Technology and Medical Care

by Don Boudreaux on May 22, 2009

in Health, Technology

One often-heard explanation for rising medical-care costs centers on the advance of technology.  I'm sure that there are variations on this theme, but fundamentally it sounds like this: technological advances improve medical-care treatments but are quite expensive; this technology must be paid for, so at least part of the higher prices for medical care is a reflection of technological improvements in medical care.

Perhaps this explanation is correct; I have no data to contradict it.  But my priors make me skeptical of this explanation.  Technology creates great improvements in telecommunications and computing, yet the prices of wonders such as cell phones, telephone calls, and personal computers have fallen dramatically over the years.

The same is true for transportation.  Huge investments in transportation technology — engine design, the construction of container-shipping facilities, airplane engineering, and on and on and on — are all, both individually and taken together, quite expensive.  Yet the price of moving a ton of freight from New York to London, or a half-ton of family members from home to the regional shopping mall, has fallen continually.

Why should medical care be different?  It must be the case that some other factor is at work driving up the cost of medical care – a factor that either works in tandem with technological improvements to raise these costs or that works independently of technological improvements to raise these costs.

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Doug Stevens May 22, 2009 at 4:07 pm

As I commented on in a different post (before it got hijacked by the usual suspects) is that costs are high because of a barrier to entry by providers of medical services. Get rid of the requirement of medical services providers to be licensed, and get rid of restrictions on buying prescription drugs, and you'll go a long way to reducing costs. Things will be fixed when Walmart can open their own hospitals.

Ryan May 22, 2009 at 4:14 pm

The current healthcare system is I think the most salient example of what Mises explained in his short book Critique of Interventionism. http://mises.org/etexts/mises/critique/contents.asp

SaulOhio May 22, 2009 at 4:17 pm

I agree that there are many other factors, mainly government spending on healthcare infflating costs. But there is some truth to the technology argument. One big difference between new technology like cell phones and new medical technology is that the medical technology requires a lot of specialized knowledge to use. An MRI scanner or ultrasound requires technicians experienced in interpreting the results. New surgical techniques require training of physicians to perform them. This training takes a lot of time and money, and the supply of competent people is necessarily low.

But there is also the counterbalancing effect of economies of scale made possible by technology. I work in a medical lab where we have modernized quite a bit in the time I have worked here. We now have automatic stainers (I sometimes refer to the one in Histology as R2-D2), rapid test kits, blood culture incubators that can distinguish a positive culture from a negative one, chemistry analyzers that seem to do most of the work in the chemistry lab (I don't know really, since I don't work in chemistry), automatic cell counting machines in hematology, and so on and on. This automation makes it possible to do many more tests with the same number or even fewer employees.

What really increases our costs is regulatory compliance and dealing with government health plans.

ThomasL May 22, 2009 at 4:23 pm

Serendipitously, Keith Hennessey recently wrote on this:

http://keithhennessey.com/2009/05/18/third-party-payment-part-3/

In a one sentence version, his supposition is that the subsidizing of health care results in cost/benefit ratios which cannot be observed in non-subsidized markets.

John Dewey May 22, 2009 at 4:28 pm

A letter in today's WSJ from a physician argues that 20% of medical procedures are defensive medicine. His estimate is derived from his experience and his discussions with peers.

I'm not sure what role government plays in driving up costs related to fear of malpractice suits. Anyone have ideas?

Nathan May 22, 2009 at 4:32 pm

In most markets the richest typically subsidize technological development and the rest of us reap the benefits. Cellphone and cars are perfect examples of this.

In the current health care market with government list of mandated procedures and employer chosen plans, some people are receiving far more care than they truly desire. Washington and Democrats applaud this situation yet harp on it's side effects: the highest per capita spending for health care in the world.

John Dewey May 22, 2009 at 4:39 pm

doug stevens: "Get rid of the requirement of medical services providers to be licensed, and get rid of restrictions on buying prescription drugs"

I think libertarians have been making these arguments for years. IMO, voters are never going to agree. You guys have a much better chance of convincing the public to increase the supply of licensed medical professionals.

As I understand it, two factors account for the shortage of registered nurses:

- requirement that nursing school instructors have masters degrees;

- restrictions on immigration.

John Dewey May 22, 2009 at 4:44 pm

doug stevens: "Things will be fixed when Walmart can open their own hospitals."

