Money-driven Medicine

by on April 15, 2007 at 6:29 am in Medicine | Permalink

I was impressed by this book by Maggie Mahar; the subtitle is The Real Reason Health Care Costs So Much.  The book has the most coherent, supportable, and fleshed out anti-market story I’ve seen.  It both tries to explain why the current system works as it does, and historically how it evolved from more modest and less expensive ways of doing business.  It’s not just a rehash of the usual stories about the VA system or France.  The discussions of the growth of for-profit hospitals, the increasing specialization of medicine, the problems with pay for performance, and markets for medical devices are all full of interesting tales.

I interpret the basic story as this: the American health care cost spiral comes from suppliers and their entrepreneurial abilities to market expensive and highly specialized services of dubious medical efficacy.  Medical care starts off as ambiguous in value and hard to measure in quality.  Customers are cowed by doctors and other family members into accepting or even demanding what is offered to them.  Third-party payments make the problem worse, and government intervention has stoked rather than checked the basic dynamic.  You end up with massive expenses, lots of stupidity, and – because of its expense — radically incomplete coverage.  Every now and then the extra services do pay off, but not frequently enough to boost American stats on health care quality.

Medical suppliers, and not insurance company overhead costs, are the main villain of the piece.  The author wishes to put doctors back in charge and liberate them from the need to satisfy patients as customers.  Ha!, I say.  Jason Furman wants to encourage individual consumers to do more monitoring.  I hold an old-fashioned desire to increase transparency and competition to induce the insurance companies, and other third party intermediaries, to set things right.  Single-payer systems will improve matters only if you think the government will make wise decisions about the supply chain.  Otherwise we are choking off supply indiscriminately by lowering prices to providers.

Here is Ezra on the book.  Here is a very brief excerpt.

Addendum: Read Maggie Mahar in the comments.  And Matt Yglesias has a good post on the topic.

GVV April 15, 2007 at 8:00 am

Say’s law is applicable in medical field.

Nancy Lebovitz April 15, 2007 at 9:34 am

On the other hand, there’s the (Austrian?) idea that the supply of money creates its own demand–if some part of the economy is making an unusual profit, then prices for whatever is needed to make that profit go up.

This seems more likely to me than Say’s law as I understand it–supply may create a demand, but sometimes that demand involves selling stuff at a steep discount or a demand for hauling it to the dump.

Garrett April 15, 2007 at 10:52 am

As much as I love MR, I have to wonder why Tyler and so many folks who write about health care economics have such emotive disdain for physicians.

Physician behavior does explain a fair share of why the health care system has so many problems, but even in this post, it sounds like Tyler got dumped in college by a pre-med sorority girl, and he takes nothing but extreme pleasure in anything that could suggest that physicians are all a bunch of evil Mengele-worshippers with revenue tickers in their offices.

Insurance companies? Well, yeah, they do bad stuff, but the economic text book says they control cost, so they’re good. Pharm companies? Well, they experienced ridiculous growth in the 80s and early 90s, and created an absurd environment where all of their incentives lie in making a ninth copy of another drug that takes an extra 20 minutes to dissolve into your intestinal lining, but we have to give them a reason to innovate. But doctors? Evil Evil Evil Evil Evil…

y April 15, 2007 at 11:15 am

Insurance companies will set things right? Can anyone who has ever dealt with an actual insurance company hear this without laughing bitterly?

Yancey Ward April 15, 2007 at 12:54 pm

Tyler Cowen,

Based on your synopsis, I would have to write that Mahar is close to getting it right as far as the reasons go. Our problem is that we treat medical advances differently than we treat other technological advances, and I will give you an example:

In the early 80′s, the first personal computers cost over $10,000 a piece. Such computers were only purchased by people with the means to do so, and no one really questioned this inequality- for almost all new goods and services, it is only the upper income cohort that can afford to purchase them. This was true for personal computers in 1981 as it was true for automobiles in the early 20th century. One can find literally thousands and thousands of examples for such goods being limited first to the upper classes, then slowly but surely, becoming more affordable to greater numbers of consumers until they are nearly completely commoditized. In addition, one will surely find examples of luxury goods and services that never really spread down through the lower income cohorts because they were ultimately found to have no benefit or use-in other words, they were found to have no larger potential market.

