The Dorian Gray pill

On Friday I attended the U.S. Monetary Policy Forum in New York City. I will be posting some material about the paper I presented at the conference later this week. But today I wanted to mention an interesting talk at the conference by Harvard Professor Greg Mankiw on health care costs.

If we could figure out a way to deliver the same quality of medical care at a lower cost, that is certainly something we should be trying to do. But Mankiw argued that much of the rising cost of medical care is a result of advances in technology that offer new but expensive ways of treating our old health problems.

Mankiw suggested an interesting way of thinking about the economic and moral challenges for which we are trying to come up with solutions. He asked the audience to consider what we would do if the world made a new technological discovery that he called the Dorian Gray pill, named for the Oscar Wilde tale of a gentleman with a dark secret that gives him immortality. Each day that you take the Dorian Gray pill, you won’t get sick, you won’t age, and if you continue to take it, you’ll never die. The only problem is it costs $100,000 to manufacture a year’s supply.

How would we use such a technology, if it existed? It’s obviously not feasible to give it to everybody– the resources simply don’t exist to do that. One system we might consider is that the people who get to take the pill are the ones who can afford it. Some would defend that system by arguing that it is the best way to increase incentives for people to make the things or provide the services that society values highly. If someone responds to this inducement by personally creating the resources necessary to pay for their expensive tastes, why not allow them to do so? Perhaps the greatest path to riches in such a world would be for someone to figure out how to make the pills for $50,000, or $20,000. Wouldn’t we want to unleash the collective talents and resources of the world to try to produce such a prize?

But for other people, the only feasible way to get the pills would be through zero-sum or negative-sum economic activity. Keeping your $100 K bottle from getting stolen would itself require major resources. Surely a likely outcome would be that military and police power would be the ultimate resource that makes sure that the valuables end up in the hands of the elites in charge.

Or perhaps the best answer is that humans just aren’t equipped to play God in this way. The original Dorian Gray arrived at his situation through a pact with the devil. Maybe we’d be better off if we never had such a technology?

I’m not sure what the answer is, and I pass along Mankiw’s hypothetical question in part because I’m curious to hear how our readers would answer it.

But here’s one thing I am persuaded of: the fact that we’re not sure as a society how to answer such a question is related to the fact that we can’t agree on how to control rising medical costs.

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38 thoughts on “The Dorian Gray pill

  1. jonathan

    It’s nonsensical.
    Technology effects on medical costs are studied a lot. It’s a factor, but not as big as others.
    BUT – and here is where it gets interesting – there is a concerted effort to prevent testing for efficacy of treatments. The rationale is that the market should determine what treatments are available and which ones people want. That reflects a main driver of the push to force out those who have no money: they can’t afford the treatments so providing a big bag of stuff requires either more money or blunt rationing by income class and that involves government again so that is unacceptable.
    Determining what works is labeled “death panels”. The GOP consistently proposes ending oversight of testing for medical devices and other technology.
    So I don’t see anything other than a parlor game in asking a made-up question about immortality pills when the actual game actually going on is not like that at all. The actual actually occurring game is not about rationing of what works but about enabling medical companies to make whatever they can market to people who can afford whatever they can and bleep the rest. That much of what can be made is worthless is demonstrated with every study done: the latest being robotic surgeries, as described last week.

  2. ppcm

    A matter of priority before increasing the quantity of life, how about making a quality of life.Should memory be accurate the same search for quality made Dorian Gray to die anyway.
    Then a demographic problem will arise and a Persian tale may be opposed to biologic and genetic improvements.
    The Persian tale
    “Three generations are living under the same roof,grand father,son and grand son. The grand father happens to become an economic embarassement and his son tells the grand son to prepare a saddle, a horse and a blanket as it is time to send the grand father to camp in the desert.
    The grand son comes back with a horse,a saddle and half of a blanket.The father asks his son, why half of a blanket?
    The other half is for you, when your time will come”