Walmart has already sharply reduced the cost of many prescription drugs. They did so without getting rid of restrictions on buying prescription drugs.

Tom May 22, 2009 at 4:56 pm

Saul-

"What really increases our costs is regulatory compliance and dealing with government health plans."

The irony is killing me.

Doug Stevens May 22, 2009 at 4:59 pm

Walmart has already sharply reduced the cost of many prescription drugs. They did so without getting rid of restrictions on buying prescription drugs.

The costs of drugs are another topic entirely.

It's my guess that the only purpose of many doctor visits is to get a prescription written. Allowing a patient to bypass that visit would not only be good from a freedom perspective it would reduce demand for a scarce resource.

JohnW May 22, 2009 at 5:11 pm

"…and personal computers have fallen dramatically over the years."

Really? Do you have data to support this? My impression is that a PC or Mac 25 years ago costs about the same as it does today (of course, you get much more computer for the money today)

"…a half-ton of family members from home to the regional shopping mall, has fallen continually."

Again, really? Data? My impression is that passenger vehicles are slightly more expensive nowadays, so I don't see the cost of driving being lower. The cars are safer and more comfortable, but cheaper?

MikeP May 22, 2009 at 5:11 pm

Yet the price of moving a ton of freight from New York to London, or a half-ton of family members from home to the regional shopping mall, has fallen continually.

Why should medical care be different?

The correct analogy is not to the price of traveling from New York to London then versus now or the price of traveling from home to the mall then versus now.

The correct analogy is between traveling from home to the mall then and from New York to London now.

Technology may make what we did yesterday cheaper today, but it also makes what yesterday would have been too expensive to do within reach today and what yesterday would have been impossible to do possible today.

It is not hard to believe that the latter two effects overwhelm the former. The result is that average cost of technology per treatment is higher.

Adding the facts that we're richer today than yesterday — and that we have more third parties paying the bills — exacerbates the situation, but does not provide the whole story.

John Dewey May 22, 2009 at 5:18 pm

doug stevens: "It's my guess that the only purpose of many doctor visits is to get a prescription written."

That's interesting. What forms the basis of that guess?

Doug Stevens May 22, 2009 at 5:28 pm

That's interesting. What forms the basis of that guess?

I have nothing except personal experience to go on.

When my son was little he used to get regular ear infections. We found a drug that worked for him but had to see our doctor to get it prescribed each time. It was pretty much a waste of time, money, and effort. I've heard similar complaints from other people so I'm assuming this happens a lot. But even if it doesn't I'm all for drug legalization, so the idea fits in nicely with that whole philosophy.

S Andrews May 22, 2009 at 5:30 pm

Really? Do you have data to support this? My impression is that a PC or Mac 25 years ago costs about the same as it does today (of course, you get much more computer for the money today)

Can I see those numbers? Are they inflation adjusted?

John Dewey May 22, 2009 at 5:34 pm

johnw: "My impression is that a PC or Mac 25 years ago costs about the same as it does today"

I think prices have dropped a little bit,

From the New York Times, April 3, 1985

"The price of a basic personal computer, with 256,000 bytes, or characters, of memory and two disk drives was reduced to $2,295, from $2,420. A PC-XT with two floppy disk drives and a 10-megabyte hard disk dropped to $3,895, from $4,395."

That 1985 PC-XT price is about $7,600 in 2009 dollars.

Best Buy is selling a much better desktop package today for $429.98.

John Dewey May 22, 2009 at 5:43 pm

doug stevens: "When my son was little he used to get regular ear infections. We found a drug that worked for him but had to see our doctor to get it prescribed each time. It was pretty much a waste of time, money, and effort."

I'm curious. Did you ask the doctor why you had to see him each time? Do you think it might have had anything to do with the doctor trying to protect the health of your son? Is it possible the prescription drug was known to infrequently have side effects which a trained physician might detect but which you might have overlooked?

Not sure who was paying for your son's medical care. If it was an insurance company, why would they have agreed to pay for such an office visit that was a "waste of time, money, and effort"?

kingstu May 22, 2009 at 5:43 pm

1. Constrained supply courtesy of the AMA and various licensing boards for doctors, nurses, technicians, etc.

2. Third party payment pushing up demand. Doc says, “You need an MRI for your headache to rule out the .001% chance it’s being caused by a brain tumor.” Patient says, “Geez doc, that’s going to cost me a $10 co-pay but I guess I can afford it.” Real cost of that MRI is about $1500.

