Healthcare: Technology is a bigger cost driver than demography

Elderly patients are responsible for only a tiny fraction of healthcare spending increases



An aging population—or “gray tsunami”—is the shadow lurking in the background of health care, poised to drive up health-care spending and wipe out the system as we know it. Technology, on the other hand, is a means to improving efficiency in the system and reducing costs. Consider the early, sparkling promises of Obamacare south of the border or electronic health records in Canada. Policymakers trumpet this conventional wisdom—but it isn’t quite right.

As a recent report by the credit rating agency Standard & Poor’s argues, your grandmother’s visits to the doctor aren’t the key driver of health costs. Health technology, however—encompassing anything from drugs to diagnostic imaging—is becoming the great burden on the health systems of G20 countries.

Unlike the graying of the workforce, “These non-demographic factors carry lower long-term visibility on budgetary challenges for policymakers,” S&P notes, warning that if governments of developed economies don’t shift their focus from pension reform to figuring out how to constrain other causes of rising health-care costs, they’ll face “ballooning” debt levels and possible downgrades of their creditworthiness.

As novel and counter-intuitive as it may sound, S&P’s warning isn’t anything new, actually. Despite the popular rhetoric about the “gray tsunami” continually bandied about by politicians, there are some three decades of research showing that aging alone is a marginal and predictable driver of health-care cost increases, in the order of about 0.5 to one per cent per year. Most recently, a report by Canadian Institute for Health Information noted that population aging contributed an annual average growth of only 0.8 per cent.

Politicians, on the other hand, too often neglect to address the drain on public coffers from technology-related costs. According to the CIHI report, spending on prescription drugs grew at an annual average rate of 10.1 per cent between 1998 to 2007—a rise that was caused by both increased utilization and a change in the mix of drug types. Increasing diagnostic testing (lab and imaging) was another big driver. Plus, we’re all using the system more—not just older folks, noted Kimberlyn McGrail, assistant professor at the University of British Columbia. She has studied health care spending and found that “what is driving increasing health-care costs is greater intensity of service use. People of all ages are receiving more and sometimes more expensive services than used to be the case.”

So, we are gobbling up health care, and average health-care costs per head are going up, largely because of the way we use technology, noted McGrail. “There are new drugs and new conditions that they treat, there are new tests that can be done, and new recommendations for who should receive those tests and how often they should be getting them. There are new surgical procedures and better ways of doing older procedures that make surgery better and safer, but also means that a larger pool of people are considered ‘eligible’ to receive those interventions.”

This doesn’t have to be the case, though. Technology can and does save money in health care—when it’s used prudently. As UBC professor and veteran health researcher Morris Barer puts it, “technology in and of itself” is not the problem. “It’s that the uncritical application and use of new and more expensive technology—including drugs—can be a cost driver.”

Now, the big question we need to answer is how much of this increasing use of health care is actually improving our health and quality of life. For example, another area of swelling costs over the years has been physician services. Consider this report out of the Institute for Clinical Evaluative Sciences this week: Payment to Ontario physicians shot up to $8 billion in 2010, more than twice the $3.7 billion it stood at in 1997. (Doctor compensation now accounts for 20 per cent of total health care costs in the province, and Ontario is not alone; according to the CIHI report, physician spending across Canada was among the fastest-growing health categories in recent years, increasing at 6.8 per cent per year between 1998 to 2008.) But, ICES concludes, though we’ve continued to increase doctor pay, we haven’t determined whether this has led to improved patient outcomes or a better health system overall.

This all suggests we can take comfort in the fact that it’s not an unstoppable tsunami that’ll wipe us out. The problems we’re facing are amenable to sound policy responses. Instead of demographic determinism, “The real cost drivers are increased utilization, across all age groups, technology, and labour costs,” explains Canadian health-policy analyst, Marcus Hollander. “We have a policy and management challenge.”

That’s a nice thought, if only it were that simple. Politicking often gets in the way of lucid policy. A recent example was the Ontario Health Minister distancing herself from the suggestion that the province would no longer pay for elective cesarean sections—a reasonable move—after a public uproar. As André Picard, the Globe and Mail‘s health policy columnist, observed, “There was an outcry and the minister quickly backed down. So the province limits itself to delisting trivial things like vitamin D tests.” (All this unfolded on the eve of a report by economist Don Drummond, to be released next week, about how to eliminate the province’s public deficit. The “austerity czar” is expected to recommend drawing down C-sections as a cost-saving measure.)

