Paying for an Aston-Martin, Getting A Ford

Our health care system, plagued by high administrative overhead, delivers worse outcomes than most other advanced industrial nations despite imposing far higher costs.
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Whenever I see a cost-benefit analysis for a new medical technology, I grab onto my wallet. It has long been known that the outcomes of clinical trials funded by drug and device companies tend to favor their sponsors. But cost-benefit analyses take this tendency to a whole new level. Indeed, if there's ever been a cost-benefit analysis sponsored by industry that didn't favor the new technology, I've yet to see it.

That's why I was fairly surprised by the widespread attention given this week to a Harvard University study by David Cutler in the New England Journal of Medicine suggesting that the U.S.'s massive investment in health care over the past four decades has been money well spent. When I first saw it, I shrugged. "Another C-B analysis. No one can take this stuff too seriously."

But I was mistaken. Defenders of a health care system that is threatening to bankrupt the rest of the economy have a new mantra. Yes, we spend more than any other country on earth on health. But look what we're getting for our money!

The average cost per year of life gained between 1960 and 2000 was just $19,900, the study concluded. Even for those over aged 65 in the past decade - when health inflation was at its highest - the cost per added year was $145,000. While that may seem high by some measures, is it too much for a wealthy society like ours? "The national focus on the rise in medical spending should be balanced by attention to the health benefits of this increased spending," the report soberly concluded.

Why do I feel like the guy who just paid $125,000 for an Aston-Martin only to discover he had a Ford engine under the hood?

In 1960, the United States health care system consumed just 5.1 percent of our gross domestic product, not very different from most other advanced industrial nations. We didn't have Medicare or Medicaid. Millions of people went without health insurance.

Yet it was an age of middle class prosperity and upward mobility. U.S. life expectancy hit a respectable 69.9 years that year, up nearly a decade from 20 years earlier. Among the 30 nations that today belong to the Organization of Economic Cooperation and Development (the OECD is the club for "advanced" industrial nations), the U.S. ranked in the middle of the pack at 16th. But it was a fairly clustered top. The U.S. was only 3.7 years off leading Norway's 73.6 pace.

Fast forward 40 years and where are we? By 2000, the U.S. life expectancy had risen to 76.8 years. But our rate of increase has lagged badly behind the rest of the world. Japan had emerged as the leader, a full 4.4 years ahead of the U.S. We'd slipped five notches in the ranking to 21st, and if it weren't for newcomers to the ranks of the OECD like Turkey, Korea, the nations of Eastern Europe and Portugal, we'd be dead last.

But what's happened to spending in that period? Our health care system by 2000 was consuming 13.3 percent of GDP (it's now up to 16 percent). No country on earth spends anywhere near as much. Take Canada, for instance, that hellhole of long lines and frustrated patients, if we're to believe some reports. Their life expectancy exceeds ours by 2.5 years and they spend 4 percent less of GDP on health.

Indeed, if we compare our rate of increase to other nations, it cost U.S. businesses and consumers 1.19 percentage points of increased economic output for every year of additional longevity over the past 40 years. It cost most other countries about half that.

Improved and therefore more expensive health care has been responsible for some of the increase in longevity of the past 40 years. Half - Cutler's estimate - seems reasonable. But studies like his can only serve to distract attention from the fact that our fractured and inefficient health care system, plagued by high administrative overhead, delivers worse outcomes than most other advanced industrial nations despite imposing far higher costs.

Where are the NEJM studies that explain that?

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