Technology

Does High-Tech Medicine Mean Higher Health Care Costs?

A new report finds that medical innovation boosts life expectancy, but doesn't cost more

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"About half of all growth in health care spending in the past several decades was associated with changes in medical care made possible by advances in technology," declared a Congressional Budget Office (CBO) report last year. "Health care economists attribute about 50 percent of the annual increase of health costs to new technologies or to the intensified use of old ones," writes bioethicist Daniel Callahan in his new book, Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System. Conventional wisdom holds that the nation is facing a massive health care bill thanks to our use (and potential overuse) of pricey new treatments and technology.

But is it true that expensive high-tech medicine is to blame for rising health care costs? Callahan complains that "American health care is radically American: individualistic, scientifically ambitious, market intoxicated, suspicious of government, and profit-driven." And he's right about America's high-tech vitality: The U.S. health care system does develop and deploy medical innovations much faster than other rich countries. New pharmaceutical products generally launch here two years earlier than elsewhere, according to a December 2008 report from the business consultancy McKinsey (which also blamed high-tech medicine for escalating costs). Plus, American physicians are "much quicker to adopt new surgical techniques and advances in anesthesia." The top five U.S. hospitals alone conduct many more clinical trials than any other single other developed country.

But in June, Columbia University economist Frank Lichtenberg published a new study that suggests advanced medical technologies are not contributing all that much toward rising U.S. health care expenditures. Lichtenberg begins by looking at how the rate of increase in longevity has varied among U.S. states between 1991 and 2004. He investigates how such factors as the quality of medical care, behavioral risks (obesity, smoking, and AIDS incidence), and education, income, and health insurance coverage affect life expectancy. To measure differences in the quality of medical care, Lichtenberg examines how quickly each state took up advanced medical diagnostics and new drugs. He also calculates what fraction of physicians in a state were trained at top-ranked medical schools.

Lichtenberg's key finding is that life expectancy increased faster in states that more rapidly adopted advanced diagnostic imaging techniques, newer drugs, and attracted an increasing proportion of doctors from top medical schools.

The good news is that between 1991 and 2004 average life expectancy at birth in the U.S. increased 2.37 years. During that time Lichtenberg finds that nationwide the use of advanced imaging procedures nearly doubled from about 10 percent to nearly 20 percent. Lichtenberg calculates that the deployment of advanced diagnostic imaging techniques (e.g., CT scans, MRIs) is responsible for boosting average U.S. life expectancy by 0.62-0.71 years during this period. In addition, he estimates that the adoption of newer drugs increased average U.S. life expectancy by about 1.5 years. On the other hand, the fraction of physicians being trained at top medical schools has declined, which Lichtenberg reckons has reduced overall life expectancy by 0.28-0.47 years.

Interestingly, Lichtenberg found that "growth in life expectancy was uncorrelated across states with health insurance coverage and education, and inversely correlated with per capita income growth." The last finding is a bit puzzling. Lichtenberg calculates that the average 20 percent increase in real per capita income resulted in lowering average life expectancy by 0.34-0.42 years and finds that states with high income growth had smaller longevity increases. He does not speculate on why higher incomes lowered life expectancy but perhaps richer people engaged in riskier behaviors that are unaccounted for in Lichtenberg's model. For example, binge drinking in older men correlates with higher incomes.

It's not too surprising that high-tech medicine and better physician training boost life expectancy, but what about their costs? To answer that question, Lichtenberg looked at per capita medical spending by state. The top six states used advanced imaging diagnostics roughly 30 percent more often than the bottom six, for instance, making them ripe for comparison. He found that the states with larger increases in high-tech diagnostic procedures, newer drugs, and higher quality physicians did not have larger increases in per capita medical spending.

"The absence of a correlation across states between medical innovation and expenditure growth is inconsistent with the view that advances in medical technology have contributed to rising overall US health care spending," he concludes. Lichtenberg further speculates that states that have more quickly adopted high-tech procedures have not seen their health care expenses increase because "while newer diagnostic procedures and drugs are more expensive than their older counterparts, they may reduce the need for costly additional medical treatment." In other words, high-tech medicine may initially cost more, but it reduces spending in the long run, while increasing the life expectancies of patients.