However, when it comes to medical goods and services, especially goods and services that claim to be life-saving/prolonging, the inevitable inequality I wrote of above assaults our sense of fairness. We demand that such goods and services be available to all regardless of the cost and the efficacy. All other new goods and services first prove their worth to the small cohort that can afford the luxury of trying them out, but this is not the case with medical care- we consider it unfair that the wealthy can afford new cancer treatments of questionable worth- thus the process of real-world testing of efficacy is short-circuited. I suspect this has lead to a plethora of treatments, medicines, and devices that are not cost effective, and are now being used on much wider patient populations. I will have to read Mahar’s book to be sure, but from what you have written, it appears that she is misdirecting her criticism a bit. It would appear that she is criticizing the providers/inventors of new goods/services for promoting their discoveries/inventions before their efficacy and worth has been demonstrated, rather than criticizing our premature rush to adopt any good or service for the general welfare.

happyjuggler0 April 15, 2007 at 2:47 pm

I think Yancey Ward hit the nail on the head, at least as far as it goes. What is left out is what bothers Nathan T Freeman: Okay, how does that increase health care COSTS? I could see that increasing SPENDING. But that’s not the same thing.

Nathan,

Each year comprehensive health insurance costs more and more, far outstripping the pace of inflation. The media and the general public (and you) seem to be misinterpreting this to mean that health care costs are going up at a huge pace, but I’m inclined to think the opposite is happening, prices fro any given instrument, procedure or drug are going down or staying flat, or at worst increasing roughly in line with overall inflation.

Surgical procedures that used to open you up “from end to end” (a slight exageration, but only slight) now are often accompanied only by a small incision as you get “scoped”. People somethimes think that because you are under anathesia that you don’t feel pain from surgery regardless, but it fact when someone makes a 6 or 12 in cut in you with a scalpel they are inflicting major trauma on you, they just aren’t hurting vital organs. It takes a long time to recover from this trauma. “Scopes” on the other hand, with their tiny incisions, are much less traumatic and you can leave the hospital the same day and go back to work etc. very quickly, much more quickly than under traditional surgery, which still happens for some procedures of course. Thus the costs are much less.

When Pharma comes out with a new drug treating something that was previously untreatable, it is meaningless to say that costs for that treatment have shot up, since there was no treatment for it before. Eventually, rather quickly I might add all things considered, this drug will go off patent and become dirt cheap. each year more and more drugs go off patent, and thus inreality drug costs are going down radically, not increasing.

What is happening though, and this goes to Tyler’s post,and the book he is referencing (which I haven’t read either), and to Yancey’s post, is that we are getting more and more new “stuff” (drugs, instruments, new procedures thanks to new knowledge) each year. Indeed we are in an unremarked upon medical revolution that goes on and on. All of this new “stuff”, regardless of whether it is useful or not, costs tons of money when it is new, just like the original black and white tv’s when they were first introduced, and then the color tv’s, and VCR’s, CD players, PC’s, DVR’s, High Definition TV’s, Sony Walkman’s (remember them?), PC software, etc.

Over time the prices for all these innovations came down thanks to economies of scale and more economical methods of production due to discovery. The same thing is happening in the medical revolution as in what is normally thought of as the technology revolution (broadly defined). But because we think of “total healthcare” as a right, literally everyone who can scrape up the money for it via health insurance (or taxpayer dollars) is paying for this new medical “stuff” at those huge prices that all new technology innovations (true innovations mind you, not “me too” improvements) cost.

If you could somehow get an insurance policy that only covers you for devices, procedures, and drugs that were available in 1980, or 1990, or 2000, or whatever, I am highly confident you’d find that both the cost and retail price of this health insurance coverage was either going down by a lot each year, or going up only slowly, more or less in pace with overall inflation. But nobody wants comprehensive health insurance that doesn’t cover the new “stuff”, and so the cost and retail and wholesale price of comprehensive health insurance goes up more and more each year at a high pace. We are after all in a medical revolution, as Larry Kudlow might say, the greatest story never told, and this new stuff costs lots of money, whether it is cost effective or not, or even useful at all.

Maggie Mahar April 15, 2007 at 3:02 pm

First, Tyler, thanks very much for your kind words about the book. And thanks to you all for your comments. Let me try to answer a couple of questions.