  3. ken millar

    I think our caregivers are the ones who made the pact with the devil, within themselves. They are a close knit community who are convinced that change and different treatment equates to so called advancements in medical science. If we stand back from the system it becomes quickly clear that it’s an almost unstoppable self propelled machine; but it’s stuck in the mud. It’s exhaust is people. It’s fuel is money. Controlling it are those who profit most politically and financially. Who can change how it functions? It’s too big and we are small…

  4. AS

    We may be approaching a Dorian Gray pill “light” with the developing research to enable the printing of replacement organs on 3D printers. It may be that life expectancy will increase at a medical cost that is affordable by society. However, how are we going to provide retirement funds for folks whose lives may be considerably extended within the next twenty to thirty years? It seems like this scenario is much more likely than the Dorian Gray thought question and may actually be upon us in the relative near future. If the Dorian Gray pill were to exist, I imagine that it would be allocated by a combination of methods. Assuming an adequate supply, those who could afford it would have the chance to buy it, those who could not afford it but were deemed necessary to society by some evaluation method such as intelligence or profession needed by society would get an allotment, and perhaps for those of us in the not rich and not overly intelligent and not overly “needed” by society, there would be a lottery. The government would allot a certain number of lottery awards and perhaps the rest of us could buy lottery tickets for additional chance to have the pill.

  5. 2slugbaits

    Mankiw has some interesting timing. The other day I saw a chart that showed a dramatic slowing in the growth rate of heathcare costs.
    As to the pact with the devil and when it’s time to transcend our mortal coil, Goethe’s Faust answered the question this way:
    “If I say to the moment: ‘Stay now! You are so beautiful’!”
    In other words, when Faust wanted a rest from his restless ambition, then it was time to pay the devil his due and check out.
    I never thought that semester class on the Faust tradition would make its way to an econ blog.

  6. Michael Powell

    I always love the talk on medical costs. I do not have medical insurance and have not for over a decade. I have gone to the doctor twice in that time and both times added together cost just shy of two thousand dollars. Most people spend more than that a year on just their premiums. I have saved a lot of money by not having medical insurance and not going to a doctor because I have a cough or slight fever. Medical costs are high because the system is over loaded. People that have health insurance go into the doctor for every little thing demanding more time from the system.
    Medical treatment and when you need it is an educational failure by our country. All the doctors on T.V giving advice is not helping either; it is putting fear into most people that watch them. We are a resilient species that can withstand a lot. There is no need to see a doctor at every little cough.
    People that find out that I do not have medical insurance think I am crazy and it usually starts a long exhaustive talk about why I NEED medical insurance. The more people that have medical insurance the more strain and the higher the costs will go. You can be a billionaire with the best insurance on the planet it will not stop you from dying.

  7. econimonium

    I think that, in terms of economics, the larger more disturbing question is “what does an economy look like when no one dies except by accident or murder?” There are so many implications of this from the amassing of wealth, to immobile opportunity, to demand changes and pure social and class mobility…the mind reels.
    Mankiw ignores human nature in his thought experiment, like most professional economists. And in doing so, he misses the point entirely. Mankiw seems to want this to be about to whom the pill is given and how and that seems overly simplistic. Of course, everyone would get the pill or die trying or get killed because they have it and someone doesn’t. That’s how human nature really works. The economic consequences are only about what is on the other side of that, which brings us to how I opened this comment.

  8. Thorstein Veblen

    I think a more realistic and insightful scenario is this:
    Suppose there is a cheap technology for assessing whether someone has broken a bone which is so cheap its used when people are boarding airplanes. And now suppose there is a cheap technology for wrapping said bone in a cast, which a nurse or mother can do after watching a youtube tutorial. Someone breaks a bone and goes to the nearest hospital. Said hospital can’t say how much it will cost after they run through insurance, but urges the patient that the bone must be set right away to avoid surgery. Let’s say there are no other hospitals within 30 minutes drive and the patient is in a lot of pain. Patient later gets bill in the mail for $1,800 after insurance denies claim.
    Is there anything society can do to “control costs” in this scenario? Or should the hospital be allowed to charge free-market rates on people in medical emergencies?

