Why is Medicine Different From All Other Markets?

I found this pretty amusing:

At a town-hall meeting in Portsmouth, N.H., last month, our uninformed lawyer in chief suggested that we physicians would rather chop off a foot than manage diabetes since we would make more money doing surgery. Then President Obama compounded his attack by claiming a doctor's reimbursement is between "$30,000" and "$50,000" for such amputations! (Actually, such surgery costs only about $1,500.)

Physicians have never been so insulted. Because of these affronts, I will gladly volunteer for the important duty of controlling and regulating lawyers. Since most of what lawyers do is repetitive boilerplate or pushing paper, physicians would have no problem dictating what is appropriate for attorneys. We physicians know much more about legal practice than lawyers do about medicine.

Following are highlights of a proposed bill authorizing the dismantling of the current framework of law practice and instituting socialized legal care:

• Contingency fees will be discouraged, and eventually outlawed, over a five-year period. This will put legal rewards back into the pockets of the deserving--the public and the aggrieved parties. Slick lawyers taking their "cut" smacks of a bookie operation. Attorneys will be permitted to keep up to 3% in contingency cases, the remainder going into a pool for poor people.

• Legal "DRGs." Each potential legal situation will be assigned a relative value, and charges limited to this amount. Program participation and acceptance of this amount is mandatory, regardless of the number of hours spent on the matter. Government schedules of flat fees for each service, analogous to medicine's Diagnosis Related Groups (DRGs), will be issued. For example, any divorce will have a set fee of, say, $1,000, regardless of its simplicity or complexity. This will eliminate shady hourly billing. Niggling fees such as $2 per page photocopied or faxed would disappear. Who else nickels-and-dimes you while at the same time charging hundreds of dollars per hour? I'm surprised lawyers don't tack shipping and handling onto their bills.

The piece is a little over the top, but it does highlight a sort of odd feature of the arguments over health care: that medicine is a very, very special market unlike all other markets, and that the normal rules of supply and demand don't apply.

This argument has always been a little thin. When you prove that health insurance markets can't function because of adverse selection, you're also proving that no other insurance market can exist, because most customers have much better information about their relative risk than the insurance company does. How do insurance companies deal with this problem? Risk rating and recission--they ask you about your risks, and if you lied to them on the insurance application, they can adjust the payout to reflect the rate you should have been paying, or deny the claim entirely.

Likewise, the argument that consumers find it hard to make informed decisions on healthcare is true of many services, particularly professional services. Do you know whether your lawyer is doing a good job? If so, how? Unless he's actually dozing through the trial or forgetting your name and the pertinent details of your case, you don't have any very good way of evaluating his work. Is the house you're buying going to be snug or drafty? Did your auto mechanic do a good job on your car? In most cases, the answer is . . . shrug.

Yet most lawyers could readily explain why trying to pay every lawyer in the country on a flat-fee basis based on what some bureaucrat thinks it should cost to take a case would probably not result in optimal outcomes. Indeed, most every professional, from engineers to journalists, would reject such a scheme for their own profession in short order. So why do these things sound so sensible when the target is wearing a white coat?