[ExI] Medical Costs

Rafal Smigrodzki rafal.smigrodzki at gmail.com
Fri Feb 22 23:30:55 UTC 2008

On Tue, Feb 19, 2008 at 7:02 AM, Stathis Papaioannou <stathisp at gmail.com> wrote:
> On 19/02/2008, Lee Corbin <lcorbin at rawbw.com> wrote:

>  That doesn't seem to be the case in my experience of Australian public
>  hospitals. The health bureaucrats fight fiercely to give hospitals as
>  little money as possible and to get maximum value out of every dollar.
>  If a hospital underperforms or overspends, management is liable to be
>  sacked. The idea is to ensure not only that the finite health budget
>  is spent equitably, but also efficiently.

### This is not plausible. The bureaucrat does not get sacked for poor
outcomes but mainly for not following his bureaucratic rules. There is
no short feedback loop from the patient to the bureaucrat (you as a
patient can't fire him, but rather you have to lobby a politician to
do so, or in the next elections get a new politician and pray to your
god of choice he will put pressure on the bureaucrat to perform), only
feedback loops are between the bureaucrat and his superior bureaucrat,
who approves his salary. In other words, the bureaucrat is not an
agent of the patient, he is an agent of other bureaucrats.

This is dramatically different from the feedback loops between a
patient and a doctor who can be fired on the spot, or an insurance
plan that can be changed with a few phone calls.


>  In health, at least, it seems that the free market is *less* efficient
>  than government. The US has the highest ratio of private to public
>  health spending in the developed world, but total per capita health
>  spending is about 50% more than in the other countries, while health
>  outcomes are by most measures slightly worse.

### No, health outcomes are better in the US, if you look at specific
conditions occurring in comparable patient groups. The overhead and
deadweight losses due to government monopoly in health care are not
counted as cost of public care, which artificially reduces the price
estimates. Of course, the US public is going to spend more on health
care in absolute terms, since the US public is wealthier than in other
countries. And of course, since a part of private health spending
serves a signaling purpose (as Robin Hanson teaches), allowing more
direct patient input in treatment choices will result in increased
spending on marginally effective (or even ineffective) but impressive
medical interventions (PET scans for AD, proton accelerators for
cancer, etc.).


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