 One of the benefits of being at Mises University is being able to do what you were just doing that I had to stop you from doing, which is making connections with other students. And that is one of the most valuable things you can do here, because if you're anything like me, when I was an undergrad student, the libertarian movement among students wasn't nearly as well developed as it is today, but you still probably feel somewhat isolated. Maybe that's not true now, but it's encouraging to get together with a bunch of other students who think like you do and to make these connections, sometimes international connections, and these are connections that will stick with you in some cases the rest of your life. And that's a really wonderful thing. It's an intangible benefit, apart from anything that we can tell you in our presentations this week. So I encourage you to keep doing that. Exchange emails or Instagram, whatever you do now. I don't know. I can't keep up every other year. It's a new social medium. Without wasting time, because I only have 45 minutes, I'd like to move through this. And before I start, I don't think this will be too far off topic here for me to discuss just a couple of minutes about how I got interested in free market economics in general and then became aware of the Austrian school. And one of the primary influences on me in that regard was a non-economist, the man in the center of that picture there who's my father. He died in 2009. He was an unusual physician in that he was very interested in economic issues. He had a framed display on his office wall of a number of defunct fiat currencies. He loved to talk to people about the crimes of the Fed and how terrible medical licensure was and how the FDA was a cartel of large pharmaceutical companies and all of these things. And so he was very interested in economics. That's what we talked about around the dinner table. And at his death in 2009, he was the president-elect of a very free market-oriented doctor's organization called the American Association of Physicians and Surgeons. I may refer to one or two of their items off their website here in this presentation, but it's a great organization. They're very aware of the Austrian school and some of the work that has been done that's emanating from this building, from the Mises Institute. A lot of people went out to talk to a group of doctors at the annual AAPS meeting in Denver a couple of years ago, and if I mention Mises or Hayek or something or Rothbard, they're, oh, yeah, yeah, yeah, they've read all of this. They know where I'm coming from. So it's an encouragement to me to see that that is a moving force in American medicine and that that is being influenced by the kind of work that the Mises Institute does, and other free market-oriented institutions. I'd like to start off with a quote here from F.A. Hayek. One of his most famous articles that came out in 1945, the use of knowledge in society, was very influential on me. My father and I wrote an article together where we looked at medical care and medical bureaucracy from the perspective of Hayek's article. And Hayek says, in part, the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. This is being forgotten in medical care today, and I think that it's worth spending a few minutes looking at the implications of that neglect of that observation. Can the quality of a doctor-patient encounter be judged by a distant authority that does not have the knowledge of the particular circumstances of time and place? Konko and Arnett in a 2008 article say that every day thousands of physicians and patients make myriad choices from available drug options. They take into account differences in effectiveness, side effects, and drug interactions for each individual patient. In fact, there's another dimension that's often neglected even in this paragraph here. What happens if the patient doesn't take the drug or won't take the drug as prescribed but might take too little or too much or take it sporadically or something? That has to be taken into consideration as well, and that's something the doctor sitting in the examining room with the patient is in a position to find out. Not somebody hundreds of miles away or thousands of miles away trying to look over the doctor's shoulder remotely. Konko and Arnett talking about the FDA say that the FDA scientists may know a lot about the drugs they evaluate and their average effects on thousands of users, but they know nothing about the individualized physiology of each patient. On the other hand, intensively trained clinical physicians who do have knowledge of individual patients are best able to advise them if a drug is appropriate. Now, if you take medical care and you try to scale it upward with the doctor-patient relationship being scrutinized by distant managers, you take on certain risks. We'll talk in a minute about coding, medical coding, CPT coding, current procedural terminology, and that misses a lot of important information in the effort to condense what's happened in that examining room to a alphanumeric code of some kind, and you send that code off to an evaluator who's going to try to determine whether this doctor has committed some kind of Medicare fraud or something of that nature, insurance fraud, perhaps, by miscoding. So doctors who are forced to choose between compliance with these centrally-imposed standards or meeting the needs of