Category: Medicine

Outsourcing medical care

More Americans and other nationals are traveling to Thailand for health care. A heart bypass costs 8-15K instead of 25-35K in the U.S. and arguably the service is better. In addition to a good doctor they will give you limo pick-up and convalescence time in a hotel. You can get a nose job for less than a quarter of the price. If you are uninsured, lightly insured, or stuck in a Canadian queue, why not go abroad for your care? Some Thai hotels are helping to organize care services, in conjunction with medical providers. In 2002 Thai hospitals treated 308,000 patients from abroad.

Are you interested? Check out this site and hope they learned more medicine than English grammar. Nonetheless the doctors are promoted: “Asians often seem to do well in high tech academics… not that well in football, but often very well in the class room / laboratory… pretty good in baseball & gymnastics..”

The suppliers offer their own caveat, however: “I probably wouldn’t have Siamese Twins separated in Siam!”

Worry all you want, the bottom line is that one root canal pays for a luxury vacation.

Singapore and India also are taking in foreign patients, 200,000 and 10,000 accordingly, with predicted growth for the future. Medical products are being outsourced to Asia as well, with significant cost savings.

In an age of skyrocketing medical costs, and pressing fiscal problems, surely this is good news. The thing is, other forms of outsourcing are also good for both your wealth and your health, and for the same reasons.

Some of the information in this post is from the recent Business Week article “Sand, Sun, and Surgery,” not yet on-line.

The cost of new drugs

In 2003, Joseph DiMasi, Ronald Hansen, and Henry Grabowski published an important paper in the highly-regarded Journal of Health Economics that estimated that the average cost of developing a new drug was around $805 million dollars. Hal Pawluk at Blog Critics repeats some nonsense from Public Citizen to claim that high research costs for pharmaceuticals are a myth and that this paper in particular is part of a conspiracy of pharmaceutical companies to raise prices. Frankly, the comments of the critics are laughable but not everyone sees the joke so I will explain.

Here is the number one criticism, the “major flaw,” in the DiMasi et al. study according to the critics.

1. The $802 million included $400 million that had nothing to do with bringing drugs to market. It was an estimate of how much the drug companies could have made by investing in some other way. This is an imaginary number that the drug companies do not pay.

(See also, Public Citizen who say these are “theoretical costs that drug companies don’t actually incur.”)

Firms spend on R&D from the day the development process begins up until the day the drug is approved for marketing which may be a decade or more later. But a dollar spent early in the process could have been earning interest in the bank for years before marketing approval is achieved. Recognizing this, DiMasi et al. calculate the cost of the drug as if all the money had been spent on the day the drug was approved.

Is this unreasonable? Well, suppose you lend me $5000 – how much would you want back in a year, in 2 years, in 10 years? The longer the loan period the more you would expect back when the loan came due, right? This is exactly the same calculation performed by DiMasi et al.

I challenge anyone who thinks this is imaginary money to lend me $5000. I guarantee to repay them the same return as they recognize as legitimate for the pharmaceutical companies.

The organ shortage is worse than you think

In 2002, 6609 people died while on the waiting list for an organ transplant. This figure, widely quoted in the media, is an underestimate of the number of deaths due to the shortage because it only counts those who die while literally on the waiting list. In 2002, however, 1844 patients were removed from the list before they died because they became too sick to undergo a transplant. It’s likely that most of these patients die soon after being removed from the list so adding these patients to the tally increases the number of deaths caused by the shortage by some 28 percent. In addition, many people who could benefit from an organ transplant are never placed on the waiting list in the first place and when these people die their deaths are not counted as a cost of the shortage but they surely are.

For some solutions to the shortage see my earlier post, Dollars for Donors.

In Canada, the quality of mercy is strained

Loni Wells has required 8 ½ hours of dialysis every day since her kidney failed completely in February of 2000. After a publicity effort by her father, 36 complete strangers offered to fly to Edmonton to donate to her one of their kidneys. But, writes Adam Young,

[when] these potential matches contacted the local branch office of the Stalinist medical system in Canada, their benevolence was brushed away….The transplant monopoly, however, insists living donors be either family or close friends.

