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Steven Pearlstein writes,


For most Americans, providing health care ought to be different from selling soap; they won't tolerate doctors acting like commissioned salesmen and investment bankers. And if that means having less market competition and more regulation in the health care system, it seems to be a trade-off they're willing to make.

David Asman writes,

Cornell and New York University hospitals (both of which my wife has been using since we returned) have ready access to technical equipment that is either hard to find or nonexistent in Britain. This includes both diagnostic equipment and state-of-the-art equipment used for physical therapy.

...The bill included all doctors' costs, two MRI scans, more than a dozen physical therapy sessions, numerous blood and pathology tests, and of course room and board in the hospital for a month... $25,752... the cost of just 10 physical therapy sessions at New York's Cornell University Hospital came to $27,000--greater than the entire bill from British Health Service!


Asman's entire piece is interesting reading.


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TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/280
The author at Houston's Clear Thinkers in a related article titled Comparing the British and American health care systems writes:
    David Asman is an anchor at the Fox News Channel and host of "Forbes on Fox." In this must read piece for anyone interested in the differences between a centralized and a decentralized health care finance system, Mr. Asman compares... [Tracked on June 9, 2005 6:31 AM]
COMMENTS (24 to date)
Ian Lewis writes:

Some of the problems in American Health Care are similar to those in eduation. And there is no reason to think that we couldn't have high quality health care in America if it were completely un-regulated.

For instance, when comparing Public Ed to Private Ed we see much more satisfaction and much lower prices from Private Ed. But Private Ed must compete with the huge Public Ed monopoly and still jump over a fair number of gov't regulations. But when comparing both to private tutors, even those in very difficult fields (i.e. teaching piano, violin, Calculus, Physics), we find very high quality AND very good (low) prices. And here we see an almost completely unregulated area when we talk about private tutors.

dsquared writes:

A fe remarks; first small point in case anyone finds themself in Mr Asman's position; he worried himself unnecessarily on one point as Queen's Square hospital is part of University College and his wife would have used exactly the same facilities.

I thought that the most interesting thing is that (as I'd heard elsewhere) British private medicine is apparently much cheaper than in the US. This is at least partly because it is effectively subsidised by the NHS by having NHS doctors and equipment leased out to it at marginal cost, but even so (this also goes the other way; a lot of the diagnostic equipment that "wasn't available" on the NHS is available in private clinics that have the capital budget for it and NHS hospitals sometimes lease time on them. This is how my dad got a quick MRI on his knee for £200). I don't think it's right to talk about "the few remaining private clinics in Britain"; there are plenty of them and the last time I checked the number was growing quite rapidly, not shrinking. My only other data point is that I regularly make appointments for my son with a world-renowned professor of dermatology at a rate of about $200 a go; is this cheap or expensive, Yanks?

The cleaners who Mr Asman saw struggling with the nsocomal infection problem are in fact the only privatised part of the system; they're almost entirely contracted out under some horrendously broken outsourcing contracts.

Giving stroke patients aspirin rather than any other drug therapy is the current policy of the NHS; this is a result of an assessment made by the National Institute for Clinical Excellence (which despite its name is often more concerned with cost-effectiveness) rather than ignorance of their availability.

Also worth saying that Mr Asman experienced the system in London and London is not typical of the rest of the country in all sorts of ways that I won't go into here.

I sincerely doubt that uninsured homeless are given ten-week physiotherapy courses in the USA; I'm sure that Mr Asman doesn't mean this but it sort of reads that way.

spencer writes:

I came here to refer you to the Asman article.

The point I get from both is that there are no easy answers to the real problems both article raise.

John Thacker writes:

I thought that the most interesting thing is that (as I'd heard elsewhere) British private medicine is apparently much cheaper than in the US.

Surely this isn't that surprising, really?

1) Employer insurance remove restraints to cut costs.
2) Medicare and Medicaid reimburse doctors at low, government enforced levels; doctors try to make up the difference with the paying customers.
3) In addition, since no hospital can turn anyone away for emergency care, people who can pay end up subsidizing those who can't.
4) The AMA strictly limits the number of doctors by controlling the medical schools, raising prices and income.

