With the thousands of healthcare technology companies that have raised hundreds of billions of dollars in venture capital and other financing over the last couple of decades to make healthcare more efficient, you'd think we'd be seeing the cost of healthcare delivery come down. Of course, this hasn't happened at all. A lot of people like to point to this chart, which shows that the price of things like TVs is dropping while the price of things like healthcare is going up.

This chart has always annoyed me a bit because it lacks so much of the nuance of each of these industries, but let's go with it for a second and understand why the cost of healthcare isn’t dropping like the cost of a television.

Clearly, televisions have become much cheaper and much better over the last several years. Many technological advances such as LCD, OLED, automated mass production, and labor cost reduction have brought down the cost of producing a TV. Add to that significant global competition, perfect pricing transparency, and the right incentives among consumers, and it’s no surprise that prices have dropped dramatically.

Let's apply that logic to healthcare. Imagine a health system that employs 500 primary care providers. They go out and buy AI software products that make their primary care providers, say, 100% more efficient. Because of technological advancement, it now costs the health system 50% less to supply a PCP appointment to a patient. That's great news. But how does that cost reduction actually show up and become visible to an end consumer?

Well, first of all, it's highly likely that rather than reducing costs, consumption would go up, and costs would stay the same if not increase. More appointments mean more patients, which means more downstream referrals to higher-cost services. The end consumer doesn't buy their own personal set of healthcare services like their own TV for their living room; they buy into a pooled group of patients under an insurance plan. If that pool increases their consumption of healthcare services, each person's premium increases. More healthcare consumption means higher insurance premiums. So, it's possible that technological advancements actually increase the cost of healthcare, which is good in some cases and not so great in others.

But put that aside, let's say demand and consumption stay the same, and the health system can deliver on that demand more efficiently because of the AI they've procured and that they have material savings to do something with. If the health system is for-profit, they might be inclined to return that money to shareholders without impacting the price for consumers. If the health system is nonprofit, they might just reinvest it back into upgrading a building or hiring more specialists, which would also keep prices flat.

When a television company makes a technological advancement that allows it to make better TVs at a lower cost, it might also be inclined to invest in growth or return money to shareholders. However, because of intense competition and price transparency, it is also very likely they will pass those savings on to consumers, lowering the price of the TV for everyone. But health systems don't have the same incentives as the television company in several important ways:

Demand for their services isn't elastic (people don't shop for PCPs on price).
Their prices are regulated and negotiated with payers and aren't dynamic like television's.
The price actually being paid isn't clear to the patient, as they only pay a portion that depends on their specific health plan.

I wrote about all of these issues in 15 Reasons Why Healthcare Has a Business Model Problem and Healthcare's Incentive Misalignment, so I won't rehash them here.

The point of this post is that there are a ton of amazing healthcare tech companies that are reducing costs for providers, payers, and patients, improving the quality of life for clinicians, improving the quality of care across the board, and doing absolutely amazing things for the American healthcare ecosystem. But, for the reasons described above, these savings are unlikely to appear in high-level cost metrics. At least not until the incentives change.