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New Efficiencies in Health Care? Not Likely

All attempts to reduce bureaucracy increase it, and the same goes for cost. Such, at any rate, has been my experience of the British health care system—its famed, or infamous, National Health Service.

Thus, I could not but smile a little wanly when President Barack Obama said this week that he hoped an increase in the use of generic drugs, together with an expert commission to examine the cost-effectiveness of medical treatments, would make a significant impact on the vast budget deficit of the United States. We in Britain have been there and we have done that, and our health-care costs doubled, perhaps not as a result, but certainly at the same time.

The best that might be said for these measures is that the increase in health-care costs was lower than it might otherwise have been. That is certainly not enough to save a country from a financial apocalypse, or even enough to be a major contribution to its salvation.

In Britain we have been prescribing generics for years; I cannot remember a time when I personally did not. Our National Institute for Clinical Excellence (NICE, a typically Blairite acronym) has done cost-benefit analyses of drugs and procedures, often very sensibly, for years. But despite its best efforts, our system has been highly inventive in finding other ways of wasting immense quantities of public money.

President Obama also wants to move from a fee-for-service system, which gives doctors an incentive to perform expensive and doubtfully effective procedures, to one in which doctors are rewarded for preventing diseases that are so expensive to treat. On paper, prevention always seems much cheaper than cure. Health-care economists prove it very elegantly and convincingly over and over again.

Unfortunately, the world always proves to be more complex and refractory than the theories of even the best economists.

In Britain, we have long had a highly developed primary health-care system. Every person in the country has a primary care physician. Each such physician has a "list" of 2,000 to 3,000 patients.

For a long time, a physician was paid a capitation fee: He received a certain amount per patient per year from the NHS, irrespective of what the doctor did for the patient or how many times a year the patient was seen. The doctor could charge a small fee for some services, such as adult immunizations, or for issuing a sick note or a cremation certificate, but otherwise could not increase his income except by private practice. Needless to say, private practice was most extensive in the better-off areas, so that the system ended up reproducing the very social divisions in health care that it was designed to abolish.

In the poorer areas, doctors had no incentive—at any rate, no financial incentive—to improve their practice. It was rather the reverse. The worse the facilities they offered, the higher their income.

In the 1990s, it was decided to change all that. Family doctors began to be paid to undertake preventive measures. The experts hoped that this would save money because the cost of preventing diseases would be more than offset by the savings from not having to treat the diseases that they prevented. (It is now merely a historical curiosity that, when the NHS was set up, its proponents seriously argued and believed that its cost would inevitably decline with time, since it would make the population healthier and less in need of medical attention.)

It turned out, however, that the costs of prevention were decidedly real, while the savings were inclined to be imaginary. This was for more than one reason. The bureaucratic costs of setting and monitoring health-improvement targets—which were often highly arbitrary—were far greater than anticipated, bureaucracies having an inherent tendency to increase in size and spending power. Many doctors started to be paid for procedures that they were already doing for no charge, like taking their patients' blood pressure. Screening procedures turned out to be highly equivocal in their efficacy. Thus the overall benefit was much less than anticipated. Some of the more common ills that had been targeted, such as strokes and heart attacks, were in marked decline anyway.

Worse, much of the expenditure on the treatment of disease proved intractable. Technology inexorably increased costs; and even if the health of the population improved rapidly, so that 70 was the new 60, 60 the new 50 and so forth, the proportion of old people in the population meant that the proportion of people ill with expensive chronic diseases increased. In the U.S., there were 37 million people over 65 in 2006, just over 12% of the population. That figure is projected to rise to 71 million, or 20%, by 2030.

In my professional lifetime, procedures such as hip replacement have gone from being relatively new-fangled and exotic to being routine, precisely at a time when there are more people than ever who can benefit from them. Osteoarthritis is no doubt hastened by obesity, but no medical means has yet been found for the prevention of that particular condition.

It is true that in Britain we have had our own peculiar reasons for the spectacular rise in the cost of our health-care system. First Margaret Thatcher (inadvertently) and then Tony Blair (deliberately) corrupted our civil service—Mrs. Thatcher by allowing the bureaucrats to pretend that they were businessmen, with perquisites to match; and Mr. Blair by expanding this class of persons enormously, creating a powerful political lobby. The British system is now capable of absorbing infinite amounts of money with minimal benefit to the health of the population, though with great benefit to the pocketbooks of those who work in it.

It is an occupational hazard for politicians to think that they and their ilk know best, and by all indications Mr. Obama rather likes centralization. In my professional lifetime in the centralized British health-care system, however, I have seen a hundred schemes of cost reduction, but I have never seen any reduction in costs, or at least any that lasted more than a few months. I can't remember a single health minister who did not promise more efficiency at less cost, or a single one who actually managed to achieve it.

The long-term solution, I imagine, is the same for health care as it is for pensions: to pay for it with the income generated by dedicated savings accounts, which can be transferred to the next generation after death. The important thing is to reduce the insurance element, which encourages a pay-as-you-go system, a kind of Madoff scheme ensnaring the whole country.

If we are to have health-care systems that don't bankrupt us, people will have to accept paying more bills out of pocket and perhaps lowering their standard of living. Tiresome as the advice might be, we had better start saving a good deal more.

First published in the Wall Street Journal.



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