WHY SHOULD HEALTH CARE BE EXEMPTED FROM COST BENEFIT ANALYSIS

Since President Obama proposed his stimulus, conservatives have been shrieking at the top of their lungs that President Obama is seeking to ration health care. There primary piece of evidence is inclusion of funding ($700mm) for what is known as Comparative Effectiveness Research (“CER”). What CER seeks to do is study the costs and benefits of certain medical treatments, procedures or drugs. For example, it would study whether physical therapy is more effective than shoulder surgery for healing an ailing shoulder. What people like Betsy McCaughey, author of the Bloomberg Op-Ed cited above, argue is that this is will lead to the Government deciding which treatments your doctor will be able to prescribe, and not you and your doctor. For example, if the Government believes that therapy is more cost effective for a certain amount of benefits as compared to surgery, you will not be able to choose surgery. In the end, according to Ms. McCaughey, the Government will simply ration health care as it sees fit. As will come as no surprise, I find many problems with the position advocated by these conservatives.

First, as Michael Kinsley writes:

The idea [of CER] is to look at different treatments and see which ones work better or work just as well for less money.

“Comparative effectiveness research.” What a concept! Can there be any product or service sold anywhere in the world except for health care in the United States where they even feel they need for a fancy term for this? In the rest of the economy and the rest of the world, when you look at the pricetag before you buy something and ask yourself whether it’s worth it, they call this “shopping.

For the sake of argument, let’s assume that, as a society, we will not spend an infinite amount of money on health care. Therefore, there is going to be some rationing of health care. What Ms. McCaughey’s real problem is, not rationing of health care (which we will always have; any freshman economics student knows that the economics is just the study of the rationing of scarce resources) but who makes the choices. Currently, we have a combination of the market (combination of consumers and private insurance companies) and the government (through such programs as the VA and Medicare and Medicaid).

While Ms. McCaughey and other conservatives point out extreme examples of rationing in England and Canada, what they fail to point out is the opposite–namely, that all people in Britian and Canada get some amount of health care. That is a great economic and health benefit that many here do not get.

As policy makers, why shouldn’t the government study the effectiveness of various treatments so we get health care based on evidence? Why not study what is the most cost effective way to treat various ailments?nnWill this take time? Yes. Will there be errors? Yes. But there are plenty of errors and waste in our current system. The government’s goal is to get the most care to the most people for a finite amount of money. Would it be best for it to do so without taking some care away from some people? Yes. But a “Pareto improvement” is not always possible.

As my title for this post asks: WHY SHOULD HEALTH CARE BE OUTSIDE OF COST BENEFIT ANALYSIS?

To see just how crazy CER opponents really are, let’s look at what they fear. The Heritage Foundation writes:

Second, the [Obama] administration is pushing for Comparative Effectiveness Research (CER) to be primarily organized by the government. The type of information collected by CER could eventually be used inappropriately if a “Federal Health Board” was created to decide which types of treatment would be available to whom and when. Most Americans, and many people who are on government-run health care, are skeptical that unaccountable and unreachable government bureaucrats can improve the quality of their health care.

As others have written, let’s first start with the fact that no “Federal Health Board” currently existed or is being proposed, let alone passed through Congress and signed into law by the President. Second, if President Obama was going to nationalize health care and decide which treatments people get, wouldn’t it be better that the government actually know what works and works for the least amount of money. I have never come across an argument that more information is worse than less.

Third, given the logic of Ms. Mcaughey and the Heritage foundation—that we if gather this data, one day a currently non-existent Federal board, that currently does not have any power to do anything, will decide what health care we get—shouldn’t we shut down the Internet because it is the “first step” to allowing terrorist to communicate virtually unmonitored and plan another 9/11. This is just utter silliness.

But even if the Government was proposing to dictate what doctors do (which it is not, because the CER is only there to “help guide,” not dictate, how doctors practice medicine), how is that really all that much different from currently occurs. Medicare and Medicaid currently dictate what care is provided. And don’t think for a second that private insurers aren’t already doing this analysis. HMOs deny certain treatments all the time, because they believe that they either ineffective or too costly for the benefits gained. You may not like the fact that insurers and the Government restrict what doctors do, but they do it already. Under this program, at least we will have more knowledge about which treatments are the most cost effective for a given amount of benefit.

Finally, if you want another treatment, spend your own money on it—(if the government ever restricted what care you could spend your own money on, I would be there with the conservatives opposing it). But those paying the bills have the right to call the shots. This is why I choose to pay for a high deductible PPO / POS. It restricts what care I get a lot less than an HMO. But I get this benefit by paying for any amount not covered.


First, as Michael Kinsley writes:

The idea [of CER] is to look at different treatments and see which ones work better or work just as well for less money.

“Comparative effectiveness research.” What a concept! Can there be any product or service sold anywhere in the world except for health care in the United States where they even feel they need for a fancy term for this? In the rest of the economy and the rest of the world, when you look at the pricetag before you buy something and ask yourself whether it’s worth it, they call this “shopping.

For the sake of argument, let’s assume that, as a society, we will not spend an infinite amount of money on health care. Therefore, there is going to be some rationing of health care. What Ms. McCaughey’s real problem is, not rationing of health care (which we will always have; any freshman economics student knows that the economics is just the study of the rationing of scarce resources) but who makes the choices. Currently, we have a combination of the market (combination of consumers and private insurance companies) and the government (through such programs as the VA and Medicare and Medicaid).