Cost cop Callahan has a solution to the alleged problem of escalating technological costs: Adopt the methods used by European universal government-funded health care systems:"They use—among other tools—price controls, negotiated physician fees, hospital budgets with limits on expenditures, and stringent policies on the adoption and diffusion of new technologies." In other words, stifle innovation.

"Cutting the use of technology will seem wrong—even immoral—to many," Callahan admits. Well, yes. And if Lichtenberg is right, slowing technological progress in medicine wouldn't save money, but it definitely would kill more people.

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

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  1. So to prevent the health care system from going broke, these reformers say we should “just say no” to medical innovation.

    Which is to say, a false dichotomy.

    Here are in a nutshell the reasons for the higher healthcare costs:

    1) Government
    2) Government
    3) Government
    4) Government
    5) Government

    Ok, here’s why:

    1) Government -> Licensing laws
    2) Government -> Prescription drug laws
    3) Government -> The FDA
    4) Government -> Insurance regulations
    5) Government -> Entitlements

  2. In my day we didn’t HAVE all this fancy “Tech-no-lo-gy”. If you got sick they’d cut your arm and stick a leach on you. Sometimes they’d drill a hole in your head. Then as all the blood drained out of you, you’d say “Ohhh no, maybe I should have gone to a hospital.” But it was too late. You were sick and bloodless and you brains were all over your shirt and you LIKED it!

  3. For the photo:

    Should insurance cover unlimited use of the world’s most expensive female ‘personal massage’ device?

  4. I thought that was just a fume hood for her vagina.

  5. Callahan complains that “American health care is radically American: individualistic, scientifically ambitious, market intoxicated, suspicious of government, and profit-driven.”

    “market intoxicated”? “suspicious of government”? And this is American healthcare he’s talking about?

    OK, so I guess everyone got together without me and decided that from now on, words can mean whatever anybody wants them to mean. Good to know.

  6. Attorney,

    Actually, words have always worked that way. Really.

    I haven’t had time to read the article yet, but the teaser seems to be attacking a straw man. The claim about hi-tech leading to more costs is about overuse of unnecessary high tech tests and treatments…So, just say no would really be more like “don’t look for a nail just because you have a hammer.”

  7. Callahan complains that “American health care is radically American: individualistic, scientifically ambitious, market intoxicated, suspicious of government, and profit-driven.”

    Those all sound like features, to me. That Callahan thinks they are bugs indicates to me that he is stark fucking mad and should be kept far away from any policy-making body.

  8. Re: Neu Mejican,

    From the article:
    “About half of all growth in health care spending in the past several decades was associated with changes in medical care made possible by advances in technology,” declared a Congressional Budget Office (CBO) report last year. “Health care economists attribute about 50 percent of the annual increase of health costs to new technologies or to the intensified use of old ones,” writes bioethicist Daniel Callahan in his new book, Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System. Conventional wisdom holds that the nation is facing a massive health care bill thanks to our use (and potential overuse) of pricey new treatments and technology.

    I don’t think Bailey is attacking a strawman argument. So far, seems like the main argument IS that technological advancement or the “over reliance” on it is what accounts for the higher healthcare costs.

  9. Japan has more MRIs, CAT scanners, etc per capita than we do. They have a far higher percentage of seniors than we do. Yet they spend about half what we do on their health care system.

    The reason? They don’t PAY SO MUCH for the machines and the people running and interpreting them. The central government controls the prices and holds them down.

    As long as X-ray techs with 2-year degrees from Directional State University make more than teachers with master’s degrees from Harvard, and doctors (particularly specialists) make more than just about anyone but Wall Street bankers and rock stars, medicine ain’t going to be cheap.

  10. And controlling the earnings of people I don’t really know anyway is a cheap price to pay for holding down government spending on something it shouldn’t be paying for anyway.

    Or something like that. Right, Chad?

  11. Japan has more MRIs, CAT scanners, etc per capita than we do.

    [Citation Needed]

  12. On the other hand, the fraction of physicians being trained at top medical schools has declined, which Lichtenberg reckons has reduced overall life expectancy by 0.28-0.47 years.

    So, isn’t that an argument for licensing? Contra: if you pushed the lower-end treatment onto nurses and such, wouldn’t that tend to lower costs somewhat, possibly at the expense of life expectancy, but wouldn’t you get better overall care as a consequence? This is the argument raised in Shikhia Dalmia’s Reason article a few weeks ago. Did something change between then and now?

