Printer Friendly

Cost-effectiveness and coverage policy. (Health Care Technology).


* Cost-Effectiveness Analyses

* Medical Coverage Policy

* Cost-Effectiveness as a Coverage Criterion

Cost-effectiveness analyses have become a pervasive element of health care. But they have not had a major impact on medical coverage policy. The challenge of implementing cost-effectiveness as a medical coverage criterion is related to the following issues: (1) Contract language does not include cost-effectiveness as a coverage criterion; (2) cost-effectiveness analyses often take the societal, population-based perspective. while health care is delivered on an individual basis; (3) there is no standard methodology for cost-effective analysis; (4) there is no explicit cut-off between cost-effective and cost-ineffective; and (5) cost-effectiveness analyses are not time sensitive.

Cost-effectiveness analyses have become a pervasive element of health care. Journal articles abound with references to cost-effectiveness methodology and medical services are frequently justified with the statement that they are costeffective. Coupled with the relentless concern over rising health care costs, one would presume that cost-effectiveness analyses have had a major impact on medical coverage policy. However, coverage policy has remained relatively unaffected by these analyses. What happened?

Certainly, cost containment has been a policy focus for everyone involved in health care, but the majority of these efforts have focused on eliminating waste In the system and restricting coverage for unproven technologies--for example, services that are considered either not medically necessary or investigational. In contrast, cost-effectiveness Is typically used as an adjunct in evaluating those services that have a proven medical value to determine whether the magnitude of the health benefit is justified by its cost or whether one intervention provides better value than another. Theoretically, a technology could be considered medically necessary on the basis of clinical data validating its effectiveness, but not cost-effective based on the high expense of achieving that benefit.

The challenge

The challenge of implementing cost-effectiveness as a coverage criteria Is related to the following issues.

1. Contract language does not include cost-effectiveness as a coverage criterion

All insured medical care can ultimately be traced back to the contract language. Contracts typically define coverage eligibility as services that are considered either medically necessary or investigational. Concepts of cost-effectiveness are rarely included as part of the contractual definitions of these terms. In 1989 the Health Care Financing Administration (HCFA) proposed including cost-effectiveness data as part of their coverage decision-making process, but no final regulations were ever published.

Occasionally, the definition of medical necessity will refer to cost-effectiveness, but typically in the very limited context of two technologies having identical health outcomes, with one being more expensive that the other. In this situation, a contract may indicate coverage is limited to the least expensive alternative. However, technologies are rarely identical and there may be some subtle difference that may result in an increased health benefit for a small subset of patients.

2. Cost-effectiveness analyses often take the societal, population-based perspective, while health care is delivered on an individual basis

Cost-effectiveness analyses are frequently reported as a cost-effectiveness ratio, with the health care cost as the numerator, and a unit of health benefit as the denominator. The health benefit is often expressed in terms of quality adjusted life years (QALY). When QALY is reported on a population basis, the health benefit Is calculated in terms of the mean, a figure that may not be relevant to the individual patient.

For example, preventive measures may be life saving for some patients, but ultimately totally irrelevant to others who never would have developed the disease, even without preventive therapy. Therefore, the mean increase in QALY significantly underestimates the benefit for the individual patient who would have developed the disease. In essence, there may be only a large benefit for a small number of people screened, but this subset can only be identified retrospectively.

The ongoing controversy regarding the recommendation for screening mammography for women aged 40-49 is an example. (1,2) Although much of the debate has focused on the effectiveness of mammography in this age group, lurking behind the discussion Is the associated cost-effectiveness. However, a 42-year old woman concerned about her risk of breast cancer may have no interest in knowing that the dollars spent for her screening mammography would be better spent in screening an older woman. Similarly, while physicians delivering health care may be well aware of the societal debate regarding the cost-effectiveness of mammography, the individual physician-patient relationship may be more compelling.

