Nav

New technology is not going to bring healthcare costs down

We are all used to thinking that newer technology makes things more efficient.  Computers have really increased productivity while reducing costs in a huge array of business systems.  That logic is being used in Washington these days to justify how we can reduce costs while also expanding coverage in the raging debate of healthcare reform.  I read this article in the Wall Street Journal a few weeks ago that got me thinking about these issues (here is the link:http://online.wsj.com/article/SB10001424052970204005504574235751720822322.html). 

What Abraham Verghese argues in this article is that costs tend to go up precisely because we keep adding more and more technology options on the delivery side of healthcare.  We are all used to getting the latest and greatest treatment, no matter what the cost.  Additional expensive treatment options are there for the doctors to use.  And use they do, because they typically get reimbursed on a per-procedure basis from insurance companies.  Maybe this is why healthcare costs grow at a higher rate than general inflation.  

Off course, there are also technology innovations that will create more efficiency and reduce some of the costs.  Everybody’s favorite is electronic medical records.  There are probably three dozen companies focused on providing these types of solutions.  And it is not hard to imagine how better patient information may bring down cost of delivery plus reduce costly medical errors.  The Veteran Affairs system, as a contained medical system, has invested in electronic records and reaped many of the benefits.  However, I don’t believe it will be the panacea that many are imagining.  

So, everybody complains about insurance rates going up.  They go up b/c the cost of delivering the care goes up, because there are new nice shiny machines to do expensive tests with, because patients come in to doctors and hospitals feeling entitled, because they think of insurance as prepayment for services, because doctors feel threatened by litigation and will order any possible test, even if they think it unnecessary.  This gave rise to HMOs who became both the insurer and the provider of healthcare under the premise that they could better manage costs and limit some of the negative cycle above.  Consumers hated the lack of choice and other limitations.  I wonder if some kind of rationing is in our future though, that is if we are to limit the increasing cost of healthcare.  This ultimately leads to difficult ethical questions about how much value you place on life.   I have indirect experience with this through my wife who as a hospitalist faces families asking for everything under the sun to extend the life of suffering 80 and 90 year-olds by only a month or two, at the expense of quality of life for the patient.   Coincidentally, both the Wall Street Journal (http://online.wsj.com/article/SB124692973435303415.html) and the Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070702745.html?hpid=topnews) had recent articles on this topic.

Healthcare reform has to address the core issue of migrating healthcare delivery away from encouraging more tests and towards incentives for better outcomes (which includes electronic records, new delivery business models, tort reform, and other initiatives).  By the way, I don’t think a public healthcare plan is the answer or a good idea  (more on that on a later post).  For full disclosure, we have made a bet in this changing arena by backing a company called Qliance which changes primary healthcare delivery from a fee-for-service to a flat monthly fee for all-you-can-eat model.