Monday, April 19, 2010

Is Technology a Cost Driver or a Cost Saver in Health Care?

The following was an invited post on the Harvard Business Review at

Pharmaceutical, biotechnology, and medical-device and equipment companies have been extremely effective at producing innovations that have created major benefits for medical care. But the cost of new patented drugs and devices (pacemakers, defibrillators, stents, ventricular assist devices, insulin pumps, laparoscopic surgical instruments, etc.) are high. As a result, many argue that these advances are driving up the costs of health care. This is a distorted view.
In many cases, the cause of rising health-care costs are not the technologies per se; it is a flawed payment system.
Here is an example.
Stomach ulcers are common, mostly caused by a bacterium called Helicobacter pylori, or H. pylori. Discovered about 30 years ago, it lives in the stomach with all of its acid and invades the wall of the stomach. Now we can cure ulcers with antibiotics. A common therapy is clarithromycin and amoxicillin combined with a proton pump inhibitor (i.e., acid suppressor) like Prilosec, Nexium, Protonix, or Prevacid. It is essential to take the three drugs twice a day without fail for 14 days; anything less and the cure rate goes down substantially.
So the makers of Prevacid have come out with a nicely designed package called Prevpac, which contains the two antibiotics and the proton pump inhibitor and clearly labels the morning and evening doses. Frankly, it is a good idea. It cost about $350 at the pharmacy. Not an unreasonable price to pay to eliminate a disease that in the past had been chronic and impossible to cure, a disease that often reduced quality of life and frequently necessitated surgery, right?
Here's the catch: Until recently, Prevacid, one of the drugs in the Prevpac package, was on patent and its price was very high. If one bought the three drugs individually, the price was about $250. (Go figure.) And if one substituted Prilosec (about $30 over the counter) for the Prevacid along with the clarithromycin and amoxicillin, it would bring the price down to under $100. Multiply this by the number of individuals who are found to have stomach ulcerations caused by H. Pylori and you would save some big money nationally.
But that is not the way it works. Your insurance probably has a $15 deductible. So you only pay $15 of the $350, a good bargain for you. If you go the route of buying the three drugs separately for $250, you have to pay $45 ($15 X 3). And if you opt for the Prilosec substitution, the price to you is $60 ($15 X 2 plus $30.)
The point is that our insurance system is full of perverse incentives. So you will choose the Prevpac or your doctor will do so for you to help you save some money. It would be much better if we paid, say, the first $1,000 of our medical bills out of pocket each year and then had insurance kick in. Insurance would be much cheaper and we would become aware of the cost implications, ask our doctor for assistance, and go with the cheaper yet equally effective approach.
The U.S. payment system also impedes the adoption of innovative technologies that could reduce the cost of health care.
For example, distance medicine like telemedicine, teleconsults, telediagnosis, and simple e-mails can reduce the need for visiting the doctor's office and emergency rooms and can prevent unnecessary hospitalizations. These all will obviously reduce overall costs, but currently there is no reimbursement for telemedicine, teleconsults, and the time it takes for physicians to do e-mails. Similarly, there is no reimbursement for tele-diagnostic devices such as the electronic home scale that reports daily weight to the physician's office.
Reimbursement will be necessary if these valuable, cost-saving techniques are to become widely utilized. Or, if you had a high deductible policy, you would save real money by e-mailing your doctor and paying a minimal fee rather than coming into the office.

We can also harness technologies that reduce expenditures by improving safety and quality. Prescribing drugs via e-mail in the office or via the hospital computer (known as computer physician order entry or CPOE) can eliminate illegible handwriting, prevent prescribing to someone who is allergic to a drug, avoid adverse drug interactions, and assist the physician in prescribing the correct dose, number of doses per day, and route of administration (e.g., oral, intravenous, intramuscular injection, rectal, etc).
Other important technologies that can help reduce costs are simulators, robots, and identification devices. Indeed, simulation will profoundly impact the safety and quality of operative procedures, cardiac catheterization, colonoscopy, and many other procedures and, in turn, drastically affect cost management. It can shorten the time it takes to become proficient thereby reducing training time and costs.
These are but a few of the ways technology can actually lead to lower costs.
Questions we need to consider are:
How can we maximize the value of technologies to reduce costs while improving quality and safety?
How can we advance the needed evidence to assure that we only select truly useful technologies?
How can we stimulate physicians to only recommend cost-effective drugs or devices for their patients?
How can we encourage individuals to select high-deductible health plans and then take an active role in making medical decisions?

1 comment:

Corbette said...

Great blog post.
One trend I would suggest you add to your list is transparency - both price transparency and quality transparency. While this trend could be viewed as part of the "patient centric" trend, I actually think it transcends any single category. This will impact providers, payors, and government.

Corbette Doyle
Vanderbilt University

Praise for Dr Schimpff

The craft of science writing requires skills that are arguably the most underestimated and misunderstood in the media world. Dumbing down all too often gets mistaken for clarity. Showmanship frequently masks a poor presentation of scientific issues. Factoids are paraded in lieu of ideas. Answers are marketed at the expense of searching questions. By contrast, Steve Schimpff provides a fine combination of enlightenment and reading satisfaction. As a medical scientist he brings his readers encyclopedic knowledge of his subject. As a teacher and as a medical ambassador to other disciplines he's learned how to explain medical breakthroughs without unnecessary jargon. As an advisor to policymakers he's acquired the knack of cutting directly to the practical effects, showing how advances in medical science affect the big lifestyle and economic questions that concern us all. But Schimpff's greatest strength as a writer is that he's a physician through and through, caring above all for the person. His engaging conversational style, insights and fascinating treasury of cutting-edge information leave both lay readers and medical professionals turning his pages. In his hands the impact of new medical technologies and discoveries becomes an engrossing story about what lies ahead for us in the 21st century: as healthy people, as patients of all ages, as children, as parents, as taxpayers, as both consumers and providers of health services. There can be few greater stories than the adventure of what awaits our minds, bodies, budgets, lifespans and societies as new technologies change our world. Schimpff tells it with passion, vision, sweep, intelligence and an urgency that none of us can ignore.

-- N.J. Slabbert, science writer, co-author of Innovation, The Key to Prosperity: Technology & America's Role in the 21st Century Global Economy (with Aris Melissaratos, director of technology enterprise at the John Hopkins University).