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The Promise of Real Healthcare

Posted by: Michael Mandel on April 22

Next in my series of optimistic posts: healthcare. There’s been a lot of bad news lately about healthcare. A new study just came out showing that life expectancy at birth has been declining in some counties since the 1980s. In particular “after 1983, life expectancy declined an average of 1.3 years in 11 counties for men, and in 180 counties for women” (from the NYT article) At the same time, health care expenditures continue to rise. For example, the latest numbers from the OMB show that in FY 2007, health care exceeded 25% of the federal budget for the first time, making it bigger than defense spending.

In this post, I’m going to argue that the combination of poor outcomes and rising costs is due to a lack of medical knowledge, not to a failure of institutional arrangements. To put it another way, doctors know far less about what works and what doesn’t than we think.

I choose to interpret this as good news. The implication is that improvements in medical knowledge have the potential to both improve outcomes and reduce costs. In particular, the maturing of biotechnology—now 25 years old—offers great possibilities of escaping the health care trip.

Why do I say that we have a lack of medical knowledge? Just look at the numbers. We’ve spent trillions of dollars on researching and treating diseases of the middle-aged and elderly—heart disease and cancer, in particular. Yet life expectancy for the middled-aged and elderly have moved far less than one would expect. In 1950 your life expectancy at age 50 was 24.4 years—that is, you could expect to live until 74.4 Today (actually as of 2005) your life expectancy at age 50 is now 30.9 years. In more than a half century, and endless medical interventions, we’ve gained a grand total of 6.5 years.

The situation is even worse if you are 75. In 1950 you could expect to live to 83, and now that’s up to 87. Whoop-de-doo.

This lack of progress is not a factor of sex or race, with one exception. Take a look at the table below.

Increase in life-expectancy, 1950-2005
At age 50 At age 75
(years) years)
All 6.5 3.6
male 6.3 3.0
female 6.3 3.9
white 6.4 3.6
black 6.5 1.9
Data: National Center for Health Statistics

All the groups show up with small gains in life expectancy over that 55 year period, with blacks at 75 showing up with teeny gains.

This 6 year gain is much less than most people realize. (When I give speeches and ask people whether they think life expectancy at age 50 has increase by 6, 11, or 17 years, usually roughly half the people pick 17)

Of course, some people would argue that medical science is fine--it's just that we are fatter and fatter, and living in a less healthy environment. And certainly that could be partly right.

But more and more, it looks like some of the major medical interventions we have tried are simply not supported by the evidence. Take statins such as Lipitor, which millions of Americans take. Other signs. John Carey of BusinessWeek recently wrote about Lipitor in a cover story, and he found that the drug, by any reasonable standards, was only marginally helpful in preventing heart attacks. He wrote:

The difference credited to the drug? One fewer heart attack per 100 people. So to spare one person a heart attack, 100 people had to take Lipitor for more than three years. The other 99 got no measurable benefit.

The researchers at the Dartmouth Institute for Health Policy and Clinical Practice have been making much the same point from a different angle. They find wide variances in clinical practice across different areas, suggesting that there is no consensus about what works and what doesn't.

Grant me for the moment the proposition that doctors know a lot less than we (and they) think they do. That would explain a lot about the current situation we find ourselves in. For one, it would explain why
health care costs keep rising. It is the lack of effectiveness of medical science which is driving costs, not its effectiveness. People want to live longer, they don’t want to die. They are willing to spend for even a couple of extra months of life. And if one treatment doesn't work, they try something else, and then something else (just think about your own experiences with doctors).

It also explains why all sorts of institutional reforms over the past 20 years have not managed to rein in health care costs. We've tried tight control (health maintenance organizations) and the free market (health savings accounts) and everything in between, and nothing has managed to solve the problem. But of course, the real problem has to to do with the state of medical science, and not the institutional arrangements.

So why am I optimistic? The implication is that improvements in medical science could be a win-win proposition, giving us better outcomes at less cost. That would require biotechnology to finally fulfill its promise of targeted treatments--That is, really understanding the mechanism of the medical problem and the solution, rather than by trial and error.

This breakthrough hasn't happened yet...but it's about the right time. The first biotech drug came out in 1982, a quarter century ago. It was about 25 years between the first microprocessor (Intel, 1971) and the Information Revolution of the mid 1990s.

The first sign would be a surge in the price of biotech stocks, which isn't happening right now. That weighs against my optimism. In fact, I wouldn't blame people for being skeptical of my argument.

Still, just remember there was still a lot of skepticism about the economic value of information technology right up to the moment of the Netscape IPO in 1995. Technological change is inherently low visibility.

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Reader Comments

Eric Williams

April 22, 2008 03:53 PM

The author is onto something. The Dartmouth researchers point out a tremendous amount of variation in clinical practice. This variability does signal some issues with a lack of understanding. However, a more common interpretation is that medical knowledge takes a long time to make its way into clinical practice. Further, many physicians do not practice to the best practice standards. If physicians, etc. did practice to best practice standards, we would reap more of our investment in medical research. Biotechnology is not the answer, however, better management and utilization of what we already know is far more likely to reduce costs.

