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One of the great humdingers in the current debate over healthcare reform is the duplicitous role of technology in increasing costs. Sophisticated medical technologies save thousands of lives every year, giving us scans that spot tumors early and devices that keep our hearts beating and our blood flowing.
But these miracle technologies come with a paradox. In nearly every sector of the economy, technology drives costs down – just as your digital camera gets cheaper and better every year, so technology drives down the cost of manufacturing, the cost of retailing, the cost of research. But for some reason, in healthcare, technology has the opposite effect; it doesn’t cut costs, it raises them. In fact, medical technologies – from CT scans to stents to biologics – are a significant factor in the 10% annual growth rate of healthcare spending, a rate that’s nearly triple the pace of inflation. (Overall, the US is now estimated to spend a stunning $2.7 trillion on healthcare in 2010.)
This was made clear once again last week, when a Massachusetts state audit found that healthcare costs rose 20% from 2006 to 2008, largely because of new imaging technologies. The single largest increase was for digital mammography, a new – and expensive – way to screen for breast cancer.
What’s going on here? Why can’t technology work its magic in healthcare, the way it does in the rest of the economy?
The answer boils down to what’s called “scale” – the notion that technology, thanks to Moore’s law and other exponential improvements, gets progressively cheaper, better and thus more accessible. Cheaper and faster chips, sensors and storage mean that digital technology is constantly scaling up and out, touching the lives of more people. These improvements in cost and power are the democratizing force that has propelled GPS from a military technology to a cellphone feature, and they’re what helps Apple convince us to buy a new iPod every 18 months. Scalability is the secret sauce of the digital revolution.
Except in healthcare. In healthcare, technologies that scale are suspiciously hard to find. There’s no lack of technology, it’s just that they don’t seem to get cheaper and better at the same exponential rate as in the rest of the universe. This is especially strange because CT scans and pacemakers – to take two frequently blamed cost-generators – rely on the same digital technologies that are getting cheaper outside of healthcare.
There are a couple reasons for this. For one thing, there’s far too little price transparency in the medical technology market. Without an open marketplace of prices and services, it’s difficult for hospitals and clinics to know whether there’s a better deal elsewhere, and manufacturers can keep costs high. Secondly and perhaps more significantly, medical technologies still tend to rely on an expert class to actually deploy the technology. GPS may have turned us all into amateur navigators, but CT scans haven’t turned us into hobbyist radiologists. Those highly trained and expensive experts are still needed to actually put the technology to work, making it impossible to entirely automate a process. The result is that technology stays expensive to use, and costs keep going up.
At long last, though, that’s changing, and scalable technologies are coming to healthcare. But there’s a twist: instead of coming from your doctor or hospital, they’re going straight to consumers. Digital monitoring tools like the Nike+ system, which uses a little accelerometer sensor in your running shoe, let people make more informed choices and pursue better health behaviors. And new online decision tools like LifeMath.net, a project of Harvard University’s Laboratory for Quantitative Medicine, take advantage of cheap processing power to crunch data into personalized medical recommendations, making it far more relevant than generic advice (and thus much more likely to result in lasting change, addressing what doctors call “the compliance problem”). These and other tools use technology for what it’s good at. They put the tools directly in our hands, and get us engaged in our health before we need the expertise of specialists.
In the world of insurance and care providers, some folks already understand this, and are way ahead of Washington policy makers in tapping cheap technologies to improve healthcare. In Hawaii, Kaiser Permanente has started a pilot project that churn through its database of patient data to predict which patients might need which tests – and then sends individuals email alerts suggesting they come in for a test or checkup. It’s the same sort of technology that Netflix uses to recommend movies. And the Cleveland Clinic has teamed up with Microsoft to bring self-monitoring tools to patients managing chronic diseases, successfully engaging them in better health behaviors without expensive visits to the hospital.
In the last century, medical technologies ably did their part to extend the life expectancy of the average American to nearly 80 years. It’s time to reassess how we deploy technology in healthcare, and put the digital revolution to work not just for our entertainment, but for our health, too.
Thomas Goetz is the author of The Decision Tree: Taking Control of Your Health in the New Age of Personalized Medicine. The executive editor at Wired Magazine, you can follow him on Twitter twitter.com/tgoetz.
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It is hard enough to get yourself a good medical insurance, and now it has become even harder to actually afford one. These days, it is becoming more and more difficult to avail of proper medical assistance and if you are not very careful, you can end up without any benefit or someone else might use your own information to their advantage and this is very unfortunate. In this case, you can shred copies of your records so that even if you dispose of them nobody can make use of the shredded strip anymore. the protection of our medical records is very important and
we have to determine which method is more suitable for us.
job with free paradox
You should consider attending the annual behavioral health informatics conference — really opened my eyes last year. http://www.openminds.com/ibhi
Mr Goetz, there are multiple factors at work here. What you are forgetting is that upwards of 90% of the healthcare of America can be attended to with a careful history, physical exam of a primary care physician. We rarely need expensive tests, antibiotics, imaging studies or stents, when given the time to do our job well. Take a look at Frank Moss from MIT’s cost curve slide from Mayo Transform Symposium last fall. Disruption is where our cost savings are to be found, not in reform. Our interest was to create a virtual office platform for primary care doc’s incorporating all the principles of meaningful use, but to eliminate front office staff with consumer facing PHR, eliminate the three other office folk that are necessary to beg insurance companies for reimbursement with ecommerce, and then eliminate the other person who manages all those people. So cost reductions for Personal Medicine Platform are 80% compared to typical primary care offices. Throw in the consumer facing health experiences that e patients are craving like telemedicine and IM visits, and a little community and content… Voila. Go ahead and sign up for your free PHR here…. House call to your living room by next quarter.
