NCPA - National Center for Policy Analysis

Innovation in Health Care Brings Huge Benefits

July 31, 2013

Earlier this year, a team of researchers in Europe decided to examine the relationship between cutting-edge technology and health care costs. When the European researchers surveyed 86 studies on the subject, they found that while some innovations raised health costs, others reduced them. The relationship, they concluded, "is complex and often conflicting," says Sally Pipes, the president, CEO and Taube Fellow in Health Care Studies at the Pacific Research Institute.

Policymakers tend to focus on the six-figure price tag of a new drug or technology. But they ignore the long-term value that medical innovations can bring for both patients and the broader economy. Consider the impact of advances in medicine on hospital stays.

  • A European study found that between 2000 and 2008, medical technology cut hospital stays by an average of 13 percent.
  • New drug therapies save money by keeping patients healthier and out of the hospital.
  • A study published by the National Bureau of Economic Research found that Medicare saves more than $2 for each dollar it spends on medicines.
  • Columbia University Professor Frank Lichtenberg estimates that an additional dollar spent on pharmaceuticals reduces hospital expenditures by $3.65.

Patients have also realized substantial benefits thanks to innovative medicines.

  • Cancer death rates have declined over the last three decades from 51 percent over five years in 1977 to 33 percent in 2009.
  • For this trend, patients can thank innovative cancer therapies, which are responsible for giving Americans 42 million additional years of life over the past 22 years.
  • The total economic impact of keeping all these folks alive and working is roughly $3.5 trillion.

Each "pill" costs just pennies. But by improving doctors' ability to diagnose and monitor their patients, the devices could deliver a return on investment that's exponentially larger in the form of savings to the health care system.

Source: Sally Pipes, "Bend the Healthcare Cost Curve Downward by Letting Healthcare Costs Rise," Forbes, July 22, 2013.


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