“There has to be an emotional bond, a close relationship to proceed to any further steps,” explained Ed Greenberg of Capital Health in Edmonton.

What an arrogant bastard. How dare this bureaucratic peon sit in judgment on the quality of mercy?

What are the Democrat health care plans?

Dr. Rangel offers a summary:

1. Universal coverage with the Federal government as the single payer. Proponents; Braun, Kunicinch, and Sharpton. Cost; over a Trillion per year at least. Needless to say, none of these candidates are anywhere near the front runners in the polls. Do these people even remember Hillary Clinton and the early ’90s? Under such a system costs would be contained via price controls, restrictions, and rationing and for all this reduced care most Americans will be hit with either higher taxes and/or higher consumer prices (in order to raise most of the trillions needed to pay universal health care many of these plans would target businesses and investments with massive tax increases and these costs would in turn be passed on to the consumer).

2. Universal coverage via employers. Proponent; Gephardt, who would mandate that all employers pay for health insurance for their employees. Employers would be able to deduct 60% of the costs of the insurance premiums (the 60% would also be for the self employed and for government workers). Requiring all employers to provide for some type of health insurance for their employees is a great idea but in it’s current form as proposed by Gephardt it is potentially the most disastrous as far as containing health care costs is concerned.

What he is essentially proposing is that we massively expand the same system that has effectively insulated patients from the real costs of health care, prevented any type of competition or market forces from controlling costs and allowed health care expenses and usage to get out of control in the first place (see my post on this issue)! Without any market forces or direct governmental restrictions to control costs, usage of health care resources would expand ad nauseum and ultimately bankrupt the system. Cost; $215,000,000,000.00 a year assuming that health care costs remain level (likely to be several hundred Billion above these estimates).

3. Expansion of current programs or new government programs. Proponents; Clark, Dean, Edwards, Kerry, Lieberman. Costs; Anywhere from about $50 to $100 billion a year. With minor differences most of these proposals would expand coverage for children, provide for more coverage for people in between jobs, and increase tax relief for employers providing health insurance coverage (though not as much as Gephardt’s plan).

What is the bottom line?

None of these plans would institute any meaningful market reforms that may help to control health care costs. They claim their plans would make health care “more affordable for all Americans” but it all amounts to little more than political slight of hand. Health care wouldn’t be made cheaper nor more affordable. The costs would just be shifted and spread around. Higher costs for employers would be passed off to consumers and the rest would be paid by taxpayers in one form or another.

The danger of many of these plans is that the more money they pour into the system the more they will stimulate health care usage and this will lead yet again to large cost increases. I would be willing to bet that any one of these plans to expand health care coverage will be costing two or three times as much as projected in the next few years alone.

Government, when it simply transfers money (e.g. Medicare), can face lower marketing and administrative costs than does a private insurance company. Or government can save money by simply getting out of the way. These cases aside, the only way government can save real resources on health care is to restrict access, typically through some form of rationing. See also my earlier post on who are the uninsured.

Should we ban HIV-positive immigrants?

Jonathan Rauch says no. He argues that allowing HIV-positive individuals to apply for residence will bring those individuals into mainstream medical institutions. The alternative may bring undocumented HIV-positive individuals who never receive good medical care or perhaps never even discover their HIV status, infecting others in the process. Rauch writes:

The ban on aliens with HIV was first imposed administratively, by the Public Health Service, in 1987, when fear of AIDS was at its peak and the disease was effectively untreatable. As therapies became available, public health authorities soon came to believe that the policy merely drove the disease underground and thus was ineffective, if not counterproductive. The first Bush administration and then the Clinton administration tried to revoke it. To no avail: In 1993, Congress wrote the HIV ban into law. No other disease faces such a statutory ban.