the patient in front of them have a very difficult predicament. What are they going to do? Are they going to actually help this patient or are they going to do something that is going to satisfy the distant bureaucrat? So conscientious doctors, in some cases, will creatively bend or even break the rules to help patients. So the penalties imposed by the government for breach of their regulations become absolutely draconian. They have to, if they expect to, maintain any kind of adherence to these regulations. They have to terrorize doctors and other medical professionals with the threat of losing their medical license and fines and even jail time for their errors or mistakes. An older study, this is from 15 years ago, but this was done by that organization I mentioned earlier, the AAPS. The survey of doctors found that the Medicare system's structure made fraud easy and unintentional errors virtually unavoidable. In fact, just last month there was another crackdown on doctors who were allegedly miscoding or defrauding Medicare. The bureaucracy is so labyrinthine so difficult to understand the regulations are so difficult to comprehend that doctors can't get their heads around what's required of them. A 2002 study revealed that 85% of the time Medicare customer service representatives gave the wrong answer to questions posed by physicians regarding the proper way to build Medicare. So you're the doctor. You want to follow the law, not lose your license, not go to jail, not be fined, etc. What do you do? Well, who should I ask to interpret the law? How about those people who are charged with enforcing it? So I call them. And 85% of the time they give me the wrong answer. So Medicare said, we will do better. 2004, 96% of the time Medicare customer service representatives gave the wrong answer. Now, it's almost as though you could, if you're the doctor, you call Medicare and then you do the opposite of whatever they said because that's more likely to be right. I don't know. But the Medicare policies and regulations were so confusing that even those people who were supposed to be experts in this did not understand what the regulations were saying. And if you can't expect, if the regulators don't know what the regulation says, how is the doctor or the doctor's staff expected to know this? Ludwig von Mises in one of his great shorter works, Bureaucracy, which came out in 1944, said that government must be formalistic and rigid by its nature. If you don't want formalistic rigidity, get the government out of that activity because it's an inevitable consequence of government involvement. So the core problem, he said, is the lack of a measure of success and failure. I'm using another one of his works, Profit and Loss, which is available online as a PDF and an e-book on the Mises site for something else I'm working on. And Mises points out in that work that it's Profit and Loss that serve as the measurement tool, the feedback for the entrepreneur to get information about what should be done with the available resources. Bureaucracy doesn't have that. There's a great article that just appeared, I think it was early last week on the Mises website as a Mises daily. And I've got the address down here if you want to look it up yourself. And Michelle Akad is the author. And the article has this wonderful diagram showing the growth of physicians and administrators over the last several decades. You can see the physician growth in... that's a blue or green down there at the bottom. You barely see it. And then the red is the growth of administrators since 1970. Now, this sparks a little curiosity. I'm going to have to look this up to see if there's a similar diagram for higher education. Growth of professors versus growth of administrators think I might find the same kind of thing. And in both cases, higher education and in medical care, we see the same phenomenon. Increased governmental involvement. Now, I'm going to read... I'll beg your patience, but I'm going to read a bit here from that article because I can't say it any better than Akad did. It is particularly noteworthy that that graph, which I just showed you, by the way, that graph was generated by a group that wants more government involvement in medical care because they think somehow that if the government's involved more than an administrative administrator, over administrator, over bureaucratized, problem is going to be diminished. So this is, if I may digress for a moment, this is typical of statists. Oh, look at this problem that's created by what they advocated and enacted before. We need more government to solve the problem created by more government. It's never enough regulation, anyway. So Akad says it is particularly noteworthy that this graph depicts the administrative workforce as shooting up in the early 1990s for it is around that time that payment for medical services would become highly dependent on a Byzantine scheme of codification invented precisely to convey to central authorities in charge of health insurance crucial information about what is taking place in the privacy of medical offices within the confines of operating rooms or at hospital bedsides. In 1992, with the passage of the Medicare fee schedule, use of this coding system became mandatory. From then on, clinical care would be spoken in the lingua franca of CPT, ICD, and EM codes, and the term documentation would take on a bitter significance