Medical Costs

A number of discussions about healthcare in the US note that the US spends more per capita on health care than any developed nation, but far less bang for its buck.  Reading Rajan, I finally found an explanation.  He describes the major and three minor causes.  

MAJOR CAUSES

1) High prices for inputs.  Basically, the shit costs more in the US than in other countries.  A hip replacement is twice as expensive in the US as it is in Canada.  Rajan notes that part of this is caused by higher salaries for doctors.  I'll add that the fact that the pharmaceutical industry has the largest number of lobbyists of any industry is probably related to high costs.  

2) Doctors and hospitals are paid for services provided rather than results.  Basically, people are having unnecessary procedures done because insurance pays the bill, when a smaller amount of care is actually required.  

3) The system adopts innovations, even when there's nothing to suggest that they work.  Rajan notes the use of $100 million nuclear particle accelerators to treat prostate cancer.  The accelerators have been proven very effective at treating rare brain and neck tumors, but not more so than less capital-intensive treatments that are used to treat prostate cancer.  Essentially, they're using a Ferrari for the daily commute when a Civic will do just fine.  

MINOR CAUSES

1) High administrative costs, approximately 10 times as high as other developed countries.  

2) Lack of operational efficiency.  Increased specialization by doctors shortens operation times, leads to better results, etc.  "Even though good surgeons in India earn about as much as surgeons in the United States, the cost of operations is often an order of magnitude lower."  

3) The threat of malpractice suits.  "Expenditures for Medicare beneficiaries in states with larger malpractice awards are about 5 percent higher."  Basically, doctors are recommending additional procedures to cover their ass and keep from getting sued.