Connections : Join the Conversation - The blog of Biomet CEO Jeffrey R. Binder
Part 2: Why spending is not the same as cost
This is the second of three parts examining the contributions of the medical device industry
You would think that policymakers, anxious for any good news in a difficult economy, would applaud the growth of the medical device industry and its job creation over the years. But that's not necessarily the case.
The U.S. government has cited research that identifies the direct cost of medical technology, as well as the expanded demand for treatments that technology makes possible, as the key driver of increased U.S. healthcare spending.1 Conclusions of this sort spawn policies designed to drive down the cost of spending on technology. But the conclusions are flawed.
First, the research cited is heavy on supposition, treating medical technology as a residual; that is, after identifying directly measurable spending, what remains--the unexplainable or immeasurable spending--is attributed to "advancing medical technology," at best a simplistic approach that potentially obscures and confounds the calculation of true cost drivers.1,2
Second, it is undoubtedly correct that technology allows greater access to treatments for unmet clinical needs. It is not correct, however, to attribute the resulting costs solely to advancing technology. New technology and treatments help to reveal, but do not create or drive, disease prevalence.
Third, aggregate spending on treatment must be distinguished from spending per patient, which may decline even as aggregate spending increases due to growing disease prevalence.
Finally, aggregate spending does not measure value delivered. The value of a therapy must be measured by the cost per benefit gained as compared to alternative treatments, or no treatment.
In orthopaedics, it is clear that disease prevalence--and not technology--is the key driver of increased spending. That spending is clearly beneficial and cost-effective, reducing disability and driving down the cost per patient afflicted with musculoskeletal disorders.
The value of orthopaedic treatment: looking beyond spending
Bone and joint disorders are the leading source of disability in the United States, far exceeding heart trouble and respiratory disorders.3
Disabled Americans have 600% higher medical costs than non-disabled Americans.4
Additionally, bone and joint disorders account for the greatest number of lost work days from medical conditions.5 Workers lose a total of $110 billion in wages each year from bone and joint disorders.5
Clearly, addressing bone and joint disorders and the resulting disability should be a top public health priority.
Source: Morbidity and Mortality Weekly Report, May 1, 2009
Due to the growth in prevalence of bone and joint disorders, the cost of treatment continues to rise. Yet, remarkably, the cost per afflicted individual has actually declined.5
Source: "The Burden of Musculoskeletal Disease," U.S. Bone and Joint Decade, 2008
Indeed, overall disability in the United States has dropped dramatically over the years, and is accelerating downward.6
Source: Manton, Gu and Lamb, PNAS, November 28, 2006
According to Harvard University professor David Cutler:
- The biggest decline in disability comes from musculoskeletal disorders, [accounting for] one-quarter of the total decline.4
Dr. Cutler also states:
- The data show that lower disability is almost exclusively a result of reduced disability for people who experience serious diseases rather than a result of fewer people having serious diseases.4
Even though the prevalence of underlying conditions leading to disability continues to increase, disability is declining. This is an amazing fact. Cutler then shows a correlation in the reduction in musculoskeletal disability with the increase in surgical intervention to treat these disorders.
- For conditions such as musculoskeletal problems and circulatory disorders, higher rates of surgery are plausibly related to reduced disability. But that is not true for all conditions.4
Similarly, not treating individuals with bone and joint disorders can result in increased disability. For example, patients with end-stage osteoarthritis of the hip and knee show significant improvements in function following total joint replacement, and those who did not receive joint replacements showed continued declines in function.7,8 These findings are consistent with Cutler's correlation of increased rates of surgery and declines in musculoskeletal disability.
Further, total joint replacement is becoming increasingly successful. The total joint revision burden in the United States (defined as revision surgeries as a percentage of primary surgeries) has declined over the years, despite the fact that the number of younger, high-demand patients has grown rapidly.9 This is a remarkable and counter-intuitive fact, and is inconceivable without improvements in the durability of implant technology.
