The commenter wrote,

At one level, hospital costs are simple. People, supplies, and buildings. There aren’t big Scrooge McDuck vaults sitting around filled with healthcare lucre. . .

Frequently underutilized resources. A hospital, especially a large hospital, needs to have certain services available whether they are being used or not. Trauma teams are an example, but there are lots of small hidden resources that are also there ‘just in case’. Worse, these resources tend to be scaled to peak usage, not average or median usage. That means that at any given time there are unused resources sitting around. But woe betide if they aren’t available one of the 2 times per month they are needed. Medflight helicopters spend a lot more time on the ground than in the air.

Read the whole post. The helicopters are an interesting example. My guess is that if you divide the annual cost of the helicopter service by the number of times it is used, it comes out to hundreds of thousands of dollars, and nobody gets charged that. The people who complain about being over-billed for aspirin or bandages don’t complain about the under-billing for helicopter services.

My point–and I think that the comment supports it–is that you just cannot interpret hospital bills as if they were based on variable cost. Costs are dominated by overhead, and how hospitals choose to recover that overhead is bound to seem arbitrary.

In the WSJ, Anne Wilde Mathews writes,

Dominant hospital systems use an array of secret contract terms to protect their turf and block efforts to curb health-care costs. As part of these deals, hospitals can demand insurers include them in every plan and discourage use of less-expensive rivals. Other terms allow hospitals to mask prices from consumers, limit audits of claims, add extra fees and block efforts to exclude health-care providers based on quality or cost.

Pointer from John Cochrane, who adds,

Medicine is missing the discipline of competition.

But I still wonder where the money goes in these hospitals. The bottom line? Waste? Paying for fixed costs? I suspect that it’s the latter. If so, then reducing hospital charges for some services is only going to cause them to raise prices for other services.

I am not against trying to increase competition in order to try to stimulate greater efficiency. But I am not sure that those of us on the outside really understand the cost drivers in medical care, especially in hospitals.

Scott Alexander writes,

age-adjusted cancer incidence rates and death rates have been going down since 1990, primarily due to better social policies like discouraging smoking. Five-year-survival rates have been gradually improving since at least 1970, on average by maybe about 10% though this depends on severity. Although some of this is confounded by improved screening, this is unlikely to explain more than about 20-50% of the effect. The remainder is probably a real improvement in treatment. Whether or not this level of gradual improvement is enough to represent “winning” the War on Cancer, it at least demonstrates a non-zero amount of progress.

Robin Hanson pointed out years ago that various data sources suggested little difference in mortality between populations with extensive medical treatment and populations with less medical treatment. He hypothesized that the cases where medical treatment prolongs lives are offset by cases where treatment hastens death.

How to reconcile Hanson with Alexander? Some possibilities:

1. Perhaps Alexander’s data are more recent and reflect recent progress.

2. Perhaps the difference in cancer survival rate is too small to be significant in overall mortality statistics. You are affecting a small portion of the population, and you are increasing lifespans of the affected individuals by less than 10 years each (they tend to be elderly and prone to dying of other things.)

3. The gains in successful cancer treatment tend to be offset increases in deaths caused by medical interventions that worsen outcomes.

It’s actually more like 12 pages, single-spaced. About 6000 words.

I am not sure what to do with it. Here is the conclusion:

As individuals, we would like unlimited access to medical services without having to pay for them. Collectively, this leads to high spending on health care. High spending on health care is the main problem of the U.S. health care system. As we have seen, it is unlikely that this problem can be solved by changing the way health care providers are paid or by government experts devising a more efficient system.

From a health outcomes standpoint, the United States might do better to spend less on medical services and instead spend more on efforts to reduce homicides, automobile accidents, obesity, and substance abuse. There is a lot of leverage that can be obtained if improvements in those areas can be achieved.

There are two directions that the United States could go in order to reduce health care spending. The “left turn” would move in the direction of Canada. The “right turn” would move in the direction of Singapore.

The “left turn” would be to introduce government rationing of medical services. This might come about if the share of health care spending financed by taxpayers continues to rise and the consequent strain on government budgets forces government programs to restrict access to services.

The “right turn” would be to increase household’s exposure to the costs of health care and health insurance. For example, the government could eliminate the tax subsidy for employer-provided health insurance, steering more households into the individual market. The government could set up a combination of catastrophic insurance, health savings accounts, and subsidies for the poor similar to those in Singapore.

With either a “left turn” or a “right turn,” we are likely to see a two-tier health care system. With a “left turn,” the government will hold down its spending by limiting access to expensive services that are not clearly highly beneficial. But wealthy people will still be able to afford those services by paying for them privately.

With a “right turn,” people will have to self-ration their use of medical services. Poor people will be limited in what they can obtain by the nature of the subsidies that they receive. They will consume the medical services that are covered by government subsidies. Wealthy people will have ample savings accounts to obtain whatever medical services they desire.

As of now, I do not see any strong momentum either toward the left or the right. For the near future, the United States is likely to continue along its current high-spending path.