Why Medical Bills Are a Mystery

By Robert S. Kaplan and Michael E. Porter
The New York Times, April 14, 2012
Rising health care costs are busting the federal budget as well as those of states, counties and municipalities. Policy makers and health care leaders have spent decades trying to figure out what to do about this.
Yet their solutions are failing because of a fundamental and largely unrecognized problem: We don’t know what it costs to deliver health care to individual patients, much less how those costs compare to the outcomes achieved.
Because health care charges and reimbursements have become disconnected from actual costs, some procedures are reimbursed very generously, while others are priced below their actual cost or not reimbursed at all. This leads many providers to expand into well-reimbursed procedures, like knee and hip replacements or high-end imaging, producing huge excess capacity for these at the same time that shortages persist in poorly reimbursed but critical services like primary and preventive care.
We are currently working with several health care organizations, including MD Anderson Cancer Center in Houston, Children’s Hospital Boston, Partners Healthcare in Boston and Schön Klinik in Germany, that are beginning to figure out how to measure costs. They use teams of clinicians and administrators to identify all the processes involved in care, from a patient’s first contact with a health care provider through his or her inpatient stay and outpatient follow-up care. The teams then identify the quantity and unit cost of each resource — clinical staff, equipment, supplies, devices and administrative support — used in each process and add these together to learn the total cost of a patient’s care.
Understanding costs could be the single most powerful lever to transform the value of health care.  This would give payers and providers the data they need to improve patient care, and to stop arbitrary cuts and counterproductive cost shifting.
http://www.nytimes.com/2012/04/15/opinion/sunday/why-medical-bills-are-a-mystery.html?_r=2

And…

The Big Idea: How to Solve the Cost Crisis in Health Care

By Robert S. Kaplan and Michael E. Porter
Harvard Business Review, September 2011
The Cost Measurement Process
1. Select the medical condition (including the associated complications and comorbidities).
2. Define the care delivery value chain (charts the principal activities involved in a patient’s care for a medical condition along with their locations).
3. Develop process maps of each activity in patient care delivery (include all the capacity-supplying resources – personnel, facilities, and equipment – involved at each process along the path; identify the consumable supplies such as medications, syringes, catheters, and bandages).
4. Obtain time estimates for each process (in the future, we expect providers will use electronic handheld, bar-code, and RFID devices to capture actual times).
5. Estimate the cost of supplying patient care resources (compensation for employees; depreciation or leasing of equipment, supplies, or other operating expenses; deducting time for teaching and research; identify support resources necessary to supply the primary resources providing patient care; allocate the costs of departments and activities that support the patient-facing work).
6. Estimate the capacity of each resource, and calculate the capacity cost rate (number of days that each employee actually works each year, number of hours per day that the employee is available for work, number of hours per workday used for nonpatient-related work, such as breaks, training, education, and administrative meetings; for equipment resources measure capacity by estimating the number of days per month and the number of hours per day that each piece of equipment can be used; factors such as peak load demands, surge capacity, and capacity acquired for future growth should be accounted for).
7. Calculate the total cost of patient care. (In the final step, the project team estimates the total cost of treating a patient by simply multiplying the capacity cost rates – including associated support costs – for each resource used in each patient process by the amounts of time the patient spent with the resource. Sum up all the costs across all the processes used during the patient’s complete cycle of care to produce the total cost of care for the patient.)
Reinventing Reimbursement
If we are to stop the escalation of total health care costs, the level of reimbursement must be reduced. But how this is done will have profound implications for the quality and supply of health care. Across-the-board cuts in reimbursement will jeopardize the quality of care and likely lead to severe rationing. Reductions that enable the quality of care to be maintained or improved need to be informed by accurate knowledge of the total costs required to achieve the desired outcomes when treating individual patients with a given medical condition.
The current system of reimbursement is disconnected from actual costs and outcomes and discourages providers and payors from introducing more cost-effective processes for treating patients. With today’s inadequate costing systems, reimbursement rates have often been based on historical charges. That approach has introduced massive cross subsidies that reimburse some services generously and pay far below costs for others, leading to excess supply for well-reimbursed services and inadequate delivery and innovation for poorly reimbursed ones.
Adjusting only the level of reimbursement, however, will not be enough. Any true health care reform will require abandoning the current complex fee-for-service payment schedule altogether. Instead, payors should introduce value-based reimbursement, such as bundled payments, that covers the full care cycle and includes care for complications and common comorbidities. Value-based reimbursement rewards providers who deliver the best overall care at the lowest cost and who minimize complications rather than create them. The lack of accurate cost data covering the full cycle of care for a patient has been the major barrier to adopting alternative reimbursement approaches, such as bundled reimbursement, that are more aligned with value.
We believe that our proposed improvements in cost measurement, coupled with better outcome measurement, will give third-party payors the confidence to introduce reimbursement methods that better reward value, reduce perverse incentives, and encourage provider innovation. As providers start to understand the total costs of treating patients over their complete cycle of care, they will also be able to contemplate innovative reimbursement approaches without fear of sacrificing their financial sustainability. Those that deliver desired health outcomes faster and more efficiently, without unnecessary services, and with proven, simpler treatment models will not be penalized by lower revenues.
(Robert S. Kaplan is a Baker Foundation Professor at Harvard Business School.)
(Michael E. Porter is the Bishop William Lawrence University Professor at Harvard. He is based at Harvard Business School.)
http://hbr.org/2011/09/how-to-solve-the-cost-crisis-in-health-care/ar/1

