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Research Article

Rationing Health Care
Price Controls Are Hazardous to Our Health


     
 Print 

For many, price controls may seem like a tempting solution to holding down health care costs. However, past attempts at price controls teach us a very different lesson—this is one government policy guaranteed to do more harm than good. In fact, throughout history, price controls have been a notorious flop, bringing on economic stagnation and decline, rationing, hoarding, black marketing and organized crime, assaults on civil liberties, and even inflation, not to mention untold waste, graft, and human suffering.

In fact, from Babylon’s King Hammurabi to presidents Richard Nixon and Jimmy Carter, the thirty-eight-century history of price controls is a recurring economics lesson for any modern Luddite seeking a quick fix to health care costs. For instance, after he and previous emperors had debased the currency, creating rampant inflation, the Roman emperor Diocletian set maximum prices on more than one thousand products and services. Goods disappeared in legal markets, and reluctantly consumers and producers turned toward black markets despite a penalty of death for participating in these markets. After much suffering and bloodletting of the unfortunate caught violating the law, the law was revoked and Diocletian abdicated.[1]

Centuries later, during the siege of Antwerp in 1584, the Spanish blockaded the city and food prices rose sharply. The city’s government imposed price controls, and with no one willing to risk being killed to smuggle goods past Spanish guns, all goods suddenly vanished. Facing starvation, the desperate citizenry was forced to surrender.[2]

During World War II, the Roosevelt administration created the Office of Price Administration, employing some sixty-four thousand people plus over one hundred thousand volunteer “price watchers” to maintain across-the-board price controls while all manner of goods were rationed. While official inflation was relatively low, an expansive black market flourished, noncompliance was commonplace, and the government had to resort to filing some 260,000 lawsuits in a vain attempt to enforce its price controls.[3] Furthermore, as economists Richard Vedder and Lowell Gallaway show in their award-winning book, Out of Work, real GNP dropped as a result of price controls during the period 1943–1946, delaying full economic recovery from the Great Depression until 1947 when price controls were finally lifted. Labor productivity was retarded during this period with a double-digit percentage of the labor force engaged in command-economy activity, in which workers received wages far below normal market compensation levels.[4]

In 1971, President Nixon ordered price controls and appointed America’s first “czar” to enforce them, and with fewer goods being produced as a direct result of the removal of profit incentives, an energy crisis, a recession, and double-digit inflation followed. Then in 1978, President Carter tried the same approach, only this time entitled “voluntary wage-price guidelines,” and inflation rose again into the double digits.[5]

Despite claims to the contrary, this same kind of disastrous impact found throughout the history of the use of price controls will be revisited with life-threatening consequences if recent proposals are adopted for government control of prices, expenditures, products, and services in health care markets from treatments charged by doctors and hospitals, caps on annual spending on health care, limits on insurance premiums, price limitations on new and existing drugs, and so on.

Understanding Prices

Prices are signals that point out the productive roads society wants customers, producers, and the economy to take. When prices are permitted to move in response to the market forces of supply and demand, producers produce the array of products and services that consumers want, and in the proportions in which they want them.

When a product or service becomes scarce, its price should be high as an incentive to sellers to produce more of it and to give buyers the incentive to economize its use. When a product or service is relatively abundant, its price should be low, to generate the opposite incentives and behavior. It stands to reason then that when anything becomes scarcer than it had been, its price should rise; should it become more abundant, its price should fall.

Buyers, sellers, consumers, and producers use prices to make markets as efficient and productive as possible. Any attempt by government to fix maximum levels for individual prices harms the efficiency of the system and society as a whole. Less of some products is produced than should be and more is produced of other products, more consumption occurs in the present as the future is sacrificed, and distortions appear in the economy that cause output and social welfare to diminish. Less is produced because it becomes more profitable to produce other products, whose prices are not fixed by the government at as low a level. Hence, when the government fixes maximum prices, the true nature of scarcity and abundance is hidden, and society at large is fed false signals. What results is social waste and inefficient allocation of resources.

In addition, price controls are enormously difficult to enforce. In fact, almost all price controls are accompanied by black markets. But even in legal markets, there are other ways in which escape from enforcement occurs. For instance, the government may define the product whose price is controlled with respect to its size and quality. If this happens, there will be attempts to illegally depreciate the quality of the product.