  9. Joseph

    It is amusing to see economists twist themselves in knots arguing over how many angels can dance on the head of a pin. It seems that their motivation is to provide an excuse for doing nothing by demonstrating that the healthcare cost issue is just too complicated for mere mortals to sort out.
    Meanwhile every single OECD country on the planet has long ago figured out how to provide cradle to grave healthcare for 100% of their population at one-half to one-third the per capita cost of U.S. healthcare.

  10. John Yard

    If Canadian healthcare were twice as expensive for the same results as US healthcare , Mr. Mankiw
    would almost certainly proclaim the superiority of the US system. Clearly Mr. Maniw is more aligned with elite expectations than the facts :
    1) US healthcare is twice as expensive as all developed world systems, and delivers somewhat worse results 2) the dramatic increases in mortality and morbidity in the 20th century were
    equally driven by advances in public health such as sanitation, clean water , and smoking cessation, as by advanced medical technology such
    as antibiotics and advanced diagnostic technology.
    Mr. Mankiw’s thought experiment is just another economist peddaling a just-so-story.

  11. John Peterson

    An interesting side issue to a Dorian Gray pill is figuring out how it would be measured in real GDP and the CPI. Ostensibly, new consumer goods or services are merged into these measures by trying to capture the value (or utility) of the new good in way that permits a continuous series for a quality-adjusted real GDP and CPI. The BLS tries to measure quality changes in cars, for example, and adjust the changes in nominal prices for these quality changes. So, if ten percent of the population manages to get Dorian Gray pills, the quality-adjusted medical care price index would plummet, say a negative 50% price change (I’m making this up, but the perceived value of the pill to its users would be immense), and correspondingly, real GDP growth would soar.
    In fact, the multiple small enhancements to medical care over the last century (additional years of life, additional years of sight for diabetics, freedom from fear of polio, etc.) are similar to partial Dorian Gray pills constantly being introduced (which, of course, is one of Mankiw’s main points), but they are not acknowledged in our measures of real GDP or CPI. As medical care expenditures and medical care innovations increase in importance, the mismeasurement of real GDP and the CPI gets worse and worse. Perhaps Cowen’s “great stagnation” is just that we do not recognize the gains in medical care the way we recognize gains in telecommunications or cars. If we did, perhaps the trend of real GDP growth, properly measured, would be much higher, not slower, than in the immediate post-war decades.

  12. dilbert dogbert

    From Johnathan”: “It’s nonsensical. ”
    No need to comment further. Sort of like the important question back in the days of the scholastics: How many angels can dance on the head of a pin?

  13. Daniel

    Hm. Maybe Mankiw should consider eliminating the patent monopoly protection on the pill and bring the price down to marginal cost — likely closer to $1000 than $100,000. Then he could try reducing the overhead at the manufacturing company: if executives were paid like public servants instead of investment bankers, that might cut another $500 out. At this point, we can discuss why we shouldn’t make it available to all who would benefit, thus giving us the advantages of scale production and reducing the price by half again. And if that’s too expensive, perhaps we could declare it a “national security” issue and divert some of the massive sums we waste on foreign military bases, weapons designed not to be used, pointless wars and illegal executions to subsidizing the pill.

  14. Brian

    Daniel:
    You should first read the JEP article linked above authored by Cutler and others. The article does a really good job of looking at different sources of high costs. To make a long story short, pharmaceutical costs make up a quite small part of the cost puzzle; and as they mention in that article, if you reduce payments for pills, you need to worry about whether pharma companies will cut back on R&D. In a very real sense, US pharmaceutical consumers subsidize non-US consumers. If drugs were sold in the US for the prices other nations pay, we really would have to worry about whether there would even be a drug industry and whether it would invest in R&D.

  15. 2slugbaits

    Brian if you reduce payments for pills, you need to worry about whether pharma companies will cut back on R&D.
    If they spent any less they might be hitting a ZLB of their own. According to a National Institute of Health study the government funded 55% of the R&D costs for the top five selling drugs. Big Pharma spends a lot more in advertising than they do on R&D.
    http://www.citizen.org/publications/publicationredirect.cfm?ID=7065
    Oh…the sequester will also cut funding for drug R&D.