Robert Kaplan and Michael Porter are correct when they say that we need to understand costs rather than prices if we are to improve value in our health care spending. But is their approach on analyzing our costs an efficient method that can be applied throughout our health care system?
Kaplan and Porter propose that we abandon billing based largely on historical prices for itemized services and products. Instead they propose that we continue to focus on the patient as the unit of analysis, but that we should do it around the patient’s medical condition. As an example, they would ask how much does each cost factor contribute to the total cost, but not the price, of a total knee replacement?
When a hospital bills for services what we see are the prices, not the costs. Kaplan and Porter recommend a meticulous microanalysis to break the charges down to the hospital’s actual costs. However, when a hospital purchases supplies and services, the hospital’s costs are the prices they pay for those supplies and services which are certainly higher than the costs for those supplying those resources. Thus this distinction between price and cost can be quite blurred, in spite of their efforts to tease them out.
From the cost measurement process that they describe above, you can see that it requires an inordinate amount of microanalysis, using teams of clinicians and administrators. It is very labor intensive, yet would those costs be applied to the total cost of the given condition in a given patient? Would the total cost include the patient’s fraction of the liability insurance for the hospital? Or the patient’s fraction of the amortized building costs for the facility? Or the costs of the visitor parking lot for their families and friends to use? Or the costs of marketing to the community? You can see that fixed costs can be difficult to assign to specific patients, and marginal costs may be quite variable.
Further, how many medical conditions would need a separate analysis? Would a total knee replacement in a younger, healthy individual have the same itemized costs as the same procedure in a patient with multiple chronic disorders that would have to be monitored or managed during the admission? How many sub-classifications would you need for total knee replacement because of the varying status of each patient? Can patients really be categorized accurately enough to assign a specific package fee based on actual costs? Or would each patient have to undergo the laborious microanalysis of their use of supplies and services?
If you do not do such a microanalysis on each patient, then you still end up with an inequitable assignment of costs because of the variability of patients within the same clinical presentation category. By the time you define enough clinical presentations that take into consideration all of the variables, you have almost an encyclopedic list to choose from. Then would the total charge still represent the hospital’s actual costs plus margin in each and every case? Certainly the hospital’s various costs are not fixed in time but represent an ongoing dynamic. How often would you have to repeat these labor intensive studies to make sure that they were current and accurate?
The flaw in this approach is that we are trying to pay for health care by using market principles rather than approaching patients from a public service perspective. We are trying to assign specific complex costs and prices to single individuals with specific given medical conditions, like commodities in markets. This typifies our profoundly wasteful system of financing health care – especially the administrative waste.
There is a far better way. Pay hospitals based on global budgets, much like we do with police, fire, libraries and other public or quasi-public institutions. All reasonable costs are budgeted with appropriate adjustments for needs such as surge capacity and the provision of extraordinary services. Individuals receive appropriate services without regard to the actual costs of the specific services consumed by teach individual. Patients simply get what they need. Efficiencies are attained through the budgeting process. A large hospital in the United States requires hundreds of billing clerks and other personnel, whereas a globally budgeted hospital, as they have in Canada, requires very few billing personnel simply because the costs have been paid through a global budget.
Instead of using market principles with package prices for individuals based on meticulous cost analysis, we should dump the market nonsense and take advantage of the efficiency and equity of global budgeting of hospitals. That is really only possible if we get rid of our fragmented financing system and establish our own single payer national health program.

Prepared by Frank McArdle, Ian Stark, Zachary Levinson, and Tricia Neuman
Kaiser Family Foundation, April 2012
 
Key findings from this report include:
 
* For individuals ages 65 and older, Medicare is less generous on average than the comparison large  employer plans. The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value.

* Relative to the typical large employer PPO plan, Medicare provides somewhat more generous benefits for low-cost individuals ages 65 and older because of the relatively low Part B deductible for individuals who do not use inpatient care; however, Medicare is less generous than the typical large employer PPO plan for seniors with moderate and high costs. Similarly, relative to the FEHBP Standard Option, Medicare is slightly better for low-cost individuals ages 65 or older, but is notably less generous for moderate-cost individuals and somewhat less generous for high-cost individuals.

* Medicare’s average benefit value relative to the comparison employer plans has improved since we last conducted this analysis in 2007, largely because of the 50 percent discount on brand-name drugs in the Part D “doughnut hole” included in the 2010 health reform law, and also because the actuarial value of the FEHBP Standard Option has contracted over the past few years due to changes in its benefit design (mainly, the increase in the limit on out-of-pocket spending).  

From the Discussion

Medicare’s benefit value has nonetheless begun to approach the value of the comparison large employer plans, due in large part to the 50 percent discount on brand name drugs in Medicare brought about by health reform, as well as the contraction of the comparison employer plans’ benefit designs. The gap between Medicare and large employer plans could continue to narrow in the future as the health reform law phases in coverage in the “doughnut hole” or if employer coverage continues to erode.  
 
