Who Shall Live?

Health, Economics and Social Choice

Victor R Fuchs

• Publisher: WSPC
• Year: 2011
• ISBN:
  9789814365642
• Edition: 2
• Topic: Business
• Subtopic: Assicurazioni
• Index: Business

Since the first edition of Who Shall Live? (1974) over 100,000 students, teachers, physicians, and general readers from more than a dozen fields have found this book to be a reader-friendly, authoritative introduction to economic concepts applied to health and medical care. Fuchs provides clear explanations and memorable examples of the importance of the non-medical determinants of health, the dominant role of physicians in health care expenditures, the necessity of choices about health at the individual and societal levels, and many other compelling themes.

Now, in a new introduction of some 8,000 words including new tables and figures, Fuchs, often called the “Dean of health economists”, concisely summarizes the major changes of the past 37 years in health, medical care, and health policy. He focuses primarily on the United States but includes remarks about health policy in other countries, and addresses the question of whether national health care systems are becoming more alike. In addition to reviewing changes, the introduction explains why health expenditures grow so rapidly, why health spending in the United States is so much greater than in other countries, and what physicians need in order to practice cost-effective medicine.

This second expanded edition also includes recent papers by Fuchs on the economics of aging, the socio-economic correlates of health, the future of health economics, and his policy recommendations for the United States to secure universal coverage, control of costs, and improvement in the quality of care. As was true of the first expanded edition (1998), this book will be welcomed by current students and life-long learners in economics, other social and behavioral sciences, medicine, public health, law, business, public policy, and other fields who want to understand the relation between health, economics, and social choice.

Contents:

• Health and Economics
• Problems and Choices:
  • The Problems We Face
  • The Choices We Must Make
• Who Shall Live?:
  • The First Year of Life
  • Three Score and Ten
  • The “Weaker” Sex
  • A Tale of Two States
  • Summary
• The Physician: The Captain of the Team:
  • Caring and Curing
  • “I Can't Get a Doctor”
  • The “Surgeon Surplus”
  • Meeting the Challenge
• The Hospital: The House of Hope:
  • The Central Problem — High Cost
  • Hospitals Today
  • Why Are Hospital Costs So High?
  • How to Keep Hospital Costs from Going Higher
• Drugs: The Key to Modern Medicine:
  • Drug Manufacturing
  • Drug Retailing
  • New Drugs
  • Drugs and Ill Health
  • Drug Costs
  • Ethical Problems
• Paying for Medical Care:
  • The Present System
  • Who?
  • What?
  • How?
  • HMOs
  • Concluding Comments
• Health and Social Choice:
  • Review
  • The Limits of Economics
  • Recommendations
• Health, Economics, and Social Choice:
  • What Every Philosopher Should Know About Health Economics
  • Poverty and Health; Asking the Right Questions
  • From Bismarck to Woodcock: The “Irrational” Pursuit of National Health Insurance
  • Economics, Values, and Health Care Reform
• Further Thoughts on Health Economics and Health Policy:
  • The Future of Health Economics
  • “Provide, Provide” The Economics of Aging
  • Reflections on the Socio-Economic Correlates of Health
  • A Comprehensive Cure: Universal Health Care Vouchers
  • The Dedicated VAT Solution

Readership: Undergraduates in economics, sociology and public policy; graduates in medicine, public health and public policy; physicians and other health professionals.

Who Shall Live?

INTRODUCTION

Health and Economics

The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.

JOHN MAYNARD KEYNES
Introduction to the
Cambridge Economic Handbooks

The problems are all around us: a mother searching frantically for someone to see her sick child; a crippling disease that puts a family hopelessly in debt; a tenfold increase in deaths from emphysema^* since 1955; a doubling of Blue Cross rates in just a few years. The list could be extended almost without limit.

If the problems are numerous and varied, so are the proposed solutions. National health insurance, health maintenance organizations, public utility regulation of hospitals, expansion of medical schools, stricter control of drugs—these are some of the panaceas that have been offered to meet the “crisis” in health care.

Amid the emotion-laden debates that have surrounded these topics, it is not easy for the concerned layman, government official, businessman, student, labor leader, or even health professional to define the problems, acquire the necessary facts, and understand the critical individual and social choices that must be made.

