Technology and Expenditure Growth in Health Care

1. Technology and Expenditure Growth in Health Care • Amitabh Chandra • HARVARD UNIVERSITY

2. US is not an outlier

4. Outlier?

5. 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. • 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….. • Peter FisherUndersecretary of the TreasuryNovember 2002 • Congressional Budget Office (CBO) • September 2010

6. Incomplete Understanding of Tradeoffs

7. 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?

8. 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

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

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

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

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

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

14. Source: Swartz, MN, NEJM Oct 28, 2004

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

17. PCI (Angioplasty and Stents)

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

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

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

25. Small Differences in Beliefs • have large cost-implications • Marginal Benefit from Treatment • Different beliefs about benefits • Cost perPCI • Total Cost • X • # Patients • Z

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

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

31. Proton Beam Accelerator Facilities Operating, Planned, or Under Construction

32. Accounting for Improved Cardiovascular Health 1980-2000

33. How to Think About Health Care Costs

34. Highest • Performance • Category I Technologies • Lowest • Performance • Category II and III Technologies • Source: Chandra, Skinner and Staiger (2010). IOM.

35. 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? Summing Up • Barbash and Glied, NEJM 2010

36. 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

37. 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