So, for now, while policymakers promise “evidence-based decisions” to cut spending, they seem to be targeting only certain drivers of cost, possibly the ones they think voters will intuitively understand–like the aging population. “The gray tsunami is used as a distraction,” notes Barer, “and an excuse not to focus on the real sources of cost pressure.” Maybe the possibility of future credit downgrades and European-style austerity, as S&P foreshadows, will push Canadian policymakers in a truly evidence-based direction—and away from the tidal wave of easy rhetoric.

Julia Belluz, associate editor at The Medical Post, writes the Science-ish blog at Follow her on Twitter @juliaoftoronto


Healthcare: Technology is a bigger cost driver than demography

  1. Too many people are using the medical system when they don’t need to because they believe that it is “free”.  It’s not free, we all pay into it and it is being abused – there should be some user pay services to cut down on abuse.  If we sometimes had to pay something out-of-pocket for Dr. visits and non-essential testing, it would discourage needless appointments.  Don’t know if we can do much about Doctor’s pay, if we don’t give them what they want, they will go to the US where they are very well compensated.

    • Not sure I agree with you Katharine.  Are you suggesting people are using the health care system just because it’s free?  Don’t you think it has something to do with them being sick in the first place?  I know I’m not spending my afternoon at the emergency dep’t just because it won’t cost me anything.  Now maybe if I got hurt on the job or something ….  As far as having to pay something out of pocket, isn’t that the point of our system, that low income will not be a barrier to care?  I assume you can afford to pay something out of pocket.  But what happens when that little something gets increased to the point where YOU can’t afford it?

      • Yes, but…

        I think you both make valid points. Basic health care should, in my view, always be available to all with no direct cost for access. But there are procedures being used either at the doctor’s or patient’s request with little concern to the cost to the system (which ultimately means cost to the taxpayer). Perhaps some of these services ahould be partially or fully delisted if not essential, in order to ensure the money is there for the essential services.

        The scheduled caesarians mentioned in the article is a good example; if the caesarian is booked solely for convenience, it is not medically necessary and, assuming it costs more than non-caesarian childbirth, should be delisted [if there is proof it saves costs – and I can see how, theoretically, it might –  then that’s another story].

        Then there’s the use of the ER as a walk-in. We really need to educate people to find appropriate medical aid; tying up ER staff unnecessarily costs money and puts the lives of others at risk. There are a lot of people out there who wait 20 hrs for a band-aid for their cut – and then bitch about the wait time. I think anyone who is asked to go to a walk-in or other facility should be billed the full cost of the visit if they insist on staying for treatment.

        When I was in university, eons ago, I injured my toe; it was swollen & purple. I saw a doctor who told me it was either badly brused or broken. He then said he could send me for x-rays if I wanted, but it would be a waste of my time and the system’s money as the treatment would be the same either way. I didn’t get the x-ray. I’m betting that today, a lot of doctors would automatically order the x-ray without thinking of the cost – and that many patients would insist on it if the doctor gave them the option I was offered. We – both patients and professionals – need to start asking just how necessary certain tests and procedures really are. And paying for the frills.

        • Sorry to correct you Keith, but the term was “elective c-section”.  A scheduled c-section just means the c-section is inevitable (no option) and you schedule it before you go into labor.  An elective c-section is completely unnecessary and is not very good for the baby.  Labor is good for a baby because the contractions squeeze all the fluid out of the baby’s lungs.  Elective c-sections skip labor and therefore the babies end up in the neonatal intensive care for a time until lung issues can be ruled out.  There is no way that the taxpayer should be paying for this procedure.  What possible benefit could there be…only to the physician so he/she can go on holidays or the parents can pick the date of birth.  With the widespread use of epidurals, it can’t even be to avoid pain.

          • Health care insider,
            Babies who are delivered by CS do NOT end up neonatal intensive care unit unless there is concern about their well-being…just the same as a baby delivered vaginally.

            There are many secondary health effects from delivery babies vaginally, only they are not measured and included in the cost of this form of delivery. Incontinence related to vaginal deliveries is a significant out of pocket expense for women for decades and has a burden of social stigma.

            Drummond should be keeping out of what constitutes good maternal care and should leave this to the woman and her physician.

