An example of how third-party reimbursement can affect the use of medical technology is illustrated by the Medicare program's coverage for end-stage renal disease.

Renal dialysis and kidney transplants.

Kidney failure is fatal unless treated. It is typically treated through renal dialysis, which filters waste material from the blood through an artificial kidney, or through kidney transplantation.

Supported in large part by federal funds for research and demonstration projects, the first long-term renal dialysis pro148 grams were started in the early 1960's. Although about 1,000 patients were on dialysis by 1967, it was estimated that another 6,000 Americans died annually because of a lack of resources necessary to treat them. As a result, pressure was exerted on the federal government to help relieve the tremendous financial burden associated with renal dialysis and to make this process more widely available.149 In response, the Social Security

Amendment of 1972 (42 U.S.C. 1305), which authorized Medicare to pay for dialysis or kidney transplants for persons with endstage renal disease, were enacted. 150 In 1973, about 11,000 dialysis patients were participating in the Medicare program and about 3,000 kidneys transplants were performed. In 1980, 50,000 persons were on dialysis and about 4,700 transplants were done. 151 For fiscal year 1983, an estimated 63,000 dialysis patients were participating in the Medicare program. program.152 1983, an estimated 93 percent of the U.S. population with end-stage renal disease was covered under the program. 153

As of

Transplantation is sometimes less costly than renal dialysis in the treatment of kidney diseases, and is the preferred method of treating end-stage renal disease. Transplantation frees patients from the inconvenience of undergoing continuous dialysis treatments, imparts a sense of good health, and improves their overall quality of life. Moreover, many studies show that transplant patients frequently resume working, supporting families, paying taxes, and contributing to their own health care costs.154

Besides the issue of reimbursement policy, other factors have contributed to the spread of medical technologies. Such factors include

--competition among hospitals to attract patients and
physicians,

--public demand,

--increasing medical specialization and physicians'
desires to do as much as possible for their patients,
--little data on appropriate technology use, and

--malpractice threats.155

What impact has technology had

on health care expenditures?

Several studies have been performed that attempted to assess the impact of technology on health care spending. The results of the various studies were mixed and demonstrate the difficulty of reaching general conclusions about the net-cost impact of medical technology. In some instances, technology has increased costs while in other instances it has decreased costs. For example, advances which avert the need for institutionalized medical care, such as drug therapy for tuberculosis, penicillin, sulfa, vaccines, and other antibiotics, have decreased medical costs. On the other hand, certain technologies which have high initial costs and/or operating costs (such as open-heart surgery, intensive care units, and renal dialysis) often increase medical costs. addition, technological advances which lower per unit costs (such as automated clinical laboratories) may decrease or increase overall medical costs, depending on the extent of their 157 application.156,

Additional factors which make it difficult to assess the cost impact of medical technology are (1) the changing nature of medical advances and (2) the changes occurring in the health status of the American population resulting from the increased prevalence of chronic diseases. According to a 1977 study by the American Medical Association (AMA), recent technological advances have not, in general, matched earlier advances, particularly those made in the 1960's.158 Further, the extension of lifespan resulting from reductions in infectious diseases has been accompanied by an increased prevalence of degenerative diseases requiring costly chronic care. In other words, technological advances have averted treatment costs for infectious diseases but have increased treatment costs for degenerative diseases.159

While conclusions on the net impact of medical technology on health care spending are difficult to make, what is clear is that certain medical technologies, if widely used, will increase expenditures because, on a per unit basis, they require large quantities of health care resources. Expensive equipment, open-heart surgery, and radiotherapy are examples of these technologies. Furthermore, the AMA stated in 1978 that expensive technological advances have been inappropriately utilized in a significant number of circumstances, which has led to an unjustifiable increase in medical care costs.161

160

What effect has technology
had on hospital costs?

Although the net effect of technology on health care spending has been difficult to measure, it is generally agreed that hospital costs have increased as a result of medical advances. A 1980 study by the AMA, for example, suggested that up to 38 percent of the increase in total hospital expenses per admission from 1962 to 1968 could be attributed to technology. The study noted, however, that it is difficult to quantify, with certainty, the contribution of technological change to cost containment increases.

162

Other research found that technology increased hospital costs for the following reasons:

--Consumption of resources has increased during hospital stays.