Even in 1993, the ban made little sense. America was the world’s epicenter of AIDS, exporting rather than importing the disease, and so aliens were far more likely to get HIV in America than to bring it in. Anyway, the policy never required an HIV test for entry; only when an alien seeks permanent-resident status, usually after having already been in the country for years, is the blood test routinely required. So the policy, as put into practice, is about kicking people out, not keeping them out.

Congress was worried about the costs of welfare and publicly funded care for immigrants with AIDS. A valid concern, but one addressed by the underlying immigration law, which bars aliens deemed likely to become a “public charge,” whatever their disease. Today, diabetics and cancer patients can visit and live in the United States on showing they have insurance or resources to keep themselves off the welfare rolls; only people with HIV are barred, whether they are sick or not. This is discrimination, pure and simple.

The numbers suggest that much is at stake: for instance about 1 in 12 Africans is HIV-positive, by some estimates. Singapore has faced related issues with foreign prostitutes.

Rauch’s proposal, obviously is not a political winner, even though the Bush administration has been relatively sympathetic on the AIDS issue. I am interested in considering the deportation question more generally. Should we, for instance, deport SARS carriers? SARS is highly contagious to larger groups in a shorter period of time. Unlike HIV-positive status, you can’t (it seems) just walk around with SARS for years. You might argue that if we deport SARS carriers, undocumented immigrants with SARS will be reluctant to report to hospitals. A good point, but I suspect that many of them rather quickly cannot continue on their own without dying. On the other hand, say you have an undocumented SARS patient on your hands. It is crazy to put them on a plane (we cannot over time afford many quarantined flights), best to leave them in a hospital. Nor does it gain you much to deport them once they are better.

So in looking for standards for deportable diseases, we might focus on rapidity of contagiousness, and ability to deport without infecting others in the process. Whether an individual can serve as a “silent carrier” can cut either way. On one hand, silent carriers can infect others for a longer period of time, which suggests a reason to boot them out (though of course they must go somewhere). On the other hand, it is the silent carriers that you want to report to the medical establishment. There is also a question of stock vs. flow. If the potential future flow of HIV-positives is high, that argues for deportation, as an incentive to keep others away. But if the stock is high relative to the flow, that argues for greater tolerance.

Sometimes it puts the world at risk to deport individuals before their treatment is complete, read this story on tuberculosis. And of course some of the deported will simply die without the medical care of the wealthier nation.

Should you have your kids during an economic boom?

Children who are born during economic booms live longer than their counterparts born during leaner times. The result holds for a Dutch data set of 3000 individuals born between 1812 to 1912. Here is a summary of the research. Here is the paper itself. A ten percent improvement in economic product added three years to the average life in the data set. OK, that is not so shocking on its own terms. The surprise is that the beneficial effects of wealth are most determined by the level of national wealth in the first seven years of life. In other words, good child care pays off for a very long time. And bad macroeconomic conditions take their biggest toll on the young and the elderly. If you are born in poor times, your chance of dying early has its greatest spikes during your childhood or after the age of fifty. It remains to be seen whether these results generalize to current levels of wealth in the United States. To be sure, a bad macroeconomy raises stress and damages health, but I know of no modern data on whether the effects on children persist through time.

Addendum: Ken Hirsch suggests that: “It appears that in wealthy countries, within the last forty years, recessions actually reduce mortality. See the work of Chris Ruhm and those he references:

“Good Times Make You Sick”, Journal of Health Economics, Vol. 24, No. 4, July 2003, pp. 637-658.
“Does Drinking Really Decrease in Bad Times?” (with William E. Black), Journal of Health Economics, Vol. 21, No. 4, pp. 659-678.
“Are Recessions Good For Your Health?”, Quarterly Journal of Economics, Vol. 115, No. 2, May 2000, pp. 617-650.

“Healthy Living In Hard Times”, July 2003, submitted to the Journal of the European Economic Association, click here.