Simply put, competitive markets balance supply and demand. Government-controlled markets do not. Prices reflect balance in the market; price controls create imbalance. By their very nature, price-controlled markets cannot hope to respond in time and in scale to the market dynamics of society and the desire and needs of millions of consumers.

The Recent Experience of Price Controls

Why then the belief in government price controls? There is a strong emotional attraction for price controls as a way for the government to “do something.” However, well-intentioned motives are not enough—the results also count and whether the consequences from government action are beneficial to the public, especially the disadvantaged, or not.

As noted above, history shows that price controls only damage economies and significantly harm the vast majority of buyers and sellers who depend on them, especially the most disadvantaged. For instance, New York City has controlled the price of rental housing since World War II to the detriment of those seeking rental housing. As a direct result, net housing construction in New York has essentially stopped, especially for low-income housing. Under a regime of artificially low rents, as any New Yorker in the rental unit market can attest, there is a greater demand for rental units than there is supply, hence discriminatory factors prevail over strictly financial ones; units are allowed to fall into disrepair as the rate of return on investment is diminished; illegal markets of informal subdivision takes place; and would-be builders of rental units are frightened off by the regulatory hurdles that stand between them and profits from developing and managing rental housing.[6]

In New York City’s price-controlled rental market, all parties, save those lucky enough to have been in the right unit at the right time and to have held on to their privileged access, are losers. Indeed, barely a year goes by without a literary or film attempt to play upon the strange universe of New York’s rental unit market; remember, for instance, that the sublet, rent-controlled apartment in Tom Wolfe’s bestseller Bonfire of the Vanities played a crucial role in developing the novel’s plot of the politicized absurdities of modern-day New York City culture. Or recall the Seinfeld episode in which George monitors the obituaries in order to find a rent-controlled apartment.

Americans outside of New York City are also familiar with the effects of price controls. In 1973 and 1979, the federal government, blaming everyone from “greedy” domestic oil companies to gasoline station operators to “fuel hogging” motorists, imposed price controls on gasoline after oil-producing countries greatly reduced the quantities of oil shipped abroad. Had the government not instituted price controls, a market-clearing would have occurred wherein the price of gasoline would have gone up as the quantity of gasoline demanded met the quantity supplied.

But since gasoline prices were fixed below the market-clearing level, rationing with long lines resulted. However, few gasoline buyers realized the real price they then were paying for this much sought-after product. In fact, when the actual dollar value of the amount of time spent in line was taken into account, economists found that most of those people waiting were paying far more with price controls than without. Of course, for those to whom the money value of waiting in long lines was low, gasoline was secured at the expense of those to whom the money value of waiting in long lines was high.

Price Controls on Health Care Abroad Are Failures

The tragic effects of price controls, whether direct caps on medications and health services or budgetary caps on providers and health service institutions, can be seen in every country that has tried them. Indeed, the whole concept of budgetary caps is particularly worrisome, as foreign examples of such a price control-based policy clearly show.

In Germany for instance, at the beginning of 1993, the government moved to tighten its global budgeting of the country’s national health care system. The burden of this belt-tightening was to be felt first and foremost by numerous German pharmaceutical firms.[7]

Price controls were placed on some drugs, and in the New York Times, Ferdinand Protzman reported a litany of price controls’ predicted effects: shortages producing dissatisfied patients who intimidated doctors, workers losing their jobs, reductions in research and development budgets, and the development of government-induced cartels.

In Japan, government-subsidized physicians commonly have to see more than forty patients a day in order to realize sufficient revenues. Patients covered under government-sponsored health plans often use the private sector for faster, better-quality aid. If they can’t break into the shortage of private health care services, infirm Japanese have been known to pay steep bribes to circumvent the rationed health care system in order to get direct access to health care providers being reimbursed by the government through its global budgeting policies on what it will spend for the citizenry’s health care].[8]

Similarly, out of a population of fifty-seven million, one million Britons are queued up on extremely long waiting lists to see physicians for both routine and serious conditions, thanks to the rationing that follows price controls and budget caps.[9] Indeed, the British tabloid press loves to sensationalize all too frequently, unfortunately, the deaths of patients still on waiting lists. On an annual basis for example, the number of British patients denied treatment include nine thousand for renal dialysis, as many as fifteen thousand for cancer chemotherapy, as many as seventeen thousand for coronary artery surgery, and seven thousand for hip replacement.[10] In contrast, the U.S. rate of cardiac pacemaker implants was more than four times that of Britain and twenty times that found in Canada, and CAT scanners were three times more available per capita in the United States over Canada, and six times that found in Britain.[11]

