Study Finds Health Care Good Value Despite Costs

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By Christopher Lee
Washington Post Staff Writer
Thursday, August 31, 2006

The dramatic increase in health-care spending in the United States since 1960 is a major reason that Americans are living longer, making the world's most expensive health-care system a good value despite its high costs, according to an academic study being released today.

The study notes that a baby born in 2000 can expect to live for 76.9 years, compared with 69.9 years for a newborn in 1960. While some of the gain is because of declines in rates of smoking and fatal accidents, it is reasonable to attribute at least half of it to more and better health care, said Harvard University economist David M. Cutler, the study's lead author.

"If you want to evaluate whether we're spending too much, you have to know what we're getting for it," Cutler said in a telephone interview. "And when you look at what we're getting for it, the return actually looks to be pretty high. . . . The presumption that most people have is that it's obvious that we're spending way too much."

The conclusions of the study, published in the New England Journal of Medicine, run counter to the arguments by analysts who question whether health-care costs should consume 16 percent of the nation's economic output. Such critics point out that in longevity and infant mortality, the United States ranks below other countries that spend far less.

All sides agree the United States spends more on health care than any other country does -- more than twice as much per person as Britain and Japan, for instance, and nearly 30 percent more than second-ranking Monaco, according to the World Health Organization.

And the amount has risen steadily. Annual medical spending in the nation stood at more than $6,000 per person in 2005, up from about $700 per person in 1960, the researchers said. To Cutler and fellow researchers Allison B. Rosen and Sandeep Vijan of the University of Michigan Health System, that is a good thing.

They examined the relationship between changes in life expectancy and increases in medical costs over a 40-year period, and attempted to screen out the influence of factors such as declines in smoking and changes in homicide and accident rates, things that had little to do with medical advances. The study did not consider quality of life.

From 1960 to 2000, the increased spending on health care at birth meant that each year of added life expectancy cost an average of $19,900, the study found. The gains were much more expensive for older people, with the average cost per additional year of life about $84,500 for a 65-year-old.

Big reasons for the increase in longevity were the reduction in infant mortality and the toll of heart disease. Both are at least partly attributable to medical advances, such as better drugs and more effective surgical procedures in the case of heart disease, Cutler said. While some drugs and procedures are prescribed when they are of little benefit, overall, they improve health and longevity, he said.

"On net, it's actually been a very good deal," Cutler said. "It's very clear that we don't need to spend every penny we do spend. What's also clear is that there's a lot of stuff that is worth it."

But we are wasting a lot of it, said Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins University's Bloomberg School of Public Health. Despite spending more than any other country, the United States ranks 31st in longevity, behind such countries as Australia, Canada and Malta. It ranks 40th in the probability that a child will die before age 5, with nations such as Estonia, Portugal and Slovenia doing better.

"The United States is very bad in value for dollar, in terms of the health-care dollar," Anderson said.

Anderson said the health-care system is expensive partly because it focuses too much on treating illness rather than on preventive care. And Americans pay more for drugs, procedures and doctors than do residents of many other nations.

"The reason why we're spending so much isn't that we're getting more services," he said. "The reason is we're paying much higher prices for the same services that other countries get."

Joseph P. Newhouse, a professor of health policy and medicine at Harvard, said the U.S. health-care system can both have benefited from big increases in expenditures over decades and yet also have a problem with wasteful spending at any given moment.

"It's hard for people to get their minds around both of those concepts at the same time," he said. "The natural instinct is to say, 'Don't talk to me about paying more until you can get rid of the waste and bad stuff.' "

Staff researcher Madonna Lebling contributed to this report.


© 2006 The Washington Post Company

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