Behind Rising Health-Care Costs

Why do medical costs keep going up? Walk into the University of Maryland Medical Center for a heart bypass operation and you'll see one reason. Maryland is one of the few hospitals in the country to use a robot for heart surgery. Developed first by the military and then for commercial use by Intuitive Surgical (ISRG), the da Vinci robot is manipulated by a surgeon seated several feet away from the patient. The machine takes minimally invasive surgery to a new level, allowing the tiniest of incisions and enabling doctors to operate in extremely tight places. The robot is already a popular option for prostate surgery, and proponents praise its ability to trim patient recovery time by a third.

It does not, however, do the same for the hospital bill. A da Vinci robot costs $1.5 million, and every time it is used in the operating room, some $2,000 worth of parts must be replaced (for safety reasons). It takes a surgeon 12 to 18 months to learn how to use the machine, and a da Vinci operation usually takes longer than a hands-on procedure. Consequently, a University of Maryland study estimates that the robot adds about $8,000 to the price of bypass surgery.

Another study from Dartmouth Hitchcock Medical Center points out that it's tough for most hospitals to earn back the price of the machine, if it wasn't donated. On top of all that, "There is really no convincing evidence that the da Vinci is any better than standard surgery," says Paul Levy, president of Boston's Beth Israel Deaconess Medical Center (which does not have one). "Doctors and hospitals that have one are promoting it, and patients are demanding it," Levy says. Patients are usually unaware of the increased cost of the robot, since their insurance pays the bills. Also there's no competitive pressure to lower costs, as Intuitive Surgery is the only company that makes a surgical robot.

Medical Price Inflation to Blame?

Price insensitivity on behalf of customers, lack of competition, technological complexity—they all adds up to immense inflationary pressures on health-care costs. Technological advances go hand in hand with productivity gains in most industries, but in medicine, better technology almost always means higher expenses. PricewaterhouseCoopers estimates that medical costs will rise 9.9% this year and 9.6% in 2009, even though the overall inflation rate for the most recent quarter was 4.2%.

Some of this higher spending can be attributed to the greater medical demands of an aging, overweight population. But the California Healthcare Foundation says medical price inflation, not increased use, drives 51% of the growth in health-care spending. The federal Agency for Healthcare Research & Quality (AHRQ) found that from 2000 to 2004, the mean cost of a hospital stay per patient rose 15%.

If You Build It, Patients Will Come

Rising costs could be seen as a sign of progress: The cheapest medical outcome, after all, is death. Major advances in the treatment of heart disease, cancer, pulmonary disorders, and a broad range of once-fatal diseases have prolonged life, but the longer the life, the higher the medical costs. "We're not realizing cost reductions as a result of increased longevity," says Michael Thompson, principal with PriceWaterhouse Coopers. Survive a heart attack, for example, and you raise your chances of living long enough to die of cancer or Alzheimer's disease, two of the most expensive diseases. Not to mention the cost of the drugs and follow-up care you'll need to avoid another heart attack.

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