Cost-effectiveness

analysis and health care

policy
Julie Donohue, Ph.D.
Department of Health Policy &
Management, GSPH

Outline
Do we need cost-effectiveness
analysis?
How do we use cost-effectiveness
findings to guide policy?
Why dont we use cost-effectiveness
info more?
What can we learn from other
countries?

Do we need costeffectiveness analysis?

Health care spending in the
US

A large share of our economy is

devoted to health care
In 2010, on healthcare we spent
17.9% of gross domestic product
($8,400 per capita)
In contrast, on education we spent
7.1% on primary, secondary, tertiary
education

SOURCES: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group; and U.S. Department of Commerce, Bureau of
Economic Analysis and Bureau of the Census. OECD

We spend lots more than any

other country on health care

Anderson and Frogner 2008

Yet we dont live as long as people

in other countries

(By state)

SOURCE: Aaron and Ginsburg Health Affairs 2009.

What are the downsides of

growing health care costs?
- Health insurance premiums go up
- We have less to spend on other
goods and services
Federal government
State governments
Households

Health insurance premiums have

increased much more than workers
earnings and inflation

Trends in health care costs and spending, Kaiser Family Foundation March 2009

At federal level
health care crowds out other
spending 2012 $ 2012 Share 2022 Share
CBO Current Law Baseline, March 2012

(billions)
Health care

24%

35%

569
258
26

16%
7%
1%

20%
12%
3%

Social Security

769

21%

26%

Other
Mandatory

677

19%

13%

1,303

36%

26%

Medicare
Medicaid
Other

Discretionary

$ 854 B*

*Does not include about $250 B in annual tax subsidies for ESI

Total Outlays

$3,603 B

Healthcare 11 percentage points

Discretionary 10 percentage points
(this is where NIH budget comes from)

$5,236 B

Impact on state budgets

18% GDP spent on health care vs. 7% on all education

http://www.nasbo.org/sites/default/files/State%20Expenditure%20Report-Summary.pdf

For households,
healthcare costs erased of income
gains

Auerbach & Kellerman, 2011. (Health Affairs)

Changes in healthcare costs

and taxes 1999-2009

Auerbach & Kellerman, 2011. (Health Affairs)

What factors contribute to

the increase in health
spending?

Ginsburg brief on health care costs at www.policysynthesis.org

Medicare spending per

beneficiary, 2006

Dartmouth Atlas of Health Care

Medicare spending variation

unadjusted and adjusted

MEDPAC

Intensity of service use differs

across hospital regions

Sutherland et al NEJM 2009

Variation in use of brand name

statins in Medicare Part D

Donohue et al NEJM 2012

Spending on post-acute services

explains most of the regional
variation in spending

IOM Report 2013

Recent IOM report finding

HRR-level quality is not consistently
related to spending or utilization
among either Medicare beneficiaries
or the commercially insured.

How do we use costeffectiveness findings to

guide policy?
Who should use CEA info?
How are health care costs
distributed?
How do we use CEA info?

Who should use costeffectiveness information?

2004 Distribution of health spending by source of payment

Public
44.4%

Private
55.6%

What can we do to lower health

care costs?
Charge consumers more
100% for uninsured; higher cost-sharing for insured

Pay providers less/ask them to take on risk

Salary for employed providers
Capitation
Contracts with global budgets (ACO)

Limit supply or coverage of health care

technologies
Any coverage or level of coverage (cost-sharing)

Which of these leads to rationing?

Mechanisms for direct limits on use

of technologies
Limit coverage to all or restrict to certain
sub-groups
Medicare covers gastric bypass surgery for
those with BMI > 35 and diabetes, heart
disease or sleep apnea

We have better mechanisms for some

health services (e.g., drugs) than others
Utilization management (retrospective
review, prior authorization, step therapy)
Limiting supply beds, devices

Comparative effectiveness
research
A digression

What is comparative effectiveness

research?
Comparative effectiveness research is a
rigorous evaluation of the impact of different
treatment options that are available for
treating a given medical condition for a
particular set of patients.
Congressional Budget Office

More $ available for

comparative effectiveness
research

Stimulus bill gives $1.1 billion to fed

agencies
150% increase in fed funding of CER
But still only 0.1% of U.S. health spending

DHHS says we should fund CER in

Areas with uncertainty
Clinical areas with high potential impact

Prevalence
Burden of disease
Variability in outcomes
Costs

CER and cost-effectiveness

When we add data on $$ (costeffectiveness), CER can help us
allocate resources

What should be covered by insurance?

For whom?
Under what conditions?
How much should consumers pay out of
pocket?

US has limited success in using

technology assessment
Oregon Health Plan
is it better for everybody to have something than for some to
have a lot and others to have nothing?

