Economic Challenges and New Medical Technologies

Economic Challenges and New Medical Technologies Laurence Baker, Ph.D. Stanford University School of Medicine laurence.baker@stanford.edu

2014: $11,046 2003: $5,671 1960 $143 2003: 15.3% 2014: 18.7% 1960: 5.1% $$$ Health Care Costs $$$ Source: National Health Account Data, published 2005. www.cms.gov

$ now time How to Save A Lot of Money in Health Care Use policies that reduce the rate of growth in health care spending

Use policies that achieve shorter term or one-time effects on growth rate $ $ time time How to Save Some Money in Health Care

Why Are Costs Rising? • Aging of the population? • Rising prices/physician incomes? • Increasing population incomes? • More/better health insurance? • Malpractice? • Waste, Fraud, and Abuse? • High Administrative Costs? These account for half or less of increases in costs over recent decades

Technology: Expansion in the capabilities of medicine to do things for patients One study measured 50% of cost growth or more is due to advancing technology. Many health economists think its even more. Why Are Costs Rising?

Spending Rises Dramatically But Life Expectancy Does Too • Largely because of technology • In 1984, 10% of heart attacks received some surgical intervention; in 1998, more than half received catheterization and often other intensive procedures Are Heart Attack Treatments Worth It? Question: Is the extra one year of life expectancy worth more than $10,000 of additional spending? Data drawn from Cutler and McClellan, Health Affairs, October 2001

NICU Adoption Probability Over Time in High and Low HMO Areas 10% mkt shr 30% mkt shr .2 .15 cumulative adoption probability .1 .05 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 year Is Mid-Level NICU Expansion worth it? • Virtually all of the difference is due to slower diffusion of mid-level NICU units • Newborns treated in higher level units do better • Reductions in mid-level units increased the chance of receiving treatment in a high-level unit and improved outcomes for VLBW newborns

MRI Procedures per 100,000 population Is Expanded MRI Utilization Worth It? • Expansion of MRI use associated with significant spending increases • Harder to identify health benefits from expanded use

Source: J. Wennberg, “Variation in Use of Medicare Services Among Regions and Selected Academic Medical Centers: Is More Better?, January 2005

Three Keys to Savings from New Stem Cell Technologies • What (if anything) does it replace? • How much does it cost? • What does it do to mortality rates?

Reduce Mortality from 7x US baseline to baseline Reduce Spending from $7k PPPY to $4k PPPY Net Spending Path Pay $5000 PP for the new therapy, w/o maintenance Scenario: A highly successful, relatively low cost, new stem-cell based therapy in 2015 + thousands of life-years saved

Scenario: A still quite successful, medium cost, new stem-cell based therapy in 2015 Net Spending Path • Therapy reduces spending from $7k PPPY to $5k PPPY • Therapy costs $5k PP initially and $1k PP annual maintenance • Therapy reduces condition-specific excess mortality by half + thousands of life years saved (though fewer than in the previous scenario

Some Economic Considerations for New Personalized Therapies • How much would they cost? • What would happen to utilization? • Substitute for current therapies or add on? • Impact on number of people seeking treatment? • After the introduction of laparoscopic cholecystectomy in 1989, procedure rates increased by 22%, with more and more uncomplicated elective cases • Vioxx • How large are the benefits for length and quality of life?

The Policy Challenges (and Opportunities) of Advancing Medical Technology • Higher medical costs driven by improvements in therapy may not be bad • Health spending at 30% of GDP? • But more is not always better • Balancing is crucial • Government budgets: Medicare and Medicaid costs rising • Employer provided health care: rates of coverage declining, costs rising • High costs contribute to uninsurance

The Policy Challenges (and Opportunities) of Advancing Medical Technology • Balancing effectively requires better structures to • Develop necessary data • Assess new developments • Construct guidelines • Translate into practice • But balancing will be challenging • Every new therapy benefits at least some people in some way • Limiting capacity can be hard • The best solutions will incorporate large groups of the population in coverage plans that have incentives to make careful decisions about new therapies

Economic Challenges and New Medical Technologies