3. Drug patents that are out of line with what would be required to bring healthy profits to drug companies and spur innovation.

Morgan May 22, 2009 at 5:47 pm

PriceWaterhouseCoopers published a study called "The Factors Fueling Rising Health Care Costs 2008" that provides some insight (it is freely available on the web).

Be aware that it was prepared on behalf of Americas Health Insurance Plans, and while the numbers appear to be correct as far as I can verify them, the report itself should be read with possible spin in mind.

John Dewey May 22, 2009 at 5:50 pm

kingstu,

On your points:

1. I agree for doctors, but not for nurses. The supply problem right now is lack of instructors.

2. Why would insurance companies agree to pay for unnecessary MRI's? I don't think it matters whether the patient pays. The insurance company has even more incentive than the patient to limit costs.

3. What is the basis for this claim? If pharmaceuticals were enjoying profits not justified by the risks they take, wouldn't new suppliers be developing copeting products? In fact, isn't that exactly what is happening in the very active pharmaceutical market?

Doug Stevens May 22, 2009 at 6:10 pm

I'm curious. Did you ask the doctor why you had to see him each time? Do you think it might have had anything to do with the doctor trying to protect the health of your son? Is it possible the prescription drug was known to infrequently have side effects which a trained physician might detect but which you might have overlooked?

Sheesh… I didn't expect the Spanish Inquisition.

I asked the doctor. He said because he wanted to examine my son each time to make sure we were dealing with the same condition. I'm sure he was trying to protect the health of my son. I don't know about the drugs side effects but I am willing to accept there were some.

But that's not the point. The point is that it should have been my decision to see the doctor or not. And, quite honestly, even if I had the option I may have taken my son to the doctor each time. But those times when my son was older (where he could recognize the symptoms) and we had to go to the emergency room because it was after hours, I probably would have gotten the drugs and dealt with the doctor later.

Some of the other people I talked to who had similar experiences were adults who had to see the doctor to get their drugs. Certainly these people can make decisions about their own health care. Again, it's all about the options.

Not sure who was paying for your son's medical care. If it was an insurance company, why would they have agreed to pay for such an office visit that was a "waste of time, money, and effort"?

Company paid group health insurance. We had a fairly high deductible so they weren't really all that bothered.

But the drug thing is secondary (unless we want to talk about abolishing the FDA). My main contention is that doctor licensing is the major cause of the high price of health care. All this talk of insurance costs and subsidies seems silly while the barriers to entry are still in place. I don't need car repair insurance or subsidies to get my brakes fixed. Until we know the true costs of medical care without licensed doctors it just makes no sense to me to talk about changes to insurance, effects of technology, the need for subsidies, etc.

muirgeo May 22, 2009 at 6:12 pm

I think the likely answer is that medical technology is not adaptable to mass marketing. Where it is, like glucometers we see the effects of the market. But chemo drugs, pulsed dye lasers and Jarvek 7 artificial hearts not so much.

Methinks May 22, 2009 at 6:40 pm

chemo drugs, pulsed dye lasers and Jarvek 7 artificial hearts not so much.

By "not so much", do you mean that costs don't drop at all or they drop much less than for glucometers. Do you happen to know how much less? Just curious. It seems that the cost of MRIs, ultrasound, CAT scans, etc. are much lower today than when they first came out. Is it possible that health care technology costs come down much slower than cell phones and computers or transportation because they are not adaptable to mass marketing, but they still come down over a longer period of time?

I've heard this repeatedly from doctors – 90% of lifetime health care expeditures come at the end of your life. This seems to imply two things:

1.) We're spending a lot of money to extend life for just a little bit longer.

2.) Disease is positively correlated with age and since the population is aging and we're living longer, healthcare costs are going to rise – assuming that the cost of technology either doesn't decline enough to offset the demographic change.

Dr. T May 22, 2009 at 6:45 pm

The two most prominent reasons for why health care technology continually gets more expensive are:

1. An historic "cost-plus" mentality that afflicts the inventors, producers, vendors, and buyers. No one balks at five million dollar MRI installations because the owners can quickly recover costs by billing $500-$1500 per MRI exam.

2. An inability of most clinicians to use technologies optimally. If there's the tiniest doubt about a diagnosis and the patient is insured, then clinicians readily order expensive testing: imaging studies, endoscopy studies, echocardiograms, esoteric lab tests, etc. Most radiologists and pathologists do not say "no" to these requests, because they also profit from them, and they don't want to annoy their clinician customers. (I'm a clinical pathologist. When I rejected an expensive lab test as unneeded, I usually got a poorly reasoned argument.)

