Cost-Effectiveness: From Genes to Healthcare System Reform

2017.12.17 DNA_helix_structure

British health economist James Buchanan D.Phil. is skeptical that Geisinger Health System’s (Pa.) genomics project will prove to be cost-effective. But what about the cost-effectiveness of the whole U.S. health system?

As a physician and resident of the southern reaches of Geisinger Health System’s catchment area in central Pennsylvania, I was intrigued by Dr. Buchanan’s blog on Geisinger’s population-based MyCode genomics project. This project was featured in October 27, 2017, issue of Science.

Dr. Buchanan’s skepticism is undoubtedly warranted about the cost-effectiveness of costly screening of thousands of patients, unselected for any traits or conditions, across generally low-risk populations.

Geisinger’s Intent Is Not Cost-Effectiveness per se

However, I would comment that Geisinger’s intent – reflected in its motto, “Heal, Teach, Discover” – is not in the first instance cost-effective screening. Rather, Geisinger is motivated by scientific discovery and community service. In the process, its MyCode project has had the side benefit of enhancing Geisinger’s academic and clinical reputation to attract clinicians, resident trainees, academics and ultimately patients to this otherwise rural, non-cosmopolitan region. Geisinger has sustained its support of this project since 2006 based on its vision and ideals, free from any profit motive or mere search for efficiency.

I would further comment that the profit-motive-driven quest for efficiency will not always converge with genomic research applications. A case in point was contemplated at a recent NEJM Catalyst webinar by Harvard Business School’s Professor of Social Policy Amitabh Chandra’s thought experiment about the “value” (to society) of life-saving curative treatments when their economic price is exorbitant. This scenario will likely emerge from new gene-editing technologies currently under development. Professor Chandra’s solution is to create a public research entity that would bear the cost of development but also own the intellectual property rights. Thereby life-saving gene-based treatments would be provided without regard to shareholder “return on investment.”

Britain’s National Health Runs on Cost-Benefit Analysis

I have also been interested in use of cost-effectiveness analysis to guide public health policy. Cost-effectiveness analysis is being done in the United Kingdom by the National Institute of Clinical Excellence (NICE) to guide budgeting for new technologies. Similar research is being done in the U.S. by the Institute for Clinical and Economic Review (ICER). Its application to pharmacoeconomics has been promoted by a for-profit data analytics company based in Massachusetts, BHE Analytics, and was the subject of a pharmacoeconomics conference in Glasgow in November 2017.

Will Cost-Benefit Approach Work in the U.S.?

My particular interest has been in the Oregon Health Plan, which in 1994 innovated the use of cost-benefit analysis to prioritize services provided by its Medicaid program. I would be interested in Dr. Buchanan’s perspective on how cost-benefit analysis could be applied at a national level to help the U.S. rein in its health spending, which has now grown to 18% of GDP and shows no sign of stopping.

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Image Credit:  By Chromatin_chromosome.png: Magnus Manskederivative work: NEUROtiker ⇌ – Chromatin_chromosome.png, CC BY-SA 3.0,

3 thoughts on “Cost-Effectiveness: From Genes to Healthcare System Reform

  1. Apologies for the belated reply, I missed this over the Christmas period. A couple of quick thoughts in response:

    – A minor point, but it’s always important to get terminology right to make sure that we’re all talking about the same thing. Cost-effectiveness analysis (CEA) is not the same as cost-benefit analysis (CBA). Both are forms of economic evaluation, but they differ in how they deal with health outcomes. In CEA, health outcomes are measured using natural units (e.g. life years gained). Cost-utility analysis (CUA) is a specific form of cost-effectiveness analysis in which health outcomes are measured using quality-adjusted life-years (QALYs), and it is this approach that is used in England as part of the health technology assessment process. In CBA, outcomes are expressed in monetary terms and the net benefit (or net cost) or an intervention is calculated. CBA is used infrequently as part of HTA processes, in part because of concerns about the different approaches used to monetise health outcomes.

