BOOKS OF RtfiDIfGS - PAHO/WHO

364 -
Application of Cost-Benefit Analysis to Health Services ¡
Comnittee's projections of survivorship of patients with transplanted kidneys and the
cot of hemodialysis at home, both of which were originally supported by scanty data,
hane been borne out (72).
If technologic developments over the next decade are, in effect, already known to
those gifted with early recognition, what can be said about prospective benefits and
costa? In a plea at a health services research seminar in New York City for more research
and development funds, Bennett (73) argued that the half.finished invention is the most
costly product, so that technologic progress is bound to bring a lower unit cost of service,
a well as improved performance.
In those cases where straightforward development takes place and serious adverse
ide.effects are not encountered, Bennett's view of the cost-reducing and benefitenhancing
effects of technologic progress is undoubtedly correct. However, in many
respects the future is shrouded in uncertainties. Such factors as the size and geographic
distribution of population, value structures, and political decisions are uncertain for the
future, even if technologic developments are not. Public policies are also known to create
unintended and unanticipated consequences. An accepted way to deal with uncertainty is
to provide for flexible operation, that is, to avoid a finely tuned operation which yields a
minimum cost only for a particular scale of output. Similarly, if manpower is to be used
flexibly in the future, it must be endowed with a more general education than otherwise.
Thus, flexibility, whatever its cause or source, imposes a modest extra cost over a
moderate range of outputs (18, pp. 105, 123-124).
The Histoncal Record
Rather than pursue this argument of pros and cons, I propose to examine the historical
record. What have been the effects of past changes in health systems technology on costs
and on benefits? A review of the literature on this subject reveals sharp differences of
opinion.
In a monograph on hospital expenditures sponsored by the National Center for Health
Services Research and Development, Feldstein (74) attributes most of the postwar
increase in hospital cost to an increase in demand, or, more precisely, to an upward shift
in the demand curve. To paraphrase his argument, technical change in the absence of
scientific progress may occur for two different reasons. Economic analysis has
emphasized technical change in response to a shift in the relative prices of inputs (75). If
wages rise faster than the prices of other inputs, for example, hospitals will economize on
labor by using more disposable items, by automating laboratory procedures, etc. The
effect of such substitution is to prevent costs from rising as fast as they otherwise would
have.
The second reason for technical change without scientific progress, which Feldstein
emphasizes, is a shift in the demand for hospital care. This type of change generally yields
a new product. The spreading of high-cost techniques is primarily due to rising income
and increased health insurance coverage. As income increases, patients tend to raise the
valuation of more costly care by relatively more than the valuation of less costly care. An
increase in the proportion of the hospital bill paid by insurance will shift hospitala to
more expensive technology, as the out-of-pocket price per unit of benefit is lowered.
Gains in scientific knowledge, including managerial innovations, that have the
potential of lowering the cost of care may actually have the opposite effect. This happens