Value-Based Medicine

Assessing Costs in the Value Equation

By Melissa M. Brown, MD, MN, MBA

At first glance, when we think about cost of care, it seems as though we have finally arrived at an easy and straightforward topic. Far from it. But it is an important topic and one that can be quantified and understood.

You probably have an interest in or responsibility to look at and evaluate practice costs every day. We look at costs of office staples, staff salaries and benefits, rent or mortgages, new equipment, possibly pharmacologic costs, and of course, their relationship to the overall practice budget.

We know intuitively, academically and scientifically that the human value (quality-of-life) gain of improving vision is high. We also have learned from our many clinical trials and from medical practice that ophthalmic interventions are efficacious.

The healthcare reform law adopted in March funded the Patient-Centered Outcomes Research Institute, an entity that will surely look at costs as it assesses the comparative effectiveness of clinical outcomes. In Value-Based Medicine terminology, costs are evaluated against the human value gained from an intervention (often measured in quality-adjusted life years gained) to determine its cost-effectiveness. The key question is: What costs should we be looking at?

The costs associated with an intervention should be valued as the difference in resource use between an intervention and an alternative intervention (or no treatment). Therefore, costs should refer to the incremental resources consumed or saved. The monetary unit should be identified and measured in a specific year.

When measuring practice costs in an economic evaluation, healthcare costs are generally divided into direct and indirect. Direct costs are further divided into medical and non-medical categories.

Direct Costs Defined

Direct healthcare costs include the costs of: providers, acute hospitalization, ambulatory surgery centers, skilled nursing facilities, rehabilitation, nursing home care and home healthcare. Additional direct costs are: pharmaceuticals, laboratory tests, diagnostic studies (radiology, pathology, etc.), durable goods and other medical treatments.

Standardizing the above costs is relatively easy in the United States, as Medicare reimbursement fees are often used as the common, consistent measure and are readily obtainable. Pharmaceutical costs are often identified by using the average sales price (ASP), as utilized by Medicare, or the average wholesale price (AWP) as documented in the Red Book.

Potential costs that result from the health program or treatments are also included under the direct cost category. Examples of such potential costs are panretinal photocoagulation (PRP) for proliferative diabetic retinopathy, capsulotomy for posterior capsular opacification, anti-VEGF therapy for wet AMD or trabeculoplasty for open-angle glaucoma. Clearly, the uncertainty of potential future costs increases the difficulty of maintaining a standardized approach to cost issues.

Direct non-healthcare costs include the costs of: childcare, caregivers, transportation, residence, housekeeping, skills retraining and social services. While inclusion and calculation of these non-healthcare costs also increase the difficulty of standardization, it is clear that these costs can be quite large in situations of significant visual disability. But improving vision with cataract surgery can obviate many of these expenditures and create a large net financial gain to society for the direct medical costs expended.

Indirect Costs Defined

Indirect costs are those associated with a loss or gain in productivity due to a health program or intervention. This includes the loss of time or productivity due to morbidity or mortality and the gain of time and productivity due to decreased morbidity and the prevention of mortality. Lost productivity may be quantified by measuring lost patient time and wages or lost tax revenue (not both), decreased productivity due to death, and disability payments.

Two conclusions can be drawn from these definitions of costs: (1) standardization of which costs to use in a specific cost-effectiveness study becomes paramount when comparison of outcomes is of interest, and (2) knowledge of the cost perspective (patient, third-party payer, societal or governmental) becomes most relevant.

So what use is all this cost data to the practicing ophthalmologist? While the direct costs of care are understood by policymakers, it is less clear how much policymakers appreciate the savings to the federal budget when the care we provide restores or saves vision. It is these perspectives and savings that will be the topic of next month's column. 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