Health Policy$ense

Turning the Dollar Spigot Down on Health Care Technology

Change Will Only Come When The Federal Government Has No Choice But to Spend Less On Health Care

Last week’s article by Jon Skinner in the MIT Technology Review, The Costly Paradox of Health-Care Technology was an excellent synopsis of the unique and bizarre relationship between technology and the marketplace that exists in American medicine. Unlike almost any other sector of the economy, in health care new technology drives up costs while often providing little or no benefit. Skinner compares this phenomenon to the costs and benefits of technology improvements in cars, pointing out that modern vehicles are markedly better than 25 years ago, yet are cheaper in real terms. I use a similar example with my students -- the personal computer I used during my early college years cost $5,000 in today's dollars, but now I can buy a computer for $1,000 that is, quite literally, thousands of times better.

Peter Groeneveld
Peter Groeneveld : 'Recent history of federal policymaking provides little confidence that the wholesale changes necessary in how the government pays for health care can actually be enacted.'

The 'technology problem'
Jon Skinner is the right messenger for this critical issue -- for decades, he and his Dartmouth colleagues have performed some of the foundational economic analyses that have identified key causes of the "technology problem" in medicine, and his article explains his findings in very clear, concise terms. In a nutshell, the medical technology market is dysfunctional: the buyers (patients and doctors) don't know or care much about the prices of technology, the sellers (hospitals and medical technology companies) have little incentive to provide value (defined as sufficient benefit to justify higher cost), and the payers (federal and state governments and private insurers) are relatively impotent to change the system.

While I agree with Skinner's description of the problem, I'm less convinced by his suggested solutions. He leads with the idea that "we should pay only for innovations that are worth it, but without shutting out the potential for shaky new ideas that might have long-term potential." Few would argue with this wisdom, but recent history of federal policymaking provides little confidence that the wholesale changes necessary in how the government pays for health care (and hence, for technology) can actually be enacted. As just one example, the Affordable Care Act, while mandating the creation of new reimbursement models that might become Medicare's financial salvation, also prohibits the explicit use of cost-effectiveness in determining what is covered by the government.

Peter Groeneveld
The MIT Technology Review article says in every industry but one, technology makes things better and cheaper. Why is it that innovation increases the cost of health care?

Role of 'smartphone diagnostics?'
Skinner acknowledges these political difficulties, but ends with a cheery note that technology could "better organize the health care system" and thus save costs. I wish this were true but I'm not convinced. I'd like to believe that new technology could do a better job at matching patients who would benefit the most from health care with the services they need, and maybe there is a role for "smartphone diagnostics" in that regard, but as Skinner well knows, hospitals and doctors tend to embrace technologies that generate profits rather than improve efficiency. Getting more patients into the hands of orthopedic surgeons because a patient's smartphone diagnoses severe arthritis and links the patient to health care services may be good for the smartphone owner, but it isn't going to save society money.

I remain convinced that change will only come when the federal government faces no choice but to spend less money on health care. In an era where credit is cheap and where Medicare beneficiaries are in a voting bloc (i.e., the elderly) with substantial political power, there is little leverage by which policymakers can turn the dollar spigot down. Fee-for-service Medicare must be fundamentally changed, yet politicians from neither the left nor the right are particularly motivated to see this happen. The Urban Institute recently estimated that over a lifetime, the average U.S. married couple extracts $3.50 of benefit for every $1 they contribute to the Medicare system. Such an arrangement between a government and its citizens, no matter how unsustainable, cannot be cancelled en masse without inflicting widespread pain, and inflicting pain is not generally conducive with getting elected. Thus, if given a choice, popularly elected politicians are likely to continue the current healthcare payment system with minimal changes, as long as money can be borrowed to pay for it, and the day of reckoning can be delayed.

Three possible endings
Economist Herb Stein famously said, "If something cannot go on forever, it will stop." Thus, there are three possible endings to this story. First, perhaps our economy will grow much more quickly than currently projected, thus our rising wealth will make such questionable medical technology purchases feasible as growing tax revenues flow in to cover Medicare's rising bills. But, one look at Skinner's graphs of projected spending suggests the rate of economic growth necessary to pay those costs seems entirely unattainable.

A second possibility is that the U.S. government somehow continues to find lenders who will give us their money to pay for medical technology that we are unwilling to pay for ourselves (at least, "up front"), at interest rates that aren't crippling. While on its face this seems preposterous, there is some reason to not entirely dismiss this idea. For example, our federal deficit is large in nominal terms ($670 billion in FY 2013) but is returning to a "normal" fraction of our gross domestic product. Nobel Laureate Paul Krugman has regularly mocked the conservative doom-sayers in his NY Times columns about their perpetual predictions of rising interest rates (and inflation) that has so far not happened -- so we apparently aren't about to become the next Greece. So, maybe we really can go on borrowing, and borrowing, to pay for costly and unnecessary medical technology. But my hunch is: no.

The final scenario is that the gig ends -- the bond markets love you until the day they hate you -- our borrowing ability collapses, and CMS is faced with an executive order or Congressional mandate to cut payments within (say) 90 days. In all likelihood such cuts will be draconian, indiscriminate, and painful … but at that point, the solvency of the United States will be at stake. And at long last our government will turn down the spigot, and many hospitals will have to close their proton accelerators, limit their high-cost orthopedic and cardiovascular procedures, and compete for patients based on the economic value of services. But the landing will not be soft.

Still, this is a great article, and I'll be handing it out to my undergraduate students later this year. Ultimately, this might be their problem to solve.