A Mystery

So here is a bit of an economic mystery:

Less expensive, lower-quality innovations abound in every economic sector—except medicine

Whereas all this fancy theory plus a token can get you on the subway, might there be practical applications of “decrementally” cost-effective innovation? To explore this, working with colleagues at the Tufts Center for the Evaluation of Value and Risk (who maintain a comprehensive database of cost-utility studies), we enlisted Aaron Nelson, then a medical student, to help us sort through more than 2,000 cost-utility comparisons for any potential examples that might be decrementally cost-effective. We found that about three-quarters of published comparisons described new technologies or treatment strategies that increase both costs and benefits, and that most of these (about 65 to 80 percent) were cost-effective by conventional criteria (depending on which conventional threshold was used, $50,000 or $100,000 per QALY gained). Less often, published analyses described innovations that are either dominant or dominated (about 10 percent and 15 percent of the time, respectively), but only very rarely were innovations both cost- and quality-decreasing. Indeed, fewer than 2 percent of all comparisons were classified in the cost- and quality-decreasing “southwest quadrant”, and only 9 (involving 8 innovations) were found to be decrementally cost-effective (0.4 percent of the total)—that is, they saved at least $100,000 for each QALY relinquished.

Examples of these cost-saving interventions include using the catheter-based percutaneous coronary intervention in place of bypass surgery for multivessel coronary disease, which on average saves about $5,000 while sacrificing a half day of perfect health (for a cost-savings of more than $3 million for every QALY lost) and using repetitive transcranial magnetic stimulation instead of electroconvulsive therapy for drug-resistant major depression, which avoids the need for general anaesthesia and saves on average over $11,000 but sacrifices about a week of perfect health (for a ratio of more than $500,000 for every QALY lost). Nearly all the remaining innovations involved the tailored withholding of standard therapy, including watchful waiting for selected patients with inguinal hernia, withholding mediastinoscopy for selected patients with lung cancer, and abbreviated physiotherapy or psychotherapy for patients with neck pain or deliberate self-harm, respectively. Finally, the cost-saving innovations included the sterilization and reuse of dialysate, the chemical bath used in dialysis to draw fluids and toxins out of the bloodstream—a degree of thrift even the late Sheldon Kravitz would have to admire.

That decrementally cost-effective innovations are so rarely described in the health-care literature suggests that medicine is distinct from most other markets, in which cost-decreasing, quality-reducing products are continuously being introduced—think IKEA, Walmart and the Tata car. Several reasons may explain this “medical exceptionalism.” First, there is fundamentally a lack of incentives both for physicians to control costs, especially under a fee-for-service regime, and for patients to demand less expensive treatment when insurance shields them from the direct costs of care. Second, medical “bargains” frequently come with health risks, and trading health for money strikes some as vulgar, regardless of ratio. The inherent ethical unease that decrementally cost-effective innovations can elicit poses a serious public relations and marketing challenge.

Marginal Revolution has a link to the actual article.