To assist in this process is the primary purpose of this book. In it I try to distill analyses and conclusions based on my research in health services over the past decade, my experience on a medical school faculty, first-hand observation of many innovative medical care organizations, and discussions with leading professionals in medicine, hospital administration, the drug industry, public health, and related fields. Most important, this book approaches the problems of health and medical care from a specific point of view—that of the economist.

The economic point of view is rooted in three fundamental observations about the world. The first is that resources are scarce in relation to human wants. It is hardly news that we cannot all have everything that we would like to have, but it is worth emphasizing that this basic human condition is not to be attributed to “the system,” or to some conspiracy, but to the parsimony of nature in providing mankind with the resources needed to satisfy human wants. That inefficiency and waste exist in the economy cannot be denied. That some resources are underutilized is clear every time the unemployment figures are announced. That the resources devoted to war could be used to satisfy other wants is self-evident. The fundamental fact remains, however, that even if all these imperfections were eliminated, total output would still fall far short of the amount people would like to have. Resources would still be scarce in the sense that choices would still have to be made. Not only is this true now, but it will continue to be true in the foreseeable future. Some advances in technology (e.g., automated laboratories) make it possible to carry out current activities with fewer resources, but others open up new demands (e.g., for renal dialysis^* or organ transplants) that put further strains on resources. Moreover, our time, the ultimate scarce resource, becomes more valuable the more productive we become.

The second observation is that resources have alternative uses. Society's human, natural, and man-made resources can, in most instances, be used to satisfy many different kinds of wants. If we want more physicians, we must be prepared to accept fewer scientists, or teachers, or judges. If we want more hospitals, we can get them only at the expense of more housing, or factories, or something else that could use the same land, capital, and labor.

Finally, economists note that people do indeed have different wants, and that there is significant variation in the relative importance that people attach to them. The oft-heard statement, “Health is the most important goal,” does not accurately describe human behavior. Everyday in manifold ways (such as overeating or smoking) we make choices that affect our health, and it is clear that we frequently place a higher value on satisfying other wants.

Given these three conditions, the basic economic problem is how to allocate scarce resources so as to best satisfy human wants. This point of view may be contrasted with two others that are frequently encountered. They are the romantic and the monotechnic. The romantic point of view fails to recognize the scarcity of resources relative to wants. The fact that we are constantly being confronted with the need to choose is attributed to capitalism, communism, advertising, the unions, war, unemployment, or any other convenient scapegoat. Because some of the barriers to greater output and want satisfaction are clearly man-made, the romantic is misled into confusing the real world with the Garden of Eden. Because it denies the inevitability of choice, the romantic point of view is impotent to deal with the basic economic problems that face every society. Occasionally, the romantic point of view is reinforced by authoritarian distinctions regarding what people “need” or “should have.” Confronted with an obvious imbalance between people's desires and the available resources, the romantic-authoritarian response may be to categorize some desires as “unnecessary” or “inappropriate,” thus protecting the illusion that no scarcity exists.

The monotechnic point of view, frequently found among physicians, engineers, and others trained in the application of a particular technology, is quite different. Its principal limitation is that it fails to recognize the multiplicity of human wants and the diversity of individual preferences. Every problem involving the use of scarce resources has its technological aspects, and the contribution of those skilled in that technology is essential to finding solutions. The solution that is optimal to the engineer or physician, however, may frequently not be optimal for society as a whole because it requires resources that society would rather use for other purposes. The desire of the engineer to build the best bridge or of the physician to practice in the best-equipped hospital is understandable. But to the extent that the monotechnic person fails to recognize the claims of competing wants or the divergence of his priorities from those of other people, his advice is likely to be a poor guide to social policy.

The basic plan of this book is straightforward. Thus, the first chapter presents from an economic point of view the nation's major health care problems: high and rapidly rising costs, inequality and difficulties of access, and large disparities in health levels within the United States and between the United States and other countries. The discussion of these problems, and the subsequent analysis of the choices we must make, set the stage for a few central themes that run throughout the book.

The first theme is that the connection between health and medical care is not nearly as direct or immediate as most discussions would have us believe. True, advances in medical science, particularly the development of antiinfectious drugs in the 1930s, ‘40s, and ‘50s, did much to reduce morbidity and mortality. Today, however, differences in health levels between the United States and other developed countries or among populations in the United States are not primarily related to differences in the quantity or quality of medical care. Rather, they are attributable to genetic and environmental factors and to personal behavior. Furthermore, except for the very poor, health in developed countries no longer correlates with per capita income. Indeed, higher income often seems to do as much harm as good to health, so that differences in diet, smoking, exercise, automobile driving and other manifestations of “life-style” have emerged as the major determinants of health. Chapter 2 develops this theme in some detail.