          • Well, in Alberta they do go to the neonatal step down after a c-section, doctor fullerton.
            Further, isn’t it true that fecal incontinence is only really an issue with a large episotomy….a tear is much less likely to cause fecal incontinence…..and let’s be honest, just how high is the incidence of fecal incontinence due to a vaginal birth?
            If you are talking about urinary incontinence that is a joke.  Keegal exercises can fix that.  My mother had nine children vaginally and is 85 with no urinary incontinence.
            Yes, you would like “elective c-sections” to remain between the physician and the woman…why…because then you don’t have to give a real explanation for doing an unnecessary surgery….and afterall it is major surgery.

          • I had my baby c section in AB and she did not go to neonatal intensive care, she came straight to my room

          • Sorry, I must be out of touch…it used to be the policy in Calgary to keep the babe in the nicu for the night after the c-section to make sure there weren’t any lung issues.  My neice just had a baby by c-section in northern Alberta and she spent the night in the NICU?

          • Thanks for catching my error HI. “elective” is what I meant to say.

    • Studies have shown users fees do not save money…why?….because it keeps people from seeing the doctor when they have small, fixable problems until the problems become big expensive problems.  They also unfairly target the chronically ill.  If you have a child with asthma, should you be charged because your child has an attack?  Do we want you not to come to the ER with your child because you don’t have cash to pay the user fee?
      As for the physicians…it isn’t about the pay they receive but about the tests they are running.  The more testing that becomes available, the more they order.  For some reason they have lost confidence in the art of diagnosing through thorough assessments and strong listening skills.  Maybe the public demands the tests because they have lost faith in the skills of physicians.

      • What studies have shown user fees do not save money? What about those patients that demand lab tests and xrays and mris?

        • If the Dr doesn’t think the tests are necessary but the patient insists, that’s a clear-cut case of when user fees should kick in (unless the tests prove the Dr wrong). If something is medically unnecessary then the patient should bear the cost.

          • I don’t know if it happens anymore or if it happens everywhere but that is the case with mole removals…if a physician takes off the mole because he/she thinks it is problematic and has it tested…the system pays.  If the physician removes the mole at the patient’s request and the physician thinks it is okay, the patient pays.  If, however, the mole does turn out to be problematic (pre-cancerous) and the physician was wrong in the assessment, the system pays.
            All in all not a bad way to do things.

        • You can look them up by googling “do user fees save health care dollars”.  It has been found internationally that they don’t. It makes sense if you think about it.  Let’s say a person finds a lump and they don’t get it checked out right away because they mistakenly think it is a fat deposit and they don’t want to pay the user fee so they wait until they have a few complaints before seeing their physician.  By the time they visit the doctor, the lump has grown and evolved and now they have a cancer that has metastisized.  Their failure to see the doctor promptly actually costs the system much more money .

          What does save dollars is if people go to the right place for the right complaint…this was found in a European study.  That means not using the emergency department as a walk-in clinic.  That means however that the appropriate services have to be available (after hour clinics) and information regarding the services has to be disseminated to everyone.

  2. This has been my particular bugbear for years. Any effort at cost control has to
    start with physicians. Not with their income … they deserve to be very well paid ..
    but with how they do their work. But I don’t envy the folks who attempt to step
    into that societal cyclone.

    • Yes…less standard orders of tests….more “art of medicine”.  Pay more physicians a salary and so they feel satisfied handing off tasks to other disciplines and also spend more time using skills to diagnose patients instead of depending on technology.

      • While we don’t seem to have the same issues that they do in the United States with regards to malpractice, most of the doctors that I know personally (ie. outside of a medical relationship) are more often than I would think quite concerned with the potential for such accusations (it seems that certain sets of patients love to throw around the threat pretty casually). 

        I would imagine that this has contributed to standard slates of tests and diagnostic instruments. Many of the tests may be entirely unnecessary, but given the way that the potential for malpractice suits seems to strike fear, it seems that the 0.1% off-chance scenarios hard to “risk-manage” away. Even in the event that this is not a common legal reality, the sensationalist stories of “OMG THE DOCTOR DIDN’T EVEN TEST FOR <>” we get from time-to-time probably creates a larger demand for television-style “investigations” relating to many aches and pains.

        I don’t say this as a real insider of the health care industry, however, only as someone who’s family is involved at a variety of levels. I certainly don’t want to paint with a broad brush where inappropriate. 

