The high cost of medical technology: who's to blame?

Business & Health, Nov, 1989 by Faith Lyman Ham

The high cost of medical technology: Who's to blame?

In most industries, technology tends to lower costs. Not health care. But efforts are underway to change that.

As major purchasers of health care coverage, employers are in a bind over how to respond to the explosion of medical technology. Transplants, microsurgical techniques, laser technology, artificial parts, and genetic engineering are just a few examples of the medical advances that are destined to become commonplace in the next few years.

While employers may feel empathy for the beneficiaries of modern miracles and a profound respect for researchers' achievements, they must still worry about the bottom line.

"We need the technology," says Richard Wright, manager of Caterpillar Corp.'s human resources information division in Peoria, Ill. "I don't think anyone would deny that it's more humane to blast kidney stones in a tub of water than ripping a patient open. Same thing with the MRI [magnetic resonance imaging]. The number of surgeries avoided because of MRI is tremendous," he points out.

"But how much technology is enough? At some point, we're going to have to set a limit. We as a nation can't afford to continue in this direction. We need some rational way of controlling medical technology."

Employers also want to know what has happened to the cost savings some new developments promised. For example, MRI, extra-corporeal shock wave lithotripsy, and percutaneous coronary angioplasty were all touted as cost saving services. Yet since their introduction--as well as the advent of a myriad of other non-invasive procedures and treatments--health care spending has not only increased, its rate of growth has soared.

Employers are also up against the public's demand for the best health care possible. A Louis Harris and Associates poll found that half of those surveyed think there should be unlimited spending to save one life, even if the cost of treatment exceeds $5 million. Likewise, respondents overwhelmingly agreed health insurers should pay for all treatment even if it costs more than $1 million. (See "Data Watch.")

What's more, Americans believe universal access to care is a right, not a privilege. Nine out of 10 Harris poll respondents said everyone should be able to obtain "the best possible health care--as good as a millionaire gets."

Experts predict a showdown is in the offing between purchasers and providers. On the employer side, evidence of concern over the cost and spread of new technology is mounting. A recent Business & Health survey found that more than half of our readers cite the concern over increasing medical technology costs as the primary reason that top management is getting involved in health benefits decision-making.

Why is medical technology out of control and is there any way to curb its costs and spread? Our cover story provides insight into employers' dilemma of "paying for the latest" medical miracle.

The cost

The exact toll technology is taking on the nation's health care bill is open for debate. Some experts, such as William B. Schwartz, M.D., professor of medicine at Tufts University Medical School, Waltham, Mass., estimate technology and its associated costs account for as much as 50 percent of medical inflation. Others, such as Hewitt Associates, a Chicago-area consulting firm, credit technology--equipment and changes in procedures and services--with 11.2 percent of 1988's health care cost increase.

The invention, production, and introduction of a device or drug may represent a mere fraction of total U.S. health care spending. The root of the cost problems, many experts point out, lies with how technology is disseminated and how much it is used.

Lack of planning

As Linda Ruth, a consultant with Hewitt Associates, Chicago, sees it, "As much as we as a country hate regulation, it makes sense to regulate the distribution of high technology."

But that isn't happening. Nobody is in charge at a national level for deciding how expensive new equipment, procedures, and drugs will be distributed. Federal attempts at health planning, such as certificate of need requirements, are off the books today. The effectiveness of state agencies at controlling the spread of technolgoy varies widely.

"The uneven pattern of planning flows from the fact that we haven't defined technology," says Richard A. Rettig, former director of the Institute of Medicine's Council on Health Care Technology.

"For some people, technology began the day someone ground up roots and swallowed them. For others, technology is anything not existing in nature," says Joel Nobel, M.D., president of ECRI, a private, non-profit technology evaluation and research agency in Plymouth Meeting, Pa. "Somewhere in between is true technology."

But even if we could get a definition of technology, who should be in charge of disseminating it?

"The government, particularly at the state level, isn't strong enough to deal with planning," says Stuart B. Altman, dean of Brandeis University's Heller Graduate School and chairman of the federal Prospective Payment Review Commission. "The process becomes an uneven fight between the well-financed medical community and mid-level bureaucrats."