Adding a limit on out-of-pocket spending for inpatient and outpatient services and reducing deductibles would help to bring the Medicare benefit design in line with private large employer plans. The reverse is also true: increasing Medicare beneficiaries’ out-of-pocket costs – an idea floated during recent discussions about the national debt as a way achieve federal savings – could further widen the gap between Medicare and large employer plans and contribute to beneficiaries’ out-of-pocket spending burden.

http://www.kff.org/medicare/upload/7768-02.pdf

Comment:

By Don McCanne, MD

Supporters of a single payer national health program often refer to the model as “Improved Medicare for All.” This report demonstrates one of the more important reasons why we say that it needs to be improved. Medicare provides less value than the typical large employer PPO plan or the FEHBP Standard Option (the federal employees’ plan).

The largest difference is in the out-of-pocket spending. That difference is diminishing partly because of the increase in out-of-pocket costs for large employer and FEHBP plans (plus an improvement in the Medicare drug benefit). From a policy perspective, we are moving in the wrong direction. Deductibles and coinsurance should be eliminated from Medicare, and private plans, including FEHBP, should be eliminated altogether.

There are other reasons that Medicare needs to be improved. For example, it should be administered on a regional or state basis (with the support of federal funds) rather than by the federal government so that it is more responsive to local needs. The private Medicare Advantage plans should be eliminated because they reduce choice and waste funds. The Private Part D drug plans should be eliminated for the same reasons, folding the benefits into the publicly-administered program.

Incrementalists would suggest reducing deductibles and putting a limit on maximum out-of-pocket spending under Medicare, but if we’re going to fix Medicare, why not go for broke – an improved Medicare for everyone.

How does the benefit value of Medicare compare to the benefit value of typical large employer plans?  A 2012 update

Prepared by Frank McArdle, Ian Stark, Zachary Levinson, and Tricia Neuman
Kaiser Family Foundation, April 2012
Key findings from this report include:
* For individuals ages 65 and older, Medicare is less generous on average than the comparison large  employer plans. The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value.
* Relative to the typical large employer PPO plan, Medicare provides somewhat more generous benefits for low-cost individuals ages 65 and older because of the relatively low Part B deductible for individuals who do not use inpatient care; however, Medicare is less generous than the typical large employer PPO plan for seniors with moderate and high costs. Similarly, relative to the FEHBP Standard Option, Medicare is slightly better for low-cost individuals ages 65 or older, but is notably less generous for moderate-cost individuals and somewhat less generous for high-cost individuals.
* Medicare’s average benefit value relative to the comparison employer plans has improved since we last conducted this analysis in 2007, largely because of the 50 percent discount on brand-name drugs in the Part D “doughnut hole” included in the 2010 health reform law, and also because the actuarial value of the FEHBP Standard Option has contracted over the past few years due to changes in its benefit design (mainly, the increase in the limit on out-of-pocket spending).
From the Discussion
Medicare’s benefit value has nonetheless begun to approach the value of the comparison large employer plans, due in large part to the 50 percent discount on brand name drugs in Medicare brought about by health reform, as well as the contraction of the comparison employer plans’ benefit designs. The gap between Medicare and large employer plans could continue to narrow in the future as the health reform law phases in coverage in the “doughnut hole” or if employer coverage continues to erode.
Adding a limit on out-of-pocket spending for inpatient and outpatient services and reducing deductibles would help to bring the Medicare benefit design in line with private large employer plans. The reverse is also true: increasing Medicare beneficiaries’ out-of-pocket costs – an idea floated during recent discussions about the national debt as a way achieve federal savings – could further widen the gap between Medicare and large employer plans and contribute to beneficiaries’ out-of-pocket spending burden.
http://www.kff.org/medicare/upload/7768-02.pdf

Supporters of a single payer national health program often refer to the model as “Improved Medicare for All.” This report demonstrates one of the more important reasons why we say that it needs to be improved. Medicare provides less value than the typical large employer PPO plan or the FEHBP Standard Option (the federal employees’ plan).
The largest difference is in the out-of-pocket spending. That difference is diminishing partly because of the increase in out-of-pocket costs for large employer and FEHBP plans (plus an improvement in the Medicare drug benefit). From a policy perspective, we are moving in the wrong direction. Deductibles and coinsurance should be eliminated from Medicare, and private plans, including FEHBP, should be eliminated altogether.
There are other reasons that Medicare needs to be improved. For example, it should be administered on a regional or state basis (with the support of federal funds) rather than by the federal government so that it is more responsive to local needs. The private Medicare Advantage plans should be eliminated because they reduce choice and waste funds. The Private Part D drug plans should be eliminated for the same reasons, folding the benefits into the publicly-administered program.
Incrementalists would suggest reducing deductibles and putting a limit on maximum out-of-pocket spending under Medicare, but if we’re going to fix Medicare, why not go for broke – an improved Medicare for everyone.

