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January 22, 2019
Understanding Cost-Effective Analysis in the Transition to Value-Based Care
It has been estimated that more than $200 billion worth of unnecessary services are provided in the U.S. healthcare system each year. Whether through cost-effective analysis and/or other means, medical professionals must find a way to make hard choices and rein in costs.

How much would you pay to add one quality hour to your life? How about one day? Or two days? What about your loved ones’ lives? How much would one more good day be worth?

Questions like those can be excruciatingly difficult to answer, but that doesn’t mean we can ignore them. We need to be “candid,” says Milton Weinstein, a professor of health policy and management at the Harvard School of Public Health and a professor of medicine at Harvard Medical School, “about how much of our healthcare dollar is going to interventions that offer benefits on the order of only days or hours of improved health. Some of these interventions cost a lot.”

While the notion of spending profligately on a pill or a procedure that promises to extend the life of a nonagenarian by an hour or two may sound ridiculous, the question remains: Where and how do you draw the line?

“Historically, we were taught to provide whatever care is best, regardless of cost,” says Joel Tsevat, MD, MPH, a professor of medicine at UT Health San Antonio and a cost-effectiveness analyst. “If the patient needs an expensive medication or an expensive treatment, the physician is trained to do that.”

But, Dr. Tsevat adds, it’s an unrealistic and unsustainable approach: “As providers we are also becoming stewards of the healthcare economy, like it or not.”

And as the U.S. transitions into a value-based healthcare economy, the issue becomes even more pressing.

Black and white?

Hence there are those borrowing from other industries and using cost-effective analysis to try to turn gray areas more black and white.

For example, the World Health Organization has suggested that an intervention that averts one disability-adjusted life-year (a measure of years lost due to premature death or disability) should be considered cost-effective if the intervention costs less than three times the average per-capita income of a country or region.

In other words, in a country in which the per-capita average income is $50,000, an intervention that costs $150,000 or less and extends a patient’s disability-free life by one year should be considered cost-effective.

But can you attach a dollar figure to human life and say, for example, that $150,000 is worth it but $151,000 isn’t? “Some people question the use of economic analyses in health care, but cost-effective analysis is a way to ensure that we are providing high-value care,” says Douglas K. Owens, MD, a professor of medicine and senior investigator of the VA Palo Alto Health Care System. “Cost effectiveness analysis is one approach to understanding how we can help control health-care costs and provide high-value health care.”

Dr. Owens was part of an panel of medical professionals that recently updated guidelines for evaluating cost-effectiveness in health and medicine. Building on 20-year-old guidelines, the panel recommended updating the guidelines to incorporate analyses from two reference cases and to examine impact not just on patients, but also on caregivers, social services and others outside healthcare.

Waste vs. Effectiveness

Meanwhile, the Institute of Medicine has estimated that more than $200 billion worth of unnecessary services are provided in the U.S. healthcare system each year.

But, “the evidence says that we already may have cut most of the waste” out of the system, says Dr. Weinstein. The key, instead, may be to study what lower-spending/better-outcome hospitals, regions and service areas are doing, and then to encourage high-spending/poor-performance areas to emulate them.

“The low-cost areas are using more cost-effective services,” he says, “[such as] counseling to quit cigarette smoking, colonoscopies, giving beta-blockers to patients after heart attacks. These are well-established interventions that are effective and also are cost-effective. But they’re underutilized… If you do more of those expensive things that have marginal value and less of the cost-effective things that have proven value, then you get places that spend more and get worse outcomes.”

Dr. Tsevat agrees. “It’s all well and good to eliminate waste and low-hanging fruit such as imaging for routine back pain that has little or no benefit,” he says. “But after you have eliminated waste, there is going to be point where you start making tradeoffs. The rubber is hitting the road. We can’t afford million-dollar treatments.”

Bankrupting the country?

Whether through cost-effective analysis and/or other means, medical professionals must find a way to make hard choices and rein in costs, says Atul Gawande, MD, a surgeon and Harvard professor in the Department of Health Policy and Management and writer of the influential article, “The Cost Conundrum”.

He adds: “We need local medical leadership to acknowledge that we as clinicians are slowly bankrupting the country—and that we have the ability and responsibility to work on our costly problems of overtreatment, undertreatment, and mistreatment. [What] we are witnessing [is] a battle for the soul of American medicine.”

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