New Technologies Save Lives but Raise Health Insurance Costs

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Managed health care plans and the Medicare program have had some success slowing growth in spending for doctors, hospitals and home care agencies. But managed care has been much less successful reining in spending on new life-enhancing medical devices and procedures.

Advances in technology -- from laser treatments to the latest surgical procedures with miniature instruments -- are one of the main reasons for the re-acceleration in the overall costs of health insurance, after several years of slow or zero growth. Sales of new medical devices in the United States rose 30 percent the last five years, outpacing the 22 percent rise over all in health care spending and all other categories except prescription drug sales, which were up 50 percent.

"About half the growth in real per-capita health costs is associated with medical technology" including advances in procedures and drugs, said Mark Freeland, deputy director of the National Health Statistics Group in the Health Care Financing Administration. Increased medical costs were cited Thursday by Humana, a managed care company with 6.2 million members, as it announced that its first quarter earnings would fall below Wall Street's expectations. Paradoxically, many of the new procedures are promoted as reducing costs: a $3 million laser device that provides an alternative to brain surgery can pay for itself by reducing the costs that surgical procedures and lengthy hospital recoveries would have previously required. But health plans are finding that over all, technology costs are surging, in large part because the new procedures are more available or more attractive to more people -- fostering a demand that insurers cannot stem. Patients who are hesitant about traditional open surgery, for example, will eagerly agree to minimally invasive procedures with miniature instruments to repair heart valves or remove defective gall bladders. The pattern was clear at Health Partners, a big, nonprofit Minnesota health maintenance organization. In only two years, from 1996 to 1998, the HMO counted double-digit growth in the number of procedures for every thousand members in eight categories, including some of the most expensive: brain and nervous system procedures, heart and artery surgery, orthopedics like hip and knee replacements and organ transplants. Premature infants were another big-ticket item. At Children's Hospital in Minneapolis, where many patients are tiny premature babies, "there has been a technological explosion and a tremendous increase in survival rates and the good news is, we did not have an increase in extremely damaged children," said Dr. Ronald Hoekstra. But with the advances, he added, costs are bound to go up. One of Hoekstra's patients, Simon Hagman, a strapping 30-pounder who celebrated his third birthday late last month, has already made a personal contribution to the economics of high technology health care. Health Partners, his family's plan, spent $1.2 million on life- saving care for Simon, whose birth only 22.5 weeks after conception was dangerously premature. Simon, born weighing 1 pound, 4 ounces and only 12 inches in height, lived for 14 months in the neonatal unit at Children's Hospital. With the help of sophisticated procedures and technology, he overcame three heart attacks, several bouts of pneumonia and a threat of blindness. He went home, with 24-hour nursing, still dependent for a time on an oxygen system that augmented his miniature lung power. "Miraculously, Simon survived without brain damage," said his mother, Tracey Hagman. A dozen years ago, there would have been small hope for an infant with Simon's precarious medical profile. For premature babies with severe problems who did qualify for the less-advanced treatments available then, the medical charges were about $250,000. The new drugs and procedures were welcomed as essential to excellent care. "It's the right thing to do, but it's very expensive," said George Halvorson, chief executive of Health Partners. …