  13. Attorney,

    Actually, words have always worked that way. Really.

    OK Mr. Smarty-pants. “… from now on, words can mean whatever anybody individually wants them to mean regardless of the consensus as to their meaning.”

  14. Marshall Gill | September 29, 2009, 5:55pm | #
    Japan has more MRIs, CAT scanners, etc per capita than we do.

    [Citation Needed]

    Amazing what you can do with a FIVE SECOND GOOGLE SEARCH OF OBVIOUS KEYWORDS.

    http://books.google.com/books?id=1ift90CNV_8C&pg=PT37&lpg=PT37&dq=japan+mri+cat+scanner+per+capita&source=bl&ots=hJI2CL2YBM&sig=qc1A4S-r4ExZxLzgZrHBixiYxog&hl=en&ei=_ZfCSqz_KYSQsgPFjrzKAg&sa=X&oi=book_result&ct=result&resnum=4#v=onepage&q=&f=false

    But hey, this link says that we are number two!

  15. R C Dean | September 29, 2009, 5:49pm | #
    And controlling the earnings of people I don’t really know anyway is a cheap price to pay for holding down government spending on something it shouldn’t be paying for anyway. Or something like that. Right, Chad?

    Do you think I don’t know any doctors, nurses, or other medical workers (in other words, half my family)? Hell, if I had a nickle for every pre-med and pre-nursing student I have taught over the years….

  16. Re: Chad,

    Yet they [the Japanese] spend about half what we do on their health care system.

    Did you account on the per capita expenditures on taxes? Because the out of pocket may be half, but if each working Japanese works 2/3 of his or her time just to cover taxes, then the cost of their health care may be much higher than your sanguine numbers.

  17. They spend about half (absolute) and about 60% (vs GDP) as we do for their entire system. It is generally funded with an 8% payroll tax, and modest copays (10% typically) at the point of service.

    The Japanese pay overall similar taxes to Americans…slightly less at their paycheck, but with a 5% VAT.

  18. Re: Chad,

    That sounds fishy to me, considering the distortions inherent in a government-controlled system. What’s possible is that Japan is either accumulating unfunded liabilities from their health care system if their tax burden is similar to Americans, or the average Japanese pays a higher rate in total in taxes than the average American, considering that taxes in the US are highly progressive.

    By the way, the Mexican health care system is much cheaper than either, because the non-public part is TOTALLY free market. In fact, the main business near the border at the northern bordering cities is pharmacies, since so many Americans cross the border to supply themselves. This is a little know fact because the American media glosses over it, instead preferring to mention the “cheaper” Canadian drugs. No way can the Canadians compete in prices with the Mexican drug companies that spew out generics galore.

    Since many become doctors in Mexico (there is no artificial restriction like in the US), clinics and small hospitals are fully manned and stocked, offering subscription services for basic care that costs pennies compared to what Americans pay for insurance. Mexicans are offered true, real catastrophic insurance that costs the same everywhere in Mexico regardless of the state (there are 32 states in Mexico). The American media does not mention the fact that Mexico has a successful health care system that’s almost totally free of intervention because of bias against Mexico, as if the country lived in a dark age. Instead, it is more likely the US Media covers the Cuban system as being better than the American system.

    There are paramedic services by subscription, that can provide emergency care at your HOUSE just by calling them. The service that my mother subscribes to costs her [be ready] $12.00 a month. The paramedics will, in case of an emergency, drive you to a hospital.

    And this while Mexican workers pay severely regressive taxes like the VAT, which in Mexico is 13% (except at the border where it is 10%), regardless of income.

  19. The problem is indeed too much technology, but not in the way most of the critics frame the issue. Rather, the problem is that the state mandates artificially high levels of capital- and tech-intensive treatments, and restricts competition from cheaper alternatives. The old libertarian illustration of the problems with third-party funding is “grocery insurance”–which would result in a lot more people buying steak and a lot less hamburger. But in the present system, sometimes hamburger is illegal.

    And those MRI machines would be a hell of a lot cheaper if some hardware hackers, operating outside the high-overhead industrial cartels, just ignored the patents and created reverse-engineered versions.

