6. Misdirection in Healthcare: Two Trillion Dollars per year wasted. Graphic Illustration by Paul Samuelson Showing How Limiting the Supply of Doctors Causes Higher Prices. (Source: Samuelson 1992

by admin on 08/12/2019 1:15 AM

Market opponents have not only claimed there are too many doctors but also too many hospital beds. In 1972, the federal government started restricting the supply of hospitals with certificate-of-need (followed by repeal of the Hospital Survey and Construction Act in 1974). Alaska House of Representatives member Bob Lynn argued the true motivation was “large hospitals are … trying to make money by eliminating competition” under the pretext of using monopoly profits to provide better patient care. From 1965 to 1989, the number of hospital beds and occupied beds (per population) declined by 44 and 15 percent, respectively (Friedman 1992).

Today, the U.S. and Canada have less than 25 doctors and 30 hospital beds (per 10,000 population), compared to over 35 and 50, respectively, in most countries in continental Western Europe.

Mark Pearson, head of Division on Health Policy at The Organization for Economic Co-operation and Development (OECD), discussed possible reasons the U.S. spends more than two-and-a-half times per person more than most developed nations in the world, including relatively rich European countries: “The U.S. has fewer physicians and fewer physician consultations relative to its population. The U.S. also has fewer hospital beds for its population size and shorter average stays in hospital relative to other countries. Indeed, the lower numbers of physicians could help explain why they cost more; there is less competition for patients.” He adds that universities in other countries are still able to attract the best students to medicine (Kane 2012).


The U.S. health-care market appears to behave according to laws of supply and demand (at least until the 1980s). Assuming government subsidy of the elderly and poor serves the public good, the cause of the “U.S. health care cost crisis” appears to be that government didn’t allow the supply of doctors and hospitals to respond to increased consumer demands. Politicians from both major political parties created a self-fulfilling prophesy by assuming markets couldn’t work in health care.

The obvious solution is to increase the supply of physicians and hospitals to meet demand. Unfortunately, if medical schools doubled their class sizes by next year, it could still take over 20 years to achieve the number of doctors relative to population found in continental Western Europe. Competition could be achieved quicker by relaxing the licensing requirements placed on para-medicals (e.g., nurses), and possibly also foreign educated doctors, to compete with U.S. physicians to the degree to which they are qualified.

If Obamacare is still necessary, the additional demands created by subsidizing even more consumers will require even more supply. Regardless, all major health care policies implemented by the U.S. government after 1965 will likely need to be repealed and the “playing field” leveled so new entrants can compete against previously subsidized and now entrenched providers.

Supply and demand graphs can illustrate the supply shift needed to balance the demand shift since 1965 (Figure 11). Once consumer demand for quality has been satisfied, the supply shift will result in more quantity of medical care supplied, greater access to medical care, lower prices, increased efficiency and real growth. By the definition of price-inelastic demand, total medical expenditures must decrease (e.g., from spending area I to II).

During the past 48 years, the U.S. has paid a heavy price for denying potential competitors entry into the health-care marketplace. The nation has likely wasted the equivalent of nearly two trillion dollars per year (in 2012 dollars). The costs are bankrupting the country as the leading contributor to the $16 trillion national debt (through spending on Medicare, Medicaid and Social Security). Health care is also the number one barrier to America’s global competitiveness (according to Edward Deming), and the largest contributor to financial stress and personal bankruptcies.

Read the entire article: https://mises.org/wire/how-government-regulations-made-healthcare-so-expensive

Also read the physician component: https://www.forbes.com/sites/realspin/2013/04/03/whos-to-blame-for-our-rising-healthcare-costs/#158fa120280c

Further Reading

AAMC (Association of American Medical Colleges). 2013. Medical School Admission Requirements Handbook.

Alford, Robert. 1975. “Health Care Politics: Ideological and Interest Group Barriers to Reform.” University of Chicago Press. xiv+294.

Baker, Lawrence. 1994. “Does Competition from HMOS Affect Fee-For-Service Physicians?” National Bureau of Economic Research working paper.

Editor. July 19, 1983. The Wall Street Journal. Editor. September 21, 1983. Wall Street Journal. 

Evans, Stanton. 1977. Human Events.

Friedman, Milton. 1962. Capitalism and Freedom. University of Chicago Press. 208 pages.

Friedman, Milton. 1992. Input and Output in Medical Care. Hoover Press. 16 pages.

Fodeman, Jason. April 7, 2011. “The New Health Law: Bad for Doctors, Awful for Patients.” Galen Institute. 

Gerber, Alex. 1971. The Gerber Report. David McKay. New York. 242 pages.

Goodman, Louis and Norbeck, Timothy. April 3, 2013. “Who’s To Blame For Our Rising Healthcare Costs?” Forbes.

Hazlitt, Henry. 2013.  Economics in One Lesson.

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