From success of the Fab Four, a key driver of health-care costs arose

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By Thomas Goetz
Sunday, February 21, 2010

This is an excerpt from "The Decision Tree: Taking Control of Your Health in the Era of Personalized Medicine," published this week by Rodale.

If you're looking for a scapegoat for the escalating cost of health care -- $2.5 trillion a year in the United States and climbing -- you might as well blame the Beatles.

In 1931, Electric and Musical Industries, or EMI, was mostly about the M -- making 78 rpm records and selling gramophones. The E was a much smaller part of the company, one in which EMI engineers worked on military technologies and dabbled in the burgeoning field of computer electronics (EMI labs helped develop radar technology and stereo sound, among other things). In 1955, the company acquired Capitol Records, with its roster of Frank Sinatra, Nat "King" Cole, and Peggy Lee, and became a powerhouse in popular music.

And in 1962, on the recommendation of EMI recording executive George Martin, the company signed a new group called the Beatles to a recording contract. Over the next decade the company earned millions of dollars from the Fab Four. It was so much money that EMI almost didn't know what to do with it. Meanwhile, a middle-aged bachelor engineer named Godfrey Hounsfield was working at EMI's less glamorous electronics business. Hounsfield was a skilled, unassuming scientist, quietly leading a team that built the first all-transistor computer. Flush with money broken out of teenagers' piggy banks, EMI let Hounsfield pursue independent research.

One day in 1967 -- the year of Sgt. Pepper's Lonely Hearts Club Band and Magical Mystery Tour -- Hounsfield took a ramble through the English countryside and had an epiphany. By taking a picture of an object from all sides, he realized, one could create a three-dimensional image of that object.

He went back to his lab and was soon taking X-rays of a cow's head (borrowed from a nearby slaughterhouse) from all sides. By converting the images into digital files, rather than strips of film, Hounsfield discovered that a computer could reassemble dozens or hundreds of X-rays into one single image, creating a deeper look inside the head.

The result was a cross-sectional, interior image with remarkable clarity. He called the technique computed tomography, or CT. As the Nobel Prize committee put it while awarding Hounsfield the Nobel Prize in Physiology or Medicine in 1979, before the CT scanner, "ordinary X-ray examinations of the head had shown the skull bones, but the brain had remained a gray, undifferentiated fog. Now, suddenly, the fog had cleared."

First released as a clinical scanner by EMI in 1971, CT scanners appeared at hospitals in the mid-'70s. Today, there are about 30,000 in use worldwide, one-third of them in the United States.

CT technology has been a boon to medicine, aiding in the diagnosis of everything from broken bones to kidney disease to cancer. But CT scans have also been a major factor in the explosion of health-care costs in the United States. These days, these very expensive machines -- along with their high-resolution brethren, MRIs and PET scans -- are sometimes used indiscriminately, often in an effort to generate a diagnosis rather than confirm one. Despite their high resolution, CT scans are still blunt instruments.

They can actually introduce too much information into a situation. A high-resolution image of the inside of the body reveals so much that everything begins to look like an anomaly or a potential problem.

As Shannon Brownlee wrote in her 2007 book "Overtreated," "for every scan that helps a physician come to the right decision, another scan may cloud the picture, sending the doctor down the wrong path." Which is why, however useful they are in specific cases to ascertain specific diagnoses, they are unsuited for use as a screening tool. Which, unfortunately, is what many people say CT scans should be used for.

Most technologies -- DVD players, digital cameras, flat-screen televisions -- get cheaper as they get more popular. But not CT scans.

From 1974 to 2004, the list price of a CT scanner increased to $2.2 million from $385,000, a nearly sixfold increase. With other technologies, the economics of scale and Moore's law have consistently driven costs down, even as quality goes up. Not here.

So what's going on? Economists have a term for industries that don't follow conventional economic rules of competition and efficiency: market failures. The health-care industry is beset by market failure. One reason is price transparency. In a competitive market, buyers of a service can glean what a typical price for a service or commodity is, and sellers will know what their competitors are selling their products for. This creates a fair market where buyers can shop around and sellers can adjust prices to maximize sales or profit.

The marketplace for CT scanners, alas, has little transparency. The same manufacturer may sell the same type of machine at drastically different prices to hospitals. Hospitals and other medical providers -- including doctor's offices -- have spent the past decade eagerly buying ever more powerful and ever more expensive devices. Despite a general prohibition against ordering tests simply because there's a test to order -- what's called physician-induced care -- that's exactly what happens.

Having made their investment, hospitals put the machines to use, and a spending cycle kicks in. Doctors in the United States ordered nearly 70 million CT scans in 2007, more than triple the number in 1995. These numbers will only keep going up: As demand for imaging rises, incentive to buy new machines rises, too. That's why radiology departments have become profit centers for hospitals, and that's why imaging machines are Exhibit A in the rising cost of health care in the United States.

Hospitals pass along the expense of CT scans to patients and insurers. That means they don't experience a downside to their actions (what economists call a moral hazard). Without a downside, they just keep ordering tests: Medicare alone saw its payments to physicians for imaging services double to about $14 billion from 2000 to 2006, according to the Government Accountability Office.

In most industries, technology lowers costs by reducing the workload for an expert class. The steam engine reduced the demand for buggy-whip makers, the textile factory reduced the need for seamstresses, robot welders reduced the need for the human kind in auto plants. Here again, health care is the exception: Rather than taking experts out of the process, a CT scan ends up making more work for the expert class of radiologists. Diagnostic radiology is among the highest-paid specialties in medicine, with a median salary of $361,000, according to a recent survey. And these salaries are increasing faster than they are for other doctors, driven by hospitals that are eager for more radiologists to perform more tests. That not only keeps prices high, it makes the prospects for lowering costs almost nonexistent.

CT scanners offer no economies of scale; the machines don't get cheaper when you buy more, and the individual scans don't get cheaper when you scan more people. And they don't give unequivocal information; unlike a blood test quantifying blood-glucose level, a scan is open to a radiologist's interpretation. For these reasons the U.S. Preventive Services Task Force has consistently recommended against using CT scans to screen for diseases.

The fact is that, like a lot of medical technology, a CT scan can do a lot of good in particular circumstances. But too often, the enthusiasm outstrips its utility. And the result is a technology that just doesn't compute.

-- The Big Money


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