  20. New technology always commands a premium, but some of it eventually becomes OLD technology — which has stood the test of time and proven itself effective. This technology helps push costs way down over time.

    My wife is in the market for a new personal computer — a laptop — and we went shopping last weekend. I came of age during the very beginnings of the personal computer revolution. For ten or twenty years, it cost around $3000 to get a rig that would satisfy my need for memory and speed. But in the last ten or fifteen years, and certainly last weekend, you could get an impressive laptop for well under $1,000 (and this, even as inflation has relentlessly chipped away at the value of the dollar: $800 today would have been only around $305 — the cost of a high-end HP calculator — back when I got into “the biz”). The price-performance ratios today are simply astounding.

    So why isn’t it the same for medical devices? Why isn’t new technology driving down prices and improving outcomes in health care as it has unfailingly done in nearly all other industries? That’s the question we need to answer before we 1) pin the blame for our health care industry woes on technological innovation; and 2) commit to any kind of health care “reform.”

  21. Old Mexican | September 30, 2009, 1:48am | #
    Re: Chad,

    That sounds fishy to me, considering the distortions inherent in a government-controlled system. What’s possible is that Japan is either accumulating unfunded liabilities from their health care system if their tax burden is similar to Americans, or the average Japanese pays a higher rate in total in taxes than the average American, considering that taxes in the US are highly progressive.

    Then look at the system of the Dutch or the Swiss, which are fairly similar. The only thing “fishy” is the smell of us paying ~50% more than every other advanced nation, for quality of care that is similar.

    The Japanese hold down prices. Doctors don’t make as much money (low $100k’s), for example, rather than our specialists who are often well over $200k now. No wonder most medical schools are graduating nothing BUT specialists now, and we have to import general practicioners from overseas.

    I think one problem is that you do not realize that our system has all sorts of distortions that make prices higher, including many that are inherent to health insurance in general rather than the fault of the government. Other countries realize this. We keep pretending markets can solve all problems when they can’t.

    I don’t think there is much use in comparing our care to that of countries with vastly different levels of wealth, incomes, and education. There are simply too many variables out there that are not being controlled.

  22. Chad,

    Easy way to drive down price of doctors. End licensing.

  23. Easy way to drive down price of doctors. End licensing.

    Great idea.

    I think one problem is that you do not realize that our system has all sorts of distortions that make prices higher, including many that are inherent to health insurance in general rather than the fault of the government.

    Blaming health insurance for the cost of health care is like blaming auto insurance for the cost of auto repairs.

  24. I don’t post here much. (Two times I think), and I know I am a day late. But the position espoused by these “reformers” may be one of the most evil ones I have ever heard of.

  25. Wow, Chad. In the same post, you compare our care to that of other nations, and say there isn’t much point in trying to do so. Pick a side, man!

  26. RC Dean: There is obviously much more to learn from other rich nations than from much poorer ones. And in any case, almost half of Mexicans have no insurance and receive care that it would be generous to label as “spotty and sub-standard”.

    As for licensing, you are never going to get rid of it, so such a debate is irrelevant. However, we do need to break down the AMA’s control of doctor supply. They are clearly choking it in order to keep salaries high. There are far more qualified applicants than their are positions. Only about 40% applicants get into any school.

    http://www.aamc.org/data/facts/2008/2008school.htm

  27. My only point is that if you take the Bible straight, as I’m sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won’t get the full deal by just doing regular skill english reading for those books. In other words, there’s more to the books of the Bible than most will ever grasp. I’m not concerned that Mr. Crumb will go to hell or anything crazy like that! It’s just that he, like many types of religionists, seems to take it literally, take it straight…the Bible’s books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on…the Bible’s books were written by people with very different mindsets…in order to really get the Books of the Bible, you have to cultivate such a mindset, it’s literally a labyrinth, that’s no joke

  28. My only point is that if you take the Bible straight, as I’m sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won’t get the full deal by just doing regular skill english reading for those books. In other words, there’s more to the books of the Bible than most will ever grasp. I’m not concerned that Mr. Crumb will go to hell or anything crazy like that! It’s just that he, like many types of religionists, seems to take it literally, take it straight…the Bible’s books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on…the Bible’s books were written by people with very different mindsets

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