Health Care Costs and Financing

Adoption of medical innovation, which is driving much of health care costs, is largely outside the control of health plans

After a brief respite, health care spending is again growing much more rapidly than the economy as a whole. This growth in spending is driven primarily by the costs associated with diffusion of new medical technology. A recent study by Michael E. Chernew, Ph.D., of the University of Michigan School of Public Health, and his colleagues suggests that it is unlikely that managed care health plans will significantly constrain this technology-driven growth in costs.

Based on a series of interviews with health plan administrators, medical group administrators, and physicians in two distinct geographic markets, the authors conclude that market forces are not sufficient to motivate health plans to strongly oppose the external forces driving technology diffusion. Thus, managed care, as historically practiced, will not dramatically slow health care cost growth. Their study was supported by the Agency for Healthcare Research and Quality (HS09838).

Respondents of all types agreed that physicians drove use of medical innovations, with limited interference from managed care organizations. The primary motivation for adoption was the potential for improved patient outcomes. This was particularly salient in cases where existing treatments were not regularly achieving desired outcomes, even if solid evidence supporting the new innovations was not yet available. The coronary artery disease example most commonly cited by plan administrators was the rapid adoption of intracoronary stents, which are mesh tubes that expand like scaffolding inside an artery to keep it open. Anecdotal evidence quickly indicated that rates of restenosis (reclosing or renarrowing of the artery) following coronary angioplasty were reduced with placement of stents. Thus, there was immediate pressure for diffusion of stents and coverage by health plans.

A range of other factors contribute to physician adoption of new technology including competition for patients and professional status. These forces are augmented by manufactures promoting new techniques and in some cases, consumer demand. Plans try to influence technology adoption via coverage decisions and other managerial initiatives (such as education campaigns). However, the plans generally are hesitant to alienate physicians, consumers, or employers, and they want to avoid the appearance of restricting access to important innovations.

Plan administrators generally seemed satisfied to keep cost growth within range of the overall trends and were unwilling to try to strongly limit access to any particular technology because the risks to the plan were much greater than potential gains associated with limiting access to a technology advocated by the medical community. Physician professional norms and culture appear more important to the diffusion of new technologies than health plan initiatives.

See "Barriers to constraining health care cost growth," by Dr. Chernew, Peter D. Jacobson, J.D., M.P.H., Timothy P. Hofer, M.D., M.Sc., and others, in the November 2004 Health Affairs 23(6), pp. 122-128.

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