for doctors. But translating the what, how, and why of local medicine into cryptic ciphers for remote bureaucrats does not make the business of healthcare any more intelligible to the central planner, regardless of whether the codes are transmitted by an archaic fax machine or digitized and made immediately accessible by means of mandatory electronic health records systems. Which I object to, by the way, not because I'm a technophobe, but because I don't want any technology available to a bureaucracy that would make it easier for them to oppress doctors and, by extension, their patients. Codes and data, of course, are not knowledge. Hayek's shipper, engaging in tramp trade, and if you read the Hayek article that I mentioned earlier, you'll recognize that, that Hayek was pointing out that that shipper has the knowledge of the circumstances of time and place, knows where there's some spare room on a freighter and can fill that with something that he happens to know is sitting on the dock waiting for shipment, but no centralized bureaucrat a thousand miles away would be able to put two and two together and make that connection. Only the person there on the spot. Only that shipper can make a judgment about the significance of empty spots on a boat because the context associated with that information elicits meaning based on which he acts. Last segment. In contrast, a CPT code 99204-21, new patient visit EM coding level four prolonged service associated with ICD-9 code 786.50, chest pain unspecified, hardly contains any real knowledge and cannot possibly be a basis on which relevant decisions can be made or value established. The only tangible effect of the coding scheme is simply to require a massive influx of administrators charged with interpreting and acting upon its obscure data signals. Let's talk a little bit about rising costs. Now, there are several reasons that we might think are attached to these rising medical care costs in the United States. By the way, there has been a bit of a pause over the last several years in the increase in these medical costs. But over the long term, they've been rising. Now, there's several reasons for this. I think one is employer provided health insurance. So you have a third party. Why did employers start paying or start providing health insurance to their employees? Well, taxes were rising. In fact, in 1943, they were very high. Marginal tax rates were... Well, they were going up so fast. I don't know, it probably depends on which part of 1943 you're talking about. This is World War II. Tax rates topped out by the end of the war at 90-something percent. The top marginal tax rate. So if you want to provide some compensation to employees, if you could provide them what is pre-tax, then... And they're not taxed on the value of that insurance. Then it's a way of providing the employee with something much more valuable than, say, giving the employer $10, $10 additional, and having nine of them disappear before the employer sees the money in the paycheck. So employer provided health insurance is really a function of marginal tax rates that were rising in 1943. And now we've become attached to this idea that if you don't have insurance, well, you must not have medical care, which is not true. Then licensure, occupational licensure, which restricts entry into the medical profession. Now, I'm happy to see that there has been some weakening of this as nurse practitioners gain prescribing privileges and other medical specialties emerge that can do a lot of what doctors can do. And so therefore doctors are seeing a contracting of the sphere over which they have this kind of monopolistic control. The licensure system is indirectly managed by doctors themselves. They make sure that you can't get a license. From the state government unless you go through a particular kind of medical school that's accredited by a doctor's organization. And the doctor's organization makes sure that the medical schools limit their seating, the number of students they admit, so that they're essentially putting a bottleneck on new doctors coming into the medical profession. So licensure is a way of restricting entry, and it makes medical care harder to get, which is one of the reasons why if you go see a typical doctor you're going to spend maybe five minutes and the doctor will scribble out some kind of prescription and you'll be on your way. You hardly have a conversation with this person. Boyapati also mentions the obesity epidemic and intellectual property as contributors to these rising costs. The one I want to focus on here is the problem of intermediaries. The third party interposed between the patient and the care provider. Doctor, the nurse, the nurse practitioner, whoever that person happens to be. So the doctor begins to work for the satisfaction of the regulators and the third party payers rather than for the patient. Now there are several problems that emerge when you put this group of institutions which could be insurance companies, could be government. When you put that group of institutions in between the doctor and the patient. Now, with any third party payer you get a couple of problems. One is moral hazard, which is the risk or hazard that the insured person might engage in activities that are undesirable or immoral in a way of speaking. That's why we call it moral hazard. From the insurer's point of view because they make it more