See also “Deaths Rise in Good Economic Times: Evidence From the OECD”, (with Ulf-G.Gerdtham), November 2002, submitted to the European Economic Review, click here.”

The references are from Hirsch, I have edited his remarks slightly so that the links flow with the text.

Why not more price discrimination for medicine?

Physicians and hospitals can not waive or significantly reduce their fees they charge to uninsured patients even if they want to because they would technically be committing Medicare fraud! Ant’ mindless and impersonal government bureaucracy great?!

Read more from Dr. Rangel. And don’t neglect to peruse his further comments on national health insurance, and yet more is here. These are some of the most accurate and pungent observations on the topic I have seen.

Bad Science Poisons Our Children’s Brains

The Natural Resources Defense Council has got mercury on its mind. They write, “Mercury Poisons Our Children’s Brains” explaining:

Mercury is a potent neurotoxin that, like lead, especially threatens the brains and nervous systems of fetuses and young children. A number of neurological diseases and problems are linked to mercury exposure, including learning and attention disabilities — which are a growing problem — and mental retardation. Mercury also might be linked to the recent increase in autism, Parkinson’s disease and Alzheimer’s disease…one in every 12 women of childbearing age has mercury in her blood above the EPA “safe” level…Toxic mercury emissions from power plants put 300,000 newborns each year at risk for neurological impairment.”

Frightening isn’t it? Lets take a closer look before sending the NRDC a check. How was the EPA’s safe-level arrived at? There are three major studies of mercury and neurological impairment in children due to consumption of contaminated fish. One study found no effect, one was ambiguous, the last found some mild impairment (You would never notice the impairment on an individual level and can detect it only in a large sample. Not to be ignored if it exists, but we are not talking about Downs children). To be on the safe side, the EPA focused on the one study that found an effect. Within that one study there was some uncertainty about how much mercury caused a problem so the EPA took that study’s lower bound (the lower bound of the 95 confidence interval for the statisticians in the audience.) Finally, to really be on the safe side, they divided the lower bound by ten!

Now notice how the charlatans at the NRDC twist a number of true facts to make a big lie. It is true that mercury can cause neurological impairment and it is true that 8% of women have blood mercury greater than the EPA safe level but you would never learn from the NRDC that the EPA safe level is more than ten times smaller than levels that have ever been found to cause mild impairment and that even the existence of such impairment is open to question. Throw in a few warnings about how learning disabilities are a “growing problem” and, for all the readers who don’t have children, don’t forget to mention the “recent increase” in Parkinson’s and Alzheimers and you have a perfect example of advertising masquerading as science. (Ever notice how many public interest groups sound like used car salesmen? Sale! Sale! Sale! Buy now before its too late!)

The NRDC wants emission levels cut by 90% in three years, an approach that would cost billions of dollars. The Bush administration wants to cut levels by 30% over the same time period, which would have a marginal cost of virtually nothing because of other regulations scheduled to take effect in anycase, and by 70% over a somewhat longer time frame. Naturally, the NRDC thinks this is evil. This time, I agree with the administration.

I have cribbed from CEIs Joel Schwartz and AEIs Lutter and Irwin.

Price Controls and the Medicare Bill

I agree with Tyler that the special interest subsidies in the new Medicare law are outrageous, albeit to be expected. What really depresses me, however, is not the subsidies (which are mostly transfers) but that we are now on an inevitable path towards price controls on pharmaceuticals. True, the law as written explicitly forbids this but political pressure will burst that dam of parchment. (Recall that the original Medicare act forbid the federal government from exercising control over the practice of medicine – try telling that to a doctor today.) Costs will soar as increased demand pushes up prices and more people are added to the program and when this happens the public will demand controls. With controls you can expect significant curtailment of R&D in new pharmaceuticals. I only hope that the drugs that will help me deal with my old age will already have been discovered.

