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Technology and Health Costs

By November 23, 2011Commentary

Why is health spending high in the United States compared to other countries and why is it growing relatively rapidly?  This is a complex question and teasing out the answers isn’t easy.  The use of expensive technology–devices, drugs, equipment and procedures–in the United States has been posited as a major reason for higher spending and rates of increase.  A new paper sponsored by the National Bureau of Economic Research adds to the discussion by creating a new model to attempt to better understand the interrelationship between technology use and health care spending.   (NBER Paper)

The model relies on assumptions regarding patient demand and provider behavior.  The authors identify three basic categories of technology, consistent with other work.  The first is highly cost-effective technology which has benefits for almost all patients it might be used on; the second category has benefits for some, but not all, patients; and the third has little demonstrated benefit for any patients.  In any of these categories, cost-effectiveness, and ultimately the impact on spending, depends on the cost of the technology.  Low-cost items obviously have a much easier path to being found cost-effective than do high-cost ones.  Patient demand for any particular technology can be affected by regulatory factors–some countries control what technology is available–as well as by the presence of a third-party payer that insulates patients from cost impacts.

Providers usually are assumed to act in the best interests of patients, but they can at least occasionally be driven by their financial interests and may drive up the use of technology in that fashion.  The paper is dense and esoteric at times, but is worth wading through because it provides excellent background on fundamental economic concepts in health care in the United States.  Perhaps the most compelling discussion is around the notion that all people will be willing to devote significant resources to the improvement of their health, but at some point if they are individually paying, the cost outweighs the potential benefit and the same is true collectively.  At some point citizens are unwilling to pay more and more taxes for government health programs.  We may be at that point in the United States.

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