New Study Hints at Cost “Threshold” for Effective Treatment Methods

The U.S. spends more on healthcare as a share of the economy than any other country in the world. The medical industry accounts for around 18% of the U.S. Gross Domestic Product (GDP), nearly double the rate of other developed nations. Yet, we have a significantly lower life-expectancy rate and higher rates of suicide than countries like Germany, the U.K., and Canada.

A new study from Penn State University shows that when treatment costs exceed a certain threshold, they may end up doing more harm than good. When you factor in all the related costs, including insurance premiums and the patient’s overall quality of life, many people may be getting less than they bargained for when they sign up for care.

The Cost Simulation

The study was conducted by David Vanness, a professor of health policy and administration, who led a team of researchers as they analyzed various healthcare simulations. During these hypothetical situations, virtual patients with various conditions would seek care. Analysts would then calculate the total “treatment cost,” which included all the subsequent costs and savings related to a treatment.

For example, if a patient has diabetes, the treatment cost would include the overall cost of care, potential savings in terms of preventing more serious health conditions, and the patient’s overall quality of life after receiving treatment. 

The study found that for every increase of $100,000 in treatment costs, 1,860 people lost their health insurance, five additional people died, 81 quality-adjusted life-years were lost due to premature death, and 15 quality-adjusted life-years were lost due to illness. In the study, one quality-adjusted life-year (QALY) is equal to one year of healthy living.

When costs go up, fewer people can afford the care needed to prevent serious health conditions, which leads to more deaths. Insurance companies may be hesitant to cover the cost, thus limiting access to essential treatment methods, while others are forced to pay out-of-pocket.

Commenting on the results, Vanness said:

“We know that we are spending more and more on health care in the U.S. and that we’re getting less and less for it. We do a good job of developing new treatments in this country, but we don’t do a good job of covering everybody or making sure that people have access to basic health care. We’re spending a lot on our medical treatments, but many of those treatments just don’t have a lot of value.”

Establishing a Threshold

In the study, which was recently published in the Annals of Internal Medicine, researchers established a threshold of $104,000 per QALY. If patients with certain conditions must spend more than this amount per year of healthy living, it ends up harming the public at large.

Vanness summed up his findings by saying, “If a treatment is beneficial but it costs more than about $100,000 to gain one quality-adjusted life-year using that treatment, then it may not be a good deal. Because our simulation was using data estimates, we wanted to come up with a range of plausible values. So, anything over a range of $100,000 to $150,000 per QALY gained is likely to actually make our population’s health fall.”

So, what are we supposed to do with this information?

The high cost of care can be frustrating to both caregivers and consumers. Studies show high prices are also fueling the average American’s distrust of the healthcare system – and they have a good reason to complain. They are paying a fortune in premiums and other fees without reaping as many benefits as those in other countries.

Vanness and his colleagues believe institutions and organizations can use this data to lower prices in the future. They mention the Institute for Clinical and Economic Review, which provides cost analysis to insurance companies as they negotiate prices with manufacturers. The study makes it clear that once care exceeds a certain price tag, it is no longer effective due to the fact that fewer patients can afford it. 

The authors say insurance companies and organizations tracking the cost of care should use this information to establish the implicit value of certain treatment methods before offering them to providers and consumers. Lowering the cost of treatment for various chronic conditions, including cancer, diabetes, and heart disease, will be critical as the baby boomers continue to retire. 

It’s clear that some treatment methods may be too expensive for the U.S. The lower the costs, the healthier your patients will be.