  16. Joseph

    Brian: ” In a very real sense, US pharmaceutical consumers subsidize non-US consumers. If drugs were sold in the US for the prices other nations pay, we really would have to worry about whether there would even be a drug industry and whether it would invest in R&D.”
    Actually, U.S. consumers subsidize marketing and sales costs. Big Pharm spends more money on marketing and advertising than they do on R&D. If drugs were sold in the U.S. for the prices other nations pay, there would be plenty left over for R&D.

  17. Ben Wheeler

    The temptation is to think of this scenario in a free market sense. In a free market, the highest bidder demonstrates the highest revealed preference for the Dorian pill and so takes possession. There are no barriers to entry, so innovators are able to introduce more cost-effective methods to produce the pill and sell it at lower cost. But is this what we see in the health care industry?
    No, it is not. There are substantial barriers to entry at the local (hospital need boards), state (medical licensing boards), and federal (FDA, HHS) levels. It is understandable that we have some barriers to trade in health care, as public health is a public good. We can’t allow Dr. Quack to prescribe a home remedy for tuberculosis. We have to always be careful that shoddy medical treatment might unleash an epidemic on the public. But all of the barriers to entry create a market that is definitely not free and subject to anti-competitive behaviors.

  18. bwww

    The example is not relevant to the medical field as it actually works. Fortunately, we don’t face the problem of drugs with high marginal costs. Most medicines are actually dirt cheap to manufacture. Moreover, even for the more expensive drugs to manufacture, marginal cost drops as more people use a given drug and returns to scale, distributed capital costs, and production experience reduce average cost.
    Unfortunately, policy makers are convinced that the only way to reduce cost is by limiting usage. We’re pretending we have a constrained supply of pharmaceuticals when that’s not the case (yet, we pretend our finite supply of fossil fuels is infinite). We do have a limited supply of physicians, so some medical constraints are needed, but pretending pharmaceutical supplies are constrained creates a problem where there is none.

  19. Slugger

    If an elixir of youth is developed, it will be very expensive and millions of Americans won’t get it. In Canada, the UK, The EEC, and Scandinavia, the medicine will be a lot cheaper and universally available. When asked about this situation, the Chicago economists will tell us it is the result of natural laws, the conservatives will tell us that their neighbor’s cousin’s aunt in Winnepeg had to wait 6 months for a MRI, and Mankiw will tell us a story about some new medicine from Mars.

  20. Ronald Calitri

    Not surprising, Mankiw, not his analysis, dining out on Adam Smith. Lectures on Justice, Police, Revenue and Arms (1752)
    ‘The original purpose of government is to protect the rich from the poor.’
    Etc. Note then, the entire 19th century struggled with the question. We still struggle with it every day – the average open heart operation costs $100,000 too.
    Struggle as we might, no better answer than Article 1 of the Declaration of the Rights of Man and the Citizen (1793), “Men are born and remain free and equal in rights. Social distinctions may be founded only upon the general good.”

  21. Ricardo

    Mankiw’s question is perhaps more important than even he realizes. If you understand that difference between the entrepreneurial class and the political class you will understand better. Most here have answered assuming the entrepreneurial class maintains control, but actualy it is the polticial class.
    In Mankis’s hypethetical the political class would become totalitarian. Distribution of the drug would not be based on any altruistic system but on a system of who had the power.
    All of the drugs would go to the political class, the politicians and the politically connected. Life would change so that the primary job would be to secure the medicine. It would become life or death and the battle over access would be political.
    How does that relate to Obamacare and socalized medicine in general? The politicians will always protect their access to health care but at the expense of the average citizen. The political ramifications of such a pill would far out-weigh the technical.
    So what is the moral to the story? Society would become a totalitarian state with those in the process of dying providing the labor to sustain the political class. Not much difference from what we have now, only more extreme.

