The U.S. spends much more on medical care than do other countries, but the health of Americans is not impressive. To give one example, the U.S. spends almost double the proportion of its total output on health care compared to Japan, but life expectancy in Japan is about five years higher than in the U.S. And though the U.S. accounts for more than half of total spending on medical care in the world, even the healthiest regions or highest socioeconomic groups within the United States appear to have worse health than many Europeans.

Some of the high spending and poor outcomes result from spending on care which is ineffective. Though the Food and Drug Administration finds that the drug Avastin is ineffective for treating breast cancer, Medicare still pays for it, at a cost of about $88,000 per year for each patient. And though there is no evidence that colonoscopies for most people over 75 save lives, Medicare pays for that too.

A major problem is that government finds it difficult to refuse to provide treatment when the treatment is available. That is, specific rationing, with some bureaucrat or government agency denying medical care to people when the capacity to serve them is available, is politically most difficult. The only way to reduce spending on medical care may be by abstract rationing, or rationing out of necessity based on limited capacity: some people may not get treatment when capacity is insufficient to serve everyone.

A look at Great Britain demonstrates abstract rationing in practice. Abstract rationing is particularly effective when large capital expenditures or investments in training highly specialized staff must be made. Thus, dialysis is limited in Britain because the requisite equipment purchases are constrained, as are investments in training qualified nurses and technicians; admission to intensive care units for all but the most severe cases is difficult because facilities are scarce; and CAT scans are used at 20 percent of the U.S. rate. Generally, procedures that demand much time from specialized personnel or demand much scarce physical plant (for example surgery requiring operating room time) are hard to obtain. By contrast, abstract rationing is, predictably, ineffective when capacity is hard to restrict. Thus, care that can be furnished by regular medical personnel or from ordinary drugs and supplies is plentiful. For example, in contrast to the U.S., Britain spends as much on Total Parenteral Nutrition (nutrition bypassing the digestive tract) as it spends on CAT scans. This would seem to reflect the differences that of the two procedures, only Total Parenteral Nutrition requires no appreciable capital outlay and can be ordered by physicians on a case-by-case basis. Similarly, countries in western Europe have failed to control spending on pharmaceuticals---drugs are usually in abundant supply, a person cannot be told that a drug is unavailable, and instead restrictions must take the form of some official saying to particular individuals that the government, or the insurance company, or the hospital, is simply unwilling to spend the money to give the drug.

The U.S. stands in marked contrast to other wealthy countries, expanding rather than constraining capacity. Diverse policy choices---from the availability of Medicare reimbursement to the issuance of tax-exempt bonds---have all fueled big capital projects that expand capacity. Reflecting the large capital stock in the United States, American physicians have been less likely than physicians in other countries to complain of poorly equipped medical facilities.

Review panels, guidelines issued by the federal government, reformed insurance plans, and many other proposed policies are unlikely to reduce the growth in spending on medical care as long as the U.S. enjoys such large capacity to deliver medical care.


The preceding is based on Amihai Glazer and Lawrence Rothenberg (2001) Why Government Succeeds and Why It Fails. Cambridge: Harvard University Press. Japanese translation, 2004, Tokyo: Iwanami Shoten; on Amihai Glazer and Lawrence S. Rothenberg (1999) “Increased capacity may exacerbate rationing problems: With applications to medical care.” Journal of Health Economics (Volume 18, Number 5), pp. 671-680; and on material from the course in health economics Glazer teaches.

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