Comments on: Public and Private Health Care

By: Robbo

Robbo — Sat, 17 Jul 2004 04:54:24 +0000

Detached Observer wrote: “I’ll be the first to admit it — bill gates would most likely lose out if we introduced public health care.” Actually, that’s likely untrue. Unless you made it illegal to seek care from another country, the Bill Gates’s and Martha Stewarts of the world would merely jet to some other country to get what they wanted. So unless the entire developed world started rationing health care, it would create a “superclass” of patients wealthy enough to jet to Japan (or some such place) to get the surgery, test or whatever they desired. Alternatively, unless participation in the “nationalized” system was compulsory for physicians, you’d invariably have doctors working on the side, taking cash only. Again, only the super wealthy would benefit.

By: Robbo

Robbo — Sat, 17 Jul 2004 04:47:54 +0000

Also: before someone launches “Well, there must be more lousy doctors in America than other countries if there’s more suits in America” logic, it just doesn’t hold. A well designed study by Harvard medical school sampled well-regarded specialists in their field about a variety of actual cases. They provided the “experts” everything that was available to the experts in the case and to the jurors. The experts agreed with the jurors barely 50% of the time. The biggest predictor of cases that the jury thought constituted “malpractice” that the experts thought represented quality care with an unfortunate outcome? How “sad” the case was… ie: a baby that died despite the best available care often brought their parents a post-humus multimillion dollar “windfall.” Old winos who got slipshod care in a public hospital got nothing.

By: Robbo

Robbo — Sat, 17 Jul 2004 04:36:16 +0000

Jonathan Goldberg wrote: ^{“The effect of malpractice suits on health care has been mentioned by serveral posters. I’d like to point out that government-provided health care is of itself an anti-malpractice-suit measure. This is so because the cost of the extra health care made necessary by the bad effects of the malpractice are taken off the table, resulting in lowered incentives for such suits.”} as Sebastian Holsclaw wrote, this isn’t likely to make a dent; in states where there isn’t a cap on malpractice damages, the usual malpractice settlement is about 70% “pain and suffering,” loss of consortium and other “soft” reasons, 20% things like lost wages and the like, and 10% future medical care. The future medical care % does go up for injuries to infants, but then so does the total suit (as high as $63MILLION, for one kid, that I’ve seen published); and the future medical care component actually disappears (for obvious reasons) for suits where the the alleged malpratice is for a “wrongful death.” IMO, to talk about cost controls in medicine in the USA apart from sweeping tort reform is just foolishness. It’s not just that things like defending litigation and the cost to hospitals and physicians and the like for liability insurance drive up the overhead for providing care (one part of every claim that medicare pays goes specifically to pay for the malpractice overhead—and that component is indexed to the cost of malpractice insurance for that state… so we all pay for runaway malpractice costs, even if we never see a doctor, by paying taxes!). [Don’t believe me? Go over to http://www.cms.gov and look up “relative value units”—of course, trying to read the stuff can cure the most hopeless insomniac!] IMO, however, those “direct” costs are probably actually dwarfed by the cost of testing that malpractice-phobia drives. But, in fairness to doctors, the other side of the coin is the expectations of patients that drive this litigation craziness. Americans basically expect an error-free medical system; one missed fatal heart attack, and the doctor is suddenly on the front page of the local paper and opening a subpenia from a lawyer, and praying his kids still get to go to college. One ER doc I know admits to me that probably 2/3 or more of the people he orders CAT scans on for their headaches are because he “has to” based upon the voiced complaint of the patient, even when his exam and instincts tell him otherwise. Why? Because no doctor (or human) is omniscient, and no doctor, no matter how talented and consiencious, is going to pick up every bad diagnosis from their physical exam (and even with a few cheap tests thrown in). And if that 40 year old mother of three who tells him she’s having the “worst headache of my life” (as she sits there and watches Jerry Springer and munches on Dorritos and screams at her kids) turns out to the be the one in a million who actually has bleeding in her brain—and if he misses it—the late woman’s estate will likely be contacting a personal injury lawyer to “get what they deserve” (plus a “little extra” for the hardworking attorney), and my friend will be making an appearance at a courtroom near you… If my friend worked in western Europe, he’d likely just have to fill out some paperwork (because of all the beaurocracy involved). If he worked in the thrid world, the family would likely come back and thank him for doing the best he could… So the question is, what type of expectations does the culture have? My impression is that western Europe, they tolerate the inevitable misses that occur, even when the outcome is bag, so long as the doctor showed due dilgence and followed correct procedure. In the third world, most people are just happy to have someone show up and hold their hand and give them a pill. In the USA, basically ANY bad outcome (in the minds of most) is a reason to lynch a doctor who “obviously didn’t do his job.” In short, Americans expect their doctors to be gods (but subservient gods, who do their whim) who are inerrant. The problem is from moving from a few errors (the errors inherent in a human doing their best in a “cost efficient” manner) to an “error free” system drives up the costs exponentially. Why? The “best effort” system makes sure the doctor orders tests that seem logical; the “error free” system forces the doctor exhaustively exclude every potential diagnosis known to man. Why? Because if they don’t, invariably some “Monday Morning Quarterback” type attorney is going to tell a jury a sad story of a patient who had something bad happen, and then turn to the doctor on the witness stand and say “Gee, doctor, didn’t you realize that Mr. X’s [fill in symptom] could have been [fill in catastrophic disease] and that by merely obtaining [fill in test costing $1000], you could have saved this person’s [life, limb, whatever]?”

