R. Scott Braithwaite, MD, MSc; Allison B. Rosen, MD, MPH, ScD
As the financial burden of cost sharing continues to rise, patients increasingly avoid necessary care, thereby contributing to the high morbidity and mortality of the U.S. population compared with that of other developed countries. The rationale for cost sharing is often based on the moral hazard argument, which states that individuals may overuse care if they do not share in its costs. We evaluate this argument in detail, using it to distinguish between appropriate and inappropriate settings for cost sharing. Cost sharing may be appropriate when health services are of low value (low ratio of benefits to costs), whereas it is inappropriate when health services are of high value (high ratio of benefits to costs). In practice, cost sharing is rarely linked to value, and therefore much of the cost sharing that currently occurs is inappropriate and harmful. Cost-effectiveness analysis is an objective method to estimate the value of health services and may be a way to systematically evaluate whether cost-sharing policies are appropriate. Systematic efforts to discourage inappropriate cost sharing may improve public health.
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John D. Keen
John H. Stroger Jr. Hospital of Cook County
April 18, 2007
Who decides? Cost-effectiveness analysis should guide informed decision making.
I agree with Drs. Braithwaite and Rosen that cost-effectiveness (C/E) analysis is underutilized. However, we need to focus less on C/E analysis as a guide to "policymakers", and more as guides to consumers, the ultimate "payers". With reasonable and balanced information in the hands of patients, high-value services will be consumed based on their own merits without the universal and inherently inefficient subsidy that the authors advocate. The truth is that most health expenditures are private, meaning that the individual patient is the only one who benefits (1). If the informed patient does not want to buy the "essential" or "necessary" high value service or drug using his own money from a health savings account because of personal choice, low risk/benefit or harmful side effects, why should the rest of society pay for it?
Let's analyze the tension headache scenario assuming no distortion by comprehensive health insurance. Assume the patient and physician face the choices of a) doing nothing/waiting, b) buying a $300 noncontrast CT, or c) buying a $1000 MRI exam. From the patient perspective, the test should be ordered if the expected marginal benefit (EMB) is greater than the price. The EMB should depend on the pretest probability as determined and explained by the physician. For instance, if the EMB is $200 to exclude a bleed or tumor, the patient should decline testing. However, with moral hazard, the patient would likely demand not just the CT but also the wasteful MRI exam, which all consumers would pay for in higher premiums.
Again assuming no insurance, if we increase the EMB to $600 (assume the risk of a mass is much higher), the CT purchase becomes a good deal. The authors assume that the typical patient won't make the "right" decision and buy the test. With 1000 patients, probably some won't buy, but most will. If we include moral hazard effects, almost all patients would likely demand the MRI to screen for aneurysms, meaning $400 is wasted each time.
The reality of moral hazard overconsumption does not depend on perfect information or sufficient resources. Moral hazard is based on typical human behavior: "Each individual patient would like to consume any service that has any expected benefit at all if the out of pocket cost is zero." (1). The harmful effect of excess moral hazard in distorting the health insurance market and increasing costs for all is also underappreciated (2).
1. Danzon, PM. Health care industry. In: The concise encyclopedia of economics. Available at http://www.econlib.org/library/Enc/HealthCareIndustry.html.
2. Keen JD. Another way to think about insurance: Government action distorts the market price with harmful side effects. J Am Coll Radiol, June 2007.
Edward J. Volpintesta
April 20, 2007
Moral Hazard Or Legal Hazard?
The authors make convincing statements using the "moral hazard" argument to point out how cost sharing, in some instances, may induce patients to avoid necessary care.
But they overlooked an important point.
Patients don't order their own tests and procedures, doctors do it for them. This gives doctors even more weight than patients in the moral argument, since they are the prime movers of the tests and medications ordered.
Thus,regardless of how beneficial a test or therapy may be; or how scarce the patient's ability to pay, it is clear that more is involved here than just the moral hazard argument advanced by the authors. I think that there is also a "legal hazard" argument involved which must be considered.
What's the "legal hazard"?
In our current litigous climate, it is not unusual for doctors,in an attempt to ward off frivolous malpractice suits , to order, against their better judgment, tests, procedures, and medications whose benefits are of questionable value to their patients. This raises the cost of health insurance premiums for everyone in the form of higher co-pays and higher deductibles.
Physicians know that a jury will sympathize with an injured patient long before it can understand the scientific reasoning behind any cost- benefit profile of a test.
Cost-benefit studies, should ideally, guide doctors and allow them to be better clinicians and allow patients to control the cost of their care. But until physicians can feel free from down stream allegations of negligence in cases where the outcomes are not satisfactory, it is unlikely that they will encourage their patients to accept a cost-benefit approach to their care. This means that those who can afford higher co- pays and don't need expensive technology or medications, will continue to get them and, in doing so will consume and waste insurance funds, artificially inflating the cost of care for everyone, affecting those who cannot pay the most.
Consequently, patients--rich and poor-- will struggle with higher co- pays and higher deductions because their doctors will most likely coninue to make their recommendations based on the logic of the "legal hazard" argument rather than the moral hazard.
Until doctors feel free to order tests and medications that they feel their patients really need and will benefit from, the moral and legal arguments will oppose each other, and I am afraid that as experience has shown, the legal argument will win out.
The real answer is to improve the way medical liability is handled. Taking medical liability out of the courtroom and dealing with it in health courts presided over by judges with special training in medical issues and with neutral court-appointed expert witnesses will relieve doctors' anxieties over frivolous lawsuits, and more importantly restore their integrity and faith in their medical skills and judgment.
