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Paul B. Ginsburg and Joy M. Grossman, When The Price Isn't Right: How Inadvertent Payment Incentives Drive Medical Care, Health Affairs Web Exclusive, August 9, 2005 [Abstract] [PDF] [HTML Version] [Reprints & Permissions]

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History Repeats Itself

Robert A. Swerlick   ( 15 August 2005 )

History Repeats Itself 15 August 2005
Robert A. Swerlick, Associate Professor Emory University Send comment to journal: Re: History Repeats Itself rswerli{at}emory.edu Robert A. Swerlick	Paul Ginsburg and Joy Grossman identify a key issue in their manuscript on pricing and perverse incentives. It is extremely important that those involved in decisions regarding health care reform understand that pricing is a key element (if not the most important element) involved in success or failure of such an endeavor. Price ultimately transmits essential information regarding scarcity and allocation. However, the authors' suggestion that correct pricing can be accomplished through building of political constituencies and improved command-and-control pricing structures flies in the face of a century of experience with such approaches. Their descriptions of Medicare struggles to set appropriate prices based upon out-of-date survey information was strangely reminiscent of descriptions of the Soviet Bureau of pricing. Such a command-and-control approach was painful and slow, and once completed was generally not reflective of any current reality. In addition to the artificial nature of prices constructed in such a manner, feedback as to their accuracy was long in coming, and repetition of the process was generally resisted by those involved. In the case of medicine, overvaluing of certain services stimulates wasteful oversupply and consumption, while undervaluing of other services creates painful shortages. History has shown that the ability of such command-and-control structures to sense and respond effectively to such discrepancies is limited to nonexistent. I hope this is not simply another case of "Those who cannot learn from history are doomed to repeat it"� (George Santayana).