Medical Technology And The Healthcare Expenditure Essay

Medical Technology and the Healthcare Expenditure
Medical technology encompasses a wide range of health care products that are used to diagnose, monitor, and treat diseases (Chandra & Skinner, 2012). Medical technology may include medical devices, vaccinations, pharmaceuticals, information technology, biotech, and healthcare services. Such technologies are intended to improve the quality of health care; while also containing cost, through earlier diagnosis, less invasive treatment options, reductions in hospital stays, and rehabilitation times. One of the leading theories is that medical technology is growing faster than expected and wit its advancement, it has become a major contributor of health care expenditure in America.Medical Technology And The Healthcare Expenditure Essay

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Funding sources
The majority of funding for medical technology and advancements come from government programs such as Medicare, Medicaid, and private insurance companies. The National Health Expenditure, within the last fifty years has leapt from $147 per capita in 1960 to $8, 953 in 2012 (Snell, 2013). The portion of the GDP that is allocated for health care has risen from 5.2% to 17.9%, which is higher than all other industrialized countries (Snell, 2013). The higher prices of health care can then be attributed to greater use of expensive technology. When medical advancements come with an unreasonably high cost, the amount of money the patient and the insurance company pays spikes. This in return leads to high deductibles, co-pays, and premiums that the patients are responsible for paying.
Economic Factors
Another factor contributing to the high rising cost of health care is the dependency society has on technology.

The increase in health care costs can be attributed to a variety of different factors such as the aging population, defensive medicine, hospital costs increases, changes in insurance and much more. A big contributing factor to the increase in cost is medical technology.Medical Technology And The Healthcare Expenditure Essay

Medical technology includes new practices such as robotic surgery, telemedicine, electronic medical records, and a variety of new drugs on the market. In many cases these new technologies increase the costs of health care, however, they can also help lower the costs of health care. The development of new vaccines may be pricey up front, but in the long run they will help stop the spread of viruses and disease and therefore lower treatment costs. New technology could also include better screening for disease which would then lead to better treatment.

The United States spends more on health care per person than any other country in the world (Allen, 2014). Also, the United States spends more of its Gross Domestic Product (GDP) on health care than other countries (Allen, 2014). Advancing technology, the state of the US economy, and the goal of providing quality health care are the major factors that contribute to such high health care spending in the United States. Needless to say, health care spending in the United States is a growing concern that needs to be addressed in order for the country to thrive.Medical Technology And The Healthcare Expenditure Essay
Current National Health Care Spending
In 2013 and 2014, the driving factors of health care spending was the aging population, the Affordable Care Act and the slow growth of the economy (CMS, 2012). Health care spending growth for 2013 was just under 4% (CMS, 2012). The aging population is larger and are also living longer. This means more people on Medicare than ever before. In 2013 there was slow economic growth due to the fiscal cliff and the high unemployment rates. In 2014, the economy is beginning to grow at a faster pace. The continued implementation of the Affordable Care Act is already beginning to have a positive impact on the economy. In 2014, several insurance plans have become available to people who were unable to become insured, and more affordable health insurance plans are now offered. This is resulting in reducing the number of uninsured in the US. Although there are now more people accessing medical care because they are insured, health care providers are now receiving more reimbursements from sources which were not available before (CMS, 2014).Medical Technology And The Healthcare Expenditure Essay
As aforementioned, health care spending represents 17% of GDP for the United States compared to eight to ten percent for other countries (Allen, 2014). CMS projects health care spending in the US to reach 19.9% by 2022 (CMS, 2014). In addition to spending the most on health care, the US also has the highest growth rate of health care spending amongst other countries. Lastly, another concern is that despite health care spending in the US, health outcomes for the US are lower than other countries. It is important that the US finds ways to reduce health care spending in order to continue to thrive as a country. If the US does not find ways to lower health care expenditures, America can be forced into another recession.
When thinking about ways to cut health care spending, it is important to consider that there are several stakeholders in health care. There are consumers, the government, health care providers, and health insurers who are affected by health care spending. There may be several different solutions to cut health care spending, but very few solutions that will satisfy all of the stakeholders. However, some solutions for lowering health care spending in the US are: coordination of care, incentives for better care, transparency, and monitoring the cost-effectiveness of new technologies.Medical Technology And The Healthcare Expenditure Essay

It’s tough to say if advances in technology are better for the economy. Medical technology is increasing prices for current procedures but at the same time, it is decreasing prices for the future. Medical technology is important for the long run of health care costs, even if it means paying more up front today. To learn more about medical technology and its affects, check out the Kaiser Family Foundations’ article about health costs.

The American public has a love-hate relationship with medical technology. Technologies are extolled for saving lives, improving health status, and improving the quality of care. At the same time technology is vilified as one dominant factor responsible for the continuing escalation of medical costs. Highly visible “big-ticket” items, such as organ transplantation, diagnostic imaging systems, and new biotechnology products attract a major share of both praise and blame.

