The Impact of Medical Technology on Medicare Spending


Hospital investments in new diagnostics, medical and surgical devices, drugs, and procedures can yield long-term clinical and economic benefits for patients and providers. Improvements in the quality and efficient delivery of patient care leads to reductions in adverse patient outcomes, such as long stays in hospitals and high rates of unplanned readmissions and complications, and avoidance of financial penalties. Within the United States (U.S.) healthcare system, however, medical innovation is often cited as a major driver of rising healthcare costs, and some analysts have concluded that slowing the adoption and utilization of new technology is a key strategy necessary to control overall spending. This proposition, however, has not been tested empirically.

Directly and meaningfully measuring the aggregate effect of medical technology across the U.S. healthcare system is challenging. Currently, there is no standard definition for what constitutes an “innovative medical technology” and no standard measure of the adoption and use of innovative technologies across or within settings of healthcare. To explore the relationship between technology adoption and spending (i.e., payments), we evaluated
the Medicare spending per beneficiary (MSPB) score, a Centers for Medicare & Medicaid Services (CMS) measure of hospital efficiency, among the “top technology” hospitals, as identified by U.S. News and World Report (USN&WR).1

Our analysis found that, on average, Medicare spending for the most technology-intense hospitals matched the national rate for all other hospitals. However, top technology hospitals have a higher percentage of hospitals with spending rates that are lower than the national average. Approximately 65 percent of top technology hospitals have average MSPB

below the national average compared to 56 percent of the non-top technology hospitals. Additionally, when top technology hospitals are compared with a comparable group of larger hospitals having more than 200 beds, Medicare spending for top technology hospitals is significantly lower than other large hospitals.

There are many factors, beyond technology adoption, that may impact Medicare spending. Further, hospitals that have a high technology adoption rate may also exhibit other factors that could impact Medicare spending. Although this study adjusted for teaching status and number of hospital beds, it did not examine the impact of other hospital characteristics or practice patterns.

These findings suggest that many of the leading health systems in the U.S. have been able to adopt the latest medical advances and provide technology-intensive care, while not driving up Medicare spending. In view of the immense value of advances in medical technology in improving patient outcomes and the process of care, as well as the availability of other tools to reduce health expenditures, policies that seek to control costs by limiting adoption of medical technology may be counterproductive.

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