Friday, January 26, 2007

Healthcare costs

I'm confused by how more emphasis on "preventative care" is supposed to reduce overall, long run healthcare expenditure. In fact, I'm not sure how "preventative care" can do anything other than increase healthcare expenditure.

Malcolm Gladwell repeats the conventional wisdom about the efficiency merits of preventative healthcare in this New Yorker piece, "Million Dollar Murray." It chronicles the life of a homeless man in Reno named Murray, who was a chronic alcoholic, and lead a lifestyle so unhealthy, that he racked up $1M in medical fees in ERs until he finally died.

Gladwell's description of substance abusers who go repeatedly to the ER accurately reflects my wife's experiences in an inner-city ER in Boston -- there they would refer to them as "frequent fliers" and they refer to a small number of indigent substance abusers who use up a disproportionate amount of ER time and resources. Malcolm states that it would be cheaper for the state to simply make Murray a ward -- put him in a home under constant supervision -- than it was to keep patching him up in an ER and sending him out into the world, just for him to self destruct again.

Brad DeLong sets the context for why this does not make sense with a great piece on what's driving long run healthcare costs.
One of our best graduate students here at Berkeley--Marit Rehavi--just came by with a truly depressing thought. No matter which subtribe of economists you think is correct in the intellectual health-care wars, the world is moving in directions that make the favored policies of both factions less likely to work in the future.

On health care issues, you see, economists divide into two subtribes depending on whether they think the big problem with America's health system today is adverse selection or moral hazard--two terms from the insurance industry.

Those economists on the left tend to think that the real big problem with American health care is adverse selection: Those who know they are healthy and likely to stay that way skimp on purchasing insurance... Ultimately, this line of thought goes, single-payer national health insurance is the best option, for the administrative and bureaucratic inefficiencies introduced are vastly outweighed by the reduction in the gaming the system that goes on under our current plan where profits are made by those insurance companies that are best able to avoid covering the sick.

Those economists on the right tend to think that the real big problem with American health care is moral hazard: that patients soak up scarce and valuable doctor and nurse time even when there is no benefit to the visit, and that doctors use up vast resources conducting tests and procedures that do patients very little good...

The prescription of the right-wing subtribe of economists is to create hard incentives: regulate the insurance market so that the only policies allowable are high-deductible and fixed-reimbursement polices that make doctors feel in their purses the costs of the procedures they recommend, and that make patients feel in their purses the costs of the health professionals' time that they pointlessly soak up...

The prescription of the left-wing subtribe of economists is nearly the opposite: it is to soften incentives as a side effect of eliminating opportunities for moral hazard by recognizing that the market for health care financing simply does not work very well, and cannot be made to work very well. If the left-wing diagnosis is correct, the prescription would do a lot of good. Nobody likes going to the doctor or undergoing invasive and usually painful costly medical procedures...

And now Marit Rehavi comes by with an additional reason to despair. For according to her reading, as America ages and as American society changes an increasing share of the increase in health care costs is going to be driven not by increases in adverse selection by insurers or by moral hazard driven by doctors ordering inappropriate and barely effective care, but by expensive chronic diseases and risk factors driven by long-term lifestyle choices. Nationalizing the health insurance sector won't diminish the costs in 2050 of treating the lung cancer that the twenty year-old staring smoking today will develop. Increasing copays won't reduce the costs of treating the diabetes that the five year-old today with a two-coke and three-twinkie-a-day habit will develop in 2045."
I recommend reading the whole thing (Brad ends with not really knowing what to do, and offhandedly suggesting a nanny state, that tells you to eat your vegetables and exercise more).

In the Murray example, I'm not sure what "preventative healthcare" means. Malcolm's policy prescriptions -- put him in a home, pay someone to watch him 24/7 -- aren't related to healthcare at all, they're related to targeting extremely generous social services to those who are honest to goodness truly incapable of looking after themselves in any way, and hoping that this won't encourage freeloaders to begin sponging off taxpayers (welfare systems invariably have some mix of the two).

And the type of preventative care recommended by Brad DeLong ("lose weight, exercise more, don't smoke, don't drink to excess, watch your fats, watch your sugars, eat your vegetables, et cetera") aren't really medicine either, they're just good public health. And I don't know if it's possible to improve on any of these measures -- Brad DeLong, for example, is smart, well informed, conscientious, and fat.

"Preventative medicine" should really be called "postponement medicine", because it does not prevent illness, eventually leading to death, it merely postpones that moment. Sooner or later, we're all going to be in massive system failure on a gurney somewhere with caring medical professionals spending hundreds of thousands of other people's dollars to keep us going for another minute or two. And God bless them for it. Preventative medicine, and healthy lifestyle habits, may determine whether this happens at age 55 or age 95, but that time will come to us all. And when that time comes, we will consume huge healthcare resources.

Let's take a step back from heroic, end-of-life treatment, and look at treatment of chronic conditions. The line between what is a killer condition, and a treatable, chronic condition, moves whenever there is an advance in healthcare technology. 50 years ago, if you had cardiac disease that lead to a heart attack, there was very little could be done for you. You would be told to rest, and shortly thereafter, you would die. If you have a heart attack today, doctors will insert a stent and put you on a barrage of medication that will significantly increase the quality of your life, if not the quantity. You will still die eventually, of course, but maybe of something else, and maybe not for many years. But shifting people from the "dead" category to the "alive, but needing constant care" category can only drive up costs. (This is not a bad thing. Health is a much better use of money than plasma TVs). Moving people from "dead" to "alive but needing constant care" is how medicine works. There is no magical end point where we live active, healthy lives because we did "preventative medicine" when we were younger, right up until the moment where we suddenly buy the farm, and do so so rapidly and unexpectedly that no medical professional has the opportunity to help.

Now suppose someone invented a pill that eliminated heart disease, and no one need ever die from a heart attack again. Giving this pill to people would be a wonderful example of "preventative medicine". But now that people were not dying of heart attacks, they would start dying of something else (maybe later) that we could *not* cure, and then we'd focus on developing a treatment to manage the condition (driving up costs) etc. The only factor gating our willingness to spend money seems to be availability of treatment. If we want to stop increases in healthcare expenditures, we need to stop coming up with new medical treatments.

Fortunately, this is easy to do. There is only one market on the Earth that offers profit for new medical treatments, and that is the US. It's 300M rich, somewhat elderly people, unconstrained by miserly government limits on what they can spend, provide the profit that drives global pharmaceutical R&D. If you kill the profit in this market, through universal health care, then the incentive to develop new drugs will drop, as will the arrival of new drugs and treatments themselves. As new medicines stop rolling into the market, spending will decrease.


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