Arnold Kling  

Maggie Mahar vs. Arnold Kling

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She is a market-hating health care expert. She writes,


Just as the U.S. spends more per person on healthcare than any other country in the world on healthcare, healthcare expenditures in Massachusetts surpass spending in every other state. And this, I propose, is why Massachusetts is having such a hard time implementing its new healthcare reform law.

...Insurance is expensive in Massachusetts because its citizens consume more healthcare than people in many other states. They undergo more tests and procedures than most of us, and they see more specialists. Look at a graph of average healthcare expenditures per person in Massachusetts compared to average healthcare expenditures in the rest of the U.S., and you find that in Massachusetts, individuals receive an average of nearly $10,000 worth of care each year—compared to just a little over $7,000 per capita nationwide.

...Researchers have concluded that this is because so much of the healthcare consumed in high-spending regions is unnecessary. This is care driven, not by medical need, but by supply. By definition, overtreatment exposes the patient to more risks than benefits—or as Dr. Elliot Fisher, one of the Dartmouth researchers, puts it, “Hospitals can be dangerous places, especially if you don’t need to be there.”

Now consider supply in Massachusetts. It turns out that the Commonwealth has one doctor for every 267 citizens of the state—versus one doctor for every 425 people in the nation as a whole. Meanwhile, the state has a critical shortage of primary care physicians—and an abundance of specialists.


Now, compare what I wrote in 2005, several months before the Romney plan passed.

UPDATE: See below for more, and see the comments for Maggie Mahar's articulation of her position.

In the Weekly Standard, I wrote,


if I were going to pick a state in which to attempt an experimental health care financing reform, it would not be Massachusetts. Massachusetts, with its outstanding medical schools and world-class hospitals, is rich in the suppliers of premium medicine, and abundant supply has been shown to drive up usage.

Mahar starts out her post with an interesting poll

Dr. Steven Schroeder, former head of the Robert Wood Johnson Foundation and Distinguished Professor of Health and Health Care at the University of California, San Francisco, told a provocative story about a poll that asked patients in the U.S. `Canada, Australia, New Zealand and the U.K the following question:

“If your personal doctor told you that you had an incurable and fatal disease, would you accept that diagnosis or seek a second opinion?"

* In the U.S., 91 percent of patients said they would seek a second opinion.
* In Canada, 80 percent
* In Australia , 71 percent
* In New Zealand, 51 percent
* In the U.K., 28 percent


My line is that America's health care system reflects American values. One of our key values is, "Don't give up!" Suppose you have, say, a problem with your shoulder, and your doctor says that you should just live with it and take a pain reliever every now and then. If you tell twenty of your friends and colleagues about this recommendation, you will come away with the names of 25 doctors you should see. Even if individual doctors want to avoid unnecessary procedures, society is working against them.

In a related post, Mahar reports,


Uninsured citizens earning more than 300% of the poverty level are expected to buy their own insurance. Here, the state hoped that 228,000 of its uninsured citizens would sign up. So far, just 15,000 have enrolled. Apparently, they’ve done the math and decided that it would be cheaper to pay the penalty. But their premiums are needed to keep the program going. If more in this group don’t sign up, it is not at all clear how the state will be able to continue subsidizing the poor.

Yesterday’s first speaker, Robert Blendon, a professor of Health Policy in Harvard’s Department of Health Policy and Management, talked about what Massachusetts experience might mean for the national health care debate: “Massachusetts is the canary in the coal mine,” Blendon declared bluntly. “If it’s not breathing in 2009, people won’t go in that mine.”


It always amazes me how much consensus there is concerning the diagnosis of what is wrong with our health care system. Maggie Mahar and I agree that the problem is the extravagant use of medical procedures with high costs and low benefits. We agree that the U.S. is an outlier in the use of what I call premium medicine--specialists and high-tech equipment.

