The Role of Medical Technology in the Rising Costs of Insurance Premiums and Healthcare in America

Technological discovery, innovation, and advancement continue to profoundly impact theinnovation-scorecard-landing-page American patient and the economics of American healthcare.  History teaches us that the overall cost of healthcare increases proportionally with the climbing costs of medical technology and the increased training, marketing, and regulatory processes it routinely postulates.  According to The Henry J. Kaiser Family Foundation (2007), “medical technology can be used to refer to the procedures, equipment, and processes by which medical care is delivered.”  This broad spectrum yields an inevitable linkage to virtually every form of medical diagnostic, testing, and procedure.  It can therefore be reasonably inferred that medical technology plays a critical role in the overall cost of healthcare and, consequently, the price of insurance premiums.

Recent data depicts a magnanimous increase in per capita health care spending which rose from $356 in 1970 to $6,697 in 2005, with an expected projection of $12,320 in 2015 (Kaiser, 2007).  With changes of this magnitude, some contend that new medical technological discoveries may be attributed to “about one-half or more of real long-term spending growth” (Kaiser, 2007).  Consequently, the Medicare program “is projected to go bankrupt in nine years”, and overall health care cost is expected to increase from its present $2.1 trillion annually to $4 trillion in 10 years” (Callahan, 2008).  As the reigning pioneer of medical innovation and products development, it is it is imperative that the United States deliver the best technology to its patients without compromising quality or access to care.  Only then can the benefits in public health, the economy, and job productivity be realized.

CT-ScanThe prodigious impact of medical technology necessitates an examination of three major catalysts: CT imaging, drugs for heart disease, and hip replacements for their contributions to healthcare spending and its impact on the overall quality of life for American patients.  The overutilization of diagnostic technologies is highly contributory to excessive healthcare spending.  A versatile component of comprehensive medical treatment, they fulfill screening and assessment needs for a multitude of traumatic injuries and diseases across large populations.  The long term cost benefits of screening for asymptomatic, low-risk individuals comes at an initial high cost.  While early detection is an integral part of preventative medicine, overly aggressive screening practices by clinicians can overburden the patient and the healthcare system.  These financial implications are compounded by the increased sensitivity and decreased specificity of new diagnostic technologies that lead to further diagnostic testing (Mohr et. al., 2001).

According to Mohr et. al, spending can be reduced in the short term when the use of diagnostic technologies are “restricted to an appropriately selected population” (2001).  Their use amongst moderate to high risk individuals would be conducive to responsible screening and healthcare spending.

Beta-BlockersRecent advances in heart disease have played major roles in the treatment and prevention of America’s deadliest disease and for heart attack, the leading cause of death (Kaiser 2007).  This certainly did not come without a monumental growth in cost.  According to Cutler and McClellan, “the average Medicare spending per heart attack patient increased by $9,600, from $12,100 in 1984 to $21,700 in 1998” (Federal Reserve Bank of San Francisco FRBSF, 2002).  The 1990s were a historically significant period due to the advent of clot-inhibiting pharmaceuticals, angioplasty for revascularization, and stents to open blood vessels (Kaiser 2007).  The 2000s introduced diagnostic advances to further prevent the prevalence of myocardial infarction as well as new pharmaceutical treatments for its management.

ACE inhibitors, beta-blockers, and statins were employed for the long-term treatment of heart attack victims and for high-risk patients (Kaiser, 2007).  Rehabilitative cardiac programs also became more preventative in nature while defibrillators became increasingly accessible in public places and more utilized in patients with abnormal heart rhythms (Kaiser, 2007).

These advances proved to be effective as “the overall mortality rate from heart attacks felluntitled by almost half, from 345.2 to 186.0 per 100,000 persons from 1980-2000” (Kaiser, 2007).  While the US has higher rates of bypass and angioplasty procedures when compared to other countries, the difference in mortality rates amongst heart attack patients is considerably less (FRBSF, 2002).  This can be attributed to possible incentives awarded to hospitals and physicians by traditional private insurance companies to provide open bypass units (FRBSF, 2002).  This practice would not be possible in the managed health care systems offered in other countries.  An increase in considerably less expensive, non-invasive, preventative approaches is therefore necessary to improve the overall quality, productivity, and expectancy of life of heart attack patients.  Attempts to counteract the detrimental effects of excessive healthcare spending in America can commence by reducing the delivery of unnecessary treatments, surgical procedures, and care.

The growing demand for hip replacement procedures is an additional economic burden toWMT_BFH both Medicare and the American healthcare system.  According to the American Academy of Orthopaedic Surgeons, there are nearly 200,000 hip replacements completed in the U.S. each year with a total surgery cost ranging between $8,474 to $20,874 with a mean of $14,510 (Dolan & Robinson, 2010).  It is projected that this demand will more than double by 2030 which can be attributed to the epidemic of obesity, an aging population, and patients who desire to increase the quality and productivity of their lives (Dolan & Robinson, 2010).  A new market equilibrium will then be achieved with increases in both the market price of implants and the demand.  The hospital would ultimately need to increase its supply to satisfy market demands impacted by a growth in population and an increase in the number of the elderly.        

