The $2000 Eye

One of the biggest problems with our healthcare system, as David Goldhill has relentlessly argued, is that the incentive system is completely messed up. Almost all the economic forces in healthcare push us toward more expense for less return. Insurance insulates people from cost, the government shells out money with little concern for its use and so the pressure to push costs back down — a pressure that exists in every other industry — is mostly absent. Most people don’t even know how much their healthcare costs, let alone what cheap alternatives might be available.


The two drugs have been declared equivalently miraculous. Tested side by side in six major trials, both prevent blindness in a common old-age affliction. Biologically, they are cousins. They’re even made by the same company.

But one holds a clear price advantage.

Avastin costs about $50 per injection.

Lucentis costs about $2,000 per injection.

Doctors choose the more expensive drug more than half a million times every year, a choice that costs the Medicare program, the largest single customer, an extra $1 billion or more annually.

The WaPo, being the WaPo, blames this on greedy drug companies and kickbacks paid to doctors. Certainly, that plays a role. But it’s part of a bigger problem with Medicare which is that they simply don’t give a damn about costs. No, that’s not quite correct. The have set up elaborate schemes to try to control costs by setting prices and either freezing or lowering those prices over the last thirty years. What they have no control over, however, is people who obey the rules but use them to game or defraud the system.

Here’s me, back in 2009, pointing out that Medicare’s much-vaunted “efficiency” is, in fact, a giant load of crap:

Second, Medicare saves money because they have, arguably, too little administration. Decisions about what to pay for are handed down from the bureaucrats. I know — I’ve worked for years to get a hearing with an Administrative Law Judge on whether or not Medicare was going to pay for something. But if the Medicare rulers have decreed that something will or will not be paid for, there is usually no argument. And Medicare often cuts checks with little regard to whether those checks are going to actual services that have actually been rendered. If you’re an honest doctor, you get screwed by low Medicare fees. If you’re a crooked doctor, you can do fine.

But don’t believe me. I wouldn’t. Believe the CBO (PDF), which noted that Medicare has very few cost controls. Believe Obama, who has claimed Medicare is subject to $60 billion a year in fraud (a number I find unbelievable, frankly). Believe recent testimony that Medicare needs to increase the money spent on claims review by a factor of 10-20 to cut fraud.

This isn’t fraud, but it’s in an adjacent boat. The Medicare administrators — who are actually private insurance companies — just cut checks. Whether the check is for $2000 or $50 doesn’t matter. They get the claim, they process the claim. I won’t say this sort of thing doesn’t happen with private insurance companies. But they are known to try to avoid it by encouraging the use of generics and cheaper drugs. The private insurance companies, when their own money is at stake, tend to be a bit more circumspect. When it’s Medicare’s money? Meh.

Keep this story in mind. This is unlikely to be an isolated incident. As more and more of us are swept into the glories of Medicare and Medicaid, the press may actually start doing their job and look into these bogus claims that our government-run insurance agencies are so very efficient. And once they open up that can of worms, it’s going to get very ugly very fast.

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  1. AlexInCT

    The evidence that anything government touches ceases to be economically viable is so prevalent that it baffles me more people don’t get it.

    Take for example the automotive industry and government mandated changes. The first back up camera systems cost tens of thousands of dollars, and only that top of the line vehicles could have them at first. Nobody else could afford such luxury items. But the people buying the first ones made it viable to try and reduce costs to sell more. a decade later these same systems cost about $4K each and were very common extra accessories. But then the government went and passed a law making these back up camera systems obligatory a decade later (that would be 2014) in all vehicles. During that decade the cost to make these cameras has not moved by much. It has remained at around $4k, despite the fact that innovations came about that could have allowed more quality for lower prices, but even when they were picked up prices didn’t budge. Why should manufacturers reduce the cost of their product when government all but guaranteed they would be able to push them even when the customer was getting a bad deal (less value for their cash)?

    People like to call these event the law of unintended consequences. I disagree. It is only unintended or unseen if you are a fucking retard that thinks government coercion, directly or inderectly, actually is a good thing. Anyoen that still thinks healthcare costs are not out of control primarily because of regulation, government meddling and the horrible inefficiency of government bureacracies, is a moron. But progressives go stupid as soon as the word profits get uttered. They are willing to suffer, and even put others lives in jeopardy, to deny someone the ability to make profits. When it comes to healthcare this irrational behavior goes to the extreme. The whole thing just reeks of emotional insanity.

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