Cost-effectiveness Is the Beginning of the Trail to Wasteful Overuse

Matt Yglesias makes some good points.

Of course the ability to cure the blind could also lead to “higher health care costs” (cue threatening music). Most likely it won’t actually make “health care costs” much higher simply because the share of the population with severe retina damage is pretty small. But it’s still an amazing breakthrough. Restoring the sight of blind people is genuinely miraculous. And further technological breakthroughs to ameliorate more common ailments would be good things, not bad things. Which is why I don’t love the rhetoric of health care costs. Inefficiency is costly and we should strike to purge it from the system. But new cures may be expensive without being costly at all. Blindness is costly. Chronic low back pain is costly. Cancer is costly. Finding ways to treat these problems will likely lead to the expenditure of funds on the treatments, but that’s because the treatments are valuable.

This is not a new argument. I’ve made it, as have others. But it is an argument that gets lost in the standard rhetoric around health care and its costs (or spending, really). It’s a cost-effectiveness argument.

We think in cost-effectiveness all the time. Almost everything we buy increases our spending. A few things pay for themselves, but not many. So, when we consider a purchase, we weigh its cost to us against what we get for it — the pleasure, satisfaction, functionality, whatever. When it comes to health care, and other forms of social spending, often the effectiveness part of the equation gets lost. It becomes all about dollars.

What’s really silly is that if it really were all about dollars, if we had the courage of our convictions in our more shallow discussions of health care, we’d cut our spending. A lot. Because most of it is, on net, costly. Even the stuff that does us some good. But, deep down, we know you have to pay something to get something.

Now, here’s what Yglesias left out: The really insidious aspect of health care technologies he lauds is that they get overused. Sure, restoring sight to people with blindness, relieving back pain, finding and curing cancer are all good to the extent the technologies work relative to alternatives and to the extent they are applied to people who need them. But what you find is that the technology to restore sight is, decades later, enhancing the vision of those with 20-20 sight. You find the cure for back pain that involves advanced imaging isn’t any better than physical therapy, but it is now a multi-billion dollar industry. You find that cancer screening is being applied to people who are at very low risk of cancer and, as a result, that screening is actually causing harm and costing us a fortune.

You also find that Medicare, Medicaid, and private insurers are about equally impotent in getting ahead of this steam roller. Somehow good (and bad) stuff gets way overused. And we all pay.

So, yeah, I’m all for expanding cost-effectiveness health care technologies for populations that will derive benefit. But let’s be clear. This is the start of the trail that gets us to wasteful overuse. We’ve seen it thousands of times, across many types of health care. Using technology wisely and appropriately is precisely the problem our health care system is terrible at solving. Until we do that better, we’re going to remain very inefficient.

[Cross-posted at The Incidental Economist]

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Austin Frakt

Austin Frakt is a health economist and an assistant professor at Boston University's School of Medicine and School of Public Health. He blogs at The Incidental Economist.