Two basic premises behind the Affordable Care Act, which was signed into law last year by President Obama, were the high costs of healthcare and the sizable number of Americans lacking health insurance. A seemingly even more basic premise is that advances in biomedical research and development will only drive healthcare costs up, for example, biotechnology-derived drug regimens costing over $100,000 per year.
With notable exceptions, that has been true in the past, will tend to be true over the next ten years, will not be so true 20 years from now, and will likely be false 30 to 40 years down the road.
Here are just a very few notable exceptions. First, a number of effective vaccines have been responsible for significant reductions in healthcare costs. A dramatic example was the introduction of the polio vaccine in the 1950s, which essentially eradicated the disease. Previously, there was no cure and paralyzed patients who would otherwise have been unable to breathe were consigned to an iron lung. When introduced in the 1930s, an iron lung cost $1,500, as much as the average price of a home then.
Next, research conducted independently by Harvey Weiss and Marjorie Zucker in the late 1960s resulted in the discovery of the antiplatelet activity of aspirin. As a result of this work, aspirin is now widely used to prevent and improve survival from heart attacks.
Then there was the discovery 30 years ago of the bacterial cause of peptic ulcers by two subsequent Nobel Laureates, Barry Marshall and Robin Warren, which eventually led to the use of antibiotics to cure peptic ulcers, thereby obviating the need for surgery.
In general, studies undertaken several years ago by Frank Lichtenberg at Columbia University demonstrated that every dollar spent on newer pharmaceuticals saved over $6 in total healthcare spending, including over $4 in hospital spending alone. The downside, with regard to advances in healthcare delivery, is that people are living longer, resulting in a greater percentage of senior citizens, who are disproportionately responsible for healthcare expenditures.
Thus, according to the U.S. Department of Health and Human Services, in 1980 U.S. healthcare spending amounted to 9% of the gross domestic product (GDP). Today it is approximately twice that. So, why two to three decades from now will healthcare costs overall begin to decline?
Clayton Christensen, Jerome Grossman, and Jason Hwang, in their book, The Innovator’s Prescription, argue that the healthcare system will be transformed by means of disruptive innovations impacting on medical technology, business models, and the reimbursement system, and that these innovations will collectively drive costs down. Examples include the evolution of personalized medicine, self-care technologies, electronic medical records, online tools for physicians, and increasing value-added roles for nurse practitioners.
All technology-driven products and services tend to evolve with more and better features yet cost less and less. My first electronic calculator, purchased 40 years ago, cost $500, was about the size of a laptop computer, and had no memory capability. It could just add, subtract, multiply, and divide, but it was faster, smaller, and quieter than the mechanical calculator I had purchased several years earlier for just under $900. Today a pocket-size calculator with multiple functions is close to 99% cheaper in constant dollars than my purchase 40 years ago.