  22. tj

    In reality, increases in life expectancy do not come with the promise of zero future health problems. A solution is to have hospitals and insurers manufacture the life extending drugs and life extending devices. In this case, life extending drugs and devices are provided at marginal cost, or used as loss leaders. The reason is that the longer people live, the more they they spend on health care and insurance.
    For example, a 3-company conglomerate consisting of Humana, Blue Cross and Lily could manufacture and sell life extending drugs/devices at a low cost, thereby increasing the number of years that patients pay for high margin hospital visits, medical devices and insurance premiums.
    The only thing the government needs to do is remove barriers to competition so that each conglomerate, under the umbrella of a major health care provider, be allowed to compete with one another in each state.
    Realistically, the only way competition drives down the costs of insurance and the cost of hospital stays is if cosumers are forced to shop for the best deal. A major reason for our current healthcare cost problem is that an informational barrier exists between the demand for health services and the price of those services.
    Given the generic nature of healthcare under a conglomerate system, pricing strategy should be similar to that for airlines, cable tv, telephone service etc. High cost producers exit the market. There is an incentive to drive profits through innovation and efficiency rather than through the current model of waste and redundancy, coupled with automatic annual price increases.

  23. Johannes

    I always thought, that Mankiw has no social attitude at all. He is not like a human being, more like an animal, i.e in terms of survival of the fittest (and the richest).
    Of course the solution is, that Mankiw pays $100,000 and does not get his Dorian Gray pill but gives it to somebody in need for $0.

  24. Anonymous

    The Dorian Grey Pill, is that like the one-dollar aspirin the hospital the hospital charges you for?

  25. sendmequotes

    US healthcare has a problem with pricing, not costs. The government should legislate that medical prices be the same for all patients regardless of insurance with binding price quotes provided before service. Everyone would pay the negotiated Medicare prices and the healthcare problem would be solved. This is the solution used in other democratic capitalist countries and it does not preclude private insurance and private providers.

    He already have laws against price discrimination in employment, housing, education and other sectors of the economy. We need the same non-discrimination in healthcare.

    Now consider the Dorian Gray example. Medicare would not pay $100,000 for the Dorian Gray pills. Only the rich would get treatment and it would be a small market. If Medicare offered to pay $5,000 per year, you can bet the drug companies would be striving to hit that price point so they can serve the mass market with high volume sales.

  26. Tudor

    At some point, we as a society will have to come to terms with death and dying. The Dorian Gray pill example is passe before Mankiw even started saying. The cancer industry has already figured out people will pay way more than $100,000/year to extend their lives.
    For example, from:
    http://www.thedailybeast.com/newsweek/2012/08/26/the-cancer-breakthroughs-that-cost-too-much-and-do-too-little.html
    “Consider the popularity of Avastin, a targeted drug approved for metastatic colon cancer in 2004. A recent study found that almost 70 percent of patients on chemotherapy were receiving Avastin within a year of its release. In clinical trials, the drug increased survival by about five months. The cost? About $10,000 a month.”
    So, we’ve basically already made the decision, both that we should be willing and able to pay for $100k/year to life and, yes, it’s covered by Medicare:
    http://www.nytimes.com/2011/07/01/business/01drug.html?_r=0
    I think that, as a society, we need to become a lot more comfortable with the ideas of death and dying. In the movie 50/50, the kid should have died. It would have been a more realistic ending and been both life- and death-affirming. As the boomers age and they start seeing their friends pass on, I expect “not making it” will become a bigger theme in pop culture.

  27. ADPX

    I think it was Bill Gates who said something like the problem with the healthcare system is all the incentives are to increase the quality no matter how incremental, regardless of the cost. What needs to be done is to change the incentives so the cost for the same quality is lower.