We agree that the incentives in medical care are a major cause of the problem. Mahar focuses on "fee-for-service" medicine, which is an adverse incentive on the supply side. But (a) other compensation schemes cause other problems and (b) fee-for-service does not explain all of the referrals to specialists and all the doctors who send patients to get MRI's at completely independent diagnostic centers. Still, I am willing to listen to ideas for other compensation methods, particularly the opportunities that might be afforded by deregulation.

I focus on the incentives on the demand side, particularly comprehensive health insurance. There, the Maggie Mahars of the world only want to put more people into the same incentive-distorting system.


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TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/770
The author at Health Care BS in a related article titled Making Excuses for the Massachusetts Failure writes:
    Most economically literate people understood from the beginning that the Massachusetts experiment with “universal coverage” was doomed to inevitable failure. As Arnold Kling put it at the time: The elected leaders of Massachusetts have come up with... [Tracked on October 25, 2007 7:42 PM]
COMMENTS (19 to date)
dearieme writes:

I infer that Mass not only has a higher-than-average number of sanctimonious creeps, but that they are neurotic sanctimonious creeps.

Ted Craig writes:

If you look at the below chart, you'll see there's an interesting correlation between the nations that ranked highest for asking a second opinion and cancer survival rates. I'm not sure that means anything, but it is worth noting.

http://politicalcalculations.blogspot.com/2007/10/closer-look-at-cancer-survival-rates.html

Matt writes:

If we could expand the definition of "medical" market, then I could include the doctor, who for a fee, will serve you tomatoes for your health. So, should we include tomato salesmen as part of the medical industry?

The medical is many markets, and it will include all markets if one can get a government check out of it. Consider one allergy specialist in our town, who is mainly recognized for selling allergy medice and conducting daily air samples of the pollen count. Fine and dandy, but I do not need a MD on government check to sell allergy medicine and take pollen counts.

Maggie Mahar writes:

Hi Arnold--
Thanks for commenting on the post.
I do think you and I are in agreement on the main point: healthcare in the U.S. is so expensive in large part due to "the extravagant use of medical procedures with high costs and low benefits."
And we agree that abundant supply (i.e. excess capacity) can drive demand.
Where we part company is on the question of a cure.
While it's true that, in general, Americans
demand "more care" than people in many other countries, I think that this is because they have been taught to believe that "more care is always better care" and that the "newest, most expensive treatment is always best" by our for-profit health care system.
Direct-to-consumer ads on television tend to tout the newest, most expensive products that the drugmaker would have a hard time selling to doctors (too little evidence that the new product is superior). Why else would they spend so much money on DTC advertising? And the drug industry has refused to wait two years before advertising a new product because, as somone explained to me "There is a saying in the industry: get the doctor used to using the new product while it still works." (In other words, before we find out too much about side effects and risks. )
Hospitals advertise all sorts of new treatments, some of them completely unproven: "We do deep-brain stimulation for Parkinsons." (Of the major academic medical centers in the U.S. the Mayo Clinic is the only one that doess't advertise to drum up business; they do fine on word-of-mouth.)
And of course there are doctors out there pushing the newest products and procedures--often because they truly believe the ads they read in medical journals or the drug industry rep who took them to dinner, but sometimes because they have a financial interest in the new surgical procedure or device.
Even if a doctor is trying to be conscientious about making sure that he isn't running unncessary tests and doing unncessary procedures, he has learned, in med school, to be pro-active. And a fee-for-service system provides financial incentives to "do more"--even if he isn't conscious that the incentives are affecting how he practices medicine. Then there is the fear of malpractice suits that drives defensive medicine.
Meanwhile, med schools teach doctors that to diagnose a patient they should "run tests" --lots of tests.I spoke at the Texas Medical Association last week-end where a medical student spoke up to say that she was now working with a doctor who was visiting from the U.K. and who complained that American medical students aren't learning to diagnose in the old-fashioned way: asking the patient questions, listening, and putting their hands on that knee to feel what the problem is. The med student said he was right--she would like to learn how to diagnose. And she realized that the tests are not always right--especially if you run the wrong test. (Because you have no clue as to what is really wrong with the patient.)
Finally, our FDA and Medicare systems encourage this "extravagant use" of tests, drugs devices and procedures that are often ineffective.
These days, the FDA seems to approve virtually anything that comes down the pike--thanks to the pressure that the healthcare industry's lobbyists put on Congress and the White House.
And then Medicare agrees to cover virtually everything that the FDA approves. Private insurers tend to follow Medicare's lead--and then they raise premiums to cover the newest, most expensive and not necessarily effective treatment.
You suggest that the problem lies at the demand end of the equation--that if consumers didn't have such comprehensive insurance, and had to pay for more of their care themselves, they would use less care.
The problem is that most consumers are not in a position to judge what is effective care and what isn't. Studies show that when they have high deductibles and co-pays they forego necessary care about half of the time.
The care that is most important (in terms of both the health of the population and containing health care spending) is preventive care and management of chronic diseases.
But the consumer is less likely to demand this type of care--which can be tedious. (Going for physical therapy, checking your blood sugar, exercising and watching your diet, etc.) They are more likely to wait until they are in pain (and need a knee implant because they never exercised or did the physical therapy), need a by-pass, etc.
I think the solution involves making sure that everyone has the kind of comprehensive coverage that encourages going for preventive care and long-term management of chronic diseases, and a reimbursement system that pays doctors more for "thinking medicine" (listening to and talking to the patient) rather than stacking the financial rewards on the side of the most aggressive high-tech medicine.
Finally, Americans won't necessarily demand excessive medical care unless our society tells them that's what they need.
As you probably know three decades of Dartmouth research shows that in states like Minnesota, where there are fewer hopsital beds and specailists, patients spend less time in the hospital, see fewer specialists (and more internists)--and are more satisfied with their care. Doctor satisfaction also is higher and outcomes are at least as good--and often better-- than in places like Miami, Boston or New York where excess capacity drives demand.
And it's not just that there is something special about people in Minnesota. The same is true in Northern California and in Iowa . . .

