Costs and Financial Gain Associated With Glaucoma Therapy
Ophthalmic interventions deliver significant patient and financial value.
The second installment in a three-part series
reviews the cost-effectiveness of a procedure. In
other words, what does it cost to perform a particular
procedure relative to its value to society?
Read on to learn the important terminology
associated with this part of Value-Based Medicine.
—Ronald L. Fellman, MD, section editor
A Value-Based Medicine (VBM; Center for Value- Based Medicine) model for assessing the comparative effectiveness and cost-effectiveness of glaucoma therapy was presented at the American Academy of Ophthalmology Annual Meeting in New Orleans in 2013.1 The model demonstrated that glaucoma therapy provides great benefit to patients by maintaining their vision, thus considerably improving their quality of life.1 Glaucoma therapy was also noted to be highly cost-effective, yielding a large financial return on investment (ROI) to patients and insurers and increasing the overall wealth of the nation.
Although the concepts of VBM are intuitive, initially, the terminology can be foreign to clinicians. Glaucoma Today’s “Landmark Studies” column is featuring a three-part series to augment readers’ understanding of the glaucoma model and the changes that will surely occur across medicine over the coming decade. The first article focused on patient value gain (see “Measuring the Impact of Glaucoma and the Value of Treatment” in GT’s March/April 2014 issue). This installment addresses health care costs, and the third will discuss a cost-utility model that demonstrates the considerable patient and financial value conferred by glaucoma interventions.
THE NEED FOR VBM ANALYSIS
Comparative Effectiveness Review No. 59 from the Agency for Healthcare Research and Quality did not find evidence that screening for open-angle glaucoma decreased vision impairment.2 Comparative Effectiveness Review No. 60 on glaucoma therapy stated, “Although it is logical to presume that slowing glaucoma damage would lead to preservation of vision-related quality of life and reduction in visual impairment, this link has not been demonstrated in the research literature.3
Such a statement in a report sponsored by a government agency could affect decisions regarding the allocation of medical resources. Because most nonophthalmologist physicians and the general public are unfamiliar with the marked decline in quality of life caused by ophthalmic diseases, it is possible that the considerable patient value gain conferred by most ophthalmic interventions would be minimized, resulting in lesser funds for research, a decrease in top-tier medical students applying to ophthalmology residencies, and an overall diminution in interventional reimbursements for the profession.4
Decision makers’ unfamiliarity with the patient value and financial value associated with ophthalmic interventions is especially relevant in light of the release of data demonstrating the overall high amounts Medicare pays to ophthalmologists referent to other medical specialties.5 These data are incomplete and skewed, and they fail to take into account the substantial amounts expended for drugs that do not pass to ophthalmologists, the costs incurred for the administrative management of these drugs, and the dramatic patient value conferred for the dollars expended for glaucoma interventions and cataract surgery.1 As a result of this report, ophthalmology might come under greater scrutiny by the federal government and the public. It is therefore critical that the extraordinary patient value conferred by ophthalmic interventions and the great financial value gain that increases the wealth of patients and the nation be clearly demonstrated. Oncologists, a medical group that also has high Medicare costs due to the drugs they must purchase, plan to compare the value of expensive drugs.6
We performed a VBM cost-utility analysis comparing glaucoma therapy to no therapy using the best available evidence-based data and a transparent model that would be logical to providers, patients, and decision makers. This article discusses the costs associated with glaucoma interventions and explains the concepts of financial value gain and cost-effectiveness (cost-utility; Figure).7
FINANCIAL VALUE GAIN
There are three types of medical costs: (1) direct medical, (2) direct nonmedical, and (3) indirect medical (Table 1). Direct medical costs, those expended for a health care intervention, typically receive the greatest attention in the press, by patients, and by those who allocate health care resources, but direct nonmedical and indirect medical costs can greatly exceed direct medical costs.8
VBM uses standardized cost-utility analysis to objectively measure patient and financial values. Just as the calculation of the patient value gain (improvement in quality and/or length of life) associated with a health care intervention is standardized, health care costs should also be standardized. Although virtually all of the health care plans in the United States use the Medicare Fee Schedule to some extent, the costs for commercial insurers (those insuring patients under the Medicare-eligible age of 65 years) vary widely, even within different plans from the same insurer. The use of commercial health insurance data thus make it difficult to interpret average costs, as does the use of data from Medicare Advantage Plans. Medicare Advantage Plans are managed care plans (Health Maintenance Organization or Preferred Provider Organization) administered by private insurers in which the federal government gives the insurer a set amount of money annually to insure and take risk for Medicare patients’ lives. Fees paid to facilities, providers, drug companies, and other parties are at the discretion of the individual insurer and thus are not standardized.
