Whenever I hear the claim that the rising cost of healthcare is due to the cost of technology I’m always reminded of what I learned when working for a client of mine. This particular client was a pathology lab and its main profit center was Pap smears.
The actual technology costs of processing a smear consisted of the consumables and capital equipment used (microscopes and so on). The total cost that could be attributed to these items was less than a dollar. The payroll costs for the technicians who peered at the slides through microscopes and the pathologists who reviewed and signed off on the results amounted to a few dollars more. The balance paid for staff, non-technological expenditures (like building rental, electricity, and so on) and the profits of the pathologists who owned the lab. The markup on a Pap smear was phenomenal.
Nearly all of the cost was payroll in one form or another.
That’s why when I read the head of the Mayo Clinic’s explanation for the high and rising costs of healthcare, “too many people making too much money”, it rang true to me. And why I’m skeptical of the claim that technology costs drive healthcare costs. If that were the case it would show up in consumable and capital equipment budgets and those items are rising more slowly than healthcare costs, generally.
Unless when they say “technology” they mean “payrolls” in which case I agree.
It seems to me that the per-use cost for technology can be justified as high if it’s not used regularly. Or you can have a lot of equipment and run a lot of tests and the like with low per-use costs. But in the US, we bill based on the first scenario but utilize on the second.
Isn’t your wife a doctor, Mr. Trumwill? What does she have to say about the system?
My experience is that docs frequently overestimate the costs of technology because they have a low tolerance for capital expenditure.
She sees the main cost problems as overutilization and bad incentives. She is personally disinclined towards aggressive treatment (she has a remarkably low c-section rate, for instance, and is thrifty with prescriptions), but she’s caught in a system where more is better. The patients want it, the financial incentives encourage it, and the costs of being a doctor and (for her bosses) running a hospital demand it.
Approaching a cost+ pricing environment generally occurs only in the presence of real competition and true market demand. That is, in the absence of monopoly, subsidy, or differing views of value.
Perhaps all three are at work with pap smears.
I had a client who was a manufacturer of a fairly inexpensive medical product, though used with such frequency that they would typcially be sold in large bulk quanties. The product was actually sold below the variable costs to manufacture and distribute. Why? The manufacturer thought he had developed an advanced product and wanted to go down in history (in my words) as the Henry Ford of this sector.
My take-aways, if you undercut your competition and advertise that your product is better, your competition will tie you up in bull$%*## Lanham litigation, and the nurses that order your product don’t look closely at price on disposable goods anyway.
Robots increased prostatectomy rates.
http://theincidentaleconomist.com/wordpress/robots-ripping-out-prostates/
The technology which has driven costs the most is diagnostic tech. MRI scanners run around the clock, so their capital costs get paid off pretty quickly. The real costs they generate are in fees for reading and, most importantly, the procedures that come from what they show. The cost of an ultrasound machine today is not that high. The results from that machine, coupled with the presence of a neonatologist, give us many more C-Sections.
Steve
Sounds like profit-maximizing behavior to me. Unless robots are roaming the streets removing the prostates of unwary passers-by this is a misleading diction.
A better choice of words would be that the availability of robotic prostatectomy caused physicians to prescribe/recommend the removal of more prostates.
Or, said another way, payrolls.