Biotech Values

[DewDiligence]

Health Care and the R Word

[To be read in conjunction with the charts in #msg-16968419.]

http://finance.yahoo.com/expert/article/economist/28249

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By Charles Wheelan
April 3, 2007

Here's a question to ask any presidential candidate from either political party: How do you plan to ration health care?

If the answer is "I won't," then he or she doesn't understand health care. Or, more likely, they understand health care and aren't in any mood to talk straight about it.

"Rationing" has a bad connotation, which is odd, because we ration just about everything. In fact, that's what capitalism does best.

Not everyone gets an S-Class Mercedes-Benz or courtside tickets to the NBA playoffs or roses on Valentine's Day. Who does? People who are willing to pay for them.

We call that a market, which is just rationing with a more attractive name. Everything worth having is scarce to some degree, so we use prices to figure out who gets what.

Health care is similar to German cars and basketball tickets -- not everyone gets everything they want. But health care is obviously different in a crucial respect: People who don't get what they want may become sick, stay sick, or even die. Unlike roses or Lakers tickets, health care is literally a life-and-death matter.

As a result, the most fundamental policy question related to health care is who gets what kind of care -- or, put another way, how we choose to ration resources. Forget all the other complications, like aging baby boomers, malpractice lawyers, greedy drug companies, shockingly fat Americans, insurance forms in triplicate, and so on.

Do those things help to explain why our system is expensive and getting more so? Yes. But for anyone looking to control costs (e.g., a presidential candidate) those factors pale in comparison to the fundamental health care design question: Who gets what care and why?

There's nothing inherently wrong with spending lots of money on our health. Many medical breakthroughs have huge price tags -- and correspondingly huge benefits.

Consider a recent example. The American Cancer Society is now recommending that women at high risk for breast cancer undergo a yearly MRI exam. The MRI can detect small tumors that a mammogram would miss. Of course, an MRI exam can cost 10 times as much as a mammogram. You get more, and you pay more for it.

But not always. The confounding problem with health care is that lots of unnecessary, ineffective, or marginally effective procedures are expensive, too. The wisdom lies in 1) being able to tell the difference, and 2) doing something about it.

Just Saying No

Every existing or prospective health care system rations care in some way. The Canadians and Europeans make people wait. Everyone has access to basic care, with two important caveats. First, the sickest get priority. You'll get your hip replacement or heart surgery, but you'll have to queue up for it. And when sicker people come along, they get to jump the queue.

And second, the government has wide discretion to deny or limit certain kinds of care not deemed cost-effective. Britain's National Health Service will deny payment for treatments that are known to be effective if the incremental benefits (measured in "quality adjusted life years") do not justify the costs.

That sounds heartless and terrible -- some bureaucrat telling Grandma she can't have a second open-heart surgery or the latest Alzheimer's drug. But remember, every time someone says "no," they're simultaneously saying "yes" to other patients. The resources freed up when Grandma gets denied can be used to provide asthma medicine for lots of children, or heart surgery for a younger, healthier patient.

Health Care Haves and Have-Nots

Our current American system rations care, too, though we do it primarily through access to health insurance. Those with good coverage get expansive health care -- the best, the brightest, the newest, the shiniest, the fastest. True, insurance companies sometimes say "no," but not often compared to other systems around the world. The general expectation is that health insurance ought to pay for anything that does anyone any good.

People without insurance get health care, too, but it's likely to be cobbled together from charity care, public hospitals, and whatever they can pay for out of pocket. The net effect is that millions of people don't get relatively cheap treatments that would have done them a lot of good.

And therein lies the fundamental inefficiency of the American system. We have no good mechanism for saying "no" to expensive technologies and treatments that provide marginal benefits. If you're a patient, that sounds terrific; your doctors will spare no expense. If you're a business trying to keep up with skyrocketing health care costs, or a family trying to pay for benefits, it's not. And, of course, as insurance costs go up, fewer people will have access to that kind of coverage.

At the same time, we don't do a very good job of saying "yes" to treatments for the uninsured that would profoundly improve their health.

The combination of those two factors goes a long way toward explaining why the U.S. spends a ton of money on health care (15 percent of the GDP, compared to 8 percent for Britain and Japan and 10.5 percent for France) and gets relatively mediocre outcomes [#msg-16968419]. Life expectancy is not only lower in the U.S. than in all three of those countries, it's below average for all industrialized countries.

In short, the rest of the industrialized world does a better job of rationing health care than we do.

Which brings me back to my original point. Every presidential candidate is going to talk about controlling health care costs. Most are going to talk about expanding coverage, too. Those goals are impossible unless we can design a system that says "yes" to the most cost-effective care -- even very expensive treatments, provided they have corresponding benefits -- and "no" to treatments with benefits that are too small to justify their costs. In other words, rationing.
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