Insurance companies haven’t “set things right” because when they tried to do that (the managed care of the ‘nineties) they faced a huge backlash from the public, the media, and employers.

The backlash was justified insofar as most for-profit insurers were not trying to Manage Care (to insure that patients got the best care at the lowest price) they were just trying to Manage Costs. (After all, a for-profit corporation’s first reponsibility, by law, is to its shareholders–not to its customers.)

So when an insurer decided to include a drug in the “formulary” of drugs it covered, it often was because the drugmaker had agreed to give the insurer a discount on that drug. In other words, an insurer would go to the drugmaker and say–we’ll include your drug in our formularly–and EXCLUDE YOUR RIVAL”S DRUG– if you give us a steep discount.” The decision had nothing to do with which drug was most effective. (By contrast, Not-For-Profit health care organizations like the Mayo Clinic, the VA and Kaiser, base these decisions on what their databses tell them about how effective the drug is. As a result, all three stopped prescribing Vioxx for most patients two years before Merck took it off the market. )

In the mid-ninties insurers were fairly successful at containing costs (if not improving care) for a few years–but the backlash was so great that they began losing customers. As a result, at the end of the nineties insurers decided to just cover whatever consumers asked for–and pass the cost along in the form of higher premiums. This explains why premiums have risen 87% in the past six years.

Why can’t consumers themselves push back–and demand lower prices and higher quality (as they do when shopping for other goods and services)?

It’s not because they are, as Nathan puts it “you know, too lazy to actually talk to their doctor.”

It’s because, first of all, they are sick. Seventy-five percent of our health care dollars are spent on patients suffering from severe chronic illnesses like cancer and congestive heart failure. Often they are elderly. Often they are in pain. Often they are frightened. In other words, they’re not in the best position to play savvy consumer.

Secondly, even if they are not elderly, in pain or frigthened, the subject that they need to master is dauntingly complicated.

Consider cancer. According to the Pharmaceutical Research and Manufacturers Association, some 400 cancer drugs from 178 companies are now in clinical trials-and many oncologists complain that this is more cures than they can hope to keep track of.

In 2004 one session of the American Society of Clinical Oncology’s conference was titled “Therapy of Metastatic Colorectcal Cancer: What Do We Do with So Many Options?”

If oncologists have a hard time sorting out the options, how we can expect the patient to do it? Even if he goes for a seond opiniion and a third opinion, ultimately, he has to take someone’s opinion. He can’t do primary research himself.

Thus, the supplier has a huge influence on demand. We are hospitaized because a doctor tells us that we need to be in the hospital. Once we are there, we submit to tests, medications, minor surgeries etc., because the hospital tells us that this is what we need. Often, this is the case.

But there are many “grey areas” in medicine, and here supply (and excess capacity) drives demand. Does the patient really need an MRI? If every hospital in town has an MRI unit the patient is more likely to get an MRI, whether or not he needs it. It’s convenient. And the hopsital has to pay for the unit somehow.

Moreover, the consumer is not in a position to push down prices because when you are dying of cancer (or congestive heart failure, etc.) you are not bargain-hunting. You become a “price-taker”–you will pay whatever price is necessary to end the pain, prolong life, be able to get up out of bed and function, etc.

Even if you are paying out of your own pocket you will do whatever is necessary to come up with the money–which is why medical bills are the leading cause of personal bankruptcy in this country.

Again, keep in mind that 3/4 of the over $2 trillion spent on health care is spent on severe chronic illnesses. We’re not talking about shopping for eye-glass frames.

Yancey is right when he says that the process of testing the effectiveness of new products has been short-circuited. This is, as he points out, because we see hi-tech medical treatments as necessities that everyone should have–and because we assume (wrongly) that he newest, bleeding edge technology is always the best. So we rush to embrace the newest products. The FDA fast-tracks them. Medicare and other insuerrs agree to cover them–without really knowing what the long-term risks and benefits are.

Yancy suggests that I am wrong to blame the manufactuer for this. But the fact is that it is the manufacturers who spend millions advertising their newest, most expensive products as widely as possible (without making it clear, for example, that Vioxx was orginally designed only for patients who couldn’t tolerate older, less expensive painkillers). And manufacturers spend millions paying lobbyists to make sure that the FDA isnt’ too picky when it approves products.

