Health care providers and patients alike have been physically and emotionally frustrated when dealing with health care’s rising cost. Legislative restrictions based on cost often defy logic and common sense in a way that most people have never encountered. But, what is it specifically about the health care market that gives us these fundamentally perverse situations?
Many point fingers at insurance companies, Big Pharma, hospitals owned by private equity firms and corruption throughout the health care hierarchy. At first glance, it may seem like a closed case — these culprits have already been implicated red-handed; however, a closer look reveals that a far more fundamental question has been left unanswered. Steven Brill’s famous 2012 editorial, “Bitter Pill,” gave voice to brewing criticism over high health care costs. In the article, he found that a blood test to rule out a heart attack, troponin I, costs $199.50. The cost was obviously egregious, but how much should it cost — the answer here is far less obvious.
In the years before there were nations and economies, people were, for the most part, self-sufficient. Every now and then, however, situations would arise where people didn’t have certain things that they needed, and so they traded. A farmer would trade some eggs for bricks to build a new barn, or a fisherman would trade fish for some milk. The modern economy has its roots in such transactions. A system where valued items are bartered only works when people are able to accurately gauge and agree upon the value of items. What is the value of the troponin blood test? How much would you pay for your doctor to know if you’ve had a heart attack? How much should this test cost? If you were to poll people on these questions, the numbers would vary from infinite to zero.
Years before these paradoxes confounded the health care industry, environmental economists dealt with almost identical issues. Unsurprisingly, asking how much a rainforest is worth elicits the same level of perplexity as asking about the value of health care. According to environmental economist, Steven Hackett, “When a Forest Service chooses to manage a particular watershed to protect wilderness-dependent species rather than for logging or intense recreation, then that choice is based on economic analysis of the inherent value of the environment.” This analysis is both challenging and important precisely because the environment’s value is not conveniently revealed in a market and thus is subject to inappropriate use.
A conversation about the value of the environment particularly comes to the forefront in developing countries. Consider a company that applies for a government permit to build a shrimp farm on a preserved salt water marsh, citing that the location is the best place for their business, and the cash-strapped government will be able to generate millions in tax revenue. Many would argue that the marshes have an intrinsic aesthetic beauty and value that is priceless. Similar to happiness or a mother’s love, to quantify this would degrade it to something banal. However, experience shows when a numerical value is not assigned to something, people’s minds automatically assign it a value of zero. Many argue that this forgone tax revenue from the shrimp farm could have been allocated into initiatives like education. These governments in developing countries are faced with tough choices. Environmental economists became the ones burdened with determining the worth of these natural wonders — to set a price for that which is said to be priceless.
Historically, environmental economists have used a model which measured the price people would normally pay for the specific outcomes achieved by the mere existence of marshes. For instance, one of the main roles the marsh played in the ecosystem was to take in dirty water, remove all the pollutants and produce fresh, potable water. The economists added up how much it mechanically costs to do the things that the marsh does naturally: flood control, water supply protection, pollution control and fish that serve as meals. When adding the prices of all of these outcomes together, government officials were able to get a better gauge of how important the marsh was to the community. Though it may not be complete, this model gave people a rhetoric based in data to be able to discuss what would have previously been ephemeral — the value of a “priceless” resource.
Value is neither an abstract ideal nor a code word for cost reduction, but for too long in health care, it has been unmeasured and misunderstood. Similar to gauging the value of the salt water marsh, the value of health care interventions should be determined by the patient’s outcomes. According to Michael E. Porter’s perspective piece in NEJM in 2010, “the outcomes for a patient are multidimensional, condition specific, thus there [currently] is no single outcome best that captures the results of an intervention.” His piece goes further to propose a three-tiered model of assessing health care outcomes. Tier one is the improvement in survival and degree recovery achieved in functional status, tier two is the time required to recover short term discomforts, and tier three is a the sustainability of health status — the technical details are addressed in the framework paper. Using standardized actuarial data for the prices of these specific outcomes, we can assign a dollar amount to the outcomes and thus arrive at the specific values of various interventions and tests. Simply put, value should be calculated based on the sum of outcomes for specific interventions and not on their cost of production.
This sort of definition of value is more patient-centered and is not obscured by cost reduction, price of inputs or research and development. Similar to the analysis in swamp marshes, this type of calculation can help build a framework around which to discuss value in health care. By no means does this framework seek to assign a number to human life or its protection, nor is it any attempt to limit life-saving interventions. Quite the opposite, the best way to improve the quality and lower the cost of health care delivery is through a discourse where value is measured in a standardized way and made transparent. Thus, the system can reward and incentivize true improvements to ensure a marriage of price and value.
The rising price of health care services is multifactorial and has been written about ad nauseam. However, a fact that is central to the discussion is almost never mentioned: the true value of the services we are receiving. The price of services is rarely a good proxy for the value the patients receive. If anything, it is based on the cost that goes into producing the service, never the actual outcome for the patient. Following the revolution in health care to provide “patient-centered” care, it only makes sense for value in this system to be based on the patient’s outcomes.
The struggles health care faces in quantifying value is not unique. Those who seek to protect the environment from industrial and human activities have been forced to develop metrics that capture the beauty and value of the environment. Borrowing strategies that environmental economists use to value natural resources, health care can at least begin to develop these metrics that are central to the discussion of health care cost. In fact, defining value in health care would be the first step at both lowering cost and improving quality — the holy grail of medicine in the 21st century.
Contributing Writer
University of Illinois at Chicago College of Medicine
Birju is currently a Class of 2017 medical student at the University of Illinois at Chicago College of Medicine. With a background in economics, he is particularly interested in the impact of internal organization in improving clinical outcomes and community health.
