Any time a healthcare facility considers investing in a new intervention - a medicine, a device, a piece of equipment, and even a training program - one of the first considerations will be cost effectiveness. The facility has a responsibility, both financial and ethical, to weigh the cost of an investment with the likelihood and extent of patient benefits. We would all love to live in a world where hospitals could invest in any and all interventions without thought as to cost and return on investment. Instead, we face a reality in which not only are financial resources limited, but also personnel, space, and even time are constrained. As a result, when millions of dollars and patients' lives are at stake, calculating cost effectiveness of an intervention has a lot on the line.
In the simplest of terms, cost effectiveness can be reduced to a 4-quadrant matrix answering the question "Should I invest in this intervention?"
Two out of the four options are easy to answer; the remaining two require a more detailed analysis. When evaluating cost effectiveness in healthcare, there are three key considerations. Each of these will paint a more detailed picture of the costs and benefits, assisting in making the best decision for a facility. In today's post we will explore the first consideration.
Whether or not an intervention is cost-effective has much to do with who's looking at the numbers and who is paying. Depending on the perspective you take, the burden of cost is not equal for every intervention. Which costs matter? It depends on who you ask.
The patient's perspective includes identifying how much of the intervention he or she must pay for, as well as the indirect costs such as time out of work, degree of disability, and even emotional costs such as pain and suffering. For example, a urinary tract infection may not add to the patient's costs, but the extended stay at the hospital may cost them in work opportunities.
The hospital's perspective includes cost of purchasing the actual intervention as well as related direct costs such as supplies, upkeep, staff training, and staff time - in comparison with the costs of not using the intervention, such as treatment not covered by insurance or Medicare/Medicaid, or even loss of reputation due to published outcomes.
Who is actually paying for this intervention - or bearing the costs of not having the intervention? In some cases, private health insurance would be the primary payer, while in others it is the healthcare facility, and still others it is the federal government through Medicare/Medicaid.
How do you avoid the bias implicit in each of these perspectives?
The narrower the perspective, the more bias will creep into a cost analysis. It is therefore the accepted approach to take the broadest perspective when determining healthcare cost effectiveness, called the societal perspective. From this vantage point, all amounts are considered in a balance of cost vs. benefit. A patient's quality of life is considered, as is the hospital's bottom line, as well as government reimbursements, and even insurance payments. A far more complicated calculation, for sure, but one that is more informative as well.
In upcoming posts, we will explore the remaining two elements of a cost effectiveness analysis: Determining the costs and measuring the effectiveness! Together, these three elements enable a facility to make an educated investment in the right intervention.
Editor's Note: This post was originally published in April 2017 and has been updated for freshness, accuracy and comprehensiveness.