The new Medicare bill

I am growing tired of attacking this bill, but here is another good link, from The Boston Globe, for my other writings on the topic scroll down through the last two weeks. The authors write:

In the name of greater free-market competition, the legislation offers massive new subsidies to the pharmaceutical and insurance industries. In the name of providing greater protection, it threatens Medicare’s guarantee of universal benefits. (Indeed, it even provides more than $6 billion to support Health Savings Accounts outside of Medicare, risking the fragmentation of the broader insurance risk pool.) And in the name of greater cost containment, it encourages the expansion of private plans that have, to date, not saved Medicare money, while creating new budgetary rules that could very well make Medicare less equitable and affordable down the road.

Here is yet some more from this depressing story:

To be sure, politics usually requires compromises. But what’s shameful about the present bill is just how deeply the compromises — or, more accurately, the concessions to knee-jerk beliefs and private interests — undercut the stated goal of the bill: drug coverage for seniors. By our back-of-the envelope calculations, the roughly $400 billion in new spending over the next 10 years (not to mention the $140 billion in new premiums paid by Medicare beneficiaries themselves) will buy only about half as much coverage as a sensibly designed bill could. This is not only because of the subsidies for private health plans and for Health Savings Accounts, but also because of the higher overhead costs of private plans (about five to six times higher than for traditional Medicare) and the 20-to-30-percent higher prices for drugs that seniors will have to pay because Medicare is forbidden from using its bargaining power to negotiate better deals.

Indeed, a significant proportion of Medicare beneficiaries will almost certainly be worse, not better, off under the bill. This includes several million low-income seniors who will lose the generous coverage they now enjoy under state Medicaid programs. It also includes millions who already have pretty good drug coverage through their former employers — coverage which will likely be dropped, despite the bill’s subsidies for employers that retain coverage.

I don’t accept the authors’ implication that our main health care policy goal should be to subsidize seniors, most of whom are relatively wealthy. But it should not be to subsidize pharmaceutical companies either. Read the whole story to learn just how much special interests shaped the final legislation.

Three Oreo Cookies

Obesity rates in the United States have increased dramatically in the past two decades – so much so that manufacturers of everything from clothes to coffins are now super-sizing. But did you know that the entire increase can be explained by three Oreo cookies a day? The trouble is that calories accumulate so holding caloric expenditures constant even a small permanent increase in calories consumed can lead to serious weight gain over long periods of time. Food is getting cheaper and work is becoming more sedentary so it is going to be very difficult to control weight gain. I review some of the recent economic literature on obesity here.

Despite a number of government programs, for example, Swedes continue to get bigger just like everyone else.

For years, this nation of nine million has had the sorts of programs, combining healthy diet and physical exercise, that antiobesity advocates elsewhere in the world dream about. Vending machines in Swedish schools are practically unheard of. TV commercials of any kind aimed at kids under 12 are banned. Schoolchildren as young as eight learn to cook healthy meals. Sports programs are heavily subsidized to get youngsters up and about. But Swedish children are plumping up at alarming rates anyway. The number of kids who are overweight has tripled in the past 15 years — roughly the same rate as in other European countries — to 19% of boys and 15% of girls.

(From the WSJ via Radley Balko.)

I suspect our only real hope is better tasting fat and sugar substitutes. So far I am not too impressed but I do recommend Russel Stover’s low-carb mint patties.

Medicare and Perverse Incentives

Medicare does little to reward service providers for quality improments, and in fact often punishes them. Friday’s New York Times provided a blistering indictment:

By better educating doctors about the most effective pneumonia treatments, Intermountain Health Care, a network of 21 hospitals in Utah and Idaho, says it saves at least 70 lives a year. By giving the right drugs at discharge time to more people with congestive heart failure, Intermountain saves another 300 lives annually and prevents almost 600 additional hospital stays.

But under Medicare, none of these good deeds go unpunished.

Intermountain says its initiatives have cost it millions of dollars in lost hospital admissions and lower Medicare reimbursements. In the mid-90’s, for example, it made an average profit of 9 percent treating pneumonia patients; now, delivering better care, it loses an average of several hundred dollars on each case.

