8/8/2019 00293995

1/3

Pointof ViewMedical Technology:A Solutionto the Health Care Cost Problem

xamination of U.S. health care problems reveals that the rootE ause of todays concerns is cost. Unfortunately, technologyhas been identified by som e to be the principal cost escalator. Wenot only believe that this criticism is unjustified, but that med icaltechnology can provide immediate advances in the productivityof health care services, thereby reducing health care costs whileincreasing the quantity of services. To properly assess whethertechnology is actually driving the cost of health care services, weadvocate that health care service providers be required to reporton each p atients bill the cost to that provider of spec ific technol-ogy services.To reduce the cost of medical technology in the short run, werecomme nd that the FDA develop a fast-track approval processfor medical technology that shows promise for reducing healthcare costs. To accelerate the discovery of health care cost reduc-ing technology, we recommend that the Federal governmentinvest R&D resources in cost-reducing medical devices.In the long run, however, we believe that optimization of theU S . health care system to provide maximum care at minimumcost will require re-engineering of the U.S. health care system.Therefore, development of an engineering systemdeconomicmodel of the U.S. health care system is critical to allow there-engineering process to rapidly converge to the optimum sys-tem.The Magnitudeof the ProblemAmericas health care expenditures have increased from 5 % ofthe Gross Domestic Product (GD P) in 1950 to 13.4%of GDP in1992 ($90 3 billion), and projections indicate that it will grow to18%, or 1.7 trillion dollars, by the year 2000, and to $16 trillionor 32% by the year 2030. In comparison, by the year 2000education costs are projected to remain between 5 an d 6% ofGDP , while defense costs are projected to be reduced to 3.5% ofGDP. Therefore, at current growth rates, the U.S. will soon bespending twice as much on health care as on education anddefense combined.This growth rate in health care costs is alarming, especiallywhen on e considers that:

Japans health care expenditures have changed little in thepast decade, staying in the 6.7% GD P range.In 1990,U.S. businesses spent $186 B on health ca re for theiremployees. This was 61% of their pre-tax profit, 108% of theirafter-tax profit, and 2.5 times their investment in research anddevelopment. In accommo dating his growth in emp loyee healthcare costs, U.S. employers have been fo rced to hold the growthin real income of their employees to only 1% . In the future,further reduction in emplo yee real incom e and employme nt arepredicted.American w orkers in 198 0 paid an average of $ 50 per yearfor health insurance ; in 199 1 they spent more than $1,300pe ryear for the same plan. W ith health care reform on the horizon,employed A mericans are expected to pay even more.

Over the past 40 years, the real cost of a one-day stay in ahospital has increased by 600%, while the real costs ofelectronics products and agricultural products have decreasedby 75%.Hospital care accounts for 39.7% of U S . health-care costs;physicians account for 18.5% ; nursing home care uses 8.2% ;drugs cost 7.8% ; administration and insurance cost 5.3%; othermedical services account for 5.0% of costs; dental care amountsto 4.5%; public health and other personal health are 4.8%; R& Dcosts are 1.9%;and vision products, home health, and construc-tion co st 4.2%.Many policy makers, especially those involved in the admini-stration of Medicare and Medicaid, regard the present situationas unacceptable.

Macroeconomics ConsequencesOf particular concern is how health cure cost escalation isaffecting the living standards of individuals and impacting theinvestment strategies and competitiveness of U.S. corporations.In addition, unless offset by reductions in other consumptivecategories, e.g., federal entitlement programs, the present level ofspending in health care may lead to reductions in investment thatwill eventually harm the e conom y, if it hasnt already done so.During recent years, Japan has consum ed (including defense)about 69% of its GDP, w hile the U.S. has con sumed (includingdefense) about 84% of its GDP. Of the 15% difference inconsumption, about 7% was due to higher U.S health carespending and 4%was due to higher defense spending. At currenttrends, by the year 2000, U.S. health care spending as a percent-age of GDP will exceed that of Japan by 13%, while defensespending will exceed that of Japan by on ly 2% . Analysis of 500years of the military and economic history of powerful nationsindicates that to be a great power requires econom ic viability. Toprotect their interests, including eco nomic interests, great powersoften develop strong military capabilities. However, great pow-ers in decline sometimes instinctively respond by spending moreon security, and in so doing divert resources from investment ineconomic growth. When defense spending is below 1 0% of GDP,it is not generally an economic burden. Whe reas, when militaryspending reaches the 15 to 20% range, there is a great deal ofhistorical evidence that it does burden the economies of nations.(The economic decline of the former Soviet Union is consistentwith this claim.)If one accepts that the consumption aspects of health carespending are at least equivalent to the consumption content of

defense spending (it is actually higher). then one can concludethat U.S. health care spending has reached a level that may bedetrimental to the economy .International ComparisonsComparisons of U.S. health care with that of other countriesare usually limited to cost comparisons and rarely include an

