Munger is right about the 'disgusting' cost of dying. He's wrong about the solution

  • Munger got it right when he pinpointed the biggest cost driver in health care.
  • But he got it wrong when he suggested single payer as a solution.
  • Here are two much better solutions to the problem he identified.

Berkshire Hathaway Vice Chairman Charlie Munger, 93, made some waves Monday morning when he told CNBC's Squawk Box that "the amount of waste from over treatment of the dying is just disgusting. There's a lot wrong with the system."

Munger went on to basically say he prefers a single payer government run/"Medicare for all" system that he believes will put American businesses on a better playing field.

First off, Mr. Munger should be applauded for putting his finger on what is indeed the biggest driver of health care costs in America. As noted in this column at least half a dozen times over the years, the sickest 5 percent of Americans account for more than 50 percent of our national health care spending. That 5 percent of course includes the "dying" people Munger was referring to and the money spent on their behalf. Finding a way to cut down on the cost of caring for those dying and very sick people is the key to this basic economic problem.

Unfortunately, single payer isn't the answer. It simply replaces the heavy spending with rationing, something a billionaire like Munger will never have to worry about.

Those who insist single payer rationing is some kind of invented conservative boogeyman should talk about what completely government-controlled single payer looks like at the Veterans Administration hospitals, where we know of all too many patients who died while waiting interminably for care.

Or they could just ask people like Dr. Ezekiel Emanuel, who not only advocates rationing, but has spoken out in favor of more Americans simply choosing to end their lives at age 75. Oh, and then there's the state of Oregon which tried a version of universal health care and failed when it turned out - surprise! - that politicians used political and other non-medical reasons to determine which patients got which services as opposed to more cost-conscious criteria.

Stories like the V.A. scandal and scary comments like Dr. Emanuel's are big reasons why voters in Colorado resoundingly defeated a bill calling for single payer care in their state in November by a whopping 79 to 21 percent margin.

But instead of wasting time knocking down Munger's single payer idea, I've come up with a two-pronged strategy that will do something about the prohibitive costs he rightfully identified.

1) End "fee for service" now

When hospitals and doctors charge insurance companies or Medicare for treating patients, there is no all-inclusive price. They charge for each service, from the initial examination to blood tests to drugs provided. That's why our health care system is called a "fee for service" system.

You don't have to be an economic genius to know that kind of arrangement encourages health care providers to cram as many services they can into everyone's care. It doesn't mean every doctor and hospital just uses their patients as human billing machines, but the temptation to do just that is strong. And it's all legal.

Speaking of legal, another catalyst for over treatment in the fee for service system is malpractice law. Most doctors and hospitals routinely order additional testing, especially x-rays and CT scans, in order to cover themselves in case of a malpractice suit in the future. That's a massive cost to the system that has nothing to do with health care and everything to do with legal protection.

That means replacing fee for service needs to have two aspects. First, it has to be replaced with a "fee for outcomes" or "fee for total care" pricing. Second, it needs to come along with more tort reform protections for health care providers who will now be otherwise compelled to cut down on additional tests and procedures.

2) Embrace innovation

Luckily, the guy sitting next to Munger when he made his health spending statements was none other than Bill Gates. Gates has spent much of his post-Microsoft career focusing on delivering more health care to more people around the world at lower costs.

Compassion and charity are a big part of Gates' efforts, but innovation makes it possible. And in the end, it will be innovation in the health care space that will drive down costs much more than any government policy.

That's what makes the idea of single payer so much scarier. Innovation is best driven by multiple buyers and investors, not one monolithic entity in Washington, D.C. Even existing medical technology can be lost when the government tinkers too much with supply rules as we all learned in America in 2004 when many parts of the country experienced a severe flu vaccine shortage.

Optimism should be high when we think of what Silicon Valley and its competing tech centers in other countries could come up with when it comes to a commodity the entire world wants even more than smartphones and laptops. We may not be very close to a "Star Trek Voyager" world with holographic doctors on demand, but as some rural emergency rooms are proving by expanding their use of telemedicine, we might not be too far off either.

People like Munger, Gates, and Warren Buffett didn't get where they are without believing in limitless human know-how in technologies like health care. And they also couldn't have succeeded without ditching status quo mistakes like fee for service health billing. Munger and his impressive colleagues don't need to surrender to the depressing "solution" of medical rationing. They just need to think more like the innovators they are.

Commentary by Jake Novak, senior columnist. Follow him on Twitter @jakejakeny.

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