Does High-Tech Medicine Mean Higher Health Care Costs?

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


"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.