Wednesday, November 24, 2010

qotd: Ezra Klein on prices and innovation

The Washington Post
November 23, 2010
Americans pay too much for health care -- in charts
By Ezra Klein

There are a lot of complicated explanations for why American health-care costs so much, but there are also some simple ones. Chief among them is "we pay too much." And I don't mean in general. I mean specifically. Mountains of research show that for every piece of care you might name -- a drug, a doctor visit, a diagnostic -- you'll pay far more in the United States than in other countries. 

(He posts charts demonstrating higher health care prices in the U.S.)

The most positive spin you can give this data is that we're paying to subsidize innovation for everyone, and though that's not ideal, it's better than that innovation not happening. The less positive spin is that we're just getting ripped off.

For an analytical take -- and a good look at the political economy of the problem -- read Alec MacGillis's October article on the subject.

Response posted by dmccanne:

The basic premise that our prices are higher than those of other nations is certainly correct. Alec MacGillis was precisely on target in the article that you cite.

But the claim that we "subsidize innovation for everyone" needs to be challenged.

Donald Light, in a Health Affairs article last year, wrote, "... a comprehensive data set of all new chemical entities approved between 1982 and 2003 shows that the United States never overtook Europe in research productivity, and that Europe in fact is pulling ahead of U.S. productivity."

Also the Nobel prizes for C-T scanning and MRIs were shared with British scientists. So we don't even have an exclusive claim on our budget-busting technology. (In fact, the Beetles financed the British development of C-T scanners.)

And our outrageous pricing has proven that the private insurance industry has failed us miserably in its most important function - negotiating value in health care.

Our pharmaceutical and technological firms do excel in one regard. They know how to manipulate the political process to prevent an effective public role in setting best prices (legitimate costs and fair profits), even though all other nations have done so.

Maybe someday we'll be smart enough to follow their lead, but, until then, we'll keep paying dearly for the failures of our electorate to become adequately informed and then to take appropriate action in the polling booth.

Fixing Medicare and providing it for everyone would create a beneficent public monopsony (single purchaser) which would be capable of enforcing value in our health care purchases.

Even Milton Friedman's mentor, F.A. Hayek, wrote, in The Road to Serfdom, "Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision."

Klein article and responses:

International Federation of Health Plans - Comparative Prices:

Alec MacGillis - The price problem that health-care reform failed to cure:

Donald Light - Global Drug Discovery: Europe Is Ahead:

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