Inefficiencies from government controls further manifest themselves in the gross bed mismanagement found in hospitals. Despite the long waiting lists in Britain and Canada, one in four beds remains empty at any time, with hospital occupancy rates at 74 percent for acute beds and 82 percent for all beds.[12] Yet 25 percent of acute-care beds are being utilized by so-called “bed blockers” for long-term nursing home purposes, often at 600 percent the cost.[13]

Additional absurdities abound in the British National Health Service, where, while price controls leave the chronically ill to die waiting for treatments, the system pursues an enormous make-work jobs program of services for those in good health. British citizens, for example, annually take almost twenty million ambulance trips, equal to one trip per citizen per year, and of which 91 percent are for nonemergency purposes such as taxiing elderly patients to local pharmacies.[14] “Health visitors” treat 4.1 million people in their homes, and chiropodists treat another 1.1 million. Thirty-three million meals are delivered to people’s homes; more than 17,000 telephone attachments are installed in homes; and government workers arrange telephone rentals, help more than 49,000 with home alterations, arrange 63,000 vacations, and assist 346,000 people with assorted personal appliances.[15] If instead of such “caring,” the National Health Service were merely to charge the full costs for the $90 million in sedatives, $32 million in antacids, and $11 million in cough medicine spent annually, it could treat as many as 15,000 additional cancer patients and save an additional 3,000 kidney patients.[16]

Shortages from price control-induced rationing are also felt heavily in rural areas and among minorities. For example, the wealthier North East Thames region near London has 27 percent more doctors and dentists, 15 percent more hospital beds, and 12 percent more total health spending per capita than the more rural Trent region in the northern region of England.[17]

That the British medical system’s rationed failures have not created more of a stir on this side of the Atlantic is indeed testimony to the bureaucracy’s campaign of propaganda and disinformation.

Despite egalitarian claims to the contrary, the British government’s system of controls has utterly failed to end inequalities. The official government task force on the subject in fact found little evidence of any change since the system’s adoption in 1948.[18] Consumption of health care services by people in Britain’s highest social class was 40 percent higher than by people in the lowest social class.[19]

Rationing continues as before, and commoners pay the price in time away from treatment. Little wonder then that some 6.6 million Britons are turning to private health plans or just paying cash for treatments for which they would otherwise still be waiting as subjects of government health care.[20]

Learning from Canada’s Mistakes

Closer to home, all too many Canadians are opting out of their socialized health care system and its price-controlled, budget-capped induced rationing. For instance, when Robert Bouressa, the Premier of Quebec, had to have his potentially lethal skin cancer treated, he quickly beat a path to the United States and paid for treatment at the National Cancer Institute in Bethesda, Maryland.[21]

Less well-connected Canadians are also heading south and little wonder why. There are more doctors per capita in the United States, the medical technology is better and more widespread here, and, most important if one should have a serious condition, the time spent waiting for treatment is insignificant in the United States compared to Canada because we have a competitive health care marketplace.

In fact, medical treatment of Canadian nationals in U.S. border cities and states is a booming business thanks to price controls on medical care in Canada as well as the abundant, fast, and technologically advanced medical care offered in the United States. At Seattle’s University of Washington Medical Center, for instance, Canadians, who make up half of the hospital’s in vitro fertilization patients, are happy to pay five thousand dollars out of their own pocket to have the procedure done speedily.[22]

Entrepreneurs have taken note of the results of price controls in Canada. One California heart surgeon routinely advertises his services in a Vancouver newspaper[23], and in 1993 the Winnipeg-based Canada-America Health Care Corporation began to offer an insurance policy for Canadians for access to medical attention in the United States if they had to wait forty-five days or longer for attention in Canada.[24]

But those Canadians who can’t afford the fare to the United States are not so lucky. In Canada, with a population of 25 million, some 1,350,000 people are waiting for some kind of medical service, with some 177,000 of them waiting for surgery of some kind, of which 45 percent report they are waiting “in pain.”[25] For example, waiting periods for health care procedures in Canada average 5.5 months for heart bypasses, 5.7 months for hernia repairs, 7.3 months for cholecystectomies, 6.4 months for hemorrhoidectomies, 8.3 months for varicose vein treatments, 3.7 months for hysterectomies, and 7.1 months for prostatectomies.[26]

