Megan McArdle on the health care cost slowdown

Technological decline seems more plausible [as a cause]; see this Brookings Institution paper for the extended argument. Basically, health-care innovation is expensive, and for roughly the last decade, we’ve been doing less of it. As old innovations come off patent or are refined into cheaper and better versions, costs fall.

If you think health-care innovation is all useless me-too drugs, you should be pleased that we’re getting less of it. As it happens, I don’t think that’s the case, so while I’m pleased about the budget impact, I’m less pleased at the prospect of fewer new medical technologies. The good and the bad news is that the authors of that Brookings paper don’t necessarily expect the experience of the last decade to be continued in the future — good, because “whee, new treatments!” And bad, because, well, money.

The most worrying possibility is that this reflects a broader slowdown in how fast everything can grow. Certainly, it’s clear that the Great Recession caused a major slowdown in health-care costs everywhere; if you graph the data from the Organization for Economic Cooperation and Development, there’s a sharp, across-the-board inflection point in 2009.

There is more here.


'I’m less pleased at the prospect of fewer new medical technologies'

Ms. McArdle would probably not enjoy reading this doctor's perspective, which starts so -

'I know where this phone call is going. I’m on the hospital wards, and a physician in the emergency room downstairs is talking to me about an elderly patient who needs to be admitted to the hospital. The patient is new to me, but the story is familiar: He has several chronic conditions — heart failure, weak kidneys, anemia, Parkinson’s and mild dementia — all tentatively held in check by a fistful of medications. He has been falling more frequently, and his appetite has fallen off, too. Now a stroke threatens to topple this house of cards.

The ER physician and I talk briefly about what can be done. The stroke has driven the patient’s blood pressure through the roof, aggravating his heart failure, which in turn is threatening his fragile kidneys. The stroke is bad enough that, given his disabilities related to his Parkinson’s, he will probably never walk again. In elderly patients with a web of medical conditions, the potential complications of any therapy are often large and the benefits small. It’s a medical checkmate; all moves end in abdication.

I head to the ER. If I’m lucky, the family will accept the news that, in a time when we can separate conjoined twins and reattach severed limbs, people still wear out and die of old age. If I’m lucky, the family will recognize that their loved one’s life is nearing its end.

But I’m not always lucky. The family may ask me to use my physician superpowers to push the patient’s tired body further down the road, with little thought as to whether the additional suffering to get there will be worth it. For many Americans, modern medical advances have made death seem more like an option than an obligation. We want our loved ones to live as long as possible, but our culture has come to view death as a medical failure rather than life’s natural conclusion.'

So do you imagine that new medical technologies only serve to tack on a few more weeks to ones life at the end? There is no other function for medical advancement? What was the point of your post, mere contrariness or am i missing some deeper point?

Canada's exquisitely progressive health care system makes people wait months to years for treatment. One could sympathize with the difficulty of organizing timely service, but reading Mr prior_approval we find that in fact the waiting lists are purposeful. Either you die or have spontaneous remission, and either way the problem goes away.


America's health care system makes around 15% of the population wait forever for treatment. So I guess the question is is waiting for treatment in Canada better then not getting it in America especially given that Canada spends half of what America spends.
37% of Americans don't get recommended or needed care compared to just 5% of people in Canada[1]
So could you either get a clue or try to be honest?


How much "recommended" care is unnecessary?

A surgeon is likely to give you a very different recommendation than a GP.

Patients might rationally choose to avoid a recommendation, preferring to risk worsening of their condition versus the certainty of surgical risks and complications.

If you counted the medical recommendations I elected against, I'd be counted as underserved.

Would you like to wait 18 months for a knee replacement like my dad did?

Would you like your preemie sent to another country for treatment because hospitals ran out of beds, as Canada did?

Would you like a couple dozen PET scanners in a country of 30 million people?

Medical costs rising as fast as the US?

Health costs that make up half of provincial budgets?

Being forbidden by law from paying for your own healthcare, even when you really want to because pain or immobility sucks when you're on a 1 year wait list?

