Government subsidies often produce unintended consequences. The latest example comes from the New York Times, which reports that federal subsidizes to encourage doctors and hospitals to use electronic billing and recording records are leading to larger Medicare bills. That means that taxpayers are taking a double hit even though policymakers claimed that electronic record-keeping would make health care delivery more efficient, and thus less costly.

From the article:

Over all, hospitals that received government incentives to adopt electronic records showed a 47 percent rise in Medicare payments at higher levels from 2006 to 2010, the latest year for which data are available, compared with a 32 percent rise in hospitals that have not received any government incentives, according to the analysis by The Times…

Some experts blame a substantial share of the higher payments on the increasingly widespread use of electronic health record systems. Some of these programs can automatically generate detailed patient histories, or allow doctors to cut and paste the same examination findings for multiple patients — a practice called cloning — with the click of a button or the swipe of a finger on an iPad, making it appear that the physicians conducted more thorough exams than, perhaps, they did.

Critics say the abuses are widespread. “It’s like doping and bicycling,” said Dr. Donald W. Simborg, who was the chairman of federal panels examining the potential for fraud with electronic systems. “Everybody knows it’s going on.”

The Times also notes that the subsidies are a bipartisan creation:

Both the Bush and Obama administrations have encouraged electronic records, arguing that they help doctors track patient care. When used properly, the records can help avoid duplicate tests and remind doctors about a possible diagnosis or treatment they had not considered. As part of the economic stimulus program in 2009, the Obama administration put into effect a Bush-era incentive program that provides tens of billions of dollars for physicians and hospitals that make the switch.

But some critics say an unintended consequence is the ease with which doctors and hospitals can upcode — industry parlance for seeking a higher rate of reimbursement than is justified. They say there is too little federal oversight of electronic records.

Of course, now that government has treated a problem by creating a new one, policymakers will argue for more spending on “oversight.” Money for that will come from taxpayers, which means yet another hit for the poor rubes who always get stuck paying for the politicians’ schemes.

See this Cato essay for more on fraud and abuse in Medicare and other government programs.

This blogpost was co-authored by Cato legal associate Kathleen Hunker.

There’s a fine line between protecting the public from fraud and censoring unorthodox opinions—a line across which the government often stumbles. That was the case in September 2007, when the Federal Trade Commission filed a contempt motion against Kevin Trudeau, author of the best-selling book The Weight Loss Cure “They” Don’t Want You to Know About.

The FTC alleged that Trudeau had misrepresented the contents of his book in several “infomercials” by describing it as “easy” and claiming that dieters, by the end of the regimen, could eat anything they wanted without gaining weight. Despite the fact that Trudeau merely quoted the book when making these statements, the district court upheld the FTC’s findings and smacked Trudeau with a staggering $37.6 million fine. The court also imposed a rare “prior restraint” on speech, demanding that Trudeau post a $2 million bond before running any future infomercials.

The district court imposed these sanctions even though the FTC never proved that Trudeau misled a single consumer or violated any part of the FTC Act. On appeal, the Seventh Circuit affirmed the district court’s decision and ruled that Trudeau’s book promotion constituted misleading commercial speech and was therefore not entitled to any constitutional protection. If left unchallenged, the Seventh Circuit’s ruling would have a dire chilling effect on authors trying to promote their work and could give government officials broad censorial power, in effect permitting the FTC to tax fine through the backdoor what it could never regulate directly (sound familiar?).

Cato has thus filed an amicus brief supporting Trudeau’s request that the Supreme Court take the case and establish a constitutional standard that allows the FTC to protect consumers from fraud while respecting the First Amendment. We argue that courts should apply strict scrutiny to any government actions that restrict or punish advertisements that merely quote and summarize parts of a book (which enjoys full constitutional protection), as Trudeau’s infomercials did.

We note that the Supreme Court has held that commercial speech inextricably intertwined with otherwise protected speech deserves a high degree of First Amendment protection. Moreover, it is well-established that falsity alone may not remove speech from the shelter of the First Amendment.

Free speech loses its vitality when confronted with overzealous regulation; strict scrutiny of would-be government censors would give authors the necessary “breathing space” to publicize their work without the threat of exorbitant fines.

The Supreme Court will decide this fall whether to take the case of Trudeau v. FTC.

Investment giant J.P. Morgan made a bad trade that cost its owners $2 billion. The responsible parties are losing their jobs. Yahoo’s CEO evidently misled people about his qualifications. As a result, he lost his job.

If you want to know why these are market successes, consider: Medicare and Medicaid lose at least 35 times as much per year to fraud and other improper payments, and Medicare wastes even more on medical care that does nothing to make patients healthier or happier. This happens year after year after year.

Now ask yourself: when was the last time someone got fired over those losses? And yet the politicians’ first reaction to the J.P. Morgan trade was greater oversight by the political system, which tolerates much greater losses than the market system that is currently disciplining J.P. Morgan.

Here’s hoping the Yahoo incident inspires some politician to crack down on people who embellish their resumes.