Technology and Expenditure Growth in Health Care Amitabh Chandra HARVARD UNIVERSITY

US is not an outlier

Outlier?

Houston...we have a problem... This particular insurance company has made promises to its policy holders that have a current value $40 trillion… in excess of the revenues that it expects to receive….. Think of the United States government as a gigantic insurance company with a sideline business in national defense… This particular insurance company has made promises to its policy holders that have a current value $20 trillion… in excess of the revenues that it expects to receive….. It is an accident waiting to happen. Peter Fisher Undersecretary of the Treasury November 2002 Congressional Budget Office (CBO) September 2010

Incomplete Understanding of Tradeoffs

Questions and Puzzles What is the association between technology growth and rising health care expenditures? Why have U.S. health care expenditures grown so rapidly, relative to other countries, but without consistently better outcomes?

Medical technologies differ in their average productivity Some technologies have high average productivity, others are lesser average productivity US reimbursement system leads to the adoption of lower productivity technologies Reimbursement system encourages more innovation in lower (average) productivity technologies

x x* The Productivity of Medical Treatments Cost per patient x* Marginal Benefit from Treatment Treatment (X)

x x* Cost per patient The Productivity of Medical Treatments x* Marginal Benefit from Treatment Treatment (X)

x x* Cost per patient The Productivity of Medical Treatments Marginal Benefit from Treatment x* High Average Productivity (just about everyone benefits) (just about everyone benefits) Lower average productivity Treatment (X)

A Typology of Health Care Treatments 1. Highly cost-effective innovations 2. Potentially Cost-Effective, with Heterogeneity in Benefits 3. Technologies with Uncertain Effectiveness

Benefits (area under the curve) and Costs of Category I Innovation

Source: Swartz, MN, NEJM Oct 28, 2004

A Typology of Health Care Treatments 1. Highly cost-effective innovations 2. Potentially Cost-Effective, with Heterogeneity in Benefits 3. Technologies with Uncertain Effectiveness

PCI (Angioplasty and Stents)

Patients Receiving Procedure 0 Benefit from Procedure 100 percent Rapid Angioplasty within 2 hours of AMI “Late” Angioplasty within 2 days of AMI Angioplasty for Stable Coronary Disease OVERUSE?

Primary PCI Stable Angina # Patients Cost per PCI Stents are Highly Cost-Effective for some Marginal Benefit from Treatment

# Patients Cost per PCI Total Cost X’ But less so for the marginal patient Marginal Benefit from Treatment

# Patients Cost per PCI Total Cost X Z Different beliefs about benefits Small Differences in Beliefs have large cost-implications Marginal Benefit from Treatment

Three Categories of Health Care Treatments 1. Highly cost-effective innovations 2. Potentially Cost-Effective Treatments with Heterogeneity in Benefits 3. Technologies with Uncertain Effectiveness

Fixed Cost: $150 million Benefit: Unknown PROTON BEAM THERAPY Medicare reimburses $6000 per treatment

Proton Beam Accelerator Facilities Operating, Planned, or Under Construction

Accounting for Improved Cardiovascular Health % Mortality Decline Type of Medical/Surgical Treatment or Risk Factor Change 61%Decline: smoking, hypertension, cholesterol, physical inactivity -17%Rise: body-mass index (BMI) and diabetes 44%Subtotal: Deaths prevented: health risk factors 22%Aspirin, heparin, warfarin, anti-hypertensives, β-blockers, diuretics 13%Statins, ACE Inhibitors, IIb/IIIa antagonists, thrombolytics 12% Angioplasty/stents, bypass surgery (CABG), cardio-pulmonary resuscitation, cardiac rehabilitation 47%Subtotal: Deaths prevented: health care 10%Unexplained 100%Total deaths prevented (341,745 total) Source: Ford, et al., NEJM 2007.

How to Think About Health Care Costs Improved Health Increased Costs Aspirin, heparin, warfarin, anti- hypertensives, β-blockers, diuretics Statins, ACE Inhibitors, IIb/IIIa antagonists, thrombolytics Angioplasty/stents, bypass surgery (CABG), cardio-pulmonary resuscitation, cardiac rehabilitation

HighestPerformance LowestPerformance Source: Chandra, Skinner and Staiger (2010). IOM. Category II and III Technologies Category I Technologies

Summing Up The U.S. is different -- more “Category III” spending and not necessarily more “Category I” implies faster growth relative to GDP. Big potential for cost-saving institutional reform -- could swamp importance of cost-saving technologies Rising taxes – ultimate brake on health care spending? Barbash and Glied, NEJM 2010

Summing Up The U.S. is different -- more “Category III” spending and not necessarily more “Category I” implies faster growth relative to GDP. Big potential for cost-saving institutional reform -- management is a Category I technology Rising taxes – ultimate brake on health care spending?

Summing Up The U.S. is different -- more “Category III” spending and not necessarily more “Category I” implies faster growth relative to GDP. Big potential for cost-saving institutional reform -- management is a Category I technology Rising taxes – ultimate brake on health care spending?