For example: for years, drug-makers and device-makers have fought tooth and nail against “head to head” comparisons that would test the effectiveness and safety of a new product against the older, less expensive product that it hopes to replace. And what’s amazing is that drug-makers and device-makers have won this battle: In order to earn FDA approval for a new product, the manufacturer only has to show that the benefits of his product outweighs the risks WHEN COMPARED TO A PLACEBO.

Arguably, a for-profit manufactuer that promotes its product as widely as possible is only doing its job. (Though one would like to think “caveat emptor” shouldn’t have to apply when it comes to products that could mean the difference between life and death for the customer.)

But we need someone on the other side of the table, pushing back, protecting the consumer.

In other developed countries that have national health insurance, the government does just that. Researchers who have no financial ties to industry oversee comparative-effectivness trials. They refuse to pay outrageous prices for a new product that is only a little better. They put together data-bases (called registries) showing outcomes with various aritifical hips, knees, etc. This doesn’t eliminate all of the ambiguity in medicine–but it does help. In this country, because for-profit industry is running the show, information about outcomes with particular products is often lableled “propriety information.” And too often, when industry controls the research it conceals information about risks from both doctors and patients.

In the U.S., the FDA should be doing the job of representing the consumer. But in recent years, the for-profit health care lobbyists have become so powerful that FDA sees itself as industry’s servant. Long-time insiders at the FDA tell me that morale is very, very low.

If we moved to some sort of universal healthcare (perhaps Medicare for all) we would need to strengthen the FDA– and to build a firewall between the lobbyists on the one hand, and the FDA and Medicare on the other. Decisions about what to approve–and what to cover–need to be made by physicians and researchers who have no financial stake in the outcome.

Finally, it is not just drug and device manufactuers who are responsible for runaway health care inflation in the U.S. . Many hospitals and doctors also are responsible for over-treatment–unncesary tests, unproven procedures. Our “fee-for-service” system encourages doing more–rather than doing it right.

Medicare realizes this and MedPac (the panel that advises Congress on Medicare spending) has begun to make recommendations on how to avoid waste. This is, I believe, a first step toward high-quality, affordable, sustainable National Health Care.

I’ve recently written about waste in our system–and MedPac’s recent recommendations at http://dartmed.dartmouth.edu/spring07/html/atlas.php.
(If this link doesn’t work, just google “Dartmouth Medicine” and “Spring 2007″).

JPC April 15, 2007 at 3:15 pm

Maggie – thanks for the thoughtful post. I think there is a tension between the average, mentally competen consumer, and the nearly dead/incomptent you describe which consume a huge fraction of health care costs. In fact, given the prognosis of many of the bulk consumers of health care costs, it would be best termed “death care”.

JPC April 15, 2007 at 3:40 pm

Again, it’s pretty amusing to see of the manifestations of a rigged/regulated market being described as if they were somehow unique to healht care.

Maggie Mahar April 15, 2007 at 3:52 pm

JPC-

I should clarify something: when I say that 75% of our heatlh care dollars are spent on the 20% of the population suffering from severe chronic illness, we are not talking about “nearly dead/incompetent” patients.

We are talking about patients who often survive these illnesses–or move in and out of being in the 20% pool. In other words, you or I might be part of that 20% when we are 58 and develop cancer, not part of that 20% when we are 60 (the cancer is in remission) and part of that 20% when we are 66 (the cancer came back, or we have fallen victim to another chronic disease.)

At the same time, even if you are only 57 when you are struck with cancer or a chronic lung disease that makes it very, very difficult to breathe you will be in pain, you probably will be frightened and you will no doubt be very, very tired.

This doesn’t make you incompetent or dead, but you’re not in the same position you would be in if you were out shopping for a computer.

This by why, contrary to what “happyjuggler” says the price of medical technology does not fall over time, the way the price of computers or flat screen fall.

Consumers do not have the option of saying “I don’t really need chemo” or “I’ll wait for price of chemotherapy to fall” and thus, as a recent Wall Street Journal story pointed out when it comes to the price of cancer drugs:

“market structure effectively provides NO mechanism for price control in oncology other than companies’ goodwill and tolerance for adverse publicity.” [my emphasis]
(March 15, 2007).