When that is done patients who don't need expensive technology and medications will be convinced by their doctors to avoid them. The money saved should be enough to pay for those who truly need expensive care but cannot pay for it.
Fred I. Polsky
April 24, 2007
Pitfalls in Linking Cost Sharing to Value
Drs. Braithwaite and Rosen present an intriguing argument for enhancing patient compliance with "high value" medical therapies, namely removal (or reduction) of cost share obligations by the third party bearing risk (1). The authors correctly identify a major barrier to implementation of their proposal, namely actuarial amortization of the added cost to the payer, when the "payback" (medical offset) from reduction in utilization of services may occur with an uncertain time horizon, if at all. Payers in North America and Europe have attempted a value-based co-payment system within the Prescription Drug Benefit in recent years, known as "Reference Pricing". Here, the lowest co-payment tiers are assigned to drugs with the highest cost effectiveness, incorporating net acquisition price (including rebates and discounts), time to illness remission, relative efficacy, potency, patient compliance factors, and therapeutic index (2). The system, unfortunately, has potential utility limited to the few drug classes where abundant head-to-head studies are available, including reliable comparisons of all the above parameters. Few of the studies satisfy stringent cost effectiveness analytic criteria. To cite a political problem, clinical staff employed by payers and charged with the obligation to recommend those treatments for co-payment reductions may suffer accusations of caprice, conflict of interest, and lack of sensitivity to clinical practice guidelines and sub-specialty- driven, parochial priorities. I would take issue with the authors' choice of words by calling pharmaceutical co-payments penalties (page 603, column 2, paragraph 2). A benefit that obligates the payer for between 65 and 80% of the ingredient cost of the drug (3) should not be thought of as punitive to the member, though the authors cite evidence that moving toward 100% payer obligation enhances beneficiary compliance. A possible starting point for copayment reduction would be to use adjudicated treatment goals, promulgated by external organizations with quality benchmarks (i.e., HEDIS measures), and to bring all payers together within a given marketplace to agree to the same degree of copayment relief. In this way, the most generous payer, who might otherwise act unilaterally, is not subject to the hazard of adverse beneficiary selection, a very real concern for insurers. Furthermore, all payers would be underwriting equally the future windfall of healthier patients who change plans and exhibit utilization reduction only after plan conversion.
(1) Braithwaite RS and Rosen AB. Linking cost sharing to value: an unrivaled yet unrealized public health opportunity. Ann Intern Med. 2007; 146:602-605.
(2) http://www.forbes.com/2006/04/13/pharma-reference-pricing- cx_cf_0414pharma.html; accessed 4/18/07.
(3) "Express Scripts 2004 Drug Trend Report", published June, 2005; http://www.express- scripts.com/ourcompany/news/industryreports/drugtrendreport/2004/dtrFinal.pdf , accessed 4/18/07.
R. Scott Braithwaite
June 6, 2007
Linking cost-sharing to value
We thank Dr. Polsky for highlighting several substantive issues. Reference pricing (that is, paying only the price of the cheapest within a class of similarly effective drugs) is only one among many possible ways of linking cost sharing to value, and only concerns drugs within a particular class. We endorse an approach that is sufficiently flexible to address a broad range of drug and non-drug clinical alternatives.
We recognize that cost-sharing decisions may be plagued by accusations of caprice and conflict of interest, and these same concerns motivated our work. We have proposed a more objective method of making cost-sharing decisions that may ultimately diffuse some of this criticism. The creation of a new national center for comparative clinical effectiveness research may further enhance these efforts.
Evidence limitations are always an important concern in medical decision making. However, it is important to note that endorsing a particular decision-making framework may lead to greater efforts to gather relevant evidence. New approaches may make the use of existing evidence more transparent.(1) Finally, "abundant, head to head studies" may not always be necessary, particularly if additional data would be unlikely to change a decision.(2)
Waiving cost-sharing for HEDIS measures is a sensible idea that is complementary rather than alternative to our approach. However, only a small subset of high value interventions may be encompassed by HEDIS measures. Conversely, some HEDIS measures may lack evidence of cost- effectiveness. We advocate using a more conceptually robust and generalizable method.
We agree with Dr. Polsky that pharmaceutical copayments should, generally, not be considered penalties. However, when there is overwhelming evidence of cost-effectiveness, copayments may act as such. Indeed, in the rare circumstances when therapies are cost-saving (for example, beta-blockers after myocardial infarction), a logical extension of the cost-sharing ethos would be to share that cost-savings with the patient (that is, to provide a small inducement for adherence).
Finally, Dr. Polsky raises two common concerns for payers: can value- sensitive health plans be implemented in practice, and will they save money? These questions have different answers. Pitney Bowes, University of Michigan, Marriott and Mohawk are just a few examples of employers who have successfully adopted value-based copayment programs, so they are definitely feasible. However, it is not appropriate to expect that these programs will always save money. We must remember that the primary return on a health care spending investment is good health.
1.Braithwaite RS, Roberts MS, Justice AC. Incorporating quality of evidence into decision analytic modeling. Ann Intern Med 2007; 146:133- 141.
2.Claxton K, Cohen JT, Neumann PJ. When is evidence sufficient? Health Affairs 2005; 24:93-101.
Braithwaite RS, Rosen AB. Linking Cost Sharing to Value: An Unrivaled Yet Unrealized Public Health Opportunity. Ann Intern Med. 2007;146:602-605. doi: 10.7326/0003-4819-146-8-200704170-00011
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Published: Ann Intern Med. 2007;146(8):602-605.
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