Technological Change and the Growth of Health Care Spending suggests that technology does as much to spur costs as to contain them. Surprisingly well written for a government document, the CBO treatise lays out the case that: a) healthcare costs are rising in an unsustainable way and b) the advent of new technology is a primary culprit. "On the basis of review of the economic literature, CBO concludes that roughly half of the increase in healthcare spending during the past several decades was associated with the expanded capabilities of medicine brought about by technological advances," it says.
Despite its potential to improve care and outcomes, new technology can spur price increases in several ways, the report says. For example, the very power of diagnostic imaging results in increased deployment. A diagnostic scan may be less expensive than costly surgery. "But by their nature they invite much greater use and therefore tend to increase total spending compared with previous methods," the report says. Likewise, life-extending coronary and dialysis procedures have become commonplace. True, patients are living longer, but in the meanwhile, they are running up more bills and creating more demand.
The report, however, does not lay the rising cost of healthcare exclusively at the doorstep of older people, saying that while elderly people incur higher costs than younger ones, the overall contribution of an aging population to spending is often exaggerated. Other social factors, such as rising obesity, also are driving up costs.
Technology creates its own silent time bomb of future cost. Consider IT storage. The unit cost of disk space has dropped remarkably in the last few years. Alas, the demand for more space has gone the other way. Modern hospitals now measure their data centers in terabytes. And as more images work their way into digital archives, the budget for storage will continue to grow--even though the hardware may be shrinking in cost and physical size alike.
The report is short on specific solutions to this problem, only suggesting that Medicare should revisit its payment policies on high-tech procedures. Ironically, the presence of health insurance in the first place may drive up costs, because it insulates consumers from the real cost of medical technology. We already know that technology races far ahead of the ethical debate around its use--witness the controversy on stem cell research. Now we can add that technology also races far ahead of our understanding of the economics surrounding its use.