Although it is the patient rather than the physician who has the major influence on his health, the opposite is true regarding the cost of medical care. As we whall see in Chapter 3, it is the physician who, as “captain of the team,” makes the key decisions (regarding hospitalization, surgery, prescriptions, tests, and X rays) that account for the bulk of medical care costs. Many of these decisions are not rigidly determined by “medical necessity,” and, depending upon how medical care is paid for, utilization and costs can vary greatly. This theme is further elaborated in the chapters on hospitals (4), drugs (5), and medical care finance (6).

The relative unimportance of the physician in health and his great importance with respect to cost lead us naturally to a third theme—the folly of trying to meet the problem of access by training more M.D. specialists and subspecialists. The access problem involves mostly primary care^* and emergency care—and could frequently be met with physicians' assistants, nurse clinicians, and other kinds of health professionals. The “doctor shortage” is far from universal, and in some specialties, such as surgery, there is actually a surplus. Furthermore, such surpluses, rather than reducing costs, actually raise them (see Chapter 3).

A fourth theme, concerning the payment for medical care (Chapter 6), is that there is no magic formula which can transfer the cost from individuals to government or business. If the American people want more medical care, they are going to have to pay for it through fees, insurance premiums, taxes, or, if the taxes are levied on business, higher prices. The choice of payment mechanism is not irrelevant, however, because of its implications for the poor, and its implications for the total cost of care.

The most central theme of the book is the necessity of choice at both the individual and social levels. We cannot have all the health or all the medical care that we would like to have. “Highest quality care for all” is “pie in the sky.” We have to choose. Furthermore, while economics can help us to make choices more rationally and to use resources more efficiently, it cannot provide the ethics and the value judgments that must guide our decisions. In particular, economics cannot tell us how much equality or inequality we should have in our society (Chapters 1, 6, and the Conclusion).

A few words about what this book is not are also in order. Although I am a specialist in health economics, this book is not written for my fellow specialists. I have not attempted to fill in all the details or to argue exhaustively in support of every conclusion. I have tried very hard to get the main points right; indeed, to help the reader realize what the main points are. In a world that is becoming increasingly specialized, it is important to try to take a look at the “big picture,” to reach an audience which, if not large, is certainly influential.

This is not an “angry” book; neither is it a defense of the status quo. Surely there is much in the American health care scene to criticize, much that ought to be changed. But if the change is to be for the better, it should be based on an understanding of why things are the way they are. Anger often gets in the way of understanding. As Gordon McLachlan, a leading British health care expert, has written, “One of the major policy requirements for most Western societies today is to eschew the drama for awhile, and examine critically with scientific techniques the dogmas and cliches with which the policy-making for medical care has been encumbered.”¹

This book is not a directory of villains. It is simply not true that you can always recognize the “bad guys” by their white coats. Most health care problems are complex, and, except for my desire to avoid being too technical, the complexities are not evaded. Few simple solutions are presented, because, in my view, few exist. Some health care problems defy “solution.” At most one can hope for understanding, adjustment, amelioration.

Although I have tried to avoid polemics, I have not tried to conceal my opinions or to present a balanced point of view on every issue. Other observers—indeed, other economists—may well reach conclusions different from mine. Some of the data are certainly open to alternative interpretations. More important, value judgments undoubtedly differ. My greatest hope is not that readers will uncritically accept all my conclusions, but that this book will help them reach their own with a firmer command of the facts and a clearer understanding of the relationships among health, economics, and social choice.

---

^* Chronic obstructive disease of the lung.

^*A machine process that cleans the patient's blood of the waste chemicals that his non-functioning kidneys are unable to remove.

^*The care given by practitioners who agree to serve as the first point of contact for the patient who needs or thinks he needs health services. It typically deals with the more common and relatively uncomplicated types of health problems.

CHAPTER 1

Problems and Choices

A rational man acting in the real world may be defined as one who decides where he will strike a balance between what he desires and what can be done. It is only in imaginary worlds that we can do whatever we wish.

