Tuesday, July 03, 2007

An unhealthy burden: America's health-care market is not as unfettered as it seems

TO MANY outside the United States, America's health-care system might seem an example of capitalism at its rawest. Europeans and Canadians enjoy universal health care and cheap drugs thanks to government-run systems, the argument goes, but the market-based approach taken by the world's richest nation leaves many millions uninsured and leads the rest to pay the highest drugs prices in the world. Such doubts are sure to be reinforced by this week's release of Michael Moore's "Sicko", a much-trumpeted new film on health care that bashes the free-market Yankee model even as it praises the dirigiste alternative north of the border.

So is America's health system really red in tooth and claw? Hardly, according to a growing body of academic evidence. As a result of interference at the federal and state levels, health care is one of America's most heavily regulated industries. Indeed, its muddled approach to health-care regulation may act as a massive drag on the American economy-what one expert has called "a $169 billion hidden tax".

Costing an arm and a leg

That figure comes from a path-breaking study* of a few years ago by Christopher Conover of Duke University. It looked at the many ways in which the American legal and regulatory systems affect the provision of health services and lumped them into five categories: medical torts; the Food and Drug Administration (FDA); insurance regulation; and the certification of both health professionals and health facilities. His team concluded that the overall benefit to society of $170 billion per year delivered by this system of oversight was far outweighed by the $339 billion in annual costs that it imposed (see chart). Even ignoring the cost of big federal tax breaks for employer-sponsored health insurance (which Mr Conover left out), his study estimated that the net cost of America's health regulations resulted in perhaps 4,000 extra deaths each year and was responsible for more than 7m Americans' lacking health insurance.

Building on this point, a forthcoming paper+ by Michael Cannon of the Cato Institute, a libertarian think-tank in Washington, DC, investigates the biggest federal component of this regulatory burden: the FDA's oversight of pharmaceuticals. It notes that some 20 cents out of every dollar spent by consumers goes on purchases under the purview of the FDA, which it calls "one of the most pervasive federal agencies in the country."

Citing the best evidence to date on the costs and benefits of FDA regulation, Mr Cannon argues that the agency "is too slow and demands too much testing", ultimately harming consumers. He points out that drugs regulators can make two broad types of errors. First, they might approve a drug too quickly, only to find out after its launch that it is dangerous or even deadly. Second, they could delay the launch of a highly innovative drug by demanding onerous or unnecessary trials and thereby deny many needy patients a new therapy.

Proper regulation requires balancing these two risks, but the pitch may be queered by bureaucratic self-interest. If the regulator allows even one drug to slip through the approval process that later proves harmful to some people some of the time, a hue and cry is sure to follow. Look no further than the recent public backlash against the FDA after several deaths were linked to Vioxx, a blockbuster pain remedy made by Merck.

And yet the second (and probably bigger) risk of leaving people untreated because of restrictions on drugs rarely gets the regulators into trouble. As Mr Cannon puts it, "no FDA official has ever been fired or faced a congressional inquiry for delaying the approval of a promising new drug, however unjustified the delay." What is more, he speculates, big drug firms may quietly acquiesce to this burdensome red tape because it acts as a barrier to entry against newcomers without the cash or lobbying power to navigate the FDA.

The FDA's caution may result in the biggest federal "tax" on health care identified by the Conover study but an even bigger component is to be found in America's distorted system of malpractice insurance, which is regulated at the state level. That is the conclusion of John Graham of the Pacific Research Institute (PRI), a think-tank in San Francisco. In a paper++ published this month, Mr Graham has taken Mr Conover's federal analysis and applied it to all 50 states. The idea is to rank which states allow Americans the greatest amount of "health ownership".

Mr Graham's analysis concludes that because regulation of health insurance and overzealous pursuit of medical torts are both typically handled at the state level, states are to blame for most of that $169 billion annual burden imposed by excessive health-care regulation (as the chart also shows). The heavy-handedness, he notes, includes groups of surgeons being denied permission to open specialist clinics because rival one-size-fits-all hospitals invoke state regulations protecting their patch. Meanwhile, enterprising "nurse-practitioners" are blocked from offering simple treatments at inexpensive clinics by state rules requiring costly supervision by doctors.

New York-a liberal bastion and home to Hillary Clinton, who in the 1990s unsuccessfully advocated a sweeping reform of America's health provision-comes out rock bottom on the PRI ranking of health freedom. That will undoubtedly please conservatives who still deride her earlier proposals for a government-run health system, which they dub "HillaryCare". But the unstated and awkward inference of these studies will not. If America's health-care regulations are as costly as they claim, the system is merely masquerading as a free-market model and may be no better than others.


A big wait in the public hospital system of Victoria, Australia

Crippled woman faces 3-year surgery wait

A PENSIONER who cares for her invalid husband while hobbling around on crutches faces a three-year wait for ankle surgery. Jennifer Haffenden, 65, says she is barely able to care for herself because of an excruciating arthritic ankle. She thought help was in sight, until she looked more closely at her appointment card for the orthopaedic specialist at Maroondah Hospital. "I thought it was for this year and I nearly turned up before I realised it was June 2008," she said. By that time, the Croydon pensioner will have been waiting 14 months. She is then likely to be put on another waiting list for surgery, for up to 18 months.

"It's very short sighted because the longer people have to wait for an operation, the worse the problem gets and the more it's going to cost," she said. Mrs Haffenden said her ankle had degenerated over the past three years and she resorted to crutches six months ago because she "hit the roof" in pain every time she put weight on it. Out of desperation, she went to an orthopaedic specialist as a private patient a few months ago.

The specialist told her she could operate within two weeks. But with the bill expected to hit $4000, Mrs Haffenden was forced to go on the 14-month waiting list to see the same specialist as a public patient. Mrs Haffenden also has Meniere's disease, a disorder of the inner ear that causes vertigo and vomiting, and has heart problems. Husband Roy, 79, is recovering from recent back surgery, is in a back brace and has serious heart problems.

Mrs Haffenden said that as well as caring for her husband, she also helped her 91-year-old mother, who lives in a retirement home. "It is really very difficult," she said. "The Government can find money for non-essential things, like millions of dollars for sport or giving themselves a pat-on-the-back pay rise, and I don't see why they can't give more money to hospitals," she said.

Opposition health spokeswoman Helen Shardey said Mrs Haffenden's case was a typical example of the falling standards of health care. However a Government spokesman said significant commitments had been made to reduce waiting lists and speed up service delivery. This included funding an extra 72,000 outpatient appointments in this year's budget as part of a $324 million promise to provide 200,000 new appointments. A spokesman for Eastern Health, which runs Maroondah Hospital, said he was not aware of Mrs Haffenden's case but urged her to return to her GP if she was unhappy or believed her condition had changed. Her GP could then reassess her case and liaise with the hospital about finding a more suitable appointment. [Translation: You CAN get prompt treatment but it takes publicity]



For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

For more postings from me, see TONGUE-TIED, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, GUN WATCH, EDUCATION WATCH INTERNATIONAL, AUSTRALIAN POLITICS, DISSECTING LEFTISM, IMMIGRATION WATCH INTERNATIONAL and EYE ON BRITAIN. My Home Pages are here or here or here. Email me (John Ray) here. For times when blogger.com is playing up, there are mirrors of this site here and here.


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