Five facts about new medical technology underlie this paper. First, new technologies do, on average, improve the quality of medical care by improving health outcomes. This is not true of every technology in every clinical use, but it is true on average. Second, many new technologies are ineffective or redundant and do not improve health outcomes. The trouble is that it is not always easy to discriminate between effective and ineffective technologies at the time they are introduced. Medical Technology And The Healthcare Expenditure Essay Third, new technologies do, on balance, add to health care costs. Some technologies may actually reduce costs by replacing more expensive alternatives or preventing expensive health consequences, but the overall effect is to increase costs. Fourth, the incentives and regulations built into the American health care sector lead to inappropriate diffusion of technologies, both underdiffusion of effective and cost-effective technologies, and overdiffusion of ineffective and cost-ineffective technologies. Reimbursement systems, professional reward structures, legal considerations, and patient demands all contribute to the problem. The fifth inescapable fact about new medical technology is that the American public cannot get enough of it. We demand the best and newest from our providers, and they are, in general, happy to oblige.Medical Technology And The Healthcare Expenditure Essay

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Suggested Citation:”2. The Diffusion of New Technology: Costs and Benefits to Health Care.” Institute of Medicine. 1991. The Changing Economics of Medical Technology. Washington, DC: The National Academies Press. doi: 10.17226/1810.×
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The problem is that costs continue to rise, and the ability of the public and private sectors to finance health care is being strained. American society is approaching, or may have reached, the point at which it is not possible to provide the best available health care to every American, regardless of cost. The de facto solution has been to restrict access to health care for a growing segment of the population—the uninsured—while preserving the myth of best available care for those fortunate enough to have coverage.Medical Technology And The Healthcare Expenditure Essay

Upward pressures on health care costs will only increase in the 1990s. A growing array of new technologies will claim an increasingly large share of national resources. The birth cohort of 1945 to 1965, the “baby-boomers,” will move into the age range associated with increasing prevalence of chronic disease. Universal health insurance, in some form, may well be adopted. Any of these three forces will force hard choices, challenging the myth of “best available technology for all.” Medical technologies, especially new ones, will have to justify their costs in a climate of competing claims on resources.Medical Technology And The Healthcare Expenditure Essay

This paper addresses four aspects of the relationship between new medical technology and costs. First, we review the evidence regarding the contribution of new technology to the aggregate cost of health care. Second, we review a normative model of optimal diffusion of technologies, based on evaluation of their cost effectiveness—that is, the ability of a technology to improve health outcomes. Third, we examine the influence of economic incentives that affect adoption of new technology in the U.S. health care system and contrast the resulting priorities with those derived from the normative cost-effectiveness model. We examine incentives for hospitals, fee-for-service physicians, and managed care organizations. We cite examples of incentives for underdiffusion of cost-effective technologies and overdiffusion of cost-ineffective ones. Finally, we comment on future policy options for achieving a more cost-effective pattern of technology diffusion.Medical Technology And The Healthcare Expenditure Essay

HOW MUCH DOES NEW TECHNOLOGY ADD TO HEALTH CARE COSTS?
Researchers generally agree that medical technology has contributed to rising health care costs (1-3). Health insurance removes financial barriers to consumers, thus raising demand for technology and inducing providers to offer a more expensive mix of services. But researchers have struggled to measure how much technology has contributed to increasing costs. Part of the difficulty lies in defining medical technology. The term is commonly defined broadly to include drugs, devices, surgical procedures, and organizational support systems within which medical care is delivered (4). Identifying the changes in cost attributable to these items in any given period is virtually impossible. Even if the more important innovations could be listed, it would be extremely difficult to trace their overall economic impact.Medical Technology And The Healthcare Expenditure Essay

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Suggested Citation:”2. The Diffusion of New Technology: Costs and Benefits to Health Care.” Institute of Medicine. 1991. The Changing Economics of Medical Technology. Washington, DC: The National Academies Press. doi: 10.17226/1810.×
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Another caveat is that the economic impact of a technology is often confused with the purchase price of a piece of equipment or a drug, or the fee paid to a surgeon. The total impact of a technology on health care costs is much broader than that and may include offsetting savings as well as induced costs. The direct cost of a capital-embodied technology includes not only the capital cost itself but also the operating costs required to implement it. The operating costs of even the most capital-intensive technologies may be greater than anticipated because of the need for operating and supervisory personnel, training, insurance, supplies, and space. A new drug or device, on the other hand, may be more expensive to purchase but less expensive to administer than its alternatives (5).Medical Technology And The Healthcare Expenditure Essay Furthermore, a new technology may affect the utilization of other health services. These effects constitute the “induced” costs and savings of a technology. A new imaging device may lead to increased utilization of other tests for confirming a diagnostic hypothesis that would not otherwise have arisen, or the new technology may make other diagnostic procedures unnecessary. Treatments that would not have been considered may be induced by a new diagnostic test (6), or treatments may be avoided because the new technology offers an alternative course of action. Technologies and their induced procedures may lead to side effects and complications requiring further tests and treatments, or side effects and complications may be avoided if the new technology leads to a safer clinical strategy than was possible in its absence. Technology that extends life may require more extended periods of care, often at great expense and in institutional settings. Technology that prevents disease may save resources that would otherwise be required for diagnosis and treatment, although few preventive technologies are cost saving on balance (7,8).Medical Technology And The Healthcare Expenditure Essay