If medical technology had the same level of competitiveness as personal computer technology, and if clinicians knew the strengths and weaknesses of the technologies, then the overall cost of medicine would decline while quality would improve. Howver, I know of no way to achieve these outcomes. Most medical technology companies are near-monopolies with little need to compete on cost. And, it is notoriously difficult to educate physicians and alter their behavior. Only large financial incentives have done this. But, how do we reimburse a physician for not doing something of little or no utility?

Dr. T May 22, 2009 at 6:51 pm

doug stevens: "When my son was little he used to get regular ear infections. We found a drug that worked for him but had to see our doctor to get it prescribed each time. It was pretty much a waste of time, money, and effort."

No, it wasn't. Chronic ear infections can move into the bones (osteomyelitis). Osteomyelitis can destroy the inner ear structures, damage the skull, and erode into the brain. At each visit, the doctor was ensuring that the infection hadn't spread beyond the middle ear. An experienced doctor can rule out ear-related osteomyelitis in just a few seconds, so you may not have noticed what he did.

S Andrews May 22, 2009 at 6:53 pm

Cost of drugs will come down immediately, if we get rid of intellectual monopoly, a.k.a IP.

S Andrews May 22, 2009 at 6:53 pm

Average Joe doesn't go to hospital every year to get a heart transplant.

Doug Stevens May 22, 2009 at 7:10 pm

No, it wasn't. Chronic ear infections can move into the bones (osteomyelitis). Osteomyelitis can destroy the inner ear structures, damage the skull, and erode into the brain. At each visit, the doctor was ensuring that the infection hadn't spread beyond the middle ear. An experienced doctor can rule out ear-related osteomyelitis in just a few seconds, so you may not have noticed what he did.

And I'm sure there were a lot of other things that could have happened too.

But here's the thing… when it's 2am Wednesday morning and my wife is out of town and I have to get someone to watch my other kids in the middle of the night and get my son to the emergency room for the sole purpose of getting a drug that I'm almost 100% sure is going to work – compared to calling a pharmacy and maybe even getting the drug delivered, I'm going to hope that it's not osteomyelitis and do the drug thing without the doctor. And you know what: maybe I'd even buy one of those "look in the ear" things and get someone to show me if it's osteomyelitis or not.

But I don't have a choice. And that's the problem.

I can work on the brakes on my car and fail so miserably that I run into a bus load of nuns and send them over a cliff. But I can't make a decision myself that affects me or my family about a drug. And, once again, the drug thing is my secondary point about health care costs.

Mikeikon May 22, 2009 at 7:21 pm

Woah, woah… The cost of personal computers has fallen incredibly, NO question about that. A computer that you bought 10 years ago for $1,200 is now worth next to nothing. In fact, you have to pay someone $20 just to take it off your hands and have it disposed of properly.

You can also get a very decent machine today for $500 or less, compared to the $1,000 it would cost you 10 years ago. For more examples, look at the price of flash memory, digital cameras, etc.

But you have to take into account the capabilities of the product when thinking about price.

DaveM May 22, 2009 at 7:37 pm

Not sure arguments about open markets apply to medical knowledge, which to be honest gets pretty darn esoteric. This is especially true in an environment where pre-spun press releases give sound bite sized snippets of information that are most often not justified by the research they're supposedly reporting on — and where (at least in America) the general public has nearly zero risk tolerance. End result? If a treatment or test exists, people want it, cost be da$%^ed. Even more true for many when Aunt Tilly is at death's door, and the emotional imperative to "do everything" often rides roughshod over probabilistic realism.

I recall that something like 70% of lifetime medical costs are incurred during a person's last year of life.

Speaking as one who writes prescriptions for medications in complex cases, deregulated and free access to prescriptions would cause far more harm than good. For example, in patients with heart disease treatment with correctly proportioned meds can extend life and its quality tremendously — but the line between effective use and potentially lethal side effects can be very thin. Free access would kill more than it would help.

Unless the goal is Darwinian selection preferring those with the intelligence to seek help….