--Some new technologies which increase efficiency on a per case basis also increase demand which, on an overall basis, increases costs.

--Some new technologies simply provide new and expensive services.163

The emergence and widespread use of two major technological advances--intensive care units (discussed on pp. 108-109) and open-heart surgery (discussed below)--highlight the impact that technology can have on hospital costs.

Open-heart surgery. The incidence of coronary heart

disease is widespread. In 1975, over 4 million Americans suffered from either a heart attack or angina pectoris. During the same year, about 643,000 deaths were attributed to coronary heart disease making it the nation's leading cause of death.164 By 1982, over 755,000 deaths were caused by diseases of the heart. 165

Surgery directly on the exposed heart moved out of the category of a medical curiosity in the 1950's with the development of the pump-oxygenator, or heart-lung machine (a machine that can temporarily take over the job of the heart and lungs). Once such technology was available, surgeons began to perfect various procedures to repair or replace defective parts of the heart. The procedures in common use today include the surgical repair of the valves and walls of the heart and the replacement of natural heart valves with man-made ones. However, the best-known procedure of all is the bypass graft, in which portions of the blood vessels leading into the heart, which have become partially blocked, usually because of arteriosclerosis (hardening of the arteries), are replaced with lengths of blood vessel taken from elsewhere in the patient's body.

Coronary bypass surgery, introduced in the early 1970's, has become the primary surgical approach to treatment of coronary artery disease. About 25,000 of these procedures were performed in 1973.166 In 1982, about 170,000 such surgeries were performed. The procedure is expensive, costing between $10,000 and $19,000 per patient. In 1982, total costs for coronary bypass surgery amounted to approximately $2.5 billion. 167

care.

What is the impact of technology

on Medicare costs?

In 1980,

The impact of technological advances has been most notable in the Medicare program. Since 1974, Medicare expenditures have increased at an average annual rate of 19 percent and in 1983 totaled about $59 billion. Most of that amount (about $54 billion) went for hospital and physician 168 Elderly and disabled Americans on Medicare are disproportionately high users of health care services. the over 65 age group accounted for 11.2 percent of the population but 31.4 percent of health care expenditures. Because the U.S. population is aging, both percentages can be expected to increase in the future. Technological interventions in most areas--with the exception of obstetrics, pediatrics, and possibly preventive medicine--are also disproportionately used by Medicare beneficiaries.169

A 1984 OTA report suggested that medical technology is commonly used inappropriately, raising Medicare and health system costs without improving quality of care. For example,

A

many surgical procedures seem to be overused in the United States compared to other countries. High testing rates, including conducting tests not indicated by the suspected conditions, are further evidence of technology misuse.170

OTA found that there are interactions between Medicare and the rest of the U.S. health care system. Because of its size and scope, and because other third-party payers often follow Medicare's example, its reimbursement policies and procedures can significantly affect the manner in which health care is delivered, including the development, adoption, and use of medical technology.171

For many years, Medicare has paid hospitals and other institutional providers on the basis of reasonable cost and paid physicians and other non-institutional providers reasonable charges on a fee-for-service basis.

Under both payment methods, providers receive more reimbursement when they use more medical technology. Thus, these payment methods have offered providers few incentives to withhold the use of technology or to choose a less costly alternative.

The increased use of certain technologies could have a significant impact on the Medicare program, however, primarily by keeping elderly persons from unnecessarily using nursing homes and other health services. In a 1985 report, OTA stated that a variety of technologies can improve the health and functional ability of older persons and possibly reduce health 172 care expenditures. OTA said that increased development of technologies could lessen the burden of caregiving, allowing 173 elderly persons to remain at home longer. The increased use of computers could provide elderly persons with health information on diet, exercise, drug interactions and also be used to monitor vital signs. 174

OTA also said that other

devices were available to assist persons with memory loss, impaired mobility, bathing, eating, shopping, and cooking.175

Who is responsible for assessing medical technology?

Besides the expense, another problem associated with the development and use of medical technology is that no one organization has had overall responsibility, until recently, to assess it from an efficacy and cost-benefit standpoint.

In the public sector, the Food and Drug Administration's legislative mandate is to review and approve the safety and efficacy of drugs and medical devices; it does not deal with