Yesterday I wrote about how free or low priced online courses are beginning to put pressure on pricing in education. As a small addendum to that: the same day the New York Times ran a front page story about home schooling recognizing the growing importance of that movement (which in turn is enabled by much of the same content). Today I want take a look at what is happening to healthcare costs and whether there is any hope for technological deflation here also.

If you haven’t seen this chart first off a reminder that US healthcare spending per capita far exceeds that of other countries:

And like in the case of education we got there through many years in which the cost of healthcare rose much faster than the general rate of inflation. For instance while the general price increase over the last 30 years was about 2x, the cost of healthcare over the same period increased by 3.2x (source: US Bureau of Economic Analysis).

There is a big debate raging right now as to whether or not the Affordable Care Act has or will result in lower healthcare cost or larger premiums (or possibly both!). For the purposes of this post though I am more interested in exploring the mechanisms by which information technology can help lower the cost of healthcare. Here are the ones that come to mind:

1. Better price transparency on procedures. One place this will come from are self insured employers who use solutions such as Castlight Health. A lot more could be done here if/when individuals more generally run their expense or claims data through the equivalent of something like Mint.

2. Quantified self. To the extent that people better track their activity level, weight, sleep, etc. there is the possibility that they will live healthier lives and require less care. I think there is a lot of potential here in the longrun but also suspect that this initially will be adopted by folks who are already above average health.

3. Faster and better diagnosis and treatment. If you want to feel inspired, read some of the stories about how Crowdmed has helped people whose conditions were un- or mis-diagnosed for many years. USV portfolio company HumanDX is also working on a system to help with diagnosis and Figure 1 lets doctors exchange images and other observations. Flatiron Health recently raised a massive investment round to pull together data on oncology patients. And then there is a whole group of companies that are bringing telemedicine into the app era, including HealthTap, Doctor on Demand, Teladoc and Klara. These can all dramatically reduce the number of initial doctor visits and associated costs.

Now one objection might be that so much of healthcare cost is in pharmaceuticals. As it turns out this is only 10% of total spending though (see here and thanks for the correction of my wildly off 50%). Here too I think we will see technology help drive cost down. It is an area I understand poorly but on a recent vacation I talked at length to a successful pharma entrepreneur who was very bullish on the potential for personalized treatment to dramatically improve the effectiveness for a wide range of conditions, including many cancers and even diseases such as ALS and Alzheimers.

All in all then I am quite optimistic that we can make progress in reducing the cost of healthcare and that technology will ultimately act as a deflationary force in this field as well. In the coming days I will write a bit more about why we are currently scared of deflation but shouldn’t be.