For instance, in January 1990, Joel Bondy, a two-year-old, could no longer wait for heart surgery, which he urgently needed, but which was repeatedly postponed by Canadian health care regulations and bureaucratic procedures. His parents decided to contact Heartbeat Windsor, an underground railroad of sorts for Canadians with heart conditions, to have their son taken to Detroit for emergency care. Only after the Canadian press broke the story did health care bureaucrats promise to move Joel to the head of the waiting list.[27]

The government authorities kept their promise, but in the best of bureaucratic style, providing the Bondy’s with a four-hour ambulance ride to a hospital that did not have an open bed, due to the shortages created by price controls. The Bondy’s spent the night in a hotel room; Joel died the next day.

As in England, price controls in Canada are especially felt in the rationing of specialist services and equipment, while the number of general practitioners (GPs) performing routine services has been rising. Outpatient surgery is strongly discouraged, and CAT scanners and other advanced equipment are restricted to hospitals.[28] Consequently, with free services from GPs, trivial visits abound, producing the rationing of time spent per patient. With little diagnostic equipment, Canadian physicians refer patients to hospitals for routine chest X-rays and simple blood tests, while many illnesses go undiagnosed.[29] For example, for every diabetic treated, there is another case of undiagnosed diabetes, and one out of every twenty diabetics is first diagnosed by an optometrist witnessing the retinal damage from the disease in its late stages.[30]

Also as in England, despite claims to the contrary, Canada’s health system has created major inequities. Compared to the residents of the twenty-eight rural districts of the province, the people of Vancouver and Victoria, British Columbia’s two largest cities, receive per capita 37 percent more physician services and 55 percent more specialist services. Moreover, urban inhabitants per capita receive 5.5 times more services from thoracic surgeons, 3.5 times more services from psychiatrists, and 2.5 times more services from dermatologists, anesthetists, and plastic surgeons. In the most underserved areas, the discrepancies are even greater, and spending can vary by a factor of six to one for OB/GYN services, fifteen to one for services from internists, and 140 to one for services from psychiatrists.[31]

On the budgetary level, Canada’s government-controlled health care markets have also been a failure. Indeed, despite price controls, global budgets, rationed care, and so on, the real increase in health care spending per capita in Canada (4.58 percent) over the past twenty years has virtually been the same as in the United States (4.38 percent)! (Where the proportion of GNP spent on health care in the United States and Canada was almost identical in 1967, after Canada’s system of national health insurance was implemented between 1968 and 1971, by 1987, proportional spending for health in the United States rose to 11.1 percent, while Canada’s was 9 percent. However, during the twenty years, Canada’s real GNP per capita grew 74 percent, while that in the United States grew only 38 percent.)[32]

This situation is particularly noteworthy since Canadian health spending includes very little research and development (R&D) costs, whereas R&D spending in the United States is considerable, benefiting Canada as well as other countries. In addition, health care needs in the United States are vastly different from those in Canada. For instance, the U.S. population is older; has three times the rate of AIDS cases; 2.5 times the teenage pregnancy rate; three times the abortion rate; over twice the miscarriage rate; a much higher violent crime rate, including ten times the number of homicides; substantial costs for war veterans (including those from Vietnam); and about 375,000 drug-exposed babies, a negligible problem in Canada.[33]

Similar to the British system, the alleged waste reduction from the rationing produced by the Canadian government’s health controls has only produced greater discrepancies. Among Canadian counties, there exists a difference of four to one in rates of cesarean sections, tonsillectomies, and hysterectomies, and a two to one difference in rates for mastectomies, prostatectomies and cholecystectomies.[34]

Say what you will about the shortcomings of the U.S. health care market, but its operations are above-the-board and innovative. Canada’s public sector has the luxury of burying its health care costs in bureaucratic budgets far from the reach of the citizenry and the press. American hospitals, competing in open markets dependent on investors and consumers in a choice-intensive market economy, cannot. And the American health care system is the leading source of new and better technologies in health care devices, procedures, studies, medications, et cetera. Canada is not.

Market efficiencies create product and service availability that can be acquired through consumer choice; distorted health care markets restrict both availability and choice. Freely priced health care markets allow consumers to find value for their health care dollars.

