Why the CBO Doesn’t Think Obama Health Reforms Will Reduce Health Care Costs
Generic drugs, preventive care, electronic medical records, comparative effectiveness research – these are supposed to save money. Right? Well, not exactly. In the latest issue of “The Government We Deserve,” Gene Steuerle explains why.
I think John Goodman’s explanation is better: You can’t reform the system from the demand side of the medical marketplace.
In a competitive market, technology that increases efficiently should reduce costs. But the health care market is not competitive. In a non-competitive market, technology that increases efficiency will likely result in higher firm profits rather than lower cost.
In health care, much of the benefits of improved efficiency are not captured by providers. Thus, technology that reduces duplicative medical tests and unnecessary prescriptions actually lowers hospital profits. This explains why so few hospitals have adopted robust health information technology systems. This also helps explain why health information technology is unlikely to be successfully adopted (and reduce costs) when it is not in providers’ best interest to do so.