Originally Published MX September/October 2005
BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT
Quantifying the Healthcare Value of New Technology|
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One technique that has been employed to determine the economic value of a medical therapy is the calculation of its cost-effectiveness ratio, which is the dollar cost of a defined unit of effectiveness.
For example, if joint-repair surgery costs $20,000 and improves pain-free mobility in that joint by 20° of motion, then the cost-effectiveness ratio is $20,000 divided by 20°, or $1000 per degree of additional pain-free movement. The chief alternative, joint-replacement surgery, might cost $45,000 and improve pain-free mobility by 70°. The incremental cost-effectiveness ratio for this therapy is calculated by dividing the extra $25,000 in cost by the 50° of greater freedom of movement that results. The additional range of mobility costs $500 per degree. Thus, the more expensive procedure is the better buy in terms of cost per unit of improvement in outcome.
Most new technologies provide a less clear-cut benefit than in this example because the incremental cost for each additional unit of effectiveness is greater than that of the cheaper existing technology. If the 50° mobility improvement with joint replacement costs an additional $75,000, then each additional degree of pain-free motion would have a $1500 price tag.
When the healthcare budget is fixed, choosing among therapies is a straightforward matter with this means of measuring value. If there is enough money in the budget to pay $1500 each for additional degrees in a range of painless motion, then the more expensive therapy can be provided. If not, then either more money must be budgeted for healthcare or coverage must be limited to the less expensive therapy.
However, there are problems with this method. Not all healthcare benefits are measured in terms of range of motion. There has to be a way to compare the value of a 10-mmHg reduction in blood pressure with the value of a 20° improvement in mobility range. One good solution is the quality-adjusted life year (QALY), a measure of healthcare benefit used in some industrialized nations to change apples and oranges into fruit, each type of which bears a QALY label that allows meaningful comparison.
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