Take the example of a middle-aged woman undergoing chemotherapy for breast cancer. Month after month she receives a bill for $16,000. This purchases a monthly infusion of one chemotherapeutic agent. Much of the bill is paid by her insurance, but her personal checking account will cough up about $1000 per month until she pays down her deductible.
The invoice, however, is an illusion. The amount is not the actual number of dollars required to pay for services and materials rendered. Most of the money is diverted in accordance with contractual agreements between the hospital and various agents, brokers, and insurers. The total transfer of those dollars is known but not readily accessible to any who was not privy to the negotiations. The $1000 co-pay is a tithe with totally obscure added value to be paid no matter how painfully.
Few of us know the direct cost of any medical intervention. The term “cost” is the money needed to produce a service. For example, the cost of a single chest-x-ray is amazingly cheap, just a few dollars. The materials are inexpensive, the x-ray machine can spit out exam after exam, and one person can service a multitude of patients, making the unit cost a bargain. The cost of many a test is so low that it could be given away without wobbling a hospital’s budget.
Researchers have evaluated the true costs of some classes of medications, before marketing, distribution and middle-man charges are added. The cost to provide a pharmaceutical pale in comparison to what we pay. Parsing spread sheets in search of cost is very challenging. We do know that however the billing is construed, Americans pay far more for the same service than do residents of similarly resource-advantaged countries. Determining cost should not be so onerous that reproducible numbers are elusive. We suspect that few business leaders want us to know. The markups might astound if not infuriate us.
Markups from true cost are communicated as “charges”. Because charges are not costs, one person’s $16,000 charge may not be another’s. Charges are subject to differences in local markets, negotiating expertise; availability of insurance programs in a local area, and myriad other influences. Because charges are inaccurate proxies for true cost, charges are a misleading measure of patient care. This realization is the flaw in all the efforts and finger-pointing that surrounds debates over the costliness of healthcare in America. We misconstrue the “buck”, and, worse, do we know which “bang”, if any, we are purchasing?
Undaunted by the inaccuracies in the measures of cost of care, econometricians’ turn to cost-effectiveness analyses (CEA) as a means to make sense of the senseless. CEA explores whether expenditure for one intervention is as likely to result in a particular outcome as the same expenditure for another intervention. If not, one can calculate the cost/per added outcome. For example, if the outcome is a difference in longevity, a CEA may reveal the cost per year of a life saved. If there isn’t a difference in outcomes between two interventions, paying more for one would be folly. But if there is a difference, one cannot simply assume that the less costly intervention is the better choice.
To better understand CEA, consider this question; “What addition to standard care is costlier: a heart transplant or enteric-coated aspirin?” Students usually scoff and say, heart transplant, of course. But the answer is not so obvious. The question forces one to assume that there is no alternative to heart transplant since the standard of care has already been prescribed. Without the transplant death will ensue. The heart transplant will engender costs and charges in excess of doing nothing, but it has a potential for benefit. There will be a CEA ratio to ponder.
Enteric-coated aspirin provides no marginal benefit over regular aspirin; so even a penny more for enteric-coated aspirin would create a CEA ratio of infinity. Offering enteric-coated aspirin as an alternative to regular aspirin would not be cost-effective. Alas, such a violation is common. It occurs whenever we order tests that yield redundant information or continue treatments with long-term potential for a disease likely to be lethal in the short-term.
That’s why CEA offers little insight into the $16,000 bill this patient received, let alone the fraction that was consumed in the deductible. Any attempt at an explanation is thwarted; 1) determining the true costs of care is never easy and often not possible, 2) whether codified from Electronic Health Records or not, charges are a sorry representation of cost, and 3) using CEA to audit the healthcare system does not limit higher expense care. Furthermore, the notion of “how much is too much” exemplified by the heart transplant versus aspirin question is where CEA breaks down even further. If a CEA finds added benefit of one intervention over another, there must be a point when the marginal cost is too much for the marginal benefit.
But, what is this amount? We don’t know, and there is no consensus. In a review of 109 CEA studies, about 50% of the time, the higher expense strategy was chosen. The range of CEA ratios for those interventions were from $400 to $166,000 per added benefit. For interventions that cost between $60,000 to $166,000, calculations of added value lead to highly variable results, biased toward CEAs sponsored by industry. Without a defined “threshold” of how much is too much for a given added benefit, CEA becomes merely a smokescreen, which obscures debates on what matters most to patients and the practitioners treating them: the magnitude of benefit and the risk for harm.
We are purposely being diverted from what we should be doing in healthcare by debating dollars. The margin of benefit and harm of compared options for care should dominate discussions. In addition, who decides the value of a benefit and harm should be the patient, not the healthcare system. In our view, the more we explain benefits, the more people will tell us what the interventions should cost.
Robert McNutt, MD has been an associate editor at the Journal of the American Medical Association for 12 years and before associate editor at the Journal of General Internal Medicine. He is a professor of Medicine at the University of Wisconsin and Rush University Medical Center.
Nortin M. Hadler, MD is a graduate of Yale College and Harvard Medical School. He joined the faculty of the University of North Carolina in 1973 and has been a professor of medicine and microbioogy/immunology since 1985.