• To what extent is health care spending growth technology driven?

    I said I’d post this next week. I lied. Sorry. Here it is.

    Two excellent sources on this question are the 2008 CBO report* and the 2009 paper by Smith, Newhouse, and Freeland. I made the following chart from the information in each, averaging the ranges of estimates they report.


    • None of the studies attribute any spending growth to increases in defensive medicine or supplier induced demand.
    • Smith et al. (2009) doesn’t attribute any spending growth to changes in administrative costs.
    • Smith et al. (2009) covers a time range about 20 years later than the other two studies.
    • In all studies, technology is a large factor; only in Smith et al. (2009) does income growth dominate it. Does this reflect a shift over time in relative importance of causal factors or just differences in methodology?
    • Income and technology interact. As wealth grows, so does the ability to afford more rapid technological change. Health care is now a large enough sector that its growth substantially helps fuel that of the wider economy.
    • Health care spending can be decomposed into prices and quantities. Both play a role in encouraging or discouraging technology. All other things being equal, being able to charge (or be reimbursed) a high (or growing) price would encourage technology. Volume plays a role if there are economies of scale.

    *Smith et al. (2000) and Cutler (1995) are cited in the CBO report. Follow the link for the full references.


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    • In government statistics, technology is just a residual, is it not? That which is left over after other, more easily measurable things are accounted for. Technology is certainly a factor in enabling the residual, but how that works is really very poorly described, particularly in relation to volume and pricing, which is in the end where it is expressed. I think there is a little bit of word magic to the notion — we spent all that money, but it’s ok, it was on technology.

      How about the counter factual? What would have happened to spending without new technology to buy? Can we ask that question? Would that change the discussion?

    • As Austin notes, there is a circular relationship between technology and costs.

      However, what really costs money is not technology per se, but patterns of use of technology. Obviously the existence of technology influences its use, but there often is significant growth in the use of technology in periods in which technology is actually stagnant.

      An example: from 2002 through 2008 the hospital/clinic I worked at did not buy any new CT scanners or MR scanners or significantly upgrade the ones they owned. However, in that time the number of MR scans doubled and the number of CT scans tripled (this despite an effort by our large third party private payers, beginning in 2005, to rein in use by requiring pre-approval of non-emergency CT and MR.)

      Although this is purely an anecdote, it does reflect other numbers I have seen from national studies.

      So yes, technology does drive up costs, but the main driver is not just the existence of technology (there are lots of examples of failed technology changes in medicine that had minimal cost impact) but the patterns of use developed by doctors (sometimes involving technologies eventually proven scientifically to be ineffective.) There are many studies indicating that while the availability of health technology is essentially the same throughout the country, the patterns of use of technology vary significantly, with a corresponding direct impact on costs. The same is doubly true comparing the US with other developed countries.

      These differences do not seem to effect outcomes in any positive way, and sometimes appear to have a negative impact on outcomes.

      That of course is the main finding of the Dartmouth group and others who have investigated this question, and a major theme of the writing by people like Atul Gawande.

    • I would also add that there is a feedback between expanding insurance coverage and technology, as the one increases demand for the other. So, decomposing those two effects can be quite dicey.

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