Rise of the Robots: Technology and the Threat of a Jobless Future (25 page)

Medical sensors either implanted or attached to patients will provide another important source of data. These devices will produce a continuous stream of biometric information that can be used in both diagnosis and in the management of chronic diseases. One of the most promising areas of research is the design of sensors capable of monitoring glucose in people with diabetes. The sensors could communicate with a smart phone or other external device, instantly alerting patients if their glucose level falls outside the safe range and avoiding the need for uncomfortable blood tests. A number of companies already manufacture glucose monitors that can be embedded under a patient’s skin. In January 2014, Google announced that it is working on a contact lens that would contain a tiny glucose detector and wireless chip. The lenses would continuously monitor glucose levels by analyzing tears; if the wearer’s blood sugar is too high or too low, a tiny LED light would illuminate, providing an instant alert.
Consumer devices like the Apple Watch, formally announced in September 2014, will likewise result in a torrent of health-related data.

Health Care Costs and a Dysfunctional Market

The March 4, 2013, issue of
Time
magazine featured a cover story by Steven Brill entitled “Bitter Pill.” The article delved into the forces underlying ever-escalating health care costs in the United States and highlighted case after case of what can only be categorized as outright price gouging—including, for example, a 10,000 percent markup on the same over-the-counter acetaminophen tablets you could buy at your local drug store or Walmart. Routine blood tests for which Medicare would pay about $14 were marked up to $200 and beyond. CT scans that Medicare prices at about $800 were inflated to over $6,500. A feared heart attack that turned out to be a case of heartburn resulted in a $17,000 charge—not including fees for the doctor.
²⁴

A few months later, Elisabeth Rosenthal of the
New York Times
wrote a series of articles telling essentially the same story: a laceration requiring three simple stitches came in at well over $2,000. A dab of skin glue on a toddler’s forehead cost over $1,600. One patient was charged nearly $80 for a small bottle of local anesthetic that can be purchased for $5 on the Internet. Rosenthal noted that the hospital, which buys such supplies in bulk, would likely pay far less.
²⁵

Both reporters found that these inflated charges generally originate with a massive, obscure—and often secretive—list of prices known as the “chargemaster.” The prices listed in the chargemaster seemingly have no rhyme or reason and no meaningful relationship to actual costs. The only thing one can say with consistent certainty about the chargemaster is that its prices are very, very high. Both Brill and Rosenthal found that the most egregious cases of chargemaster abuse occurred with uninsured patients. Hospitals typically expected these people to pay full list price and often were quick to hire bill
collectors or even file lawsuits if patients couldn’t or wouldn’t pay. Even major health insurance companies, however, are increasingly billed at rates based on a discount from chargemaster prices. In other words, the costs are first inflated—in many cases by a factor of ten or even a hundred—and then a discount of perhaps 30, or even 50, percent is applied, depending on how effectively the insurer negotiates. Imagine buying a gallon of milk for $20 after negotiating a 50 percent discount from the $40 list price. Given this, it should come as no surprise that hospital charges are the most important single driver of consistently soaring health care costs in the United States.

One of the most important lessons of history is that there is a powerful symbiosis between technological progress and a well-functioning market economy. Healthy markets create the incentives that lead to meaningful innovation and ever-increasing productivity, and this has been the driving force behind our prosperity.
*
Most intelligent people understand this (and are very likely to bring up Steve Jobs and the iPhone when discussing it). The problem is that health care is a broken market and no amount of technology is likely to bring down costs unless the structural problems in the industry are resolved.

There is also, I think, a great deal of confusion about the nature of the health care market and exactly where an effective market pricing mechanism should come into play. Many people would like to believe that health care is a normal consumer market: if only we could get insurance companies, and especially the government, out of the way and instead push decisions and costs onto the consumer (or patient), then we’d get innovations and outcomes similar to what we’ve seen in other industries (Steve Jobs might be mentioned again here).

The reality, however, is that health care is simply not comparable to other markets for consumer products and services, and this has been well understood for over half a century. In 1963, the Nobel laureate economist Kenneth Arrow wrote a paper detailing the ways in which medical care stands apart from other goods and services. Among other things, Arrow’s paper highlighted the fact that medical costs are extremely unpredictable and often very high, so that consumers can neither pay for them out of ongoing income nor effectively plan ahead as they might for other major purchases. Medical care can’t be tested before you buy it; it’s not like visiting the wireless store and trying out all the smart phones. In emergencies, of course, the patient may be unconscious or about to die. And, in any case, the whole business is so complex and requires so much specialized knowledge that a normal person can’t reasonably be expected to make such decisions. Health care providers and patients simply don’t come to the table as anything approaching equals, and as Arrow pointed out, “both parties are aware of this informational inequality, and their relation is colored by this knowledge.”
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The bottom line is that the high cost, unpredictability, and complexity of major medical and hospitalization services make some kind of insurance model essential for the health care industry.

It is also critical to understand that health care spending is highly concentrated among a tiny number of very sick people. A 2012 report by the National Institute for Health Care Management found that just 1 percent of the population—the very sickest people—accounted for over 20 percent of total national health care spending. Nearly
half
of all spending, about $623 billion in 2009, went to the sickest 5 percent of the population.
²⁷
In fact, health care spending is subject to the same kind of inequality as income in the United States. If you draw a graph, it will look very much like the winner-take-all/long-tail distribution I described in
Chapter 3
.