Quote of the Day comment by Don McCanne
PNHP, December 21, 2010

As far as setting a threshold for selecting the level of unreasonable premium increases which would be reviewed, Health and Human Services (HHS) has decided that plans with less than 10 percent premium increases would not be reviewed. That is a level well in excess of measures of medical cost inflation. Imagine compounded premium increases of 9.99 percent per year on top of premiums that are already unaffordable.

An improved Medicare for all… has to be better than a 9.9 percent compounded increase in premiums that we would be mandated to pay to the perverse, intrusive private insurance industry.

https://pnhp.org/news/2010/december/is-hhs-serious-about-controlling-insurance-premiums

And…

Small Comfort: Health Care Costs Projected to Increase Less Than 10 Percent, First Time in Decade

Buck Consultants, A Xerox Company
April 5, 2012

Costs for all types of medical plans are expected to increase by 9.9 percent for 2012, according to a survey by Buck Consultants, A Xerox Company (NYSE: XRX).

In a national survey of 129 insurers and administrators, Buck measured the projected average annual increase in employer-provided health care benefit costs. Insurers and administrators providing medical trends for the survey cover a total of approximately 109 million people.

Health insurers use trend factors to calculate premium rates, and large self-funded employers use these trend factors to budget their future health care costs.

Buck’s National Health Care Trend – 24th Survey

9.9% – Preferred Provider Organization (PPO)

9.9% – Point-of-service (POS)

9.9% – Health Maintenance Organization (HMO)

9.9% – High Deductible Health Plan (HDHP)

http://www.buckconsultants.com/portals/0/publications/press-releases/PR-2012-NHCTS.pdf

Comment: 

By Don McCanne, MD

Buck Consultants has completed a survey of insurers and administrators showing that each and every form of employer-provided health plan is projecting cost increases of 9.9 percent. Is it a mere coincidence that all of these increases are just below the 10 percent threshold for subjecting insurance premium rate increases to federal government review?

Even though many employers self-fund their plans, the 9.9 percent figure supposedly represents projected increases in total medical plan costs for this year, and not just increases in health care costs. In recent decades, health care spending has increased at rates about 2 percent higher than the growth of GDP which ideally grows at a rate between 2 and 4 percent. The combined total is still less than the increases in insurance premiums, now pegged at about 9.9 percent.

How long can we anticipate having government-sanctioned 9.9 percent annually-compounded private insurance rate increases?

Regardless, isn’t it time that we eliminate employers and private insurers as intermediaries in our health care financing? We would give ourselves a much better deal through our own public financing system.

Is HHS serious about controlling insurance premiums?

Quote of the Day comment by Don McCanne
PNHP, December 21, 2010
As far as setting a threshold for selecting the level of unreasonable premium increases which would be reviewed, Health and Human Services (HHS) has decided that plans with less than 10 percent premium increases would not be reviewed. That is a level well in excess of measures of medical cost inflation. Imagine compounded premium increases of 9.99 percent per year on top of premiums that are already unaffordable.
An improved Medicare for all… has to be better than a 9.9 percent compounded increase in premiums that we would be mandated to pay to the perverse, intrusive private insurance industry.
https://pnhp.org/news/2010/december/is-hhs-serious-about-controlling-insurance-premiums

And…

Small Comfort: Health Care Costs Projected to Increase Less Than 10 Percent, First Time in Decade

Buck Consultants, A Xerox Company
April 5, 2012
Costs for all types of medical plans are expected to increase by 9.9 percent for 2012, according to a survey by Buck Consultants, A Xerox Company (NYSE: XRX).
In a national survey of 129 insurers and administrators, Buck measured the projected average annual increase in employer-provided health care benefit costs. Insurers and administrators providing medical trends for the survey cover a total of approximately 109 million people.
Health insurers use trend factors to calculate premium rates, and large self-funded employers use these trend factors to budget their future health care costs.
Buck’s National Health Care Trend – 24th Survey
9.9% – Preferred Provider Organization (PPO)
9.9% – Point-of-service (POS)
9.9% – Health Maintenance Organization (HMO)
9.9% – High Deductible Health Plan (HDHP)
http://www.buckconsultants.com/portals/0/publications/press-releases/PR-2012-NHCTS.pdf

Buck Consultants has completed a survey of insurers and administrators showing that each and every form of employer-provided health plan is projecting cost increases of 9.9 percent. Is it a mere coincidence that all of these increases are just below the 10 percent threshold for subjecting insurance premium rate increases to federal government review?
Even though many employers self-fund their plans, the 9.9 percent figure supposedly represents projected increases in total medical plan costs for this year, and not just increases in health care costs. In recent decades, health care spending has increased at rates about 2 percent higher than the growth of GDP which ideally grows at a rate between 2 and 4 percent. The combined total is still less than the increases in insurance premiums, now pegged at about 9.9 percent.
How long can we anticipate having government-sanctioned 9.9 percent annually-compounded private insurance rate increases?
Regardless, isn’t it time that we eliminate employers and private insurers as intermediaries in our health care financing? We would give ourselves a much better deal through our own public financing system.

