why does computer technology get better & cheaper, but medical technology gets better & more expensive?

[ucjffj]

any econ buffs able to explain?

 

[Peter]

Because medical equipment and chemicals are not subject to an open market. From government subsidies to public health systems, structures are such that there is absolutely no competition anywhere. The few vendors of these things conspire to keep prices up, and the government and health systems are too bureaucratic and possibly too lobbied by the companies to do anything against it.

At least that's how it "works" here in Germany.

 

[gsellis]

And add in a surcharge for insurance costs to protect against trial lawyers.

 

[Pulsar]

Economy of scale. Computers are sold by the billions. Heart pumps are sold by the 100's, pet scans by the 2s, and electron scanning microscopes etc by the 1's.

Which means that ALL your R&D has to be supported by selling 10, 20, or 30 of something.

 

[shortylickens]

-

 

[shortylickens]

-

 

[Matthias99]

Originally posted by: shortylickens
Much as I hate to say it, the main reason its expensive in America is simple greed. The stuff doesnt really have to cost so much, but they know they can get away with it so they do.

While I agree that profit-taking/greed is a factor, American drug companies do a lot of *very* expensive research, with no guaranteed results. They milk all they can out of their successful products not only because they can, but also because they only have patent rights for so long, and they may not have another really successful drug for years.

I still think our healthcare system's totally screwed up, though. And we'll never fix it (at least in the short term) because of the lobbyists' strangehold on Congress... but we'll see what happens in 20 years when Social Security/Medicare/Medicaid starts really disintegrating, and all the baby boomers start needing more serious medical care...

 

[cquark]

Originally posted by: Matthias99

Originally posted by: shortylickens
Much as I hate to say it, the main reason its expensive in America is simple greed. The stuff doesnt really have to cost so much, but they know they can get away with it so they do.

While I agree that profit-taking/greed is a factor, American drug companies do a lot of *very* expensive research, with no guaranteed results. They milk all they can out of their successful products not only because they can, but also because they only have patent rights for so long, and they may not have another really successful drug for years.

I still think our healthcare system's totally screwed up, though. And we'll never fix it (at least in the short term) because of the lobbyists' strangehold on Congress... but we'll see what happens in 20 years when Social Security/Medicare/Medicaid starts really disintegrating, and all the baby boomers start needing more serious medical care...

I agree, but it's not just the economics that's screwed up. A big part of the problem is the very focus on drugs as the solution. It's a problem for two reasons: 1) The focus on "solving" problems with drugs/surgery instead of preventing them, and 2) Drugs often aren't a cure. The old but true statement "You don't have a headache because of an aspirin deficiency" expresses the core of this argument. Drugs are often a way to ignore the problem for a time, but if you want to cure a tension headache, you should reduce your stress levels or do some stretches and other exercise to loosen up those tight muscles that are the cause of the headache. It's not as convenient, but it's a cure, not a way to ignore the problem, and thus will do you more good in the long term.

 

[Peter]

Absolutely correct - but from my own doctor, I've learned that a patient who leaves your practice with the advice "move your arse, stop smoking and eating junk food" is a patient you'll never see again. And voilà, there's your economic forces again ...

People get ill from too much creature comfort - from driving everywhere over fast food to air condition and everything. And of course, getting out of that situation must be comfy and convenient too. There's no pill? Can I have liposuction then?

 

[f95toli]

Another reason is of course that modern medicine is rather complicated and advanced and there are limits to how efficient it can get. The research is also extremely expensive.

Medical conditions that not long ago were fatal can now be treated (cancer would is good example) but the cost is often very high and require a lot of resources in the form of equipment, drugs and labour,
100 years ago most of these patient could not have been treated and would have died which of course is "cheaper"-

In the west we also have an aging population which require a lot of medical resources, finally we also have a lot of "lifestyle-diseases" such as obesity which were rare 50 years ago.

 

[Smilin]

Why are healthcare costs rising at 4x that of income yet doctors don't see a penny of it?

 

[sao123]

2 words. malpractice lawsuits.
2 more words. malpractice insurance.

 

[Smilin]

definately lawsuits.

Insurance companies have gotten downright evil.

It used to be a bunch of farmers chipped in some money to a pool that any one of them could tap into if times got tough.

Someone got the idea that all that money is going to waste while it sits so they began investing it.

Now that's all they do. There is so much overhead, bloat and piles of "secretaries" shuffling all this around that the end result is your insurance premiums purchase the "American United Life" building instead of helping your fellow policy holders.

