Health Care and Innovation: Why Not Better and Cheaper? | Manatt, Phelps & Phillips, LLP


[co-author: James Rebitzer]

Editor’s Note: In their new book, Why Not Better and Cheaper?, James Rebitzer and Robert Rebitzer explore innovation in health care—and why it matters to patients and society. Briefly excerpted below, the book brings together insights on social norms, incentives and competition to examine why health care often generates the wrong kind of innovation—and how to point the system in a better direction. The book sheds new light on the trajectory of innovation in health care—and why the health care system struggles to deliver greater value at lower cost. To learn more, click here.

In a new two-part webinar series, Manatt Health Partner and Leader William Bernstein will moderate a discussion with the authors and a panel of industry leaders focused on boosting value and reducing costs in the health care system. Click here to register for the free sessions. Even if you can’t make the live airings, register now, and you’ll receive free links to view the sessions on demand.

Mass General Hospital (MGH) is one of the oldest and most prestigious hospitals in the United States. From 1821 until 1910, the average cost of treating a patient discharged from MGH was $997 in 2010 dollars. It wasn’t until the early 1960s that costs surpassed $4,000 per patient. In 2002 the equivalent per patient cost exceeded $25,000, and in 2010 it was in the neighborhood of $35,000. Put differently, the nearly nine-fold increase in the cost of treatment in the 50 years between 1960 and 2010 was far larger than the increase over the prior 150 years.

New, more valuable treatments have undoubtedly played a central role in the rising cost per patient of hospital care over the past 50 years. In 1950, for example, there were essentially no effective treatments for patients who survived heart attacks. Now we have effective therapies and medications (angioplasties and stents, thrombolytic drugs, and so on), and mortality in the month after a heart attack has declined by 75 percent. As medical treatments become more effective, the demand for such therapies rises. Indeed, technological improvements that lengthen life spur demand for additional interventions. The patient who survives a heart attack in her 60s may need a knee replacement in her 80s.

But why doesn’t health care get better and cheaper? The evolution of the cell phones that we carry in our pockets demonstrates that quality can increase while prices fall. Why not in health care?

Our answer is that the health sector generates the wrong kinds of innovation. It is too easy to profit from low-value innovations and too difficult to profit from innovations that reduce care costs. The result is a health care economy that is profusely innovative yet remarkably ineffective in delivering increased value at a lower cost. The consequences of this skew in innovation accumulate over time and make society poorer and less healthy than it ought to be.

The root causes of the innovation problem in the health sector are the incentives, prevailing professional and social norms, and the competitive environment. We can point innovation in a better direction by improving incentives, mobilizing norms and narratives, and altering the regulatory and competitive environment.

Reprinted from Why Not Better and Cheaper?: Healthcare and Innovation by James B. and Robert S. Rebitzer with permission from Oxford University Press, © 2023 by Oxford University Press.


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