Prevention is not always cost savings

Ian R asked a really good question yesterday about the economics of prevention.

Isn’t it significantly less of a money loser to pay out for PrEP than to pay the various claims of an HIV-positive patient?

This is a common thought and it is one that is highly dependent on the answers to a couple of questions. Prevention is not always net cost savings. Let’s work through some of the questions to see some of the considerations that go into the economics of prevention.

Whose Perspective?

Are we analyzing cost savings from the point of view of society in general?

Are we analyzing costs from the point of view of the current payer?

These are two very different questions.  Social costs allow us to think long term and value benefits ten or fifteen years down the road even if the costs are happening in this budget cycle.  Social costs and benefits allow us to consider costs that can not be captured by the payer such as improved quality of life and less stress or higher work productivity due to better health.

If we are only looking at the current payer and we are looking at an intervention that occurs on non-Medicare covered people, we need to model churn.  Odds are fairly high that an avoided medical event that would have happened next week will be captured by the current payer.  Odds are very low that an avoided medical event that would have happened in ten years will be captured by the current payer.

What costs and benefits are included?

What are we valuing?  A full societal cost accounting of the benefits and harms of smoking reduction programs can show immediate health improvements but significant pension and elderly healthcare cost increases if the national old age programs have inherent founders’ debt and are on a pay as you go system.  Longer life spans lead to longer pension collection spans and longer (and perhaps lower annual) medical spending trajectories.  That might be relevant. It might not be.

How many people are needed to be treated to get a benefit?

How many people needed to be treated to get a incremental benefit?  What is the Number Needed to Treat (NNT)?

There are very few things where one preventative intervention will lead to one avoided event.  The most applicable interventions like steroid inhalers to prevent asthma hospitalizations need a half dozen or more interventions to produce one positive event.  Cheap interventions like aspirin to minimize cardiac events needs over a thousand people to take baby aspirin to avoid one cardiac event. 

The cost-benefit calculation for a cost saving intervention is:

NNT*Cost per Intervention <= Cost of a single marginal avoided event

Targeted screenings and interventions aim to reduce the effective NNT.

When do the benefits occur and at what discount rate?

Flu shots provide almost immediate benefits.  The value of the future is almost as high as the value of the present.

HPV vaccines provide benefits that don’t kick in for many years.  The value of that future is less than the value of the present but there are lots of ways to place differing valuations on the future.  We could apply the US Treasury long term rate or we could apply an administrative rate.  Small changes in the chosen discount rate can lead to widely different present value projections.

Do costs always matter?

Some prevention efforts may lead to higher net costs (however we have determined them).  And that can be okay if we think that the improved health is worthwhile.  Prevention is mainly about preventing bad outcomes and not about saving money.  Saving money sometimes is an intended goal but the goal of improving mortality or quality of life even at a net increase in expense is also a legitimate goal.

Prevention should be judged on what it is seeking to be doing instead of expecting it to prevent disease and other negative outcomes while also saving money.






9 replies
  1. 1
    raven says:

    I bought an Apple Watch for tracking my workouts and for the health monitoring.

    Your Apple Watch Series 4 Just Got Some Incredible New Health Features

    in addition to chatting with friends, streaming music, and tracking workouts, you can now use your Apple Watch to take an electrocardiogram (also known as an EKG or ECG test) to measure heart rhythm, as well as identify signs of atrial fibrillation (AFib). Both features go live today for Series 4 users as part of a free update to watchOS 5.1.2, and Series 1 through 4 users will get the irregular heart rate notifications with the update.

    I’ve read that there might be a way to give these to high risk medicare folks.

  2. 2
    Amir Khalid says:

    Is there a point where an effective preventive measure becomes prohibitively expensive for the likely number of bad events averted?

  3. 3
    dimmsdale says:

    I have always assumed that things like ‘wellness visits’ (which is what my insurance company calls the annual physical, and I might add they’re pretty aggressive about asking for compliance on my part) were of value to the insurance company on a ‘money spent now is saved later’ basis.

    but I’m also interested in how you use the term ‘social costs’, and I’m wondering how often, if ever, social costs are factored into public health measures/policies/decisions, and who’s doing the factoring (do insurance companies worry about this, or is it left up to governmental health policy types?).