By: Detached Observer

Detached Observer — Sat, 17 Jul 2004 02:45:27 +0000

jane, I don't know any "advocates of public health care" who "insinuate that everyone will be able to have the same quality health care they now enjoy." Maybe they exist but certainly none of them post on crooked timber. I'll be the first to admit it -- bill gates would most likely lose out if we introduced public health care. The point being made here is that western European democracies have better average care at lower average cost per patient.

By: Tom

Tom — Fri, 16 Jul 2004 20:12:06 +0000

“MQ, the pharma industry does not seem to me, as a whole, to be earning economic rents. P/E’s in the industry seem to be between 13 and 15, which is downright modest by today’s standards, with returns in the 5-8% range.” Tut tut, Jane. You can’t determine whether an industry’s gaining economic rents by P/E ratios; the rents would be priced into the current share price. Tobin’s Q would be a better bet. I think there’s also been work done on why Biotech VC funds tend to get crappy returns (15-20%); the thesis being that small biotech start-ups are unable at acquisition to capture all of the value they create, because of financing constraints and the barrier-to-entry of replicating a big pharma company’s sales-and-distribution network. “Of course, I’ve hardly done an exhaustive study, and if anyone has data showing much higher returns, I’d be interested to see it.” I seem to recall a study (by Myers or Howe at MIT?) that sugggested that pharma was getting a return of ~2% above what the riskiness of the cashflows would warrant. “Booking the cost of samples the way they do isn’t some anti-tax conspiracy Tom; I believe if you check, you’ll find that it is, in fact, required by the Financial Accounting Standards Board.” Sorry, didn’t see your earlier post. And I caught the idea that it would diminish the marketing costs. However, it does suggest that the positive cashflows (given that the out-of-pocket marketing costs to the pharma company of the booked marketing expenses are higher than the FASB-standard reported earnings. “Nor is Sebastian “abusing” the concept of marginal cost;” Yes, he was; the governments aren’t forcing pharma companies to sell at below COGS, or the short-term marginal cost of the drug. So, selling into other markets offsets the R&D (and GA&S) overhead that development of drugs incur. “he’s using it absolutely correctly, as far as I can see.” I don’t think he showed that the prices given in gubmint-controlled are marginal costs; neither have you, for that matter. If the pharma companies are using the estimates of development costs coming out of Tufts, frex, then their profit is already priced into into the discount factor used for investment. “The problem of high fixed cost/low marginal cost industries with low appropriability leads itself to exactly the sort of behaviour we see in other governments:” OK. How about a mandatory auction of 1-2 additional licenses after, say, 4-5 years of drug introduction? No price controls, but would reduce monopoly profits from the patented position. Might be subject to challenge based on the consititutional right to patent (in the main text of the constitution, not in those amendment afterthoughts), but would certainly be OK for drugs developed using Bayh-Dole Act licenses. (*This might not be entirely successful at competition, given that companies such as Roche have been caught price-fixing in food additives, so 2-3 licenses Certainly for compounds created from Bayh-Dole “the temptation to force down prices below average cost is too strong to resist. If the US followed suit, I don’t see how one can conclude otherwise but that the pharmas would look a lot like generic companies, which is to say no significant R&D investment.” You and I have been around this one before. The argument I’ve made before is that the R&D we’d lose is that of marginal benefit, and that the high margins on patented drugs create incentives to spend large marketing $$; it’s a safer bet to spend more money on marketing to boost sales than to perform new development. If the US gubmint were to reduce the benefit of monopoly protection of drugs (by e.g. reducing extensions of patent life currently given, or having mandatory auctions of licenses after a given period of monopoly protection), then we’d see less me-too drugs based on the same mechanism, and less marketing $$. (*Because physicans are slow to change drugs they perscribe, there’s a strong incentive to saturate marketing at the introduction of a drug ; ZS Associates, a pharma market consulting firm, have built a nice business based on this insight).

By: q

Fri, 16 Jul 2004 13:50:23 +0000

Jane Galt = If drug research stops, literally everyone in the world suffers. I am in the world! I’ll die in about 50 years. Drug research stopping now would not make me suffer. (If it hurts too much maybe I’ll push up the dial on the morphine drip.) Therefore, if drug research stops not everyone in the world will suffer. Those who will suffer: -drug researchers Various branches of the Christian Churches have open positions for missionaries who want to save the world, which drug investors and researchers are welcome to join.

