financial engineering for the edifice. The bureaucracy regulates them all, but from a position of having been captured through the lobbying process. The patient sits at the bottom of this stack, squeezed by its weight, restricted by its rules, and constrained from receiving individualized care even though doctors and nurses are capable of providing it.

The COVID-19 experience was an instance of the negative consequences of regulated, bureaucratic, perversely incentivized and politicized medical care.

The standard four pillars of a medical response to the COVID-19 pandemic would have been:

1. mitigation
2. early outpatient treatment
3. hospital treatment
4. vaccination

Instead, we were bureaucratically and politically accelerated towards a mass vaccine solution, satisfying the perverse incentives of Big Pharma.

Mitigation could have embraced healthy lifestyles, nutraceuticals, and some stratifying of risk by patient age. Instead, it was botched with ridiculous and useless mask mandates and pointless (and damaging) lockdowns.

Early outpatient treatment for those infected would have recognized the “golden window” of outpatient treatment in the first two or three days of the case to reduce the need for later hospitalization, as documented by Dr. Serafino Fazio and others in a published paper (see Mises.org/E4B_162_Paper), with drugs like ivermectin and hydroxychloroquine, but these were ridiculed, and their use repressed. By the time hospital treatment is needed, the condition has changed from one of inflammation and clotting to pneumonia and lung infection, with potentially worse outcomes. The use of remdesivir was centrally authorized, and this drug is much more expensive and risks worse side effects than the early treatment drugs.

The four pillars were abandoned for the centrally planned decision of mass vaccination.

There is a pathway out of medical tyranny.

Principles of Austrian economics can help us find the way out of the current situation. Some of the principles we might apply include:

Let free markets operate: The medical care edifice refutes and represses free markets and market pricing. The first step in a solution is to restore markets to medical care.

Customer sovereignty: Markets are built around the consumer as “the captain of the ship”, determining the purpose and direction of the voyage. Consumers would exercise their sovereignty in a one-on-one relationship with their primary care physician.

Decentralization: Decisions in markets are made close to the customer and not via centralized bureaucracies.

Network versus hierarchy: Austrian economics views markets as networks of specialized nodes connected by 2-way information flows and provider-consumer interactions. The medical care edifice is a hierarchy not network.

In Part 2 of “Entrepreneurial Solutions to Medical Tyranny,” Joe Materese will identify some specific ways that we can build a parallel system outside the edifice to bring back consumer sovereignty and free markets.

Additional Resource

“Entrepreneurial Solutions to Medical Tyranny” (PDF): Mises.org/E4B_162_PDF

Medicus Healthcare Solutions: MedicusHCS.com