The Independent Institute


Medicare’s Accountable Care Organizations Still Underwhelm

14742678 - medicare word cloud concept on a blackboard with great termsMedicare’s Accountable Care Organizations (ACOs), which launched in 2012, were supposed to introduce a significant shift away from paying for “volume” to paying for “value.” Critics of Fee-For-Service medicine claim this system causes physicians to do more to patients so they get paid more, notwithstanding benefits to patients. Those critics seldom identify the moral hazard associated with third-party payment (by insurers or governments) as a cause of too many medical tests or procedures.

So, they introduced ACOs, which would increase quality and cut costs by getting rid of straight Fee-For-Service and putting more financial risk on physician groups. If the physician groups pass certain thresholds of cost and quality, they can pocket some of the savings. This doctrine is also embedded in the 2015 Medicare physician payment reform legislation, which committed Medicare to sweeping away most Fee-For-Service payments within a few short years, in favor of new payment models designed by the Centers for Medicare & Medicaid Services.

The 2015 results for Medicare’s ACOs have been reported, and the results are underwhelming:

According to the results, over 400 Medicare ACOs generated more than $466 million in total program savings in 2015, accounting for all ACOs’ experiences. Of these, 125 qualified for shared savings payments by meeting quality performance standards and their savings threshold.

First, if over two-thirds of ACOs (275) did not get to pocket any profits from their participation, they will surely drop out. Second, $466 million is a trivial share of Medicare spending: Less than one-sixth of one percent of Medicare Part B (physician) spending of $279.0 billion and less than one-fourteenth of one percent of all Medicare spending of $647.6 billion.

Instead of maintaining third-party payment and getting rid of Fee-For-Service, Medicare should get rid of third-party payment, let seniors spend their Medicare dollars directly, and let the physicians re-design their payment systems in response to patients’ demand.

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For the pivotal alternative to Obamacare, see the Independent Institute’s widely acclaimed book, Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Gary Johnson Finally Gets Some Media Attention

40593358 - voter registration application for presidential election 2016I am amazed at the lack of media attention Gary Johnson, Libertarian Party candidate for president, has received. He’s polling at about 10%, and despite the huge negative perception many voters have of Clinton and Trump, the media rarely notes that Johnson is a relatively popular alternative.

With much discussion throughout the political spectrum about mainstream media bias, it does look like the media has pretty much chosen to ignore third party candidates. Surely, if Johnson got more media coverage, his popularity would increase. The media is keeping him from being a viable candidate.

But this past week Johnson did get media attention, when in an interview he didn’t know what Aleppo is. Interesting that a candidate who’s polling around 10% gets no media attention until he’s caught in a gaffe, causing the media to jump on him. Considering his lack of media attention so far, this recent attention may actually help him, in that people will perceive that the media is taking his candidacy seriously.

As I noted before, Johnson would not have to get a large percentage of the votes to win the presidency. If he could just get enough electoral votes to keep Trump and Clinton from getting an electoral majority, the Constitution says the House of Representatives would choose the president from among the top three electoral vote recipients. Surely the Republican House would not choose Clinton. It is likely they would choose Johnson, a former Republican governor, over Trump. The dislike many representatives have for Trump is well-known, and they could claim to be making a non-partisan choice if they chose Johnson.

Despite the media’s negative spin, Johnson’s recent media attention could give him more recognition as a serious candidate. If they started covering everything he had to say, the widespread negative perceptions people have of Clinton and Trump could push more votes his way.

A Cantaloupe Illustrates the Key to Prosperity

38451562 - fresh cantaloupe for sale at the marketMy family eats a lot of cantaloupes. We buy them from Lucio, a Mexican man who heroically hauls produce and other goods in his rickety pickup truck three times each week a hundred miles from Bacalar to our house on a wretched road at the extreme limit of the semi-civilized world in southeast Quintana Roo.

Yesterday, as I was about to cut up a melon, I noticed the label, which stated that the fruit had been produced by Pappas Produce in the USA. I immediately recalled Pappas Farms from my boyhood, when I worked in the summers for General Box Company making crates for the shipment of cantaloupes and putting colorful, artistic labels on the end slats. Pappas Produce continues to operate today, as it has since the 1930s, only now with a different, improved shipping technology. (In my day, the melons were graded, packed in wooden crates, loaded into railroad cars, and covered with crushed, blown ice to keep the fruit fresh while it was carried to markets around the USA.)

Pappas’s operation is located in Mendota, California, which is the little town west of Fresno to which my family moved from Oklahoma in 1951. We lived in a labor camp southwest of town for about five months before moving 25 miles up the road to Dos Palos, where my dad had found a better job on another ranch, and three years later we moved again to a ranch about midway between Mendota and Dos Palos, east of Firebaugh, where we lived from 1954 till I left home in 1961.

So, once again, as I enjoy the firm, sweet fruit brought to me thousands of miles from the place where I grew up, I have reason to declare, hurray for the free market. Hurray for private enterprise and enterprising immigrant entrepreneurs. Hurray for open international trade. And hurray for the free migration that allowed George Pappas to move from Greece to the USA in 1914 and, later, allowed my parents to move our family to a place where our economic fortunes promised to be better—as indeed they turned out to be.