America’s health care system makes around 15% of the population wait forever for treatment.

Another wonderfully fake statistic. You are far more likely to be rationed out of treatment in every other OECD country.

Guess what, doctors in different countries recommend different things. The United States does twice as many MRIs, far more cancer screenings. twice as many transplants, etc, etc.

>What was the point of your post

He's an apologist for Obamacare's death panels. Er, I mean, life panels.

Here is what I don't get about this meme: even the most ridiculously government-provided price monopoly could never compete with the value of a human test subject.

I have had a kidney transplant that transformed my life, it involved new drugs and new institutional innovations that barely existed five years ago. My stepmother had a hip replaced twenty years ago and she still hikes at 80 and is still researching and publishing. I have a neighbor whose site was restored enough by a drug that is less than a decade old that she can drive herself to work. I could go on and on. You know if we stopped staffing trauma centers we could save a fortune.

Obviously both you and the doctor in the story have no inkling about what it means to be sick.

You have no idea what the doctor is talking about. You describe conditions for which we have proven treatments that result in cures or extended functionality. . He is describing conditions for which we are basically extending death, not life. After spending a lot of money, and having this elderly patient suffer a lot of pain from the treatments, the patient might live a month longer lying in bed, unable to recognize or communicate with anyone.


He was responding to what PA was theoretically saying, but he forgot that PA is an idiot and couldn't understand the uselessness of his giant quote in this context.

Actually, many of us want ourselves and our loved ones to maintain a high plateau of health until the last hour or so.

For the medically fragile, medial care becomes an increasingly unstable house-of-cards, with multiple, unrelated risks balanced against assorted benefits. Of course it must eventually crash; a time will come when improving one critical failure can't be done without causing other, more critical failures. Homeostasis fails, as it must; the Grim Reaper will not be denied.

Really, we know all that. But if this house-of-cards is supporting a reasonable quality of life then the primary argument against it becomes its cost. Which, in a world with finite resources, will always be an issue. But not so much if neither the patient or the patient's family has to pay any significant part of that cost.

The bottom line: medical rationing will come (if it's not already here); the only questions are, who will do it (and by what criteria) and who will it be done to?

McArdle has grown as a blogger/journalist, her writing improved immensely, her arguments concise and logical. It's a long way from the bewildering arguments she once presented. That's not to say her arguments are compelling; indeed, they're not. But improvement is what few pursue and even fewer achieve. If bloggers/journalists were given awards for most improved, McArdle wins it. I'm hopeful that as she gains confidence she will begin to chart her own way and make a valuable contribution to policy.

Her referring to the various costs and benefits of technological developments as "pleasing me"/"not pleasing me" could still use a bit of work . .

Yeah, to talk like that you are supposed to be the President.

She should learn to state her personal preferences as incontrovertible truth, like real pundits do.

I used to not like McArdle because I thought she was afraid to state a real position on a lot of stuff, even though you could totally tell what her position was given a close read. "On the one hand this, on the other hand,blah." But on health care, she has really laid her cards down. I'd say she has been proven wrong on over half of the ACA failures she asserts in this piece, with a few TBD: She is clearly an activist journalist and her stuff can be interesting, but I am not looking to her for unbiased analysis on anything.

Except she is right.

Nope. We discussed this one yesterday, Andrew. The slowdown in the US has been larger and at the same time of greatly expanded benefits and overall health coverage. It's really no comparison.

Which half of these are proven wrong?

According to the data we have so far, more than half of the much-touted Medicaid expansion came from people who were already eligible before the health-care law passed, and this weekend, the Wall Street Journal reported that the overwhelming majority of people buying insurance through the exchanges seem to be folks who already had insurance. Coverage is less generous than many people expected, with narrower provider networks and higher deductibles. The promised $2,500 that the average family was told they could save on premiums has predictably failed to materialize. And of course, we now know that if you like your doctor and plan, there is no reason to think you can keep them.

Yea but shes still completely clueless and a hack especially when it comes to health care.

From the guy who cites TPMCafe and PR newswire as authorative...

I realize you dislike reality, how can I help you accept it?

