The impact of new technology on health costs.

William Schwartz’s survey of emerging medical technologies is a thoughtful and comprehensive review of innovation in biomedicine. It contains the first glimmer of optimism in his writing that definitive therapies, such as gene therapy for inherited disease, may actually lead not only to improved outcomes but to potential major cost savings. This is a welcome departure from the unremitting pessimism about the fiscal consequences of technological progress that has characterized his past writings. It is clear from Schwartz’s review that we are crossing a technological divide, from in novation driven by engineering (technologies that come in large boxes or on flatbed trucks) to biologically driven innovation (technologies that come in trays of vials). He is correct that the short-term cost impact of this transition could be explosive. As has been the case for the past century, diagnostic innovation will run far ahead of new therapies. This will be particularly true of gene probes and sophisticated blood testing. These technologies will be driven by consumer demand, more than by clinical activism, and represent the leading edge of a multi-billion-dollar new business. We know frustratingly little about how technology affects health costs. The paper by Joseph Newhouse that Schwartz cites is an example of the current analytic approach: factoring out of aggregate cost increases the contribution of population growth, aging, inflation, and labor costs and declaring confidently that somewhere in the large residual