Soonman Kwon, Ph.D.
Seoul National University, Korea
Health care providers in Korea depend heavily on high-technology medical care, contributing to the health care cost inflation. This paper aims to examine the current status of medical technology diffusion, its causes and consequences, and policy options to rationalize the use of medical technology and contain related costs. It reviews both theoretical issues associated with medical technology in general and the policy issues of Korea along with a few OECD countries. Korea has experienced a very rapid diffusion of high-tech medical devices, brand-name original drugs and medical procedures due to the financial incentive of providers associated with the fee-for-service system, dominance of private for-profit providers of health care, and the lack of regulation on the adoption of medical technology. Since the rapid diffusion of medical technology is driven by providers rather than consumers, public policy should focus on health care providers who play a role in the patients’ utilization of medical technology and related expenditure.
II. Health Care Technology and Diffusion
Medical technology has played an increasingly important role in health care. Technological developments in drugs, physical capital or high-tech devices (MRI, CT, ESWL, etc.), and new procedures such as bypass surgery or catheterization for AMI patients have led to the rapid increase in the utilization of those services. New high-tech medical devices, brand-name drugs and medical procedures contribute to better health outcomes and improved quality of life. At the same time, heavy reliance on high-technology medical care results in the increase in the intensity of care for a given episode of illness or for a given treatment day.
Technological development is always regarded as good and beneficial to the industry and society. However, technological development in health care is not always welcomed because of its higher cost. Technological innovation in health care is much more in product innovation than in process innovation. Process innovation can save the cost of health care by enabling the same process to be performed in a less costly way. In contrast to the cost-reducing nature of process innovation, product innovation in medical devices, drugs, and medical procedures is almost always cost-increasing.
Because of the technology-driven pressure on health care expenditure, attitude of health policy makers toward technological innovation is ambivalent. The optimal use of medical technology requires the maximization of its impact on population health and at the same time the minimization of its cost of increased utilization. Regulation of the technology adoption of health care providers, guidelines based on the cost-effectiveness principle, fees and payment systems for high-tech medical care, and insurance coverage and cost-sharing for patients all affect the rational use of medical technology and health care expenditure.
Korea has experienced a very rapid diffusion of medical technology (Figure 1). From 1993 to 2002, the number of CT scanners has increased from 12.2 to 30.9 per million persons, MRI from 1.8 to 7.9, and ESWL from 1 to 6. In terms of the technology adoption of CT scanners and ESWL, Korea is the leader after Japan in the world. Japan has the greatest number of CTs, MRIs and ESWLs per capita in the world, whereas Canada, France and UK are very slow adopters of high-tech medical devices (Table 1, Table 2, Table 3).
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Korea and Japan also rely heavily on pharmaceuticals, and the share of pharmaceutical expenditure in total health care expenditure is higher than that in other countries (Table 4). However pharmaceutical expenditure accounts for a very low share of total health expenditure in the US and for a high share in France, different from the pattern in the...