An Analysis Of Whether Higher Health Care Spending In The United States Versus Europe Is ‘Worth It’ In The Case Of Cancer

Tomas Philipson, Michael Eber, Darius N. Lakdawalla, Mitra Corral, Rena Conti and Dana P. Goldman
Health Affairs, April 2012
The United States spends more on health care than other developed countries, but some argue that US patients do not derive sufficient benefit from this extra spending. We studied whether higher US cancer care costs, compared with those of ten European countries, were “worth it” by looking at the survival differences for cancer patients in these countries compared to the relative costs of cancer care. We found that US cancer patients experienced greater survival gains than their European counterparts; even after considering higher US costs, this investment generated $598 billion of additional value for US patients who were diagnosed with cancer between 1983 and 1999. The value of that additional survival gain was highest for prostate cancer patients ($627 billion) and breast cancer patients ($173 billion). These findings do not appear to have been driven solely by earlier diagnosis. Our study suggests that the higher-cost US system of cancer care delivery may be worth it, although further research is required to determine what specific tools or treatments are driving improved cancer survival in the United States.
Cancer Survival
Survival data for patients diagnosed with cancer were obtained from the Surveillance, Epidemiology, and End Results (SEER) database for the United States and from the EUROCARE (European Cancer Registry on Survival and Care of Cancer Patients) databases for countries in Europe.
Twenty-three countries are included in the EUROCARE databases, but only ten reported data consistently over the 1983–99 period: Finland, France, Germany, Iceland, Norway, Scotland, Slovakia, Slovenia, Sweden, and Wales. Our analysis relies on these ten countries, which account for 36 percent of the total European Union population. – Additionally, whereas most of the European countries we analyzed are covered by national registries that include the full population of each country, coverage from France and Germany is based on regional registries, which might not fully represent the experience of these countries.
The term survival gains refers to increases in years of life expectancy from cancer diagnosis seen over time. We decided to focus on examining survival gains over time because doing so provides insight into the progress that countries have made relative to their own baselines
Value Of A Statistical Life
A statistical life worth $5–$12 million equates to $150,000–$360,000 for each statistical life-year. We conservatively chose a value of $150,000 per life-year for our survival calculations.
Costs Of Cancer Care
These costs include expenses associated with treatment, including radiation and drug regimens, as well as diagnosis, such as mammography and prostate-specific antigen screening.
Net Value Calculations
To calculate the value of survival gains in the United States relative to that in the European countries, we subtracted the additional costs of care in the United States from the value of additional US survival gains expressed as gains in years of life expectancy.
Sensitivity Analysis: Population Mortality Rates
Next, we examined changes in cancer-specific population mortality rates in the United States and Europe. We used the World Health Organization Cancer Mortality Database to address the question of whether our conclusions are a result of earlier diagnoses and hence do not necessarily reflect improvement in life expectancy.
For example, if cancer cases are simply detected six months earlier, with no corresponding change in patients’ prognosis, it may still appear that survival from the date of diagnosis has risen by six months. This illusory gain in survival is known as lead-time bias. However, simply diagnosing people earlier would have no effect on the rate at which people die from disease.
By analyzing population mortality rates, which are insensitive to lead-time bias, we show that US cancer mortality rates fell faster than cancer mortality rates in the European Union. This must be due to real improvements in cancer survival (see the Technical Appendix for further explanation of this approach).
Results
Value Of Cancer Survival
For cancer patients diagnosed during 1995–99, adjusted average survival was 11.1 years from diagnosis in the United States, compared with 9.3 years from diagnosis among the European countries—a difference of 1.8 years. This difference reflected higher US survival levels for most cancer types, with the exception of chronic myeloid leukemia, acute myeloid leukemia, Hodgkin’s lymphoma, and testicular cancer, for which the European countries experienced improved survival. All survival differences were statistically significant except for those for Hodgkin’s lymphoma and thyroid cancer.
Costs Of Cancer Care
Meanwhile, US spending on cancer care, in 2010 US dollars, increased from $47,000 per cancer case to $70,000 per case from 1983 through 1999—a 49 percent increase. In the ten European countries, spending on cancer care in 2010 US dollars increased from $38,000 per cancer case to $44,000—a 16 percent increase.
Net Social Value
The net value of US survival gains in excess of European survival gains… was $61,000 on average, ranging between $51,000 and $94,000 over the seventeen-year analysis period.
Sensitivity Analysis: Population Mortality Rates
