NCPA - National Center for Policy Analysis

Cutting Cost but Not Quality

February 1, 2011

Medical spending per head has nearly tripled since 1990, yet most indicators of health have barely budged.  Help may be at hand.  Frugal innovators in China and India are making medical devices that are cheaper than their Western equivalents without compromising quality, says The Economist.

Companies such as China's Mindray and India's TRS create products that are stripped to their essentials: scanners that cost $10,000 rather than $100,000; portable electrocardiographs that cost $500 instead of $5,000.

  • These devices are not merely cheap knock-offs of Western designs.
  • Often they are just as effective as the gold-plated kit used in the West, yet they are rarely found in rich-world hospitals.
  • Their absence helps explain the massive disparity in costs between Western and emerging-world treatments.
  • A night in an American hospital typically costs 25 times as much as a night in an Indian, Brazilian or Chinese one.

Western medical-device firms are well aware of eastern innovation.  Indeed, firms such as GE Healthcare, Philips and Medtronic are investing heavily in China and India.   Alas, two main factors keep cheap devices out of Western markets, says The Economist.

  • One is the muting of price signals --health care is not an efficient market in the rich world because the customer does not have to shop around.
  • A second factor is red tape --America's Food and Drug Administration is excessively risk-averse, often taking twice as long to approve a new medical technology as European regulators do.

Source: "Life Should Be Cheap," The Economist, January 20, 2011.

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