Mr Goetz there is really no paradox. The costs are the RESULT of a system that pays for volume of visits, not attentive, thoughtful, and participatory care. The costs RESULT from lack of preventive approach by primary care. ( need for the bypass, stents, interventions, ICU stay’s, expensive pharmacotherapy)
Collecting on a 50 dollar visit through third parties requires the concerted efforts of at least 8 people over a series of months, my friend, Even with the best SAAS software and revenue cycle management, there is ample angst, paperwork, redundancy, stress for office staff and for the patient.
THIS is where the cost lies, my friend.
So imagine what ecommerce, 3g/4g, ipad, EMR/PHR and a volvoxc90 does to the cost curve for docs? 80% reduction is pretty spectacular we think. And patient’s don’t like offices, they like house calls.
Come take a ride with Dr Joseph in Chicago soon to see what we are talking about…
Best,
Natalie Hodge MD FAAP
http://www.personalmedicine.com
” Your Doctor Comes to You”
You can decrease costs of machinery if there is price competition – full body scans are only for a gullible but affluent minority, and there are probably few people who’d say: I’d get that scan if it was a few hundred bucks cheaper.
Interesting reading incl some lines about imaging costs:
http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/interviews/ikegami.html
I thought microeconomic theory states that technology will lower *production* costs. That is, technology that can more efficiently produce products will shift the curve downward because more products can be made per given amount of time.
I believe that the above microeconomic theory is distinct from a discussion of the consumer’s desire to purchase more expensive technology. So I would hazard to guess that, in order for technology to decrease the costs of health technology, new technology would have to be implemented to make the production of health technology cheaper. For example, MIT recently announced news about self-building microprocessors. If the microchips that are utilized by CT scans can be produced more cheaply with the self-building technology, then the costs of CT scans will decrease. The problem could be that the costs associated with an increased demand for more advanced technology is not being offset by more efficient means of production. More and more people want those full body CT scans, but the manufacturers aren’t about to build them more cheaply.
Technology, insurance companies, physicians, hospitals – everyone wants to blame someone for the health care “crisis”. The fact is we, as Americans are fat and lazy. Don’t get mad at the messenger – I fall into that category too.
Wanna cut health care costs in half? All you have to do is get the majority of Americans to exercise and maintain a healthy body weight and you can.
Consumer devices do not have to go through a regulatory process with the FDA.
This process raises costs 100 fold or more.
Your comparitive analysis is not valuable by having health care medical devices compete with consumer gadgets.
And when you get into medical imaging you have no idea the complexity involved not only in developing the software and devices but in the installation, integration and interoperability of them with one another.
And what Ms. Margalit Gur-Arie indicates there are many devices that have been able to immensely scale down in costs and go directly to the consumer.
The EHR Guy
As long as we continue to provide “sick care” and not “health care” it will never work. Prevention of disease is better than treating it. But no one makes money keeping people healthy!!!!
As a member of the payer community, I can add that the increased price of medical technology is not just a simple matter of substitution (high priced new technology for old technology.) What is most telling about the paradox of medical technology “progress” in health care is that the price for the SAME CT scan for the SAME PROVIDER goes up year after year, and not at the rate of inflation. No new machine, no new anything. It’s the exact same thing as last year but now we charge 10% more because we have one of the few imaging devices in town.
Uh, Tom; I thought the bill contains subsidies for those who cannot afford to buy insurance….I doubt that part was removed.
I have one question. How is the poor going to be able to afford this health care bill???
For instance every state in the union requires everyone to have car insurance, so the only way around it is not to drive and take the buss or walk. This health care bill will force everyone to get it weather you can afford it or not putting the poor at a further disadvantage to even help themselves get out of poverty. Even the IRS will come and take what ever the poor have left as a penalty fine to pay for it. So again I ask how is the poor going to pay for it.
Of course you could have price competition on elective, standardizable exams. Have someone set quality standards for MRIs and CTs which a patient could deliver to a radiologist of his choice, or have the scanning company provide the reading too. But it does not happen because there is usually a 3rd party payor and there is no price competition, as others already pointed out. And if one would puh standardization of hospital workflow and accreditation, you could choose your own therapists and consultants while you are in the hospital…
Nauseating with nickel and dime mentality as expressed “giving us scans that spot tumors early and devices that keep our hearts beating and our blood flowing.”
Sometimes. But most of the time, the hype overwhelms the reality.
Overall costs do not come down because of both manipulated supply and demand coupled with fee decrements decreed by the Federal Government.