To examine the effect of earlier diagnosis on the value of additional survival gains—the lead-time bias—we also looked at population mortality rates for cancer over time in the United States and in Europe, which are not sensitive to changes in the time of cancer diagnosis. According to this analysis, cancer mortality rates fell faster in the United States than in the ten European countries over a similar time period, 1982–2005.
For example, faster declines in population mortality rates in the United States corresponded to 222,000 prostate cancer deaths averted and 87,000 breast cancer deaths averted in that time period. Converting the declines in mortality rates into gains in life expectancy showed a gain of 1.8 years in life expectancy for prostate cancer patients and a gain of 0.8 years in life expectancy for breast cancer patients. This suggests that lead-time bias did not confound our results (see the Technical Appendix for further discussion).
Discussion
The high costs of cancer care in the United States are frequently cited as evidence of a poorly functioning health care system, compared to those of other developed countries. Using conservative market estimates of the value of a statistical life, this study presented evidence that US cancer survival gains are worth more than the corresponding growth in the cost of US cancer care according to the most recent data available for analysis, 1983–99.
Our sensitivity analyses demonstrated that our findings are probably not confounded by lead-time bias. Overall, we found that the United States generated more than $500 billion of additional value for cancer patients, net of its higher costs of treatment.
http://content.healthaffairs.org/content/31/4/667.abstract
Technical Appendix to this article
Population Mortality Rates
Measures of survival from cancer diagnosis may be influenced by changes in the reference point of cancer diagnosis associated with increased screening. This would serve to inflate estimates of improvements in patient outcomes as measured by survival. Consider as an example a completely untreatable cancer that is typically detected 24 months before patient death. A new technology that detects this cancer 36 months until death would appear to increase survival by 12 months, even though the actual prognosis is unchanged for these patients. This is a phenomenon often referred to as “lead-time bias” in the epidemiological literature. Note that this new detection technology would not change the rate at which people die from this cancer. As a result, population mortality rates are not sensitive to lead time bias or its sources.
If US data show both survival gains and mortality reductions, this is likely to reflect real improvements in health; the alternative interpretation requires a scenario in which the diagnosis rate is rising in the US while the actual number of cancer cases is falling.
Appendix Table 1 shows changes in mortality rates in the US over 1982-2005 in excess of changes observed in European countries by cancer site. Additionally, the corresponding numbers of deaths are shown. For prostate cancer, the US experienced an additional reduction of 15.8 deaths per 100,000 male population relative to Europe over the period 1982-2005, which corresponded to 222,000 deaths averted. For breast cancer, US trends in population mortality corresponded to 87,000 deaths averted. In contrast with the survival analysis, the US exhibited more rapid improvement in colorectal cancer mortality rates than European countries. Stomach cancer mortality rates exhibited substantially more rapid declines in the European countries examined; however US mortality rates for stomach cancer remained lower than rates for any European country included in the analysis, despite the slower observed declines.
In addition, we calculated, using the declines in mortality rates estimated from the model, as well as US mortality rates obtained from CDC National Vital Statistics Reports, the expected change in life expectancy for prostate and breast cancer patients associated with the declines in population mortality rates to compare with the results of the primary survival analysis. We examined the average rate of deaths averted over the analysis period 1982-2005 for both prostate cancer and death cancer. This corresponded to 385 prostate cancer deaths averted per 100,000 prostate cancer cases and 139 prostate cancer deaths averted per 100,000 breast cancer patients. Additionally, we calculated the total US death rate from prostate cancer in 2005 to be 1380 deaths per 100,000 prostate cancer cases and the total death rate from breast cancer to be 1850 deaths per 100,000 breast cancer patients. We assumed a prevalence of 2,400,000 prevalent prostate cancer cases in the United States and 2,600,000 breast cancer cases in the US based on estimates from US SEER data. Assuming a constant risk of death, these methods imply that the additional mortality rate reductions observed in the US corresponded to a gain of 1.8 years in life expectancy for prostate cancer patients and a gain in life expectancy of survival of 0.8 year for breast cancer patients.
Appendix Table 1: US Changes in Population Cancer Mortality Rates Relative to European Changes, 1982-2005
Listed for each cancer are the additional deaths avoided (incurred) in US, with the P value for change in US death rates in excess of EU change
Breast  86,913  (0.001)
Colorectal  281,932  (0.07)
Hodgkin  -8,025  (<0.001)
Leukemia  23,347  (0.64)
Melanoma  15,050  (0.04)
NHL  67,826  (0.001)
Prostate  221,747  (<0.001)
Stomach  -224,212  (0.001)
Testis  -4,175  (0.08)
Thyroid  -11,556  (<0.001)
Uterus  14,990  (0.76)
http://content.healthaffairs.org/content/suppl/2012/04/09/31.4.667.DC1/2011-1298_Philipson_Appendix.pdf