EpiPen: A Case Study in Health Insurance Failure

61756232_MLI recently wrote a post describing EpiPen as a “Case Study in Government Harm,” describing how the government had made it possible for the manufacturer to increase prices of the life-saving drug multiple times without fear of retaliation. It is also a case study in how health insurance distorts our choices and increases their cost. I learned this by following an Internet advertisement for EpiPen down its rabbit hole.

The ad induced me to download my “EpiPen Savings Card,” which would ensure I paid nothing for my EpiPens (up to six, according to the ad).


However, I had to answer a skill-testing question first: What was my insurance coverage? As you can see from the screenshot below, when I answered I had no insurance, the EpiPen savings card was figuratively ripped from my hand:

Epipen 2

However, when I answered I had private insurance – Hooray! My EpiPen Savings Card was confirmed:

Epipen 3

This is an extreme example of a coupon strategy used by some drug makers: Immunize the patient from the direct cost of the medicine so the health insurer has to pay a price much higher than the market can bear. Of course, the insurer might get a discount from the list price, but the uninsured patient will never benefit from that.

Further, the above-market price is paid by patients through high insurance premiums, so nobody is really saving money. In Canada, where EpiPen is sold over-the-counter in drugstores to cash-paying customers, it sells for about $80 (U.S.), instead of over $600 in the United States. Much of that price differential is due to our overreliance on health insurance to pay for medical goods.

Shades of Healthcare Future: Irish Government May Fall for Lack of a New Diagnostic Lab

Waiting listImagine if the upcoming national election hinged entirely on whether or not San Francisco General were to be provided funding to add a diagnostic lab.

Imagine if one of the candidates, foiled in his efforts until now to get this funding, lashed out at his political opponents with attacks such as:

I don’t want to bring down the Government. But if it takes that, I will have to.

I am not going to be f***ed over by anybody. I don’t care if it is the man on the street or some guy threatening me. And you can print that.

—Again, all over a broken promise to fund one new lab in one hospital.

Yet such is the story now dominant in Ireland.

During our now nearly two weeks in Ireland, the continuing saga over the EU’s Apple tax ruling vies each day for prominence on the front page with one story after another of a total crisis in the provision of healthcare here:

September 8:

Record 530,000-plus Patients on Hospital Waiting Lists
Over 74,000 Waiting Longer Than a Year for Appointments, NTPF Figures Show

—This in a country of 4.6 million people: 11.5% of the population. In the U.S., this would be the equivalent of 37 million people on waiting lists.

September 7:

VHI [Ireland’s State-owned Health Insurer] Warns Soaring Claims Could Overwhelm System
Health Insurer Expresses Concern at Surge in Claims Costs as a Result of Ageing Population

September 5:

Cost of Each Extra Hospital Bed €325,000, Report Finds
Department of Health Indicates Few Funds Available Outside of Planned Big Projects

September 6:

Beaumont [Ireland’s national neurosurgical center] Turns Away Patients in Urgent Need of Brain Surgery
Refusal at Neurosurgical Centre Due to Lack of Beds and Theatre Access, says Clinical Director

This follows on the earlier story:

Most Neurology Patients Wait Over a Year for MRI, Report Claims
Staff Issues and Lack of Beds Lead to A&E Waits, Neurological Alliance of Ireland Says

Meanwhile, in news affecting Northern Ireland, the Junior Doctors union has called off the strike called for this week, after massive protests (April’s strike headline: Hospitals Cancel 12,500 Operations as Junior Doctors Strike). However, “October, November and December strikes will go ahead.”

Last year, The European Court of Justice ruled that Ireland was not violating labor law in assigning junior doctors 24-hour shifts:

Ireland Won’t be Fined Over 24-hour Shifts for Junior Doctors

I don’t know about you, but I’m not sure I’d have a lot of confidence in the judgement of a doctor working her 23rd hour.

Ever since the Apple ruling was announced, speculation has raged that the current coalition government might fall as a result of disagreement over whether to appeal the ruling or not.

Yet, today’s front page bombshell is not the government’s falling over Apple—but over the reneged promise to put a heart specialist lab in a hospital:

September 11:

I Will Rain Hell on This Government

A key government minister—elected by his constituency as the only means by which it is possible for them to get a needed diagnostic lab—is threatening to resign and bring the government down with him following the government’s refusal to put in the lab. The language he employs in his protest makes American politics look positively civil—and all over a matter most Americans can’t imagine dominating their national politics: one new lab for one hospital.

Rather gives pause to think: Is this really the system Americans want to emulate? Or do we simply believe, “It can’t happen here”?

Are you willing to bet your life on it?

9/11 and the Political Uses of Crisis

59086742_MLFifteen years after the September 11th terrorist attacks, we can see that the horrific events unfortunately fit the pattern of other major tragedies. As Independent Institute scholar Robert Higgs has documented so ably in his work (see, for example, here, here, here, and here), the Leviathan State exploits a crisis in order to expand its power. Ironically, the federal government had already intervened heavily in the air transport industry to provide safety prior to 9/11, and we have mountains of evidence that its subsequent takeover of passenger screening has been an unnecessary boondoggle.

