On April 7th I attended The Cost and Quality of Cancer Care Health Affairs briefing held at the National Press Club in Washington DC. The format of the meeting allowed for authors of abstracts or articles featured in the issue dedicated to the topic the ability to contextualize their insights and findings and engage in informed debate and field questions from an audience. The next series of blogs will provide summaries from the live event integrated with the articles from the April issue of Health Affairs.
The evaluation of technological advances and the value added beyond additional healthcare costs requires clarification of a few economic principles and definitions.
We often talk about marginal cost and average cost and these are important terms to differentiate. Average costs are typically what we see when we are looking at healthcare data. Straightforward calculations. Where it becomes tricky is when average costs are erroneously used to describe marginal costs.
The marginal cost describes the cost of providing (or withholding) an additional output or unit of service. This distinction is relevant when considering technology advances and their impact on value and cost of care. Marginal costs are particularly relevant to clinical decisions and are quite different from overall cost allocated to an intervention. For example, a hospital may charge $1500 for a PET scan; however, a revised clinical algorithm may be proven to better identify patients requiring PET scans resulting in one fewer scan a day (with no change in outcome). This revised clinical protocol would not “save” the hospital $1500 because personnel and overhead expenses would still be needed for the remaining scheduled scans. Hence the marginal cost to the hospital of one PET scan is essentially the cost of the radioactive material not injected into the one patient. I know it is a simplistic scenario but it demonstrates the concepts.
Note that marginal cost varies with volume in an additive scale; adding additional PET scans at some point will require additional personnel or additional equipment, resulting in a different marginal cost. In addition, the marginal cost is also revised for the payors; withholding one PET scan would save the payors the entire reimbursed amount for that scan, a figure that exceeds the hospital's marginal cost.
An additional term that has started to be appreciated in the US discussions of healthcare value is the QALY or Quality-adjusted life year. The QALY represents a utility value measure that integrates considerations of life expectancy and quality of life.
"The quality-adjusted cost of care metric reformulates the tools of health economics analysis to better inform policy makers who seek to understand the implications of trends in health care cost growth."
The abstract titled Quality-Adjusted Cost of Care: A Meaningful Way to Measure Growth in Innovation Cost Versus The Value of Health Gains discusses how technology may increase healthcare spending but often leads to improvements in health delivery and outcomes.
Tomas J. Philipson presented the quality-adjusted cost of care to demonstrate "cost growth net of growth in the value of health improvements measured as survival gains multiplied by value of survival." Two case-studies demonstrated how health gains offset additional costs of innovation.
More generally, the relevant health policy goal is not simply to head off rising costs everywhere, but to identify and eliminate cases in which costs have risen without a sufficient corresponding increase in value. In other words, the biggest problem areas are those in which society is not getting what it pays for. Identifying these areas requires the use of metrics that incorporate considerations of value into cost measurement, alongside measurement of cost growth.