Imagine that there are two providers of the same service. Their quality and timeliness are comparable. However, one provider charges significantly more than the other. In a normally functioning market, you would expect that the more expensive provider would have to significantly change its cost structure to stay in business.
What if the more expensive provider argued that it had higher overhead, and therefore needed and deserved to be paid more? He would be laughed out of the marketplace. Yet, this is exactly what happens in Medicare.
Read the entire column at NCPA's Health Policy Blog.