Maximum Liberty May 22, 2009 at 8:20 pm

Don,

I suspect some of the "it's so expensive" claim is from people who have the perspective of a government bureaucrat. They don't see their services as creating income. All of their budgeting is in cash-flow terms. (The US government has no idea if it creates income.) So, when they see an MRI machine, for example, they see a huge cash-flow hog. And so, they put it off. They only buy it when they get ashamed that some other facility has it. When you go to a single payer system, like Canada, no one ends up buying them. Thus, Natasha Richardson dies while on holiday for the lack of an MRI machine that you would find at two dozen facilities in Dallas alone.

Max

Sam Grove May 22, 2009 at 10:03 pm

Speaking as one who writes prescriptions for medications in complex cases, deregulated and free access to prescriptions would cause far more harm than good. For example, in patients with heart disease treatment with correctly proportioned meds can extend life and its quality tremendously — but the line between effective use and potentially lethal side effects can be very thin. Free access would kill more than it would help.

How many people die each year due to prescription errors, diagnosis errors, etc.?

I expect if there were no prescription requirement, people would still ask professionals about medications.

Many people would participate more in this kind of decision making rather than just leaving it up to doctors. Perhaps that would help relieve doctors of some liability.

Another cost factor is government requiring hospitals to accept ANYONE that shows up in an emergency room. If the government is going to require this, then it should provide funding.

Pingry May 22, 2009 at 10:05 pm

Don,

You must think at the margin.

Technology provides us with additional marginal benefits in healthcare, but at what marginal cost?

Specifically, the third party payer system acts as a large subsidy toward excessive use of technology in healthcare, to the point at which the marginal costs greatly exceed the marginal benefits.

Indeed, the third party payer system creates allocative inefficiency because the foregone output which would have been produced with scare resources is worth more at the margin than those resources produce in healthcare.

This encourages far more consumption of healthcare and technology in healthcare because people will consume even if there is a small marginal benefit to them, if a third party is facing the marginal costs, no matter how large they may be.

Of course, as I pointed out in a previous comment, while users of healthcare do not face the full costs of their immediate decisions, and thus consume far more healthcare, this raises premiums, which ultimately show up as slower wage growth for workers.

And that, of course, is the tragedy of the third party payer commons, because we all know that there ain't no such thing as a free lunch!

Uninsured patient May 22, 2009 at 10:12 pm

We do not have insurance but have enough money to have to pay our own bills. We therefore are acutely aware of the cost of medical care and the complete lack of cost awareness of most doctors and most insured patients. When we need a procedure I attempt to get a firm price from the doctor or hospital and it is nearly impossible. When we need a prescription I always ask if there is a cheaper alternative that is just as good. Most doctors never think this way and seldom know what the drugs they prescribe will cost. As an example, I got a prescription for Azor (a combination drug for high BP) that cost about $5.00 a pill when the drugs that are equivalent are less than $1.00. Since this is something I will need to take every day for the rest of my life the difference will be enormous. Would anyone who has insurance even think to ask?
We are responsible adults who would not take a drug without a prescription without weighing the risk. However, there are many times when a doctor’s supervision is completely unnecessary. I should have the right to judge for myself if the risk is worth taking. I take risks every day, driving my car flying in a plane or walking across the street, why am I not allowed to take this risk if I chose to do so? My judgment may be right or wrong but that’s my problem and my money.

Carl Pham May 22, 2009 at 10:31 pm

Sheesh, Don, first of all technology makes the price of some products and services drop over time, but hardly all. Do you suppose the price of a blowjob has declined at all in the last 50 years due to technology? How about the cost of a first-class live concert performance of Beethoven or Bach? How about the cost of raising a child, or the cost of a college education?

Generally, technology only makes products and services cheaper when it can lower the amount of labor that goes into them, because, after all, that's what "expensive" means — I have to work a lot of hours to get the people who make it or provide it to donate the labor required. By definition, to be "rich" is to be able to get many hours of the labor of others for each hour of my own labor. Medicine has a lot more in common with a performance of Bach than it does with a car or a cell phone service, because it's very labor-intensive, and technology doesn't do a lot to reduce the amount of labor you need per unit of health care results achieved. Rather the reverse, in fact. The invention of new medical technology (MRI scanners, stents for coronary arteries) tends to drag in a whole bunch of skilled labor necessary to use it properly (MRI techs, heart surgeons trained in stent surgery).

