Does the U.S. Spend More?

The following report is reprint from John Goodman's Health Blog. It makes some important points on the distortion that takes place in comparing the health services between the US and other nations -- always used to justify socialized health care. He notes that these comparisons are false because many of the costs for other delivery systems is disguised in the manner he outlines below. We shall also be posting an article concerning how one way socialized health care keeps costs down is by refusing treatment to needy patients.


A new report from McKinsey claims that the United States spends $477 billion a year - $1,645 per person - more on health care than other OECD countries do, after adjusting for differences in income and wealth. To make matters worse, we do not get better care. Paul Krugman of the New York Times is going gaga over the report.

However, the study makes a fundamental economic error, surprising for McKinsey. The real social cost of any good or service is not the amount of money spent on it. It is the real resources used to produce it. This is especially important in health care, where the suppression of market forces in every country makes cash flows an unreliable indicator of real resource use.

Surprisingly, there are fewer practicing physicians, nurses and acute care bed days per capita in the United States than the average OECD country. We do use 54 percent more medical devices - defibrillators, pace makers, coronary stints, hip implants, knee implants, etc. But our consumption of drugs is 20 percent lower than in other countries. If health outcomes among developed countries are pretty much the same, the United States does not look so bad in terms of resources used to produce those outcomes.

In the McKinsey study, almost 60 percent of the higher U.S. cost of care stems from high prices paid for inputs. However, in other developed countries, governments use their buying power to force providers to accept below-market reimbursement, just as Medicaid and Medicare do in the United States. For instance, the income of a physician is 5.5 times that of the average worker in the United States, on average. The ratio for Germany and Canada is 3.4 and 3.2 respectively. The comparable ratio is 1.5 in Sweden and 1.4 in the United Kingdom.

Monopolistic buying power - however, does not lower the real social cost of health care; it shifts those costs. A different way of achieving the same result would be to pay doctors market-determined fees and then impose a special tax on them, leaving their net income where it is today. The virtue of this alternative is that it would be clearer that social costs have not been lowered; they have merely been shifted to the providers of care.


A few other economic errors in the McKinsey report are worth noting. They treat the profit of for-profit hospitals as a cost not borne by public hospitals - as though capital used by government has no opportunity cost. And they treat the taxes paid by for-profits as a cost not born by public hospitals - as though real social costs were affected by whom the government chooses to tax.

I'll save the quality discussion for another day, but leave you with this thought. If the United States performs far more knee replacements than other countries then one of two things must be true: either 1) we are increasing the quality of life for our seniors relative to seniors in other countries, or 2) we are subjecting our old folks to a lot of unnecessary (and painful) operations.

Everything is taxed and subsidized.

The bureaucrats in Brussels, the headquarters of the European Union, are just as anxious to micromanage the lives of others, and to dictate to them, as those in Washington. In other words the people in Brussels are just another version of George Bush -- that ought to upset both Bush and the EU-acrates. Admittedly the Europeans aren’t as likely to torture you but sometimes you’d wish they would as that might be an improvement over the constant Nannying and harassment.

EU bureaucrats spend millions per year to “educate” people. Now I think there is very little doubt that smoking is bad you. You really ought not do it.

The EU claims that “some 80,000 people a year in the EU” are killed by “passive smoking”. No source for that is listed. And from what I’ve seen it is very tenuous to claim that passive smoking is this dangerous. Suffice to say the EU is intent on making Europe smoking free.

Oddly the EU benefits from people smoking. Most EU countries are welfare states that are in deep trouble. They promise pensions to their citizens along with health care and can’t deliver on the promises without constantly raising taxes higher and higher. But by doing that they destroy jobs and create high unemployment requiring massive welfare benefits. And they end up on this downward spiral. Smokers actually offer them some relief. One is that they pay massive taxes for the “privilege” of being allowed, by their political masters, to smoke. The other is that smoking does, on average, shorten their lives and that benefits the welfare state’s bottom line. While there are increased health costs due to smoking the reduced life expectancy means they collect pensions for a shorter time than non smokers. The result tends to be a net gain for the welfare state.