Lord writes:

One thing often bandied about is that we already provide this care, but that is false. The uninsured only receive immediate life saving treatment. No one is going to provide them with cancer chemotherapy, heart transplants, or diabetes management. Medical tourism is probably introducing some real competition and may be part of the reason the rest is escalating as much as it is.

Cancer survival is difficult to judge. Most if not all of it is likely due to earlier detection and perhaps treatment.

Floccina writes:

USA Governments spend more on healthcare than France does. In the USA Medicine is very highly regulated and licensed so how is it not at least partially the politician's fault that we pay so much and get so little for it.

Maybe we should demand that the politicians cover everyone for the amount of money that they already spend.

Also Maggie I noticed that talked a lot about drug marketing in your post, wouldn’t this post on marginal revolution tend to lead one to believe that drugs are not market or used enough?

http://www.marginalrevolution.com/marginalrevolution/2007/09/sentences-to-po.html
“Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending.”

Isn’t drug spending only one tenth of medical spending?

Buzzcut writes:

Sorry Maggie, you need to learn to use the "enter" button once in a while! ;)

This reads MUCH better!


Hi Arnold--

Thanks for commenting on the post.

I do think you and I are in agreement on the main point: healthcare in the U.S. is so expensive in large part due to "the extravagant use of medical procedures with high costs and low benefits."

And we agree that abundant supply (i.e. excess capacity) can drive demand.

Where we part company is on the question of a cure.

While it's true that, in general, Americans
demand "more care" than people in many other countries, I think that this is because they have been taught to believe that "more care is always better care" and that the "newest, most expensive treatment is always best" by our for-profit health care system.

Direct-to-consumer ads on television tend to tout the newest, most expensive products that the drugmaker would have a hard time selling to doctors (too little evidence that the new product is superior). Why else would they spend so much money on DTC advertising? And the drug industry has refused to wait two years before advertising a new product because, as somone explained to me "There is a saying in the industry: get the doctor used to using the new product while it still works." (In other words, before we find out too much about side effects and risks. )

Hospitals advertise all sorts of new treatments, some of them completely unproven: "We do deep-brain stimulation for Parkinsons." (Of the major academic medical centers in the U.S. the Mayo Clinic is the only one that doess't advertise to drum up business; they do fine on word-of-mouth.)