The high cost of hip implantation devices is due in part to individual clinician preferences and lack of regard for economic savvy and excessive healthcare spending.  A limited use of multiple manufacturers dictates a market characterized by hiHip-articleLargegh demands with low competitiveness.  According to Dolan & Robinson, the cost of one hip implantation at 45 surveyed California hospitals ranged from $3,645 to $11,308, with an average of $6,531 (2010).  This is a prime example of the occurrence of market monopolization and the lack of competitiveness amongst vendors securing hospital contracts.  In the event the surgical staff is forced to switch to an alternate manufacturer, additional labor and administrative costs will apply (Dolan & Robinson, 2010).  Also, the fixed amounts (DRGs) paid to hospitals by Medicare simply cannot keep up with the rising costs of implantation devices as they comprise a large portion of insurance reimbursement.  A reduction in hospital reimbursements will cause significant implications on the hospital including potential detrimental revenue loss.  The hospital will need to charge more for services rendered and aggressively negotiate commercial payments with health insurance plans.  The overall reduction in hip implantation devices and procedures therefore necessitates a coordinated effort between institutions, surgical staff, and vendors so as to increase the numbers of manufacturers, market competitiveness and ultimately decrease the cost of implantation devices.

imagesCATT76ITA key consideration in the overall cost of medical devices is the federal government’s regulatory standards and complex approval process.  Industry executives and investors are now concerned that increased FDA involvement is compromising the American economy and the potential for developing new innovation (Pollack, 2011).  According to a report by PricewaterhouseCoopers, the US reigns as the world leader in medical device innovation and is home to “some 32 of the 46 medical technology companies with annual sales exceeding $1 billion” (Pollack, 2011).  This lead is expected to decline due to the increased preference for the European market which offers a more rapid approval process.  The process by which products can enter the market in the U.S. has become increasingly time-consuming, exorbitantly expensive, and risky.  “Some estimates put the total cost of developing a novel drug at more than $800 million” (McClellan, 2003).  In Europe, a device must be declared safe before distribution.  Approval in the US is more stringent; however, as a device must be proven to be both safe and effective for the treatment of a disease or condition through multiple clinical trials.  The approval process is handled by a third party in Europe while the US requires the involvement of a central agency such as the FDA.

Although the FDA has recently agreed to employ a more “consistent” and predictable review process,” safety will not be compromised (Pollack 2011).  Dr. Jeffrey Shuren, the director of the FDA’s medical device division affirms the responsibility to exert caution by stating, “We don’t use our people as guinea pigs in the US” (Pollack, 2011).  As devices become more advanced, the FDA must maintain its duty to safeguard the American people without depriving the best technology available.  It must also prevent the outsourcing of jobs to European countries and the decline of the economy.  According to the Lewin Group, “the medical industry employed 422,778 workers nationwide, paid $24.6 billion in earnings, and shipped $135.9 billion worth of products” (Pollack, 2011).  Accordingly, the medical device industry plays a critical role in supporting the infrastructure of the American economy and those employed within it.  It is imperative that the FDA find an appropriate balance between ensuring safety and job security to achieve the most favorable health and economical outcomes.

Improvement in healthcare spending is perhaps best exemplified by the utilization of ehrelectronic health records.  This medical technology contributes to practice organization and efficiency made possible with the storage and electronic delivery of health information.  It also facilitates doctor-patient communication by increasing patient awareness and maintaining comprehensive, organized medical histories.  The Geisinger Model for Healthcare for Medicare and Medicaid beneficiaries advocates the cost-effectiveness and versatility of this assistive technology.  Its use allows non-Geisinger physicians and their staff to have the ability to access their electronic health records through a portal that allows electronic communication between Geisinger specialists and sub-specialists.  This integrated system is an effective prophylaxis for unnecessary hospital visits and the prevention of illness and disease (Davis, 2010).  Electronic records will promote coordinated care amongst multiple providers, drive down administrative costs, and ultimately reduce mortality across broad populations.  Additionally, the minimization of paper usage will prevent the loss or damage of the record, reduce administrative costs, and conserve the Earth’s natural resources.  As in the use of any technology, the short term expenses will initially be elevated for the practice or large institution; however, the long term benefits in conservation and efficiency will far exceed the initial investment.