June/July 1994 IEEE ENGINEERING IN MEDlllNE AND BIOLOGY 31 3

8/8/2019 00293995

2/3

accurate, substantive com parison of outputs. These comparisonsare further complicated by a lack of precision in accounting aswell as by changes in monetary exchange rates. For example,indirect costs, such as time spent in waiting rooms and reducedproductivity while waiting for rationed procedures, are neverincluded in estimates. Likewise, savings due to minimizing losttime from work du e to illness are not included. Comparisons ofhealth care costs for the U.S. and Canada, for example. fail toaccount for the fact that Canadas population is younger, Canad ainvests far less in health care R& D, capital costs such as hospitalconstruction are not included, and the administrative costs ofcollecting the taxes needed to finance Canadas health caresystem are not accounted for. Therefore, absolute compa risonsof health care costs between nations lack accuracy and usuallyunderest imate other nat ions expendi tures. However , costgrowth com parisons should illustrate trends among n ations. Withthis in mind, consider the following:In 1980. per capita cost of health care was $1,089 in the UnitedStates, $704 in West Germany, and $522 in Japan. By 198 7,per capita expenditures on health care in the United Statesgrew 88% to $2.051. Germanys grew 55 % to $1,093, andJapans grew 75% to $915.In Japan, Switzerland, Germany, and Sweden, the cost ofhealth care services as a percentage of GDP was either thesame in 1 990 as i n 1980 or it declined.

Note that these differences i n costs are not easily explained byincreased consum er demand for health care services. For exam-ple, Japans citizens seek outpatient physician consultations 2.5times the rate of Am ericans. Patients are admitted to hospitals atone-half the frequency of Americans, and they have surgicalprocedures at one-fourth the frequency of Americans.Health Care Cost DebateT he U S . health care cost debate, w hile having an intuitive andqualitative appeal, has a weak quantitative framework. is largelyanecdotal, and is focused on w ho pays for health care rather thanon reducing the transactions costs of health care. Even thosestudies commissioned by several states. such as Ohio, lack thequantitative framework that management by data requires.Furthermore, the vested interests of so many parties in maintain-ing the status quo has resulted i n proliferation of misinformationthat has distorted identification of the basic problem in U.S.health care - it costs too much. If U S . health care costs werebetween 6 and 7% of GDP, as in Japan, and they were increasingat the same rate as the GDP, issues like who pays for healthinsurance. how to provide health insurance for 3 7 million unin-sured. and similar questions, would be easily resolved. InformedAmericans realize that regardless of the regulatory constraintsimposed by the g overnmen t, the increased use of health mainte-nance organizations, and eve n the reform of insurance practices,reforms currently under discussion. are likely to make only shortterm reductions in health care costs. In the absence of majorproductivity improvements in the health care sector, introduced asin other sectors of the economy by reengineering of the system, it isreasonable to expect that U S . health care costs will continue to rise.In the absence of an overall econometric model of the U S .health care system, red herrings are presently being tossed to thepublic as an explanation of or in defense of rapidly escalatingcosts. For example, although physicians income is not thedominant cost item in U.S. health care costs. it is nevertheless ofgreat importance. especially since physicians are i n control ofmost of the institutions (hospital, clinics, clinical laboratories,medical schools, medical research institutions, etc.). Their deci-

sions, practices, and policies drive health care costs from thesupply side. Yet, an overwhelming 93% of physicians surveyedcited malpractice suits as the number one contributing factor tohealth costs, when, in fact, professional-liability insurance costsare about 4% of gross medical practice receipts and are built intophysicians fees. Confronted with these da ta, physicians arguethat fear of litigation causes them to adopt inefficient medicalpractices. In reality, the practice of medicine is often inefficientbecause it lacks competitive incentives to improve productivity.