Secondarily, your definition of the "product" in question is poor. You're not keeping the definition constant over time. If you define "good health care" as what was "good health care" in 1950, then it probably is cheaper, or at least no more expensive in 2009 than it was in 1950. Problem is, no one does. They define "good health care" as "the best the technology and science allows." Well, not surprisingly, as science and technology pushes further and further past the limits of what nature designed us for — as we patch up our bodies further and further past their natural limits — *that* gets more and more expensive.

I mean, you might as well define "travel" as "the fastest travel technologically possible" and then note that, b'god, the cost of that travel is rising astronomically, because in 1900 that meant a train ticket, in 1960 that meant a ride on a jet fighter, but in 2009 it means a ride on the Space Shuttle. Let us compare apples to apples.

Finally, you speak of "rising" health care costs, by which you presumably mean we spend a larger and larger fraction of our income on health care, as if it is self-evidently a problem. Why so? Why isn't it just the natural evolution of an economy over time? We spend hardly anything on food, compared to our ancestors 100 years ago. We spend a lot less on basic industrial products (cars, washing machines, telephones) as our parents 50 years ago. We spend a lot more on electronic widgetry, cable TV, cell phones and Internet communications. No one talks about how tragic it is that we spend so much more than our grandfathers on electronic communications.

But so what? These changes just tell you where the big sectors of the 21st century economy are, and that they're not the same as any previous century. It's hardly a tragedy, unless you find that people with income in percentile X are finding they can less and less afford the same health care over time, which I think is nowhere near true. I've little doubt people in the same income percentile as my grandfather was in 1935 can afford the same kind of medical outcomes he could buy in 1935, and that's the only honest comparison we can make.

TrUmPiT May 22, 2009 at 10:59 pm

Instead of asking why health care costs are so high, you'd do better to ask what can be done to bring the costs down. If your M.D. never "prescribes" vitamins or herbs, then you can probably consider your treatment either inadequate or possibly toxic from the poorly understood prescribed drugs you are told to take.

I believe in Western EMERGENCY medicine, because who are you going call if you have acute appendicitis or a massive heart attack but an ambulance to rush you to an emergency room? The cost of emergency care probably has to be socialized from an ethical point of view. If you failed to get insurance or couldn't afford it, should you be turned away from a hospital when you just need to have your appendix removed to save your life?

Face it, Western medicine stinks to high heaven for every day ailments such as the common cold, or to make you a healthier person overall. Vitamins and herbs are the way to preserve your health and live longer. Linus Pauling wrote "How to Live Longer and Feel Better" around 1985. In the book he states that by taking a handful of inexpensive vitamins everyday, you can greatly improve the quality and length of your life. He made a point of the fact that excessive sugar in one's diet is a contributing factor to disease and poor health. He also mentions cigarettes as a destroyer of health, but that is common knowledge today.

The late Broda O. Barnes, M.D. said that middle-age heart disease and attacks can be prevented in most cases by supplementing with natural thyroid availble in this country only by prescription. In the 19th century, heart attack were a relatively rare occurance. Dr. Barnes explains in his books why the change happened in the 20th century to leave us with heart disease as the #1 killer.

From my personal experience, inexpensive TCM (Chinese Tradition Medicine), which is based on thousands of years of development of herbal medicines should form the basis for the treatment of most ailments. Implementing this would wipe out trillions in worthless or harmful treatments by the medical and pharmaceutical establishment.

Your M.D. is not a god. Far from it, he or she is likely to be your worst enemy due to their ignorance about nutrition and herbs. If you rely on your doctor too much, I predict that you will be sorry one day. That'll be the day that you get cancer or heart disease and back you'll go to same dumb doctor to ask for help. Now that you know better from what I explained to you, you'll get no sympathy from me. And I most certainly don't want to have to pay for your foolish choices caused by your smoking habit or by any other uninformed or poor choices that you may have made over the course of your life. Take some personal responsibility for your true health needs. Find answers to your problems on your own and take care of yourself. My diagnosis for you is free, but worth much more than you can probably imagine.

True_Liberal May 22, 2009 at 10:59 pm

Bill Moyers tonight had the usual suspects advocating single-payer healthcare. There was, as usual, no real debate.

And they conveniently sidestepped the law of downward-sloping demand; when a costly service is made free to the user, it tends to be overused and perhaps wasted.

erp May 22, 2009 at 11:26 pm

Few people pay directly for medical services. If they did, prices would drop precipitously.

muirgeo May 23, 2009 at 12:02 am

And they conveniently sidestepped the law of downward-sloping demand; when a costly service is made free to the user, it tends to be overused and perhaps wasted.