JPC April 15, 2007 at 3:54 pm

Thanks, Maggie.

Chris April 15, 2007 at 4:33 pm

Maggie,

You make some good points but I think you gloss over some of the challenges faced by suppliers. You say that you only need to demonstrate efficacy compared to a placebo for the FDA.

However, that is not the only obstacle to getting to the shelves. To get prescribed you do need to convince a LOT of people that your drug is not only better than current products on the market, but also cheaper, and also easy to use. There are payers, there are doctors, there are all sorts of decision-makers who stop a lot of drugs and devices from getting to the market.

Sometimes its a good thing, for instance, if a drug isn’t better than less costly alternatives. However, it is not a good thing when the drug has far less long-term implications but greater upfront cost and therefore doesn’t get covered.

Or it doesn’t get covered because the doctor would have to spend an extra 20 minutes filling out paperwork and checking with the payer to see if it would be covered in this situation because of the type of coding the drug or device has.

So no, I don’t think your presentation of situation as “better than a placebo? go crazy!” is quite fair. It ignores the complexities of the reimbursement environment and how suppliers are negatively impacted by the poorly-aligned incentives of the healthcare system.

David Wright April 15, 2007 at 4:43 pm

What Maggie apparently hopes to achieve by having the government act as “someone on the other side of the table, pushing back, protecting the consumer” is to have nearly the same outcomes at substantially reduced cost.

There is every reason to believe that is achievable: England, for example, gets substantially the same outcomes as the U.S. for 10% of GDP. They do it quite rationally, too. They measure the QUALY (quality-of-life-adjusted-years) impact of every procedure, decide how much the society will pay per QUALY, and won’t do any procedure that costs more than the threshold. The fact that they achieve substantially the same outcomes as we, who spend 15% of GDP on medical care, does suggest that we spend 5% of GDP on procedures of dubious value.

But… there are at least two serious problems with having the government play the role of “consumer protector”.

(1) is an ethical problem, or, if you prefer, an agent problem. If I am facing death, and I have $100K to spend on a procedure of dubious value (or I have had the foresight to purchase insurance that covers such a procedure), why shouldn’t I be allowed to give it a try? Basicly, the problem is that how much the government values a QUALY may not be the same as how much I value a QUALY.

(2) is a practical problem. Today’s procedures of dubious value, developed with an eye to extracting a few more dollars from desperate patients in search of one last option when all others have been exhausted, are the thin edge of tommorow’s proven, mass-market treatments. Destroying the incentive to develop them will retard the pace of medical advances. While some “screw the rich” collectivists may not care about (1), everyone (including the English and other Europeans who eventually benefit from the successful treatments developed for the American market) should be worried about (2).

I have a proposal that addresses both (1) and (2), and provides universal, cost-controlled coverage. It’s called the “80′s medical plan.” It offers universal coverage for all treatments that were state-of-the-art in 1980. It covers CT scans, but not MRIs. It covers all the (now off-patent) drugs of that era, but none of the newest (patent-protected) blockbuster drugs. For any treatments outside this plan, we let the market do its thing.

JPC April 15, 2007 at 5:02 pm

I’m afraid a lot of this comes down to the diversity of our population and our willingness to pay for others’ misfortunes. I suspect that most would be willing to pay about 100% of their immediate family’s medical costs, and about 0% of those they don’t know well or like so much. OK, fine, even if we judge ourselves on how much we are willing and able to adjust that 0%, it still makes sense to do it in as efficient a manner as is practical.

happyjuggler0 April 15, 2007 at 5:24 pm

Spencer,

Thanks for the appreciative comments.

As per my second post (time: 3:30:57), last paragraph, I simply thought that “everyone”, regardless of being on the health care economic right, economic left, or economic confused, basically believed that some unspecified amount of overtesting was occurring in the US due to defensive medicine being practiced to avoid medical malpractice lawsuits.

I have no links, papers, or other citations to back this up, and honestly don’t have any real estimate of how much of a factor this is in testing, let alone overall health care costs. For all I know this was invented out of whole cloth by someone opposed to “socialist” medicine, or someone with an anti-lawyer axe to grind. This could simply be an urban legend that rings true like the false notion of Eskimos having 50 different words for snow that people simply keep repeating.