And of course there are doctors out there pushing the newest products and procedures--often because they truly believe the ads they read in medical journals or the drug industry rep who took them to dinner, but sometimes because they have a financial interest in the new surgical procedure or device.

Even if a doctor is trying to be conscientious about making sure that he isn't running unncessary tests and doing unncessary procedures, he has learned, in med school, to be pro-active. And a fee-for-service system provides financial incentives to "do more"--even if he isn't conscious that the incentives are affecting how he practices medicine. Then there is the fear of malpractice suits that drives defensive medicine.

Meanwhile, med schools teach doctors that to diagnose a patient they should "run tests" --lots of tests.I spoke at the Texas Medical Association last week-end where a medical student spoke up to say that she was now working with a doctor who was visiting from the U.K. and who complained that American medical students aren't learning to diagnose in the old-fashioned way: asking the patient questions, listening, and putting their hands on that knee to feel what the problem is. The med student said he was right--she would like to learn how to diagnose. And she realized that the tests are not always right--especially if you run the wrong test. (Because you have no clue as to what is really wrong with the patient.)

Finally, our FDA and Medicare systems encourage this "extravagant use" of tests, drugs devices and procedures that are often ineffective.
These days, the FDA seems to approve virtually anything that comes down the pike--thanks to the pressure that the healthcare industry's lobbyists put on Congress and the White House.
And then Medicare agrees to cover virtually everything that the FDA approves. Private insurers tend to follow Medicare's lead--and then they raise premiums to cover the newest, most expensive and not necessarily effective treatment.

You suggest that the problem lies at the demand end of the equation--that if consumers didn't have such comprehensive insurance, and had to pay for more of their care themselves, they would use less care.

The problem is that most consumers are not in a position to judge what is effective care and what isn't. Studies show that when they have high deductibles and co-pays they forego necessary care about half of the time.

The care that is most important (in terms of both the health of the population and containing health care spending) is preventive care and management of chronic diseases.

But the consumer is less likely to demand this type of care--which can be tedious. (Going for physical therapy, checking your blood sugar, exercising and watching your diet, etc.) They are more likely to wait until they are in pain (and need a knee implant because they never exercised or did the physical therapy), need a by-pass, etc.

I think the solution involves making sure that everyone has the kind of comprehensive coverage that encourages going for preventive care and long-term management of chronic diseases, and a reimbursement system that pays doctors more for "thinking medicine" (listening to and talking to the patient) rather than stacking the financial rewards on the side of the most aggressive high-tech medicine.

Finally, Americans won't necessarily demand excessive medical care unless our society tells them that's what they need.

As you probably know three decades of Dartmouth research shows that in states like Minnesota, where there are fewer hopsital beds and specailists, patients spend less time in the hospital, see fewer specialists (and more internists)--and are more satisfied with their care. Doctor satisfaction also is higher and outcomes are at least as good--and often better-- than in places like Miami, Boston or New York where excess capacity drives demand.

And it's not just that there is something special about people in Minnesota. The same is true in Northern California and in Iowa . . .

Buzzcut writes:

Maggie, how does Medicare do a better job of providing "preventative medicine" than the individual in Arnold's system?

I have a real problem with your statement that consumers won't do preventative medicine. What evidence can you provide that this is true?

People get the oil changed in their cars (perhaps excessively so). Why wouldn't they do the human equivalent of changing the oil?

