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The Jevons paradox in medical technology

My column in The Times on healthcare costs:

Babies got cheaper this week. Twice. First, Belgian scientists announced that their
new method has the potential to cut the costs of some in-vitro
fertilisation treatments from £5,000 to below £200. Their cut-price
recipe requires little more than baking soda and lemon juice in
place of purified carbon dioxide gas to maintain acidity when
growing an embryo in a lab before implanting it.

Second, a baby called Connor was born after 13
of his parents’ embryos had their genomes analysed using
next-generation DNA-sequencing techniques in an Oxford laboratory.
Only three of the embryos were found to have the right chromosome
number, and one of these “normal” embryos was then implanted in his
mother. This new approach, made possible by the rapidly falling
cost of DNA sequencing, promises to cut the number of failures
during IVF, reducing both cost and heartache.

The two announcements are a reminder that cost reduction and
productivity boosts are the purpose of most innovation. Medicine is
no exception. Innovation is driving down the costs of medical
interventions all the time, and the falls may be about to
accelerate, thanks to biotechnology and information technology.

Whence, then, the relentless rise in the costs of healthcare?
Part of the answer is known as the Jevons paradox after the
Victorian economist Stanley Jevons. Innovation makes new
interventions possible, so increasing demand. IVF is a good
example: until 35 years ago, infertility went untreated, so cost

The economist Don Boudreaux recently listed just some of the healthcare products
that were not available at all, for love nor money, in 1980 but are
now there to have money spent on them: statins, Prozac, cyclosporin
used to make organ transplants successful, laser vision-correction
surgery, artificial hearts, magnetic resonance imaging (MRIs),
Viagra, disposable contact lenses, keyhole surgery, the
morning-after Pill. (Some antibiotics and antimalarials have gone
in the other direction, becoming less effective, but not much
else.) As an example of a falling cost that could drive up spending
by creating new demand, consider genetics. Nobody would have dreamt
of reading the genes of a virus to diagnose your lurgy even a few
years ago, but it will probably be routine in the next decade, at
least in test-happy America. If you replace the instruction “take
an aspirin and call me if it gets worse” with sending a sample to a
lab for a DNA analysis, followed by a prescription, you are bound
to raise costs.

This has been made thinkable by the fall in the price of DNA
sequencing, extraordinary even compared with the plummeting cost of
computing over recent decades. The first full human DNA sequence,
finished ten years ago, cost billions of dollars, but within a few
years it was being done for millions. Today it costs a few
thousand, and the three-figure genome sequence is in sight. The
cost of looking for a few mutations rather than sequencing an
entire genome is far lower still. As genetic analysis gets cheaper,
it is bound to become more widespread. Before handing you a pill,
it would be a good idea for the doctor to find if you have any of
the mutations that make the pill ineffective or toxic, for

It is not just biotech that’s getting cheaper. Cataract
operations have been speeded up tenfold, making them far cheaper.
That is bringing them in reach of people in poor countries. A
company called Aurolab makes intra-ocular lenses in India for
cataract patients and has brought the cost of a lens down from
hundreds of dollars to $2. Its founder, David Green, is now
developing Bluetooth technology so that your mobile phone becomes
the brainy bit of your hearing aid. He aims to bring hearing aids
within the price range of people in poor countries.

At Imperial College, the professor of orthopaedic surgery Justin
Cobb is using 3D printers to fabricate
patient-specific surgical tools and implants. With smaller
incisions, this can result in almost halving the time spent cutting
the bone, not to mention better outcomes and lower costs. The
surgeon scans your knee, generating a virtual image, from which
instruments and guides are designed and printed so that the bone
cuts you need are exactly matched to the tailor-made implant. This
kind of thing, combined with much better local anaesthetics, means
that in the US major knee operations are becoming more affordable
day cases in special clinics rather than necessitating long stays
in hospitals.

In this country, such a switch would be less easy because the
NHS is such an unwieldy and political organisation, and generally
poor at local experimentation — politicians like to dismiss
variation as a “postcode lottery”. The NHS is also hide-bound by
restrictive practices that prioritise the producers rather than the
consumers of healthcare. In other words, however good we are at
technological innovation, organisational innovation tends to be
much less nimble here.

It does not help that there are perverse incentives to
over-diagnose and over-treat, driven by the provision of healthcare
free at the point of delivery (here), or by the ability of
healthcare professionals to charge fees to the insurance industry
(in the US). Tonsils, hernias, prostate problems and other things
have long been over-treated.

Another trouble with healthcare costs comes from a different
lurgy: Baumol’s cost disease. The economist William Baumol
identified a problem years ago whereby falling costs in one sector
induce rising costs in another. If productivity goes up in
manufacturing, then wages rise and service industries have to put
up wages to compete for labour, even if productivity in services
has not risen. Labour-intensive sectors such as health and social
care get saddled with high costs.

Camilla Cavendish, a former Times columnist,
produced a report for the Government this week arguing for
standardised training for care assistants: a good thing, surely,
but unlikely to cut costs. As longevity improves and old age
stretches out for longer, the most basic element of care, the human
hand, becomes more important. And here productivity can’t much be
boosted — there are only so many old people one can wash and feed
in an hour.

It is just possible that accelerating technological change will
bring medical costs down so fast and so widely that spending on
healthcare can shrink as a proportion of household budgets. It is
far more likely, though, that innovation will greatly expand the
treatments available to us, resulting in ever greater political
challenges in how to ration health care, whether by price, by NICE
or by waiting list.

In short spending will rise, however much costs fall. This is
not necessarily a disaster. That we spend a growing proportion of
our income on health makes sense for three reasons: there are more
treatments that work, we’re getting older, and other things like
food and clothing are so much cheaper.

By Matt Ridley | Tagged:  rational-optimist  the-times