I hadn't read her much before, but this is the improved version? "Because, well, money"..."Certainly, it's clear"...

All she's missing is "omg lol!"

That means you missed her dozens of Obamacare predictions that were wrong or her article stating that the Stimulus act socialized health care because it provide private hospitals with money to computerize and modernize their health records.
She really doesn't post anything worth reading.

That's not true, her annual kitchen gift guide that comes out near Christmas is quite good.

Not worth reading, yet you seem to have made quite a study of her. How can I trust the word of someone as indiscriminate as you?


In just one year, technology changed so much that this explains it.

Yea the cost slow down has nothing to do with the Stimulus act devoting 40bn to computerized records. I mean RAND only estimated that full adoption of computerized records could save at most 300bn a year[1], it has nothing to do with the ACA putting a fee on hospital readmission which has caused a 6% decline in readmission, or the ACA investing in Community health centers that save 17$ for every 1$ spent[3], or the ACA swithcing the payment system over to one that bundles payments and pays based on quality rather then quantity which reduces costs by 5% despite improving health outcomes by over 10%[4] or the ACA expanding value based medicine which is estimated to save 35billion[5] Na the ACA and all the investments Democrats did have nothing to do with it.






+1 Irony and self discovery are ways to persuade.

It has almost nothing to do with your penny ante post hoc fallacy examples.

Yes because in your mind 5% of health care costs is nothing and neither is tens of billions of dollars...

So the cost slowdown reflects mankind becoming more efficient at doing old things rather than learning to do new things? It would be best to do both at the same time, but to whatever extent that the two are in tension, we might welcome this change.

From the Brookings paper:
"They caution that projecting future growth is challenging, recognizing the possibility of newly developed accountable care organizations (ACOs) and other parts of the Affordable Care Act (ACA) on cost containment. “On the one hand, increased Medicaid enrollment will lead to greater healthcare spending, but on the other, the impact of scaled back Medicare reimbursement rates will reduce Medicare spending growth.” They also believe there are possibilities that insurance companies, emboldened by an increase in market share from getting more patients from exchanges and the Medicare Advantage program, could restrain the growth of healthcare spending by reducing coverage of expensive and unproven therapies in favor of cheaper ones, as ACOs could as well. “Yet ultimately, we still must be concerned about the long-term technology pipeline that could continue to deliver new and expensive technology with very modest medical benefits, but very poor value for the dollar,” they write"

My take is the less technology advances might also be the hospitals and doctors are less willingly to overspend on ever changing technology. The latest developments are longer worth spending thousands on anymore with minimal health impacts. (These health care technologies are likely personal computers or TVs.)

Also, according to Megan, it is up the average American to overpay for the healthcare advances so these companies can sell below average cost (and over marginal cost) to other nations. This reality has hurt the average American workers so I don't necessarily mind these lower expenditures.

I find that logic absurd. Why would drug companies sell a product for a huge loss to like 600million people? If they really were losing money business 101 says that they'd simply not sell that product.

Have you PASSED By 101? I think you need to enroll in MUD to learn the basics.

You still haven't explained why dozens of corporations would chose to lose money on their products; perhaps its because you really cant explain it and are just throwing random shit at the wall to try to paint a rosy picture for Americans expensive low quality private health care system. I realize logic and reality is hard for conservatives but try it some time.

Suppose a product costs 50 million dollars to go through research, development, FDA trials, getting a factory set up etc. It costs 100 dollars to make after all the setup is paid for. It is sold to 60,000 Americans at $1,000 each and 200,000 others at 200 dollars each. The average cost is ($50,000,000 + ($100*260,000))/260,000
or $292. If the company sold the product to everybody at $200 it would have lost money having spent $76,000,000 and only receiving $52,000,000. However if the company can count on selling 60,000 units at a profit of $900 each it will have paid off all the research and development and made $4,000,000. After that if sells another 200,000 at an additional profit of $100 each it would make an additional $20,000,000. This what is meant by the companies making money by selling above average cost to Americans and below average cost but above marginal cost to others. And if they think that they won't be able to charge higher prices to Americans than non Americans and they aren't going to be able to raise to prices to non Americans than as you say business 101 says they will not spend the money to develop the product. Which is Megan's point about about reduced inovation.

