The (Irresistible) Rise of “Shadow” Cost-Effectiveness Analysis?

Although public and private health care payers officially eschew the use of formal cost-effectiveness Memorial Sloan Kettering Cancer Center decided not to give patients Zaltrap (a drug) for late-stage colorectal cancer due to cost concerns; at least three health insurance companies, including most recently Blue Shield of California, have decided not to cover proton beam therapy for early-stage prostate cancer due to its high price. These decisions symbolize that “shadow” cost effectiveness analysis, whereby payers make informal value calculations based on the price and efficacy of a treatment, may become an increasingly common feature of the payment landscape. 
analysis in approving medical treatments, a growing number of examples illustrate that cost-effectiveness principles are seeping into medical decision making. Indeed,

It should be noted that payers have likely made similar calculations during initial coverage decisions: health insurance companies and hospitals have historically negotiated with drug makers and medical device manufacturers on price and value compared to existing treatments. Blue Shield California, however, has agreed not to cover proton beam therapy any longer due to cost concerns, although that reasoning is not complete: the decision is based on the therapy’s inability to demonstrate equal or better outcomes, while boasting a price tag several times above the benchmark treatment modality.  As Marcus Thygeson, the senior vice president and chief health officer at Blue Shield of California, stated in a letter to oncology and radiology practices in the state:

“The preponderance of medical evidence clearly shows that the treatment has about the same clinical outcomes as other forms of radiation, but it’s a lot more expensive…because it’s not cost effective, we’re not going to cover it.”

The rise of shadow cost effectiveness analysis is not surprising in the current economic environment.  While there are still strident concerns regarding overall spending on medical care, even as cost growth has moderated during the recession, substantial pressure exists at the firm level (e.g., insurance plans and hospitals) as margins compress and risk-sharing agreements increase.

The fragmented nature of the nation’s public-private health care payment system has also contributed: Medicare, one of the largest and most influential payers, cannot reject coverage of medical treatments explicitly based on cost due to restrictions in the program’s enabling statute. This puts the onus on private payers and hospitals to exercise greater authority in the rejection of expensive, innovative treatments with limited efficacy; traditionally, however, this power has not been aggressively exercised, leading to coverage of treatments that might only provide marginal benefit.

This schism in payer assessment of treatments in the US where private insurance plays the leading role is unlike that found in other industrialized countries where public payers play the dominant role: In the UK NICE decides which drugs or medical devices meet the “cost-effective” threshold for coverage by NHS via systematic cost-effectiveness analysis. This process makes a palpable difference in the availability of treatments: While there are currently 12 proton beam therapy centers in the US (with numerous more planned), there are currently none in the UK; the first two centers are planned to come online in 2018. 

Overall, there are both positive and negative elements to the emerging phenomenon of shadow cost-effectiveness analysis. First, the discussion of tradeoffs between cost and outcomes of medical treatments is notably more productive than the prevailing focus on merely “constraining costs.” Indeed, a medical delivery system that focuses on cutting costs, but does not focus on the actual value of treatments, is literally one of little value. Second, the use of rudimentary cost-effectiveness principles calls into question what actually constitutes “innovation” in the medical space, and may give pause to the inevitable “arms race” that follows coverage decisions.  Indeed, if insurance companies continually reassess (and reverse) coverage decisions based on emerging clinical evidence, it may lead to better medical decision making.

On the negative side, shadow cost effectiveness has limited efficacy without a full array of analytical tools. That is, while it is useful in assessing (and stopping) egregiously non-cost effective interventions, it is less effective in dealing with similarly valueless interventions that may have similar efficacy as existing interventions but cost marginally more or less.

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