Medical innovation and social externality

Healthcare expenditure in the United States has grown and will continue to increase. The increasing healthcare expenditure is to reduce real income as well as to diminish total utility and increase financial stresses. This study argues that the most critical factor that increases healthcare expenditures during last 50 years has been the advent, adoption and diffusion of new medical technologies that include new drugs, equipment and healthcare delivery systems. This study introduces various examples how medical innovations influence to increase healthcare expenditures. In company with the advanced medical technology, this study suggests a free market in medical technology that means less regulation and less subsidization to healthcare market participants, such as healthcare providers, insurers, and healthcare consumers to reduce healthcare expenditures.