    I’m sure my question betrays great ignorance about how the health system works in this country (in spite of your many posts on the subject, sorry to say). But the notion of social cost versus dollar cost is infinitely projectable into policy decisions in many areas, and I don’t know that I’ve heard politicians or policy makers in this country talk about it when deciding whether to fund, for example, a nutrition program.

    (One immediately available example is the debate over mass transit: should it be required to recoup its expenses via the fare box, or is its value measured in ancillary benefits like greater mobility and therefore more job possibilities, more retail customers over a wider area, etc.? Another example might be the social cost to a community when its major industry, a furniture manufacturer, say, moves its operations to Southeast Asia. this is perhaps measurable in terms of lost property taxes, increased unemployment payments, lost sales taxes for ancillary businesses that would have supplied the local manufacturer, etc.)

    I think our society is going to have to come to grips, for instance, with the fact that we need to start making stuff here again, even though it could be made cheaper overseas, simply to have enough work to pay people to do; you’ll never make the case for it on a dollar basis, but on a social cost basis…maybe.

    If you have written about social cost versus dollar cost before, would you mind dropping some links? Thanks!

  4. 4
    CarolDuhart2 says:

    @dimmsdale: Or pay people more to do things that are needed and are not moveable, like home health care, teaching, policing.

    An idea: what if we found a vaccine for HIV. It costs 1000 per annual dose. (I’m asumming that it would be like the flu is now: good on current strains but must be updated regularly). Compared to early death, the cost of retrovirals and the like, it would seem to be a no-brainer. But it would be costly to administer to the most vulnerable and likely populations, who often don’t have private insurance.

    And of course the indirect costs of lost productivity, early retirements due to illness, subsidized housing as a result, and of course nobody pays (or reimburses) the cost of the people who provide care with no salary such as relatives and friends.

    Now that we have 3D printing, perhaps we could bring back small scale manufacturing for things that can be customized or need to be available immediately. Not only for income, but also supply security. When everything comes from China, a disaster in China of sufficient proportions could tangle up the economy for months.

  5. 5
    Villago Delenda Est says:

    Saving money sometimes is an intended goal but the goal of improving mortality or quality of life even at a net increase in expense is also a legitimate goal.

    Not if you’re a money grubbing CEO. The lives of others can’t bee seen on a spreadsheet.

  6. 6
    narya says:

    A couple of thoughts. First, with PrEP, if someone really is (a) insured and (b) in a high-risk group, then the insurer may well reap the benefits of PrEP immediately, given that the medical protocol now is to get people on ARVs immediately upon diagnosis (e.g., “same day start,” which is getting people on ARVs THE DAY they get a confirmed positive). Those meds are as expensive, or more expensive, than PrEP, so the insurer would bear those costs immediately. That seems like a win for the insurer. Second, people’s circumstances change: someone who is a good candidate may not be in two years (e.g., no longer in a sero-discordant relationship). But someone who becomes HIV+ remains that way for life, and the insurer (and all subsequent insurers) will bear those costs.

  7. 7
    Kraux Pas says:

    @narya:

    But someone who becomes HIV+ remains that way for life, and the insurer (and all subsequent insurers) will bear those costs.

    This. I’ve never understood the worry that an insurer won’t see the benefit of paying for something that has long-term benefits but few obvious short term benefits because the patient may switch plans before the benefits materialize. If all insurers decided to cover such things, wouldn’t they all ultimately see the benefit?

  8. 8
    Nicole says:

    @Kraux Pas:

    This. I’ve never understood the worry that an insurer won’t see the benefit of paying for something that has long-term benefits but few obvious short term benefits because the patient may switch plans before the benefits materialize. If all insurers decided to cover such things, wouldn’t they all ultimately see the benefit?

    Yeah, but that would require insurance companies to think long-term savings, instead of short-term profit. The current mentality in Big Business as a whole seems to be all Grasshoppers, no Ants.

  9. 9
    Ian Reinhart says:

    Given that:
    -There are several regions served by only one insurer.
    -It’s not legal to reject people based on pre-existing conditions.
    -As @narya points out, HIV+ patients stay that way (or die, in ways that are usually very expensive for the insurer).

    Doesn’t it follow that at least several of the major insurers would need to discount churn (having set themselves up as local monopolies) and plan longer-term?

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