likely the claims will be larger. So, for example, if I have car insurance and I know that if my car is damaged then I will be mostly compensated for that damage. I may be more likely to park my car on the street where it can get sideswiped instead of parking it in my driveway. I may be a little less likely to run out and pull my car into my garage if a hailstorm threatens. A little more likely to forget and leave my keys in the car and have it stolen, etc. That's the case with most insurance. Then there's the principal agent problem where those who are charged with acting on behalf of the, in this case, the patient or the principal that's the person who wants something done. I want to get my health back. Have their own, sometimes incompatible agendas and objectives. Now one of the things that we notice is that where insurance is a larger fraction or where government payment is a larger fraction of the payment for the medical procedure the costs go up faster and where insurance is less a part of the picture costs go up more slowly. So we can see that here. This is from an NCPEA essay by Devin Herrick. You can see several pieces here. One is medical care in general which since 1992 up to 2012 went up by 118%. Physician services went up by 92%. Inflation in general 64% over that time period. But cosmetic services only went up by 30%. Now cosmetic services typically are covered by insurance. You're more likely to have the patient paying out of pocket. Now there's nothing to suggest that the quality of cosmetic services hasn't increased at the rate that other medical services might have improved in quality. I don't have the data here for dentistry. Dentistry is sometimes covered by insurance but it's a little more likely to be paid out of pocket by the patient. I would suspect that dental care has gone up in price more slowly than medical care in general. Worth maybe a look. Alright, so there are competing standards that go along with those third parties. So the patient then chooses an employer. The employer chooses an insurance company to cover employees. They do this because of risk pooling which I won't get into here. Or the patient has some sort of very weak influence on government and then the government may pay a care provider through Medicare, Medicaid, VA system, so forth. The insurance company has also a politicized relationship with the government. So the patients direct influence over the doctor and the preferences the patient expresses to the doctor get lost. So the patients' standards are competing with employers or the insurance company which is competing for employers' business. This very weak, more of a theater that takes place with voting. Most people seem to be somehow convinced that if they vote they can really change the system. Talk about that later. The government regulates the care providers and regulates them some more. Insurance companies lobby government. They really succeeded at this lately, didn't they? They got the government to mandate their services. Isn't that wonderful if you can get the government to require people to buy what you have for sale? And then of course the government regulates the insurance companies and the insurance companies have these efficiency standards. They impose them the doctors. The government's paying somewhere around 45 to 50% of the dollars that the doctors in the hospitals and so forth are receiving. About 40% is coming from insurance companies. And only 10 or 15% is coming from the patient personally. So this means that the doctor is or the hospital is naturally going to give more of an ear toward the person or the group that is providing most of the dollars. You listen to the person your paycheck comes from. So if there's a choice between satisfying the patient standards or satisfying the insurance company or the government's standards, which are you going to choose? And of course you'll choose typically what the group wants that's writing your check. And then we have the ACA Affordable Care Act and there are very definitely quotation marks around that because it looks like insurance companies have raised premiums significantly since this act went into effect and we're still seeing some of the ramifications of that. I won't get into a lot of that here, but it complicates and further distances the patient from being able to express standards to the doctor. This is a tragically humorous diagram showing one group's interpretation of what the Affordable Care Act would do if you can really understand this several thousand page piece of legislation anyway. Let me turn now I don't want to get into this labyrinthine system here, but let me turn now to discussion of national medical care systems. If you have a nationalized health care system where government is directly providing care, you wind up very quickly with a problem. If you tell patients consumers of any this would apply to consumers of any good or service. If you tell them you don't have to face any marginal cost for the service that you receive, then if the price is zero to you personally why not consume as much as you want? So you will then be consuming a quantity where that arrow is here at least that's what you would want to consume. Even if the cost is very very high and notice as you keep moving to the right on the horizontal axis increasing the quantity that you consume, that supply curve keeps rising and by the time you get to the point where