While the EU spends train loads of money to make Europe smoke free it then spends more train loads of money to subsidize tobacco production.

In an exchange in the British parliament one House member asked the Secretary of State for Environment, Food and Rural Affairs “what subsidies are available at (a) EU and (b) national levels to producers of tobacco in the European Union?”

The answer was that: “The European Union adopted budget for tobacco premiums in 2006 was € 920 million...” That’s a lot of cash folks. But we are assured that these subsidies are tied to “a quota system” and that “any tobacco grown beyond quota will only fetch market prices and no premium.” Now don’t you feel better?

The first 350,600 tons of tobacco produced fetches the farmer market value plus extra money from the European Union. And then anything over that will “only fetch” market prices. Oh, those poor farmers! They only get paid above market prices for their tobacco on 350,600 tons. The subsidy to grow tobacco is about 20 times higher than the subsidy to grow grain. There are something like 135,000 people, in Europe, paid by the EU to grow tobacco. You’d think with all these subsidies they could grow decent farm produce in Europe -- but from what I see they can’t. Vegetables are awful in Europe and the meat quality is pretty low. I’ve concluded that one reason the French use so many sauces is to cover up the quality of the meat.

But then subsidies tend to lower the quality of one’s goods and ultimately make one less competititve and more likely to fail.

The EU-acrates will note that a good deal of the tobacco is exported, much of it to poor nations. So the EU subsidizes cancer for the world’s poor. How nice of them! Of course, because of the higher death rates, they also send foreign aid to these countries to try and reverse some of the effects of smoking. It appears that the EU subsidizes everything! But to even things out they also tax everything! And Europeans like to think Americans are stupid?

Can the rights of physicians and patients be reconciled?

A survey of physicians in the US shows a small, but significant, number of them believe they have no obligation to tell patients what medical options are open to them if those options violate the religious values of the physician -- regardless of the values of the patient. And 18 percent said they are not obligated to refer the patient to physicians who do provide that care.

Al Weir of the Christian Medical & Dental Associations argues this refusal of service protects the right of the doctor. “The doctor has the right to follow their own company and their own moral integrity.”

But there is a conflict here. It is not the doctor’s treatment choices that is under discussion. The physician is always free to follow his own advice with his own life.

But a physician may hold beliefs which conflict with the choices available to the patient. Should the physician be required to give advice if being truthful with the patient violates his “ethics”?

How does one protect both the rights of the patient and the physician? Is it possible to maximize the liberty of each?

The political Right tends to assume the doctor has the right to keep the patient in the dark about medical options because religious beliefs are paramount. Thus the patient can be kept the dark against their will. The political Left tends to assume the patient has the right to force the doctor to violate his own ethics. Each side is willing to use the force of law to impose their values on the other side.

Neither patient nor doctor should be put in a position of having the other make decisions for them without their consent. And it is possible for that to happen.

Let us assume a case where there are various treatments available: treatments A to J or ten treatments in all. The patient assumes the physician will let him know what options exist. That is a reasonable assumption to make and is mostly true.

But assume that the doctor has some sort of belief that makes treatments A, B, and C off the table for him. So he deceives the patient and tells him only of treats D through J. He can’t even tell the patient what treatments they might be because they violate his own values.

It seems the best option, which protects the maximum freedom of both physicians and patients, would be where the doctor is not obligated to discuss treatments he considers immoral. But he is obligated not to deceive this patient at the same time. It is a contractual duty. So the very least that is required of him is something along these lines:

“My personal beliefs do not allow me to inform you about options that may exist for you in regards to this condition.”

Such a statement informs the patient that he may wish to seek another physician. If the doctor feels he can not recommend another physician who would inform the patient about these treatments then he should be required to say: “Nor will I recommend physicians to you who might inform you about these treatments.”

