Which half?

There's a lot of very good stuff in Robin Hanson's provocative essay arguing that half the money we spend on health care is wasted. Overall, I think he has the better of the argument; probably, excess health spending doesn't much change outcomes. But I'm less sanguine than he is at the notion that we could simply slash our spending in half.

Mr Hanson's argument is that above a certain basic level, there's no evidence that extra spending improves health. Some procedures above that make you healthier, but other unnecessary procedures make you less healthy; the overall effect is a wash. I'm fine with that conclusion, too. But he argues that cutting those extra expenditures wouldn't impact innovation. There, I'm less convinced.

It would seem natural that the procedures most likely to have dubious health value are the newest procedures, where benefits and side effects have yet to be fully explored. So while current spending might not do you any good, it is providing the knowledge that will do others good in the future.

This suggests that on health costs, Americans are leaning in to the strike zone and taking one for the global team: spending a lot on procedures of dubious value, so that others can incorporate the valuable ones into their health systems. Yet another reason that I think my European friends, if they know what's good for them, will stop extolling the virtues of a cheaper single-payer system to us, and start telling us how awful it is, nothing we'd ever want to try.

Comments

What I have read or skimmed so far (long article!) seems reasonable. Unfortunately, little of it is practically possible until the maxim is finally heeded, "The first thing is, we kill all the lawyers..."

Posted by anony-mouse | September 19, 2007 2:28 PM

Megan -
It would be surprising if all of your European friends extoll the benefits of single-payer medical insurance. Great Britain and Spain don't have it. Neither do Italy, the Netherlands, Germany, and Switzerland. I would be surprised if there weren't more examples. Are you using 'single-payer' as a synonym for 'universal coverage'?

Posted by Stan | September 19, 2007 2:53 PM

I didn’t find it a particular compelling or thought provoking argument for several reasons. First, talking about how much the United States spends on health care without breaking down what it’s spent on doesn’t really add much to the debate. Particularly if your thesis is that we could just cut away a set percentage of it without having a negative effect on health. I got the impression, based on the studies he cited, that he didn’t think keeping people in hospital beds for the last six months of their life did much to improve their longevity and he might be right about that.

Second, the argument that beyond a certain level, the availability or amount spent on health care isn’t in general as important to longevity as about a dozen or so other factors isn’t particularly new (indeed it usually gets brought up whenever someone tries to indict the US health care system by regurgitating meaningless factoids about life expectancy or infant mortality rates) or even relevant to a discussion about health care spending.

Third, he seems to define “health gains” solely in terms of the effect on longevity which IMO is a very narrow term that I’m not sure most people would agree with. If much of US health care spending (and I’m not suggesting any hard numbers or percentages) is spent on things that improve quality of life like say hip replacements but don’t necessarily improve life expectancy, you could probably quit providing hip replacements without noticeably shortening life expectancy but you’d have a lot more crippled elderly people.

Finally, (and this is a take off on Megan’s last point) there some things like developing new cancer treatments and drugs that will currently have only a minor effect on longevity that are very expensive to develop. But the effect they might have – not just on length of life but quality of life – will probably be much greater later particularly as we have some 60 plus million baby boomers getting ready to enter their golden years and who will need these sorts of treatments.

Posted by Thorley Winston | September 19, 2007 2:53 PM

This suggests that on health costs, Americans are leaning in to the strike zone and taking one for the global team: spending a lot on procedures of dubious value, so that others can incorporate the valuable ones into their health systems.

Typical American arrogance.

Posted by Foreigner | September 19, 2007 4:10 PM

It is somewhat like the infamous CEO comments that he knows half his advertising budget is wasted money. Now if only he could figure out which half.

Posted by spencer | September 19, 2007 4:26 PM

How about applying the old advertising saying to health care?

50% of the money we spend on health care is a waste, the problem is we don't know which 50%...

You never -know- if a potentially life saving procedure will save someone's life or just be looked back upon as a waste of money, or even worse, the supposed treatment ultimately quickens the cause of death.

Posted by sam | September 19, 2007 4:27 PM

Sorry, Foreigner, truth, not arrogance. New procedures can be incredibly expensive, but until they are tried, no one knows for sure how well they will work. And I'm not talking about being the first to attempt a new procedure; that is frequently done all over the world. What I am talking about is trying the new procedure often enough to work all the kinks out and let the procedure become part of normal treatment worldwide--that's typically done in the U.S. Look at the history of heart transplants, for instance.

