Does Technology Drive High Health Care Costs in the U.S.?

by Steve Thompson on November 19, 2013

A little while ago I came across an article that provides a thoughtful analysis of the question of whether the U.S. health care system’s emphasis on new technology and innovation is largely responsible for our higher costs as compared to the rest of the world. Here’s a brief excerpt (and please note this is the author, Bloomberg journalist Megan McArdle, describing other people’s beliefs that she doesn’t entirely share):

Cost growth, the argument goes, is largely driven by innovation. Not necessarily good innovation—quite a bit of time was spent [at a conference] denigrating Proton Beam facilities (used for cancer treatment) that cost in the tens of millions of dollars and don’t seem to do patients much good, yet whose total number is set to double between 2010 and 2014....[Many argue that] if you want to control costs, you need to stop third-party payers from paying for new technologies.

I need to point out a few things before jumping into this tricky subject. First, it’s probably a mistake to spotlight the availability of high-tech, leading-edge health care as an isolated issue, because it’s bound up in many ways with other trade-offs in health care policy. McArdle does note that, but it’s still easy to jump to the conclusion that technology is the main problem behind higher costs. (There’s no doubt it could be part of the reason—it’s just more complex than that.)

Another critical point to consider is not just whether a new technology provides better outcomes, but how much improvement it offers in balance with cost. This is, in a way, an “un-American” question in that it goes against the grain of our health care culture. We have grown up in a system where everyone, in theory, has a right to the most effective treatment available, whatever the costs (apart from elective treatments, and those considered experimental). This culture is so engrained that if you had a serious illness and your doctor told you there was a treatment that would give you a 20 percent better outcome, but because it was 40 percent more expensive he or she couldn’t prescribe it, you’d probably be shocked, appalled, and perhaps even outraged.

This is related to the “no-skin-in-the-game” problem I’ve written about before, which leads the U.S. population to be highly price-insensitive in health care, but highly quality-sensitive. And that aspect of our health care system tends to make possible the investment in leading-edge, sophisticated new technologies that often deliver relatively small improvements at large incremental cost.

As McArdle points out, while the problem is obvious, it’s also easy to see a good side—namely, access to a constantly evolving stream of ever-more-effective treatments. The effectiveness vs. cost balance is a choice we can rationally make as a society; it’s only irrational if we feel entitled to the leading edge of health care, but demand that at the same time our health care costs be brought into line with that of most of the rest of the world. (In the rest of the world, insurance or governments rarely cover the leading-edge treatments if they don’t provide a substantial improvement over less-costly treatments. Those who can afford it can pay out-of-pocket to get it.)

Having said all this, I believe there’s a way we can have our cake and eat it, too. When we think of health “technology” and “innovation,” we tend to think of a new imaging device, a new electro-mechanical artificial organ, a robotic surgery system, or a new drug developed via leading-edge genomic approaches. But innovation in health care can be a process change, such as a new way of keeping track of surgical instruments, or a new approach to billing patients. It could be the discovery that an older, relatively cheap drug can be made more effective in different doses, or for other disorders. Increasingly, it’s better ways of helping clinicians stay connected to their patients, with tools like cellphone apps.

Unlike the more dramatic forms of technological innovation in health care, these and many other types of innovation can be introduced in ways that could dramatically lower costs, even while improving outcomes. Who could object to that? So before we point at innovation and technology as the enemy, let’s clarify our thinking about it. We may yet be able to come up with a health care system that provides leading-edge care without the massive extra costs.

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