The Failure of U.S. Government Health Care

In 1966, Medicare came into being at $3 billion per year, with the House Ways and Means Committee predicting the cost for 1990, with inflation taken into consideration, to be $12 billion. But in 1990, Medicare’s costs came to $107 billion, and in each of the three subsequent years, Medicare costs have increased 30 percent, making it the fastest growing of all federal entitlement programs. In 1991, Medicare absorbed ten times its original projection, $120 billion in tax revenues ($72 billion from federal taxes and $54 billion for state taxes). Simply put, federal and state government-managed health care financing is itself fueling the bulk of the inflation in health care costs.[35]

In addition, cost shifting, as is done in Medicare and Medicaid, is a major reason for this cost escalation as health care customers and providers are shielded from the prices for health services. Most of the health care Americans receive is paid directly by third parties, namely private insurers or the government. As a result, the true costs of health care are hidden from the consumer, who in not paying directly has no reason or incentive to economize so long as he or she can shift the cost burden to others. Health care providers are likewise only happy to oblige with unnecessary and expensive services as long as they can bill out their fees in like manner.

By 1992, the government was covering 50 percent of American spending on health care, while direct patient spending totaled only 20 percent.[36] Prior to the federal government’s entry as a major buyer of health care in 1965, half of each additional dollar spent on health care purchased goods and services while the remaining half was lost to inflation. However after 1965, the amount lost to inflation rose to 67 percent.[37]

Today, 88 percent of Americans already have health insurance, and of the remaining 12 percent, half are without insurance for less than four months per year due to job changes and so on. Of the remaining uninsured, only one percent of Americans under the age of sixty-five are uninsurable.[38] And most of those who are uninsured lack coverage not because they are poor, which they are not, but because they choose so, realizing that the price is too high for the benefits received. The reason for this problem is that in many states, government insurance regulation is used by certain private insurance providers to reduce their risk by forcing people—ranging from the heavy smoking, overweight, and alcoholic to the most health conscience—to enter insurance pools at the same premiums. As a result, the premiums for the healthy rise to cover those for the most reckless. And as the healthy drop their coverage, the premiums rise ever more for those still covered. President Bush proposed such cost-escalating policies of high-risk pools, and they are now a major component, expanded even further in the Clinton plan.

The negative effect of price controls and global budgets can also be seen in the United States in health care systems dominated by government mandates, such as the Department of Veterans Affairs’s medical system. Under global budgeting, the Veterans Affairs’s medical system has been successful in cost shifting by limiting the cost of health care to its patients, allowing only an increase of 32 percent on health care spending from 1982 to 1992. However, such limits have only been possible through deliberate health care rationing to patients.

Internal surveys by Veterans Affairs found that the average wait for a simple appointment was thirty-nine days. And if the spending ceiling is reached, patients are simply not treated. A report from the General Accounting Office found that 14 percent of Veterans Affairs centers turned away patients legally entitled to care because of budgetary restraints.[39]

Regarding how existing price-control regulations are affecting the costs of health care, the Healthcare Association of New York State found that 25 percent of hospital costs, or $1.1 billion, was directly attributable to such restrictions. Regulatory compliance required the use of 115 million annual staff-hours, the equivalent of staffing seventy-five hospitals for six hundred thousand patients.[40] In addition, the control of maximum prices for reimbursement under Medicare for the 492 categories of illness (diagnosis-related groups or DRGs) [41] produces shortages in treatment for those illnesses whose market prices are above the DRG price levels. In so doing, the federal government is seeking to control prices for twenty-eight million potential patients and five thousand hospitals.[42] And for those illnesses whose market prices are below the DRG levels, the system encourages an overuse of medical procedures.[43] William Roper, head of the Health Care Financing Administration, which administers Medicare, testified in 1987 that “dangerous care” is received by as many as 891,000 Medicare patients annually, including 22,000 avoidable deaths, 149,000 avoidable traumas including medication errors and the removal or “repair ” of healthy organs, and 198,000 avoidable infections.[44]

The DRG system has also been credited with the denial to patients of hospital admittance and premature release,[45] with the death rate for patients thirty days after discharge twice that of other patients.[46] For example, the time spent in hospitals for patients with hip fractures had dropped along with the physical condition of the patients.[47] Many of these people were immediately sent to nursing homes where 33 percent remained after one year, experiencing “significantly poorer clinical outcomes for patients.” [48] Those states with the toughest price controls of hospital charges had a 6 to 10 percent higher mortality rate for elderly patients than found in states with the least controls.[49] And increased rationing of care has been found as elderly patients aged, requiring more expensive treatment.[50]

A Political Scapegoat to “Justify” Price Controls

Despite the fact that it is existing U.S. government programs which are responsible for the escalation in American health care costs, the scapegoat being used by the Clinton administration to justify the need for price controls was the rise of drug costs produced by the “unaccountable greed” of pharmaceutical firms.