And…

Is high spending on cancer care ‘worth it’?

By Sharon Begley
Reuters, April 9, 2012
With the United States spending more on healthcare than any other country — $2.5 trillion, or just over $8,000 per capita, in 2009 — the question has long been, is it worth it? At least for spending on cancer, a controversial new study answers with an emphatic “yes.”
Cancer patients in the United States who were diagnosed from 1995 to 1999 lived an average 11.1 years after that, compared with 9.3 years for those in 10 countries in Europe, researchers led by health economist Tomas Philipson of the University of Chicago reported in an analysis published Monday in the journal Health Affairs.
Philipson is a fellow at the conservative American Enterprise Institute and at the Manhattan Institute, served in the administration of President George W. Bush and was a healthcare adviser to Sen. John McCain’s 2008 presidential campaign.
Experts shown an advance copy of the paper by Reuters argued that the tricky statistics of cancer outcomes tripped up the authors.
“This study is pure folly,” said biostatistician Dr. Don Berry of MD Anderson Cancer Center in Houston. “It’s completely misguided and it’s dangerous. Not only are the authors’ analyses flawed but their conclusions are also wrong.”
For the new analysis, Philipson and his colleagues analyzed the survival of cancer patients diagnosed from 1983 to 1999 with any of 13 common cancers, including breast, prostate, colorectal, and leukemias.
Survival means how long a patient lived after being diagnosed. Philipson’s team focused in particular on survival gains; that is, how long did patients diagnosed in later years live compared with those diagnosed earlier in the period? Such gains, they argued, show what progress countries made in treating cancer.
While that may seem straightforward, survival data is among the most problematic cancer statistics, Philipson’s team acknowledges. In particular, they are plagued by something called lead-time bias.
If a tumor is diagnosed very early in its existence – if it has a long “lead time” – the patient may survive, say, two years if the tumor is very aggressive. If an identical tumor is found in that patient’s identical twin later, the twin will survive, say, six months. But the twins die at the same age. The first survived longer with cancer due to lead-time bias, but did not have a longer lifetime.
Crediting medical care with “improving survival” is therefore misleading, cancer experts have long argued. Lead-time bias makes it seem patients live longer, but the only thing that is longer is the number of years they know they have cancer, not their lifespan.
The authors of the “worth it?” study nevertheless base their analysis on survival data. They argue that because U.S. cancer mortality rates fell faster than those in Europe, the survival gains must be real and not an artifact of lead-time bias.
Others call that approach fatally flawed. “Lead-time bias is an issue,” said MD Anderson’s Berry. “I can see no hint of logic in their statement that ‘lead-time bias did not confound our results.'”
Even more problematic, said Berry, is a problem cancer experts have only recently recognized: overdiagnosis. Because cancer screening is much more widespread in the United States than in Europe, especially for breast and prostate cancer, “we find many more cancers than are found in Europe,” he said. “These are cancers that tend to be slowly growing and many would never kill anyone.”
Screening therefore turns thousands of healthy people into cancer patients, even though their tumor would never threaten their health or life. Counting these cases, of which there are more in the United States than Europe, artificially inflates survival time, experts said.
“As long as your calculation is based on survival gains, it is fundamentally misleading,” said Dr. H. Gilbert Welch, a healthcare expert at the Dartmouth Institute for Health Policy & Clinical Practice.
n the new analysis, the survival gains in the United States compared with Europe were greatest for prostate cancer, at more than triple the gains for breast cancer, the cancer with the second-greatest U.S. survival edge. “These are the two cancers where screening has raised the most serious issues about lead-time bias and overdiagnosis,” said Welch.
http://www.reuters.com/article/2012/04/09/us-cancercare-idUSBRE8380SA20120409

And…

Considering When It Might Be Best Not to Know About Cancer

By Gina Kolata
The New York Times, October 29, 2011
After decades in which cancer screening was promoted as an unmitigated good, as the best — perhaps only — way for people to protect themselves from the ravages of a frightening disease, a pronounced shift is under way.
Now expert groups are proposing less screening for prostate, breast and cervical cancer and have emphasized that screening comes with harms as well as benefits.
Two years ago, the influential United States Preventive Services Task Force, which evaluates evidence and publishes screening guidelines, said that women in their 40s do not appear to benefit from mammograms and that women ages 50 to 74 should consider having them every two years instead of every year.
This year the group said the widely used P.S.A. screening test for prostate cancer does not save lives and causes enormous harm.
Two recent clinical trials of prostate cancer screening cast doubt on whether many lives — or any — are saved
A new analysis of mammography concluded that while mammograms find cancer in 138,000 women each year, as many as 120,000 to 134,000 of those women either have cancers that are already lethal or have cancers that grow so slowly they do not need to be treated.
Cancer experts say they cannot ignore a snowballing body of evidence over the past 10 years showing over and over that while early detection through widespread screening can help in some cases, those cases are small in number for most cancers. At the same time, the studies are more clearly defining screening’s harms.
In recent years, researchers have found that many, if not most, cancers are indolent. They grow very slowly or stop growing altogether. Some even regress and do not need to be treated — they are harmless.
http://www.nytimes.com/2011/10/30/health/cancer-screening-may-be-more-popular-than-useful.html?ref=preventiveservicestaskforce
And…

Critical Diagnosis

By Tomas J. Philipson, Paul Howard
American Enterprise Institute, February 2, 2010
But the U.S. commitment to fighting cancer is second to none. We have recently documented enormous societal gains from the war on cancer. We found that from 1988 to 2000 life expectancy for all cancers combined increased by about four years–translating to about 23 million additional life-years and roughly $1.9 trillion of added social value of cancer care, even after subtracting research costs and spending on medical care for cancer patients.
The U.S. experience greatly contrasts with Europe’s, where centralized government funding for cancer care and price controls on new medicines have slowed the battle against cancer, leading to worse outcomes for patients. In a recent study demographers Samuel H. Preston and Jessica Yu documented that the U.S. outperforms almost all European countries in its cancer screening and treatment efforts.
It is important to recognize that innovation and access to care are complementary, not contradictory goals. Rather than opting for an expensive new insurance entitlement that the nation cannot afford, Congress’ main objective should be to help those who cannot afford health care, not take over the market for those who can. Stimulating the demand of the low-income uninsured is a laudable goal and is pro-innovation since it raises demand. Restricting care for those who can afford it by using government price controls to strong-arm producers is not. Cancer serves as a great example of the value of the U.S. model over the European model. In health care, as in most other markets, you get what you pay for.
http://www.aei.org/article/health/healthcare-reform/private-insurance/critical-diagnosis/