While Ms. McCaughey and other conservatives point out extreme examples of rationing in England and Canada, what they fail to point out is the opposite–namely, that all people in Britian and Canada get some amount of health care. That is a great economic and health benefit that many here do not get.

As policy makers, why shouldn’t the government study the effectiveness of various treatments so we get health care based on evidence? Why not study what is the most cost effective way to treat various ailments?nnWill this take time? Yes. Will there be errors? Yes. But there are plenty of errors and waste in our current system. The government’s goal is to get the most care to the most people for a finite amount of money. Would it be best for it to do so without taking some care away from some people? Yes. But a “Pareto improvement” is not always possible.

As my title for this post asks: WHY SHOULD HEALTH CARE BE OUTSIDE OF COST BENEFIT ANALYSIS?

To see just how crazy CER opponents really are, let’s look at what they fear. The Heritage Foundation writes:

Second, the [Obama] administration is pushing for Comparative Effectiveness Research (CER) to be primarily organized by the government. The type of information collected by CER could eventually be used inappropriately if a “Federal Health Board” was created to decide which types of treatment would be available to whom and when. Most Americans, and many people who are on government-run health care, are skeptical that unaccountable and unreachable government bureaucrats can improve the quality of their health care.

As others have written, let’s first start with the fact that no “Federal Health Board” currently existed or is being proposed, let alone passed through Congress and signed into law by the President. Second, if President Obama was going to nationalize health care and decide which treatments people get, wouldn’t it be better that the government actually know what works and works for the least amount of money. I have never come across an argument that more information is worse than less.

Third, given the logic of Ms. Mcaughey and the Heritage foundation—that we if gather this data, one day a currently non-existent Federal board, that currently does not have any power to do anything, will decide what health care we get—shouldn’t we shut down the Internet because it is the “first step” to allowing terrorist to communicate virtually unmonitored and plan another 9/11. This is just utter silliness.

But even if the Government was proposing to dictate what doctors do (which it is not, because the CER is only there to “help guide,” not dictate, how doctors practice medicine), how is that really all that much different from currently occurs. Medicare and Medicaid currently dictate what care is provided. And don’t think for a second that private insurers aren’t already doing this analysis. HMOs deny certain treatments all the time, because they believe that they either ineffective or too costly for the benefits gained. You may not like the fact that insurers and the Government restrict what doctors do, but they do it already. Under this program, at least we will have more knowledge about which treatments are the most cost effective for a given amount of benefit.

Finally, if you want another treatment, spend your own money on it—(if the government ever restricted what care you could spend your own money on, I would be there with the conservatives opposing it). But those paying the bills have the right to call the shots. This is why I choose to pay for a high deductible PPO / POS. It restricts what care I get a lot less than an HMO. But I get this benefit by paying for any amount not covered.

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One Response to “WHY SHOULD HEALTH CARE BE EXEMPTED FROM COST BENEFIT ANALYSIS”

  1. Doug Says:

    Health care is not immume from a cost-benefit analysis. But bureaucrats in Washington are not the appropriate ones to perform that analysis with their limited information.

    What works “best” is not the same for everyone. You hit the nail on the head, Matt, when you identified the concern as one over who makes the choices. At best, CER’s list of “recommendations” represents a statistic of what has shown to be the most effective in terms of cost and outcome for treatment of a particular ailment. The only costs taken into account, however, are those associated with the treatment itself. Patient-specific costs–e.g., lost income for recovery time–are not taken into account. Indeed, the CER minimizes an essential aspect of health-care decision making: individual diagnosis and treatment. Cheaper is rarely better. What’s “best” in any given circumstance should be made by the treating physician; it should not be made–indeed, cannot be made–by bureaucrats in Washington.

    Although any attempt to reduce health care to a “comprehensive” list of “best-practice” treatments for ailments should be viewed with great skepticism, it’s not the results of CER–i.e., in Matt’s words, a list of “what works and works for the least amount of money”–that’s the primary problem; it’s what is to be done with the list. The list is intended to form the basis for an incentive program meant to “persuade” doctors to become “more efficient” health-care providers by reducing payments to doctors for treatments CER has identified as less (cost) effective. Thus, the notion that CER is only there to “help guide”, not dictate, is like saying speed limits are there to help guide motorists to the most cost-effective speed on the highway. If CER’s “recommendations” were only meant as a “guide”, health-care providers wouldn’t be penalized for recommending a less cost-effecient treatment that is determined to be “best” under the particular circumstances of the patient after individual consultation. But such “penalties”–or in the program’s proponent’s parlance “guidance”–are exactly how Democrats say they’ll keep health care costs in check. Of course, an “individual-circumstances exception” to CER’s reduced-payment scheme would swallow the rule and completely upend the program’s purported ability to control costs.

    Two more quick points. First, CER creates a huge new bureaucracy. $700 million is just the beginning. A new agency will be needed to “evaluate” the costs and benefits of new medical treatments going forward. Adding another layer of red tape will increase health-care costs. Second, CER and the Democrat’s health-care plan will stifle innovation. As the government finances more and more health care through the Democrat’s health-care plan based upon the results of CER–the “recommendations” of which will quickly be adopted by private carriers–medical innovations will slow dramatically because hospitals, physicians and companies must create new treatments that pass CER muster–i.e., treatments that are not only more effective, but cheaper than those presently available. If they don’t, the new treatment likely will never reach a level of usage to make the cost of innovation worthwhile.

    Universal health care is a noble cause. But I have yet to come across a viable plan where the negative consequences do not completely outweigh the benefits.

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