  28. GeorgeNYC

    I think the example just shows how economists are trapped in a self-made hall of mirrors. My question is how do you arrive at the “cost” of $100,000? Is he trying to capture the concept that it requires a certain amount of resources that the market has “priced” at $100,000? Do the resources increase in value once their use is uncovered? Why not just print the money?
    What he really wants to argue is that there are only sufficient resources to “create” a small number of the pills. However, then you fall into the possibility of limits in economic development which undercuts the whole neoliberal concept that economic markets can grow because of unlimited human ingenuity.
    I guess my point is that by phrasing the question this way he is substituting a scarcity of income for a scarcity of resources. That supposition is embedded in the question and practically screams out for a discussion along the lines of who is worthy to earn the income and thus win the prize. Rather than the real question of “who is worthy?” or more appropriately “why are we not all worthy?”

  29. Anonymous

    What we would do would be to give the pills to our oldest and we would pay for it by a tax on our youngest workers, and tell them when they get to be old, they will get the pills too, because it is only fair since some folks have already aged too far. Everyone will start getting the pills at 65.
    Eventually, because you don’t age on the pills, a greater and greater % of the population will be 65(+). And fewer and fewer will be working to support them and pay for the expensive pills.
    Then there will be calls for “reform.” Some of the ideas will be that people who grew wealthy on their own should pay for their own pills. Some will say just wait until 70 to provide pills. But those who grew old paying in will be mad saying “I PAID IN MY SHARE NOW GIVE ME MY PILLS” but what they won’t realize is they paid in $100K total and now expect $100K per day for eternity.
    A great and wise politician will come along and say “tax people who don’t pay into the system.” It will be called PIllary-Care and it will further shift the burden to pay for care on to those that don’t use the care in terms of fairness. It will be written by insurance executives and passed as compassionate and economically wise legislation.
    Eventually though, the bubble will explode and the 65 year olds and their pill supply will vanish. The 65 year olds will age and die and the young people of the day will fight over resources. Politicians will call on the need to depreciate the currency, as this is some magic cure all for economic ills, but in reality, people will be too old or too taxed to bother working, and we’ll have a massive underground economy.
    The end (of the USA).

  30. DS

    When you say “we’re not sure as a society how to answer such a question” you make a bold assumption that all of society owns it, or has some right to decide what to do with it.
    The real answer is to let whomever developed the pill decide what to do with it, not all of society.

  31. Joseph

    DS: “When you say “we’re not sure as a society how to answer such a question” you make a bold assumption that all of society owns it, or has some right to decide what to do with it.
    The real answer is to let whomever developed the pill decide what to do with it, not all of society.”

    You make the bold assumption that the developer has a government enforced patent monopoly that prevents anyone else from making and selling it cheaper. Do you want the government involved or don’t you want the government involved?

  32. Joe

    A book penned a few years ago, “The Postmortal” had an interesting take on what happened when an immortality treatment was developed that only the rich could afford. The government tried to control who could take the shots, but a black market developed. Interesting read.

  33. mclaren

    Professor Hamilton has a serious problem in thinking clearly about American medical costs. The evidence is overwhelming: U.S. medical costs consume a far larger fraction of U.S. GDP than do medical costs in the rest of the world.

    In America, a CT scan that costs $950 (average; the high end is $1800) costs $179 in the UK using the exact same machine. This has nothing to do with medical technology.

    In America, a routine doctor’s visit costs on average $190, compared to $15 in Spain. This has nothing to do with medical technology.

    In America, a dose of the drug Lipitor costs (average) $125 (the high end is $334). The exact same dose of the exact same drug costs $33 in Canada. This has nothing to do with technology.

    Professor Hamilton also seems unaware that Greg Mankiw has changed his tune over the last few years about the alleged underlying reason for high American medical costs.

    “Greg Mankiw features the chart below on physicians’ salaries in the U.S. vs. various European countries and Canada, showing that MDs in the U.S. make about $200,000, which is between 2 and 5 times as much as doctors make in other countries. How do we explain the significantly higher physician salaries in the U.S.?

    “One explanation is the restriction on the number of medical schools, and the subsequent restriction on the number of medical students, and ultimately the number of physicians. Consider the difference between law schools and medical schools.

