I don’t really want to pick on Robert Frank. I usually enjoy his columns. But in a single New York Times editorial — comparing U.S. and Swedish health care — he manages to repeat just about every major misconception about health economics that you are likely to run into. So let’s do pick on him — for purposes of edifying everyone else.
Cost. Frank begins by telling us that Sweden spends less than half of what we spend on health care in this country. But how does he know that? In every health care system in the world the market has been so completely suppressed that no one ever faces a real price for anything. The conventional method of determining how much is spent in a market is to add up all the individual transactions (price*quantity). But if all the individual prices are phony, summing over them all will produce one big phony number.
As a good economist, Frank must know that the real cost of health care is the value of the alternative uses of the real resources that are used to produce that care. So an alternative to adding up questionable monetary totals is to count real resources. And on that score, the picture looks very different.
For example, the United States has fewer doctors per capita than Sweden has. We also have fewer nurses and fewer medical school graduates. Swedes enter hospitals more frequently than we do and once there they stay longer. On the whole, we may be “spending” less than the Swedes are spending.
Outcomes. Frank tells us the Swedes get better outcomes for the money they spend:
Its infant mortality rate, for example, was recently less than half that of the United States. And males aged 15 to 60 are almost twice as likely to die in any given year in the United States than in Sweden.
But c’mon. The Swedes should have better outcomes than the U.S. population as a whole. I’d be surprised if they didn’t. Here’s a better test: Are Swedish health outcomes better than the outcomes of Minnesotans of Swedish descent? I’m not sure they are.
Efficiency. Frank admires consolidation of the Swedish system, relative to the United States:
In large hospitals, CT scanners and other expensive diagnostic and treatment machines are in nearly constant use, versus only a few hours of weekly use in some small ones.
If he were paying more attention, he would be aware that the U.S. market is consolidating at breakneck speed. But wait a minute. Since when is the existence of unused capacity a sign of inefficiency? At 3:00 AM, there is a lot of idle capacity in a McDonald’s restaurant. But no one ever accuses McDonald’s of inefficient production.
If there is never excess capacity, then a system has no way to respond to changes in demand. If every piece of equipment is in full use all the time, a lot of patients will be waiting for their care — a fact of life for Swedes that Frank acknowledges later on. The real test of efficiency is how few resources are needed to meet changing consumer demand.
Fee-For-Service Payment. Yes, that canard is trotted out once again, and I won’t spend much time on it here. Most services in most markets are purchased fee-for-service. Ever been in a restaurant? Did you pay a fee for each dish you consumed? Or did you pay a flat fee, regardless of what you ate? When the Brookings Institution studied 10 “top-rated” hospital districts, researchers found that some paid fees and others paid salaries to doctors on staff. How doctors were paid didn’t seem to crucially affect performance.
Here is something that should be uncontroversial, however. When government defines the bundles and dictates the prices — leaving practitioners unable to repackage and re-price their services as demand and technology changes, there will definitely be perverse incentives to do things inefficiently.
Non-Profit. Remembering that he is an economist, I can’t believe that Frank actually wrote this:
[U]nlike many American health insurance providers, the government groups that manage Swedish health care are nonprofit entities. Because their charge is to provide quality care for all citizens, they don’t face the same incentive to withhold care that for-profit organizations do.
Earth to Frank: there is no difference between for-profit and non-profit entities in health care. There used to be. But then the non-profits went broke, got purchased or wised up. Here is Uwe Reinhardt on all this.
Evidenced-Based Medicine. Think about how many articles and books have been written about how to make sure doctors only do what is necessary and avoid doing what is unnecessary. The Swedes don’t need algorithms or protocols; they just do the right thing automatically:
The Swedes also provide drugs and other treatments only when evidence establishes their effectiveness. People can spend privately on unproven treatments, but the government refuses to impose their cost on taxpayers.
Why didn’t we think of that?
ObamaCare to the Rescue. Maybe we have thought of it:
ObamaCare also contains many evidence-based provisions for medication and other treatments. But at least in its initial stages, it will not be able to match the cost savings achieved in Sweden.
Spare me. Just about every professional society in this country publishes protocols and guidelines and last time I looked there was no law anywhere that keeps a health plan from paying only for care that follows the guidelines.
Employers Are at Fault. Here is another surprise:
As I discussed in an earlier column, however, such plans are an extremely inefficient way to pay for health care. They arose as an unfortunate historical accident during World War II, when employers used them to sidestep the wage controls that had resulted in extreme labor shortages.
Hey, folks. For better or for worse, employers have been the innovators in health care. They have been out in front of government and the commercial insurance industry and the medical profession. At a minimum, they are not more inefficient than anyone else.
The Market Is at Fault. Here is an interesting idea.
Because of pervasive market failures in private health care markets, this may be the sector that benefits most from collective action.
There may be market failure in health care. But as I documented years ago, this sector is so completely dominated by government failure that market imperfections pale by comparison.
ObamaCare Is the Answer. Did you know that ObamaCare is supposed to make us more like Sweden?
The encouraging news is that the Affordable Care Act was intended to foster the evolution of a new system that can capture many of the gains currently enjoyed by countries like Sweden.
I’m not sure how much Robert Frank actually knows about Sweden. This is what The Guardian wrote back in January:
Despite its reputation as a leftwing utopia, Sweden is now a laboratory for rightwing radicalism. Over the past 15 years a coalition of liberals and conservatives has brought in for-profit free schools in education, has sliced welfare to pay off the deficit and has privatized large parts of the health service…As the state has been shrunk, the private sector has moved in. Göran Dahlgren, a former head civil servant at the Swedish department of health and a visiting professor at the University of Liverpool, says that “almost all welfare services are now owned by private equity firms”…Business-backed medical chains have sprung up: patients can see a GP in a center owned by Capio, be sent to a physician in the community employed by Capio, and if their medical condition is serious enough end up being treated by a consultant in a hospital bed in St Göran, run by Capio. For every visit Capio, owned by venture capitalists based in London and Stockholm, is paid with Swedish taxpayers’ cash.