American health care strongly resembles the old Soviet Union. Not reds-under-the-bed or KGB-boots-in-the-night. Rather, the similarity lies in the technicalities of how we measure prices and production and what incentives producers face.
Western economies measure national income (or output) using gross domestic product (GDP). The Soviets used a different measure: net material product (NMP). The difference helps explain the dreariness of the Soviet economy — and the dysfunction of American health care.
GDP sums up the production and sale of all new final goods and services. This includes, for example, a new tractor. But it also includes services like transporting the tractor across the country, advertising it, arranging the sale, financing the purchase, producing legal documents that finalize the sale, and so forth. Importantly, GDP measurements use actual prices paid — not fictitious list prices.
NMP was different. Soviet economists counted a new tractor as part of NMP, but omitted items that we count: Transporting the tractor from the factory in Siberia to the farmer in Ukraine was considered a “non-productive” service, as were all the marketing, financial, legal and insurance activities that went into getting that tractor out of the factory and onto the farm.
Soviet incentives came from the same philosophical wellspring as NMP. Industrial managers were mostly rewarded for building tractors — not for getting them into the hands of farmers. Hence, rows and rows of tractors rotted and rusted near where they were built, while farmers lacked the vehicles they needed to make their work more pleasant and productive.
In other words, Soviet statistics and rewards recognized “stuff,” and stuff alone. Even worse, the measures of stuff were often incoherent. A popular anecdote tells of managers whose pay was based on the output of chandeliers, with the amount of iron used in production serving as the measure of output. The result, according to the story, was obese chandeliers plunging from shattered ceilings. And the price calculations were often accounting fictions that no one actually paid.
In contrast, GDP, and the economic structures that build on the concept, reward those very human elements that make an economy sing, rather than screech. The American economy rewards those who build tractors and those who make it convenient and enjoyable and possible to buy one. The human interaction we expect from markets was painfully lacking in the Soviet economy (except, perhaps, on the illegal black markets).
And with GDP, output is measured in terms of value. If people pay more for a slim, functional chandelier than they do for a gigantic, ceiling-shattering behemoth, then the smaller one adds more to GDP.
American health care looks far more like NMP than GDP. Medicare, for example, issues meticulously detailed schedules of payment for medical services. But paying for standardized services only are the medical equivalent of Soviet “stuff.” Doctors are paid a fixed amount for doing a particular medical procedure. As a rule, there’s no extra pay for doing it better, or for providing the services in more convenient locations or at more convenient hours.
Generally speaking, American doctors aren’t paid extra for providing care in underserved neighborhoods or in the evening, after patients leave their workplaces. They suffer no financial ramifications if patients sit interminably in the waiting room. Under the rules of Medicare (and of many private insurance plans), doctors aren’t compensated for the valuable time they spend trading emails, phone calls or video conferences. Hence, patients must skip work and slog to the doctor’s office to receive services that could be provided more efficiently by phone or email or video conference.
In fact, “balance billing” rules sometimes make it illegal to charge patients more for things like convenient hours. And medical prices that appear on bills are often fictions that no patient or insurer ever pays.
Whether we’re talking about Soviet factory managers or American doctors, a payment system that does not value convenience or service will leave both in short supply. Incentives matter.
On the bright side, though, American health care has one distinct advantage over Soviet care. At least America counts health care services as part of GDP. Under NMP accounting, Soviet health care was considered a “non-productive” sector and omitted from NMP altogether.