July 1, 1997

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Medical Device & Diagnostic Industry Magazine
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An MD&DI July 1997 Column


Medical technology can and should be a key component of a resized, consumer-oriented, and cost-effective health-care system.

Old orthodoxies die hard, it seems. Listening to a National Public Radio news program recently, I heard a typically well-reported story on the latest trend in HMOs: allowing customers to go directly to medical specialists, bypassing the general-physician gatekeeper. This trend is made possible, the reporter noted, because "medical inflation has slowed much more dramatically than analysts expected," so that HMOs are willing to pay for more choice. But an expert interviewed noted that the trend could be short-lived. "He predicts," the reporter said without further comment, "that medical inflation will start rising again, driven by an aging population and costly technology."

This observation was almost a throw-away line, but it unsettled me nonetheless. Will the experts ever abandon this obvious misconception about medical technology? Do they all believe it?

Fortunately, an antidote to this medical technophobia was at hand in a new book, Market-Driven Health Care (Addison-Wesley) by Harvard Business School professor Regina Herzlinger. In it, I found confirmation that this belief about medical technology is indeed widespread: "Most health policy experts," she writes, "firmly believe that medical technologies are the root cause of excessive health-care costs." Some even argue, she adds, "that medical technology innovations are so inherently cost-increasing that they will cause health-care costs to continue climbing even after all the waste and inefficiency has been wrung out of the system."

Herzlinger firmly believes otherwise. Many new medical technologies, she says, have reduced health-care costs, but "have been so pervasively purchased by health-care institutions--some of which use them very little--that they have increased costs as well." Moreover, she claims, the many analyses that purport to show how technologies have increased costs in fact show only that prices have increased--a result of a health-care system that has not until recently competed on price.

Indeed, Herzlinger argues that medical technology can and should be a key component of a resized, consumer-oriented, and cost-effective health-care system. The new model for this system is what she calls a "focused factory," a health-care provider specializing on a specific disease. An example is Denton Cooley's Texas Heart Institute, which she says provides bypass operations for about $27,000, some $16,000 less than the national average. One of the keys to this success, evidently, is technology. As Herzlinger puts it, "the august surgeon proudly notes that he substituted a $10 plastic disposable tube for one usually costing $75, with no loss in quality."

Herzlinger's book should be of particular interest, by the way, to small manufacturers. As she pointed out in a phone call, she believes that large, vertically integrated health-care systems, which have tended to ignore smaller device companies, have no future. "Vertically integrated systems," she said, "cannot compete against smaller, focused-factory health-care providers." Manufacturers that develop cost-effective products suited to disease management approaches should do well in the future, regardless of their size.

What seems to set Herzlinger apart from other health-care policy experts is her ease with technology. When I asked her what motivated her to write the book, she told me that it began with a series of articles for the Harvard Business Review called "Can We Control Health-Care Costs?"

"I decided the answer was yes," she said, "but not through saying no to customers, or rationing health care, or building big systems. I saw another way, through entrepreneurs, and I understood that technology was a positive, not a negative."

Doubtless, few readers of MD&DI suffer from fear of technology. But to help them fend off the technophobes, I recommend a dose of Professor Herzlinger's book.

John Bethune

[email protected]

Copyright ©1997 Medical Device & Diagnostic Industry

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