Posted by Rex | September 19, 2007 4:28 PM

wow spencer...now that's just erie...stay outta my brain.

Posted by sam | September 19, 2007 4:29 PM

In all honesty, my eyes started to glaze over about 1/4 of the way through the guy's article, but I can offer a personal anecdote for whatever it's worth:

I lived in Mexico for several years in the 1990's, and at that time (in round numbers) the cost of medical care in Mexico was about one-tenth of the cost* in the USA whereas the average Mexican life expectancy was only about 10 percent less than the average American life expectancy. So I would suggest that American medical coverage has gone *WAY* past the point of diminishing returns.

*E.g. > My children were born in Mexico by Caesarian (in a nice clean hospital, by the way; not in some mud hut), and the total cost was about $3000 US dollars each. That included the whole package: the hospital, the obstetrician, the anesthesiologist, the pediatrician, etc. I suspect that the co-pay alone in the USA would have been more than $3000.

Posted by john w. | September 19, 2007 5:31 PM

Look at the history of heart transplants, for instance.
Unfortunate, Rex, that you chose a procedure that was first done in South Africa.....

Posted by Mark | September 19, 2007 5:50 PM

Unfortunate, Rex, that you chose a procedure that was first done in South Africa.....

I’m not sure why since Rex made a point in the preceding sentence of saying “I'm not talking about being the first to attempt a new procedure; that is frequently done all over the world. What I am talking about is trying the new procedure often enough to work all the kinks out and let the procedure become part of normal treatment worldwide.”

Posted by Thorley Winston | September 19, 2007 6:12 PM

Certainly most of the money that ends up in the pockets of insurance company shareholders & executives is wasted. As well as much of the money spent on the bureaucracy that attempts to keep money from being spent on patient treatment/testing, despite the treatment/testing in question being recommended by actual doctors.

Posted by M. Bouffant | September 19, 2007 6:56 PM

How about this...I pay for my groceries. I don't pay an intermediary bureaucracy. I pay the grocer.

Why not pay the doctor? The nurse? etc. directly?

Granted you need insurance for catestrophic events or cancer and things of that sort.

But perhaps we shouldn't cover any normal hospital vists at all?

Just thinking outloud, but I could be persuaded otherwise.

Posted by sam | September 19, 2007 7:27 PM

sam wrote: Why not pay the doctor? The nurse? etc. directly?

Because the system as it exists now has legions of entrenched middlemen, and middlemen don't take well to being cut out of anything.

The closest you will come is to either have a high-deductible HSA and see the checks come directly to you after the usual knock-down negotiation process between the doctor and the HSA provider, or negotiate with a doctor who refuses to deal with the medicare/medicaid bureacracy and would rather take your cash payments, even if it means a reduced rate. Once a doctor is in the bureacracy, though, s/he has to go with the standard rate tables; and that means you need to go through some sort of healthcare provider to get a fair negotiated service rate.

Posted by anony-mouse | September 19, 2007 7:59 PM

I absolutely think Hanson's point is well taken. I do believe that the health community takes us for a ride, from doctor's to hospitals to insurance company's.

I went in to the hospital for a procedure that was listed as 'covered.' Now, one month later, I get the total of the coverage from the insurance company and they say that, of 800 USD, 30 is covered, and I owe the other 770. After much digging, calls and expressions of disbelief and argument, they agree to pay half, but what a list of BS. There were 11 charges for the 800 dollars, from 62$ for two aspirin-type pills, to wearing booties over my socks ($35) and a couple of other things that were absolutely worthless.

Certainly, at least half, if not more, was over priced. I still think Hillary-care will suck the big one if it ever gets in place, however.

Posted by falkoyn | September 19, 2007 11:41 PM

Americans are leaning in to the strike zone and taking one for the global team: spending a lot on procedures of dubious value, so that others can incorporate the valuable ones into their health systems.

America: Home of the Guinea Pigs.

Posted by Immoralist | September 20, 2007 1:27 AM

Megan, your guess about innovation is quite plausible, though I have doubts.

Thorley, I focus most on the RAND experiment, which didn't look at longevity. I don't see how you can think that having better ways to spend money to achieve the same end is irrelevant to spending decisions.

Posted by Robin Hanson | September 20, 2007 9:46 AM

Gosh!! This discussion is spreading like the measles. I re-read it here and it's as goofy as I remembered. Totally removed from the real world.