Yet drug costs account for only 8 percent of the nation’s total health care bill, and the technological advances from drug therapies are producing enormous savings from what otherwise would include expensive hospitalization.[51] For instance, the average patient in the United States faces per capita spending on pharmaceuticals of $182 a year in out-of-pocket expenses if he or she is under pharmaceutical therapy, a pittance compared to even a one-day stay at the most cost-conscious of hospitals.[52]

More serious treatments produce even greater savings. For instance, depression can be treated with drugs for about $5,000 a year, while institutionalization runs about $71,000 a year. Treating an ulcer with drugs runs about $900 a year, while ulcer surgery costs about $25,000. And for heart disease, still one of the nation’s leading killers, drug therapy for coronary artery disease costs about $1,000 a year. In comparison, bypass surgery costs upward of $41,000.[53]

According to the Office of Technology Assessment, to develop a single new drug, and less than one drug in ten recovers its research and development costs, costs are approximately $369 million.[54] Price controls on pharmaceutical producers would only curtail this ability to fund the development of new products and technologies, leaving health advancement itself at the mercy of political intrigues and bureaucracy.

Furthermore, in addition to the costly impact of government-mandated third-party payers, the existence of drug cost escalation in previous years in the pharmaceutical industry has actually been the direct result of the highly regulated status of drug firms in pricing and advertising, research and development, product and environmental liability, and so on. As a result, especially in the highly competitive global pharmaceutical market, deregulation of U.S. drug firms would produce the desired competitive pricing and quality control that the public has a right to expect.

Send in the G-Men?

Very little has been said about the necessary bureaucracy needed to administer any health care plan or the history of government attempts to control economic forces.

Would Uncle Sam become, in effect, the nation’s Doctor-in-Chief, determining the most private of decisions and the most time-urgent of details for millions of patients who annually make 1.3 billion visits to 650,000 doctors at more than 30,000 hospitals and health care facilities?[55]

And who in government would determine the parameters of state-managed health care—politically appointed directors subject to special interests or the latest political fads?

And finally, how will the regulatory structure of any government-managed and price-controlled health care plan look, and how much will it cost, not just the usual bureaucratic drag on the private sector but in the lost potential of new medical findings as health care entrepreneurs are deterred from research and development by bureaucratic red tape?

In a free society, people are left free to pursue their own lives and enterprises, and in so doing, serve others through the efficiency of free markets. Price controls destroy such efficiencies, and the welfare of the public is seriously jeopardized.

Those in government who would tamper with the health care market with price controls and its variants, i.e., global budgets and managed competition, ought to look at history and have as their motto, “First, do no harm.” Price controls of any kind have failed miserably. In the complex and growing field of health care, price controls will undoubtedly produce disastrous outcomes for providers. For patients, however, price controls in health care may become a matter of life and death.

However, throughout the ages, for many politicians, kings, and assorted tyrants, such concerns have too often been of minor importance so long as a trusting public can be conned into viewing price controls as “sweeping, take charge actions” in order to gain some hopeful short-run political advantage.

Notes

  1. Jean-Philippe Levy, The Economics of the Ancient World (Chicago: University of Chicago Press, 1967); M. I. Finley, The Ancient Economy (London: Chatto & Windus, 1973); H. Mitchell, “The Edict of Diocletian: A Study of Price-Fixing in the Roman Empire,” Canadian Journal of Economics and Political Science (February 1947); Robert L. Schuettinger and Eamonn F. Butler, Forty Centuries of Wage and Price Controls: How Not to Fight Inflation (Ottawa, IL: Caroline House, 1979); and Irving S. Olds, The Price of Price Controls (Irvington-on-Hudson, NY: Foundation for Economic Education, 1952).

  2. John Fiske, The Unseen World and Other Essays (Boston: Houghton Mifflin Company, 1904).

  3. U. S. Department of Labor, Bureau of Labor Statistics, Handbook of Labor Statistics (Washington, D.C.: 1947); Ibid., Bulletin 916 (Washington, D.C., 1948): 107–8 and 54; Monthly Labor Review )November 1943): 879; (November 1945): 1045; (November 1947): 609.

