Don’t Be Misled by the Prices, Stupid
Linda Gorman tells me that the previous post could play into the hands of those who claim that the U.S. spends more and gets less than just about every other country. I thought I had dealt with that issue in an earlier post. For those who missed it, here is a brief summary:
[T]he U.S. has fewer doctors, fewer physician visits, fewer hospital beds, fewer hospital stays and less time in the hospital than the OECD average. We’re not just a little bit lower. We are among the lowest in the developed world. In fact, about the only area where we “spend” more is on technology (MRI and CT scans, for example), as is reflected in the second table.
And here is the economic point:
Other things equal, a country that has more doctors per capita, more hospital beds, etc., is devoting more of its real income to health care than one that uses fewer resources — regardless of its reported spending.
Critics often point to the longer hospital length of stay (LOS) and lower cost per day in other OECD countries as proof the United States pays more and gets less from its health care system. In reality, this is an example of how incentives matter. Medicare reimburses hospitals by the diagnosis, while private insurers pay for treatments. Hospitals maximize revenue by aggressively treating patients and then quickly discharging them to make room for another patient. Thus, the average LOS is shorter and the hospital charges are higher in the United States. In Europe, global budgets mean hospitals get nothing extra for an additional admission. Moreover, an admission likely requires more intensive treatments. Thus, keeping patients the hospital longer to convalesce is a cost-saving strategy. U.S. hospitals maximize revenue; European hospitals minimize costs. These are both natural strategies given the incentives of the respective reimbursement systems. Yet, these strategies illustrate little in the way of quality or efficiency.
Thanks for clearing that up.
Glad to see this clarifying post.
What a great set of observations!
This is all backwards. We don’t have many doctors, because we don’t allow many medical schools to be built. Since the supply is low the returns are high, so we get high wage, high ability doctors that work very hard compared to Europe (consume little leisure). What do you do with these high skill doctors? Give them lots of capital, like MRIs and CT scanners. If you were serious in this endeavor, you’d have to add up the additional leisure the foreign doctors consume and the less time the spend in medical school or residency earning low wages. Just counting doctors and beds is meaningless without noting the differences in incentives embedded in the systems.