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A Startling Medical Breakthrough: The Internet


Economic Viewpoint

A Startling Medical Breakthrough: The Internet

As the recent deciphering of the human genome reminds us, the health-care industry is an information-intensive one that depends on the development and interpretation of highly specialized knowledge. Yet despite its dependence on precise and timely information, the industry remains a notable laggard in the application of information technologies. Most health-care transactions are still mediated by bits of paper rather than bytes of data. The systems used by doctors, insurers, hospitals, pharmacies, and clinical labs to manage patient records are often outmoded and incompatible--a costly and sometimes dangerous combination.

Inadequate information systems are a prime reason why administrative costs account for an estimated 15% to 20% of total health-care spending, with perhaps an additional 20% reflecting unnecessary or inappropriate care. The Internet has enormous potential to trim these costs by transforming the practice and structure of the industry. The Net can strengthen the three basic foundations of greater efficiency in the health-care industry: information, competition, and economies of scale.

Market efficiency depends first and foremost on providing reliable information to participants. The Internet can supply both health-care consumers and providers with the information necessary to make better decisions. Consumers are already flocking to e-health sites--indeed, according to some estimates, half of all consumers who access the Internet are seeking health-related information. Armed with more knowledge about alternative insurers, providers, and treatment options, consumers are becoming a more powerful force for greater competition in all facets of health care.

DOCTORS WITHOUT PCs. Consumers are also learning new ways to maintain good health, to prevent the onset of disabilities, and, when all else fails, to better manage their own treatment for chronic conditions. A recent survey found that one-third of chronic-disease sufferers reported taking their medications more regularly after checking out a disease-specific Web site. Consumers who share a specific ailment are also forming online communities to share information and advice and even to lobby their political representatives for more funding for research on their disease.

Historically, the suppliers of health care have also faced gaping holes in the knowledge needed to do their jobs efficiently. Nowhere has the dearth of knowledge been more dramatic than among physicians themselves. Clinical costs account for about 75% to 80% of health-care spending. Yet most physicians still have only limited access to objective information about recent biomedical breakthroughs or the efficacy of alternative methods of treatment. The Internet provides a potential channel to such information for all physicians regardless of whether they work in state-of-the-art medical centers or small rural practices.FASTER REIMBURSEMENTS. By using Internet-mediated interactive disease-management techniques with their patients, doctors can also reduce the cost and increase the quality of care for chronic conditions such as diabetes, heart disease, and asthma. Since chronic disease is the major cause of illness, disability, and death in the U.S., affecting about 100 million patients and accounting for about 70% of all medical expenses, the potential savings from such techniques are substantial.

The Internet will also generate dramatic savings in the administrative costs of running the health-care system. About 85% of medical-practice revenues come from insurance reimbursements, but the average processing time for such claims is still between 45 and 90 days. The Internet is fostering cheaper, faster reimbursement processes. As a consequence, industry experts predict that within a few years, at least 30% of medical claims will be processed online. The Internet is also encouraging standardized coding of clinical and patient information, allowing the different information systems employed by participants in the health-care system to communicate with one another more reliably and efficiently.

Finally, the Internet is providing ways for balkanized health-care providers to enjoy heretofore out-of-reach scale economies by outsourcing such core administrative tasks as billing, financial management, and data processing and by purchasing supplies through specialized Web-based intermediaries and exchanges.

During the past half century, technological progress in biomedical science has improved the quality of health care, increasing longevity and reducing disability among the elderly at an accelerating rate. But by fueling increases in consumer demand for new, more expensive methods of treatment, this progress has also been a key factor driving growth in per-person health-care spending. By fostering greater efficiency and competition, the Internet could go a long way toward slowing that growth.By Laura D'andrea Tyson


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