Misconceptions That Mar Medical Care

By Thomas Sowell
IBDEditorials.com

A number of confusions plague discussions of the economics of medical care.

A confusion between prices and costs has allowed politicians in various countries to be able to claim to be able to bring down the cost of health care, when in fact they only bring down the individual patient's out-of-pocket costs paid to doctors, hospitals, and pharmacies.

The costs themselves are not reduced in the slightest when additional money to pay for these costs is collected in taxes or insurance premiums and routed through either government or private bureaucracies. Since these bureaucracies and the people who work in them are not free, they add to the cost of providing medical treatment.

Most proposals to bring down the cost of medical care pay little or no attention to the actual cost of creating pharmaceutical drugs, training medical students, or building and equipping hospitals.

To the extent that the government imposes some form of price control by refusing to pay doctors, hospitals or pharmaceutical companies as much as they would receive through supply and demand in a free market, that does not lower the costs either.

It simply means that the government refuses to pay all those costs — and such refusals to pay costs have a centuries-old track record of leading to a reduction in the amount supplied, whether what has been subject to price controls has been housing, gasoline, food or other goods and services.

Medical treatment has been no exception. The reduction in the supply of doctors, hospitals or pharmaceutical drugs may be quantitative, qualitative or both.

In Britain, with one of the oldest government-run health systems and therefore one which has long since gone past stage one, there have been such difficulties in getting enough British doctors that there have been large and chronic importations of foreign doctors, many from Third World countries whose qualifications standards are not always up to those in more affluent countries.

British hospitals not only lack technologically advanced medical equipment that is more common in the United States, for example, but lack even elementary cleanliness, leading to deaths by infection for patients whose maladies before entering hospital care were not life-threatening.

As for pharmaceutical drugs, countries which have succumbed to the politically attractive policy of keeping drug prices low by fiat, or by ineffective patent protection, have had much lower rates of discovery of major new medications than does the United States, which has been left to supply a disproportionate share of the world's major new medications.

Another confusion in discussions of medical care issues and policies is the confusion between medical care and health care.

Dr. Dana Goldman, director of health economics at the Rand Corp., has pointed out that a patient's medical care and health care are very different, noting that for a patient with diabetes, "the doctor is paid to check his feet, they're paid to check his eyes; they're not paid to make sure he goes out and exercises and, really, that may be the most important thing."

Much has been made of mortality statistics which suggest that Americans' health is not as good as in some countries with government-run medical systems, as if medical care determines the state of people's health. But medical care has little effect on the homicide rate, on obesity or on deaths from drug overdoses that occur before any doctor sees the patient.

Yet the identification of health care, as indicated by mortality rates, with medical care has become so automatic that a study which showed higher infant mortality rates among black Americans than among white Americans was instantly taken as showing that less prenatal care among pregnant black women was the reason.

But American women of Filipino, Mexican and Central American and South American ancestries all had less prenatal care than white women — and lower infant mortality rates than white women. Indeed, Mexican Americans had less prenatal care than blacks and lower infant mortality rates than either blacks or whites.

The implicit assumption that mortality rates reflect the amount or quality of medical care is seldom subjected to any empirical test in media or political discussions comparing American medical care with medical care in other countries with more comprehensive government involvement in medical care.

But the relevant comparison would be between mortality rates in different countries from health problems in which medical care makes a substantial difference, even if not the only difference. This would still not be a perfect comparison, since even here other differences between the populations in the countries being compared are factors as well. But it would be a much more relevant comparison than those that are usually made by the media and politicians.

When the American College of Physicians calculated the death rate for "mortality amenable to health care," the United States was in the top three countries with low death rates of this sort out of 19 countries studied.

Various organized groups in a position to bargain for lower medical charges or lower drug prices — government agencies, health insurers or large health maintenance organizations, for example — may receive preferential prices, but the total costs do not go away and have to be paid by somebody.

One consequence is a multitiered set of prices for the same medical treatment or the same medication, with the highest prices of all being paid by patients who do not have health insurance, do not belong to a health maintenance group, and are not covered by any government program.

In short, misconceptions of the economic function of prices lead not only to price controls, with all their counterproductive consequences, but also to organized attempts by various institutions, laws and policies to get most of the costs reflected in prices paid by somebody else. For society as a whole, there is no somebody else.