This is the second installment in a nine-part series excerpting the chapter on medical care from the latest version of economist Thomas Sowell's "Applied Economics".

IBD Exclusive Series: Thomas Sowell on The Economics of Medical Care

Just as artificially low housing prices have led many people to seek their own separate housing units who would not ordinarily do so, if they had to pay the full costs in a free market, so artificially less expensive — in some countries, free — medical care has led many people with minor medical problems to absorb far more of doctors' time and expensive medicines and treatments than they would if they had to pay the costs themselves.

France is an example:

In every healthy Frenchman hides a sick one dying to be diagnosed, goes a wry French saying. The trouble is that doctors are encouraged to give patients what they want — scans, blood tests, antibiotics, sick leave — for fear of losing their custom and thus earning less.

If they don't overload prescriptions to counter every conceivable germ and depressive tendency, patients may shop around until they find a doctor who does.

This is not peculiar to the French people or to medical care. More of anything tends to be demanded at a lower price — and especially when it is free. In Canada as well, a news story pointed out: "Since the system sets no limits on demand, patients seek as much care as they can get, driving up costs."

In Britain, a 12-year-old girl received a breast implant, paid for by the National Health Service. Excessive prescriptions were reported as "routine" under China's government-provided medical care, and patients there "leave the dispensary with bags, rather than bottles, full of pills."

China has subsequently moved away from government-provided medical care.

In Britain, the overuse of the government-run National Health Service extends beyond the British population, because the free medical treatment it provides attracts immigrants from around the world. These immigrants impose not only financial costs, but also the biological costs of the diseases they bring, which can spread to the British population at large.

Doctors, as well as patients, have incentives to use medical treatments more extensively when the government pays the bills. Many diseases can be treated in a variety of ways, and how often the most expansive — and expensive — treatments will be used can be affected by who is paying.

In October 2002, for example, the FBI seized the records of a Redding, Calif., cardiologist who was accused of doing far more open heart surgeries than were called for by medical criteria, as a means of receiving more income from government payments. One patient who was told by this cardiologist that he needed triple-bypass surgery was told by every other cardiologist he consulted that he needed no such thing.

The normal weighing of costs against benefits, which causes more urgent things to be done ahead of less important things when prices ration scarce resources, is less effective when costs are paid by someone other than the actual decision makers. This can lead to less important things receiving medical attention while urgent things get neglected.

When patients pay for their own medical treatments, they are more apt to establish priorities, so that someone with a fractured leg is far more likely to go to a doctor than someone with a minor headache. But when both are treated free of charge to the patient, then people with minor ailments may take up so much of doctors' time and medical resources that those with more serious medical conditions must be forced to wait.

When prices no longer ration, then something else has to ration, since the underlying scarcity does not go away just because the government controls prices or provides things free of charge to the users. One of the alternative ways of rationing is by waiting. While this is common with price controls on many things, waiting for medical care is a more serious problem.

In 2001, more than 10,000 people in Britain had waited more than 15 months for surgery. In Canada, a 2004 study showed the median waiting time from receiving an appointment with a specialist to actually being treated was 15 weeks for ophthalmology and 24 weeks for orthopaedic surgery.

This does not include the waiting time between being referred to a specialist by a general practitioner and actually getting an appointment with that specialist, these additional waiting times varying by province from seven weeks in Manitoba to 12 weeks in Prince Edward Island.

Waiting for medical care is particularly costly in human terms, not only because of the needless pain and debilitation that may be suffered while waiting, but also because the underlying malady may be getting worse when the waiting is not simply a matter of hours spent in a hospital's reception room but many months spent on a waiting list before being able to get treatment.

People can die from conditions that were initially not very serious, but which grow progressively worse while they are on waiting lists to receive medical care.

A celebrated example in Britain involved a woman whose cancer surgery was repeatedly postponed until it had to be canceled, because the cancer had become inoperable in the course of all the delays. To call this quality deterioration is, if anything, an understatement.

Economic losses sustained by patients may also be considerable when the disease or disability prevents them from working. These costs do not appear among the statistics on the costs of medical care, which are used when comparing such costs among different countries.

