Cost, quality and economies

JAMA had a great editorial perspective this week by Katherine Baicker and Amitabh Chandra on the challenge of figuring out quality and cost effiency in health care spending.

individuals in the United States may consume what appear to be similar health care services, but some of these services may actually be more intensive versions of the services consumed in other countries. For instance, patients in the United States may see specialists just as often as patients in Australia but may be more likely to see board-certified radiation oncologists relative to general oncologists, receive new immunotherapies instead of an angiogenesis inhibitor, and receive drug-eluting stents instead of bare-metal stents. It is not possible to conclude that individuals in the United States pay higher prices for these services just by observing that they spend more but have the same number of visits for cancer care, receive different medications, or use the same number of stents without having granular data about the exact type of services and products being used. The larger and more varied the health care services being compared, the larger the scope of this problem.

A related issue that is crucial to making valid spending comparisons is the role of quality differences. Quality differences not only make cross-country comparisons difficult but these differences may complicate within-country comparisons. For example, a report from the Health Care Cost Institute concluded that pharmaceutical utilization stayed constant over the past 4 years (2012-2016) and that there was substantial price growth in this sector.3 Like other research, this analysis treated the introduction of new drugs, including therapies for hepatitis C, as a pure price increase without incorporating the possibility of any quality improvement represented by these innovations.

Hep-C cures are the epitome of two very true statements.

1) They are really freaking expensive on both a per-patient basis and total spending basis
2) They are really effective and thus high value

We are going to see more and more treatments that will share those two true statements as personalized medicine and rare genetic disease cures work their way through the pipeline. ICER released a cost effectiveness report on a new hemophilia prophylatic regime on the 15th. They find that for individuals with inhibitors related to clotting factor for Hemophilia A the new treatment regime is both much more effective at preventing bleeding events and far less expensive. The projected cost of treatment for this regime is slightly less than half a million dollars per yer per patient. There are slightly less than 1,000 patients who qualify in this country.

And the drug is a bargain at half a million dollars a year:

But I digress as the main point is that evaluating health systems on quality, quantity and price by plugging data into Excel and seeing pretty graphs will probably not tell the entire story. Better data and more sophisticated modeling to get the local context at a granular level that probably can not be easily captured in readily available claims data is needed.

Baicker K, Chandra A. Challenges in Understanding Differences in Health Care Spending Between the United States and Other High-Income Countries. JAMA. 2018;319(10):986–987. doi:10.1001/jama.2018.1152

8 replies
  1. 1
    WereBear says:

    Many promising drugs and treatments have fallen by the wayside because there are not “enough” people suffering from them.

    Which is not only inhumane, it is incredibly short-sighted. What if this angle turns out to be very significant for lots and lots of people?

    We won’t know.

  2. 2
    Dan says:

    Long time lurker here.

    David, curious if you have seen this:

    Interested in any takes you have.
    Report on how to handle the potion of the population that is not in the top 5%, but might be there some day. Put out by JSI, funded by Blue Cross of CA.

  3. 3
    StringOnAStick says:

    Interesting that prescribed drug use has been constant but costs have increased significantly. Its almost like we heard about Pharmabro only because the price increase he went after was so huge. There’s obviously plenty more of the same efforts, though perhaps not as obviously awful as what he tried to implement.

  4. 4
    Victor Matheson says:

    I would point out that the Bureau of Labor Statistics, which is the official government agency that calculates the Consumer Price Index, i.e. the official inflation rate, spends a lot of time and effort trying to account for quality changes in their measurements. But it is really hard to do.

    I mean consider a Honda Civic from 1978 and the same car in 2018. Sure it has gone up in price by a factor of 4 or 5, but the 2018 model has airbags, power brakes and steering, power windows, Bluetooth, emits less pollution, is bigger and more comfortable, is much more reliable, is way safer, gets better mileage, and has better performance. So how much of the price increase should be chalked up to inflation and how much to the fact you are simply getting a way better product.

