This post is an attempt to explain why I believe so strongly that technology is not the primary driver of the increase in healthcare costs that some people seem to think that it is.
Many years ago in the mists of the distant past I was on the design team for a large, expensive piece of medical equipment for a major manufacturer. When I say “expensive”, I mean a piece of equipment that would sell for a million or so of today’s dollars.
I proposed a design change that would, without loss of functionality, save 10% of the cost of the piece of equipment, not chump change when you’re talking about that level of expense, and was somewhat baffled at the response. The managers of the project weren’t interested in making the product less expensive whatever the circumstances. They wanted it to be more expensive.
There are several possibilities for this behavior. One is that the managers were idiots who didn’t know what they were talking about. However, I’ve had this experience replicated over time and over a number of different companies so, if it’s idiocy, it’s persistent, widespread idiocy.
Another explanation is that technology in healthcare is a Veblen good, a commodity in which, unlike most goods, the preference for buying them increases as a direct function of their price. I believe that’s the case and that it extends to to healthcare providers and to consumers as well. I don’t personally feel that way but, apparently, I’m an outlier.
Note that, if technology in healthcare is a Veblen good, that’s a statement about the perverse behavior of its consumers rather than anything intrinsic about the use of technology in healthcare per se.
I would go farther than that and suggest that healthcare itself is a luxury good, a good in which demand rises more than proportionally as income rises. If that’s the case, it doesn’t bode well for our attempts at restraining the increases in healthcare costs.
Perhaps I shouldn’t be as concerned as I am about incomes flattening or declining. If healthcare is a luxury good that would have the consequence of causing it to decrease in demand disproportionately, just as increases in income cause the demand for luxury goods to increase disproportionately.
