NCPA - National Center for Policy Analysis


October 6, 2004

The nation's health care bill is high and headed higher. Yet most hospitals lose money or barely break even. Doctors complain they are getting squeezed. Employers bemoan rising health care costs as a threat to global competitiveness.

Despite these problems, new innovations and better methods of treatment extend patients' lives and fuel demand for better and better health care. These potentially life-saving innovations are the prime reason for rising health care costs, says the New York Times.

For example:

  • New drug-coated stents that prevent cleared arteries from clogging up again cost of $2,500 each, but they are a vast improvement over the non-coated stents that cost $1,000.
  • Some 40 percent of the extended life expectancy in 52 countries is attributable to new drugs, but the pharmaceuticals have come at a cost of about $5,000 per person, according to economist Frank Lichtenberg.

The American health care bill, the government estimates, will be $1.79 trillion this year, or $6,167 per person. By all accounts, there is plenty of waste and inefficiency in health care, ranging from unnecessary clinical tests to the bureaucratic sea of paper used to handle bills, claims and patient records, says the Times.

If a miracle were to rid the system of all such inefficiency, the total costs would be reduced by 10 percent to 20 percent, health care economists estimate. But the main reason health care spending is rising is that modern medical technology has steadily made it possible to do more for more people.

Innovation in the health care industry comes at a cost, but most observers agree that the benefits of new drugs and life-saving devices far outweigh the costs.

Source: Steve Lohr, "Health Care Costs Are a Killer, but Maybe That's a Plus," New York Times, September 26, 2004. Frank R. Lichtenberg, "The Impact of New Drug Launches on Longevity: Evidence From Longitudinal Disease-level Data from 52 Countries: 1982-2001," National Bureau of Economic Research, June 2003.

For NYT text (subscription required)

For NBER study abstract:


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