Clinicians: Beware the Claim of Cost-Effectiveness

Brad Spellberg, MD


February 28, 2017

Market Forces and Cost-Efficacy

What affects one affects others. Returning to our case, the clinician in practice should understand that despite being cost-effective from a societal standpoint, outpatient use of sacubitril/valsartan may cost patients more money annually in deductibles, and markedly increase societal costs because the drug is expensive and the disease is common. Costs reduced in one area affect services elsewhere. Likewise, the use of oritavancin will not save money for the patient or the hospital, and will potentially increase patient costs and reduce revenue to the hospital. Such arguments are not likely to be persuasive to formulary committees, which bear a fiduciary responsibility to their institution or health plan.

Companies selling products typically set their prices to achieve as high a societal cost-efficacy outcome as the market will bear. Published cost-efficacy analyses are rarely negative (ie, they rarely find an absence of cost-effectiveness), in part because the price set by the manufacturer is selected so that it meets the maximum accepted societal benchmark for cost-efficacy (eg, $50,000 per QALY saved).

When society is willing to pay for cost-effective, cost-adding drugs, there is no incentive for products to be priced lower to achieve cost reduction. This can lead to an upward "death spiral" of healthcare costs, in which costs continually rise because new products are encouraged to be priced to add, rather than reduce, healthcare costs. Eventually, society will run out of money, no matter how much it wants the benefit of the next, new technology.

The fact that peer-reviewed publications have deemed new agents, such as sacubitril/valsartan and oritavancin, cost-effective does not mean that you will save anyone money by using them. The bottom line is that providers need to understand that "cost-effective" is very different from "cost-reducing," and that most technologies are intentionally priced to add cost to society up to the limits of tolerance arbitrarily set by society.

Furthermore, cost-efficacy analyses usually consider costs from a societal perspective—not from a patient, provider, or hospital perspective. Such analyses are typically not informative to individual clinicians in practice seeking to make optimal healthcare decisions, nor are they particularly helpful for doctors' offices or hospitals that have to bear the costs of the new technology when they determine formulary or supply chain status.


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