It is similiar in some ways to education. In the US, at expensive private schools an enormous percentage of the tuition goes back into financial aid to help others pay that same tuition. (We're talking 25-50%.)

Jon writes:

Ian writes:

For instance, when comparing Public Ed to Private Ed we see much more satisfaction and much lower prices from Private Ed.

I don't know what prices Ian is quoting, but prices I see for private ed are just as high or higher than public ed. Much of public ed costs result from requirements that public education be available to **everyone**. A private school does not have to take children with emotional problems or learning disabilities; a public school is required to.
BTW, tuition at non-religious private schools in the DC area is substantially higher than tuition at public schools, and there is constant push for donations.

Ian Lewis writes:

Hi Jon,
That the average private school costs more than the average public school is a common misperception. There are many reasons for this:
1. Usually only the most expensive schools will advertise and so people only see prices from the most expensive schools.
2. Schools usually present their "sticker price" and not the amount that you are likely to pay. (public schools, actually, do just the opposite).
3. People tend to under-estimate how expensive public schools are, so private school "sticker prices" seem expensive in comparison. (The average public school costs about $8,000-10,000 per student per year)
4. You do make a good point about children with special needs. It is true that Private Schools dont have to take them, but, also, the number of special needs children has risen dramatically (relative to the overall population) in places that place special budgets for those very children. That is, when budgets become tight for school districts, the number of special needs children tends to rise very fast. Also, before special formulas were put in place to deal with special needs children, services were often pretty cheap. I know from experience. I have dyslexia and needed to see a special tutor in grade school. This came out of my parents pockets. The tutor was relatively inexpensive and I was done with her in less than a year.
5. Also, you were comparing non-religious private schooling to non-religious public schooling. Again, comparing a small niche provider to the huge monopoly. The non-religious private schools have very few people to choose from as customers. Whereas the religious schools have a larger pool to choose from, therefore, more competition. Here, again, I point to tutors. Finding non-religious tutors, in even the most demanding subjects, who offer good prices and good lessons is often very easy.

Anyone looking to compare prices from government (public) schools relative to private schools would do well at the government's own website: http://nces.ed.gov (National Center for Education Statistics).

Also, to get an idea of private school tuition relative to government school tuition (i.e. taxes and fees), I have found this site to be very helpful: http://www.cato.org/pubs/pas/pa486.pdf

It also has many examples of inexpensive private schools in Washington DC.

Jon, I hope this was helpful.

Sorry Arnold, this has really gotten away from your subject. Originally, I thought it would provide some good insight into an analogous subject.

Roger writes:

Part of the problem with healthcare is that it doesn't fit into the free market mold very well. For example, if a consumer wants to buy a new car and he finds that new cars cost more than he wants to pay, he can do without the new car and continue to drive his old one. But for most healthcare decisions, the option to do without does not exist. A few years ago my son's appendix burst. I couldn't tell him that we would put off the operation for a few years until we had more money. I had no choices in the matter. The operations and 3-week hospital stay cost over $30,000. I didn't have time to comparison shop. I couldn't bargain with either the hospital or the surgeons. In effect, they held a gun to my head as much as a kidnapper would have and demanded $30,000 for my son's life. Of course, they put it to me in different terms.

As much as I dislike government programs (I'm libertarian on economic issues), I can't see how free markets will work in healthcare. It might work if there were no artificial barriers to entry into the medical field by the AMA, but get real; that will never happen in our world. Personally, I vote for a two-tiered system as the Brits have. Let the government take care of the poor and private institutions take care of those who can pay for it.

My son's story has a happy ending. He recovered fully and the state of OK picked up the bill. However, I'm also a citizen of the Choctaw Nation which provides free medical care to its citizens. I've used their clinic several times for a wide variety of ailments and have been impressed with the level of care. The administration and doctors at the Choctaw clinic are far more competent than their counterparts at the private hospital that my son went to, though it's considered one of the best in the region. The nurses at both are equal in skill and exceptionally attentive. The genius of the Indian healthcare system is that they provide basic care only. If you want plastic surgery or a root canal you have to go private. I believe a government-owned hospital modeled after the Indian healthcare system would work well if it provided basic care and means tested the cost to consumers. Such a system would eliminate the extra costs and opportunities for fraud encouraged by the current system in which the government pays the insurance that pays the medical bills.

