Healthcare Costs and Technology

There is an excellent article in the MIT Technology Review this month (The Costly Paradox of Health-Care Technology) pointing out how healthcare is the only industry where technological progress appears to raise rather than lower costs.

The reasons are not a mystery:

Unlike many countries, the U.S. pays for nearly any technology (and
at nearly any price) without regard to economic value. This is why, since 1980, health-care spending as a percentage of gross domestic product has grown nearly three times as rapidly in the United States as it has in other developed countries, while the nation has lagged behind in life-expectancy gains.

Other researchers have found that just 0.5 percent of studies on new medical technologies evaluated those that work just as well as existing ones but cost less. The nearly complete isolation of both physicians and patients from the actual prices paid for treatments ensures a barren ground for these types of ideas. Why should a patient, fully covered by health insurance, worry about whether that expensive hip implant is really any better than the alternative
costing half as much? And for that matter, physicians rarely if ever know the cost of what they prescribe—and are often shocked when they do find out.

Yet the article concludes when some policy recommendations that range from vague (organisational change, innovations in health care delivery) to downright dumb (“drug container caps with motion detectors that let a nurse know when the patient hasn’t taken the daily dose.”).

The solution, as I seed it, is straightforward: health insurance that pays out a lump sum of cash per diagnosis, to be spent however the patient sees fit (some sort of trust/trustee mechanism needs to exist for those too ill to make the decision themselves). The current framework, whereby insurance pays for whatever treatment doctor thinks best, provides absolutely no incentive to make the inevitable tradeoffs between cost and expected benefit.

Perhaps when healthcare inflation eventually leads to rationing, patients in America will reconsider the wisdom of this paternalistic model and demand the right to make those decisions themselves.

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