Agency for Health Care Research and Policy (now

AHRQ)
Backlash against clinical guidelines on tx for back pain
"simply trying to eliminate a wasteful [government] institution
that is biased in matters like how to treat back pain."
Dr. Neil Kahanovitz (lead effort to eliminate AHCPR)

Medicare covers treatments that are

Acceptable to med community, safe, effective, noninvestigational and appropriate
cost effective??

Patient-centered outcomes research institute

(PCORI)

Limits on PCORI

Why dont we use costeffectiveness info more?

Top industries by lobbying

expenditures 2009

Opensecrets.org

What are the publics

views?
On health care costs
On whether Americans (and they
themselves) overtreated or
undertreated
On who should make coverage
decisions

Priorities for health reform

efforts

Kaiser Health Tracking Poll Feb 2009

Yet the public supports

increased health spending

General Social Survey, 1973-2006

Too many patients getting medical

tests & treatments that they dont
really need?

NPR/Kaiser Family Foundation/Harvard School of Public Health Poll April 2009

Too many patients NOT getting the

medical tests & treatments that they
really need

NPR/Kaiser Family Foundation/Harvard School of Public Health Poll April 2009

Disconnect between national

views and personal experience

NPR/Kaiser Family Foundation/Harvard School of Public Health Poll April 2009

In last 2 years do you think your doctor

has recommended

Who do you trust to referee

effectiveness?
There has been some discussion about having an outside group make
recommendations on which test should be paid for by insurance. How much
would you trust each of the following to make recommendations?

To sum up the politics

Lots of well-resourced interest groups
who want to maintain the status quo
A public who thinks
there are problems with the system, but
they are getting really good care
we should probably spend more not less
government wont make the right
decisions

Goals of health policy

Improve health (reduce mortality and
morbidity, improve the quality of life)
Equity fairness in the distribution of health
care goods and services, in financing
Efficiency maximizing health subject to a
budget constraint
Not something we want for its own sake but
because it helps us get more of what we value
This is the goal emphasized by cost-effectiveness
analysis

Potential disputes over

equity in coverage decisions
Using CEA for Value-Based Insurance Design
UPMC health plan charges the same copay regardless of
indication (value)
$12 for generics, $24 for preferred brands, $68 for
non-preferred brands

Coverage decisions affect distributions of health

services by age, sex, race/ethnicity, geographic
region
What about coverage for rare diseases,
treatments for people at imminent risk of death?

Cost-effectiveness plane

NE Quadrant: what is society willing

to pay per QALY?
$50,000 per QALY benchmark often cited
However, Braithwaite et al (2008) estimate
Societal willingness to pay is ICER = $183,000 to
$264,000

Ok so we know the thresholdwhat do we

deliver?

What can we learn from

other countries?

NICE in the UK
National Institute for Clinical Excellence
Within National Health Service (NHS) but
operates at arms length from the Minister
Set up to be independent, hard-nosed,
authoritative and evidence-based
Seeks to standardize quality of care based
on effectiveness research
Main reason for its founding was not cost but
regional variation in care and costs
Syrett, JHPPL 2003

NICE Functions
Recommends ways to monitor clinical
performance
Issues clinical guidelines
NICE has issued >90 guidelines in last 10
years

Appraises clinical and cost-effectiveness

of health technologies
NHS Primary Care Trusts which purchase care
locally are mandated to adopt NICEs
appraisals

Controversial coverage decisions

Avonex for MS not recommended for use
based on clinical and cost-effectiveness
NHS adopted risk sharing scheme for
10,000 patients
Sutent for kidney cancer
Macugen for macular degeneration
approved for use in one eye
Drugs for Alzheimers (aricept) only for
patients in early stages of disease

NICE decisions to date and

impact on costs
303 technology appraisals to date
Most are approved without conditions
More than half approved with restrictions
(limited to certain patient populations)
~5% use restricted to clinical trials
~10% not approved

Impact on costs?
They have gone up by 2% since
implementation of NICE and other changes to
delivery system

Example

Critiques of NICE
(and similar efforts)
Places bureaucrats between doctors
and patients
It represents cook book or one
size fits all medicine
Jeopardizes physician autonomy
Risks with centralized decision
making
Effect on R&D investments
Syrett 2003; Neumann 2007

Conclusions
Do we need cost-effectiveness analysis?
YES. We cant afford not to in the long run

How do we use cost-effectiveness findings to

guide policy?
Should at least use it to inform Medicare coverage
decisions

Why dont we use cost-effectiveness info more?

Interest groups and public perceptions create barriers

What can we learn from other countries?

challenge is to establish the legitimacy of the
agency/organization making the decisions