Mt57 writes:

An interesting debate. It's possible that either of you is right or that each of you is part right and part wrong. The only observation I offer is that Ms. mahar's argument is full of supposition and tentative" "won't necessarily demand"; "the consumer is less likely" etc. I would like to see some data to support the argument that insufficient preventive care and insufficient care of chronic disease are the biggest problems in driving up health care. Maybe so, but I don't know. I do know from the Kaiser Family Foundation that in the latest year 22.5% of the $2 trillion in healthcare expenses in America (i.e., $450 billion, or as much as we have spent on the war in Iraq since its beginning) were spent on the sickest 1% of the population but whether the breakdown of their demographics, illnesses and expenses conforms to Ms. Mahar's theory or not, I don't know. For example, if the vast majority of the 1% are either very elderly people or trauma victims, it would seem to contradict her thesis. If it is full of middleaged cardiovascular patients and young diabetics, then it would support her.

I also question whether either of you are correct and the real cure and thus the highest and best use of dollars in healthcare lies in medical research to address cancer, diabetes, alzheimer's and substance abuse.

Michael writes:

I've been a Nurse Case Manger for the last 15 years. I think some form of universal health care is coming. It will likely go a long way towards solving the problem of universal access. It is, however, a fantasy to believe that it will cost less than the current system unless there is some way to curtail demand. It is clear in my practice that the demand for the latest, greatest, highest tech intervention is driven by patients. Everyone wants a pill or a procedure to solve their problems and they want it immediately. The notion that somehow we are going to able to substitute preventative care for expensive technology is not consistent with the behavior I see with patients. Preventative care (for diabetes, heart disease, high blood pressure etc) is dependent upon life-style changes and self-discipline. A small percentage of the patients I see are willing to forego the pleasures of the moment for the likely long term benefits of eating less, exercising more, and testing one's blood sugar. Even if it's free. Americans naturally want universal and free access to interventions that will cure them and spare their lifestyles Who wouldn't. If they get it we will be bankrupted before the ink is dry on the legislation. If they are not to get it then someone is going to need to say NO. Currently the institutions that fulfill this funtion are insurance companys, and we know how popular they are. The same NO from a government agency or panel of experts is going to be no more palatable. The howls of protest will just be redirected to government agencys. Politicians who mainly wish to get reelected will engage in more deficit spending or risk defeat at the polls. I can't wait.

General Specific writes:

"People get the oil changed in their cars (perhaps excessively so). "

Since you've required evidence from her, I think you should provide evidence to her in kind for your assertion on oil changes.

(And the existence of oil changing services is not evidence because it doesn't tell us what percentage of the population is properly taking care of their automobiles.)

Many people abuse their bodies drugs through extreme obesity, eat poorly (nutrition), don't exercise, smoke, and drink alcohol excessively.

So my suspicion is that many people aren't performing preventative medicine. Which is why most medical plans I know of pay for one checkup a year as part of the price package--increasing the probability that people will engage in some form of preventative medicine.

spencer writes:

One consequence of Mass having so many doctors is that doctor's income in Mass is the lowest of any state in the country. It seems that doctors like to live and practice in Mass so much that they are willing to accept a significantly lower standard of living to remain here. Moreover, the point that Mass has so many Residents and other doctors in training is not the cause of the very low income for Doctors in Mass.

But, the Mass experience where health care is so expensive and doctors have the lowest income of doctors in any state seems to be prima fascia evidence that doctors high income because of supply restrictions is a major reason that health care is so expensive.

spencer writes:

Sorry that should be NOT.

But, the Mass experience where health care is so expensive and doctors have the lowest income of doctors in any state seems to be prima fascia evidence that doctors high income because of supply restrictions is NOT a major reason that health care is so expensive.

General Specific writes:

I like Michael's contribution to this discussion. I mentioned in a previous comment that I thought the medical costs and care issue can be broken down into a couple categories:

1. Access to care.

2. Costs.

Access to some care--e.g. preventative checkups--may reduce some costs, e.g. catching a disease earlier leads to cheaper care. But not necessarily. Catching a disease earlier might simply mean more expenses for an inflection that will prove fatal.

Costs can only be reduced by (a) efficiency and technology (b) reducing profit margins--e.g. doctors have one less Mercedes or (c) reducing care--e.g. point #1, limiting access.