Conservative right-wingers fumed when Obama advisor Rahm Emanuel declared that “you never want a serious crisis to go to waste,” but the Bush administration acted on the same tenet after 9/11. The United States government invaded and occupied Iraq, even though the latter had nothing to do with the attacks. (It certainly hadn’t supplied 15 of the 19 hijackers, which U.S. ally Saudi Arabia had done. Also, to forestall angry emails from people telling me I’m naïve for buying the government’s official story: I’m showing that even according to its own narrative the U.S. government’s response makes no sense.)

Yet I’m not an expert on foreign policy or military matters, so let me focus on economics. Specifically, does it make sense that the federal government nationalized airport screening for passengers and luggage?

The World after 9/11

43614311 - manhattan skyline and the towers of lights at sunset in new yorkHow has the world changed fifteen years after 9/11? How have these changes affected the western hemisphere and emerging countries in particular?

It’s been said that the attacks marked the privatization of the “enemy.” The enemy ceased to be a state and became a group of individuals with a large degree of autonomy from any state. The diffuse nature of the enemy, and its complexity, gave rise to, or accelerated the use of, new techniques and methods employed by the military and intelligence apparatus. (Transnational drones, for instance, are highly emblematic of the post-9/11 world.)

On the American home front, after 9/11 the always delicate balance between liberty and security tipped towards the latter. The role assumed by the National Security Agency and the Patriot Act became symbols of the severe price paid by individual freedoms.

Outside of the United States, the most obvious major consequence of 9/11 was the rise of the Middle East (as well as the Maghreb) and Islam as the nerve-center of Western geopolitical and ideological preoccupations. The mistrust that surrounds all things Muslim is highly noticeable. The other side of this coin has been the resurgence, or strengthening, of populist nationalism.

First World Problems

39703687_ML (1)The end of the summer means the beginning of a new semester. Once again, I have the privilege of teaching economic principles.

There is something truly exciting about introducing students to the economic way of thinking for the first time. At the same time, I always feel a pang of anxiety. It’s not because I’m worried about the material I have to cover, or whether or not my students will inevitably voice their displeasure at the difficulty of an assignment or an exam. I worry because I feel a duty to my students to do my best as their professor. If I truly believe (and I do) that economics is important for them to learn, then I owe it to them to give them the best class possible.

Like a first date, the first day of class is critically important. It sets the tone for the rest of the semester. Not only do I work to get an idea of what my group of students will be like, but my students are looking at me, hoping to learn the same.

After a brief discussion of the syllabus, I try to give my students something to take with them that day other than discussions of homework policy and what to do in the event of a hurricane (when I taught at GMU in grad school it was snow, here in Florida it’s hurricanes—always something). For the past few years I have always used Leonard Reed’s I, Pencil as a way to start the course. (For a great video see here). But this year I wanted to do something different.

9/11’s Legacies: Fewer Civil Liberties and Bigger Banks

15317859 - memorial of 9-11-2001, new yorkSeptember 11, 2016, marks the fifteenth anniversary of a calamity that shook America to its core.

I remember vividly to this day being riveted by the constant video replays of the two Boeing 767s plowing into the World Trade Center, people leaping from office windows to their deaths, the collapses of the twin towers, and the dazed look of survivors on the streets of Manhattan. I have since read many stories of heroism on that day—the bravery of the first responders and of ordinary citizens in the twin towers themselves, of passengers on United Flight 93 in the skies over Pennsylvania, and of people navigating the wreckage at the Pentagon—and I’ve wondered whether or not I could have mustered such courage.

9/11 launched a perpetual “war on terror” overseas, but it also triggered attacks on civil liberties here at home. Infringements of the privacy rights of ordinary Americans are particularly noteworthy.

What Star Trek Beyond Tells Us about the Luster of Naive “Progressivism”

startrekbeyondposterFifty years ago today, on September 8, 1966, the first regular episode of the path-breaking series Star Trek premiered on NBC television. Sold as “Wagon Train to the stars,” producer Gene Roddenberry delivered much more. His agenda included using the series as a vehicle for social commentary and to project a liberal, progressive, and utopian vision of the future—one built on equality, peace, freedom, cooperation, and unity under the benign watch of a quasi-military government—into the homes of millions of viewers each week. And on this score he was remarkably successful as the series grappled with racism, war, social justice, religion, beauty, technology, and many other issues of the day and future. The series also lasted just three seasons, suggesting its financial sustainability was weak and its audience limited.

Nevertheless, the idealism and optimism embedded in the original Star Trek gripped the imaginations of its fans. A short-lived animated series followed from 1973–74, and then a string of feature films beginning in 1979 led to the four independent television series: Next Generation (1987–94), Deep Space Nine (1993–99), Voyager (1995–2001), and Enterprise (2001–05). By 2016, 13 features made up Star Trek’s film canon. Combined, they have generated $2.2 billion in worldwide revenues on production budgets of $720 million. The cultural and commercial impact of the movie franchise is undeniable in 2016, despite the commercial precariousness of its first decade.