3. There is no standard methodology for cost-effective analysis

The debate regarding screening mammography has produced several different cost-effective analyses, each with a different outcome. For example, two 1995 studies suggested that screening mammography for women aged 40-49 would be considered cost-effective. Lindfors and Rosenquist suggested that screening mammography was associated with a marginal cost of life year saved of $20,000, while Feig estimated that screening would cost between $7,000 to $13,400 per life year saved, assuming that screening resulted in a 30 percent reduction in mortality rate. (3,4) More recently Salzmann and colleagues reported that the incremental cost of screening in the 40-49 year old group was $105,000 per life year saved. (5) These widely divergent results are difficult to reconcile for those not well-versed in cost-effective methodologies.

In 1996 the Panel on Cost-Effectiveness in Health and Medicine published a series of articles describing the optimal methodology for cost-effective analyses. (6-8) This panel produced a series of recommendations, including a checklist of optimal attributes of cost-effective analyses that hopefully will lead to a more consistent approach.

4. There is no explicit cut-off between cost-effective and cost-ineffective

Perhaps most importantly, there is no explicit mechanism to determine the cut-off point between something that is considered cost-effective and worth paying for and something that is not. Even with a flawless methodology that meets every standard for scientific validity, a major hurdle remains. The final analysis may let us know the extent of the resources required for a given health outcome, but how do we judge whether these resources are available?

In many instances, the cost-effectiveness of a new technology is based on a technology that has already been disseminated and accepted into medical practice. For example, in a 1998 discussion of screening mammography, Rosenquist and Lindfors stated, "Studies have shown that the cost effectiveness for screening mammography is similar to other generally accepted medical procedures." (9)

Similarly, in a cost-effective analysis of thrombolytic therapy with tissue plasminogen activator (t-PA) compared to streptokinase, the authors conclude, "The cost-effectiveness of treatment with accelerated t-PA rather than streptokinase compares favorably with that of other therapies whose added medical benefit for dollars spent is judged by society to be worthwhile." (10)

This relational interpretation of cost-effectiveness implies that the accepted technology has undergone a favorable cost effectiveness analysis, and in some cases incorrectly implies cost savings. Typically, this is not the case. Many of the technologies used for baseline comparison were disseminated in the "can do" era of the early 1980s when rapidly increasing health care costs were becoming increasingly apparent. Adopting these technologies had more to do with the technology imperative than any explicit determination of cost-effectiveness.

Another approach is to assign a relatively arbitrary number to define a favorable cost-effectiveness ratio. For example, in 1996 the American College of Cardiology published a summary of cost-effectiveness analyses of risk factor management of coronary heart disease. (11) Various strategies were rated as highly cost-effective (<$20,000 per QALY), relatively cost-effective ($20-30,000), borderline (>$40-60,000), or expensive (>$60-100,000). The authors state that at ratios below $20,000 per QALY, interventions are considered very cost-effective, while ratios above $75,000 would "not generate enthusiasm for an intervention unless there are reasons to believe that the analysis is not sufficiently comprehensive to represent the clinical decision adequately." They also believe that $40,000 per QALY may be a cut-off point accepted by many authors.

The National Osteoporosis Foundation used a novel approach in setting their $30,000 per QALY cut-off point in their cost-effectiveness analysis of prevention, diagnosis, and treatment of osteoporosis. (12) The authors state that if $30,000 per QALY were applied universally to all goods and services that affect the length and/or quality of life, it would consume the nation's entire gross domestic product, but no more." In other words, if society wanted to expend its entire resources on health care (a very generous assumption), $30,000 per QALY would represent the cut-off point between cost-effective and cost-ineffective.

This rationale assumes that our health care budget is limited only by the gross domestic product, but obviously a society cannot devote its entire resources to health care. Therefore, the $30,000 per QALY represents a maximum mean cost-effectiveness ratio for all interventions. Certainly some interventions are higher, some are lower, and many people do not require any medical interventions during a year. However, the $30,000 can be a useful yardstick and represents an explicit approach to evaluating cost effectiveness.