"I am that ignorant!" he proclaimed

Maybe MRU has a course on pricing you could take - selling at a price above Marginal Cost in some markets is not a bad idea. Solvadi's MC is probably a few dollars a pill - maybe less...

Would anyone expect McArdle to say the ACA has had anything to do with slowing health costs? Could she possibly say that?

Anyway, David Cutler pointed out the medical technology trend in his May paper: Importantly, he cites lack of development of new technologies and drugs as but one of the many reasons spending growth had slowed.


"Would anyone expect McArdle to say the ACA has had anything to do with slowing health costs?"

I am not sure if you are referring to the ACA slowing health care cost growth before it was law, or whether you are referring to the ACA slowing health care cost growth in other countries where it is not law. Could you clarify which?


When it became law in 2010 in this country where the slowing of growth has been more pronounced and has coincided with expanded benefits for most people as well as millions more patients gaining insurance.

For example the 3 studies done adding up the cost cutting measures of the ACA found that it would slightly reduce total health care spending (after 10 years) despite expanding coverage to over 30million people[1][2][3]. And those studies may have been low balling it given that in the 1st quarter when health coverage increased by 10million health spending actually decreased suggesting that expanding coverage is not and will not be as expensive as originally thought.




Originally thought by who?


Uh, the study authors? The CBO also has thoughts on this and has regularly updated their estimates. Don't understand how this is a strawman, but the ACA is bad bad bad, right? Keeps going down.

I do enjoy pointing to estimates from the past of things that didn't happen explaining things that did happen

And Obama said it was going to lower premiums by $2500, and you could keep your plan, and you could keep your doctor.

Next set of long-debunked assertions, please.

Well, my wife and I each have a big black pill ready for when the time comes. That should save everyone else a ton of money! :-(

Tyrone will do it for free breh

That's activated charcoal, dude! You take it after you swallow the bad pill and have second thoughts about the whole thing.

Shouldn't have told me about the activated charcoal! Maybe I'm my own commitment device, maybe I'm not. Am in two minds about telling my wife about the charcoal. :-)

Helium asphyxiation is the best and most certain way to go.

Large amounts of heroin.

ACA only covers that during abortions.

This post is interesting because it misstates one of the effects of innovation on pricing.

The premise is that there is less innovation, and therefore more stable prices. But, the argument could be made that there is more innovation, and therefore lower prices

Let me illustrate with an example:

If you took an MBA pricing class, you might be confronted with the problem of how to price a medical device that, say, improves outcomes, but also displaces doctor time or nursing time, or length of stay. You would then measure the cost savings differential to price the medical device.

Simple. Just showed you that innovation didn't lower price.

But, what if another innovator(s) came along and developed a product, using different technology, that had the same outcomes, and displaced doctors and nurses to the same degree as the first product.

Now, you have a duopoly...with both innovators possibly lowering price to go after the market.

in this case innovation, rather than raising prices, lowered prices.

Does Apple price differently when Google innovates, or when Microsoft finally gets its act together.

It wasn't making a general statement on innovation; it was making a specific statement about the relationship between drug patents and drug costs.

Norm, So, how much are drug costs of total healthcare costs that it would account for her claim. How much of a delta would it take in drug costs to lower overall healthcare costs.

You don't have to answer the question because the answer is obvious.

If her major argument is that drugs losing their pateints is the driver of lower health care costs then she'd have to include Obamacare has a driver of slower health care costs considering it lowered the number of years drugs are patented for.

It created a pathway for generic versions of biologics to enter the market, which did not exist before. So, we can say it will probably drive down drug costs in the future, though the FDA has not approved in biosimilars yet--they are under review.

ACA did increase drug rebates for Medicaid and probably a few other tweaks I am not aware of, however on balance industry supported the ACA so they probably did that on the basis that it would raise their revenue overall.