    Same thing with drugs. I had hay fever growing up, which was a problem since I grew up on a ranch. Allergy medications were cheap but terrible back then. They didn’t work well and they made you drowsy. Now there are several OTC antihistamines that work great but they are more expensive. So what should BLS do with that? Not an easy nut to crack.

    I know this comment is just a rehashing of Mayhew’s post, but the problem for economists actually goes way beyond drugs into lots of products.

  5. 5
    Joel Ellingson says:

    Not directly related to this post, but I had my own “why do we do it this way in the U.S.?” moment this morning with my wife.

    Background: My wife has suffered from debilitating migraines for about 5 years. They are triggered by muscular stress, which was primarily though not exclusively related to a dental problem. We finally identified that cause, and took care of the dental issue (though she needed to have all of her teeth removed, and replaced with implants…at a cost of give or take about $40k out of pocket, because insurance considered it all cosmetic…and nevermind that her teeth all had micro-fractures and were falling out at the rate of about 1/month…but I digress.)

    Fast forward to the present, the migraines have largely gone away, but she still gets them, and when they do they are OMG bad. She hallucinates. She can’t remember her children’s names. She complains of feeling like she has cement pouring into her head, and asks that we drill a hole in her ear to let it all out. Had I not been through all the Neuro appointments, today screenings and the rest I would suspect that she was on drugs. We went through several kinds of medications, none of which were particularly effective. Neurotitin, imitrex, etc. She’s had all kinds of muscle relaxers from low-grade to “cancel my life for the next three days, I’m going to just sit here and drool on myself.” Nothing has been effective at being anything more than a very temporary palliative.

    Finally, we saw a new neurologist, who suggested Botox injections in her scalp and face. It was like a miracle. The headaches, which had been at times a weekly-daily occurrence, were now an once every three-four months occurrence, and much attenuated. And with Botox injections every 12-15 weeks, she now has only 3-4 bad headaches a year, and they are controllable with OTC painkillers, and mild muscle relaxers.

    Now this morning, we go for her Botox appointment and are told that insurance has denied the treatment. Out of pocket the provider would charge us ~$4k. Obviously this is an expenditure that we had not budgeted for. We finally got the insurance straightened out and received the treatment, but at a cost of approximately 45 minutes of the billing clerk’s time, plus 30 minutes of the unit manager’s time, and since we were the first patients of the day, the licensed PA provider is sitting idle until the next patient arrived.

    All for a treatment that on its own probably takes $12 worth of Botox, plus maybe $150 of labor and capital cost that the provider’s employer has to expend for the 10-minute procedure.

    And if we had to pay out of pocket, they’d charge us around $16k/year for $1k worth of treatment. And on top of it, if we couldn’t afford that $16k, then my wife would not be able to hold down a job, look after our children or anything else. She’d literally need round the clock care from someone to prevent her hurting herself or doing something that could injure someone else. That would be a net cost to society in productivity, income, etc. in addition to being an incredible burden on our family.

    We have to align all of the incentives in the healthcare system in a way that promotes healthy outcomes. And the for-profit model we have isn’t it.

  6. 6

    @Dan: That is the holy grail — how to intervene on your future high cost folks before they become high cost and therefore save a shit ton of money while improving the quality of life of those folks… building an effective counter-factual model for that is a bastard of a problem

  7. 7

    @Victor Matheson: yep hedonic adjustments are vital and ugly to figure out

  8. 8
    Procopius says:

    @David Anderson I can’t deny that hedonic improvements are real, but because they are so hard to evaluate I believe they are much exaggerated. The increased price has gone to a smaller and smaller subset of well educated, technically proficient, talented people, mostly in the financial services industry, but also those who become CEOs of successful companies. It is often not clear that they really have anything to offer that thousands of other people could not do better — at a lower compensation. See Jamie Galbraith’s The Predator State.

Comments are closed.