    “In 1963, there were only 135 law schools in the U.S. (data here), and now there are 200, which is almost a 50% increase over the last 45 years in the number of U.S. law schools. Unfortunately, we’ve witnessed exactly the opposite trend in the number of medical schools. There are 130 medical schools in the U.S. (data here), which is 22% fewer than the number of medical schools 100 years ago (166 medical schools, source), even though the U.S. population has increased by 300%. Consider also that the number of medical students in the U.S. has remained constant at 67,000 for at least the period between 1994 and 2005, according to this report, and perhaps much longer.”

    Source: “The Medical Cartel: Why are MD Salaries So High?” By Mark J. Perry, 24 June, 2009.
    Peruse these articles and you’ll get a clear picture of just how corrupt and pervaded by monopolistic cartels, price-gouging, crony capitalism, anti-competitive self-dealing, and outright bribery the American medical system is. It’s so bad that the Journal of the American Medical Asssociation recently published an editorial pleading with U.S. to stop taking bribes from giant pharmaceutical companies:

    “JAMA says doctors should stop accepting bribes from drug companies,” 1 March 2006.

    The Journal of the American Medical Association is rocking the boat in conventional medicine. An article in JAMA has come up with the suggestion — aghast! — that doctors should stop accepting bribes from drug companies. Most people didn’t know that doctors routinely accept bribes (including hundreds of thousands of dollars in “contractor’s fees” for signing patients up for drug trials), so this news may come as a bit of a shock to some.”

    “The Fix Is In: the hidden public-private cartel that sets health care prices,” 2 September 2009, Slate magazine online.

    “An insurance industry CEO explains why American health care costs so much,” Ezra Klein, The Washington Post, November 2009.

    “Experts warn of medical industry cartels’ power,” The San Francisco Examiner, 21 February 2010.

    …Each sector of the health industry points fingers at the other for driving up prices, and all are raking in money.
    Insurers blame hospitals and doctors, doctors blame insurers, and hospitals blame doctors and medical devicemakers in what academics call an inscrutable medical-industrial complex that rivals anything the defense industry ever invented. All these groups are combining into what many experts describe as cartels.
    Many industry insiders are afraid to speak on the record for fear of antagonizing the medical groups they rely on for their survival. Contracting practices are draped in secrecy. Prices are almost impossible to obtain because of `confidentiality agreements’ among hospitals, physician groups, insurers and devicemakers who do not want their markups exposed to competition or public scrutiny.
    Christina Bernstein, a medical-device engineer and independent sales representative based in San Francisco, sells disposable surgical tools made mostly out of plastic that she estimates are manufactured for about $40 each. These are marked up and sold to hospitals for as much as $350, she said, for a single use in a surgery on a patient.
    `But if you were to get a detailed bill of what the hospital was charging the insurance company for the insured patient, those things get marked up to something like $1,200,’ Bernstein said. `It’s ridiculous. There’s no open competition.’

    I could go on indefinitely, but it’s clear from his past posts about U.S. medical costs that Professor Hamilton will never admit the plain and undeniable fact that high American medical costs are driven by a combination of greed, monopolistic rent-extraction by cartels like the AMA and the big pharma companies and the corrupt sweetheart contracts and non-disclosure agreements between hospitals and medical devicemakers, big pharma and doctors who get bribed to use expensive medicines instead of the generic versions, and imaging labs and hospitals which sell routine medical test results for astronomical multiples of their actual costs.

  34. anonymoustoo

    You must remember where Mankiw is coming from: the world of the rich and mighty. And what he is describing is the current US medical culture.
    The Dorian Gray prices are what each medical supplier strives to bill because they claim their products mean extended life, but necessarily to the patient.
    And the Dorian Gray prices are what the wealthy strive to pay because they think they’ve earned longer life than the rest of the lesser mortals. What’s the point of being wealthy if the guy from the projects gets the same cancer drug as you. It’s just not fair…to the rich guys.
    Yes, Mankiw’s story is not about the world of tomorrow, but of the world of today. Medicare is just not fair. And only Dorian Gray prcing can fix it.
    Vouchers anyone?

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