[ExI] Medical Costs

Stathis Papaioannou stathisp at gmail.com
Sat Feb 23 13:44:51 UTC 2008

On 23/02/2008, Rafal Smigrodzki <rafal.smigrodzki at gmail.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.

The bureaucratic rules are "make the hospital function as effectively
and efficiently as possible". This is measured in terms of multiple
outcomes, such as length of waiting lists, surgical complication
rates, patient feedback, expenditure, income, and so on. Patients are
free to go to another hospital, public or private, if they wish.
Private hospitals in Australia are generally smaller, and if they get
a complicated case they often put them in an ambulance and send them
to the nearest public hospital. The only real advantage to having
private health insurance in Australia (apart from tax advantages for
higher income earners) is that there is a shorter waiting list for
some elective surgical procedures; but as soon as a deficit in the
public system like this is identified there is pressure from the
ministry to improve the situation using available funds, and pressure
from the community to increase available funds if this doesn't work.
Thus, the pool of money is constantly shifted around to where it will
do the most good, and the size of the pool is adjusted to what the
community is willing to pay.

>  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.

If you don't like your doctor or your nurse in a public hospital you
can complain about them in the same way as you can complain about the
employees in any private corporation, and with the same consequences
to them. You can also go elsewhere, including to a private hospital.
The private choice is not available to poor people, but a large number
of relatively wealthy people still choose the public system, sometimes
even when they have private health insurance but they believe they
have a serious illness.

>  >  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.).

The US spends more as a proportion of GDP, not just in absolute terms.
I would have said that the overhead and dead weight losses of multiple
health insurance funds seeking to avoid paying patients wherever
possible (with all the duplicated corporate bureaucracy that
involves), the better prices drug companies can get for their products
in a fragmented market, and the cost of medical litigation explains
where some of that money goes.

As for outcomes, we have talked about this before, but it's really
hard to explain why you have to finesse the statistics to explain why
the US is near the bottom of the OECD list on almost every parameter
the WHO measures while spending 50-100% more than most other
countries. Could it really be that Americans as a group get sick *so
much* more often and/or severely than Canadians and Australians (who
are basically the same demographic) that despite the superior and
expensive health care they still die younger?

Stathis Papaioannou

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