NCPA - National Center for Policy Analysis

Innovations Increase Medical Spending

January 16, 2003

Technological innovations vastly improved health care in the last half of the 20th century, and accelerating innovation in the 21st century promises the prevention, effective treatment and cure of disease. However, experts say that technological innovation is also the major source of increases in medical spending in the United States.

  • Innovations such as magnetic resonance imaging, genetically engineered growth factors, and highly effective drugs for depression, gastroesophageal reflux, high blood cholesterol and HIV disease greatly improved the detection and treatment of diseases.
  • The advances greatly improved the outcomes of complex procedures such as organ transplantation, coronary artery bypass surgery, and high-dose chemotherapy and bone marrow transplantation for leukemia and multiple myeloma.

These advances often have their greatest impact long after they are introduced, when patients who would have received an older, inexpensive treatment or none at all receive more, or more expensive, care.

  • For example, middle-aged men with chronic stable angina pectoris were the first routine beneficiaries of coronary artery bypass graft surgery.
  • With experience and incremental clinical innovations, however, the same procedure now benefits heart attach patients, and elderly patients initially deemed unsuitable.

Many of these innovations have reduced the cost of achieving important health outcomes, but they have also raised per patient expenditures.

Health insurance is encouraging this trend. Insurance increases demand for health care generally, because insured consumers pay only a fraction of the cost. However, its most important effect on health care spending may be on the development of new forms of care.

Price is less important to consumers than convenience, safety and efficacy -- that is, the quality of care. Thus consumers demand increased government and private investment in research on quality-improving innovations, rather than on cost-reducing -- or productivity enhancing -- ways to accomplish the same health outcomes as older interventions.

Source: Victor Fuchs and Alan M. Garber, "Medical Innovation: Promises & Pitfalls," Brookings Review, Winter 2003.

 

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