health-care-costs-300x199The impact of medical technology on the recent exuberance of healthcare spending cannot be evaluated as a whole, but rather must be examined on case by case basis.  Excessive spending is generally dependent on several factors.  Technologies used in conjunction with subsequent forms of treatment are a major cause, especially when it requires the use of additional health care services such as extended hospital stays and/or physician office visits (Kaiser, 2007). A second factor is the particular technology’s frequency of use and the size of the population it covers.  If the diagnostic does not facilitate methods of treatment, the burden of unnecessary testing and spending emerges.  New innovations in diagnostics can prevent overutilization by promoting more targeted treatments (Kaiser, 2007).  This can foster a more rapid rate of healing and prevent clinical complications.  The capacity for preventative care to extend life expectancy, and improve the quality of life is difficult to place a price tag on.  The true value of medical technology is best perceived by the individual impacted by it.

imagesCABU8Q6FThe fragmentation of private and public healthcare in America poses the continuing challenge of controlling costs and averting inordinate expenditures that result from the increased emphasis on highly specialized procedures and care.  The economical impact is exacerbated by the uninsured that accumulate devastating medical debts through the repetitive utilization of hospitals and diagnostics when receiving emergent care.  Any limit placed on the delivery of medical technology would be unprecedented as medical technology plays such a definitive role in American medicine.  Still, there is much debate and uncertainty over determining a possible solution.  According to Callahan (2008), “40% of Americans believe that medical technology can always save their lives.” A similar reverence for technology is less prevalent in Europe where managed care is more effective in controlling excessive healthcare expenditures.

A possible, promising solution is the introduction of Accountable Care Organizations.   The untitledphysician-led system would places a strict emphasis on evidence-based care and the application of comparative effectiveness research to determine the efficacy of drugs, technology, and procedures.  This would result in a reduction in premiums, increasing affordability and the accountability of care.  Incentives for ACO providers aimed towards avoiding unnecessary tests and procedures require collaborated efforts for achieving illness prevention and medical cost reduction.  A potential downside to ACOs; however, is the potential for monopolistic activity amongst insurers due to potential hospital mergers and provider consolidation.  While the downsides of ACOs are worthy of ample consideration by both the consumer and economist, the potential positive implications of ACOs are monumental steps in the right direction.

medtechMonolithic advancements in the areas of cancer and heart disease, proteomics, nanotechnology, and information technology have been made in America.  In the dawn of healthcare reform; however, attempts must now be made to increase the efficient use of medical technology by both doctors and patients, reduce the outrageous costs and ambivalence of developing new technology, and eliminate device and procedure cost disparities across geographical regions.  By trimming unnecessary, unproductive treatments, championing preventative medicine and the acquisition of more primary care physicians, the affordability of healthcare can be more attainable for all Americans.

References

Callahan, Daniel. (2008). Health care costs and medical technology. In M. Crowley (Ed.), From birth to death and bench to clinic: The Hastings Center bioethics briefing book for journalists, policymakers, and campaigns (pp. 79-82). Garrison, NY:  The Hastings   Center. Retrieved April 21, 2011, from http://www.thehastingscenter.org/Publications/BriefingBook/Detail.aspx?id=2178

Davis, K. (2010). A New Era in American Health Care: Realizing the Potential of Reform. The Commonwealth Fund, 1419. Retrieved March 15, 2011, from http://www.commonwealthfund.org/Content/Publications/Fund-Reports/2010/Jun/A-New-Era-in-American-Health-Care.aspx

E.L. Dolan & J.C. Robinson. (2010). Implantable medical devices for hip replacement surgery: Economic implications for California hospitals. Berkeley Center for Health Technology. Retrieved April 21. 2011, from http://www.berkeleyhealthtech.org/wp- \content/uploads/2010/05/issue-brief_May2010.pdf

Federal Reserve Bank of San Francisco. (2002). Productivity in heart attack treatments. Retrieved April 21, 2011, from http://www.frbsf.org/publications/economics/letter/2002/el2002-20.html

The Henry J. Kaiser Family Foundation. How Changes in Medical Technology Affect Health Care Costs. (2007). Retrieved April 21, 2011, from http://www.kff.org/insurance/snapshot/chcm030807oth.cfm://energycommerce.house.gov/news/PRArticle.aspx?NewsID=8244

McClellan, M.B. Technology and Innovation: Their Effects on Cost Growth of Healthcare. Statement before the Joint Economic Committee, July 9, 2003. Retrieved April 21, 2011, from http://www.fda.gov/NewsEvents/Testimony/ucm161029.htm

Mohr, P., Mueller, C., Neumann, P., Franco, S., Milet, M., & Wilensky G. (2001, February 28). The Impact of Medical Technology on Future Health Care Costs. Project Hope: Center for Health Affairs. Retrieved April 21, 2011, from http://cpd.ogi.edu/Seminars05/MoseleyCostsFutureHCTech.pdf

Pollack, A. (2011, February 9). Medical treatment, out of reach. The New York Times. Retrieved April 20, 2011, from http://www.nytimes.com/2011/0210/business/10device.htm

 

 

 

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