You may wonder why I didn't take my son to the Choctaw hospital for the appendix surgery. The incident happened in the middle of the night and I didn't think it was serious. The private clinic was a few miles closer so I thought I would pay for the visit myself. When we realized how sick he was and that he needed immediate surgery, we decided not to move him. On reflection, I wish I had moved him to the Choctaw hospital.

Ian Lewis writes:

Roger, I am awefully sorry about your son. And you are right, they were able to hold a gun to your head. It is often a desperate situation.

But, there is no reason why the health care industry couldnt work in a free-market. For one thing, for almost 300 years unti World War II, almost all health care (in America and previously colonial America) was taken care of in a free market system. And all we need to do is look at infant mortality rates and average life-spans over that time period to see how the system was working.

Also, just look at other areas that need highly trained people using advanced technological equipment. Mathematicians, Physicists, Pianists, Violinists, Airplane Pilots, etc. All of the services that they provide are either cheap, or getting cheaper. And we do not have a shortage of them, or need to import them from other countries (although, we may choose to). But, then again, their relative fields are either un-regulated or at least allow for open competition.

Granted, I think that you are right about the REALISTIC expectations that we should have about the AMA and other vested interests releasing their death-grip on our health care.

Well, good luck with your son.

p.s. Roger, I dont know if this helps, but you might be able to make a case about the payment you owe if you can find out how much the hospital charges to large healthcare plans relative to individual payers like yourself. The Wall Street Journal has had at least one article on this subject.

spencer writes:

Ian your comparisons of health care pre and post WW II does not work. First, essetially all of the improvements in life spans came from improved standards of living-- better diets -- public health programs like clean water.

Just one simple question -- if you had a heart attack today would you be just as happy to get the same treatment that the medical system was able to provide in 1933? The treatment in 1933 probably would have only cost you one days wages as compared to today when the treatment would cost you several months wages.And in both cases you probably would get good value.

spencer writes:

Ian i need to go look at your expenditures per student data.

I just checked the data for Mass., the state average per pupil expenditure is $8,580, at the bottom quartile of your $8,000 to $10,000 range

http://profiles.doe.mass.edu/ppx.aspx

Maybe I'm wrong, but I would have thought that per pupil expenditure in Mass would be way above the national average.

spencer writes:

I just looked some more at the data I was quoting.

One, it is only operating costs and excludes the costs of the building and debt to finance the building.

But the interesting thing was the data says is that spending per normal student is only $7,000 and for special needs students is $15,000.

So special needs increase the costs per pupil from around $7,000 to the $8,500 level.

Roger writes:

Ian,
Thanks! I'm skeptical about the possibility of a free market in healthcare because the AMA is a union for doctors and exists to keep their incomes high. Not all doctors make a lot of money. Some serve the poor and GPs don't make a great deal. But doctors in general are among the highest paid people in the country. Yet they make their money from the pain and suffering of others. If any other profession, such as pharmaceuticals, attempted to do the same they would be crucified! Yet doctors are held in higher esteem than any other group of people.

I've had similar conversations with people for over 20 years and my personal experience tells me that people worship doctors, especially seniors. It verges on idolatry. All that the AMA has to do to kill any effort to restrain the income of doctors is have a doctor speak out against it. Evidence--the HMO train wreck. As long as the AMA has a monopoly on medical care in the US, there will never be a free market. And doctors are held in such high esteem that few voters will oppose them.