the demand curve hits that horizontal axis now we're looking at an enormous marginal cost of supplying that little bit of health care medical care that is out of the patient. Of course this is impossible there's no way that any government could provide medical care to that point which means that since the price system is not rationing medical care, some other system is going to have to be used. So the government then starts to decide who's going to get medical care and who's not who's going to have to do without. Now in some cases governments negotiate with medical care providers to try to reduce prices as a monopsony buyer of medical care services that the government says to all the pharmaceutical companies look we're the ones paying for everybody's drugs so we're going to tell you that you have to cut back on your prices or we're just going to buy from somebody else. So the government throws its weight around and sometimes looks at these pharmaceutical companies and says well we're going to demand that you sell your drug for a much lower cost. So some countries do this and consumers in some cases are persuaded to think that this is a good idea. Miller Benjamin in North say that a single government agency in each country acts as a monopsony buyer that is a single buyer of healthcare services on behalf of everyone. Individuals are either prevented from buying healthcare on their own or limited by government rules as to what they may buy. Like other monopsonies these national health insurance systems force down the prices of the goods they buy such as drugs, medical devices and physicians and nurses services. Well so far a lot of people would look at that and say yeah that sounds great why don't we do that. Well this in turn reduces the quantities of those goods and services that suppliers will provide, particularly in the long run. If a pharmaceutical company spends $800 million investing in a drug taking it all the way through the labs and the FDA approval process and all of this and then says okay well the marginal cost once we figured out the chemical formula for the new drug and we tested it the marginal cost of mass production of this pill is 25 cents a pill but we're going to try to sell it for $8 a pill because remember we had all those costs that we incurred to develop this sort of like telling an architect well now that you can reproduce the blueprints of this new building for a dollar a piece that's what you should sell your blueprints for okay well so the government comes along and says well it's only costing you 25 cents a pill to make this so why are you charging $8 this is unfair this is unreasonable and all the people say yeah this is unjust well so you can do that to a supplier you can tell the supplier we're going to control the price of the good or service that you're producing to make that price fairer and since those costs are sunk all those development costs are sunk the supplier says well I guess we'll sell it for whatever you said 40 cents a pill or something because it's better than not selling it at all but the next time they have a choice about whether to invest $800 million investing in a new drug highly risky market maybe it'll work maybe it won't they might decide they won't do it so in the long run then you get less innovation so Miller Benjamin in North say the bad news at least if you are a consumer of health care services is that health care is provided fellow on the right here is Yuri Maltsef who's affiliated with Mises Institute I believe he's an associated scholar if I'm not mistaken and I think he still teaches at Carthage College he wrote a great article that appeared it's on the Mises website you can find it where he says that the Brookings Institution found that every year 7,000 Britons in need of hip replacements between 4,000 and 20,000 in need of coronary bypass surgery and some 10,000 to 15,000 in need of cancer chemotherapy are denied medical attention in Britain why is this happening because if you're not going to ration a good by price you're going to have to ration it some other way and a lot of times that's by forcing people to wait in line kind of like in the old Soviet Union you see these long lines of people waiting outside a bakery or a butcher shop or something they wait there for hours there were some calculations of how many hours people spent on average waiting in line for various goods and so you wait for a couple of hours you finally get up to the head of the line and the bakery shop owner says I'm sorry we're out so you come back the next day same thing will happen in medical care it does happen in medical care you know by the way in the United States you can go to a hospital an emergency room and the hospital has to treat you by law even if you walk in the door and you're bleeding and you say I can't and won't pay they have to patch you up by law now I don't want to get into the ethics of all that but the consequence of this is that emergency room wait times are notoriously long they're going to ration by something else if they can't ration by price they're rationing by willingness to wait so it's not unheard of to wait for three hours in an emergency room going back to Maltsev here he says age discrimination is particularly apparent in all government run or heavily regulated systems of health care in Russia which he knows well because he defected from the Soviet Union in Russia patients over 60 are