Telecommunications and cost savings in health care services.

• Author: Cronin, Francis J.

1. Introduction

   Public concern and government attention has focused on the explosive rise in health care costs. Analysts in various academic and professional fields have investigated the ways in which health care costs can be controlled while improving the quality and availability of medical services. While several policy- and technology-based options have been examined, testimony presented at recent congressional hearings attests to the potential for telecommunications services, in particular, to broaden the availability and quality of health care services while moderating the costs of those services.(1) Practicing physicians, medical researchers, appointed officials, and other medical specialists have extolled telecommunications' role in enabling doctors to provide better service. All parties familiar with the ways in which telecommunications services have benefited health care urge policy makers to recognize these contributions and ensure that telecommunications, as a relatively low-cost means of improving quality and access, continue to be exploited in the provision of health care services. As summarized by J. Michael McGinnis, M.D., Deputy Assistant Secretary for Health,

   As we look for ways to improve our effectiveness in reaching the public and health professionals alike with timely, relevant, and accessible health information, we look to new communication technologies not to solve our problems, but to provide us with the opportunity to develop new, creative solutions to improving the public health [8].

   The health care sector is not unlike other sectors in its attempts to improve productivity and quality through increased usage of telecommunications services. Aggregate and sector-specific research conducted by DRI/McGraw-Hill has revealed a rapid increase in almost every industry's real usage of telecommunications services between 1963 and 1991, owing partly to steady declines in the price of telecommunications relative to other inputs. In each industry, as telecommunications displaced less efficient and more costly inputs, productivity increased: since 1978, about 25% of total direct and indirect aggregate productivity gains resulted from advances in telecommunications production and enhanced consumption possibilities for end-user industries [5]. These productivity gains saved the 1991 economy $102 billion in primary resources, excluding the savings enjoyed by the health care services and educational services sectors.

   How, then, have doctors, hospitals and researchers used telecommunications services to control costs and improve access and quality? And, given the staggering growth in health care costs, what cost savings associated with the health care industry's usage of telecommunications can be calculated? This paper will focus on presenting the statistical methods that researchers at DRI/McGraw-Hill have used to answer the second question. In the first section, we assess patterns of telecommunications usage in the health care sector. In the second section, we describe the econometric modeling techniques used to estimate cost savings associated with telecommunications usage. In the third section, we present the results of this research and we detail statistical findings that help substantiate hypotheses that the health care services industry may have foregone substantial cost savings by failing to more aggressively employ telecommunications technologies. Emphasis will be placed on using the modeling procedure to integrate and expand existing projections of health care costs, and to estimate the ways that telecommunications services might reduce health care costs through the year 2000.

2. Cost Savings Due to Telecommunications Advances: The Issue in Context

   Limited Access and Growing Expenditures

   Expenditures on hospital care, physicians, drugs and other medical nondurables, nursing home care, and other medical goods and services rose from $250 billion in 1980 to $666 billion in 1990, and expenditures are forecasted to reach $1.679 trillion by the year 2000 [7]. From 1965 to 1990, the proportion of Gross Domestic Product (GDP) devoted to health care doubled from 6% to 12%; health care is projected to comprise 18% of GDP by the year 2000 [7]. An important part of this shift in expenditures is the sharp growth in the real price of health care services. During the 1980s, health care prices rose at twice the average rate of inflation, and, consequently, "rapid increases in the real price of health care have contributed to the overall rise in spending" [4]. Indeed, by 1991, health care costs indexed to 1964 were almost twice as high as the general price level. The change in the general level of consumer prices is compared with the change in consumer health care prices in Figure 1.

   In conjunction with spiraling costs, U. S. health care delivery faces a problem of limited access. With health insurance a critical means of financing health care, the Congressional Budget Office reports: "According to the March 1992 Current Population Survey, more than 35 million people--14 percent of the total population--had no health insurance [11]. People in single-parent families and in families with an unemployed worker, young adults, and black Americans are disproportionately represented among the uninsured" [7]. At the same time, access is diminishing as critical care facilities are being concentrated at more limited sites. As governmental bodies are increasingly drawn into the mechanisms of health care service, either as regulators, planners, policy makers, or providers of funding, these bodies will have to weigh measures designed to meet the often conflicting ends of promoting access, advancing quality, and containing costs.

   Promoting Quality and Access via Telecommunications

   In recent years, technical advances and innovative applications have generated an important role for telecommunications services in enhancing health care access and improving service quality. Advanced fiber-optic networks facilitate the dissemination of medical tests, records, research data, and findings, and the transfer of patient information involving medical imaging technologies. Telecommunications also enhances the abilities of medical professionals to communicate personally with each other and for both professionals and patients to access medical information via electronic networks. At the Mayo Clinic, "telemedicine" links the clinic with experts at other locations by means of two-way broadband television [9]. In Memphis, Tennessee and Bowling Green, Kentucky telecommunications is enhancing access to equipment and the dissemination of test results, including results from Medical Resonance Imaging (MRI) equipment and EKGs, among medical facilities and practitioners, using fiber-optic links and fax machines [10]. Hospitals in St. Louis and Houston have conducted tests in which X-ray and other images are shared among professionals both inside and outside of the facilities using standard telephone lines. Other trials of telecommunications applications for image transfer, data transfer, and consultation are being conducted or planned in Massachusetts and North Carolina [10].

   The ability to transfer medical information, including images, and to engage in consultation is encouraging the application of telecommunications to the remote practice of medicine. This enhances access to advanced medical care for many Americans in medically under serviced areas, such as inner cities and rural areas [10]. In Texas, three networks, KARENET, INTERNET, and MEDNET, use various communications technologies to distribute information, conduct conferences, and link specialists with patients and medical practitioners in remote rural areas [10]. In...