Does New Medical Technology Increase Spending?
One of the most commonly discussed puzzles in health care is that technological improvements seem to increase quality, but also to increase unit costs and total spending. This contrasts with other industries, such as computers and electronics, in which technological improvements are typically associated with both increases in quality and noticeable decreases in costs. To understand why technological improvements induce different economic effects in health care than in other industries, it is important to understand two different classes of technological improvements in health care as well as a particular characteristic of the health care pricing system that inhibits the market processes that cause technological improvements to reduce costs in other industries. The first class of technological improvement enables a new treatment for a previously untreatable or less effectively treatable disease or condition. While introducing a treatment for a previously untreatable condition does not,