At this point the patient is free to continue treatment or seek another physician. If they wish to allow the unknown beliefs of someone else to determine the medical care they seek is up to them. But it is unlikely many will take give this power over to the physician.

Since this option doesn’t require the physician to use or mention the treatments in question then why is that they have ot already opted for this alternative?

Could it be that some of these “morality” driven physicians are wish to protect their bottom line? If a physician who denies treatments to the patient based on his own values were to inform the patient that this was happening he knows that many, if not most, of the patients would desert him. His “values” are of value provided only the patient pays the cost of them.

If he is honest with his patients, and informs them that he intends to deny them information based on his values, he fears he will lose income. Deception of a patient for profit maximization is not a physician defending his highest moral values no matter what their defenders say.

If a physician has a moral value which forbids him or her from being honest with the patient then it is the physician not the patient who should pay the price for that value. Basic economics tells us that the number of physicians having said moral values will radically decline when they pay the price of their values instead of being able to pass them on to the uninformed patient.

Japanese cancer patients decry limits of "universal" system

According to legislator Takashi Yamamoto, who was just diagnosed with cancer, “abandoned cancer refugees are roaming the Japanese archipelago.” Patients are told they’ll never get better, even when treatments exist, and many are not even informed of their diagnosis.

Japanese public television showed the stark contrast. In the U.S., multiple specialists meet to discuss a cancer patient’s care. In Japan, a single doctor usually makes the diagnosis and carries out treatment with minimal consultation.

Galvanized by a speech by Yamamoto, the parliament passed a bill calling for more cancer specialists and a permanent role for patients in policymaking.

But while patients want American-style treatment, policymakers are alarmed. With a huge national debt and corporations worried about higher taxes, they say Japan can’t afford to pour money into treatments that can’t extend lifespan by very much.

“America did too much of this and that’s why their medical costs have grown,” said Masaharu Nakajima, a surgeon and former director of the Health Bureau at the Ministry of Health, Labor and Welfare.

Since Japan enacted universal health insurance in the early 1960s, the emphasis has been on a minimum standard of care for all. People must pay a monthly health-insurance fee, and large companies pay also. Coverage decisions, doctors’ pay, and other rules are largely set by the central government.

Medical spending in Japan is around 9% of the GDP, compared with 16% for the U.S., and is lower than in most Western European countries and Canada.

The average physician’s income in Japan is about half as much as in the U.S., and last year was cut by 1.36%, on top of a similar cut in 2002. Japanese doctors complain that they have no time to spend with patients. The experience of seeing a popular doctor is summarized as “a three-hour wait for a three-minute visit.”

Cancer mortality rates in Japan have been steadily climbing and are now more than 250 per 100,000, while U.S. rates are declining and are now around 180 per 100,000.

“Our rights as individuals are not being recognized,” stated lung cancer patient Hidesuke Hashimoto. Mr. Hashimoto, a former math teacher, undertook to study his options on his own, moving along to a different hospital when told there was nothing more that could be done, and sometimes paying out of pocket (Peter Landers, Wall Street Journal 1/11/07).

Commenting on the Wall Street Journal article, Craig Cantoni, a columnist in Scottsdale, Ariz., writes: “Like nationalized health care in other countries, the Japanese system is based on the premise that the state owns your body.” Therefore, “the state can dictate what medical care can be withheld from you, either by policy or by making you wait so long for care that you die in the meantime.”

A dysfunctional American market is not a justification for the change in ownership. “Nor is [it] justified by the fact that Japan spends about half as much per capita on health care as the United States, or by the fact that the Japanese have a longer life expectancy.”

Cantoni warns that if rights are taken away for reasons of efficiency or cost, “no right is safe from do-gooders and busybodies, from politicians and bureaucrats, and from the tyranny of the majority.”

Reprinted from News of the Day: Association of American Physicians and Surgeons.