But doctors aren't the only source of outrageous costs. Hospitals are equally guilty. The problem with hospitals is that their economics resemble that of electric utilities. They're both very capital intensive. When a utility builds a new gen plant, it has a fixed number of consumers over which to spread the cost of the new plant, so rates go up. With hospitals, an oversupply of beds causes rates to go up for the same reason. They know that people can't comparison shop in medical emergencies and they will rely on insurance to pick up the tab. In a truely free market, the price of hospital care would fall with competition; instead it goes up! And beds aren't the only problem. New, cutting edge equipment is expensive. Instead of pooling resources, all hospitals try to have all of the latest equipment, but each has a small number of patients who can use it. Either they charge ridiculous fees for its use, or they increase the fees to everyone.

The media focus on malpractice insurance and pharma as the bad guys, but my readings indicate that they are a small part of the problem.

The current system is a mess and I don't believe it can be fixed. A government-owned system would just be the lesser of the evils.

Ian Lewis writes:

Hi Spencer,

if you had a heart attack today would you be just as happy to get the same treatment that the medical system was able to provide in 1933?
Of course I wouldnt want the treatment offered as of 1933.

Nor would I want their cars, stoves, phonographs, etc. I hope that is not what I was implying. What I am saying, is that if you look at almost any other industry in America that depends on high technology and advanced knowledge and skills, their cost and quality are excellent. And those that face the least amount of regulation and gov't control, I believe, have done the best.

To respond to your point about education in Mass. I believe that the $8,580 is accurate in the sense that this is what they quote. But, I hope that you can trust me when I say that the taxpayer is actually spending about $10,000 per student in Mass. That is, if the state of Mass. had never gotten involved in public education, you would be savig at least $10,000.

Either way, private education in Mass. probably averages at around $4,500 per student. And, that is a system that is competing against a huge state monopoly.

Ben England writes:

Roger,
There's no guarantee that in an open market that doctor's salaries would be lower. In some cases, such as primary care, it would likely be higher.

A quick survey of BLS provides us the following information for white collar occupations:
doctor $52.91/hr
teacher (college/university) $41.66
engineer $34.24
laywer $46.11

Given the demands of the profession including time required for training (11-16 years), lifestyle, and level of responsibility, the total hourly wage doesn't look unreasonable.

Frankly, your argument that doctors make their living off the pain and misery of others is economically irrelevant. I may find it silly that someone makes far more money playing a doctor on tv than in real life, but their income is based on the market value for their services.

I am sympathetic to the arbitrary limit on the number of doctors. Merely opening up the classrooms isn't a viable option. Training of doctors is rather expensive venture...about a million dollars per physician, much of which is subsidized with taxpayer money. Without significant downward pressure on the cost of medical education, I'm curious where all these extra doctors will come from.
You could, of course, ask that doctors take on a greater share of the cost incurred, but high debt levels will mean that doctors will need a higher income to cover payments on school debt.

Roger writes:

Ben,
The point is that the AMA makes the education of doctors more expensive than it needs to be. There is no reason it should cost $1 million to educate a physician! That's insanity! I've read of a few universities that have tried to start medical schools that reduce the costs, but the AMA has shut them down. In a free market, the AMA couldn't do that.

Why does a person have to get a bachelors degree before going to medical school? There's no good reason except to raise a barrier to entry.

I can't dispute the BLS average. But I know that many doctors, probably surgeons, make more than $300,000 per year. As I said, GPs don't make that much, but then they don't operate on you in a hospital, either, where the real problems with the cost of healthcare exist.

I would guess that if real competition existed among medical schools, and the artificial barrier of a bachelors degree were removed, far more doctors would be trained and the high salaries of surgeons would decline. But that wouldn't solve the problem of hospital costs.

Dewey Munson writes:

Both Health Care and Social Security are lifetime problems. Solution to these problems has to start at birth!
To think you can ignore them for 3/4 lifetime and play catchup at lifetime end is ridiculous.

Jon writes:

Ian,
The public-private comparison you present is misleading. First, you compare expenses of public schools with *tuition* at private schools, omitting the fact that many private schools are run by non-profit organizations which get subsidies from endowments, alumni, or religious organizations. While it is true that private schools give scholarships, they also get more than "sticker" for some.