Mike Mandel

April 22, 2008 04:18 PM


I know that's the conventional interpretation of the Dartmouth results, but I don't agree. The studies are very convincing that there's widespread variance in practice, and that more expensive practices do not necessarily give better outcomes. But unless I'm mistaken, the studies do not clearly show that there's an overwhelming "best practice" that doctors are not adopting.


April 22, 2008 05:01 PM

Biotech has, in fact, outperformed the S&P500 over the last 10 years.


April 22, 2008 05:07 PM

Let me also add that globalization leads to Medical Tourism, which can deflate US healthcare costs by a lot. No matter how bad the bureaucratic mess is in the US, other countries can offer the same for less. Even if only some people opt for Medical Tourism, it still will cause a giant hissing sound in the US system.


April 22, 2008 06:16 PM

If medical knowledge shows all these treatments to be grossly overvalued, then what? Do we give up that 1.4 or 1 month per year increase? Most likely it is due to increased knowledge, healthier diets, safer living conditions, and nothing at all to do with medicine. Is the medical crisis that medicine exists at all given its ineffectiveness?

medical student

April 22, 2008 07:17 PM

Shows a completely infantile understanding of the way medical science improves, and arrogance in the face of the incredibly complexity of disease and its treatment.

For people with no understanding of the VASTLY complicated healthcare problem/system in America, think simple:
Saving your life is valuable. You're going to need to pay for that value. Insurance companies do not add to the value of your healthcare (they simply cut checks), but they take a much larger portion of the profits than hospitals and doctors. That is the problem we should delve into.


April 22, 2008 10:40 PM

I read a bunch of the Dartmouth data, it has problems.

It completely fails to recognize physicians in the US do not compete on 'price', they compete on patient satisfaction (insurance companies compete on price-- the reason so many people do not purchase insurance).

Anyway, the Dartmouth study didn't even address things like regional 'cultural differences' amongst patients in their desire to utilize healthcare. They assumed everything onserved in healthcare spending was due to the physician behavior-- an absurd assumption.

For instance they looked at salary models and showed a difference in expenditures when physicians were paid salary vs. fee for service (no suprise fee for service seemed more expensive-- yet I have data showing it is far more complex than this, the real issue is 'conflict of interest')

Anyway, the Dartmouth people forgot to think about how communities in the Midwest and rural New Hampshire might ALSO be culturally very different from West Los Angeles (where the salary models are also fee for service).

Having worked in many of the institutions they studied, their omission is a little like: 'the empereror has no clothes'.

When will people realize healthcare spending shows 'fractal like' patterns: 1% of patients represent 25% of costs, 5% represent 50%, 20% represent >80%, etc... (and if you look at themost expensive 1%, the reality is only a very small % of them reresent the majority of the costs, etc...)

Do the math youself...

If 100 citizens spend $100 on health care, 95 of those citizens only get to see at most 52 cents for each dollar they put into the system. But the reality is far worse as 80 citizens really split less than .25 cents on each dollar they put in, etc...

FYI-- Public education spending also follows 'fractal-like' patterns (technically I think they are hysteresis curves). Add as much money as you want into the system, only a small minority of the money actually goes to 'average' child.

The reality is that those who draw the most from the system are the reason the system is going bankrupt. How much do you want to spend to extend the life of a 45 year old woman with 2 children with pacreatic cancer for another 45 days? How many times are we willing to admit a homeless crack cocaine addict to the hospital on involuntary committment because he/she has threatend suicide for the ?# time in their despondency over their addiction and there is no way to ever predict whether he is really serious this time or not? These issues are so difficult/ugly that we simply refuse to deal with them (indeed most of don't even understand where all the money is spent). Further we accuse anyone who broaches these subject of being a NAZI.

Yet the reality is unless we want to spend more money our only solutions are

1. improving productivity
2. rationing.

(and 2 is likely to make a much bigger impact than 1)

The reason nationalized medicine works is because people 'trust' governments to ration more than they trust 'For-profit' business to ration.

But this was really always a trust issue more than anything else.


Thomas A. Coss

April 23, 2008 12:35 AM

Biology is complex, hence medicine is complex. Over the past 150 years, big improvements in population health could result from relatively modest improvements in sewage management, water treatment,and physicians washing their hands. It wasn't yet a century ago, 1911 to be precise, that people were statistically better off in hospitals than at home. Still it is proper that Michael is optimistic.

There is plenty of variability in the quality of health care provided even within communities,and even within shifts within hospitals, but work is well under way to improve outcomes and minimize variance between institutions.

In the end, nothing is more important than an informed and engaged patient, who, in the end, is the residual claimant to decisions made and actions taken.

Tom Coss, RN


April 23, 2008 08:44 AM

Number are good. But only when they're used properly. Theories are also good. But only when they include the entire problem.

