The Law & Economics of the VA Fiasco

May 29, 2014

Over at the CATO blog, Roger Pilon discusses the unfolding VA fiasco that involves hospitals covering up their failures to provide acutely needed services to veterans and doctors working in a slowdown mode (as illustrated by an eight-person cardiology department that “sees as many patients in a week as a single private practice cardiologist sees in two days”). He describes this fiasco as a paradigmatic example of government failure and proposes a remedy: the government should steer away from actually providing medical care; instead, it should give veterans vouchers towards purchasing medical services on the competitive private market.

This proposal does not take into account the economies of scale and scope that the government can realize from centralizing the purchase of medical work, facilities and equipment, and from self-insuring against medical malpractice instead of buying expensive liability coverage. These economies dramatically reduce the cost of medical care and increase its affordability. Our market for medical care sets prices that many people, including veterans, cannot afford. The voucher system cannot bring those prices down. Making this system work without shortchanging veterans would therefore cost the taxpayers a fortune.

Privatization is not a silver bullet solution for all government failures. Legal penalties often do a far better job.

The VA fiasco provides a case in point. The VA officers and employees whose misfeasance or nonfeasance contributed to the denial of care and the cover-up should be removed from their jobs. Doctors who did not do their job properly should also be disciplined and reported to the National Practitioner Data Bank. Additionally, the aggrieved veterans and their families should be able to sue the government for negligence, misrepresentation, deceit, and medical malpractice pursuant to the Federal Tort Claims Act (after exhausting the administrative claim process with the VA). These measures will set the right incentives for the VA medical centers across the country and help our veterans realize their well-earned entitlement to medical care.

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