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Technology and Healthcare Expenditure

In an earlier blog, we outlined the basic differences between traditional economics and healthcare economics in the U.S. We suggested that healthcare costs rise as technology advances in response to a significant, unsatisfied demand for healthcare procedures. We report here on an April 2011 paper by Chandra and Skinner that examines the types of technological procedures that are responsible for increasing healthcare costs. The authors develop a mathematical model for healthcare supply and demand. We report here on their categorization of procedures and their relation to increasing costs. The authors divide procedures into three types:

  1. procedures that are low-cost and effective,
  2. procedures that benefit some but not all patients
  3. procedures with small benefit or unproven scientific value.

Low-cost and effective procedures

These are procedures that lower costs and improve patient outcomes. The authors include in this class antibiotics; casts for fractures; and aspirin and beta blockers for heart-attack patients. This is the class of procedures that yields the lowest costs for the best patient outcomes.

Procedures that benefit some but not all patients

These procedures are effective and beneficial to a certain population of patients. An example would be angioplasty with stents for heart-attack patients treated within 12 hours of an attack. This procedure is also used to treat patients with stable angina. These procedures see diminishing returns as the costs of the procedure increase. Since many more patients are treated for stable angina than are treated within 12 hours of a heart attack, the costs increase at the expense of benefits.

Healthcare Provider by Roger D. Jones

Healthcare Provider by Roger D. Jones

Benefits are small or of little scientific value

These are procedures in which randomized trials indicate no benefit. Experimentation is being done in situ with these procedures.The authors give as examples vertebroplasty in which cement is used to stabilize vertebra, and intensity-modulated radiation therapy for prostate cancer. These procedures are the highest cost for the lowest benefit.

An attempt to reduce costs and improve outcomes

Portions of the Accountable Care Act (ACA) attempt to shift payments for procedures to payments for patient outcomes. The hope is that physicians’ focus will move to preventative processes. The ACA envisions a new class of clinician; one that is charged with keeping patients out of the hospital by improving patients’ health practices. For instance, lifestyle coaches may be effective in helping diabetics improve their diets, monitoring and testing so that they have fewer diabetic emergencies. This keeps the patients out of the emergency departments and surgical theaters. In this picture of healthcare, generalists become dominant players.

The change may propagate to other parts of the structure. If patients are kept out of the hospital through preventative measures, then the importance of the hospital as a facility is reduced. The portion of the National Health Expenditure (NHE) spent on hospital stays is currently 31%. Home care, currently at 3%, may become a more important component.

It is still too early to determine if the ACA will have an effect on improving patient outcomes and reducing costs. Future blogs will examine other methods for reducing healthcare costs, including benefits from gaining insights from Big Data. So stay tuned.

About the Author

Roger JonesCo-Founder, Chief Executive Officer, Roger’s creative nature and physics background has placed Qforma technology to the forefront in data analytics and applied mathematics.View all posts by Roger Jones