Medical Moore's Law...not

Most of us are familiar with Moore's Law:the observation that, over the history of computing hardware, the number of transistors in a dense integrated circuit has doubled approximately every two years with a resulting dramatic decrease in prices of technology. My wife just bought a new?iPhone 6S for $299 with enough computing power that would require a large room only a few short years ago. Or, take a look at the inflation adjusted price of many other goods and services, like automobiles and air travel. Many think Moore's Law is reaching its limits and that the next Intel inside will look a lot different than silicon.

Unfortunately, the same does not hold true for medical technologies. In fact, medical innovation increases the costs of care and threatens to bankrupt Medicare and further contribute to our crushing national debt. Did you ever wonder why? Here are some reasons.

Telemedicine is an example, as noted:

"For far too long, high-level policy discussions on telehealth have ignored or misunderstood the cost implications, or even misled policymakers about them. Greater emphasis on and transparency about costs is long overdue. A reframing of the costs debate is not only constructive but also will lead to better—and perhaps more permanent—change."

What about EMRs and artificial intelligence?

There are many reasons why US Sick Care is so expensive compared to other developed countries. The main ones are:

1. Healthcare administration
2. Greed and gouging
3. Higher utilization
4. Technology. There is no Moore's Law in sick care

As I checked in at a Manhattan radiology clinic for my annual mammogram in November, the front desk staffer reviewing my paperwork asked an unexpected question: Would I like to spend $40 for an artificial intelligence analysis of my mammogram? It’s not covered by insurance, she added.

This patient had no idea how to evaluate that offer. Feeling upsold, I said no. But it got me thinking: Is this something I should add to my regular screening routine? Is my regular mammogram not accurate enough? If this AI analysis is so great, why doesn’t insurance cover it?

If digital health is so great, then why is the annual US sickcare spend increasing at over 4% a year?

Two economists think they have discovered the two main reasons why innovation drives up the costs of care:

The first is a dizzying array of different treatments, some that provide enormous health value per dollar spent and some that provide little or no value. The second is a generous system of insurance (both private and public) that pays for any treatment that doesn’t obviously harm the patient, regardless of how effective it is.

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In other words,the first reason is that not all technologies result in the same benefits or generate the same value for patients. What works for one does not work for the other. Unfortunately, in most instances, because we don't do systematic cost-effective analysis, we don't know which ones work best for which patient. More importantly is the second reason. Our perverse system pays for things that are, according to the FDA, safe and effective and that, supposedly, don't hurt patients. Some don't turn out that way once cleared, but that's another story. The fact is that public and private payers don't restrict payment for things that are cost-effective i.e. add more value that the competitive offering when defined as quality per unit price.?

There are other reasons. Even if patients know which technologies added the most value, our?medical pricing system is so opaque to doctors and patients that neither would be able to make a market based informed choice about which to use. No market competition with transparent pricing ? You are experiencing the results the next time you make a copay or meet your deductible.?

In addition, even when there is competition for drugs, for example Cialis v Viagra, prices can continue to climb. That is because patients tend to stick with a drug that works for them, and health insurers and drug-benefit managers sometimes have contracts for drugs that prevent switching to cheaper options.

Take the escalating cost of cancer drugs, for example.?

Three interventions that could help relieve the financial distress many cancer patients experience.

First,?both public and private health insurers must have the ability to negotiate prices with manufacturers.

Second, insurers need to be able to withhold products from their formularies if drug prices do not represent good value. However, value based drug or biologic pricing is hard to do.

And third, there needs to be greater transparency of cancer drug pricing and better information about treatment choices.

The reasons for this bizarre scenario have historical, political and economic roots that date back many years and that persist to this day. Unfortunately, while much has been made of the changes in medical policy winds, over $3T in spending creates a lot of incentive for providers and?biopharma, medtech and digital health company CEOs to keep things just the way they are.

Every year you age, health care technology changes — usually for the better, but always at higher cost. Technology change is responsible for?at least one-third?and?as much as two-thirds?of per capita health care spending growth. After accounting for changes in income and health care coverage, aging alone can explain only, at most, a few percentage points of spending growth — a?conclusion reached?by?several studies.

The main reason US care costs so much is due to the higher prices we charge.

Labor, supply and administrative costs are key reasons why the U.S. outpaces other high-income countries in healthcare spending, according to a study published in?JAMA.

Here are five findings from the study.

1. The U.S. spent nearly two times as much on healthcare as 10 high-income countries in 2016. This expense didn't lead to higher health outcomes, as the U.S. performed poorer on several population health outcomes than the other countries, the authors found.?

2. While the U.S. spent 17.8 percent of its gross domestic product on healthcare in 2016, spending in the 10 other countries ranged from 9.6 percent of GDP in Australia to 12.4 percent of GDP in Switzerland.?

3. In terms of physician workforce, the U.S. didn't differ largely from the other countries, with 2.6 physicians per 1,000 people. The U.S. also didn't differ much in terms of healthcare use. The U.S saw 192 discharges per 100,000 people.

4. However, the authors found pronounced differences in administrative costs. Administrative costs of care reflected 8 percent of healthcare spending in the U.S., while administrative costs ranged from 1 to 3 percent in the other countries. U.S. spending on pharmaceuticals also outpaced other countries, with spending at $1,443 per capita in the U.S. compared to $466 to $939 in other countries. Lastly, physician and nurse salaries were higher in the U.S. than in other countries. A generalist physician was paid $218,173 in the U.S. during the study period, compared to $86,607 to $154,126 in the other countries.

5. "Efforts targeting utilization alone are unlikely to reduce the growth in healthcare spending in the United States; a more concerted effort to reduce prices and administrative costs is likely needed," the authors concluded.

The present system sends the message that innovation increases medical costs. It's an ugly little secret. Here's a piece of advice. If you are a technopreneur or medical intrapreneur trying to get your ideas to patients, knock yourself out. Just don't tell anyone that what you are doing is going to cost everyone a lot more.

?To paraphrase the remark made by the US economist Robert Solow, we will soon see digital health everywhere but neither in health gains nor in cost reduction statistics.

Arlen Meyers, MD, MBA is the President and CEO of the Society of Physician Entrepreneurs on Substack