Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, November 23, 1993 TAG: 9311230413
SECTION: EDITORIAL PAGE: A6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Noting that medical costs as a share of national economies are on the rise in virtually all the developed world - in a few places, faster than in the United States - some economists argue that the reason for increasing health-care costs is more fundamental than the characteristics of any particular health- funding or health-delivery system.
Among them is William J. Baumol, director of the C. V. Starr Center for Applied Economics at New York University, who points out that health care is essentially a service industry. Like other service industries, he wrote recently in The New Republic, health care by its nature cannot keep pace with productivity increases in the manufacturing sector.
Put another way, this theory argues that the rise of health-care costs as a share of gross national product is an expression of wealthy countries growing wealthier. People have more money to spend on services, such as health care. Indeed, it's possible that the absolute costs of services such as health carea could be holding steady or declining (particularly if quality improvements from advances in medical technology and treatments are taken into account) - and they'd still be perceived as rising because the costs relative to manufactured products are going up.
The insight is illuminating ... to a point. It may help explain why health-care costs go up even though in many respects Americans' health-related habits (smoking is bad; low-fat, low-cholesterol foods are in) have improved in just the past decade. Or why costs have continued to rise even though, by some measures, the average after-inflation income of U.S. physicians is less today than in 1975.
It is not, however, the whole truth.
Baumol's argument may help explain why health-care spending as a percentage of gross national product is increasing consistently throughout the industrialized world. But it does nothing to illuminate why America's health- care spending as a share of its overall economy is so much higher than other countries' to begin with. Nor does it address the question of why, compared with similarly wealthy nations, the United States fares poorly in such basic measures of public health as infant-mortality rates.
Nobody contends that productivity improvements are impossible in service industries such as health care (or even, to use a Baumol example, Mozart string quartets), only that they come more slowly than in factories. But this may also suggest that there is more untapped potential for productivity improvements in service industries than has heretofore been realized. Quality management techniques are proving applicable in all kinds of work places.
Indeed, the high base cost and comparatively spotty results of the U.S. health-delivery system suggest that, even accepting Baumol's point, America's health-delivery system has more room for efficiency enhancements than most.
Therein lies an opportunity - not to repeal an iron law of economics (if Baumol is correct), but to soften the effects of that law by making systemic what other countries apparently have in place already. Over the long run, perhaps increased health-care costs, as a percentage of gross national product, are going to happen anyway - in an aging society given advancing technology.
But that doesn't mean the faster the rise, the better; nor does it mean that the rise can continue indefinitely, without eventually crippling the productive capacity which produces the wealth that consumers have to spend.
America must find ways to reduce the costs of inefficient health-care administration, of defensive medicine and unnecessary tests and treatments, of duplicative technology, of fee-based medical delivery, of a system skewed toward acute care at the expense of primary and preventive care, of poor health habits. Baumol's argument notwithstanding, cost-containment must remain a priority for health-care reform.
by CNB