Why Tech Can't Cure Medical Inflation

Computers in medicine aren't a cure. They might even make the system sicker.

Whenever President-elect Obama is asked how he'll pay for his ambitious health care reform plans, he invariably talks about the $80 billion in annual savings he'll get from bringing computerized recordkeeping to doctors' offices and hospitals.

If only that were true. While there are benefits that might be had from using computers more widely in medicine, doing so won't save us any money and, in fact, will likely make things more expensive. There's even a chance that the quality of care might get worse along the way.

That's probably counterintuitive to anyone contemplating the wall of file drawers in a typical doctor's office. Medicine clearly has yet to join the rest of the world in going digital; no wonder, the thought goes, that U.S. health care is so expensive.

But while paper records certainly have their inconveniences--filling out your thousandth questionnaire, say--they play a very minor role in galloping health care inflation.

Instead, the heart of the problem is the U.S. fee-for-service system, in which doctors get paid to do things to people. The more technical and invasive the procedure, the more money they make. Doctors have responded in the expected Pavlovian manner, collectively shifting away from basic primary care toward expensive specializations that run up costs without necessarily improving medical outcomes.

As any chief information officer can tell you, adding computers to this sort of inefficient process only makes the inefficiency happen more quickly.

Much of what doctors or policymakers know about technology comes from vendors, who are busy guilt-tripping the medical sector about being slow to get with it. But more quietly, health care economists have been studying the actual impact of these systems. Their findings should disturb those who look to information technology for an easy fix.

Like many medical centers in Asia, Bangkok's Bumrungrad Hospital had big expectations for a global trend known as medical tourism. Administrators were especially eager to attract more patients from the U.S. (BusinessWeek.com, 3/17/08) keen on saving money by having hip replacements, cosmetic surgery, and other operations overseas. For years, some of Asia's premier hospitals have been popular destinations for U.S. patients who either lack health insurance or can't get coverage for certain procedures. And recently there have been signs that insurance companies might start actively encouraging this trend to save on costs.

But Bumrungrad has been hit by a double whammy this year. First came the political unrest in Thailand, with anti-government protesters taking to the streets of Bangkok and constant rumors of a military coup. The prospect of instability seems to have discouraged would-be patients from making the trip. Even more worrisome for Bumrungrad management, the financial crisis has suddenly made the cost of travel to Thailand from the U.S. more of a stretch for many Americans who might have considered choosing the Bangkok hospital in the past. "We are not predicting robust growth," concedes an understated Curtis J. Schroeder, chief executive of Bumrungrad, who says the hospital will take the occasion to refurbish its rooms, as many hospital beds are empty.

Analysts are more direct: DBS Vickers Securities predicts earnings will fall 9.2% this year and 20.9% in 2009. "We foresee the number of international and local patients to be scant," write the Singapore-based bank's analysts. "Patients [will] delay unnecessary or nonemergency treatments (i.e. plastic surgery, hip/knee replacement, etc.) and decrease length of stay, as the financial turmoil has caused significant cutback on expenses."

Grim Outlook

With the financial crisis turning into a global recession, the outlook across Asia's medical tourism industry is grim. From Thailand to Singapore to India, hospitals that had been counting on a big influx (BusinessWeek, 3/13/08) of overseas patients are scaling back expectations. Those counting on large numbers of Americans, like Bumrungrad, are especially at risk, says Ruben Toral, CEO of Mednet Asia, a Manila-based consulting firm specializing in medical tourism. "You are going to see U.S. patients take a very, very defensive position," he says.