New Medical Technology May Override Health Care Costs

The article examines the role of medical technology as the root of spiraling health care costs. "The reason why health care costs are higher now than they have been in the past is because of new medical technology. It's not increased waste, it's not fraud, it's not increased law suits, it's not the fact that people on average are older---all of that may contribute, but the predominant factor relates to the development and utilization of new medical techniques, of which there are an enormous number," said U-M public health economist Michael E. Chernew, who is first author of the article.

Chernew and colleagues examine existing evidence that assesses the relationship between health care costs and medical technology. The article, "Managed Care, Medical Technology, and Health Care Cost Growth: A Review of the Evidence," also examines the role managed care may play in constraining health care costs by controlling medical technology.

Although some existing studies show that managed care has reduced the rate of health care costs growth in some markets, in general, the rate of growth of health care costs have exceeded sustainable levels. If managed care does not control health care cost growth, then some other force will, Chernew said.

He and the co-authors of the article discuss three paths policy makers may consider:

1. Managed care plans will increasingly ration care. "If technological progress continues to push costs upward, constraining health care cost growth will require placing greater restrictions on this care,'' Chernew said.

2. The decentralized, competitive health care system that exists now will be abandoned in favor of a nationalized system to control costs. "Health care cost growth can be controlled centrally by government action … Other more interventionist forms of government action might move the issue of medical technology use from the economic sphere to the political," Chernew said.

3. The nature of medical progress will change in such a way as to reverse the historic relationship between technological progress and health care cost growth. "The theory is that no one would have to ration care and that we'll get out of this problem by use of better technology and that's obviously the best solution, but it's very hard to figure out how to make that happen,'' Chernew said.

The study co-authors include Richard A. Hirth, U-M assistant professor of health management and policy and internal medicine; Seema A. Sonnad, U-M assistant professor of surgery; A. Mark Fendrick, U-M assistant professor of health management and policy and internal medicine; and Rachel Ermann of the Alpha Center in Washington, D.C.