Did they shut down the malpractice law industry? That would cut HC costs big time.

Forget about medical innovation/progress and "drug patents and drug costs." The next big health cost slowdown will will be the App that rations drugs and medical procedures.

>Did they shut down the malpractice law industry? That would cut HC costs big time.

It's a red herring beloved of way overpaid doctors. Malpractice awards as percentage of health care spending is a tiny fraction. Not so of payments to doctors, all of whom make many times what doctors in other countries make while providing inferior care.

Rationing is also a dirty word to doctors. They like the current system of spending limited only by how much they can extract from the economy. Car mechanics are envious of doctor's ability to diagnose the services needed and provide those same services (and own the equipment to boot).

The sooner everyone realizes that doctors are whinny scammers and not saints the better.

Why do you think Malpractice Awards are the right measure for the cost if malpractice litigation to the system? And where is the clearinghouse that collects and aggregates malpractice award amounts?

A good measure is the cost of malpractice insurance. Where this has been tried and studied the cost of insurance and supply of doctors (presumably more wiling to practice in states with limited malpractice awards), it has not made a difference.

doctors, all of whom make many times what doctors in other countries make while providing inferior care.

This guy isn't at all nutty.

Come on, T man! That would barely make a dent. You KNOW this.

This discussion is weird. Thus far everyone has ignored consumer surplus. So medical technology “costs” more, but does the cost exceed the benefit to the consumer? People today spend infinitely more on smart phones than they did 30 years ago, so should we decry the rising spending on smart phones? No, and we don’t because no one is being coerced into paying for someone else’s phone or data minutes. When you start socializing the costs, as we have in health care and insurance, you are faced with a cost vs. benefit problem that cannot be solved. We can take a stab at estimating the costs, but we have absolutely no way of knowing whether the cost is too great, too little or just right. We suspect that they are too great, but only because of the structure of the market which involves socialized costs which, theory tells us, should lead to overconsumption. Beyond that theory however, we can say nothing no matter how long we stare at the numbers.

And by the way, when the doctor in PA’s referenced article says “the potential complications of any therapy are often large and the benefits small” he has offered an assessment that he is not qualified to make.

Not too long ago i almost died. No one ever figured out why and didn't even seem to care what it was. I spent more time talking to the doctor about how she didn't have time to talk to me. They sure did a f of a ton of tests. Afterwards my family never discussed it. We are busy. The point is there seems to be this neat and tidy assumption of healthcare widgets when it is more like real time research.

Great let the patient or the patient's family pay for heroic medical care if it is so valuable to them.

All these rugged individualist libertarians leeching off the government teat is certainly an inspiring sight.

Mixed metaphor aside, what ARE you talking about? Who are these rugged individualist libertarians you speak of? And, to the extent that the patient purchased private health insurance, they DID pay for the heroic medical care that is so valuable to them.

The patient referred to in PA's article is on Medicare. The almost all are.

And the libertarians are the ones complaining about socialized medicine but then lapping it up at 65.

You are not talking about libertarians.

I am going to my human resources department first thing in the morning to get my libertarian exemption for paying Medicare taxes.

So because the generation before yours "robbed you at the barrel of a gun" it's okay for you to "rob the next generation at the barrel of a gun". How terribly principled!

We don't consider cost/benefit or value because it is threatening to industry, some providers and consumers who don't realize that we all pay for our health care, one way or another.

We aren't even allowed to use federal funds to research it, nor is Medicare allowed to take cost into account when making coverage decisions--prohibited by law. It's shameful.

"We" don't consider benefit because it is impossible. No change in legislation is going to alter that fact.

We do consider benefit, but mostly through FDA, which usually does not approve drugs and devices that have no benefit. However, we do not consider cost benefit or value.

If you think we can't study value, look at almost any other country in the world--they are doing it. Legislation could certainly change this. Have you heard of PCORI? It does comparative effectiveness research and was explicitly prohibited from conducting cost benefit analyses in the ACA. Also, Medicare is prohibited by law from explicitly considering cost.

How much is pain avoidance worth in dollars?