The most standardized health care costs are those from the national average Medicare Fee Schedule for the conventional (non-Medicare Advantage) Medicare program. The costs are the total approved payments for provider services (Medicare payment for 80% of the approved fee and secondary insurer or out-of-pocket payment for the remaining 20%). These average national fees are typically available on the Centers for Medicare & Medicaid Services website.9,10 It should be noted, however, that the fees for each of the 90 Medicare districts throughout the country have a slightly different payment schedule, because the Medicare-approved provider fee consists of three components: (1) practice expense, (2) work effort, and (3) medicolegal risk.
Direct Medical Costs
Direct medical costs include those expended for facilities (eg, acute care hospital, subacute nursing facility, ambulatory surgical center), providers (physician and nonphysician professionals), drugs (prescription for Medicare part D, Medicare part B injectable, and nonprescription), laboratory services, diagnostic testing (eg, visual fields, optical coherence tomography, radiology), home health care, spectacle correction, low vision services, and durable goods (eg, wheelchair, hospital bed, oxygen-producing equipment; Table 1).
Some direct medical costs associated with an intervention can be negative, meaning costs that accrue against the direct medical costs expended for a select intervention. Javitt and colleagues demonstrated that improving visual acuity in the better-seeing eye in a Medicare population reduces costs for trauma, depression, subacute nursing facilities, and nursing homes as well as additional direct medical costs yet to be identified.11 Adjusting for the Medical Care component of the Consumer Price Index to 2014 US dollars, the negative costs associated with ophthalmic interventions that improve or maintain vision are shown in Table 2.12 Although these exact costs are not applicable to disabilities associated with non-ophthalmic conditions, the same type of costs should be considered for those conditions. For example, a total hip replacement, which allows a patient to drive again, might decrease depression, traumatic falls, nursing home admissions, and caregiver costs.
Direct Nonmedical Costs
Direct nonmedical costs include those associated with transportation, activities of daily living (ADL), residence, babysitting, and retraining. Caregiver costs comprise the major costs within this category and include transportation costs, ADL costs, and residence costs whereby anindividual requires an assisted living environment (Table 3).13 As visual acuity in the better-seeing eye decreases, caregiver costs and direct nonmedical costs generally rise.13 Self-care residence costs, when necessitated by visual disability, are considered direct nonmedical costs, but are not in the caregiver category. Caregiver costs, of which approximately 27% are paid and 73% are accrued by family and friends and are not paid, are typically accrued at the average hourly earnings for production and nonsupervisory employees on private nonfarm payrolls.13 In January 2014, this number was $20.39 per hour.14
Transportation costs include those for general transportation as well as for transportation related to medical services. In this regard, payment for a babysitter is a direct nonmedical cost if the caregiver is hired to allow travel to physicians’ offices and/or for other medical services.
ADL are categorized as inside or outside. Inside ADL include preparing meals, cleaning the home, maintaining personal hygiene, preparing and taking medications, washing clothes and linens, and making beds. Outside ADL include mowing the lawn, gardening, painting, winter weather cleanup, and other house maintenance. Residence costs encompass those related to changing residences due to vision problems and include moving costs, initiation fees (which should be amortized over the time of living at a domicile and the life expectancy of a patient), and any applicable monthly fees. Retraining costs are those expended to retrain an individual for the same or new job after he or she develops vision loss. The opportunity costs of lost wages should also be included, but these are typically accrued as indirect medical costs.
Indirect Medical Costs
Indirect medical costs are primarily those related to employment.15 In general, fewer individuals with disabilities (eg, vision and/or hearing loss, inability to walk, inability to communicate) are employed, and those who are employed generally have a lower hourly wage referent to age-matched cohorts without disabilities (Table 4).15 The annual earnings of the average person with mild vision loss (20/40) are approximately 50% of an agematched person who is not disabled, while the average person with severe vision loss (< 20/200) earns only 38% of that of a nondisabled, age-matched person (Table 4).15
All patient value final outcomes and costs are discounted, typically at 3% annually.7 Patient value gain is discounted because good health now is, theoretically, of greater value than good health in the future. One reason is that good health now can be used to obtain financial resources that will compound over time. Another reason is that inflation decreases the future value of the dollar. Discount rates for patient value gain and costs, however, do not necessarily have to be the same. Nonetheless, we believe that using similar rates is reasonable and that the 3% annual rate adequately reflects the amount of profit above inflation that a safe investment, such as an intermediate-length US Treasury bill, has yielded over the past century.16
William Nordhaus, an economist at Yale University, suggested that 50% of the wealth created in the United States in the 20th century occurred secondary to medical advances.17 Glaucoma therapy provides an excellent example example of how the direct medical costs expended for therapy improve the wealth of the nation and provide a large financial gain to society, including patients and insurers.