Many health care system analysts have argued that technologi-cal innovation has been an important driving force in the contin-ued rise in real costs of health care both in the U.S. and othercountries. These argumen ts note that during the 198Os, Ameri-cans increased the number of annual doctor visits by 50% an dsought technology-intensive services such as C AT scans, ultra-sound diagnostics, and coronary bypass surgery with muchhigher frequency. Nevertheless, these claims are m ade contraryto the facts.Technology can be effectively used to reduce costs. For exam-ple, technology can permit outpatient services to replace hospitalstays, reduce repeated surgery, aid disease prevention, permitmany physician services to be provided by lower salaried per-sonnel, and allow a single physician to manage the care of a m uch

larger number of patients. In 1991, one new procedure, laparo-scopic cholecystectomy, saved between $1 .OOO and $2,000 pergall bladder surgery for 450,000Americans by reducing hospitalstays. In addition, 100 million hours of lost worker time wassaved. Thus, this one technique saved approximately $2B in lostworker time and $ 0 S B in hospital charges. Therefore, technol-ogy is the solution to the U.S. health care problem, not the cause.Donna Schalala. Secretary of Health and Human Services. re-cently made a statement supporting the use of technology as avehicle for reducing health care co sts:

Cost Saving Technologies

The ast thing we should do is to curb technology in ou r attemptto deal with costs ... Tl7r issue is how you use technology,far morethan whether )(,eshould keep producing technology Rather thanbeating up on technology, we need to get scientists and adm inistm-tors to think about the more appropriate use o it.When deployed in a rational way, technology usually leads toproductivity growth in most economic systems. There is notechnical reason that technology cant achieve the sa me resultsin health care services that it has achieved in other sectors.Information technology, in particular, can reduce health curetransactions costs by eliminating redundant medical services thatoccur because of the lack of universal medical records. (It hasbeen estimated that 2/3 of all medical reports are duplications.)Information technology can also reduce paytnent fraud by mak-ing charges and payments well known, improve quality bymonitoring the services provided by health care professionals,improve the productivity of the wide variety of medical imagingmoda lities available, mak e medical imaging services available toremote area s of the nation, and reduce the cost of administration,which some have estimated to be as much as 28% of the total

health care bill. In essence, information technology can do forhealth care what it is doing for m any other sectors - increase ormaintain the output (health services to the population) whiledecreasing the input (health cure costs). However, in order fortechnology to improve productivity, it must be accom panied bya sweeping reorganization of work. Consider for a moment thefollowing paradigm. Productivity improvement can come from31 4 IEEE ENGINEERING IN MEDICINE AND BIOLOGY June/July 1994

8/8/2019 00293995

3/3

either increasing outpu t with input held cons tant, or from holdin goutput constant and reducing input. If Americas citizens desireto increase output to provide some level of health care for thosecurrently not receiving care (some fraction of the 37 millionuninsured) and to make a major reduction in input (maybe a 25 %reduction in health care costs). then the only way that this canbe accomplished is by having traditional health care servicesre-engineered. Systems reengineering. driven by competitivestimuli, has created opportunities for technological innovation inother service sectors. There is no reason to believe that it cannotdo the same for health care. Since technology innovation im-proves the productivity of services systems. it is reasonable toexpect reengineering of the U S . health care system to stimulatesimiliar results. In the absence ofreengineering ofth e U.S. healthcare system, any technology injection. like many other changesproposed, will only make minor, scattered improvements inproductivity. Modeling the economic relationships that existthroughout health care systems and benchmarking the model bycomparing service delivery segmen ts of the US system to bestpractice foreign systems is a necessary first step to reengineer-ing the US health care system. Rather than being the cause of theescalation in heulth care costs, the use of technology has oftenbeen used as a convenient excuse for health service providers tocover lost health c m e charges in other sectors of the systeni.For example, hospitals routinely lead their paying customers to

