Does Health Care Technology Drive Costs?

David Williams of Health Business Blog questions whether the conventional wisdom that claims technology is driving up health care costs:

Medical Spending Continues to Rise at a Strong Pace, according to the Wall Street Journal. The story reports on a new study by the Center for Studying Health System Change. The study's author, Paul B. Ginsburg says:

I don't think there is much basis for expecting health-care costs trends to be low for a very long time... because advancing medical technology is driving up costs

But where except in health care do we blindly accept the argument that technology drives up costs? In fact, technology should drive costs down.


In the computer industry, automotive industry, steel industry and others, technology is used to drive down costs and increase quality. It should be the same in health care.

I understand and appreciate what David's saying (and I could not log on to read the WSJ article he linked to). But I think it's necessary to realize that technology can increase or decrease costs; it just depends on the specifics of the example. I would say the general rule is that technology will seem to increase costs (or, probably more accurately, aggregate expenditures) of any given new product. But within any category, they decrease costs, generally due to more effcient production and usage. So while technology has driven up the overall cost of, say, computers over the past 100 years (mainly because the cost was 0 back then), it has likewise driven down the cost of any given computer or computer product.

None of that is a surprise, certainly, but the point I want to make is that medicine varies more compared to the industries he mentioned in that more of the technological advances in those industries are along the lines of processes and efficiency, whereas in medicine a good portion, a large portion, of the technology is in completely new products and services. Thus, it may not be erroneous to say that technology is driving up health care costs; it is only wrong to see this as a bad thing.

(Hey, anyone with an account want to email me the two WSJ articles?)

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In a market economy,

In a market economy, technology tends to drive down costs of comparable goods and services. Medical care in the US is so not a market economy.
What I would expect to see more of is outsourcing. Need an operation? Fly to small island country, pay cash, get operation, lie on beach a few days, come home.

Thanks for all the comments.

Thanks for all the comments. The points are well taken. I just want to get people thinking about how to harness technology to drive down costs and not only as an excuse for why health care costs should inevitably rise.

That which costs money, and

That which costs money, and that which is painful
But today, all we see is the cost of the Office-equipped Dell, not the roomful of people.

Could it be a case of tht

Could it be a case of tht which is seen, and that which is not?

For example, I recently had ACL reconstruction surgery. It was the same procedure my Mom had, and even the same surgeon, but 20 years later. My procedure involved all kinds of high tech equipment (so they tell me), and the invoices are starting to roll in. That's what we see.

What we don't see is the lack of a 5 day hospital stay and countless weeks on crutches and away from work. I never went to the hospital (their surgery facility was on-site), I was in the waiting room at 8 AM and in the car by 12 noon (same day), I never used pain medication, I was walking without crutches 3 days later (not well, but still walking), and I returned to work the next week. What would have been the cost to me and other impacted parties if I had the older procedure? I think it would have been staggering.

What is the cost of pain not endured, of work not done, of life not lived? To go back to your computer example, I know that I can calculate Bessel functions in Excel, now (to solve antenna pattern problems), but in WWII they had to fill gymnasiums with people using mechanical calculators to make up tables for radar engineers. Which is more expensive - a Dell with MS Office, or a gymful of people working for weeks on end?

(Frankly, I'm surprised at a Catallarchist missing the opportunity to bring up Bastiat!)

My email is

My email is trentmcbride_gk8155 - at - Thanks.

This is the original source in Health Affairs journal. I can't find your email address or I could link you to the WSJ articles.

Improved technology works

Improved technology works both ways. For example in the past, if junior fell and hurt his head or if grandma had a stroke, doctors just observed them. Now they get CAT scans at the drop of a hat. The first CT scanners cost millions of dollars, but now you can buy a much improved version for much less. I remember how they used to argue “do all hospitals need CT scanners?” a ridiculous question today. Although technology like this leads to improved medical care and less unnecessary admissions, greater peace of mind for patients and doctors and may even improve the outcome occasionally, you also get a lot of costly negative or noncontributory studies, not to mention uncovering benign conditions that require further expensive workup.
A separate issue is the vast discrepancies concerning the cost of performing the services and the charges. These are due to cost shifting, contractual discounts, government regulations, bad debt, lawsuits, capital expenses, etc, etc.
If people paid for their own health care more there would be more outsourcing as well as price competition.

It is one thing to assess

It is one thing to assess the cost of medical care; yet, it is only meaningful to do so in the context of the overall economic impact of health care. Yes, health care technology costs money, but it also increases productivity. So the impact of health care costs can be thought of in the same way one assesses the return on an investment.

These analyses are tricky, and are not sufficient to determine if a given health expenditure is "worth it." In some cases, though, they provide useful policy guidance.

If one looks only at economic costs and changes in productivity, that would argue for a lot of heatlh care spending on kids, and not much on the elderly. I don't think anyone would seriously consider that to be a reasonable policy.

On the other hand, if there is someone trying to cut funding for the testing of kids for lead poisoning, it is a fairly straightforward anaylsis of how many cases of mental retardation can be prevented, and what the cost to society will be.

In the cases of cutting-edge technology, such as the artificial heart, the analysis is much more difficult. One must consider the unpredicable but likely benefits of a general advancement of medical science and technology, which is rather difficult to quantify. That is, the development of a practical artifical heart may not be economically advantageous, but the improved understanding of the technology could lead to breakthroughs in other areas.

To begin with, lets assume

To begin with, lets assume technology drives health costs up. Does this we should drop technology out inorder to lower the costs on health cure? Certainly not, but on the other hand poor people can't afford going to reputable hospitals for quality treatment. Those living in the third world coutntries are facing with such problems often.