Bureaucracy as Active Ingredient

Commenters on yesterday's post brought up an important point: sometimes bureaucracies aren't just inefficient information gathering and processing mechanisms. Sometimes they're the active ingredient in a plan. Imagine there's a new $10,000 medication. Insurance companies are legally required to give it to people who really need it and would die without it. But they don't want somebody who's only a little bit sick demanding it as a "lifestyle" drug. In principle doctors are supposed to help with this, but doctors have no incentive to ever say no to their patients. If the insurance just sends the doctor a form asking "does this patient really need this medication?", the doctor will always just check "yes" and send it back. Even if the form says in big red letters PLEASE ONLY SAY YES IF THERE IS AN IMPORTANT MEDICAL NEED, the doctor will still check "yes" more often than a rational central planner allocating scarce resources would like. And insurance companies are sometimes paranoid about refusing to do things doctors say are important, because sometimes the doctor was right and then they can get sued. But imagine it takes the doctor an hour of painful phone calls to even get the right person from the insurance company on the line. Now there's a cost involved. If your patient is going to die without the medication, you'll probably groan and start making the phone calls. But if your patient doesn't really need it, and you just wanted to approve it in order to be nice, now you might start having a heartfelt talk with your patient about the importance of trying less expensive medications before jumping right to the $10,000 one.

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