And…

We Can’t Lose Our Global Leadership In Medical Innovation

By Tomas Philipson
FOXNews.com, April 23, 2010
Because the most significant components of Obamacare do not take effect for several years, there is still time to reshape it, both to expand affordable safety-net coverage and encourage innovation. But first we must reject the common assumption that the only form of solidarity worth pursuing is universal coverage – the “right” for all citizens, regardless of their means, to access low-cost medical care. Instead, we must emphasize our solidarity with future generations. Whatever short-term benefits in coverage reforms might bring, our children and grandchildren will inevitably pay the price if the U.S. adopts European-style price controls at the cost of the medical innovations that have done so much for the world.
http://www.foxnews.com/opinion/2010/04/23/tomas-philipson-obamacare-health-care-europe-medical-innovation/

This widely-reported study suggests that the high costs for cancer care in the United States are well worth it, providing $800 billion in the value of additional survival gain for prostate and breast cancers alone. A critical review of this study casts great doubt on this conclusion.
The authors purport to show that cancer care in the United States accounts for increased survival time compared to ten selected European nations, and that this benefit is valued at $150,000 per additional year of survival.
It is important to understand the difference between survival and mortality. Survival relates to how long a person lives after the diagnosis of cancer is made. Mortality refers simply to how long a person lives. Lead time refers to how much of a head start a person gets on cancer treatment based on how early in its course it is diagnosed.
Having a survival of five years doesn’t mean much if mortality is unchanged. A group of individuals with the same cancer who die at the same time have the same mortality, yet if some have the cancer diagnosed earlier than the others, the five year survival is better for those diagnosed earlier even though the duration of life is not extended.
In this study the authors decided to look at survival rather than mortality in spite of problems with the lead time. They provide an Appendix which purportedly shows that “By analyzing population mortality rates, which are insensitive to lead-time bias, we show that US cancer mortality rates fell faster than cancer mortality rates in the European Union. This must be due to real improvements in cancer survival.”  Thus they contend that their estimates of survival were reflected in an improvement in mortality.
Having read their Appendix several times, I remain unconvinced of this argument. In fact, contained in their Appendix was the statement, “We examined the average rate of deaths averted over the analysis period 1982-2005 for both prostate cancer and death cancer.” Death cancer? The fact that this was published on the Health Affairs website without correction makes me wonder if anyone really read their Appendix critically.
Assuming that it was reviewed (though not by the Health Affairs editors), let’s look at Appendix Table 1 which purportedly shows the improved mortality in the United States compared to nine European nations. Of the eleven cancers listed, four showed additional deaths that were supposedly avoided, three showed additional deaths that actually were incurred, and the other four were not statistically significant at a p value of .05. Removing breast and prostate cancer for reasons mentioned below, that leaves only two cancers with additional deaths that were supposedly avoided. Not very convincing evidence for lower U.S. cancer mortality to say the least.
The two cancers that the authors highlighted were breast cancer and prostate cancer. According to H. Gilbert Welch (a highly credible authority from the Dartmouth Institute for Health Policy, and author of “Overdiagnosed”), “These are the two cancers where screening has raised the most serious issues about lead-time bias and overdiagnosis.”
Even the authors of the Health Affairs report state, “If US data show both survival gains and mortality reductions, this is likely to reflect real improvements in health; the alternative interpretation requires a scenario in which the diagnosis rate is rising in the US while the actual number of cancer cases is falling.” In fact, because of an increase in intensive screening, the diagnosis rate is rising, whereas the very large number of cancers detected that would have remained harmless  – especially many of the prostate and breast cancers – in a way might be considered to be a decline since, with no change in survival or mortality, these individuals more appropriately should have been classified with the population group without cancer, and never counted as cancer patients in the first place. Treatment of these harmless cancers certainly should not be counted as having increased cancer survival in the United States.
Regarding the integrity of this study, of some concern is that one of the authors, Mitra Corral, is an employee of Bristol-Myers Squibb, a company that produces cancer drugs and could benefit from the high visibility that Health Affairs gives this article touting the financial benefits of our higher spending on cancer care.
Of greater concern is the background of the lead author, Tomas Philipson, who is associated with conservative think tanks – specifically the American Enterprise Institute and the Manhattan Institute. These and other conservative sources have been dismissing health care reform with the claim that we don’t need reform because we have the best health care system in the world. They then use our “superior” cancer statistics to prove it. Because our system is so great, the implication is that we don’t need to fix it. Is this policy science, or is it ideological demagoguery?
With reluctance, we might accuse Professor Philipson of allowing his ideology to tarnish his academic purity, but we don’t have to. His own words will suffice, “But first we must reject the common assumption that the only form of solidarity worth pursuing is universal coverage – the ‘right’ for all citizens, regardless of their means, to access low-cost medical care. Instead, we must emphasize our solidarity with future generations. Whatever short-term benefits in coverage reforms might bring, our children and grandchildren will inevitably pay the price if the U.S. adopts European-style price controls at the cost of the medical innovations that have done so much for the world.”