Nevertheless it seemed to contradict what Maggie Mahar said in a post so I was curious what she thought. It still rings true to me by the way, although I think the whole notion of expensive costs for new stuff being added to comprehensive health care insurance outweighing the reduced costs from drugs going off patent etc. is likely to be the main problem. The “socialist” medicine countries are simply engaged in one size fits all fiat rationing of healthcare that may or may not make sense in any given area, which is why their health care spending is considerably lower as a % of GDP.

My real fear is that under “reform” that our health care system will eventually look something like our urban K-12 education system for everyone, or for the 90% who can’t afford to both pay higher taxes and also afford private care. All in the name of “efficiency” due to not needing a profit or needing to use competing forms. As Tyler pointe dout in a recent post the US really does a poorer job of implementing government social spending than several of our other “rich” country counterparts.

Sebastian Holsclaw April 15, 2007 at 8:50 pm

“Malpractice awards and out-of-court settlements account for only 0.5 percent of health care spending.”

This is a somewhat misleading stat, because the bulk of the cost when you are innocent of malpractice comes from defending the suit. This will show up as $0 for settlements but is tens of thousands of dollars in costs.

“But we do know that in recent years (1996 to 2001), malpractice awards in Australia, Canada and the U.K. were oustripping inflation by an eye-popping 10-28%.
Over the same span, malpractice awards in the U.S. were outsripping inflation by “only” 5%.

In other words, physicians in Australia, Canada and the U.K. would seem to have more reason (or at least as much reason) to practice defensive medicine as doctors here. Yet they don’t overtreat to nearly the same degree that we do–which is a major reason why they spend so much less, per capita, on healthcare.”

Your reasoning doesn’t follow unless they have already acheived the same level of malpractice spending. My understanding is that they have not even come close to catching up with the US in those terms, so the gross amount of defensive spending may also not have caught up.

Phoebe April 15, 2007 at 9:18 pm

I agree with Yancey Ward’s diagnosis that everybody wants to drive an Aston Martin when it comes to Health Care. I just don’t see how that is a problem. Most people would rather have a million dollars in the bank than have an Aston Martin. But most people would rather be alive than have a million dollars in the bank.

The only reason health care costs haven’t always been extremely high is because of past technological limitations (leeches only cost so much). As long as the technological break-throughs keep coming (and hopefully they will), expect health care spending to remain a very large part of income. And be happy about it, because that is the socially optimal outcome.

Maggie Mahar April 15, 2007 at 9:33 pm

I’m so glad to see so many people so interested in this issue. Here are a few more responses– and answers to questions.

Lisa wrote:
“I am one of those people with a complicated, serious illness. It’s painful and frightening, true. But I am still capable of gathering information and choosing rationally among my alternatives, even when they suck.”

Lisa, I realize that there are many patients suffering from severe chronic illnesses who are capable of doing the in-depth resarch they can help them make life-saving decisions.

I have a very smart, very close friend who suffered from breast cancer, had a mastectomy, and then discovered that she needed a kideny transplant–all under the age of 50. She was on top of the research all of the time.

But most patients suffering from these illnesses are either less well-educated, have fewer resources, are much older, or just not as courageous and resilient.

I don’t think we want to blame these patients for being “too lazy” or “too stupid” to direct their own care. And I’m sure you don’t want to either.

At the same time, I agree that insofar as patients can–and want to– take control, they need more information and more empowerment. I strongly believe in “shared decision-making.”

But even patients who can do the reserach still need a health care professional (or professionals) to share the decision-making with them. And we need to feel confident that this professional advice is not profit-driven.

Sebastian–on the cost of defending against malpractice suits, the fact is that legal costs average $27,000 per claim in the United States–which adds approximately $1.4 billion to the $4.4 billion paid in settlments and awards. In other words, even after you add in the legal costs,the cost of malpractice suits equals only about 0.5 percent of the nation’s total health care bill.

GVV April 15, 2007 at 9:51 pm

Some years back, I studied the economic costs of asthmatic care and found that an asthma patient has to keep atleast appr.Rs.23 everyday as transaction and precautionary demand (medical).A patient spends more than Rs.12,000 every year on asthma care.I found the existence of a huge ‘asthma industry’ with more than 60 popular and not so popular medicines, inhalers etc.