The whole industry is completely self serving and it makes me sick. It is a complete pile of paper pushers that are not actually PRODUCING anything. It's work (and therefore money) that produces neither guns nor butter.

You MUST have insurance because medical costs are so high. Medical cost are so high because of insurance.

Malpractice has gotten out of hand too. People don't understand the difference between good procedures that don't work and bad procedures. They also don't understand that sometimes "life happens".

Grrr. This topic so infuriates me.

 

[f95toli]

Healthcare cost are rising very quickly where I live as well (Sweden) and here we do not even have malpractice lawsuits (well, we have them but they are not handled by the courts and never involve much money), so that is hardly the whole explanation.

 

[silverpig]

It's because it's equipment for a specialized market. You can buy a pickup truck brand new for $20k, but on a golf course (I work on one) the little trucks we drive around aren't far off from that and they have WAY fewer features/parts.

It's easy to make $10 mil if you're making cars cause everyone needs one. You can sell a lot for cheap and make your money. Medical equipment is different. You only get to sell one <device here> for every 100 000 people. As a result you have to charge more.

Further, there's the R&amp;D costs involved. You might need 3 physicists, 2 chemists, and 2 engineers to build a single prototype. You will then have to recoup all those costs and your production costs with the sale of only 5000 units.

 

[ucjffj]

okay so people are making two arguments:
1) medical treatments affect small populations
2) supply and demand

and for drug companies:

3) they need to recoup costs of failed drugs



let's look at drug companies. i don't see how 1 applies because pharmaceutical companies design drugs that'll affect the most people. more people will buy lipitor or viagra than will buy a geforce or pentium. drug companies aren't designing drugs for people with rare diseases, and instead are focusing on alzheimer since that'll affect more and more people as time goes on.

in regards to 2, for past decade it seems like of any other computer component, video cards are the hottest. and yet every year you can spend a set amount (say $150) and get something a lot better each year, despite the gpu getting much more complex and increasing demand.

in regards to 3, which is true, but seems more of an excuse to price gouge. the same principle applies to movie or music companies but you don't see the same profit margins. in fact pharamcy companies are the most profitable companies of any industry (at least from article i read in 2003)


thoughts?

 

[The J]

For point three, I agree with you on the price gouging. When a company designs a new drug, they can get an exclusive patent on that formula. Say a company made a drug combination that would stop Alzhiemers (sp?) in its tracks. The company can then patent that combination of chemicals to make the drug and therefore charge whatever they wish, since no other company can make the drug even if it's under a completely different name.

 

[ReiAyanami]

another chunk of the price is malpractice lawsuits, for example when you walk into a hardware store, half the price of the electric stuff like saws actually goes for settling lawsuits because of the people who cut themselves or their limbs. i don't remember if it was my shop teacher or econ teacher that told us that.

boston scientific just recalled a ton of stents, i'm surprised they haven't been sued yet because their defective stents did result in multiple deaths

 

[bpatters69]

What a political hot potato......

Some common themes that I would agree with:

Insurance Companies are pure evil - "Delay, Delay, don't pay is their creed"

Malpractice Lawyers are pure evil - "Guess who I am NOT voting for in November?"

The good news is that the largest percentage of our population (the Baby Boomers) are getting ready to retire. I will bet my bottom dollar, that the Baby Boomers with their economic clout and sheer numbers will get something figured out. At least for my generation's sake - I hope so.

A certain political candidate for Prez has suggested Tort reform as part of his election platform. Tort reform is a step in the right direction but Insurance companies need to follow suit. The logic goes something like this - if as insurance company you are shielded from forking over redicuouls sums due to lawsuits, your rates should lower by X....... nah, won't happen.

 

[Kibbo]

Originally posted by: ucjffj
okay so people are making two arguments:
1) medical treatments affect small populations
2) supply and demand

and for drug companies:

3) they need to recoup costs of failed drugs



let's look at drug companies. i don't see how 1 applies because pharmaceutical companies design drugs that'll affect the most people. more people will buy lipitor or viagra than will buy a geforce or pentium. drug companies aren't designing drugs for people with rare diseases, and instead are focusing on alzheimer since that'll affect more and more people as time goes on.

in regards to 2, for past decade it seems like of any other computer component, video cards are the hottest. and yet every year you can spend a set amount (say $150) and get something a lot better each year, despite the gpu getting much more complex and increasing demand.

in regards to 3, which is true, but seems more of an excuse to price gouge. the same principle applies to movie or music companies but you don't see the same profit margins. in fact pharamcy companies are the most profitable companies of any industry (at least from article i read in 2003)


thoughts?

Good criticisms.