5. Cost-effectiveness analyses are not time sensitive

A very practical reality remains. Health plans must frequently develop coverage policy when a technology is introduced. At this early stage of its diffusion, cost-effectiveness analyses are typically not available. Additionally, cost effective analyses must be updated as costs change over time.


This discussion has focused on using cost-effectiveness in the narrow application of explicit coverage policy. Certainly high cost can stimulate policy development or prompt a more critical look at a new technology. When the issue is distilled down to the basic contractual issue of whether a medical service would be considered medically necessary or not. cost-effectiveness may not assume the prominent role many think it does.


The Blue Cross and Blue Shield Association is an association of independent, locally operated Blue Cross and Blue Shield Plans. The information presented in this column does not necessarily represent the policy or views of either the Association or any of the Plans.


(1.) Ranshoff, D.F., Harris, R.P. Lessons from the mammography screening controversy: Can we improve the debate? Ann Int Med. 1997. 127:1029-34.

(2.) Eddy. D.M. Breast cancer screening in women younger than 50 years of age: What's next? Ann Int Med, 1997. 11:1035-36.

(3.) Lindfors, K.K., Rosenquist, J. The cost-effectiveness of mammographic screening strategies. JAMA. 1995, 274:881-84.

(4.) Feig, S.A. Mammographic screening of women aged 40-49. Benefit, risk and cost considerations. Cancer. 1995. 76:2097-106.

(5.) Salzmann. P., Kerlikowke, K., Phillips. K. Cost-effectiveness of extending screening mammography guidelines to include women 40 to 49 years of age, Ann Int Med, 1997, 127:955-65.

(6.) Russell, L.B., Gold, M.R., Siegel. J.E. et al. The role of cost-effectiveness analysis in health and medicine, JAMA, 1996, 276:1172-77.

(7.) Siegel. J.E., Weinstein, M.C., Russell, L.B. et al. Recommendations for reporting cost-effectiveness analyses, JAMA. 1996. 276:1339-41.

(8.) Weinstein, M.C., Siegel. J.E., Gold, M.R., et al. Recommendations of the panel of onset-effectiveness in health and medicine, JAMA, 1996. 276:1253-1258.

(9.) Rosenquist, C.J., Lindfors, K.K. Screening mammography beginning at age 40 years. Cancer, 1998, 82:2235-40.

(10.) Mark, D.B., Hlatky, M.A., Califf. R.M. Cost-effectiveness of thrombolytic therapy with tissue plasminogen activator as compared with streptokinase for acute myocardial infarction, N Engl J Med, 1995, 332:1418-24.

(11.) Goldman. L., Garber. AM., Grover, S.A., Tlatky, M.A. Task Force 6. Cost-effectiveness of assessment and management risk factors, J Amer Coll Cardiol, 1996, 27:1020-1030.

(l2.) National Osteoporosis Foundation. Osteoporosis: Review of the evidence for prevention, diagnosis, and treatment and cost-effectiveness analysis, Osteoporosis Int. 1998, Suppl 4:1-87.

Elizabeth Brown, MD, is National Medical Consultant for the Blue Cross and Blue Shield Association in Chicago, Illinois. She can be reached by calling 312/297-6186 or via email at Elizabeth.

Karen Fitzner, PhD, is a health economist and President of Fiscal Health in Boston, Massachusetts. She can be reached by calling 617-557-6190 or via email at
COPYRIGHT 1999 American College of Physician Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1999, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Fitzner, Karen
Publication:Physician Executive
Geographic Code:1USA
Date:May 1, 1999
Previous Article:Becoming a company person. (Career Rx).
Next Article:Saving Medicare: premium supports. (Health Policy Update).

Related Articles
The role of cost-effectiveness analysis in health care decision-making.
Influencing clinical and coverage decisions in the '90s.
Health care: where do we go now?
Small area variation in the use of health care resources.
A small company: your personal responsibility.
Will health care get the vote?
Insurance mandates and health care costs: requiring insurance companies to cover certain services has defendants and opponents.
Consumer-directed health care: a panacea or the wrong prescription?
A dose of telemedicine: can use of broadband control health care costs?

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters