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Technology and Expenditure Growth in Health Care. Amitabh Chandra. HARVARD UNIVERSITY. US is not an outlier. Outlier?. Think of the United States government as a gigantic insurance company with a sideline business in national defense…
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Technology and Expenditure Growth in Health Care • Amitabh Chandra • HARVARD UNIVERSITY
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
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
The Productivity of Medical Treatments • Cost per patient • Marginal Benefit from Treatment • x* • x • x* • Treatment (X)
The Productivity of Medical Treatments • Marginal Benefit from Treatment • Cost per patient • x • x* • x* • x* • x* • Treatment (X)
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)
A Typology of Health Care Treatments • Highly cost-effective innovations • Potentially Cost-Effective, with Heterogeneity in Benefits • Technologies with Uncertain Effectiveness
Benefits (area under the curve) and Costs of Category I Innovation
A Typology of Health Care Treatments • Highly cost-effective innovations • Potentially Cost-Effective, with Heterogeneity in Benefits • Technologies with Uncertain Effectiveness
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
Stents are Highly Cost-Effective for some • Marginal Benefit from Treatment • Primary PCI • Cost per PCI • Stable Angina • # Patients
But less so for the marginal patient • Marginal Benefit from Treatment • Cost per PCI • Total Cost • # Patients • X’
Small Differences in Beliefs • have large cost-implications • Marginal Benefit from Treatment • Different beliefs about benefits • Cost perPCI • Total Cost • X • # Patients • Z
Three Categories of Health Care Treatments • Highly cost-effective innovations • Potentially Cost-Effective Treatments with Heterogeneity in Benefits • Technologies with Uncertain Effectiveness
PROTON BEAM THERAPY • Fixed Cost: $150 million • Benefit: Unknown • Medicare reimburses $6000 per treatment
Proton Beam Accelerator Facilities Operating, Planned, or Under Construction
Highest • Performance • Category I Technologies • Lowest • Performance • Category II and III Technologies • Source: Chandra, Skinner and Staiger (2010). IOM.
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
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? Summing Up