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Office of Technology Assessment at the German Bundestag Office of Technology Assessment at the German Bundestag

Information on the project

Technological advances in healthcare: A source of rising costs or an opportunity for cost savings?

Thematic area: Biomedical technologies
Analytical approach: Innovation report
Topic initiative: Committee on Education, Research and Technology Assessment
Status: completed
Duration: 2010 till 2013

Background and central aspects of the topic

The healthcare economy is one of Germany's most important economic sectors and is responsible for over 10% of GDP. The large number of people employed in this sector as well as its innovative strength make a key factor in economic growth as well as employment. Previously however healthcare provision was seen primarily as a source of spending, a view which is gradually being replaced by a more holistic approach which sees healthcare as investment and in terms of its macroeconomic benefits, as well as in terms of innovation and international competitiveness.

Technological advances have doubled life expectancy within the past century. Together with demographic changes, technological change is often seen as the main factor in increasing healthcare costs. This is commonly associated with the fact that new technologies are often used in addition to existing ones, rather than replacing them. However, recently the term 'disinvestment' has gained prominence, which describes the withdrawal of technologies (or practices) that have been identified for replacement.

Technological progress not only affects life expectancy, but also vice versa, as people living longer also creates demand for new technologies and contributes to funding these through insurance contributions. However, current models of reimbursement from healthcare funders often encourage cost producing rather than cost saving innovations, as they financially reward services provided rather than results achieved. As a result, technological advances cannot be funded through the resulting increases in efficiency or the income generated as described above.

Further, the success of technological advances can lead to illnesses being replaced by other illnesses later in life, rather than creating a state of general health and well-being, especially in older patients. For example, many Alzheimer patients would previously have died from now treatable coronary artery disease, as both conditions are a result of the same genetic disposition. Consequently, some of the economic concepts known from other fields (for example regarding income and expenses) cannot easily be applied to the healthcare economy.

Additionally, procedures involving new technologies are often only available at a higher price than those using existing technologies, partially to cover R&D expenses, but also because of the relative freedom producers have in setting prices for patented products. The opposite effect, however, has been observed in other fields such as home computing. Following an expensive introductory phase, products are either offered at a lower price (as a result of efficiency gains in manufacturing and use, the production of larger quantities or other factors) or alternatively functionality increases while the price remains stable. The question is, to what extent does this effect occur in healthcare, or where do technological advances not necessarily increase costs but can actually provide savings?

Aus anderen Wirtschaftsbereichen, etwa bei Heimcomputern, ist jedoch zumindest teilweise auch der umgekehrte Effekt bekannt. Neue Technologien werden – häufig nach einer hochpreisigen Einführungsphase – wegen einer höheren Effizienz bei der Herstellung und Anwendung, wachsenden Stückzahlen und anderer Faktoren kostengünstiger als das Vorläuferprodukt angeboten, oder aber sie gewinnen bei konstantem Preisrahmen an Leistung. Es stellt sich die Frage, ob oder inwieweit dieser Effekt auch im Gesundheitsbereich zum Tragen kommen, bzw. an welchen Stellen im Gesundheitssystem der technische Fortschritt nicht nur zu Kostensteigerungen, sondern auch zu Kostensenkungen führen könnte.

Objectives and approach

The following key questions will be addressed in the project:

  • What are the financial implications, challenges and opportunities of technological advances for healthcare provision, in particular for insurers?
  • Which innovations are likely to increase costs, and which may lead to savings?
  • Are current and anticipated future increases in costs a result of technological advances or other factors?
  • Which types of technological progress promise the greatest economic and societal benefits?

In addition to market mechanisms, a market as heavily regulated as healthcare is also influenced by regulation, in particular market approval, eligibility for reimbursement, mechanisms for the diffusion of new techniques in hospitals, or in outpatient care through self-government of providers. Further, evidence-based professional mechanisms have regulatory functions (e.g. cost-benefit analyses as part of health technology assessment, clinical guidelines), and there are other factors which influence the financial implications of technological advances.

The project consists of four work packages:

1. Technological advances in healthcare: definition and key influencing factors

Including different types of innovation, we define what constitutes technological advance in healthcare. Based on this, the influencing factors for technological progress in healthcare are determined, and differences and particularities in comparison to other sectors are defined. The IT sector (home computing, mobile telephony) lends itself to comparison as it has been relatively well researched. The effects of various aspects, in particular regulatory measures concerning market entry and diffusion are specified. An important part of the first work package is defining the roles of the organisations involved, as in healthcare a broad range of government, public service and private organisations interact.

2. Economic and societal analysis of the interrelation between technological progress and healthcare expenses/ the healthcare economy

Using secondary data and applying suitable indicators, the interactions between technological progress on the one side and healthcare expenses and the healthcare economy on the other are assessed, considering the economy and society as a whole. At this macro level indirect effects of technological advances can be observed (such as reduction of hospital stays through new, possibly more costly drugs, or home care provided by relatives, which is cheaper and preferable to many patients), as well as the effects of additive or complementary technologies. Analysis at this level allows for a discussion of effects such as the willingness to pay for new drugs on the incentive to invest in R&D.

Additionally, we will investigate which parts of healthcare provision and which technologies are likely to increase or decrease costs (using indicators such as development of healthcare spending in different sectors).

Besides the effects of technological advance on healthcare costs, the increasingly common view of the healthcare economy as a driver for economic growth will be considered. We will therefore aim for a holistic view of the simultaneous effects of technological advance on healthcare costs as well as the healthcare economy.

Further, effects of the distribution of the available resources on society (e.g. on social climate) and whether it is perceived as just or not will be included.

3. Case studies to assess the role of the various components previously identified

To gauge the relevance of the various factors relating to technological progress, six to eight case studies of well documented examples will be carried out. This selection aims to cover all categories of healthcare-related innovations (e.g. biotechnical and other drugs, medico-technical devices, diagnostic tools). The case study examples should be commonly available and have a certain political relevance (e.g. monoclonal antibodies, balloon-tipped dilating catheters, CT scanners). In order to analyse the available data, for example for cost-benefit, the case studies need to be narrowed down to certain application areas or patient groups. Identifying previously used technologies is particularly relevant as the innovations will be compared to these.

4. Validation and recommendations

The findings from the economic analysis and the case studies will be validated through a workshop with experts from healthcare politics, clinical use, health economics, health insurance, self-government, patient and other special interest groups. The relevance of the results for the healthcare system on the whole will also be assessed in terms of future trends and challenges (e.g. demographic change, chronic and behaviour induced conditions, international competitiveness).

Further, the aim of the workshop is to discuss recommendations for politics and other relevant stakeholders, which can be made from the findings and be used to optimise those techniques and decision-making processes which improve the cost-benefit-ratio of new healthcare technologies, promote the selection of particularly cost-effective innovations, identify older techniques which are candidates for replacement, and therefore overall provide a basis for a goal-oriented management of healthcare innovations.

The results will be summarised in a final report (innovation report).