ChrisA April 16, 2007 at 8:04 am

David Wright
You have almost exactly described the British system. Most professional people in the UK carry additional medical insurance (BUPA is one company that does this) which provides them with additional care above and beyond the basic care available on the NHS (you get things like expedited treatment and private wards and so on). You are not forced to use the NHS at all (although you get no tax break for having your own medical insurance so in some sense you pay twice). As a (fairly) wealthy person I find this great, but it doesn’t deal with the ethical problem (as discussed below).

I find the discussion above a little strange, as I don’t realy know what the problem being addressed is. For instance is it the drain on taxes caused by the high health costs? It seems like the US is spending about the same government money as the UK, so it can’t be that.

Is it the concern about poor people not having insurance (i.e. an ethics problem)? If so, surely it is unethical and unfair to limit that treatment based on ability to pay (ethics don’t depend on cost do they?), so the British system doesn’t work. In fact no system can work except one where every last dollar is spent on medical care (there is always a chance that the extra dollar can do the trick).

Is it medical insurance costs inexorably rising as a proportion of GDP? It can’t rise forever, eventually two tier insurance will come in, but as Maggie said this was tried in the 80s and obviously at the margin most people were prepared to trade income for better medical care. Anyway this is a personal choice, why should we intervene between a willing buyer and a seller? (unless the seller is engaging in deception, but we already have laws against that). Look at it this way, car maufacturers constantly engage in promotional activity to get people to buy their products, as a result many people buy cars that they “don’t really need”, some of them are young and vulnerable when they make the purchase (explaining the Beetle). But we don’t get upset about the proportion of GDP spent on cars, or houses or dogs etc. To put it another way, if I go to Germany, everyone is driving Mercs and BMWs, rather than Fords or Opals, in some sense therefore they are paying too much for the same transportation needs as the UK or the US (they still get from A to B), but that is their choice, they see some utility in getting there in style, as such it hard to say whether the US or Germany spends the “right amount” as a proportion of its GDP on transport. Same as medical care, no one can argue that private medical systems treat you nicer than State systems (I have experienced both). So even though the outcome (life expectancy say) is the same, there is additional utility for my dollars.

Is it that doctors and other medical workers are paid too much? Hey investment bankers are also paid too much, but we don’t fix their salaries.

Come on guys, tell us the problem and then you can discuss the solution.

Rashad April 16, 2007 at 9:14 am

David Wright, one thing you’re missing in your calculation is that doctors are paid much more here in the US, so the same healthcare dollars as the UK won’t go as far.

Mark April 16, 2007 at 12:53 pm

On the medical malpractice issue, everyone interested should read Tom Baker’s recent book on the subject; he lays to rest a whole range of shibbeloths about the issue.

And let me be another to endores Maggie Maher’s book–of the dozen or so recent books on the health care system that I’ve read lately, it’s clearly the best and most comprehensive.

Bernard Guerrero April 16, 2007 at 5:21 pm

Ms. Mahar,

Great stuff. However, I have to echo David Wright’s comments.

“In order to earn FDA approval for a new product, the manufacturer only has to show that the benefits of his product outweighs the risks WHEN COMPARED TO A PLACEBO.”

This seems, to me, to cover most of what the FDA should be doing as far as approving anything. I’m uncomfortable in having a panel of experts (see Tetlock on that subject) decide whether treatment A is truly “superior” to treatment B, given that they’re not really doing a cost-benefit analysis or taking into account all of the characteristics of the competing treatments. That said, there is clearly a lack of available data as far as head-to-head comparisons and long-term monitoring. The solution would seem to be to let the FDA do such examinations as part of the approval process and publish the results without necessarily taking a yes/no stance. If A is less effective than B and the studies are public, the onus then falls on the provider to explain to the patient why s/he would like to prescribe it anyway.

projectshave April 16, 2007 at 7:39 pm

Couldn’t you have government health care only for chronic illnesses? That is, government managed hospitals specifically for many cancers, heart issues, etc. This might cover half of the chronic patient population that consumes 75% of health care dollars. Let them build lavish, palatial hospitals. By using only effective cost-conscious care, and avoiding the expensive over-hyped drugs & devices, health care costs should be reduced substantially. Don’t worry about the rest of health care since it’s a smaller percentage of overall costs.