But if an American who gets an operation three weeks after being diagnosed by a primary care physician pays $2,000 more than a Canadian who gets the same operation 15 weeks after being diagnosed by a primary care physician, then the question of whose full costs are higher depends on whether the lost pay is greater or less than about $167 a week, which is below the average rate of pay in either country.

(This represents the $2,000 paid by the American worker, spread out over the 12 weeks of additional delay that the Canadian worker has before being treated for the same medical condition. The Canadian worker saves the $2,000 but loses an extra 12 weeks of pay, which will add up to more than $2,000 if the Canadian worker earns more than $167 a week.)

This does not assume that either the American or the Canadian returns to work immediately after the operation, but only that the time lost after the operation is the same in both countries.

Medical treatment in the United States has significantly higher costs per capita than in other countries, when costs are defined to exclude such things as lost pay and other uncounted costs of long waiting times for treatment — notably pain, debilitation and death while waiting. A will always appear more efficient than B if enough of the costs of A are left out.

Another feature of price controls in general that applies with special poignancy to medical care is the black market, which flourished in China under government-supplied medical care:

Rather than wait in long lines for indifferent treatment, affluent Chinese traditionally "go through the back door" for better service, asking friends to provide an introduction to a doctor or giving gifts or payments to physicians and nurses.

This practice, although illegal, can ensure faster, better and friendlier treatment. Mid-level hospital administrators tend to benefit most from this arrangement, as they become engaged in the lucrative practice of providing access to doctors.

A study found similar illegal payments in Japan, where "a $1,000 to $3,000 "gift' to the attending physician is common at top Tokyo hospitals."

Official statistics do not capture these illegal financial costs, much less the even more important human costs of hasty diagnosis and treatments in abbreviated visits to doctors' offices and the long time on waiting lists before even reaching a medical facility. Thus, in terms of publicly visible costs and benefits, a price-controlled medical system may be a political success.

For years, the Soviet Union boasted of having the largest number of doctors and hospital beds of any country in the world — all the while concealing the fact that it also had rising rates of infant mortality and a declining life expectancy in its population as a whole, facts which came out only in its last years under Mikhail Gorbachev's policy of glasnost, or openness.

The unrecorded human costs of price-controlled medical care are indirectly indicated by those who opt out. These include patients, doctors and medical facilities. Patients in countries with government-controlled medical prices have left the overcrowded government sector to seek private treatment at their own expense, either at home or in other countries.

It is common for Canadians to go to the United States for medical treatment, but rare for Americans to go to Canada for such treatment.

Doctors have also opted out in various ways. Some have gone into private practice, despite laws that make it illegal for them to do so if they treat any patients at all who are enrolled in government plans.

Some health maintenance organizations in the United States opt out by no longer accepting certain categories of patients for whom the government's reimbursement is deemed inadequate to cover their costs.

Some doctors have opted out of vaccinating patients because the reimbursement they receive from government or from insurance companies is considered inadequate. This can have a special impact on the vaccination of babies because infants are especially in need of vaccinations and because the benefits extend over a longer span of time than with older patients.

According to the New York Times, the nation's pediatricians, the foot soldiers in the campaign to vaccinate America's children, are starting to revolt. The soaring cost and rising number of new vaccines, doctors say, make it increasingly difficult for them to buy the shots they give their patients.

They also complain that insurers often do not reimburse them enough, so they can lose money on every dose they deliver. As a result, some pediatricians are not offering the newest and costliest vaccines. And some public health experts say that if the situation worsens, it could lead to a breakdown in the nation's immunization program, with a rise in otherwise preventable diseases.

Sometimes the opting out occurs earlier, when fewer people enter medical school after the rewards of being a doctor are reduced. More than one-third of the doctors in Britain, for example, were not trained in British medical schools but have been imported from many other countries, including Third World countries where the training may not be up to the standards of British medical schools.

Paying less and getting less — whether less is defined quantitatively or qualitatively — is not necessarily a bargain, least of all in the case of medical care.

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From the book "Applied Economics" by Thomas Sowell.
Excerpted by arrangement with Basic Books, a member of the Perseus Books Group. Copyright © 2009.