Second, it is more fair to compare non-sectarian private schools with public schools because religious private schools often get further donations in the form of labor -- teachers willing to work for low wages due to their religious beliefs. Furthermore, the product is not comparable to a public school. People choose a religious private school often for the religious education.

You also maintained that private non-sectarian schools have few customers; in many large cities they have so few customers that they turn many away. Competition to get into the schools is fierce.

Ian Lewis writes:

Hi Jon,
Why is it unfair to compare public vs private because of donations. Ford subsidizes sales of the Taurus so that they can sell more of them. Should we not compare it to the Toyota Camry which gets no added benefit? Casinos subsidize flights to Las Vegas, but no such subsidies exist for driving or taking the train. Should we not compare prices? Does anyone care how the producer actually gets higher quality and lower prices?

Also, I made many examples of Tutors as well, which you never mentioned. These tutors are not subsidized. Why are there so many, with such high quality and good prices?

Personally, I know a few people who teach at Catholic schools, and they do not do it for religious reasons. But, either way, why would I care? Many Japanese workers had an (almost) religious devotion to their companies (like Toyota and Honda), so, should I not compare the quality and price to Chevy and Ford?

You also maintained that private non-sectarian schools have few customers; in many large cities they have so few customers that they turn many away. Competition to get into the schools is fierce.

You are absolutely right. Large cities have the fewest middle class families (per-capita) and so the government monopoly creates some very perverse consequences. But, I am curious, in these large cities, is it hard to get intelligent, reasonably priced tutors in Physics or Chemistry?

Zach writes:

Roger,

You're right, buying a new car and needing urgent medical care are entirely dissimliar. And yet, no one has a problem with a car dealership making millions of dollars a year, but you'll gripe to no end about someone who spends $100k+ and a decade of their life to get an education so they can save your son's life, all the while getting paid $200k/yr for working 80hr+ weeks. Do the math and that's a whole lot less per hour than your car salesman makes, but that new Tahoe is really worth it, isn't it. Suffice it to say that you'd probably consider your son's life more valuable than a new car (hopefully), so don't complain about what his medical care costs. Maybe physicians should take a page out of the books of car dealers - don't pay your bill (which many people don't...a typical doctor's office will write off over $100k in unpaid bills/yr.) and we'll come repo what we provided for you. People would never think about leaving a resturaunt with paying their bill, but they'll gladly screw over the hospital, the physician, and people who do pay that get stuck with bigger bills because others don't.

As for Indian Hospitals. I've lived and practiced medicine in Oklahoma, and you're kidding yourself if you think they provide good care. Ask a family who is Native American and can go to them for free if they'd rather go to the Indian hospital or come to the private hospital and pay when they get sick...don't bother asking...they vote with their feet. Anytime they're really sick, they come to the private hospitals, because they know how many people are poorly taken care of at Indian hospitals. That's because the doctors out there are low paid, usually having signed up for tuition in exchange for service time.

As for the AMA limiting the supply of doctors. There are already plenty of incompetent people in medical school, and that's with an arduous selection process. I know who I would go to and who I wouldn't if I got sick because I've gone to school with them. Open up the floodgates and you'd better look out. You don't want just anyone to be in charge of your surgery. We make mechanics get certified to look at our cars...don't you want your brain surgeon to be pretty eminently qualified to do what he does?

Ben England writes:

Roger,
You're correct in the excessive cost required for physician training, and this is a perfect example of getting more of what you subsidize. It would likely be possible to trim costs significantly for the first two years of medical school by switching to a self directed basic science curriculum. This portion is suprisingly a non professor dependent process, and many students do quite well despite rarely setting foot in the lecture halls (labs still mandatory), relying on required reading and note services to obtain the needed information.

I doubt the clinical training costs could be cut much without a free market revolution in general, as it is heavy dependent on the costs of providing care. Plus, the clinical years are much better at teaching medical competency than the classroom, and can't be shortchanged.

Let's look at specialist's salaries. Many doctors make far more than myself, but they require longer and more rigorous training, and operate at a higher level of responsibility than primary care. Why would anyone sacrifice an easier lifestyle and delayed compensation for a marginal increase in salary? Keep in mind that the on-paper salary is much different than cash in hand in a progressive tax system.

