While Congress is forging a plan to curb the nation's spending on healthcare, providers and payers are striving to make sure that limited resources are used wisely.
Efforts to provide cost-effective care are forcing the healthcare community to define the meaning of cost-effective and determine which procedures, drugs and devices-medicine's building blocks-fall within its bounds.
"We have to recognize the fact that everybody can't have everything," said Alan Hillman, M.D., director of the Center of Health Policy at the University of Pennsylvania. "We have to know what kind of outcomes we're getting for our drugs and devices. The alternative is just guessing."
Dr. Hillman, Duke University's David Eddy, M.D., and other academics are struggling to lay out a clear science-healthcare economics-that balances medical outcomes against cost.
Payers and providers are starting to use such economic studies and more informal analyses of cost-effectiveness to help set formularies and product protocols. Large managed-care organizations are performing some formal economic studies and linking up with manufacturers for others.
Manufacturers, foreseeing surging demand here and abroad, are spending millions on economic studies to justify high-cost and high-profile products.
The public debate about healthcare's rising costs-a striking reminder that national resources are limited-is stoking such efforts. In the end, the role cost-effectiveness will play in decisions about medical care will depend, in part, on the shape of healthcare reform.
"I think by the end of this year, we'll know exactly how rapidly cost-effectiveness will spread," said Manley Paulos, vice president of research at Westchester, Ill.-based Premier Health Alliance.
A difficult task. The use of cost-effectiveness to judge medical care is hampered first by language and second by a host of practical and philosophical problems.
In this article and much other literature, the term cost-effective describes which products and procedures deliver the most "bang for the buck." In healthcare economics, cost-effectiveness is one of several formulas that pair cost and outcome. Specifically, it divides the total cost of an intervention by a non-dollar outcome, such as life years saved.
Confused, the public and many payers and providers often misread cost-effective as least expensive. That is not always the case.
Efforts to document cost-effectiveness meet with myriad troubles. First, cost and effectiveness are slippery creatures. Their combination is a nightmare not only because of those practical problems but also because of moral judgments.
Consider only a few of the problems of cost. A simple measure of a drug's cost is what the hospital pays to acquire and administer it. The resources used to watch for and treat side effects add another layer to cost. In truth, a product costs money from its development to its disposal, and perhaps for many years longer if treatment prolongs life and leads to new diseases that also must be treated. A lot of accounting-often flawed-comes in between.
Meanwhile, debates over effectiveness divide physicians, patients and payers. One example is the use of high-dose chemotherapy and bone-marrow transplants to treat breast cancer, therapies that many insurers view as experimental. "There's enough controversy there about efficacy and safety without getting into cost; we really don't know if there's an improved survival rate," said William McGivney, director of clinical evaluation and research at Middletown, Conn.-based Aetna Health Plans.
The science of healthcare economics, while clear in its definitions, is murky in many important areas. "The moral judgments come in defining the scope of the study," said Mark Hornbrook, a health economist at Kaiser Permanente's Center for Health Research in Portland, Ore. About 10% of the center's research is in health economics.
In healthcare economics, a cholesterol-lowering drug can appear cost-effective in the long run but wasteful in the short term. The outcomes measured, such as number of illnesses diagnosed or lost work days avoided, will change conclusions, too, Mr. Hornbrook said. Perspective is vital. Cost-effectiveness looks different from the eyes of the patient, the hospital, the health plan and society.
"Managed care tends to have a shorter perspective than a societal perspective; we don't have the patients as long and we don't have the data as long," said LuAnn Heinen, vice president of healthcare evaluation services at Minnetonka, Minn.-based United HealthCare Corp. "As we move toward healthcare reform, we are taking more of a societal perspective. It's important to get all that aligned."
A recent economic study of a Merck & Co. chicken pox vaccine, now under Food and Drug Administration review, illustrates some of the problems.
A national vaccination program would cost about $88 million at $35 per dose, according to researchers at the University of California, San Francisco. Without such a program, the healthcare system will spend $80 million annually for the direct medical costs of chicken pox. With the vaccinations, society will save $384 million annually in indirect costs, such as work days lost when parents stay home to take care of sick children. The study assumes that the vaccine will protect people for many years, which has not been proven.
Is it cost-effective for a health plan or a hospital to begin a vaccination program? It depends.
"The overriding ethical dilemma in cost-effectiveness is, `What is our core goal?"' said Charles Daschbach, M.D., director of medical education at 493-bed St. Joseph's Hospital and Medical Center in Phoenix, Ariz. "Is it to help individuals in their lives or is it to do the most good for the most people?"
Product evaluation. While the nation is debating healthcare reform, hospitals are struggling to nail down costs and determine which products give the most value for the dollar.
In varying degrees, hospital alliances are building data bases of the direct and indirect costs of products. Some are developing guidelines on the use of controversial products and passing on formal economic analyses of products to their members.
Much of that scrutiny targets drugs. For example, Charlotte, N.C.-based SunHealth Alliance this year asked experts to weigh the cost-effectiveness of two competing anti-nausea drugs. The experts decided the drugs produced equivalent outcomes, so they could be judged in terms of cost alone.