The importance of this intense concentration of spending cannot be overemphasized. The small population of very ill people on
whom we are spending all this money are obviously not in a position to negotiate prices with providers; nor would we want to place such a staggering fiscal responsibility in these people’s hands. The “market” that we need to make work exists between the providers and the insurance companies—not between providers and patients. The essential lesson of the articles written by Brill and Rosenthal is that this market is dysfunctional because of a fundamental power imbalance between insurers and providers. While individual consumers may rightly perceive health insurance companies as powerful and domineering, the reality is that—relative to providers like hospitals, doctors, and the pharmaceutical industry—they are, in a great many cases,
too weak.
That imbalance is being steadily worsened by an ongoing wave of consolidations among providers. Brill’s article notes that as hospitals increasingly snap up “doctor’s practices and competing hospitals, their leverage over insurance companies is increasing.”
²⁸

Imagine a near future where a physician wields a powerful tablet computer that allows her to order a range of medical tests and scans with just a few presses on her touch screen. Once a test is completed, the results are instantly routed to her device. If a patient needs a CT scan, or perhaps an MRI, the results are accompanied by a detailed analysis performed by an artificial intelligence application. The software points out any anomalies in the scan and makes recommendations for further care by accessing a massive database of patient records and identifying similar cases. The doctor can see exactly how comparable patients were treated, any issues that arose, and how things ultimately turned out. All this would, of course, be efficient and convenient and ought to lead to a better outcome for the patient. This is the kind of scenario that gets techno-optimists excited about the revolution soon to unfold in the health care arena.

Now assume that the doctor has a financial interest in the diagnostic company that performs the tests or scans. Or, then again, maybe the hospital has acquired the doctor’s practice and also owns the testing facility. The prices for the tests and scans bear little
relation to the actual costs of these services—after all, they’re listed in the chargemaster—and they are highly profitable. Every time our doctor presses her touch screen, she essentially mints money.

While this example is, at the moment, imaginary, there is an abundance of evidence demonstrating that new health care technologies very often lead to more spending rather than improved productivity. The primary reason is that there is no effective market pricing mechanism to drive increased efficiency. In the absence of market pressure, providers often invest in technologies designed to increase revenue rather than efficiency, or where they do achieve increased productivity they simply retain the profits rather than lowering prices.

The poster child for technology investment as a driver of health care inflation may well be the “proton beam” facilities that are being built to treat prostate cancer. A May 2013 article by Jenny Gold of
Kaiser Health News
noted that “despite efforts to get health care spending under control, hospitals are still racing to build expensive new technology—even when the devices don’t necessarily work better than the cheaper kind.”
²⁹
The article describes one proton beam facility as “a giant cement-encased building the size of a football field, with a price tag of more than $200 million.” The idea behind this expensive new technology is that it delivers less radiation to patients, and yet, studies have found no evidence that protein beam technology results in better patient outcomes than far less expensive approaches.
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Health care expert Dr. Ezekiel Emanuel says, “We don’t have evidence that there’s a need for them in terms of medical care. They’re simply done to generate profits.”
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To me, it seems evident that the American people could in principle be made much better off by a massive technological disruption of the health care sector than of, say, the fast food industry. After all, lower prices and improved productivity in health care will likely lead directly to better and longer lives. Cheaper fast food may well do the opposite. Yet, the fast food industry has well-functioning
markets—and the health care sector does not. As long as that situation is allowed to persist, there are few reasons to be optimistic that accelerating technology alone will succeed in reining in soaring health care costs. Given this reality, I’d like to take a brief detour from our technology narrative in order to suggest two alternate strategies that might help to correct the power imbalance between insurers and providers, and hopefully enable the kind of synergy between markets and technology that might bring the transformation we hope for.

Consolidate the Industry and Treat Health Insurance as a Utility

One of the primary messages that leaps out from an analysis of the prices charged by providers is that Medicare—the government-run program for people aged sixty-five and over—is by far the most efficient portion of our health care system. As Brill writes, “Unless you are protected by Medicare, the health care market is not a market at all. It’s a crapshoot.” The implementation of the Affordable Care Act (Obamacare) will certainly improve the situation as far as individuals who previously lacked insurance are concerned, but it does relatively little to actively rein in hospital costs; instead, the inflated costs will be shifted to insurers and then ultimately to taxpayers in the form of the subsidies that were put in place to make health insurance affordable to people with moderate incomes.

The fact that Medicare is relatively effective at controlling most patient-related costs, while spending far less than private insurers on administration and overhead, underlies the argument for simply expanding the program to include everyone and, in effect, creating a single-payer system. This has been the path followed by a number of other advanced countries—all of which spend far less on health care than the United States and typically have better outcomes according to metrics like life expectancy and infant mortality. While a single-payer system, managed by the government, has both logic
and evidence to support it, there is no escaping the reality that in the United States the whole idea is ideologically toxic to roughly half the population. Putting such a system in place would also presumably result in the demise of nearly the entire private health insurance sector; that does not seem likely given the enormous political influence wielded by the industry.

A single-payer system is, in practice, always assumed to be run by the government, but in theory this does not have to be the case. Another approach might be to merge all private insurance companies into a single national corporation, which would then be heavily regulated. The model would be the original AT&T before it was broken up in the 1980s. The central idea here is that health care is in many ways akin to the telecommunications system: it is, in essence, a utility. Like water and sanitation systems or the nation’s electrical infrastructure, the health care system does not stand alone—it is a systemic industry whose efficient operation is critical to both the economy and society. In many cases, the provision of a utility service leads to natural monopoly scenarios. In other words, it is most efficient if only a single firm operates in the market.