As George Beauchamp, MD, stated, “Physicians are the producers of both patient and economic value.”18 It has been estimated that the treatment of open-angle glaucoma with timolol yields approximately a 4,000% financial ROI over the life expectancy of the average glaucoma patient relative to the direct medical cost of therapy.1 The reason is that end-stage glaucoma results in greater decreases in hourly salary; less employment; greater costs for trauma, depression, subacute nursing facility admissions, nursing home admissions, and caregivers; and other costs that would not be incurred if good vision were maintained with timolol therapy.
Cataract surgery on the first eye had a direct medical cost of $2,653 in 2012 but returned a total of $121,198 above the direct medical cost.8 This resulted in a 4,567% financial ROI to society (patients, insurers, and the gross domestic product [GDP]) for the direct medical costs initially expended. This financial ROI takes place over 13 years, the life expectancy of the average patient undergoing cataract surgery on the first eye.8 Of course, these costs are all discounted.7
The discounted costs are amalgamated with the discounted patient value gain to ascertain the cost-utility ratio in terms of dollars expended per QALY gained. When the costs used are the direct medical costs only, a cost-utility analysis is said to be performed using the third-party insurer cost perspective.7 If the direct medical, direct nonmedical, and indirect medical costs are all used in a cost-utility analysis, the analysis is said to be performed using the societal cost perspective.7
Formal cost-effectiveness (cost-utility) ratios do not exist in the United States. Nonetheless, it has been suggested that interventions costing less than $100,000/QALY are cost-effective and that interventions costing less than $50,000/QALY are very cost-effective.7,19 The World Health Organization’s criteria consider interventions that cost less than three times the GDP per capita/disability-adjusted life year (DALY) as cost-effective and those that cost less than one time the GDP per capita/DALY as very cost-effective.20 DALY is an entity similar to QALY, although the former assigns slightly greater patient value gain to interventions performed on individuals between the ages of 20 and 50 years versus the young and the elderly. Using these criteria and substituting the QALY for the DALY, interventions in US dollars costing less than $150,000/ QALY are cost-effective, and those costing less than $50,000/QALY are very cost-effective.20,21
Our next article will integrate the patient value and financial value associated with a glaucoma intervention to demonstrate the marked patient value gain (improvement in quality of life) and considerable financial value gain (financial ROI) associated with glaucoma therapy. As might be expected, with such dramatic patient value gain and financial value gain, the cost-effectiveness is extraordinary.
Section Editor Ronald L. Fellman, MD, is a glaucoma specialist at Glaucoma Associates of Texas in Dallas and clinical associate professor emeritus in the Department of Ophthalmology at UT Southwestern Medical Center in Dallas. Dr. Fellman may be reached at (214) 360-0000; email@example.com.
Gary C. Brown, MD, MBA, is codirector of the Center for Value-Based Medicine in Flourtown, Pennsylvania, and former director of the Wills Eye Hospital Retina Service. He is affiliated with the Retina Service, Wills Eye Hospital, Mid-Atlantic Retina in Plymouth Meeting, Pennsylvania, and the Eye Research Institute in Philadelphia. Dr. Brown may be reached at (800) 331-6634; firstname.lastname@example.org.
Melissa M. Brown, MD, MN, MBA, is cofounder and director of the Center for Value- Based Medicine, and she is a member of the Research Department at Wills Eye Hospital in Philadelphia. Dr. Brown may be reached at email@example.com.
George L. Spaeth, MD, is the Esposito research professor and the emeritus director of the William and Anna Goldberg Glaucoma Service and Research Laboratories at the Wills Eye Institute in Philadelphia. Dr. Spaeth may be reached at (215) 928-3960; firstname.lastname@example.org.
Joshua D. Stein, MD, MSc, MS, is an assistant professor of ophthalmology and visual sciences at the Kellogg Eye Center at the University of Michigan in Ann Arbor. Dr. Stein may be reached at (734) 763-7246; email@example.com.
Richard P. Wilson, MD, is a retired professor of ophthalmology at Jefferson Medical College, and he is a former codirector of the Wills Eye Hospital Glaucoma Service in Philadelphia. Dr. Wilson may be reached at firstname.lastname@example.org.