  4. Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America, rev. ed. (New York: New York University Press, for the Independent Institute, 1998), 150–157.

  5. Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (New York: Oxford University Press, 1987), 251–254.

  6. William Tucker, The Excluded Americans: Homelessness and Housing Policies (Washington, D.C.: Regnery Gateway, 1990); Peter Salins, The Ecology of Housing Destruction (New York: New York University Press, 1982).

  7. Ferdinand Protzman, “Drug Price Controls’ Side Effects,” The New York Times (November 23, 1993): C1.

  8. Naoki Ikegami, “Japanese Health Care: Low Cost Through Regulated Fees,” Health Affairs, (Fall 1991).

  9. David Fletcher, “Hospitals’ Two-Year Waiting List Slashed from 50,000 to 1,600,” Daily Telegraph (London) (April 3, 1992).

  10. Calculations based on Henry J. Aaron and William B. Schwartz, The Painful Prescription: Rationing Hospital Care (Washington, D.C.: Brookings Institution, 1984).

  11. Data on Canada from Mary-Ann Rozbicki, “Rationing British Health Care: The Cost/Benefit Approach,” Executive Seminar in National and International Affairs (U.S. Department of State, April 1978):; U.S. figures from data from U.S. Department of Health, Education, and Welfare (now U.S. Department of Health and Human Services).

  12. Office of Health Economics, Competition of Health Statistics, 7th ed. (London, 1989): section 3, p. 39.

  13. Edward Neuschler, Canadian Health Care: The Implications of Public Health Insurance (Washington, D.C.: Health Insurance Association of America, 1989): 18.

  14. John C. Goodman and Gerald L. Musgrave, Patient Power (Washington, D.C.: Cato Institute, 1992): 522.

  15. Department of Health and Social Security, Health and Personal Social Services for England, 1985 and 1991 eds. (London: Her Majesty’s Stationary Office, 1985 and 1991).

  16. Arthur Seldon, ed., The Litmus Papers: A National Health Disservice (London: Centre for Policy Studies, 1980): 125–32.

  17. “Dying from Inequality,” The Economist (April 4, 1987): 52.

  18. “Inequalities in Health” (Black Report) (London: Department of Health and Social Security, 1980). This finding has also been substantiated in Anthony J. Culyer, Need and the National Health Service (Totowa, NJ: Rowman and Littlefield, 1976); Michael H. Cooper, Rationing Health Care (New York: Halsted Press, 1975); Michael H. Cooper and Anthony J. Culyer, “Equality in the N.H.S.: Intentions, Performance and Problems in Evaluation,” in M. M. Houser, ed., The Economics of Medical Care (London: Allen and Unwin, 1972); and J. Noyce, A. A. Smith, and A. J. Trickey, “Regional Variations in the Allocation of Financial Resources to the Community Health Services,” The Lancet (March 30, 1974).

  19. Julian LeGrande, “The Distribution of Public Expenditure: The Case of Health Care,” Economica 45, no. 178 (1978).

  20. Patricia Day and Rudolf Klein, “Britain’s Health Care Experiment,” Health Affairs (Fall 1991): 43–44.

  21. Nancy Wood, “Missing, But Not Forgotten,” McLean’s (December 10, 1990): 14.

  22. John K. Iglehart, “Canada’s Health Care System Faces Its Problems,” New England Journal of Medicine, vol. 332, no. 8 (February 22, 1990): 566.

  23. Joanna Miyake and Michael Walker, “Waiting Your Turn: Hospital Waiting Lists in Canada, 3rd ed.,” Fraser Forum (May 1993).

  24. Canada/America, Supplemental Surgical and Diagnostic Health Plan for Canadian Individuals, Canada-America Health Care Corporation, 208–62 Hargrave Street, Winnipeg, Canada.

  25. Neuschler, 18.

  26. Steven Globerman, Waiting Your Turn: Hospital Waiting Lists in Canada (Vancouver: Fraser Institute, 1990).

  27. “Canadians Cross Border to Save Their Lives,” The Wall Street Journal (December 12, 1990).

  28. Neuschler, 37–53.

  29. Cooper, 13.

  30. George Telling Smith, Patterns of Prescribing (London: Office of Health Economics, 1991): 21–22.

  31. Arminée Kazanjian et al., Fee Practice Medical Expenditures Per Capita and Full-Time Equivalent Physicians in British Columbia, 1987–88 (Vancouver: University of British Columbia, 1989): 121–76.

