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Do We Have a Free-Market Medical System?

Do We Have a Free-Market Medical System?
Profile photo of Hunter Lewis

health-care-is-a-human-right-300x222Reprinted from Mises.org

Edward K. Glassman, my long ago Harvard classmate, author of Dow 36,000 (predicting Dow at that level by 2005), and current director of the George W. Bush Institute, extolls our free market medical system at FoxNews this week. The first reader to comment on the article agrees that we have a “ free market” system, but thinks that “ profit based healthcare” should be “outlawed.” Another reader thinks that we actually have “socialized medicine.”

So what do we have? I think the most apt description would be “crony capitalist” medicine, one in which powerful special interests conspire with government officials to create legally mandated monopolies, with the specific goal of thwarting free market competition.

Here is how it actually works:

  1. Most people wonder why there are no visible prices in medicine. You only find out what the charge has been after the service has been delivered. There actually are prices — controlled prices — but you aren’t supposed to know what they are. Each year a committee of the American Medical Association recommends a set of prices to Medicare. The committee is dominated by medical specialists, so specialists tend to do particularly well. Medicare is actually run, not by government, but by private insurance companies, and these companies adopt these prices for private insurance purposes as well. Congress further sweetened this price controlled system for hospitals by requiring Medicare to pay more for the same service if provided by hospital employees. This has inevitably led to local hospitals buying out most of the surrounding private medical practices, which has in turn created local medical service monopolies that feed patients to the hospital for its more costly services.
  1. These monopolies are further sweetened for doctors by legally barring nurses, chiropractors, four-year trained naturopathic doctors, and other health professionals from using the full extent of their medical training. In this way, the supply of medical services is constrained, which further raises prices.
  1. Notwithstanding all the preceding, it is not the American Medical Association, which is itself financed by a monopoly in medical coding granted by the US government department of Health and Human Services, nor the hospitals, nor the medical doctors as a group that actually run the medical system. The top spot is reserved for the drug companies, which in turn share their largesse with the AMA, doctors, medical journals, media companies, and especially with politicians. In return, drug companies are granted a series of powerful monopolies, monopolies that drive up the cost of medicine and, given the employer role in healthcare, destroy jobs, raises, and economic opportunity as well.

First, drug companies claim a legal monopoly when they patent a drug. The drug research may have been done by the government or by a university using government money but it doesn’t matter. The grant of monopoly stands.

Then the drug company takes the patented medication through the FDA approval process (at an average cost of $3 billion over what can easily be a decade). Drug companies do not object to this ordeal, because the stiff price both eliminates any competition from un-patentable treatments and also flows into the salaries of FDA employees, who consequently tend to take a friendly view of drug companies and zealously guard the legal exclusivity of their products.

FDA enforcement includes armed raids and threats of a lifetime in jail for any producer who makes medical claims without permission. Even cherry and walnut growers have been threatened. The agency takes the position that cherry and walnut producers, to make health claims for any of their products, they must first turn them into drugs through the drug approval process, thus driving up prices for all patients.

No, this is not a free market system nor anything remotely close to one. In a genuine free market system, prices reflect the decisions of consumers. Producers who solve significant problems are rewarded with high prices and profits. High prices and profits in turn attract lots of competition. The competition not only prevents monopoly. It also improves quality and very importantly increases supply, which is the only sustainable way to reduce prices. Consumers then get better medicine and ever lower prices. Producers dislike competition, and therefore try to buy government help in manipulating or fixing prices. This is more easily accomplished in medicine, because it can all be done under the guise of government “protecting” consumers when actually the consumers are being fleeced and impoverished.

There are many honest and dedicated medical professionals sincerely devoted to the healing arts. But they are trapped in a system that can more accurately be described as a crony capitalist nightmare.

  • Marmaru

    What is missing is that LAW has not been codified. We are supposed to be a Constitutional Republic under LAW. However, other than some lip service, the “self evident” portion of the Declaration has never even been attempted, legally.
    Law is something akin to “do all you have agreed to do and do not encroach on other persons or their property”. Legislation, decrees, and “rulings” are simply rules called “laws” by the government. Set up to channel money and “power” in specified directions and for specific purposes. And Constitutionally, they should only be directed a government for We The People are supposed to be under “the law” (9th Amendment) or the Common Law as a judicial system.
    We don’t even honor the Constitution. The “enumerated powers” are the governmental format and the job description for our “elected” officials. The first 10 Amendments are the LIMITS to the authority and autonomy of the federal government, their employees, and contractors. The OATH OF OFFICE is a legal and binding contract (civil) that all office holders must swear or affirm their fealty.
    The Oath is the key. For, if the Constitution is not honored AS WRITTEN, then a crime has been committed by said “official”. That is Constitutional Law.
    Remember, it takes a SUCCESSFUL Amendment Process to alter the Constitution in any manner or form.
    That We The People allow the folks we “elect” to not honor their Oath and allow legislation to usurp Law and Constitutional Law (for example,,, the patriot act, NDAA of 2011, ACA, and probably everything legislated since the 1850’s) speaks loudly about the US “educational system”, the character of our “elected” officials, and the corporate media.

  • Alfred G Wirth

    While too much of this is unfortunately correct (at the very least we should have the app available in Germany that shows patient’s ratings of hospitals, the way we can get restaurant ratings here), the drug companies are being critisized unfairly. Yes, they have a monopoly on new medicines, but that is to recover the incredibly high development costs (the FDA process is long and thorough). So if you remove patent protection, or shorten it, you won’t get as many good new drugs. And you have a choice anyway: Those who feel we don’t need these new drugs, can stick to inexpensive generics (at about 1/4 the cost) which are older versions which are licensed when the original name brand patents expire.

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Profile photo of Hunter Lewis

Hunter Lewis is cofounder of Against Crony Capitalism. He is the former CEO of Cambridge Associates and the author of six books. His most recent book is Where Keynes Went Wrong. He has served on boards and committees of 15 not-for-profit organizations, including environmental, teaching, research, and cultural organizations, as well as the World Bank.

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