When it comes to declining life expectancies, one need only to look at the American waistline. Hypertension, diabetes, arthritis, heart disease, wear and tear and all the other health issues obesity entails don't make for a long life. Even your article itself states that cardiovascular disease is by far one of the biggest contributors for declining life expectancy rates. And if 33% of the nation is obese and is at the highest possible risk of cardiovascular disease, the statistics add up to lower life expectancies. You can't eat Big Macs and doughtnuts all day and expect to live as long as someone who eats salads, lean meat and gets at least a little basic exercise once in a while.

It's true that doctors don't know everything there is to know about our bodies and how to treat them. If they did, there would be no disease. Making drugs and studying how they interact with our bodies is no simple task. It requires a lot of research, a lot of experiments and a lot of time. When drug makers take shortcuts and rush to the market with a product based on the pop flavor of the month rather than with a fully researched and analyzed treatment and insist on blasting medical jargon-laden ads that help to spawn DIY doctors, you have the kind of debacles you have with statins.

To fully explain the state of the healthcare industry and why things cost as much as they do would take a small book and I would have to enlist the help of healthcare experts to keep me on target. On a blog comment, I'll just note that your main premise glosses over many complex issues and is fundamentally flawed.

The biggest problem for our life expectancy rates aren't the doctors or the drugs. It's the fact that Americans are eating themselves to death. Please feel free to check with the National Institute of Health if you don't believe me.

Joe Cushing

April 23, 2008 12:15 PM

I think you make good points but the 25 year time line has no meaning. Just because it took 25 years before doesn't mean it will happen again. It could take 25, 50 or a hundred.


April 23, 2008 01:01 PM

Random, you are correct when it comes to life expectancies, but this logic is simply wrong when applied to healthcare spending (as the Scandinavians have finally proven).

Fat smokers who drink too much cost the system a lot to be sure, but they also do not live as long so they can't 'drwa' from the system for as many non-working years as those who live a long time.

The truth is living longer is still more expensive to the system as it is currently funded today for the simple reason they pull money out of the system longer (even if they pull less each time).


April 23, 2008 01:21 PM

Hey Mike, love your blog and the very thoughtful and insightful comments from everyone here.

Supporting the poster above me, who posted on the effects of obesity and the growth of it, I came across this map on my ramblings on web.

This is truly scary to me (since I'm a little fanatical on being fit and trim) and though one cannot blame the growth in medical insurance costs entirely on obesity, it may explain some of the growth.


April 24, 2008 01:36 AM

If the measure should be other than life expectancy, perhaps we should live better but shorter lives. Perhaps we should be spending more on food and less on medicine. Perhaps obesity is a measure of our success.


April 24, 2008 07:34 AM

"Random, you are correct when it comes to life expectancies, but this logic is simply wrong when applied to healthcare spending (as the Scandinavians have finally proven)."

1. I didn't try to address healthcare spending. I addressed life expectancy because that was the primary topic here. You're questioning my logic in something I didn't say.

2. Healthcare in Scandinavia and in the U.S. are two different industries. In Scandinavia, there's national healthcare which standardizes and rations care in a uniform way for all people. It makes objective comparisons for the obese, the smokers and the healthy possible for researchers.

But in the U.S. insurance is private and insurance plans differ wildly. Expenses for care are also different by city and by hospital because there's no uniform national standard. The closest thing to such a standard in the U.S. are basic guidelines by M&R and InterQual for insurance companies but they're not always followed, are followed to different degrees and are never strictly enforced.

I highly doubt that we could apply the Scandinavian study to the U.S. with any sort of accuracy since the healthcare models are so different. We shouldn't grab studies and immediately try to apply them to everything. Like I said, statistics and theory and good but only when applied properly.

Mike Mandel

April 24, 2008 09:21 AM

I realize that I'm making a provocative conjecture here. But let me highlight the comment from 'medical student':

"Shows a completely infantile understanding of the way medical science improves, and arrogance in the face of the incredibly complexity of disease and its treatment"

That sounds like an insult, but he/she is actually supporting my point. If we think about medical science like climbing a mountain, we are only at the foothills at this point. And we should address more resources to improving our basic understanding, rather than institutional reforms which are roughly equivalent to tying the laces on our hiking boots more securely--necessary but hardly sufficient.


May 3, 2008 05:07 PM

One report in this blog slams food safety and FDA.When will these people wake up?.Japan has devices which can find fat cholestoral levels in fish.They dont check every fish.Only fools will inspect(rock age 200 BCE era people).280 million people eat 2560 million food items every day.How many people are needed to inspect?.They have suggested few stupid things in LIFE STYLE.According to me inbuilt check points and condition monitoring devices for bacteria,poison,foreign materials,freshness etc.There should not be any hand involved and inspection.No matter out of 1000 if inspection is done for 100, there is a chance of 10 bad out of 900.Try to be visionary of 21 st century not 200 BCE

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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