Had the revision burden stayed at 1998 rates, U.S. payors would have spent an additional $2.6 billion on revision surgeries from 1999-2009.9 The drop in revision burden from 2008 to 2009 alone (from 11.7% to 11.1%) saved $89 million in forgone revisions.9
Source: HCUPnet Database, Agency for Healthcare Research and Quality, U.S. Dept. of Health and Human Services, accessed May, 2011.
Finally, we can evaluate the value of musculoskeletal treatment based on cost per quality life-year (QALY) delivered. This measure evaluates the expense of treatment compared to the number of years of good health gained from the treatment. The threshold of cost-effectiveness per QALY, as defined by the World Health Organization is set at three times Gross Domestic Product (GDP) per capita. In the United States, that threshold is approximately $120,000 and in Europe, about $91,000.10
By this measure, many orthopaedic interventions have been demonstrated to be cost-effective, and often less expensive per quality life-year gained than other common therapies.10-26
Note: The World Health Organization (WHO) threshold for cost-effectiveness is defined as three times the per-capita GDP of countries within each of its six regions (Source: World Health Organization, available at http://www.who.int/choice/costs/CER_thresholds/en/index.html. U.S. threshold calculated using 2005 GDP per capita. Amounts adjusted to U.S. dollars in the year of each reference's publication.
These data indicate that orthopaedic technology, arising from the collaboration of healthcare providers and medical device companies, is delivering significant value: reducing disability and the cost per afflicted individual, while cost-effectively returning patients to productive living.
As the government looks to improve the cost-efficiency of healthcare delivery, it seems clear that orthopaedic technology and specialty care are part of the solution, not the problem.
- "Technological Change and the Growth of Health Care Spending," Congressional Budget Office, January, 2008, available at http://www.cbo.gov/ftpdocs/89xx/doc8947/01-31-TechHealth.pdf
- Ginsburg, PB, "High and rising health care costs: Demystifying U.S. health care spending," Robert Wood Johnson Foundation Research Synthesis Report No. 16, October 2008, available at http://www.rwjf.org/files/research/101508.policysynthesis.costdrivers.rpt.pdf
- "Prevalence and Most Common Causes of Disability Among Adults, United States, 2005," Morbidity and Mortality Weekly Report, May 1, 2009, available at http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5816a2.htm
- Cutler DM, "Intensive Medical Technology and the Reduction in Disability," Analyses in the Economics of Aging, National Bureau of Economic Research, August, 2005, available at http://www.nber.org/chapters/c10360.pdf?new_window=1
- "The Burden of Musculoskeletal Disease," U.S. Bone and Joint Decade, 2008.
- Manton KG, Gu X, Lamb VL, "Change in chronic disability from 1992 to 2004/2005 as measured by long-term changes in function and health in the U.S. elderly population," PNAS, November 28, 2006, available at http://www.pnas.org/content/103/48/18374.full.pdf
- George LK, et al., "The Effects of Total Hip Arthroplasty on Physical Functioning in the Older Population," JAGS 56:1057-1062, 2008.
- George LK, et al., "The Effects of Total Knee Arthroplasty on Physical Functioning in the Older Population," Arthritis & Rheumatism, Vol. 58, No. 10, October 2008, pp. 3166-3171.
- HCUPnet Database, Agency for Healthcare Research and Quality, U.S. Dept. of Health and Human Services, available at http://hcupnet.ahrq.gov/; Orthopedic Network News, 1998-2008, available at www.orthopedicnetworknews.com. Cost savings were calculated using revision hip and knee DRG payments, weighted by number of procedures per DRG per year from 1998-2005, as published in Orthopedic Network News, 1998-2005. Estimated hospital costs were used for 2006-08 from the HCUPnet database, weighted by volume of procedures, and applied to incremental changes in revision burden. The 2008 weighted cost of approximately $20,144 per revision was applied to the 2009 revision reduction to arrive at a single-year (2008-09) savings of approximately $89 million.
- World Health Organization CER Thresholds, 2005, available at http://www.who.int/choice/costs/CER_thresholds/en/index.html.
