Sending Innovations Abroad. Only a Change in Incentives Will Bring Them Back.

Innovation in medicine is alive and well. Take a peek at the newest inventions coming soon:

• - One dollar eyeglasses that can be self-adjusted by the user to correct most common vision problems.
• - An ECG (electrocardiogram that diagnoses heart problems) that costs less than 20 cents to administer.
• - A portable, smartphone ultrasound machine that will be able to do diagnostic tests in the field for about one dollar each.
• - Paper-based lab tests the size of postage stamps that provide instant results on common blood tests at a cost of 5 cents.

Before you get too excited about these wonderful discoveries, there is one small detail: none of these are going to be available in the United States. Such game-changing items will find their way to developing nations where doctors and hospitals are in short supply. Plus, many more will follow as companies like GE and Siemens are investing significant resources in countries like India where providers need technology at a fraction of the U.S. price.

Why not here?

Innovation requires several things. Certainly, it needs new discovery, but in business it also implies market adoption. In most U.S. industries, this happens through pressure from one (or both) of the following dimensions: 1) improved quality or utility of a product and 2) the price of the product.

Healthcare is the exception.

Medicine is the only U.S. industry designed, encouraged (and sometimes required) to limit innovation to a single dimension—product performance. Innovation that reduces price is rare. Researchers report that of over 2100 published studies about new medical ideas between 2002 and 2007, over 75 percent were both more effective and more expensive. Fewer than 10 percent were more effective and less expensive. Most remarkable, only 0.4 percent of studies described solutions that were less expensive while less effective. (One study saved $12,000 per patient with only tiny differences in outcomes).

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This week’s post is the fourth and last in our multi-part series of posts on innovation in health care. You can review all of our previous posts in this fascinating series in our post archives.

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In every other aspect of our lives, we understand that price and quality has a tradeoff. Great innovations in communication, computing  and transportation have come from low-cost options that perform “almost as well,” at a significantly lower price. New technologies expand in the market when competitors appear offering slightly lower quality at a lower price. These put pressure on top-end products to differentiate their value or become more price-competitive. In medicine, standard clinical research requires that new products perform better than existing treatments, regardless of price.

What this means.

Can you imagine what everyday life would be like if the only cell phones, televisions or computers that ever came to market were more expensive than those already available? Few of us would be willing to continue upgrading to the next version. Many innovations in these markets result not from better technology but from “me too” products that fill demand for good enough options. Without them, it is no wonder that the cost of health care has only continued to climb.

Several factors combine to create our one-sided approach to medical innovation, most of them economic. First, there is almost no incentive for providers to advocate for lower price procedures.  The most influential price-setting group in health care (RBRVS) places its strongest weight on the technical sophistication and training required to deliver a service. Making a procedure more efficient or accessible to less trained individuals would reduce provider income. Because most care is still delivered in a fee-for-service environment, lower-cost options are simply not attractive to providers.

Second, almost all consumers are shielded from price by their insurance coverage—“someone else” pays. Without incentive to inquire about less expensive options, most patients don’t question whether an alternative exists. On top of price ignorance, there is an underlying bias toward getting “the best.” Why not ask for an MRI, even when an X-ray might be sufficient?

Combine these incentives with a research and approval system that requires clinical improvement for new products and you get our ever expanding cost of care largely attributable to technology.

To be clear, we are not talking about offering known poor quality care to save money. We are talking about trading some accuracy in diagnosis or substituting equally effective medication for surgery where it is appropriate. Most of the trade-offs would involve very little risk to patients, in return for potentially huge savings.

So, we will see innovation elsewhere.

Despite our (mostly self-imposed) limitations in the U.S. health care system, pockets of innovation elsewhere give us hope for the future. We may eventually have to import solutions from faraway places where price matters so much more. Some call this the boomerang effect, where our brilliant inventors export solutions that eventually make their way home.

What will accelerate innovation here?

We all can play a role in advancing better solutions at a lower price.

We need broad education and media coverage about cost in healthcare. Like any other movement (e.g. going green) most citizens are unaware that their (uninformed) choices contribute to excess cost in the system.

We may not be close to filling the gap for good enough technologies, but there are calls for different sorts of clinical trials with specific criteria for certifying that lower-cost options are acceptable. That’s helpful, too.

Most important, activating consumers by expanding the use of health accounts and high deductibles will make price more tangible. Nothing motivates comparison shopping like spending our own money.

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As a leading nonprofit health care research and consulting institute dedicated to improving human health, Altarum encourages open discussion and debate about the many challenges in health care today. All postings to the Health Policy Forum (whether from employees or those outside the Institute) represent the views of the individual authors and/or organizations and do not necessarily represent the position, interests, strategy, or opinions of Altarum Institute. Altarum is a nonprofit, nonpartisan organization. No posting should be considered an endorsement by Altarum of individual candidates, political parties, opinions, or policy positions. Read more.