Why is Medicare So Expensive? Episode IV

High-tech is high-cost

Published on October 17, 2012by Abdul El-Sayed

With a $509 billion price tag in 2010, accounting for 12 percent of the federal budget, Medicare is nothing if not expensive. In the first three parts of this series, we discussed several trends that are fueling the rising cost of Medicare. First we looked at the growing, increasingly life-expectant elderly population, which has grown from 19 million in 1965 to 48 million today, living four years longer, on average then when Medicare was first passed. Then we explored the growing prevalence of obesity, diabetes, and dementia among today’s seniors, and the costs they bring to bear on Medicare.

Here, we’ll consider the growing costs of medical technologies.

One of the most important drivers of the growing cost of healthcare overall, the Congressional Budget Office (CBO) and others suggest that healthcare technologies account for up to 50 percent of yearly increases in health spending. From pharmaceuticals and surgical instruments, to the burgeoning growth in technologies for managing medical information, ours is certainly the most high-tech health system in the world.

The uptake of healthcare technologies in the elderly is particularly pronounced, accounting for a large proportion of the growth in Medicare’s cost. For example, a report on the link between healthcare technologies and costs by the CBO documented the rise in heart procedures (such as angiography, angioplasty, and bypass), dialysis, and hip and knee replacements among elderly Americans between 1970 and 2004. In every case, these procedures, which are now performed millions of times per year, were nearly unheard of in 1970—and trends in their use point squarely skyward.

But improving healthcare technologies is a good thing, right? Sure—it’s clear that some technologies have certainly improved the quality of healthcare. These include new, effective treatments for diseases like cancers and HIV/AIDS, medical information management systems that decrease medical errors and coordinate care transfers between nurses and doctors changing shifts, and surgical tools that decrease complications and improve outcomes.

But high-tech care has another side. It can also translate into high cost with little to no improvement in health to show for it.

One of the qualities that proponents of market-driven healthcare love to highlight about the American system is the innovation it has produced. But volume doesn’t always mean quality—while the latest, greatest, and shiniest all cost more money, they don’t necessarily translate into better healthcare.

A recent report by the Commonwealth Fund highlights this reality. Comparing healthcare spending across 13 high-income countries, it showed that although Americans spent substantially more on healthcare than any other country, the quality of our healthcare was, in many ways, worse. The report concluded:

“The US spends far more on health care than any other country. However this high spending cannot be attributed to higher income, an older population, or greater supply or utilization of hospitals and doctors. Instead, the findings suggest the higher spending is more likely due to higher prices and perhaps more readily accessible technology…”

One example highlighted in the report was the overuse of imaging technologies, like CT or MRI. Many American doctors own their own scanners. And because they can bill Medicare, Medicaid, or an insurance company rather than having to charge patients directly for each additional scan they perform, they have added incentives to perform more scans. At upwards of $3,000 per scan, unnecessary scans cost a lot of money. What’s worse, it’s not that additional CT scans only increase the cost of care, but they can be detrimental to patients’ health, too, because each scan carries with it a harmful exposure to cancer-causing radiation. In fact, a recent article in the Archives of Internal Medicine suggested that overuse of CT scans in 2007, alone, could cause an additional 29,000 new cases of cancer, leading to nearly 15,000 deaths.

When it comes to Medicare, the growing costs of healthcare technologies have another downside—they threaten a program that is already bursting at its seams.

There isn’t a clear policy approach to this challenge. On the one hand, some healthcare technologies are clearly beneficial, saving lives and money at the same time. On the other, Medicare must be judicious about the technologies it will pay for to avoid wasting money on technologies that have no benefit.

And while cost-effectiveness analyses and evidence-based allocation of resources seem like the right approach, the demands and perceptions of beneficiaries and the public can often stymie the most rational policies. Companies spend a lot of money advertising their latest and greatest technologies directly to consumers, stoking fear among a public that already abhors the idea that their choice could be restricted. And political interests magnify these fears even further—the recent election campaigning has been awash with claims from both sides about how the other will “destroy Medicare as we know it.”

In the next and final episode, we’ll consider how our awkward cultural relationship with death is contributing to Medicare costs.