Value-Based Medicine

VBM: How Do We Count the Money?

By Melissa M. Brown, MD, MN, MBA

Value-Based Medicine analyses use the best evidence, assess the data in value terms and allow for a comparative evaluation among treatments for a particular medical problem. When that evaluation identifies more than one useful intervention, stakeholders begin to appropriately look at the cost of similar interventions.

Essentially, stakeholders represent three basic perspectives in assessing alternatives: the third-party perspective, the societal perspective and the governmental perspective.

The Third-Party Perspective

The third-party perspective is commonly used in comparing the costs of alternative interventions. It typically takes into account (1) the incremental treatment's costs to the payer and (2) the health outcome in terms of value improvement, or QALYs, gained by the patient. It is the most basic evaluation and is best suited for standardization of data.

For example, the decision of whether total knee replacement is cost-effective from an insurer's perspective involves assessment of the direct healthcare costs of physicians, acute short-stay hospitalization, diagnostic studies, pharmaceuticals, laboratory services and rehabilitation.

Direct non-healthcare costs, such as the lost opportunity costs of care-giver time, childcare costs and transportation, are ignored in the third-party perspective, as are indirect benefits, including decreased disability costs or enhanced wages secondary to improved ambulation after surgery.

By excluding the enhanced wages and disability savings, the third-party perspective will yield a less favorable cost-utility ratio than if these elements were included in the calculations.

The Societal Perspective

The broadest view of costs for healthcare economic analyses is the societal perspective. This includes direct healthcare costs, direct non-healthcare costs, plus indirect costs including the loss of patient wages, patient non-work time, reduced tax revenue, loss of productivity (with premature death) and disability payments.

Direct healthcare costs contribute to the US gross domestic product (GDP), as do most direct non-healthcare costs. However, the indirect costs of lost patient wages due to disability or premature death both effectively decrease the GDP.

The Governmental Perspective

The governmental perspective costs are similar to societal perspective in many ways. Regarding direct non-healthcare costs, the government is not concerned with care provided by friends and family. Regarding indirect costs, it is also not interested in loss of patient leisure time, so often these costs are not included in this perspective. However, the government is most interested in the tax revenue gained and/or lost from health improvement with subsequent gainful employment, and disability cost changes, death and associated termination of employment, respectively.

While many have recommended that the societal perspective be used in cost-effectiveness studies, the lack of standardization and agreement as to which costs to include are large drawbacks to its usefulness. As well, there is no consensus as to the cost basis. As such, costs could be compared to the Medicare Fee Schedule, the reimbursement rates of commercial insurers or a combination of public and private insurers. The third-party perspective uses direct healthcare costs and, thus, is relatively straightforward.

Increasingly, use of the societal perspective is sought by stakeholders as it (1) maximizes the cost-effectiveness ratio as it uses more in the way of costs and (2) allows for a more enlightening and detailed evaluation of costs useful in society as a whole. However, I caution that once a variation of cost structure is introduced into an analysis, confident comparison between and among the analyses becomes impossible. With non-comparable analyses, the gathering of any significant database of cost-utility analyses becomes an endeavor without supporting reason or science.

Despite this most relevant observation, many are seeking to gather any and all available cost-utility evaluations into large databases for what we can only assume may be for eventual policymaking. The use of non-comparable data is of serious concern for those of us that have talked and walked the road of care and attention to standardization.

I look for the cost perspective and cost basis used in each analysis I come across, and suggest that you demand of your journals that they define the perspective used and identify the costs used in each evaluation. Armed with that information, you can personally begin to determine the usefulness of the analyses in your own practice and caregiving. It remains to be seen just how our government uses these concepts in policymaking. OM

Value-Based Medicine is a registered trademark of the Center for Value-Based Medicine.

Melissa M. Brown, MD, MN, MBA, is president and CEO of the Center for Value-Based Medicine in Philadelphia. She can be reached via e-mail at mbrown@valuebasedmedicine.com.