Economic Challenges and New Medical Technologies Laurence Baker, Ph.D. Stanford University School of Medicine

$$$ Health Care Costs $$$ Source: National Health Account Data, published : $5, $ : $11, : 18.7% 2003: 15.3% 1960: 5.1%

How to Save A Lot of Money in Health Care Use policies that reduce the rate of growth in health care spending time $ now

How to Save Some Money in Health Care $ time $ Use policies that achieve shorter term or one-time effects on growth rate

Why Are Costs Rising? Aging of the population? Aging of the population? Rising prices/physician incomes? Rising prices/physician incomes? Increasing population incomes? Increasing population incomes? More/better health insurance? More/better health insurance? Malpractice? Malpractice? Waste, Fraud, and Abuse? Waste, Fraud, and Abuse? High Administrative Costs? High Administrative Costs? These account for half or less of increases in costs over recent decades

Why Are Costs Rising? Technology: Expansion in the capabilities of medicine to do things for patients One study measured 50% of cost growth or more is due to advancing technology. Many health economists think its even more.

Are Heart Attack Treatments Worth It? Spending Rises Dramatically Largely because of technology  In 1984, 10% of heart attacks received some surgical intervention; in 1998, more than half received catheterization and often other intensive procedures But Life Expectancy Does Too Question: Is the extra one year of life expectancy worth more than $10,000 of additional spending? Data drawn from Cutler and McClellan, Health Affairs, October 2001

Is Mid-Level NICU Expansion worth it?  Virtually all of the difference is due to slower diffusion of mid-level NICU units  Newborns treated in higher level units do better  Reductions in mid-level units increased the chance of receiving treatment in a high- level unit and improved outcomes for VLBW newborns cumulative adoption probability year 10% mkt shr 30% mkt shr NICU Adoption Probability Over Time in High and Low HMO Areas

MRI Procedures per 100,000 population  Expansion of MRI use associated with significant spending increases  Harder to identify health benefits from expanded use Is Expanded MRI Utilization Worth It?

Source: J. Wennberg, “Variation in Use of Medicare Services Among Regions and Selected Academic Medical Centers: Is More Better?, January 2005

Three Keys to Savings from New Stem Cell Technologies What (if anything) does it replace? What (if anything) does it replace? How much does it cost? How much does it cost? What does it do to mortality rates? What does it do to mortality rates?

Reduce Spending from $7k PPPY to $4k PPPY Scenario: A highly successful, relatively low cost, new stem-cell based therapy in 2015 Pay $5000 PP for the new therapy, w/o maintenance Reduce Mortality from 7x US baseline to baseline Net Spending Path + thousands of life-years saved

 Therapy reduces spending from $7k PPPY to $5k PPPY  Therapy costs $5k PP initially and $1k PP annual maintenance  Therapy reduces condition-specific excess mortality by half Scenario: A still quite successful, medium cost, new stem-cell based therapy in 2015 Net Spending Path + thousands of life years saved (though fewer than in the previous scenario

Some Economic Considerations for New Personalized Therapies How much would they cost? How much would they cost? What would happen to utilization? What would happen to utilization? Substitute for current therapies or add on? Substitute for current therapies or add on? Impact on number of people seeking treatment? Impact on number of people seeking treatment? After the introduction of laparoscopic cholecystectomy in 1989, procedure rates increased by 22%, with more and more uncomplicated elective cases After the introduction of laparoscopic cholecystectomy in 1989, procedure rates increased by 22%, with more and more uncomplicated elective cases Vioxx Vioxx How large are the benefits for length and quality of life? How large are the benefits for length and quality of life?

The Policy Challenges (and Opportunities) of Advancing Medical Technology Higher medical costs driven by improvements in therapy may not be bad Higher medical costs driven by improvements in therapy may not be bad Health spending at 30% of GDP? Health spending at 30% of GDP? But more is not always better But more is not always better Balancing is crucial Balancing is crucial Government budgets: Medicare and Medicaid costs rising Government budgets: Medicare and Medicaid costs rising Employer provided health care: rates of coverage declining, costs rising Employer provided health care: rates of coverage declining, costs rising High costs contribute to uninsurance High costs contribute to uninsurance

The Policy Challenges (and Opportunities) of Advancing Medical Technology Balancing effectively requires better structures to Balancing effectively requires better structures to Develop necessary data Develop necessary data Assess new developments Assess new developments Construct guidelines Construct guidelines Translate into practice Translate into practice But balancing will be challenging But balancing will be challenging Every new therapy benefits at least some people in some way Every new therapy benefits at least some people in some way Limiting capacity can be hard Limiting capacity can be hard The best solutions will incorporate large groups of the population in coverage plans that have incentives to make careful decisions about new therapies The best solutions will incorporate large groups of the population in coverage plans that have incentives to make careful decisions about new therapies