believe tha t much of their hospital cos t is du e to the use of medica ltechnology. They do this by shifting unrecovered costs (e.g.,charity patients, building costs, etc.) to their clinical laboratory,their x-ray services. or to their pharmacy. Patients are sometimescharged $7.00 for a single aspirin tablet!To achieve a more accurate picture of costs, accurate billingpractices must be introduced into U.S. hospitals. Recently, clini-cians have used technology in a manner that clearly represents acontlict of interest. For example, physician groups often attachclinical laboratories to their facilities. with the claim that theefficiency and quality of patient care is thus improved. In fact,such facilities improve the physicians income rather than theefficiency of patient care. A captive medical laboratory can earnrevenues that cover the overhead cost of an entire medicalcomplex, including building rental, equipment, nurse salaries,administration, etc. Customers that are captive to the medicalservices of the physicians pay between I O an d 100times the costof the services to the physicians group. Because patients arecaptive to such clinical laboratories, there are no incentives forthe medica l practitioners to limit their use as a source of revenue.Rather. charges are like those ofa ny other inadequately regulatedmonopoly, i.e., whatever the market will bear. Genuine competi-tion in medical services and reporting the actual costs in billing, notrestricting medical testing, could eliminate these abuses. The federalgovernment invests over $10 B annually funding searches for curesto disease. Yet, there has been no funding for R&D in technologythat can cure the primary problem of health care, its cost.While the federal investment in medical research has contrib-uted to elimination of some diseases and resulted in higher lifeexpectancy, it is now time for the federal health in\,estment tofocus on the less glamorous side ofhea lth care, i .e., cost reducingtechnologies. Since Nobel Prizes are not likely to be awarded forefforts dealing with health care costs. as a research topic it hasnot yet captured the imagination of medical scientists funded bythe federal government. But change is i n the wind. The NationalScience Foundation, under the leadership of Do v Jaron. and theWhitaker Foundation, under the leadership of Peter Katona, havepooled resources ( $ I M from each institution) to initiate a re-search program fo r cost efec ti iv health re echnolqqy that will

improve the productivity of th e U.S. health care system. Clearly,a $2M R&D program is not likely to solve a $900B problem.However, it may inspire other federal agencies to attack thispressing problem. With encouragement from the President andCongress, o ther federal agencies, especially the National Insti-tutes of Health, will respond to the vision and leadership of th eNSF and the Whitaker Foundation. In fact, the federal govern-ment has actually contributed to increasing the co sts associatedwith medical technologies. For exam ple, todays federal regula-tory practices delay the introduction of cost-reducing technologyinto the marketplace, heaping charges accumulated during ex-tensive safety testing onto the basic co st of the technology. Evenafter a technology has passed the regulatory gauntlet and beenintroduced into the market, subsequent improvemen ts, even in-cremental improvements. m ust again face the intimidating regu-latory process. The FDA could aid cost reduction by developinga fast track evaluation process for technology that shows promisefor reducing health care costs.With this goal in mind, the FDA should also streamline theprocess for medical devices that are an improved model of apreviously approved product. The Institute of Electrical andElectronics Engineers (IEEE) Health Care Engineering PolicyCommittee (HCEPC) is providing objective technical and pro-fessional counsel to the Congress for developing a rationalformulation of health care legislation, regulation, and policy.This comm ittee believes that sound use of technology can leadto improvements in the productivity of U S . health care provid-ers. The following four recommendations are being evaluated bythe HCEPC.RecommendationsMedical technology can be effectively used to reduce health-care costs. Therefore:Since long delays in FDA approval of technology have in-creased the m arket entry costs of technology. tlie FDA sliouldcleL,elopu a st track approval process,formedical devices that

c m reduce the costs c?fhealth care services.Since the mom and pop equivalent delivery system fortechnology-intensive services drive-up the marketing costsand inhibit true competition in pricing, re-engineering of theU.S. health-care system, guided by a thorough model of thesystem that highlights all the economic transactions, shouldbe undertaken.Since clinical laboratories and other medical technology serv-ices have been used as a cash c ow by health-care servicesproviders, accuracy in reporting the costs of services to thehealth-care recipient must be required.Medical technology is the solution to the U.S. health-careproblem. The Federal government should increase the R& Dexpended on the search for cost-reducing medical technology.

Joseph D. Bronzino ISDirector of the joint T rinityCollege-ChartfordGraduate Center Programin Biomedical E ngineering.J u n e s EGOIW s aDepartmentManager atSandia NationalLaboratories.

lune/July 19 94 IEEE ENGINEERING N MEDICINE AND BIOLOGY 315