Chris Bolts writes:

This should be some interesting reading for those that are sure a single-payer health insurance system is the best.

I highly doubt that the reason healthcare is expensive has anything to do with the doctors' rate of pay. Yes, the AMA acts as a barrier to entry for some doctors which keeps the prevailing wage for members high, but the wage of doctors is such a minute portion of healthcare costs. I think something that is even more of problem with healthcare is that nobody knows exactly what they are paying for healthcare. My wife recently called on her bill with a local hospital and her total bill for observations, hospital overnight stays for 3 nights, and medications cost almost $30000. A visit to our physician cost almost $10000. Now, from what she was telling me is that some doctors overinflate their costs because they know that some people won't pay, and although most insurance companies won't pay the entire cost of care, they will pay a good portion of it. I don't know if this is true, but it sounds plausible. What needs to happen with the healthcare system is costs and information on care needs to become more transparent.

Chris Bolts writes:

Here's the link to that story, BTW.

[The link is:
Chicago Tribune story--Econlib Ed.]

Chris Bolts writes:

For whatever reason the link is not showing, but the story is at the Chicago Tribune:
Canadian Supreme Court rejects ban on private health insurance

By Christopher Guly and Maggie Farley, Tribune Newspapers: Los Angeles Times; special correspondent Christopher Guly reported from Ottawa and Times staff writer Maggie Farley from New York
Published June 10, 2005


OTTAWA -- Canada's Supreme Court struck down a provincial law banning private health insurance Thursday, a landmark decision that could put in jeopardy the nation's universal health-care system.

The court ruled that the long delays, lack of doctors and other problems with universal health care have put Canadians' health at risk. The decision will allow patients to seek private care outside the system, sparking fears that doctors will leave the national plan to go into more lucrative private practice and create a two-tier system.

The decision takes effect immediately, but the government of Quebec said it plans to ask the Supreme Court to grant it a stay of up to two years to implement the new policy because it could upset the delivery of medical services. It also may spark a flurry of legal challenges in other provinces, legal experts said.

Canada's free health care and inexpensive drugs have bolstered the country's image as being different and superior to its often-overwhelming neighbor to the south, where 45 million Americans have no insurance. The Canadian system arose from a 1984 law that affirmed the government's commitment to provide mostly free health care for all, including 200,000 immigrants arriving each year.

But notorious delays in obtaining needed care have cost the system some of its luster.

Montreal physician Jacques Chaoulli and his patient George Zeliotis, 73, launched the legal challenge in 1997 after Zeliotis had waited a year for hip-replacement surgery. Two Quebec courts had upheld the ban on private insurance.

After considering the case for a year, the Supreme Court noted in a 4-3 decision that patients had died because of delays. But it stopped short of declaring that it was unconstitutional to ban private health care or that the universal health-care system violated patients' rights to "liberty, safety and security" under the country's charter.

"In the case of certain surgical procedures, the delays that are the necessary result of waiting lists increase the patient's risk of mortality or the risk that his or her injuries will become irreparable," wrote Justice Marie Deschamps for the majority. "Many patients on non-urgent waiting lists are in pain and cannot fully enjoy any real quality of life."

The Supreme Court dismissed the argument that an absolute ban on private insurance "is necessary to protect the integrity of the public plan."

Jon writes:

Ian:
I don't mention your "tutors" because I don't know where you would find enough tutors that cheap. Sure, you could find high school or college students who do 1 on 1 tutoring either for service projects or for pay to obtain extra money. They do this part time, and this activity is not comparable to the sustained effort to plan and run a classroom.
Any examples I run into in the private sector have costs as much or greater than that of the public schools. Speech therapy, a form of "tutoring" is more than $60/hour ($90 for 1 hr or for 45 minutes is what I seem to recall). Piano lessons are at least this amount ($60 hr X 6 hr/day X 180 days/year is greater then $10K).

BTW, using the logic you mention on subsidies, I would compare what one pays to attend public schools with what one pays for private schools!!

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