Advancing a Free Society

Medicare’s Elusive Search for the Ideal Success Criterion

Tuesday, May 31, 2011

Medicare has a new success criterion for rewarding hospitals: “Medicare spending per beneficiary.” The unusual twist is that Medicare bureaucrats will include expenditures three days before and 90 days after the patient leaves the hospital. Medicare will pay hospitals that have lower than average “Medicare spending per beneficiary” a higher percentage of each claim.

Those of us who studied the Soviet economy find the announcement of a “new and better” Medicare success criterion familiar. We also know it will be one of many to come. As hospitals learn to game this criterion, Medicare bureaucrats will propose another one to close the gap. Hospitals will then learn to game that one, and so on. The cat-and-mouse game goes on forever, until the system itself ends.

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