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When It Comes to Healthcare, No One Runs the Cost Against the Benefits

A calculation of value cost/benefit analysis in healthcare is impossible. Cost is unknown and benefit is not measured. So, how can we know if we are getting good value for spending more than $3 trillion a year?

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In 1984, Wendy’s began a marketing campaign that was so successful, its slogan – “Where’s the beef?” – became an American icon.

It means, "show me the proof that I am getting what I paid for."

Photo Courtesy of Author.

When we buy a hamburger, we demand, “where’s the beef?” Yet when we consider purchasing the most important and expensive item of all, healthcare, no one demands the same kind of proof.

Determining Value

Most people measure value by comparing cost to benefit.

For that car you are considering, your cost is the sum of initial, long-term, and avoided costs. Benefits are things you want such as speed of transportation, miles per gallon, resale value, safety features, comfort, and bragging rights. You calculate cost/benefit and then decide whether you will buy a Ford, a Honda, a Mercedes, or take the bus.

You and I don’t do cost/benefit analysis in healthcare because we can’t. Washington doesn’t look at cost/benefit in healthcare because they would rather not expose the truth.

The reason you and I can’t assess cost/benefit is simple: We don’t know either the cost or the benefit. The true cost of anything, from cookies to open heart surgery, is the sum of all elements required to produce the product or service: Labor, material, overhead, capital, time, profit margin, etc.

That is not how cost is calculated in healthcare. What is reported as healthcare “cost” is a number that is allocated, back calculated, estimated, or projected, but not true cost. In healthcare, cost means spending.

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We cannot substitute price for cost because “price” means nothing in healthcare. Everywhere other than healthcare, price is the combination of true cost plus profit. Price is what you pay (but not in healthcare.)

I recently refilled my prescription for Flomax. The “price” was $184.12. I paid $21.15, and my insurance paid $34.54. So, the seller was paid a total of $55.54 or 30 percent of the price. These percentages vary widely depending on contractual arrangements. The true cost for Boehringer Ingelheim, the manufacturer of Flomax, is a number they do not share with the public.

So, what does price mean in healthcare?

When trying to measure value in healthcare – the amount of “beef” per dollar spent – we must substitute spending for cost in cost/benefit. And then things get worse.

There is no denominator at all for a cost/benefit calculation. When politicians, self-styled experts, and average Americans complain about excessive spending on healthcare, no one can say whether or not we are getting appropriate value for our $3.4 trillion that went to healthcare in 2012.

We Need To Know Benefit

To find out if we are getting value, we need a measurement of benefit, and not an indirect or interim one. When we demand proof of the presence of “beef,” we should not accept a picture of a burger nor the shipping order for the beef the burger joint says it bought. We require the taste in our mouths of the beef we just paid for.

The same principle applies in healthcare. We should not accept a doctor’s “performance” as a benefit any more than compliance with federal regulations or even an insurance card. Those are not the benefits that patients want. The benefit we want is improved health status, measured, not a promise from some politician or bureaucrat that you will feel better.

Before you “buy” a hip replacement, you should shout, “Where’s the beef?” That means you expect competing sellers of the service (and the hip device) to give you the following two pieces of information so you can determine your own spending/benefit ratio:

  1. What it will cost me directly and especially indirectly? Obamacare is an excellent examples with its increased direct cost of insurance premiums, and the much larger indirect cost of all the new taxes.
  2. What is the evidence of their past results for hip replacement in patients just like me? How much was mobility improved? What was the average hospital stay and recovery time? How long did the particular artificial hip they plan to insert last before it wore out: one year, ten years, until natural death? (Would you buy tires for your car without knowing average mileage before replacement will be needed again?)

Sovaldi: Good Value or Bad?

The notoriously expensive $1,000/pill anti-Hepatitis drug, Solvaldi, provides a good demonstration of how to decide where the beef–the value– is.

Consumer Reports calls it, “a prime example of big pharma’s we-charge-what-we-want syndrome.” A standard course of Sovaldi is 84 pills over three months. Therefore, the cost to the consumer is $84,000. (Actually, the consumer in the U.S. third party payment system pays only a tiny fraction. It is the entire pool of people who buy insurance that pays the bill.)

No, $84,000 is a very high cost ... okay, expense.

What is the value? What do we get for the same price as a Cadillac Escalade?

We get a cure - repeat: cure - of a disease that otherwise will cause liver failure, liver cancer, and will cost millions of dollars in palliative treatments before the patient eventually dies. When you include avoided cost in the value, and actually measure health benefits to the individual and to the population at large, it turns out that the huge expense is a great value.

Take Sovaldi?

•       Cost: $84,000

•       Benefit: Cure of Hepatitis

•       Value: Very good; hepatitis cured; large avoided cost

Don’t Take Sovaldi?

•       Cos: > $1 million for palliative treatments

•       Benefit: Liver failure, liver cancer, death

•       Value: Very poor; disease progresses; much more expensive

Who Should Do Cost/Benefit Analysis?

The kind of long-term cost/benefit analysis shown above should be done in healthcare both by individuals and by our government. Consider it their due diligence as our fiduciaries: We give them power (our money) and they are supposed to use it for our benefit. That is the definition of fiduciary.

Where is the cost/benefit analysis as described above for Congressional Acts such as:

  • Emergency Medical Transport and Active Labor Act (EMTALA) of 1986 that created the unfunded mandate. Cost/benefit analysis done Duke University did not link any proven health improvements to EMTALA’s substantial regulatory costs.
  • Health Insurance Portability and Accountability Act of 1995, that costs billions and increased the error rate in health care. Washington never even tried to perform a cost/benefit analysis that included benefit to patients’ health.
  • Obamacare (2010): Where is its spending/health-benefits determination, its “beef,” for all to see?

I wrote earlier that the government doesn’t want to do cost/benefit analysis in healthcare. Do you know why? The answer is simple, but actively suppressed by Washington and their media accomplices.

They know that if someone did accurate, evidence-based cost/benefit on the acts passed by Congress and for federal agencies they keep creating and expanding, it would become apparent how low the value is to We The People.

In healthcare, the unfortunate answer to “Where’s the beef?” is, there ain’t none.

Dr. Deane Waldman MD MBA is author of “The Cancer in the American Healthcare System;” Professor Emeritus of Pediatrics, Pathology and Decision Science; and Adjunct Scholar (Healthcare) for the Rio Grande Foundation, a public policy think tank. Dr. Deane also sits on the Board of Directors of the New Mexico Health Insurance Exchange, as Consumer Advocate. Opinions expressed here are solely his and do not necessarily reflect the opinions of the Board.

TheBlaze contributor channel supports an open discourse on a range of views. The opinions expressed in this channel are solely those of each individual author.

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