“The health care system is perverse,” said a frustrated Dr. Brent C. James, who leads Intermountain’s efforts to improve quality. “The payments are perverse. It pays us to harm patients, and it punishes us when we don’t.”

Intermountain’s doctors and executives are in a swelling vanguard of critics who say that Medicare’s payment system is fundamentally flawed.

Medicare, the nation’s largest purchaser of health care, pays hospitals and doctors a fixed sum to treat a specific diagnosis or perform a given procedure, regardless of the quality of care they provide. Those who work to improve care are not paid extra, and poor care is frequently rewarded, because it creates the need for more procedures and services.

Does the Bush Medicare bill make any serious attempt to address problems like this? No. Paul Krugman, in his column, described the Medicare bill as “a huge subsidy for drug and insurance companies, coupled with a small benefit for retirees.” If we are to improve America’s health care system, no matter what your political stance, the first order of business is to get incentives working for us, not against us. That fight has yet to begin, nor does it currently have much of a constituency behind it in either political party.

Who are the uninsured?

As the Democratic candidates call for various versions of national health insurance, we will hear a familiar fact many times, namely how many Americans lack medical insurance. According to one estimate, it is over fifteen percent of the population, which amounts to about 43.6 million people.

But who are these people? In reality many of them are immigrants. Here are two simple facts:

Immigrants who arrived between 1994 and 1998 and their children accounted for an astonishing 59 percent or 2.7 million of the growth in the size of the uninsured population since 1993.

The total uninsured population is one-third larger (32.7 million versus 44.3 million) when the 11.6 million persons in immigrant households without insurance are counted.

Hispanics have by far the lowest rates of being insured, here are some visuals. 41 percent of adult Hispanics are uninsured, of course many of these are recent immigrants, Hispanics as a whole account for over 12 percent of national population.

I am all for a liberal immigration policy, but I do not feel we are obliged to offer health insurance to all comers. In fact I suspect that national health insurance would, in the long run, lead to fiscal pressures to limit immigration, thus damaging the health of potential immigrants.

Nor do immigrants rush to buy their own health insurance, in many cases I suspect they would rather send the money back home, where health care crises are likely more severe:

Lack of insurance remains a severe problem even after immigrants have been in the country for many years. In 1998, 37 percent of immigrants who entered in the 1980s still had not acquired health insurance, and 27.2 percent of 1970s immigrants were uninsured.

Many other Americans lack health insurance because they are out of work. True, a good health care system should be robust to macroeconomic disturbances, but with employment and productivity rising, these people do not represent much of a current case for reform.

It also turns out that many of the uninsured are uninsured for only part of the year. According to the CBO, those uninsured for the entire year amount to somewhere between 21 and 31 million, knocking a full 12 million off the original total.

Some of the uninsured are more accurately a counting error:

According to the National Center for Policy Analysis (NCPA), [a] verification question lowered the estimate of the number of uninsured living in households with annual incomes of $75,000 or more by 16 percent. The verification question lowered by 4 percent the number of uninsured living in households with incomes under $25,000.

Many of the uninsured are in fact college students, who either rely on their parents, or are covered under their parents’ policies, read here. One estimate suggests that one out of seven college students lacks insurance, but it is hard to believe that most of these people have no other resources supporting them.

Finally, the uninsured often have good access to medical care. Consider this:

15 million of the uninsured have incomes of $50,000 or more. The fastest-growing population of uninsured has incomes exceeding $75,000. About 14 million are eligible for Medicaid or the State Children’s Health Insurance Plan but are not enrolled.

The “entire year uninsured” receive about half as much care, in dollar-valued terms, as the fully insured. As a last resort, you can always show up at an emergency room and simply demand care. In the year 2001, uninsured Americans received at least $35 billion in health care treatments.

The bottom line: When you put all the pieces together, the crisis of the uninsured is not nearly as bad as it sounds.