        • The treatment protocols are, for the most part, based on US treatment
          protocols. Just as, for the most part, hospital management techniques
          are based on the managed care models from the US. Just as, for the
          most part, our public expectations are based on the expectations fostered
          by US popular culture.
          And this may be of some interest …


          • Thanks for the link. There does seem to be some (strong or weak) correlation (if the increased amount of testing pans out) between testing and successful malpractice action in the US. 

            I remain uncomfortable with the Canadian habit of importing US standards in all areas of public life. Not because they don’t apply at all, but because they may apply to 70-80% of Canadian public life while at the same time ignoring the differences, making their policies and standards sometimes dangerous or ineffective.

          • There are many Canadian guidelines and protocols ie.hypertension, diabetes, preventative screening tests. You make a very ignorant statement.

  3. I also don’t want people who have limited means to be denied access to health care, just would like to see less abuse of the system and waste of precious resources.  There is waste but it is likely impossible to eliminate.  I do have family that would be hard pressed to pay user fees so I understand the problem of having them.  Guess we need to look more at preventative measures to keep people healthy – less prisons and more gyms and free programs for kids sports activities.  Healthy kids lead to healthy adults so we should address health concerns at the beginning and work towards encouraging a healthy lifestyle and making it affordable.

  4. The concept of “evidence” that’s frequently bandied about by politicians or any other motivated parties is frequently merely a manipulation of statistics that will allegedly support their position. A big chunk of sick care dollars also goes to unionized employees working in the system, not just the MDs.  
    There needs to be more focus on teaching people to be pro-active in prevention and self-care and dissemination of guidelines about when it is prudent to see a doctor and when it is not.

    • Well, lauriej, if you don’t pay those “unionized employees” aka registered nurses, respiratory techs, physiotherapists, ultrasound technologists, social workers, occupational therapists, etc. (which I might inform you are ALL in short supply….especially RN’s)….a decent wage, they won’t bother going to university/tech school in those specialities and then who will be looking after the sick people in the hospital?  Do you know that in Alberta physiotherapists, occupational therapists and social workers attend university for six years?  Do you know that university nursing students have the highest marks going into the university of ANY faculty including engineering?  We are attracking smart, educated, hard working people and asking them to assume alot of responsibility.  We also ask them to work ungodly hours and spend weekends and holidays looking after our sick families.  How much do you think they are worth?  Hmm, let’s see if a starting postal worker should be paid $24.00/hr…..
      As for your suggestions about guidelines of when a person should see a physician, I am not sure where you live but I know several provinces have phone-in advice health lines, manned by registered nurses who give advice on health issues.
      Your last suggestion on illness prevention is fantastic…if people only took the advice…especially the one about getting vaccinated.

      • Well Healthcare Insider, people should realize exactly where a good chunk of that money is going. A rule of thumb for any business is that wages amount to about 40% of expenses. And let’s not pretend that the medical industry isn’t a business, especially when the drug companies outearn all of the other Fortune 500 companies combined.
        “Getting vaccinated” just happens to be another one of those taxpayer funded pseudoscientific kicks at the money can, especially when it comes to flu shots — last year’s Bird Flu scam took the cake. All the panic, all the 30 second national news spots, etc. turned out to be a very expensive joke at our expense. The bottom line is that millions of dollars worth of vaccine was trumped by… hand-washing! Turns out the best place to get sick is a doctor’s or hospital waiting room.
        The best advice people can get on prevention is from orthomolecular medical journals and at health food stores.
        And if you take the time to see what kind of independent “scientific” backing vaccination has all you’ll find are the manufacturer’s manipulation of data. If people read the package inserts they’d think twice, not to mention the fact that most patients haven’t a clue that they are not given enough information to truly constitute informed consent.

  5. Health care system should not be paying for invitro fertilization at $10,000 a pop

  6. How to save the healthcare system money: 

    Institute a $100 refundable tax credit that can be claimed with proof that you’ve seen a doctor over the past year for a physical.

  7. We discussed the concept of prescription drugs and diagnostic imaging as key drivers of health costs  in a report last year. Over the past 10 years, the number of prescriptions filled at community pharmacies has almost doubled – from 272 million in 1999 to 483 million in 2009. Compared to 2003, there has been a 58% increase in CT scans and 100% increase in the number of MRIs conducted. Read our full report –
    Health Council of Canada