Baicker and Chandra go to the Federal Reserve

Today’s Managing Health Care Costs Indicator is $247,000

Katherine Baicker and Amitabh Chandra, both of Harvard, gave a paper to the Federal Reserve meeting in the Rockies last week.  The paper got a reasonable amount of press – but most of the focus was on the two pages where they challenge the conventional wisdom that accountable care organizations will necessarily lower health care costs.    

That coverage was accurate – but the paper was dramatically richer.

The title, “Aspirin, Angioplasty, And Proton Beam Therapy: The Economics Of Smarter Health Care Spending”  is a good place to start. Baicker and Chandra make the important point that we are purchasing high tech expensive medical care (like angioplasty and proton beam therapy), often when they haven’t even been shown to improve care.  On the other hand, it’s hard to get us to embrace inexpensive low technology innovations like aspirin to prevent heart attacks, or handwashing to prevent surgical infections.

They point out graphically that small incremental investments in low technology (aspirin and handwashing) could have huge health care benefits, while large incremental spending on high technology (angioplasty and proton beam therapy) would have only small benefits. A 1990s evaluation suggested that medical advances leave us currently paying about $247,000 per quality adjusted life year saved.

Curve A below represents appropriate productivity efficiency in health care, where investments are first made in low tech high return items like handwashing and aspirin.   This is a conventional economics efficiency frontier – each dollar is promoting further value, but the value declines with more investment as the marginal returns diminish.   Curve B represents an economists nightmare – where investments are prioritized to high technology which itself is either unproven or not shown to be of huge value, and later investments are made for the high value (but inexpensive) interventions like proton beam therapy for prostate cancer.  As you can see, each additional dollar does yield more social benefit – but we end up allocating extra dollars to health care, and we neglect schools or roads or other social needs.

Click image to enlarge.

Other key points from this paper:

• Expert opinion health care often cites that 30% of health care spending is % waste, but it’s hard to remove that waste
• The federal government’s tab is $250b annually to provide tax subsidies for employer sponsored insurance
• Americans have historically had first dollar coverage, which leads to more moral hazard and can lead to overuse of less valuable care.  Of course, we’ll see how this changes with the advance of high deductible health plans.
• Health insurance is “social insurance” which redistributes from the healthy to the sick.  For all the talk about accountability, we really don’t want to disrupt this redistribution.
• Income tax rates would have to increase by 70% to fully fund the cost of health care if it continues to increase at a rate 1% greater than overall inflation.  This type of income tax increase could lead to reductions of 3-14% in GDP. I found this number especially sobering.
• The authors point out that as long as Medicare and the FDA cannot consider cost when they determine coverage and approval, we will purchase lower value health care. 
• Information is a public good, and will require government investment to subsidize comparative effectiveness research.

Baicker and Chandra conclude that there are a few important steps to take to encourage smarter spending on health care

-        Public payers (Medicare and Medicaid) should bundle provider payments  

-        Patients should have more cost-sharing – but it should be nuanced to encourage more attention to the value of care

-        We should provide patients with far better information about the cost and quality of the care that they could receive.

Disconnect between knowledge and clinical practice

Two articles published this past week demonstrate that there is a striking disconnect between publication and dissemination of knowledge.

Last week, the Wall Street Journal had an article on angioplasty with stents.   The COURAGE study in the New England Journal (2007)  showed that angioplasty (WSJ estimated cost $15,000) gives slightly quicker relief from chest pain of angina, but does not lower the risk of heart attack or death.  In fact, the stock price of Boston Scientific went down by 23% the month the study was published.   However, the rate of angioplasty has continued to increase after a brief dip.   The evidence was in – but this did not lead to a change in practice.

The Wall Street Journal conclusion is that comparative effectiveness doesn’t work.  I think this shows it didn’t work – not that it can’t work.

Yesterday’s New York Times  has an article about the rapid adoption of the daVinci robot to do prostate cancer surgery.  In fact, the only study done shows that those getting laparoscopic or robotic surgery appear to have more incontinence and erectile dysfunction than those who have traditional “radical” prostatectomy.   (This study combines laparoscopic and robotic surgery, and infers complications from claims) The urologists focus on a 40 year-old policeman who was able to have sex a few days after his procedure. Men facing prostate cancer find that heartening, but this is an unusual prostatectomy patients whose experience is not generalizable to most such patients.  This anecdote is certainly not enough to be the foundation for public policy.

What gives?

Periodically, we hear complaints that it’s difficult to disseminate innovation in health care.  I’d say that this is the wrong diagnosis.  Innovation is speedy when it leads to higher profits and more margin opportunity. That’s the case study of the daVinci robot for prostatectomy.  Dissemination of innovation and knowledge is painfully if that knowledge leads to lower margins and less profit opportunity.  Hence, the message that angioplasties with stents don’t offer that much benefit to those with stable coronary disease has little influence on clinical practice.

Should we give up on comparative effectiveness research?

Absolutely not.

It’s critical that we have evidence to determine what is best practice.   We also need to align payment with evidence-based medicine.   We need to decrease the profit margins of procedures with unclear incremental benefit. This is not easy to do, of course.  Cardiologists,hospitals and medical device makers don’t want to lose margin of angioplasties, and they will argue forcefully that angioplasties are far better than medical therapy for a select group of patients – those with unstable angina or acute evolving heart attack.  That argument is correct, and perhaps we need different fees based on diagnosis since the value is different based on diagnosis.

Similarly, urologists and hospitals will argue, correctly, that for surgeons with a long track record of performing robotic surgery – that method is indeed likely to be better, and can even decrease resource cost by saving OR time.  (Most surgeons, with less than a hundred of cases behind them, take more time with robotic surgery. It’s likely that the ‘learning curve’ is one of the reasons that the robotic surgery study results were so disappointing.)  Some might suggest differential payments for surgeons based on their volume – but frankly that’s complicated and might encourage aggressive surgery recommendations.  My preference would be a bundled rate –and if the hospital and physician feel that a high-capital-cost item will be worth it – they can spring for it. 

The issue of high fixed costs and low marginal costs with new technology also looms large.  Once a hospital has a daVinci robot, there are very few incremental costs associated with increased volume. Therefore, once technology is in place, it is highly likely to be used.

We need to do more research on comparative effectiveness, disseminate the results quickly and effectively, and consider results was we design payment and incentive systems to drive more value for our patients and for health care purchasers.

By the way, the governor of Massachusetts has announced a wide-ranging plan to regulate health care cost increases. I'll be planning to blog on that later in the week.