From my Wall Street Journal editorial today:
Medicare has a list of some 7,500 separate tasks it pays physicians to perform. For each task there is a price that varies according to location and other factors. Of the 800,000 practicing physicians in this country, not all are in Medicare and no doctor is going to perform every task on Medicare’s list.
Yet Medicare is potentially setting about 6 billion prices across the country at any one time…. Is there any chance that Medicare can set prices and approve transactions in a way that does not cause serious problems? Not likely.
What happens when Medicare gets it wrong? One result is that doctors face perverse incentives to provide care that is costlier and less appropriate than the care they should be providing. Another result is that the skill set of our nation’s doctors becomes misallocated, as medical students and practicing doctors respond to the fact that Medicare is over-paying for some skills and under-paying for others.