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Managing Health Care Costs through New Medical Technologies and Policy Strategies

Explore the economic challenges of rising health care costs and the potential of new medical technologies in saving money while improving outcomes. Learn about the impact of advancing medical therapies on expenditures and mortality rates. Discover the policy challenges and opportunities in leveraging medical technology for cost-effective health care solutions.

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Managing Health Care Costs through New Medical Technologies and Policy Strategies

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

  2. 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

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

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

  5. 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

  6. 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?

  7. 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

  8. 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

  9. 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

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

  11. 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?

  12. 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

  13. 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

  14. 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?

  15. 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

  16. 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

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