    – In response to your final point, the application of CEA to inform healthcare resource allocation decisions would, if combined with a single-payer system, almost certainly rein in health spending in the US. However, my outsider perspective is that there are few calls for either CEA or single-payer at present in the US. The application of CEA when combined with the US insurance system (i.e. without single-payer) would I suspect have little impact on high cost levels.

    – A public research entity that bears the development costs of genomic research applications would, if funded via the national healthcare budget, be drawing limited funds away from other healthcare interventions. Therefore such a research entity has an opportunity cost. It may, of course, generate health outcomes at some acceptable level of cost-effectiveness, but there is still a cost-effectiveness calculation to be performed, it is just more ‘hidden’.

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    1. Dr. Buchanan:

      Thanks for your thoughtful remarks about this blog post. I agree with all of your points. Allow me some further remarks.

      • As a proponent for using the Oregon Health Plan as a model for national health system reform, I was gratified by your observation that cost-effectiveness analysis is necessary, though not sufficient, to rein in health spending. You opine that one sure way of controlling spending would be to combine cost-effectiveness analysis with single payer (or single delivery) system, as has been done in United Kingdom.

      • In my most recent posts, I have taken to referring to cost-effectiveness analysis as only a “first step.” I agree that additional interventions beyond cost-effectiveness analysis alone would be needed to fully reform healthcare and control costs. As you point out, single payer delivery system could one such add-on to control costs. Indeed, Oregon itself used its cost-effectiveness analysis results to prioritize and limit Medicaid essential benefits, but also combined this with a managed-care delivery system, as summarized in The Big Fix for Healthcare Reform. As another example, my post of November 4, 2017, references Dr. Elisabeth Rosenthal’s American Sickness, which addresses the Byzantine (and rigged) pricing system in the U.S. health system, which surely needs to be overhauled using economic analysis principles and business savvy. Another recent post of February 8, 2018, references Dr. Daniel Berwick’s 2012 JAMA article listing 6 major categories of “wasteful spending” requiring reform, and calls for a multi-pronged assault on them all, including limiting health services with low marginal benefit.

      • The idea of submitting health services to cost-effectiveness (economic) analysis challenges the notion among Americans – often embraced as something between axiomatic and an article-of-faith – that all healthcare is infinitely valuable. And cost-effectiveness analysis further challenges the widely held corollary among Americans that the more expensive a treatment, the better it must be. Of course, the British and all other OECD countries debunked these ideas long ago. This “Fixing U.S. Healthcare” blog aims to debunk the no-matter-what-the-cost delusion on this side of the Atlantic, and prod Americans to join our British and OECD peers with a more thrifty approach to healthcare spending.

      • This blog claims that Oregonians in 1994 did accept that some treatments were not worth the cost, allowing them to set limits on Medicaid coverage. And I claim that this same premise must underpin any nationwide reform that seeks to control America’s snowballing healthcare costs.

      • Thank you for your admonition about terminology, namely my imprecise usage of “cost-benefit analysis.” As you point out, economics and clinical epidemiology distinguish among general “economic analysis”, and specific methodologies such as cost-benefit, cost-utility, cost-effectiveness, and cost-minimization. Philosophers examine more abstract concepts such as costworthiness, efficiency, risk-benefit, and value. Along with Philosopher Paul Menzel, this blog has tended to use “cost-benefit analysis” in a broad philosophical sense. Oregon Health Plan calculated cost per quality-adjusted-life-year, and thus indeed properly should be categorized as a cost-effectiveness methodology.

      • You touch on the fact that cost-benefit analysis, which seeks to monetize health outcomes, poses methodological challenges, since there is no single approach universally accepted by all. I agree. If cost-benefit analysis were to be utilized for public policy purposes, the methodology would need to be standardized by a central authority and followed uniformly.

      (Also posted as a new blog entry with links embedded)


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