Unless Consumers Demand Innovation, There Will Be No End To Health Care’s Rising Costs

Wendy Lynch

First published 5/27/11 on the HHCF Blog

In 1992, I worked for a data analysis firm that had to spend a considerable portion of its revenue to purchase data storage.   I recall that a computer storing 10 gigabytes of data cost over $60,000 and measured several feet across. Today, the same capacity (at one hundred times the speed, in the palm of your hand) goes for under $60.

Technology advancements hold amazing promise for virtually every aspect of our lives. In the case above, information technology now provides exponentially more function, yet sells for 1/1000th the price! We all own communication and computing devices that are almost obsolete within months, while prices continually drop.

Affordable cars are more powerful, while at the same time more fuel-efficient and safer.  In other industries our gains have been in the form of convenience and flexibility.  In a single generation, consumers have completely changed how they manage services like banking and travel, receive information through online sites, meet and connect through text, tweets, and social sites, and purchase billions of products and services every year through eBay, Amazon and Groupon.

Then there’s healthcare, where prices only go one direction: up.

We might ask ourselves: is medical science and technology so very different from every other field that we cannot expect to achieve more value at a lower price?  Are patient-doctor interactions so unique that gains in computing and communications do not create similar improvements in flexibility and convenience?

No and no.

It is not just possible to get more value and quality at less cost; it could happen already if consumers demanded it.  All that is missing is a vocal group of shoppers who care enough to ask tough questions about price, safety, and outcomes.

Invention (an entirely new product) and innovation (new ways of doing things) are both driven by efficient markets.  They require suppliers who think they can build a successful business by selling the product, and purchasers who will buy it because it represents some combination of greater utility or lower price.

Right now, neither circumstance exists.  Medical technology suppliers have no incentive to sell lower-cost items when payers will buy their high-cost items. Plus, actual buyers of the technology (hospitals, doctor’s offices, laboratories) get a larger reimbursement from billing your insurance for big-ticket items rather than small ones.

At the same time, patients who have insurance often ignore price and remain oblivious to the low-value spending.  The system itself is built to stifle game-changing discoveries.   Without demand for better or cheaper solutions, invention and innovation are unlikely in any industry, and healthcare isn’t any different.

Healthcare innovation IS HAPPENING—elsewhere. Watch this video on the TED website and see ideas about just how amazing medicine could be, for a much lower price.  Among new developments are a fifty-dollar mobile device that can replace equipment costing $100K; and a mechanism using common materials to process 16 diagnostic blood tests for one cent without needing a technician or a laboratory (1).  Both are simple ideas, innovations, made possible by consumers using their own money to purchase goods and services they need and can afford, and suppliers who are motivated to invent entirely different methods for providing care in places where people have limited money, resources, or access to trained professionals.  This sort of innovation is real, rather than “taking today’s solution and trying to pull cost out.”  The results are inspiring, but, as explained in the video, there is no market for such products in the US.  Too many people benefit from high-cost healthcare and too few consumers care enough about price to call for more efficient, higher quality, and affordable alternatives.

Eliminating profit motive is not the answer.  

I sometimes hear people discussing healthcare who place blame on businesses for wanting to make a profit on other people’s misery.  However, we cannot assign fault to medical device-makers or drug manufacturers any more than we can blame hospitals for maximizing revenue, or doctors for lobbying lawmakers to cover their services under Medicare.  Every stakeholder does what they can to secure survival and success.  Even undertakers make a living providing necessary services, as much as we wish we didn’t need them.  It isn’t distasteful for medical professionals to make money, but it is offensive to do so by hiding prices from the public and hoping consumers never ask.

The necessary force that creates balance against profit motives in other industries is millions of consumers searching for better value and competitors vying for their business.  When consumers select better products or services at a lower price, it rewards innovators and forces competitors to improve and become more efficient.  This is like using purchasing power as voting power.

What can each of us do?  Choose a consumer-directed plan.  Watch the video.  If it isn’t an emergency, which most medical situations are not, ask about price and compare two suppliers for every healthcare service.  Ask where the money goes.  Ask about quality and safety for every service.  Ask whether there are other alternatives to treat your issue.   I don’t know about you, but thinking about all the innovative discoveries we’ve missed out on—like blood tests for a penny—motivates me to ask better questions and remind providers that it’s my money they are spending.

Why this matters:  Over the past ten years scientific advances have made other industries better, faster, and more convenient, while costs have gone down.  In contrast, healthcare costs have increased dramatically, without equal improvement in quality, efficiency, or outcomes. Until consumers are motivated to demand better value and apply pressure through their purchasing power, we will have to accept ever-increasing costs and little innovation.

Wendy Lynch is a benefits analyst and consultant who writes at the HHCF blog.

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