- "International comparisons of GDP per capita and per employed person: 17 countries, 1960-2008," U.S. Department of Labor, July 28, 2009, available at http://www.bls.gov/fls/flsgdp.pdf
- O'Shea K, et al., "Cost analysis of primary total hip replacement," Ir Med J., June, 2002. Note: Cost/QALY data taken from the Cost Effectiveness Registry, available at https://research.tufts-nemc.org/cear/default.aspx, which applied its methodology to the data reported in the referenced paper, and adjusted to 2008 US$.
- Garelick G., et al., "Life expectancy and cost utility after total hip replacement," Clin Orthop Relat Res., January, 1998. Note: Cost/QALY data taken from the Cost Effectiveness Registry, available at https://research.tufts-nemc.org/cear/default.aspx, which applied its methodology to the data reported in the referenced paper, and adjusted to 2008 US$.
- Rasanan P., et al., "Effectiveness of hip or knee replacement surgery in terms of quality-adjusted life years and costs," Acta Orthop, February, 2007. Note: Cost/QALY data taken from the Cost Effectiveness Registry, available at https://research.tufts-nemc.org/cear/default.aspx, which applied its methodology to the data reported in the referenced paper, and adjusted to 2008 US$.
- Lavernia CJ, et al., "Cost effectiveness and quality of life in knee arthroplasty," Clin Orthop Rel Res, December, 1997.
- Losina E., et al., "Cost-effectiveness of total knee arthroplasty in the United States," Arch Intern Med, June 22, 2009.
- SooHoo NF, Kominski G., "Cost-effectiveness analysis of total ankle arthroplasty," Journal of Bone and Joint Surgery, November, 2004.
- Navarro EJL, Hernandez TE, "Cost-outcome analysis of joint replacement: evidence from a Spanish public hospital," Gac Sanit., July-August, 2008.
- Krummenauer F., et al., "Clinical benefit and cost effectiveness of total knee arthroplasty in the older patient," Eur J Med Res., February, 2009.
- Cavaliere CM, Chung KC, "A cost-utility analysis of nonsurgical management, total wrist arthroplasty, and total wrist arthrodesis in rheumatoid arthritis," J Hand Surg Am, March, 2010.
- Mather RC, et al., "Cost effectiveness of hemiarthroplasty and total shoulder arthroplasty," J. Shoulder Elbow Surg., April, 2010.
- Dalziel K., et al, "Review of Australian health economic evaluation—245 interventions: what can we say about cost effectiveness?" Cost Effectiveness and Resource Allocation, 2008, 6:9.
- Hynes DM, et al, "Cost effectiveness of laparoscopic versus open mesh hernia operation: results of a Department of Veterans Affairs randomized clinical trial," J Am Coll Surg., October, 2006.
- Cowie MR, et al., "Lifetime cost-effectiveness of prophylactic implantation of a cardioverter defibrillator in patients with reduced left ventricular systolic function: results of Markov modeling in a European population," Europace, June, 2009.
- Maud A, et al., "Cost-effectiveness of protected carotid artery stent placement versus endarterectomy in high-risk patients," J. Endovasc Ther, April, 2010.
- Yock CA, et al., "Cost-effectiveness of bypass surgery versus stenting in patients with multivessel coronary artery disease," Am J Med., October, 2003.
Add Your Comment
Comments are moderated by Biomet, and may not appear on this blog until they have been reviewed and deemed appropriate for posting.
Policy on posting comments
The goal of "Connections" is to encourage informed discussion on issues that affect our community. The blog is moderated—all comments will be reviewed prior to posting. Our rules for posting comments are:
- Comments must be relevant to the topic at hand.
- Dissenting points of view are welcome. However, comments must contribute to a civil discourse—inflammatory and insulting comments will not be posted.
- Comments will not be edited. They will either be accepted or rejected in full.
Please do not ask general questions about Biomet in the comments section—we will not respond through this site. If you have questions for Biomet, please click here for contact information. The comments section of this blog is for comments related to the blog content only.