Health Care Dollars Well Spent

(cc photo by fw190a8)

(cc photo by fw190a8)

There’s a lot of wasteful spending in our health care system, but of course it’s not all waste and just about everyone you speak with agrees with the point David Brown makes in the Washington Post, namely that increased health care capabilities are an important driver of increased health care costs. In other words, sometimes we invent a useful-but-expensive treatment and as it rolls into widespread use costs go up but so do survival rates.

And good for us. The US in 2008 is much richer than the US of 1968 and the extra wealth has to be spent on something. So why not better heart attack treatments?

But still it does strike me that there’s something at least a little bit odd about this. It’s not, after all, uniformly the case that technological progress makes things more expensive. The real price of new cars has, for example, declined over the past few decades which is one reason why car ownership has become so widespread:


In a different kind of case, when HDTVs were first introduced they were much more expensive than conventional televisions. Early adopter types went out and bought them anyway, which must have led to some kind of increase in television spending. But soon enough HDTV prices began to fall. And the presence of cheaper HDTVs on the market caused the price of conventional TVs to go way down, since what had formerly been a standard product became a downmarket product. Technological progress is driving quality up, in other words, but not really driving prices to march upward to nearly the same degree.

This gets back to some of the perversities of fee-for-service medicine. The current market creates strong incentives for people to develop “better and more expensive” methods of treatment, but almost no incentive to develop “as good but cheaper” methods of treatment. Both kinds of innovation, however, are extremely valuable. The world’s resources are limited, and the development of cheaper methods of treatment would allow for more overall treatment and thus better outcomes.