Posted by: True_Liberal

Do you have some evidence to support your claim. There are several developed countries that have single payor. Do they cost more then ours.

vikingvista May 23, 2009 at 12:16 am

The same Keynesians who are so sure that government stimulus spending will increase demand in the economy as a whole, somehow don't think that a 40-50% government stimulus into the health care industry (MC/MA) could possibly have something to do with rising health care prices.

"The insurance company has even more incentive than the patient to limit costs."

You vastly underestimate the incentive of a patient who has the option of spending his health care dollars on something else. The current prepayment paradigm, both public and private, is hugely wasteful.

Insurance companies cannot possibly allocate healthcare resources as efficiently as those who actually DEFINE the value of those resources–the patients themselves.

Sam Grove May 23, 2009 at 12:48 am

Another factor in the cost of professional services (such as medical care) is the progressive income tax which must be included in the price of medical services.

Gil May 23, 2009 at 1:04 am

Dang it! Carl Pham stole my thunder (and did a better job at it anyway). As it has been pointed out the mystical price drop in computer technology hasn't really dropped that much rather it's what you get in your new compuer relative to what was in your previous compuer. I do also remember reading an article in the '80s mirroring what Carl said in that when the inputs of a product haven't changed over time then the new product will cost just as much as the old product. Hence, as Carl pointed out (again), medical inputs have been rising not falling because technology allows doctors to do more and treat more diseases than before. Of course, medical costs where neglible a hundred years ago when doctors didn't have tools and couldn't treat many diseases.

P.S. Would prices drop in a user pays system because a lot of people would choose to 'go without' when they see the cost, erp? Are you saying the oldies should make way of the younguns, Methinks? If the oldies refrained from medical treatment then costs would come down for the younguns, more goods chasing fewer people, right?

John Dewey May 23, 2009 at 5:23 am

Must patients bear the cost of medical care in order to limit its use? Why? Why cannot insurance companies effectively perform this task? Is it because state governments dictate to insurance companies what treatments they must cover? Wouldn't interstate competition in health insurance markets be the fastest way to reduce health care costs?

Babinich May 23, 2009 at 6:00 am

muirgeo on 05/23/09 @ 12:02:54 AM

"Do you have some evidence to support your claim. There are several developed countries that have single payor [sic]. Do they cost more then ours."

If you'd be so kind, please share the names of these countries.

T May 23, 2009 at 7:46 am

A couple of points:
1. Telecom and computing costs have fallen so far because of standardization. There was 1 real standard for telephony, followed by standardization for multiplexing (multiple conversations on 1 wire), standardized signalling, up through standards such as TCP/IP for what became the itnernet and CDMA & GSM/GPRS for modern cellular. What hasn't happened is a requirement for standardized INFORMATION across these networks. There you need to look to data and application examples.
2. SAP and Oracle are now the defacto standards (not perfectly, but bear with me please) for Enterprise Resource Planning. Anyone who has ever attempted to install or integrate to these HUUUUUUUGE packages knows that their immense licensing price is dwarfed by the consultants bills reqruied to make them work, and the training costs in getting the staff up to speed. And this is within a SINGLE enterprise.

In order for technology (digitization) to provide value one must start with a data model. That is, how does one represent the human person so as to allow for all current, past and future medical issues. These include ALL medical professions, plus mental and emotional issues that can be of use. The complexity is IMMENSE,just in getting started, and until you reach 90%+ completion, utility is marginal (especially with malpractice attorneys lurking).

Once the dat model is completed, storage technology is easy enough, but the space is enormous. MRIs are very big files. Further, moving this info from place to place isn't a "flash drive" problem, for reliability you need a large, on demand network. Doesn't exist now, and will be mighty expensive. Te apps to interpret the data are small potatoes, but hey, sopmething has to be easy.

Speaking of easy, we come t othe LEAST easy piece of all: privacy. When you digitize someone's entire medical, phsychologivala and emotional history you have a data store that is too juicy for some to resist. Will the Star go after LiLo's records? Will the state use them to restrict gun rights? Driving? How about rationing health care based on genetic profile? After all, we are about saving money, right?

Sorry for the long post, but "technology" is not a panacea. Rather it is an attempt by a far too intrusive and far too untrustworthy government to gain far too much access to far too many peoples lives.

save_the_rustbelt May 23, 2009 at 9:21 am

One major advantage of tech is the end of what we used to call "exploratory surgery."
If the diagnosis was uncertain the patient went to surgery for a look-see.

