How Pay-For-Service's High Cost is Stifling Healthcare Innovation

The wildly fluctuating nature of healthcare spending is taking tolls not only on patient pocket-books, but, according to Rob Arnold on XConomy.com, healthcare innovation as well.

“Brute force budget cuts, such as the sequester, threaten the very research programs that will provide the next great wave of medical innovations.”

The biggest issue, as Arnold sees it, is the fee-for-service model currently the rage with healthcare providers:

For example, suppose a hospital had a choice between two safe, effective and proven treatment options to include in their service menu. Both treatments were supported by good data and good clinical outcomes. The big difference is the cost of the treatment. Treatment one is $1,000 ($600 for the product developer and $400 in gross margin for the hospital). Treatment two is $10 ($6 for the product developer and $4 in gross margin for the hospital). The unfortunate reality for all of us is the hospital and product developers have a greater incentive to prescribe the $1,000 treatment versus the $10 treatment which would work just fine. How can we blame the healthcare providers for choosing the more expensive treatment when this is what we incent them to do?

His conclusion is definitely worth thinking about: “With lower healthcare costs, we can afford to reinvest in deeper and more disruptive healthcare innovations.”