Is American health care more productive?

by on April 20, 2004 at 7:27 am in Economics, Medicine | Permalink

Advocates of national health insurance point out that the U.S. spends more on health care, per capita, than any other country in the world. At the same time, Americans rank only in the middle when it comes to actual health and longevity. So you might believe that we could nationalize the industry, save money, and improve our health. Think again:

The proper way to measure the performance of health care is to measure the difference it makes in the quality of life of people who come for help…What we need to know is whether the higher level of spending means the United States is much less productive in health care than other countries.

In an attempt to test the limits of knowledge here, we studied the treatment of four diseases — diabetes, cholelithiasis (gallstones), breast cancer, and lung cancer — in three countries: Germany, the United Kingdom, and the United States. These three countries were the only countries for which comparable data existed for these diseases, either nationwide or for large regions.

The relevant measures were either life expectancy after treatment or measures of the quality of life. And how about the results:

The United States is more productive in all these diseases except for diabetes in the United Kingdom. [emphasis added] The reasons for this result can be traced directly to the huge differences in the way the health care sector is organized and governed across these three countries. The UK health care system is almost entirely government owned and run…The result has been that the United Kingdom has no invested as quickly in technologies that have dramatically improved the diagnostic capabilities of medicine and significantly reduced recovery time…Germany, on the other hand, has a system more like the United States had twenty years ago. In Germany, medical expenses are paid for on a task-by-task basis for services of doctors and hospitals. As a result, hospitals in Germany have no financial incentive to reduce length of stay.

In other words, Americans pay more but get better health care in return. We die sooner because we eat too much and exercise too little, among other facts. For similar results, see this comparison of the U.S. and Japan.

The quotations are from William Lewis’s interesting The Power of Productivity, see p.97. Lewis is a partner at McKinsey, an economics and management consulting firm. Here are other McKinsey writings on health care ($$), including the comparison with the UK and Germany.

By the way, this essay suggests that most of the productivity benefits of health care spring from pharmaceutical consumption. Of course we lead pharmaceutical production but also pay the highest prices. It would be a disaster for the world as a whole if we tried to save money on this front with tight price controls.

The bottom line: National health insurance is unlikely to save on medical costs, unless it cuts back on treatment drastically.

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