Surgery is very precise in many cases, and "scopic" surgery cuts costs and healing time.

A real cause of the higher cost is the "product" is different. People who used to die from trauma and cancer now live on, often in very good health.

True_Liberal May 23, 2009 at 9:24 am

Muirgeo saith:
"And they conveniently sidestepped the law of downward-sloping demand; when a costly service is made free to the user, it tends to be overused and perhaps wasted.

Posted by: True_Liberal

Do you have some evidence to support your claim. There are several developed countries that have single payor. Do they cost more then ours."

Well, you need only stop by your local ER to see indigents (who are served free, mandated by a compassionate Fed) using very expensive facilities for fairly minor, oft preventable complaints.

It's merely a manifestation of an early supply-and-demand lesson from your Econ 101 class. Right?

AMATI NONYMUS May 23, 2009 at 9:27 am

Military equipment was designed by idiots in the Pentagon to be carried on the backs of a million geniuses. Although the idiots never listen to our cries, blogging is a compulsion difficult to shake. As one of the geniuses I have read and enjoyed each of your brilliant comments. Please accept my apologies for not being one of the governmental idiots.

Thanks for your wisdom.

Grazia

A

John Galt May 23, 2009 at 9:30 am

"Technology creates great improvements in telecommunications and computing, yet the prices of wonders such as cell phones, telephone calls, and personal computers have fallen dramatically over the years."

In other fields, when an advance comes along it is expensive at first, and only those who can afford it will benefit from it. The premium that first adopters pay subsidizes the development cost for later adopters.

In medicine, however, any advance that gets into the FDA's formulary of approved procedures becomes part of the new standard of care demanded by all. If there is a procedure that can cure an illness, however costly; or a misdiagnosis that can be ruled out, however unlikely; then you can expect to receive it as part of any healthcare plan.

Logically, we should expect wealthier people with better insurance to get better care, while poorer people with inferior insurance (or none at all) would get inferior care. But legally, "inferior care" does not exist. You may go to a more run-down hospital or perhaps you will share a room with a less-desirable roommate, but by law the standard of care you receive (whether delivered because of regulation or threat of lawsuit) is all the same.

In short, we have made affordable care illegal. Only the best care is permitted.

Also, the development of new procedures (services) does amortize like the development of equipment and drugs (goods). I can get early adopters to pay for the development cost of a new drug which then becomes cheaper for everyone else, but if a neurosurgeon must learn 101 procedures instead of 100 I'm pretty sure neurosurgery won't get any cheaper. And there's even a chance that some would-be neurosurgeons will fail out of school because of this new procedure, actually reducing the number of neurosurgeons.

The problem here is that neurosurgeons maintain a monopoly on neurosurgery. Look at it this way: a competent nurse could probably set a broken bone for less money than a doctor, and would recognize when a doctor's attention is necessary. But nurses don't set bones, do they?

In fact, it's even worse. My physician has an x-ray machine in his office, and he used to set bones. But the machine is rusting, and he doesn't set bones anymore — instead you get sent to a specialist for something your family doctor used to provide. Does anyone think that specialist sets broken bones cheaper than a family doctor, or could it be that the specialist will be cheaper for the insurance company in the event of a 1-in-a-million freak bone-setting accident? So, basically we pay too much 999,999 times out of a million, so that the poorest among us will have the same assurances — the same standard of care — as the richest.

Affordable healthcare is illegal in the United States.

muirgeo May 23, 2009 at 9:51 am

Well, you need only stop by your local ER to see indigents (who are served free, mandated by a compassionate Fed) using very expensive facilities for fairly minor, oft preventable complaints.

It's merely a manifestation of an early supply-and-demand lesson from your Econ 101 class. Right?

Posted by: True_Liberal

What you see at the local ER is not single payer but is indeed an argument for it. We all ultimately pay for the uninsured but it's much cheaper to do so by offering them routine care rather then very expensive ER care.

But anyway all countries that have single payor (Canada, Australia, many in Europe and Costa Rica all pay far less per capita. The data, the facts do not support your claim.

Your claim is a theoretical thing made up in your head forgetting all the while that there is a real world out there screaming, YOUR WRONG! But of course don't let reality get in the way of good proselytizing.

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