Early in the Reagan administration there was a certain amount of talk about deregulating the health care industry. It was part of the enthusiasm for deregulating the economy generally. The problem in health care then, as it still is, was inflation (though the rate has moderated). The Carter administration had unsuccessfully proposed a pretty direct, not to say crude, approach to the problem: hospital cost containment bills that would simply have limited annual increases in hospital billings. The Reagan advisers said they, too, wanted to introduce more cost-consciousness into the medical industry, but preferred to do it by increasing competition.
That nicety has gotten a little lost in the last four years. The administration and Congress have taken important steps to bring health care costs under control, particularly the large share of those costs paid by the government through Medicare and Medicaid. But precisely because it does pay such a large percentage of the costs -- because, in this sense of being paymaster, it is the largest consumer of health care -- the government cannot do in the health field what it did with, say, airlines. It cannot detach itself. To achieve the cost-consciousness that is one of the main virtues of competition, it has had to intervene more rather than less. One of the successes of the administration has thus also been one of the ironies.
The medical inflation rate went over 10 percent in 1974, the year the Nixon administration took off price controls. It stayed at or near that level throughout the 1970s and into the early years of the Reagan administration. But by last year it was down to 6.1 percent. In part this reflects the decline in inflation generally. In part it may also reflect a stiffening of the reimbursement rules whereby the government pays hospitals under Medicare; under a new prospective payment system, the government now publishes in advance what it will pay for certain services.
In part at Congress' instigation, the administration now is considering stiffening the reimbursement rules for physicians' fees as well, perhaps to the point of setting a national fee structure. A government study suggests the kinds of issues -- the degree of oversight -- this would entail. One question raised was, "Under what circumstances, if any, should the fee for the package of services be reduced if the full range of expected services is not performed (e.g., the patient dies)?"
But the government has to act; the same study notes that, absent further controls, in fiscal 1986 "Medicare spending for physician services is projected to increase faster than any other major function in the budget including national defense and interest on the debt." There are obvious problems with intervention of the kind the administration is contemplating, but it is the right thing to do.