Some researchers have tried to estimate the effect of technology on U.S. health care expenditures by first estimating the impact of other, more easily identifiable sources including price inflation and age-specific population growth (9,10). The portion of the increase in health expenditures not accounted for by these explanatory variables is attributed to technology. Such research does not draw distinctions between expanded applications of existing technologies and introduction of new technologies. Other researchers have sought to measure changes in the cost of treating certain illnesses over time (2,12-14). Still others have used case studies to analyze the impact of important technologies such as intensive care units and computed tomography (15,16).Medical Technology And The Healthcare Expenditure Essay

All three approaches suffer from a variety of problems. For our discussion of the economics of new technology, these approaches are problematic because they do not distinguish between the impacts of new and existing technologies. In general, residual approaches do not pinpoint the precise cause of increases. Many studies attribute cost increases to an increase in “intensity per hospital admission,” which could be explained by non-tech

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Suggested Citation:”2. The Diffusion of New Technology: Costs and Benefits to Health Care.” Institute of Medicine. 1991. The Changing Economics of Medical Technology. Washington, DC: The National Academies Press. doi: 10.17226/1810.×
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nological factors, such as changes in the severity or nature of disease. In addition, these studies do not easily identify indirect costs of using new technologies, such as the need for more skilled hospital nurses and technicians, nor do they identify induced costs. Although the specific illness and case study approaches do analyze the impacts of particular technologies, it is difficult to generalize from them. Unlike cost-effectiveness research, to which we will return, this body of research does not attempt to relate cost increases to improvements in health outcome.Medical Technology And The Healthcare Expenditure Essay

Empirical evidence from these types of studies suggests that medical technology accounts for about 10 to 40 percent of the increase in health care expenditures over time (1). Fuchs (3) concluded that technology contributed 0.6 percentage points of the 8.0 percent annual rate of increase in health expenditures from 1947 to 1967. Davis (9) found that technology accounted for about 25 percent of the increase in hospital expenses per admission between 1962 and 1968. More recently, Freeland and Schendler (10) reported that 21 percent of the rise in hospital costs between 1971 and 1981 was due to “intensity per admission.” The Health Care Financing Administration (HCFA) estimated that from 1985 to 1986, 35 percent of changes in personal health expenditures were accounted for by “consumption per capita” and the intensity of consumption because of such factors as demographic changes and changes in income level (11).Medical Technology And The Healthcare Expenditure Essay  Employing a specific illness approach, Scitovsky and McCall (2) found that, from 1951 to 1971, cost-increasing changes in treatments generally outweighed cost-saving changes. The main cost-increasing factor was the rise in the use of ancillary services, such as laboratory tests and X-rays. Fineberg (12) and others have also noted the high cost of clinical chemistry tests and other little-ticket technologies. Scitovsky (13) found that from 1971 to 1981 increases in the cost of ancillary services slowed, but several new and expensive technologies raised costs substantially. Showstack et al. (14) also found evidence that big-ticket items, such as intensive care unit management of the critically ill, caused large increases in the 1970s.

The cost of health care in the United States has become increasingly expensive. Because of changes in the economy and circumstances there are many Americans that are out of work, facing increased costs of health care coverage, or began a new job but have to wait for coverage during their probationary period. Until the Affordable Care Act took in effect, the United States was one of the nations that do not ensure health insurance. According to Chernichosvsky and Leibowitz (2010) states, “The United States has the most technologically intensive medical practice in the world” “It also spends more than more any other nation on medical care, but health outcomes in the United States are inferior to those in most other developed nations” (p.205). This paper will discuss the current level national health care expenditures, whether the spending is too much or not enough, whether the nation should add or cut, and how the general public’s health care needs are paid for and financed by various payers.Medical Technology And The Healthcare Expenditure Essay
Current National Health Care Expenditures Current level of National Health Care Expenditures. According to Centers for Medicare and Medicaid Services (2013) states, “the national health expenditure grew 3.9% to $2.7 trillion in 2011, or $8,680 per person, and accounted for 17.9% of Gross Domestic Product” (para 1). The demands of health care can be costly for Americans. The expenses of health care accumulates because of the numerous types of health care ranging from hospitalizations, skilled nursing care, physician care, surgeries, and prescription drugs. According to Bernstein, Hing, Moss, Allen, and Tiggle (2003) states, “Factors that impact health care utilization are increased supply, growing population, growing elderly population, new technology, new drugs, changes in consumer preference and demand, and understanding the risk of diseases” (p. 9). These different components play a vital role in the influence of access to utilization. Nation add or cut spending. Nation add or cut spending. According to Health care costs (2013) states, “Spending on prescription drug and new medical technologies have been cited as a primary contributor to the increase in overall health spending” (para 4). Prescription drugs cannot be eliminated because many of Americans will need various prescriptions for different disorders to help them manage their disease. The new advances of medical technology have created ways to provide quality care through the use of electronic medical records, robotic assisted surgeries, and other innovative procedures. Health care costs can be reduced in the following ways by preventative programs, exercise programs and lowering insurance costs for consumers. Medical Technology And The Healthcare Expenditure Essay