Two areas that could be considered 'waste' in the economist's sense. First, administrative and paperwork costs are incredible. The average small medical practice has to spend unbelievable amounts on personnel and Dr's professional time just getting paid. Much of that expense is wasted because no attempt is ever made to pay the bill. Quite a few Drs I know do a quick 'wallet biopsy' when called to 'consult' and don't bother sending a bill to an obviously un-insured Patient because they know they'll never recoup the cost of sending the bill.

Much of the demands insurers place on Drs has to do with the subject of this article: Prove to us that the procedure was necessary. The result is that a vast game is constantly being played across the globe as Dr's invent reasons for what they did and insurers invent objections to paying for it.

Second, end-of-life issues take up amazing amounts of money. Many families make a rational calculation to put aging parents into 'long-term-care' so that the working members of the family do not have to quit their jobs and stay home to do nursing. This involves 'third-party' payments that show up as health care expenses for you and me. If the family had calculated the other way, it wouldn't appear on an economist's plate. But the total social cost would still have existed--the loss of productivity of the person who left a career to take care of Momma.

Intensive care, where I ply my trade, is often used to give a person a few more days of....well, maybe you can call it 'life'....for the benefit of families who wish 'everything done'. We hear it all the time: If Granny can just hang on until Bobby gets here from the coast. At that time in the life of that family no one is counting costs/benefits. If it takes an extra two days for Bobby to show up the economists can count easily $15 to $30K just for the 'routine' ICU costs. Poor economics, of course. But who is cold hearted enough to deny the care?

The unspoken (no one dares to call it's name!) remedies are obvious. Draconian simplification of administrative costs. Rationing of expensive care.

As the article says, none of this is possible.

Posted by JohnMcC | September 20, 2007 11:16 AM

> Certainly most of the money that ends up in the pockets of insurance company shareholders & executives is wasted. As well as much of the money spent on the bureaucracy that attempts to keep money from being spent on patient treatment/testing, despite the treatment/testing in question being recommended by actual doctors.

You can set up an insurance company that does none of those things.

If "Certainly ..." is correct, such an insurance company would be far less expensive, provide better care, and could be extremely profitable (or not - the company could forgo profits). It would also drive the "bad" insurance companies out of biz.

Yet, curiously none of the folks who believe "Certainly ..." seem willing to actually set up such a company. Why aren't they willing to do good?

Posted by Andy Freeman | September 20, 2007 2:28 PM

falkoyn: you know why those two charges were there?

It costs a fortune in a hospital to get a medication because each and every medication given, even if from your own supply (which by the rules of the body accrediting hospitals in the US *must* be taken from you, kept in a locked drawer at the nurses' station, and dispensed only by an RN on a doctor's order), must go through several steps:

1. You request medication
2. Doctor writes order for medication
3. Unit clerk faxes medication order to pharmacy
4. Pharmacist cross-checks order vs other medications ensuring compatibility, safety, etc.
5. Pharmacist enters medication order into computer system
6. Nurse (RN only, not LPN) receives printout of new medication administration record (MAR)or manually enters new medication on old MAR.
7. Medication is retrieved, either by pharmacist (who then sends it via pneumatic tube to the appropriate nurses' station) or by nurse (for certain common medications kept in a mini-dispensary on each unit, or from the pneumatic tube system).
8. Medication is dispensed to you.
9. You are observed for a response or lack thereof, again by your nurse.

All of the steps taken are documented by the appropriate person in the appropriate place. Having your own med saves you only the cost of the pill itself, not the other steps in the process.

As for the squeezy boots on your feet, they are there to prevent clots from forming in your body (interestingly, little squeezy boots on your feet are effective body-wide) while you lie in bed. If you get up on your own and walk around at least 3-4 times a day, you don't need these, but plenty of people don't do so. As a result, they're ordered for almost everyone, because if they aren't, and you *do* develop a clot that then marches off to your lungs and incapacitates or kills you, the doctor and hospital have no defense. Low-dose blood thinners are similarly ordered for most inpatients.

Oh, and for the whole most-of-money-spent-at-end-of-life: yes, it is, but the problem is that while we're pretty good at figuring out who will be dead in five years, it's pretty difficult to know at the outset which six-month period it will be in. And people don't like the idea of hearing, "Yes, your mother will probably survive this illness, but you should let her die, because it will cost too much and she'll probably die in a few months anyway, of something similar."

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