One of the major developments in regulation over the last 30 years has been the rise of cost-benefit analysis. At first, agencies squirmed and resisted. But then they realized something: they’re in charge of their own accounting. It’s not an independent audit. There’s no third-party involved. An agency is free to use its own standards and its own measures when calculating its own regulatory costs and benefits.
When it’s that easy to game the system, of course agencies are going to lowball their costs and highball their benefits. This is on full display in the Office of Management and Budget’s pithily titled “Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities.” [PDF]
On page 13 of the report, Table 1-1 lists cost-benefit numbers for selected agencies for their major rules (costing $100 million or more) over the last ten years. It can be hard to quantify costs with precision, so agencies typically report a range estimate. EPA, for example, estimates that its major rules cost from $23.3 billion to $28.5 billion over the last decade.
Benefits are much trickier to calculate. EPA estimates that its major rules have had benefits of $81.8 billion to $550.7 billion — a range of nearly a factor of 7. They might as well say they have idea. Why such a large range? Because EPA is trying to put dollar figures on items such as its air quality rules lowering the number of premature deaths. To do that, they have to pull numbers out of thin air.
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There was a good front page article in yesterday’s Washington Post on the history of advances in medical science and technology. The conclusion: Although the costs of treating many serious medical conditions has risen dramatically over the course of the last few decades, most of these cost increases have come hand-in-hand with significant improvements in health outcomes. Take the article’s discussion of the evolving treatment of heart attacks:
“When I was in medical school, about all we had to offer was oxygen, morphine and prayers,” said Eric Topol, director of the Scripps Translational Science Institute in La Jolla, Calif. Topol, who turned 55 last month, graduated from medical school in 1979. For 15 years he was head of cardiology at the Cleveland Clinic, where he helped run some of the clinical trials that have changed treatment so dramatically. Today, someone having a heart attack who gets to a hospital in time is likely to get cardiac catheterization, angioplasty, the placement of a medicated stent, therapy with four anticoagulant drugs and, on discharge, a handful of lifetime prescriptions. “There’s been a complete transformation in how it’s handled just since I’ve been in medicine,” Topol said. That transformation has saved the lives of millions of Americans.
Of course, not every costly intervention works as well as the others. Drug-eluting stents cost from $600 to $1,000 more than bare metal ones, but only provide a very small advantage. The question is: Who gets to decide whether the expense is worth it? With millions of additional Americans about to be brought into taxpayer-subsidized or paid health care systems, we naturally want government to make wise spending choices. But health care reformers who want to give government bodies greater power to deny health care choices over-simplify the ability to make these decisions.
President Obama, for example, has been characterizing the comparative-effectiveness concept as simply as choosing between two drugs, one of which works better than the other and costs half as much (You can watch the President on YouTube here). But, like the drug-eluting stent example, most (thought admittedly not all) health care choices boil down to more costly interventions working very much better for some patients and providing little or no benefit for others. “It is safe to say that almost everybody who has a heart attack wants the best treatment available. Nobody wants to turn back the clock,” the Post article acknowleges. But, for the Administration, there are no hard choices:
“No part of health reform is talking about rationing who gets this care and improvement in treatment,” said [David] Cutler, the Harvard economist, who is one of President Obama’s principal advisers on health care.
To the Post‘s credit, the aritlce offers us this bit of reality:
Experience, however, suggests that treating heart attacks is very unlikely to get cheaper in the future — either for individual patients or for the country as a whole. “The low-hanging fruit has been largely consumed,” said C. Michael Gibson, a cardiologist and chief of clinical research at Beth Israel Deaconess Medical Center in Boston. “We are now facing the battle of a half- to one percent improvements in mortality that will come at very high cost.”
In the March 2009 issue of the Atlantic, Virginia Postrel recounts her recent successful battle with breast cancer and notes that she may not have had such a happy outcome if she lived in New Zealand. Following surgery to remove several tumors, Postrel’s doctors prescribed the monoclonal antibody Herceptin, which regulates cell division and can keep some cancerous cells from dividing uncontrollably. Herceptin has a 95 percent success rate in early-stage cancers like Postrel’s. And, although it’s been just a short time since her treatment ended, it seems to have worked.
Unfortunately, despite fairly good evidence of Herceptin’s effectiveness in treating early-stage breast cancer, it was not until 2007 that the New Zealand government agency called Pharmac, which determines what medicines will and will not be covered by the country’s national health care system, agreed to cover Herceptin for early-stage cancers. Herceptin is expensive — in the neighborhood of $60,000 US per patient — and Pharmac wasn’t convinced the treatment was worth it. Ironically, Postrel points out, Pharmac had long agreed to cover Herceptin treatment for late-stage cancers, even though the likelihood of success in treating those conditions are much lower.
In part because the Obama Administration and many congressional Democrats have been pushing for a US-equivalent of Pharmac, Postrel’s article generated an overwhelming number of letters to the Atlantic‘s editors. Some will be published in a future edition of the print magazine. But, two days ago, the Atlantic published several of them online, along with a lengthy reply by Postrel. Because her original article is relatively short, Postrel could not fully examine or even touch on many items that she does address in this later response. I recommend that the two items be read together as a two-part essay.
One theme in particular that Postrel develops more fully in part 2, is very important. While it’s true that government run health plans can’t pay for all the treatments every patient would like to have, the problem is that, when a government herds large swaths of its population into public sector health plans with few realistic alternatives, this kind of rationing inevitably means that some patients will not get treatments that could cure them. One letter writer, for example, argues that Herceptin was a poor example for Postrel to highlight because “Multiple cost-effectiveness analyses have shown that, despite its high cost, Herceptin is both effective and cost-effective.” That, of course, was Postrel’s point. She replies, “I used [Herceptin] as an example not only because of my personal story but because its very cost-effectiveness makes it such a striking example. New Zealand chose to ration the drug (and not to cover it at all for early-stage cancer until July 2007) despite its significant benefits.”
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