With many goods and services, technological improvements lead to lower costs and prices. A desktop computer can be purchased for less than half of what it cost a decade ago, and the buyer gets far more processing power to boot.
In the health care arena, despite advances in medical equipment and techniques, this phenomenon has not occurred. Needless to say, the upward trend in the government’s expenditures on health care has been unrelenting. According to Will Falk, in an interesting piece published in the Toronto Star, it’s because the government has failed to keep the money it pays for medical procedures in line with productivity improvements.
Mr. Falk notes, for example, that cataract surgery takes 15 minutes to perform, whereas it used to require an hour. Ten years ago, a doctor could do 1 to 2 hip replacement surgeries in a day, but now they are able to execute 2 to 4 such procedures. Mr. Falk also estimates that radiology and lab costs have been falling 3-7% on an annual basis. Yet, instead of lowering the fee schedules used to compensate doctors for health services rendered, the government has actually raised them by indexing for inflation.
Now it must be said that Mr. Falk’s analysis is flawed in assuming that the value of a good or service is purely a function of the cost to produce it. If that were the case, an engaging short story written by Margaret Atwood in an hour would be worth less than a bombastic clump of turgid verbiage penned by a teenager over a month. As the Austrian tradition well teaches, the value of a thing is whatever people subjectively esteem it to be.
That said, if costs are falling in a given industry, the higher profits thereby flowing to producers will invite competitors. Assuming everything else remains equal (namely, consumer’s subjective valuations of the good), this competition will eventually bring about lower prices for consumers. For this to occur, however, there has to be a free market in place.
This is precisely what is missing in Canada’s health care system. And until market forces are allowed to operate there, we cannot be sure what the true price for a medical procedure really is.
They have to.
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We know the government is over-paying for health care because it is forcibly restricting supply with a monopoly mandate.
The healthcare sector is still labour intensive. Despite having better machines, it still requires highly trained professionals to operate them.
Plus, let's not forget that the health sector is cartelized.
A few years ago, I attended a lecture by a professor at the U of Regina. He gave practical solutions (all avoiding privatization, of course) : hire "super nurses", pay doctors by the hour (apparently popular with women), have a real deconcentration within the bureaucracy, do let easier tasks to nurses/auxilary nurses and let doctors do harder work (might sound bad; sorry)…
The government, and anyone who attempts to investigate this will never have any idea whether it is underpaying or overpaying.
As Joe Salerno puts it when discussing Mises' classic "Economic Calculation"