considered worthless parasites and those over 70 are often denied even elementary forms of health care in the UK and in the treatment of chronic kidney failure those who are 55 years old are refused treatment at 35% of dialysis centers 45% of 65 year old patients at the centers are denied treatment while patients 75 or older rarely receive any medical attention at these centers in Canada the population is divided into three age groups in terms of their access to health care those below 45 those 45 to 65 and those over 65 needless to say the first group which could be called the active taxpayers enjoys priority treatment there have been some kind of undercover videos that you can find on YouTube of people going into Canadian health care clinics and trying to get care and they're told repeatedly really you just need to go down the street to the private clinic so oh you know Americans look at that Canadian system and say oh it's just wonderful they get free medical care and so forth well what good is free if you can't find it when you need it it's free but far less available according to the AMAs 2008 national health insurance report card Medicare denies almost 7% of its claims higher than any private insurer this is this is medical provision by the state it's less available and in countries where medical provision is more orchestrated by the state than it is in the United States and by the way I'm not holding up the US system as some kind of free market medical care system and when I compare the US system to other countries it's a matter of degree and the Canadian system seems to be moving a little more toward a market while the United States is moving further away from the market maybe we'll converge at some kind of horrible middle ground of statism but in 2006 there were 2.1 practicing physicians per thousand people in Canada and 2.4 per thousand in the US Canada had fewer nurses per thousand oh by the way there was a slide in here earlier but Ronald Hammer we gave a talk here at the Mises Institute several years ago called Canadian Medicare Medicare as a model for the United States I'm not sure because I haven't rechecked since the website redesigned that Mises.org went through a few months ago but I'm sure you can search for that talk and find it on the Mises website there's a great talk on the problems of Americans looking at Canadian medical care as some kind of ideal Medicaid's costs like Medicare's have risen far more than the cost of private health care and somehow we're going to get government to solve the cost increase problem I'll skip over some of this for the interest of time but if you look at the black line there that's the combined annual per patient cost of Medicare and Medicaid in current dollars the red line is combined annual per patient cost of all other health care in the United States further more numbers on this and then I'll wrap up in 2006 the US had more MRI machines than the UK or Canada and secondly more more CT scanners and I'm not these are proxies right this is some kind of proxy for availability of medical care the UK also has higher rates of death from heart attack stroke and cancer than the US and Canada has higher rates for heart attack and cancer one of the problems in comparing countries is that you can't always look at the two countries and find equivalent definitions for example in some countries it's important to have some kind of amazingly low infant mortality rate compared to the United States well that's because they don't count some infants who die like the United States would count them so if you just take that group out of your numbers then of course your numbers are going to look better also we may have other differences between the United States and other countries that make our life expectancy lower we may have for example a higher automobile accident rate on state owned roads by the way than other countries but you can hardly lay blame for any reduction of life expectancy resulting from car accidents at the feet of the medical profession they'll try to patch you up but if we have a higher obesity rate if we have a higher car accident rate and other differences that don't really have much to do with medical care per se then that could affect life expectancy statistics particularly since accidents tend to be among younger people who would take that life expectancy figure down more than say a 75 year old who dies of a heart attack cancer survival rates are better in the United States very quickly since I've only got a minute left I'll show you this graph the wait time for a specialist appointment long wait times on the right short wait times on the left notice that in the United States 74% of adults with chronic conditions who needed to see a specialist saw the specialist in less than four weeks only 10% had to wait more than two months but in countries with nationalized systems like Canada, France UK Australia wait times tended to be much longer I normally close this talk with picking on the British who apparently are pulling their own teeth out in the shed with pliers because they can't find the National Health Service dentists I will discuss this with you later if you're interested in the gory details of this but they literally are pulling their teeth out with pliers when they can't find a state a government dentist so free but not available isn't exactly ideal alright thank you very much for your attention