THE BLOG
05/19/2010 05:12 am ET Updated May 25, 2011

Comparative Effectiveness vs. Cost Effectiveness

When President Obama and others have gone before the American people to promote their health reform agenda, they've often over-simplified an important set of tools available to us in health services research. The President has said things like "If you just bought a new car, and then find out that your neighbor bought the exact same car for $5,000 less, you'd want to know how he did it." and "If there's a blue pill and a red pill, and both work about the same, but the blue pill costs half as much as the red pill, which one should we be paying for?"

Critics have jumped on these scenarios and talk of comparative effectiveness panels have been overshadowed by talk of death panels that want to pull the plug on Grandma. Neither side has it quite right. In fact, there are two ways to make comparisons between two treatments: One is as if only effectiveness matters and the other is as if both effectiveness and cost matter.

The first approach is comparative effectiveness research (CER). If there are two treatments for a particular condition, which one works best? CER is designed to answer that question. After all, if the purpose of health care is to restore health, we certainly want to be using the most effective treatments. This is equally true if we're talking about a 50% efficacy rate compared to an 80% efficacy rate or if we're talking about a 90% efficacy rate compared to a 90.5% efficacy rate. Why settle for less than the best?

Well, economists have the answer to that question: Because the gains in efficacy may cost too much. If the procedure with 50% efficacy costs $1,500 we might well be willing to pay $6,000 for the procedure with 80% efficacy. However, if the procedure with 90% efficacy cost $1,500 it is doubtful that we'd be willing to pay another $4,500 for the 0.5% bump in efficacy. When the calculations include not only efficacy but also cost, we are no longer conducting CER but cost effectiveness analysis (CEA). It's a way of calculating a unit-price--kind of like when you're at the grocery store and see two differently-sized boxes of the same cereal. Obviously, the larger box costs more, but often, the price per ounce has decreased, making it the better deal.

Of course, we as patients--especially with most of us insulated from costs by insurance--seldom make such calculations. We are much more concerned with getting the most efficacious treatment available that is also covered by our insurance. We don't comparison shop for health care. Sometimes--like in an emergency--we can't. Other times--like for an annual physical--we don't have access to the data.

Moreover, a number of questions are raised by CEA that don't arise with CER. How much are we willing to pay for an additional gain in efficacy? For an additional year of life? For an additional year of high-quality life? There are estimates of this sort of thing, but the problem is that the "price points" surely vary for everyone depending on how they perceive their current quality of life, how old they are, how much money they have, and so on. But, at some point, all the care you can get stops being worth the money you're having to throw at it. This isn't rationing any more than you are rationing when you decide which brand of beer to buy at the store. Both sides owe it to us to paint a clear picture of CER and CEA and the roles of both going forward, with or without health reform.

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