It’s not a paradox of technology. It is a predictable result when the recipient is not the payor. Also when you have to keep up with the Jones’ and have your MRI, too, or you will sue your doctor if you have anything remorely bad ever happen to you.
bev says:
> Reading of CT scans is increasingly being
> outsourced overseas or to outfits like Nighthawk.
Reading is being outsourced because reading is not yet scalable in the sense he’s talking about — these studies are still presumably read one at a time by someone skilled in the art. Outsourcing is a way to add a second shift so to speak; the organization grows (scales) precisely because the technology “medical diagnosis through CT imaging” does not.
Mr. Goetz did not define his terms very well: CT imaging technology did reduce costs to patients. It did not reduce aggregate spending, rather the opposite.
Think about what a CT scan often replaces: exploratory surgery, “blind” unplanned surgery, scattershot treatment, and so-forth. The rub is that the exploratory surgery was so very costly to the patient in pain, time off work, risk, etc. that it was often foregone even with medical insurance. Sometimes this led to severe consequences, but by no means always. The cost/benefit ratio seen by the patient has changed: now for the low, low price of an afternoon off work and $2K paid by someone else, the benefits of exploratory surgery can be had at a small fraction of the cost and it is kinda entertaining to boot. What do I mean by that? Patients like having a Dx even if nothing can be done about the problem plus they get to gawk at all that cool stuff they see on TV all the time, so they gladly spend $2K of someone else’s money to get a teeny tiny benefit. Next thing you know, CT scan is “standard of care” because that’s what everyone does, not because it solves medical problems. It is depressing. I wonder if I can get a pill for that — I have insurance after all…
t
The paradox is explained by subsidization. Every subsidized industry experiences increases prices with technology because the incentive is given to overprice the new equipment and maximize subsidies. This sort of bureaucratic imperialism is rampant in health care, but can also be seen in other sectors such as defense where the Army folk use every new technology as an opportunity to expand their clan’s budget.
One aspect of the health care reform debate that hasn’t been discussed much is how increasing the ranks of the insured will place increased demand on the health care industry, which is already experiencing worker shortages. Julian Alssid with the Workforce Strategy Center has an interesting article in Huffington Post about the issue…
http://www.huffingtonpost.com/julian-l-alssid/finding-a-cure-for-the-he_b_503774.html
” GPS may have turned us all into amateur navigators, but CT scans haven’t turned us into hobbyist radiologists. Those highly trained and expensive experts are still needed to actually put the technology to work, making it impossible to entirely automate a process. The result is that technology stays expensive to use, and costs keep going up.”
This is an incomplete analysis. Reading of CT scans is increasingly being outsourced overseas or to outfits like Nighthawk. The fact remains that CT scanners themselves have not dropped in price, and massive overutilization,combined with a fixed Medicare reimbursement, keep overall expenditures on CT scans high.
For an analogous situation, see the following link, which, sensationally, contains a video of a Belgian soccer player having his life saved by an implantable defibrillator. But follow the logic as to why defibrillator prices have remained sky high:
http://covertrationingblog.com/cardiology-topics/why-implantable-defibrillators-are-still-so-expensive
Christensen had some great analysis on this subject in Business Week recently: http://www.businessweek.com/magazine/content/10_11/b4170072396095.htm
“Here’s a better way to think about it: Economists are wrong in asserting that competition controls costs. Most often innovation and competition drive prices up, not down, because bringing better, higher-priced products to market is more profitable. Hospital-vs.-hospital competition causes providers to expand their scope and offer more premium-priced services. Equipment suppliers boost the capability and cost of their machines and devices. Drugmakers develop products that bring the highest prices. It’s because we have such competition, not because we lack it, that health costs are rising by 10% a year.
The type of competition that brings prices down is disruptive innovation. Disruption in health care entails moving the simplest procedures now performed in expensive hospitals to outpatient clinics, retail clinics, and patients’ homes. Costs will drop as more of the tasks performed only by doctors shift to nurses and physicians’ assistants. Hoping that our hospitals and doctors will become cheap won’t make health care more affordable and accessible, but a move toward lower-cost venues and lower-cost caregivers will.”
There are two problems I see with this analysis.
1) Technology prices are getting cheaper in consumer markets. Medical technologies, like CT scans, are not consumer products, so the analogies do not really apply any more than they would apply to, say, fighter planes, which are not getting cheaper either. They are getting better though. An X-ray machine from a few years ago is only a pale semblance of what is being used today.
2) Technology does not necessarily drive down original costs. It is cheaper to not have a camera than to have the cheapest camera available. By the same token, it is cheaper to die of an untreated coronary condition than to have a defibrillator implanted and adjusted and the condition monitored.
The consumer technologies you mention follow the simple path of whatever tasks could be delegated down to the cheapest resource in health care – the patient.
For example, pregnancy tests that go for $9.99 at Walgreens, used to require a physician appointment, expensive laboratory equipment and initially the sacrifice of an innocent rabbit. I think we’ve come a long way, and there are many other examples of this type of delegation.
One could argue that we should work to protocolize and delegate much more, but the ability to do so is hinging on obtaining deterministic knowledge, and, unlike the micro chip industry, there is preciously little 100% certainty in medicine.