  32. Ibid.

  33. Jacques Krasny, The Canadian Health Care System in Perspective (Morristown, NJ: Bogart Delafield Ferrier, 1990).

  34. E. Vayda et al., “Five-Year Study of Surgical Rates in Ontario’s Counties,” Canadian Medical Association Journal 131 (1985,): 111–15.

  35. Committee on Ways and Means, U.S. House of Representatives, “Overview of Entitlement Programs,” 1992 Green Book (Washington, D.C.: Government Printing Office): 636; and Citizens for a Sound Economy Foundation, “Medicaid: Too Many Goals, Too Little Return on Our Tax Dollars,” Economic Perspective (Washington, D.C., February 12, 1993).

  36. Eugene Steuerle, “Finance-Based Reform: The Search for an Adaptable Health Policy,” paper presented at American Enterprise Institute conference, “American Health Policy” (Washington, D.C., October 3–4, 1991).

  37. Gary Robbins and Aldona Robbins, “Study by Fiscal Associates” (Arlington, VA: 1992).

  38. Jill D. Foley, Uninsured in the United States: The Nonelderly Population without Health Insurance (Washington, DC: Employee Benefits Research Institute, April 1991): 16.

  39. Chris Warden, “Will Health Care Reform Do the Job? Past Efforts Similar to Clinton Plan Didn’t Work,” Investor’s Business Daily (August 31, 1993): 1.

  40. Hospital Association of New York State, “Cost of Regulation: Report of the Task Force on Regulation” (Albany, NY, 1978): 2.

  41. “Report and Recommendations to the Congress,” Prospective Payment Assessment Commission, Appendix E (Washington, D.C., March 1, 1992): 115–30.

  42. Goodman and Musgrave, 311.

  43. John E. Wennberg, Kim McPherson, and Phillip Caper, “Will Payment Based on Diagnosis-Related Groups Control Hospital Costs?” New England Journal of Medicine 311, no. 5 (August 2, 1984): 196–300; and Robert S. Stern and Arnold M. Epstein, “Institutional Responses to Prospective Payment Based on Diagnosis-Related Groups: Implications for Cost, Quality and Access,” New England Journal of Medicine 312, no. 10 (March 7, 1985): 621–27.

  44. Associated Press Wire Service, Dallas Morning News (October 21, 1987).

  45. Robert A. Berenson, “Meet Dr. Squeezed,” The New York Times (July 21, 1989).

  46. Rand Corporation study published in a series of eight articles in Journal of the American Medical Association 264, no. 115 (October 17, 1990).

  47. John F. Fitzgerald, Patricia S. Moore, and Robert Dittus, “The Care of Elderly Patients with Hip Fracture,” New England Journal of Medicine 319, no. 21 (November 24, 1988): 1392–97.

  48. “Hospital Prospective Payment and the Quality of Care,” New England Journal of Medicine 319, no. 21 (November 24, 1988): 1411.

  49. Stephen M. Shortell and Edward F. X. Hughes, “The Effects of Regulation, Competition and Ownership on Mortality Rates Among Hospital Inpatients,” New England Journal of Medicine 318, no. 17 (April 28, 1988): 1100–1107.

  50. Nancy M. Kane and Paul D. Manoukian, “The Effect of the Medicare Prospective Payment System on the Adoption of New Technology,” New England Journal of Medicine 321, no. 21 (November 16, 1989): 1379.

  51. Organization for Economic Cooperation and Development, Health Data 1993 (Washington, DC: Government Printing Office, 1993).

  52. Facts at a Glance, Pharmaceutical Manufacturers Association, (Washington, DC: 1992), and “OECD Health System: Facts and Trends,” OECD, forthcoming; and OECD Health Data, 1991, as reported in “Health Care Systems in Twenty-Four Countries,” Schieber, Poullier and Greenwald, Health Affairs (Fall 1991).

  53. Ibid.

  54. Office of Technology Assessment, Pharmaceutical Research and Development Costs, Risks, and Rewards (February 1993).

  55. U.S. Department of Commerce, Statistical Abstract of the United States: 1992 (Washington, DC: Government Printing Office, 1992): 19–20.


Simon Rottenberg is Professor of Economics at the University of Massachusetts.

David J. Theroux is the Founder, President and Chief Executive Officer of The Independent Institute and Publisher of The Independent Review.






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