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Poor Technology Management a Key Driver of US Health Care Spending

The fact that US health care spending growth has slowed in recent years is good news for Americans. But it’s like watching a slow-motion train wreck develop a bit more slowly. It’s still a train wreck.

Austin Frakt, PhD

The health care sector is consuming our nation’s wealth at a rate that is faster than we generate it. Before the recession and economic downturn, in 2007 we spent 16% of the gross domestic product on health care. Today the figure is 17.5%. Ever higher health spending is squeezing out needed infrastructure investment and contributing toward wage stagnation. Despite the slowdown, our battle with health care spending is not over.

Moreover, many proposals to wage a more effective battle miss a key point: a sustained and substantial reduction in health care spending growth must focus not just on deductible levels and integration of care. It must focus on technology.

In many other sectors of the economy, technology raises productivity and efficiency. Each year, computers get much cheaper and substantially better, for example. But in health care, technology can drive spending higher, sometimes for relatively little to no improvement in health.

Take proton beam therapy for prostate cancer. Per treatment, it costs at least twice as much as alternative approaches. Each proton beam facility requires the construction of a football field–sized cyclotron, costing $180 million. Medicare and most private insurers pay for proton beam treatment of prostate cancer, despite the fact that there is little evidence documenting its superiority.

Another way we use technology inefficiently is by overusing it, a common problem. From antibiotics to angioplasty, few treatments are applied only to the population for whom they are best suited. Antibiotics are routinely prescribed to treat conditions such as ear and sinus infections for which they are often not warranted. Angioplasty is provided for some patients for whom less expensive pharmaceutical therapy would do.

Economists have long known that technology is a leading driver of health care spending growth. Doctors have long been aware of its overuse. Despite this awareness, we have been relatively ineffective in applying technology more efficiently in health care. Why?

Money surely plays a role in many cases. For hospitals, investing (or borrowing) $180 million for a proton beam cyclotron may create a financial imperative to use it for as many patients as possible. That Medicare will reimburse for it at twice the rate as older therapies may be perceived as a big green light.

Politics also play a role. Few politicians can win a campaign for limiting what Medicare covers, no matter how well reasoned and protective of legitimate patient needs. The demagogic specter of “rationing” and “death panels” is too easily raised.

Hamstrung by politics, Medicare has little power to address the role of technology in health care. Private insurers both within and outside of Medicare also face constraints on their ability to manage technology. We should, therefore, reform both Medicare and the commercial market so that both sides can play a useful role in encouraging more efficient use of technology.

Medicare needs a body that can more reasonably balance the needs of beneficiaries for coverage with those of taxpayers for a cost-effective program. This new body should be insulated from politics—not unlike the Federal Reserve, an entity that also must balance 2 goals in opposition, it its case, inflation and employment. The body could establish what conditions the program covers and how costs might be allocated between beneficiaries and taxpayers. It could also establish the criteria used by health plans participating in Medicare under Medicare Advantage and those in the commercial market (including self-insured employers) to make decisions about covering specific technologies, decisions that are evidence-based and provide a safe harbor against lawsuits.

Health plans and employers could then safely avail themselves of technology assessments that guide which treatments are and are not worth covering. Each entity need not conduct its own battery of assessments. There are already organizations that play this role, like the New England Comparative Effectiveness Public Advisory Council.

We do not need to fully diagnose why health spending has slowed recently in order to improve health system efficiency. Decades of research show that technology is the key. To stop the impending train wreck, we need to become better stewards of technology. We need to reform the structures and laws that govern public and private payers so they can become part of the solution.

I thank Amitabh Chandra, PhD, Professor of Public Policy and Director of Health Policy Research at the Harvard Kennedy School of Government, for conversations that informed this post.

About the author: Austin B. Frakt, PhD, is a health economist and an associate professor at Boston University’s School of Medicine and School of Public Health. He blogs about health economics and policy at The Incidental Economist and tweets at @afrakt. The views expressed in this post are that of the author and do not necessarily reflect the position of Boston University. 
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