WALTER LIPPMANN
The Public Philosophy

The Problems We Face

In recent years, almost every American family has become acutely aware of the soaring costs of medical care, the difficulties of access to physicians, and the mounting health problems of our society . According to many observers, the U.S. health care system is in “crisis.” But a crisis is a turning point, a decisive or crucial point in time. In medicine the crisis is that point in the course of the disease at which the patient is on the verge of either recovering or dying. No such decisive resolution is evident with respect to the problems of health and medical care. Our “sick medical system,” to use the headline of numerous magazine and newspaper editorials, is neither about to recover nor to pass away. Instead, the basic problems persist and are likely to persist for some time to come.

What are these problems? Many of them are related to the cost of care. Indeed, one close observer of the Washington scene has argued that “the medical ‘crisis’…is purely and simply a crisis of cost. The inflationary rise in medical costs is the key concern of congressmen and consumers, a fundamental political and economic fact of life for both.”¹ Another category of problems concerns access to care; while a third major set involves the determinants of health levels. Let us look briefly at each of the problems in turn.

COST

In 1973 Americans spent an average of $450 per person for health care and related activities such as medical education and research. This was almost 8 percent of the GNP (the gross national product is the total value of all goods and services produced in the nation). Twenty years before, health care represented only 4.5 percent of the nation's output, and even as recently as 1962 the proportion was only 5.6 percent. Thus from 1963 to 1973 health expenditures rose at the rate of 10 percent annually while the rest of the economy (as reflected in the GNP) was growing at only 6 to 7 percent.

One often reads or hears that costs have become so high that the average family can no longer pay for health care and that some other way must be found to finance it. This is pure nonsense. The average family will always have to pay its share of the cost one way or the other. Payment may take many forms: fee-for-service, insurance premiums, or taxes. If the system is financed by taxes on business, then people pay indirectly, either through higher prices for the goods and services business produces or through lower wages. True, a highly progressive tax could result in some redistribution of the burden. But given the likely pattern of tax incidence, the only meaningful way to ease the cost burden on the average family is to moderate the increase in total expenditures.

Not only is average cost of health care high and growing at a rapid rate, but there is also the problem of unusual cost. It is clear that in any particular year a relatively small number of families make extensive use of health services, and if payment is on a fee-for-service basis, the cost to them is exceedingly high. Renal dialysis for one individual, for instance, may cost ten thousand dollars a year; some surgical procedures cost even more. But the remedy for this problem has been known for a long time—some form of insurance or prepayment. This will not help the average-cost problem—indeed, it would aggravate it if insurance were to induce additional utilization—but it does take care of those individuals who require unusually large amounts of care.

Note that these two cost problems have little to do with one another. If average costs were half their present levels or rising at half their present rate, some families would still experience mammoth medical care bills in any given year. Similarly, even if every family had complete protection against unusual costs through major-risk insurance, the problem of slowing the escalation of rising average costs would remain. They are separate problems and require separate solutions.

Why has average cost grown so rapidly, and what can be done about it? One useful approach is to realize that cost, measured by total expenditures, is equal to the quantity of care utilized multiplied by the price per “unit” of care. Utilization, measured by number of visits, prescriptions, tests, days in hospital, and the like, depends upon the health condition of the population as well as its propensity to use health services for any particular health condition. This propensity depends in part on the patient, who, in most instances, must initiate the care process and consent to its continuance. But it also depends on the physician who, because of his presumed superior knowledge, is empowered by law and custom with the authority to make decisions concerning utilization. It is the physician who sends the patient to the hospital and sends him home, who recommends surgery, who orders tests and X rays, and who prescribes drugs.

So much for utilization. What about price? The price of a given “unit” of medical care depends on the relative productivity (i.e., output per unit of input) of the labor and capital used to produce it and on the prices paid for this labor and capital. Productivity depends on such factors as the appropriateness of the scale and type of organization in question, on the amount of excess capacity, on technological advance, and on the effectiveness of incentives and training. Thus productivity is directly affected if a hospital is either too large or too small to be efficient, or if the community has more hospital bed than it needs, or if there are less expensive ways of performing laboratory tests.

The physician can have considerable influence on productivity because of his broad powers of decision making. For instance, the physician decides how many and what kinds of auxiliary personnel work with him in his practice. And committees of physicians make many of the critical decisions that affect productivity in the hospitals they are affiliated with. The patient can also affect productivity through his cooperation and general behavior. For instance, a patient who gives a physician a full and reliable medical history and who complies w...