Two moderating things:

1. Electronics companies usually act in oligopolic (what a great word) markets. For some reason, ATI and Nvidia can release comparable new products every year, that can compete with one another. Drug companies on the other hand tend to operate in monopolies. What is a competitior to Viagra? AZT? For some reason drug companies take longer to put out directly competing products. This could be due to the regulatory hurdles they have to pass, maybe their patent rights on what exactly counts as a differentiated product are more restrictive than in electronics, or maybe the drug companies have a tacit agreement to not compete too directly. Or maybe, researching drugs is just harder, if you want a blameless explanation. I doubt this one, though. If that were the case, you would likely see more than two companies competing in the hardware sector.

2. As mentioned before, demand for medical care is in a way, higher. Even if it doesn't appeal to as many people, those who want a drug want it really badly. So, an increase in price will scare away fewer customers. This is referred to as having an inelastic demand curve. In linear models, the elasticity is related to the slope of the curve. Drugs would have a curve that is nearly straight up, electronics might have a curve with a slope that is maybe at -1. As you move backward on the x axis (for quantity), the corresonding y value (for price) will go up much higher on the drug curve than on the electronics curve. This is what people are referring to when they say in the newspapers that a company is restricting supply. What they are really doing is raising the price. How much the price goes up is dependent on the elasticity of the demand curve.

Add these two together and you have an industry that can get away with raising the price higher because
a) there is no competitor to catch them
b) their customer base won't tell them to fvck off. They need that fix, man.

 

[Mday]

Who says medical technology gets more expensive? Does it cost MORE to get an MRI today than it did 10 years ago? NO, in fact, I am certain it's cheaper even without looking up any information. Don't judge the fact that hospital expenses are increasing, thus increasing your medical bills, with the cost of medical TECHnology. Medication is not machinery. Hospital care is not machinery.

Also, medical grade equipment is on par with military grade equipment as far as computers go. You can't slap together a $1000PC and expect it to work in a hospital environment. I don't mean in those offices in a hospital where the clerks do their thing. I mean in a sterile environment, emitting NO EMR, causing NO EMI, and being able to take the abuse of chemicals etc in the air.

 

[Mik3y]

i guess it's because people only "want" technology, like comps, but "need" medical technology and etc. as it works on our society, if consumers want something, businesses have competition and lowering prices usually does the trick. when people are ill or need medical help, they have no choice but to pay $$$$ for the overprice medical junk.

 

[gopunk]

in regards to 3, which is true, but seems more of an excuse to price gouge. the same principle applies to movie or music companies but you don't see the same profit margins. in fact pharamcy companies are the most profitable companies of any industry (at least from article i read in 2003)


thoughts?

so you don't see the same profit margins, what does that mean? it doesn't automatically mean they are being greedy.

do you have any idea the amount of capital it takes to start a phamaceutical or biotech company? hundreds of millions, billions. where do people get this money? you're not going to get that kind of money by diligently saving up and asking your friends for loans.

two words:
venture capital

what does this mean? this means that VC firms invest a tremendous amount of money in your company.

as we all know, not every firm succeeds. in fact, the vast majority of them fail. what does this mean to VC firms? that the companies that do succeed, need to provide a return on their investment that makes up for the other 9 companies that went under (and thus they see no return from).

factor in the fact that, unlike most other industries, in phamaceuticals one successful product was the result of tens, hundreds of failed siblings, billions of dollars, and it's not hard to see why the profit margin is high. you need to make up for products that never made it to market, yet still cost billions, and you need to pay off the people that made your company possible to begin with.

 

[dkozloski]

I think the big force driving up medical costs is medical insurance. When I was a kid, medical insurance was almost unknown and doctors worked for chickens and pigs. Now that all this money is availabe the medical industry is finding many creative ways to garner it. The same argument comes into play concrning the cost of a college education. It used to be that the cheapest way there was to occupy your time during the winter was to go to college. $1000 a semester would cover everything from tuition and books to room and board. Any dummy could earn that with a summer job. Along came student loans for lazy bums and the cost of education sky rocketed as the colleges and universities exploded the overhead costs. The little college I went to had an enrollement of about a thousand and had a grand total of three people working in the registrars office. Now the administration outnumbers the educators by about two to one. Ain't progress grand.

 

[f95toli]

As I wrote in my last post: Medical technology is becoming more expensive everywhere, not only in the USA. So lawyers, insurance companies and so are not the whole explanation.

Hip-replacements and cornea transplants are two examples of very common procedures that simply did not exist 40 years ago. We can treat more conditions today so of course the total cost is increasing.