Friday, September 01, 2006

Time is Money

David Coulter, a Harvard economist, has examined mortality and healthcare statistics to determine that there have been significant extensions to life-expectancy over the past forty years, but that the healthcare costs to support longer life spans are growing even faster.

In his paper due to be published tomorrow in the New England Journal of Medicine, Coulter reports that someone who reaches the age of 65 can expect to spend an average of $158,549 on healthcare over their lifetime. But this investment has increased a whopping 13.8 times (when adjusted for inflation) since 1960 when the costs would have amounted to $11,495. What does it buy the hopeful 65 year-old? Less than four more years. Today's new retiree can now expect to live another 18 year instead of 14.4 years on average.

And while it might seem callus to discuss diminishing returns when thinking about life extension, there will clearly come a point when the additional spending for extreme measures will not significantly improve a patient's quality of life or material extend life expectancy despite the investment. Tough decisions abound.

The study also points out that part of the driver for these cost increases might be that hospitals and insurance agencies have the wrong incentives. They are paid for their efforts and not for their results. So there is a strong incentive to perform a myriad of tests and expensive treatments of dubious benefit.

After running a couple of high-tech companies, I have come to appreciate that the alignment of incentives is THE most important tool to ensure proper results. I suspect rather broad changes would ensue if we could amend Medicare to compensate the healthcare industry based on how the patient does and how long they live, rather than on how much money they spend dancing around the patients.

Preventive medicine and lower cost treatments that demonstrate material benefits would abound, and more people could die peacefully in their homes surrounded by family when extreme intensive measures in hospitals would only provide limited benefits. And our economy would likely benefit as well.

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