- Brown GC. The Glaucoma Value Index. The comparative-effectiveness and cost-effectiveness of glaucoma therapy. Paper presented at: The AAO Annual Meeting; November 17, 2013; New Orleans, LA.
- Ervin AM, Boland MV, Myrowitz EH, et al. Screening for glaucoma: comparative effectiveness. Comparative Effectiveness Review No. 59. Agency for Healthcare Research and Quality Research website. products/ 182/1026/CER59_Glaucoma-Screening_ Final-Report_20120524.pdf. Published April 2012. Accessed December 6, 2013.
- Boland MV, Ervin AM, Friedman D, et al. Treatment for glaucoma: comparative effectiveness. Comparative Effectiveness Review No. 60. Agency for Healthcare Research and Quality Research website. 183/1024/CER60_Glaucoma-Treatment_20120524.pdf. Published April 2012. Accessed December 6, 2013.
- Brown MM, Brown GC, Stein JD, et al. Age-related macular degeneration: economic burden and value-based medicine analysis. Can J Ophthalmol. 2005;40:277-287.
- Abelson R, Cohen S. Sliver of Medicare doctors get big share of payouts. New York Times. Published http://www.nytimes.com/2014/04/09/business/sliver-of-medicare-doctors-get-big-share-of-payouts.html? April 9, 2014. Accessed April 12, 2014.
- Damouni S, Langreth R. Cancer doctors plan to compare value of expensive drugs. Bloomberg News. http://www.bloomberg.com/news/2014-04-16/cancer-doctors-plan-to-compare-value-of-expensive-drugs.html. Published April 17, 2014. Accessed April 19, 2014.
- Brown MM, Brown GC, Sharma S. Evidence-Based to Value-Based Medicine. Chicago: AMA Press; 2005.
- Brown GC, Brown MM, Menezes A, et al. Cataract surgery cost-utility revisited in 2012. A new economic paradigm. Ophthalmology. 2013;120:2367-2376.
- Physician fee schedule search. Centers for Medicare & Medicaid Services website. search/search-criteria.aspx. Accessed April 19, 2014.
- Ambulatory surgical center fee schedule. Centers for Medicare & Medicaid Services website. http://www.cms.gov/sitesearch/ search-results.html?q=ambulatory %20surgical%20center%20fee%20schedue. Accessed April 14, 2014.
- Javitt JC, Zhou Z, Willke RJ. Association between vision loss and higher medical care costs in Medicare beneficiaries’ costs are greater for those with progressive vision loss. Ophthalmology. 2007;114:238-245.
- Bureau of Labor Statistics. Consumer price index-all urban consumers. United States Department of Labor website. http://data.bls.gov/cgi-bin/surveymost?cu. Accessed April 12, 2014.
- Schmier JK, Halpern MT, Covert D, et al. Impact of visual impairment on use of caregiving by individuals with age-related macular degeneration. Retina. 2006;26:1056-1062.
- Bureau of Labor Statistics. Table A-2. Current and real (constant 1982-1984 dollars) earnings for production and nonsupervisory employees on private nonfarm payrolls, seasonally adjusted. http://www.bls.gov/news.release/realer.t02.htm. Accessed April 10, 2014.
- Brault MW. Americans with disabilities: 2010 household economic studies. Current Population Reports. http://www.census.gov/prod/2012pubs/p70-131.pdf Published July 2012. Accessed May 2, 2014.
- US 10-year treasury note real return history. Observations website. us-treasury-bond-real-return-history.html. Published December 12, 2010. Accessed April 14, 2014.
- Nordhaus WD. The health of nations: the contribution of improved health to living standards. National Bureau of Economic Research website. http://www.nber.org/papers/w8818. Published February 2002. Accessed January 29, 2013.
- Beauchamp GR. Physicians and nurses are economic value producers. Evid Based Ophthalmol. 2006;7:57-58.
- Laupacis A, Feeny D, Detsky AS, Tugwell PX. How attractive does a new technology have to be to warrant adoption and utilization? Tentative guidelines for using clinical and economic evaluations. CMAJ. 1992;146:473-481.
- Rogers A. Quantifying selected major risks to health. The World Health Report 2002: Reducing Risks, Promoting Healthy Life. http://www.who.int/whr/2002/en/whr02_en.pdf?ua=1. Accessed April 16, 2014.
- CIA World Factbook. GDP per capita (PPP) 2013 country ranks, by rank. gdp_per_capita_2013_0.html. Accessed April 14, 2014.