But out of my healthcare Jan, let ME decide cost benefit.

Please, please, please let me decide. Just give me the chance to decide.

Sure John Smith. Pay out of pocket for everything, and I'm perfectly fine with you putting whatever you want in your body. Heroin, thalidomide, a stereoisomer that costs 100x as much and does the exact same thing as a racemic mixture. Whatever you like.

I can create a narrative where additional innovations drive up prices in a specific industry, but since this is the opposite of the general case of technology's influence on costs it seems crazy to take it as a way of explaining away slowing growth in costs. Your explanation needs an explanation.

Exactly right! Technology lowers costs, relative to the alternatives. The trick here is to ignore the alternatives many of which are non-pecuniary. So if I invent a treatment that completely relieves the pain of pancreatitis and I charge $10,000, that is an increase in cost of $10,000 less the cost of the relatively ineffective alternatives. The value of not being in pain doesn't enter into the equation because we can't reliably quantify it. And that which we can't reliably quantify is asserted to be zero.

Have you ever listened to a medical device pitch, or even looked at one their sales brochures? Believe, people are out there quantifying the value.

Read the robot surgery section of this article. These kind of stuff is not _the_ reason health care costs go up, but it is one reason.

A hundred years ago there was nothing for the politicians to divvy up, there was no medicine/health care, that's the context.

Roy Porter

a hundred years ago you didn't get your glaucoma treatments, melanoma removals, stints in you arteries, heart surgery, liver/kidney transplants. two hundred years ago surgeons didn't even disinfect their hands between surgeries on different patients. scant anesthesia, no antibiotics . . . people didn't generally live long enough to get cancer. most women died in child birth, if war, plague, or starvation didn't get them first.

Funny how McArdle jumps to blame Obamacare whenever data (in this case an early report that ended up being sharply revised in the opposite direction) shows a rate increase in health care spending:

But of course the ongoing rate decline must be totally unrelated...

My take is that Obamacare incorporated (and reinforced through provider-side incentives) some positive trends that were already taking hold in the mid-to-late 2000s around limiting health care spending. It's anecdotal, but I recall in the 1990s and early 2000s that the medical news stories that generated buzz were often about new treatments, medicines or testing machines. Lately the breathless reporting is about ways to reduce re-admissions and inpatient stays and perform preventive rather than urgent care (wireless scales to monitor for unexpected weight gain in congestive heart failure patients was a memorable one; making social workers available for repeat-ER visitors was less cool but probably more effective at saving money). I think there are a lot of factors behind the slowdown, many of which I've probably never heard of or thought of, but I would not be surprised if Obamacare has so far had a modest positive impact.

I've said it before, but isn't this the total nightmare scenario for the Mercatus / Reason crowd: Obamacare just happens to coincide with (and support, but maybe only a little) a significant bending of the cost curve...?

Never reason from an expenditure change!

I'll mention that my wife had an incredibly life-improving medical procedure recently based on technology only developed in the last 10 years.

Another example is Avastin was developed with one purpose and it basically didn't work but then it works for other unforeseen purposes for reasons nobody understands.

Back in the 90s it was a common joke that aspirin would never pass FDA approval because no one knew how it worked.

Years ago I ran across a piece the claimed that the BIG gains in health were really from three things...
1. Doctors and nurses washing hands
2. Antibiotics
3. Vaccines.

Everything beyond that was working at the margins - in some cases the effect of the treatment was large - but only applied to a small % of the population i.e. transplants...
or if the treatment worked on a large group - the effect size was relatively small i.e. cancer screenings.

Yep, plus sanitation.

You could eliminate everything else and still get about 90% of the gains in outcomes like LE.

Did we ever have any healthcare inflation? I'm going to guess not. Healthcare is a mix of two products, old stuff and new stuff. It's hard to compare the prices of old things. Drugs you can do this easily. You can look at what a certain drug cost in 1990 versus today. Assuming it existed then, it's almost certainly cheaper today.

A doctor's visit, on the other hand, is always a mix of old and new. A doctor in 1999 had less knowledge than one today, even if it is the same doctor!

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