But the cost-effectiveness movement extends beyond drugs. Hospitals trying to standardize medical supplies must consider, among other things, what the product costs and whether it does the job. Irving, Texas-based Voluntary Hospitals of America mustered a committee of hospital executives, manufacturers and distributors to spend 1994 developing models for the cost of medical-surgical products from genesis to disposal. That covers manufacturers' costs, such as sales and support, distributors' costs and hospitals' costs.
Broader yet, SunHealth started a project last October to compare a community's costs for various treatments for a particular condition, such as pregnancy or diabetes. The alliance has picked two communities, Newport News, Va., and Silva, N.C., for the three-year project, which has a $1 million budget this year.
Payers are at work on cost-effectiveness, too. Many large organizations, such as United HealthCare, have their own health economists, and research partnerships between managed-care organizations and manufacturers are rising.
In January, San Francisco-based drug distributor McKesson Corp. acquired a 30% interest in a health-economics research firm for an undisclosed price. The tie to San Francisco-based Technology Assessment Group will help McKesson's subsidiary, PCS Health Systems, better manage prescription benefits for health plans, executives said. PCS now covers more than 45 million people.
Industry efforts. Politics and purchasing trends in this country and abroad have major manufacturers adopting economic studies as a tool to help sell products and prioritize research. Pharmaceutical companies are at the forefront.
"The bigger question the industry faces is, how do we define the value of the products we discover, make and sell," said Larry Bauer, executive director of public affairs at East Hanover, N.J.-based Sandoz Pharmaceuticals Corp.
Major drug companies are forming "pharmaco-economic" units or are hiring outside firms to study the economic impact of their products. As a result, the number of health economic analyses published in medical journals has soared. The percentage of clinical trials that include health economic analyses is expected to grow to 28% this year from just 2.6% in 1988, according to a Boston Consulting Group report.
In general, a drug company will budget from $1 million to $10 million each year for the research costs of its pharmacoeconomic studies, said Robert Freeman, director of pharmacoeconomics at New York-based drugmaker Sterling Winthrop. Pharmacoeconomic budgets are likely to grow, Mr. Freeman said.
"There are a number of unresolved issues that will have to be addressed," he said. "Is the work credible? Does it have an impact in decisionmaking? Is it worth the cost?
"There are not regulatory standards or guidelines by which this work is assessed," Mr. Freeman said. "It's left up to the academic community and the pharmaceutical industry to assure its integrity. And frankly, some of the earlier research was not good. Industry sponsorship is practically the sole source of funding, and there's always the question about the objectiveness of the research."
Lagging behind the drug industry, medical-device makers and other manufacturers now are grappling with cost-effectiveness issues.
This year, Medical Alley, a St. Louis Park, Minn.-based association of healthcare firms, assigned 14 members the task of sorting through existing literature on health economic theory. Its goals by mid-1995: develop a definition of "cost-effective" and a standard vocabulary; spell out the value judgments that must form part of the measures of cost-effectiveness; and identify desirable methods of measuring it.
The Health Industry Manufacturers Association also has convened experts to achieve some consensus of what cost-effective means and how to measure it. Washington-based HIMA represents more than 700 medical-technology manufacturers.
"It is clear that more and more companies are becoming interested in doing cost-effectiveness analyses to prepare for the marketplace," said Thomas Long, HIMA's vice president of payment and policy. "The lack of uniformity in methodology is very aggravating."
Other countries have adopted standards for economic studies, but in the United States, many observers argue that it's too early for standards, said Elaine Power, a senior analyst at the federal Office of Technology Assessment. Ms. Power is writing a report on technology assessment, which will include a chapter on cost-effectiveness.
"It really looks to me that we are setting the stage for when the time comes that cost-effectiveness analyses have a weight of their own," Ms. Power said.
Warnings. Members of the healthcare community caution that the use of cost-effectiveness as a criteria for decisions in medical care has both practical and moral limits.
The data used in studies can distort conclusions. For example, most drug companies pair economic analyses with the later phases of clinical trials. Those trials, however, use limited populations in a controlled environment. In real life, physicians prescribe drugs differently and patients don't follow instructions. "The effectiveness of a drug is, in many cases, not known until it's on the market," Mr. Freeman said. The information in medical data bases, however, often is more seriously flawed, he said.
Results that are true in one hospital might not apply to another. Because physicians practice medicine differently and patient populations change, cost-effectiveness might be different from hospital to hospital and community to community.
Providers argue that manufacturers will manipulate data to their advantage. Even in objective studies, underlying assumptions and perspectives can alter results so dramatically that it might not be clear which products are superior. "As long as there is more than one product on the market, you're going to get an argument on how to measure it," said Mr. Paulos of Premier.
Providers and payers might give cost-effectiveness too much weight and ignore physician instinct and patient preference. Worse, they might ignore outcomes and concentrate only on cost. "If cost-effectiveness becomes the only criteria, that would be a tragedy," Mr. Paulos said.