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Amidst Grumbles over High Healthcare Costs, Study Finds Money Is Well-Spent

Data Show Increasing Costs Have Positive Tradeoff: Americans Are Living Longer

Observational study data suggest that over the past 4 decades Americans have been getting a good value for their healthcare dollars in the form of increasing life expectancy despite rising costs. The study also found that this value is diminishing, particularly among the elderly.

Led by David Cutler, PhD, professor of applied economics, Harvard University, researchers examined correlations between trends for life expectancy and healthcare spending among different age groups and time frames to determine whether the cost of care translates to a positive impact on longevity. They found that stakeholders, including payers and consumers, are getting a good return on their investment in healthcare [N Engl J Med. 2006;355:920-927].

Generally speaking, in aggregate, greater healthcare spending correlates with better health, study coauthor Allison Rosen, MD, clinical director, Center for Value-Based Insurance Design, University of Michigan School of Public Health, said in an interview.

While money spent on healthcare was found to represent a good value, researchers emphasized that costs have been quickly rising, especially over the past 2 decades. Elderly populations especially are now seeing costs outpacing benefits, according to the authors.

Researchers analyzed data from 1960, 1970, 1980, 1990, and 2000 for life expectancy and lifetime costs of medical care. Results were compared for 4 age groups: those who were newborn, 15 years of age, 45 years of age, or 65 years of age. Using available data from previous studies showing factors other than medical care that contribute to changes in life expectancy, researchers assumed the quality of medical care accounted for 50% of the changes in life expectancy.

To measure value, investigators divided the changes in spending from one decade to the next by the change in life expectancy over the same period. Dollars spent per year of life gained (YLG) during the entire lifespan were calculated for each decade and for the entire period of 1960-2000. The researchers also calculated the estimated costs per YLG between 15 years of age and death, 45 years of age and death, and 65 years of age and death by including the costs incurred and the increase in life expectancy after each age.

Life expectancy for newborns increased by 7.0 years between 1960 and 2000, the results showed. Smaller life-expectancy increases were observed at 15, 45, and 65 years of age: 5.3, 4.9, and 3.5 years, respectively.

Comparing longevity for newborns for each of the 4 decades between 1960 and 2000, researchers found the largest increase in life expectancy occurred between 1970 and 1980 (3.1 years). Of the 7.0-year increased life expectancy, the results showed that 70% could be attributed to a reduced rate of death from cardiovascular disease, which incorporates improvements in medical care and in lifestyle (ie, smoking cessation). Results showed another 19% is as a result of a reduced infancy death rate. A reduction in the rate of death from external causes (ie, homicide, suicide, and accidents), pneumonia or influenza, and cancer contributed 5%, 4%, and 3%, respectively, to the increased life expectancy, the study showed.

Over the same 4 decades, the cost per YLG was $19,900. The average cost per YLG was $31,600 at 15 years of age, $53,700 at 45 years of age, and $84,700 at 65 years of age, the results showed (newborn data were not reported). Researchers said, using the standard cost-effectiveness threshold of $100,000 per YLG, these increased costs have a corresponding benefit that proves investment has been worthwhile.

However, over time, the value has been diminishing among all age groups. When researchers compared the value of care among various ages, the data showed the older age groups have been hardest hit because they have experienced the greatest cost increases without gaining as many years in life expectancy.

For example, the authors reported that the average 1970's cost of $46,800 for each YLG in the 65-year age group "reflects a good value,” even at a less conservative $50,000 per YLG cost-effectiveness standard threshold, but the 1990's cost of $145,000 for each year “fails to meet many cost-benefit criteria.” While costs stabilized in the newborn and 15-year age groups from 1960 to 2000, the increasing costs in the elderly and increased life expectancy will mean that “the cost-effectiveness of medical care will continue to decrease at older ages,” according to the authors.

Dr. Rosen cautioned that “the results do not show the whole picture” by any means, as life expectancy is only 1 small measure of healthcare value that excludes other considerations, most notably the quality of life of the additional years gained. The data do provide an important starting point for assigning a reasonable monetary value to the care that Americans receive, she said.

In explaining the importance of the study, Dr. Rosen stated that policymakers and the public “spend a lot of time talking about healthcare expenditures and less time talking about the quality of the health we are purchasing.” She added, “Healthcare, as a whole, is not well-monetized [as in other industries]; if you are going to talk about healthcare value, you need to monetize the care.”

At least 1 physician group and 1 consumer group have responded positively to the study. Cecil B. Wilson, MD, Board Chair of the American Medical Association (AMA), stated that this study “shows what physicians have long known: spending on healthcare services is a good investment.” He added, “The study’s primary conclusion echoes AMA findings that the return on healthcare spending remains high.”

Steven Findlay of the Consumers Union agreed, stating “This work is a welcome addition to the literature. Americans did get additional value for healthcare spending over the past 40 years.” However, he expressed concern that the “accelerated spending, especially among the elderly, will lead to rapidly diminishing returns moving forward.”

Mr. Findlay stated that the overall value of healthcare is an important issue that has not been adequately addressed in previous research.

“The knee-jerk reaction is that the cost is worth it,” said Mr. Findlay, cautioning that costs are not being controlled. When it comes to cost containment, “the system is a total and utter failure,” according to Mr. Findlay. He said no national budget exists for healthcare spending, and unnecessary, inappropriate care continues to drive costs upward.

“[Unfortunately], we don’t know the parameters of gauging that the actual level of care is above and beyond what [should be done],” and so it may be difficult or impossible to cut much of the unnecessary costs from the system at this point, said Mr. Findlay. “There will always be a certain amount of waste” in healthcare, but it is possible to successfully manage care to the point that outcomes improve and costs are contained, stated Mr. Findlay.

Mr. Findlay noted several factors that could be addressed in an effort to contain costs. First of all, he said, “Doctors have no [financial] incentive to deliver preventive care; a huge disconnect [exists] between rhetoric and implementation” when it comes to preventive medicine. He said the solution lies in the hands of policymakers, who need to be more willing to change the status quo, especially concerning payment structure.

Research into the value of healthcare and the roots of higher costs, including excessive expenditures, is continuing, according to Dr. Rosen. Studies are under way that focus on costs incurred for a given disease state, such as diabetes and cardiovascular illness. She and her fellow researchers are also exploring other measures of care, such as quality of life. “If trends in the published literature hold out, then we are getting even a better value,” when looking at quality of life, especially in the elderly, she said.

Dr. Rosen emphasized that the amount of discussion surrounding the article means that the authors have accomplished their initial goal. “Now everyone is talking about value instead of spending,” she said, which will encourage policymakers and payers to ask the right questions about healthcare value and look beyond the face-value costs of care.

—Kristina Woodworth

Study Methodology

Data for life expectancy were based on US life tables for the following 3-year periods: 1959-1961, 1969-1971, 1979-1981, 1989-1991, and 2000. For simplicity, the investigators refer to the 3-year periods by the middle year (eg, 1960 for 1959-1961).

Researchers obtained data on medical spending from one of Dr. Cutler’s previous studies [Health Aff. 2004;23(4):176-183]. Spending was defined as total direct medical costs. Researchers interpolated and extrapolated the data by using national spending trends to estimate age-specific spending in each of the 5 time periods. Lifetime costs were calculated with the use of age-specific survival data.