Which country produces the highest quality health care? In a sidewalk survey, the USA would probably come in first place. Among health policy wonks, however, the results would be very different. The Commonwealth Fund regularly produces studies showing that the US lags behind other countries by one measure or another. The World Health Organization (WHO) ranks the US system 37^th in the world, even trailing Costa Rica. (Costa Rica? Yes, Costa Rica.)

On his way to get health care at the Cleveland clinic last year, Italian Prime Minister Silvio Burlusconi probably flew over a half dozen higher ranking countries, not to mention his own (rated number two!) or neighboring France (rated number 1!). What could he possibly have been thinking? Doesn't he read WHO reports?

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A new report from McKinsey claims that the United States spends $477 billion a year - $1,645 per person - more on health care than other OECD countries do, after adjusting for differences in income and wealth.  To make matters worse, we do not get better care.  Paul Krugman of the New York Times is going gaga over the report.

However, the study makes a fundamental economic error, surprising for McKinsey.  The real social cost of any good or service is not the amount of money spent on it.  It is the real resources used to produce it.  This is especially important in health care, where the suppression of market forces in every country makes cash flows an unreliable indicator of real resource use.

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