One means of reducing profits is for the insurance companies to arm-wrestle with doctors. Another is to publish rates so consumers can shop.

As far as I understand, Kling wants to limit access by how much money I have saved or am willing to borrow, similar to my access to new gadgets at the electronics store, or any other consumer product. The downside with this approach--it makes access regressive, and we have to ask whether we want to be a society that flips off the switch of health care to one bed because his $$$ ran out--while the switch remains on for the wealthier fellow in the adjacent bed receiving unnecessary care.

And as Michael says: we live in a culture than has been inundated with the concept of gain without pain. And it isn't the government that is responsible for this. It's the private sector marketing to our willingness to believe the unbelievable (not unlike economists willingness to believe that economies will continue to grow when energy production peaks).

To control medical expenses, someone has to say "no" to access. The government, the insurance company, or my personal finances (savings and willingeness to go into debt).

No is not an easy message to sell in a world in which Julian Simon and many socialists and ultra-libertarians--all utopians--sell the idea of gain without pain, ignoring the concept of limits.

New medical breakthroughs will help many who are ill. But while waiting for breakthroughs, some switches to access have to be shut off. That's called living within limits. It's not a message peopel want to hear.

8 writes:

I think this article on vets from Slate is timely:
But Doc, the Dog's Already Dead!
How to say no to your vet.

D. Becker writes:

Nothing happens in the process or producing health or healing until the doctor makes a diagnosis. Even if it is as simple as "pain". Costs do not start running until then.

So when you read this:

Our initial report analyzed clinical and cost utilization data from the years 1999 to 2002 for an integrative medicine independent physician association (IPA) whose primary care physicians (PCPs) were exclusively doctors of chiropractic. This report updates the subsequent utilization data from the IPA for the years 2003 to 2005 and includes first-time comparisons in data points among PCPs of different licensures who were oriented toward complementary and alternative medicine (CAM).

Results:
Clinical and cost utilization based on 70 274 member-months over a 7-year period demonstrated decreases of 60.2% in-hospital admissions, 59.0% hospital days, 62.0% outpatient surgeries and procedures, and 85% pharmaceutical costs when compared with conventional medicine IPA performance for the same health maintenance organization product in the same geography and time frame.

You have to start asking if the problem with health care is not the problem experienced anytime there is only one dominate idea in the market place for what the product is.

If it is the problem, then we either start dealing with health care as we have with public utilities or we start making sure that competing ideas get to compete in the market place.

Buzzcut writes:

Since you've required evidence from her, I think you should provide evidence to her in kind for your assertion on oil changes.

The automakers have a pretty good idea. If you don't change the oil, you develop "sludge" (yes, that is a technical term) in the engine, which eventually causes the engine to fail.

There have been a rash of high publicity class action lawsuits related to sludge. When you look into the details of the class action, you see faiulure rates on the order of less than 1%.

So be conservative. Say 5% of drivers don't perform preventative maintenance.

Toyota actually blames people who lease cars for the rash of sludge induced failures. People who lease don't have the incentive to perform preventative maintenance, because they're ditching the cars after 24k miles, or whatever.

Buzzcut writes:

Aren't annual checkups a complete waste of time?

Charlie 0893 writes:

I agree with the main point of this article, as well as the many comments found afterwards. People in the U.S. have come to expect everyday miracles. They expect a magical cure to present itself whenever faced with bad news. The truth of the matter is this; taking care of your body, including 'preventative maintenance' will go a long way towards maintaining your health. However, some diseases and sicknesses are hereditary or are, at any rate, unavoidable. Bad things happen to good people. Sometimes the only way to deal with this is to suck it up and live with the condition. Sometimes the only way in which it can be dealt is death. However, this is the life we have and people must get used to that.

Additionally, the point on preventative maintenance causes me to agree that just as I change the oil in my car every 5000 miles, change the air filter, rotate the tires, etc., I need to take care of my own body.

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