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Technology and Medicare

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TECHNOLOGY AND MEDICARE
By providing an assured source of funding for new technology, Medicare has contributed to the development and dissemination of many of the new diagnostic and treatment options that have become available over the last 30 years. Research and development of procedures, devices, and equipment can be costly and is dependent at least in part on the expectation that payment for their use will be available. Medicare covers the populations most likely to need health services, and the program traditionally has paid for developments once their safety and effectiveness have been demonstrated.
When a technology first arrives, it tends to be expensive because economies of scale in production are not yet available, it is often hard to use, and usage rates per unit are low as it becomes more widely adopted. As a result, initial payment levels are often quite high. Over time, unit costs tend to decrease as a technology matures and its ease of use and capabilities increase and its utilization rates go up. For example, when MRIs first appeared, the cost of a machine was several million dollars and operating costs were high. MRIs have been continually improved; today, the cost of a more capable machine is lower, it is easier to use, and imaging costs are substantially lower. Another example is heart pacemaker implants. Initially, this procedure was quite complicated and entailed a lengthy operation done under general anesthesia. Today, the procedure is relatively straightforward, takes less than an hour, and is done under local anesthesia.
One problem that Medicare and others have had with technology is how to update payment rates. Payers often do not have a routine means of adjusting payments as technologies mature and the cost of providing them decreases. This can compound the problem because high payment rates encourage over-proliferation because providers can profit at low utilization rates. Another potential problem is that questions have been raised about the length of time Medicare takes to approve payment for emerging technologies.

http://rs9.loc.gov/medicare/history.htm…...

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