By: Jane Galt

Jane Galt — Fri, 16 Jul 2004 13:09:49 +0000

The point, DO, is that advocates of public health care insinuate that everyone will be able to have the same quality health care they now enjoy, which is not true. Some people will be better off, while others—those who currently have coverage, and those with diseases that are not currently treatable by drugs, but which might be treated by drugs in the future—will be worse off. Consider that, whatever your opinion about the pharmaceutical industry’s marketing costs, research cannot be sustained at the marginal-cost pricing now found in every major market except America. If drug research stops, literally everyone in the world suffers. Which group—the larger number of future sick or the smaller number of current sick—have more moral claim on us?

By: Detached Observer

Detached Observer — Fri, 16 Jul 2004 05:37:18 +0000

jane, So then you give up the claim that the US system is better if the metric is the satisfaction of those covered? Now you are making a weaker claim—that privately insured Americans are more satisfied with their health care than Europeans. That may very well be so—but does it really make the US health care system better? If, on average, Americans are less happy than Europeans but nevertheless a subgroup of Americans—a subgroup where, incidentally, membership correlates with income—is actually happier—that sounds like a system that is not only worse in absolute terms but also vastly more unequal. As for the other argument you make—people report a higher rate of satisfaction with private insurers therefore public health care is bad—private insurers spend vastly more per person than medicare/medicaid do (see these slides for data). The point Kieran makes here is that if we had a system of public health care in which spent exactly as much as we do today—not less—we would most likely be better off.

By: Jane Galt

Jane Galt — Thu, 15 Jul 2004 23:53:19 +0000

Detached observer, the commonly cited figure for numbers of privately insured Americans satisfied with their insurance is around 85%. A gross figure for America will include the 45% of health spending already done by the government, through Medicare and Medicaid. Unless you disaggregate private v. public (and charitable) spending, all you may be telling us is that Americans don’t like what you’re trying to give us more of. The Economist’s health care survey this week says only 20% of Canadians are satisfied with their system . . .

By: Detached Observer

Detached Observer — Thu, 15 Jul 2004 22:42:25 +0000

jane galt wrote: "The British system is better if the metric is percentage of population covered; the US is better if the metric is satisfaction of those covered" Wrong! See the paper linked to by Brian Weatherson in a subsequent Crooked Timber post. I quote: "The US was comparatively low [on satisfaction] also, with only 40 percent of people who were satisfied with their health care system. Even the United Kingdom, which has had persisting problems with its national health service in recent years had almost 60 percent of its people saying they were either very satisfied or fairly satisfied. "

By: Sebastian Holsclaw

Sebastian Holsclaw — Thu, 15 Jul 2004 20:41:32 +0000

The costs of additional health care are rarely the biggest-ticket item in malpractice suits. It is the pain-and-suffering damages that blow the top off of things.

By: Jonathan Goldberg

Jonathan Goldberg — Thu, 15 Jul 2004 18:38:26 +0000

The effect of malpractice suits on health care has been mentioned by serveral posters. I’d like to point out that government-provided health care is of itself an anti-malpractice-suit measure. This is so because the cost of the extra health care made necessary by the bad effects of the malpractice are taken off the table, resulting in lowered incentives for such suits.

By: q

Thu, 15 Jul 2004 16:06:46 +0000

It seems like we have 3 different “Public vs Private” debates here and people are talking at cross-purposes :- 1) Efficiency of healthcare provision 2) Quality of healthcare provision 3) Justice of healthcare provision Of course, maybe the “just” solution is the one that provides the greatest quality at the lowest cost?

By: Jane Galt

Jane Galt — Thu, 15 Jul 2004 14:19:54 +0000

Detached observer: Better is a relative, not an absolute. The British system is better if the metric is percentage of population covered; the US is better if the metric is satisfaction of those covered. Scare anecdotes aside, from what I’ve seen, while the majority of Americans are worried about not getting good coverage, a large majority are also very satisfied with the coverage they’ve so far received. People from other countries travel to the US to get healthcare, not the other way around. MQ, the pharma industry does not seem to me, as a whole, to be earning economic rents. P/E’s in the industry seem to be between 13 and 15, which is downright modest by today’s standards, with returns in the 5-8% range. Of course, I’ve hardly done an exhaustive study, and if anyone has data showing much higher returns, I’d be interested to see it.

By: JamesW

JamesW — Thu, 15 Jul 2004 14:15:12 +0000

Jane Galt: ” ….and jettison some of our private rooms in favour of open wards—well, certainly, we can make health care cheaper.” I’ve lived in France for 31 years and none of my family have ever been hospitalised in, or even seen, an open ward. Baseline public health insurance gets you at worst a three-bed ward; anyone with complementary insurance (the whole middle class) gets a single room with TV and phone. No fruit baskets or fluffy pillows, though. Contrary to stereotype, the food is mostly awful. Wine is theoretically banned but I’ve found considerable tolerance.