John Locke April 17, 2007 at 8:27 am

Very fascinating discussion. I’ve got one point to add to the discussion, about the incentive that pharmaceutical companies have to create drugs. Someone (David Wright?) suggested that taking away the profit incentive for pharmaceutical companies would result in less drugs being created.

But that assumes that profit is the only motive people have for creating cures…

I would suggest that in the health care field in particular, people have other motives. People get into health care because they have a personal stake–a friend, a relative, somebody they care about with a condition that needs treating. That sense may get crushed over time, but I suggest there’s plenty of other motivations aside from profit.

I haven’t run across “Crisis of Abundance”–sounds very much to the point. Take a look at the Open Source software movement, which turns the economics of software on its head. There are plenty of people making money from free software, but without a monopoly or artificial scarcity, they don’t make the obscene profits that software companies made in years past. Could a similar thing not happen in the health care industry?

Yancey Ward April 17, 2007 at 1:08 pm

This has been one of the best comment threads on healthcare I have ever read. One should compare it to the thread on Yglesias’ blog entry.

Ms. Mahar,

You cannot prevent healthcare providers from promoting their inventions and discoveries, nor should you want to- it is a source of information, even if it is often self-serving. If they do so fraudulently, we have tort law that deals with this.

As to your point about the FDA process, the FDA should only be interested in the effect vs placebo. If the FDA wishes to know head-to-head comparisons, then it should fund this itself, but even if a new drug is found to be efficacious, but less so than an older treatment, it should still be approved if it meets the other criteria for approval (I personally believe that the FDA should only be interested in safety when considering approval, but that is another topic) since it will still offer a greater benefit to someone. However, I do agree that more research on comparisons of different treatments is desirable, and could offer beneficial methodologies, but this should be funded by the payers of medical care- either the government or by the insurance companies (if they desire a rationale for limiting coverage to certain treatments).

Like a few of the other commenters, I find your faith in the impartiality and competence of government to be naive. I see no reason to believe, a priori, that their judgements about medical treatments to cover will be superior to those made by insurance companies- just different, if at all.

So, in summary, I think the real question is how do you make people not demand the newest medical interventions until they are lower in cost and more proven? How do you do this without slowing or stopping innovation? I am suspicious of claims that if we accede to universal care with government funding, that people with the means will still be able to purchase cutting edge technology with additional funds, and that we will spend less than we do today. I can easily foresee two outcomes: (1) in order to answer the demand for equality of care without having to compete for resources, the government will forbid a private market not funded solely by itself, much like the Canadian system of today, or (2) the government will end up having to spend the same amount of money that we do today because Americans will demand the all the cutting edge stuff available to those of greater means. The answer to this dilemma is not obvious. The answer may be found in the method of funding such universal care. If we attempt to hide how it is funded (payroll taxes on employers only or VAT, I don’t see this as a solution that will ultimately work to reduce costs.

Gordon April 20, 2007 at 11:05 am

One of the things not mentioned to date is some of the ingredients of the cost of pharmaceuticals. A couple of facts – most geniune innovations are by small biotechs not large companies, (although of course they are looking for the reward of being bought by a large co.), second the single largest component of drug costs is marketing expense (>30%) as companies seek maximum return within patent periods. There are alternative ways to fund innovation (prize funds etc) which reward innovators but do not lead to waste on excessive marketing costs.

Lawrence Whiteberg May 14, 2007 at 5:23 pm

Guys, please don’t do it. The American health care system, tremendously faulty as it is, is the rest of the world’s only hope to get away from the abysmal treatment from our single-payer systems.

Yes, we have lower health care costs in Denmark and apparently our health is as good as or better than the American average. But listen: the hospitals are dirty and old, waiting lists are huge, the personal either arrogant and unknowning or kind and incomptent or just too darn busy (because we underfund the system), that you can never be sure you get the treatment you need. You have to be at their heels constantly checking and rechecking, otherwise they will not care a shit about you. Not because they are bad people, but because for a single-payer system (at least with public hospitals), the costumers are no more than a nusiance.

I know your system sucks, but ours suck too adn we really, really need the ideological competition from a private health sector to just make ours a little better…

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