Code Red: Two Economists Examine the U.S. Healthcare System

March 16, 2010

Business Week Flunks Health Economics

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 9:33 am

The cover story headline “Lessons from a $618,616 Death” sure attracts attention. If ever there was a damning indictment of our runaway system, there it is. Surely the US needs to rein in health costs if we are going to remain competitive with the rest of the world. Only if you take a look at the details, you find that the headline is factually incorrect if not deliberately misleading.

Here is the full story behind the numbers.  The figure $618,616 represents full provider charges. These are the mystical numbers that appear on medical bills that no one actually pays. They also bear no resemblance to the cost of care. Actual payments by insurers and the patient’s family amounted to about $264,000. That still sounds like a lot, but it was spent over 7 years, or about $38,000 annually. This is below the threshold spending levels used by England, Canada, and other nations when deciding whether medical spending is worth it.

Total spending in the last two years of life amounted to about $176,000, or $88,000 annually. This is not too far above the thresholds used in other nations. And we don’t know if there are other patients with similar conditions who are living even longer. In other words, if we pulled the plug on this patient, would we also be pulling the plug on similar patients who would have enjoyed another ten years of life? Not to mention that medical science learns from every one of these cases so that future generations can enjoy longer, healthier lives.

Business Week, the Wall Street Journal, and other business press seem obsessed by the idea that money spent on health care is wasted spending. Some of it surely is wasted. But this is hardly a good example. Do the barons of the business press hold life so cheap that they would rather society spent the money on…what?

Addendum:  The author of the article cites a, shall we say “questionable,” article  from the New England Journal claiming that 31 percent of spending is for “paperwork.”   Since when did the NEJM become an authority on business and economics?  I don’t see the American Economic Review publishing too many medical articles.  I have good reason not to trust any social science papers I read in the NEJM, JAMA, or other medical journals.    I used to review papers for medical journals but I stopped in disgust.  The editors seem ignorant of social science research methods.  It seems to me that when it comes to social science research in medical journals, politics trumps methodology.

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