Health Policy

New Technologies Drive Cost Growth Over Time


(This is the eighth and final installment in a series of excerpts from Terry’s new book, Physician-Led Healthcare Reform: a New Approach to Medicare for All, published by the American Association for Physician Leadership.)

Medical technologies include drugs, devices, tests, and procedures. Considered as a whole, these technologies are the key driver of growth in health costs, according to Georgetown University professor Gregg Bloche and his associates.

Bloche, et al., view insurance coverage as the chief enabler of these technological innovations. In a 2017 Health Affairs Blog post, they said,Drug and device developers, clinical researchers, and their financial backers anticipate coverage for new tests and treatments with little concern for whether they add substantial therapeutic value, and they make research and development decisions accordingly.”

In an interview, Bloche further explained, “If you’re a technology developer, you can reasonably anticipate that if your product achieves a low but significant health gain, insurers are going to be under pressure to pay for it.”

Insurers do cover most new drugs, although they may make it difficult for patients to access the ones that they deem to be low-value, notes Peter Neumann, director of the Center for the Evaluation of Value and Risk in Health at the Institute for Clinical Research and Health Policy Studies at Tufts Medical Center in Boston.

“It’s hard to find a payer who says we’re not paying for that thing because it’s not cost-effective,” he says. “Instead, they put restrictions on products based on the strength of the evidence, probably influenced by the cost-effectiveness and certainly by the clinical effectiveness. You can get that expensive new drug for multiple sclerosis or rheumatoid arthritis, but you have to fail all the cheap drugs first.”

Despite these cost control efforts, the proliferation of new technologies is a bigger cost driver than all the waste and fraud in the system, says Amitabh Chandra, a professor of public policy and business administration at the Harvard Kennedy School. “The number one reason why insurance premiums increase is these medical technologies that have dubious or small medical effectiveness,” he says.

Technology and Prices

Health policy experts assign different weights to the role of prices and technology in cost growth. In the famous article “It’s the Prices, Stupid,” by the late health economist Uwe Reinhardt and his colleagues, and a 2019 follow-up piece by the surviving coauthors, the health economists argued that high U.S. prices explain most of why our health costs are so much higher than those in other advanced countries.

The other major contributor to cost growth, they acknowledged, is “service intensity,” which includes technology. However, they said, it’s hard to define service intensity or separate it from price.

Bloche agreed that other countries have lower health costs than the U.S. does principally because their national health systems can negotiate lower prices with providers. But, even if the U.S. had a single-payer system, he noted, it would only be able to get a one-time cost-reduction by bargaining with providers. After that, he said, cost growth would resume at about the same rate as in other advanced countries because of new technology.

However, it’s difficult to distinguish the impact of technological advances from price growth. As the availability of technology increases, so do the prices charged for care. In 2015, for example, the United States had 39 MRI units per one million people, compared to the Organisation for Economic Co-operation and Development (OECD) median of 12.6. Similarly, the United States had 41 CT scanners per million in 2015, compared to the OECD median of 17.8. American providers use those machines routinely, ordering expensive imaging tests far more often than do their peers in other OECD countries.  And as it happens, our overall health costs are much higher than in those other nations.

New procedures also increase costs, partly because they don’t always replace older procedures. After angioplasties and stents came along, for example, millions of people had those procedures, but there was no decrease in the number of coronary artery bypass graft procedures. Other minimally invasive procedures have replaced open surgeries, but have resulted in more people getting the laparoscopic operations.

[Terry K. Rx for Health Care Reform. Nashville: Vanderbilt University Press;2007:283]

Changing practice patterns have also increased spending on some drugs. For example, statin drugs have benefited many people at risk for heart disease, but over time, changes in clinical guidelines have expanded the eligibility of patients for these cholesterol-lowering drugs. A recent analysis suggested that statin use in low-risk patients has little value and wastes healthcare resources.

It has also been suggested—usually by drug companies—that some new technologies save money because they prevent hospitalization or detect disease at an early stage, when it can be treated more cheaply. This is frequently true in individual cases. But when experts analyze the impact of technology on population health costs over time, they find that it increases costs more often than it saves money.

“New technologies tend to increase overall costs,” says Neumann. For example, he notes, genomic tests are being developed to determine which medications a particular patient will respond to best. Such tests might reduce the amount of wasteful drug spending, but any savings that accrued from the use of this technology, Neumann says, would be overwhelmed by the number of people having their genomes sequenced and getting those tests.

Ken Terry is a journalist and author who has covered health care for more than 25 years. He tweets @kenjterry.

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