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Presenting Data to Show Product Cost Effectiveness

How do you Show Cost Effectiveness for Your Product?
Cost effectiveness is an economic calculation that compares the relative costs and outcomes of two different courses of action. Cost effectiveness calculations are done informally all the time in daily life. For example, when choosing between a name brand versus a generic product at the grocery store, each consumer must decide whether the additional “benefit” of the name brand in terms of quality, taste, etc. is worth the extra cost. In healthcare, because most costs are borne by insurers and only indirectly by the patient, such calculations have not been commonplace. Now, as patients bear a greater share of the cost burden through co-pays and tiered pricing, they will expect proof of additional benefit to justify any incremental costs for new technologies.

Cost effectiveness analyses reflect the difference in cost between two approaches to achieve incremental benefit, such as higher fusion rate, less pain, revision surgery avoided, etc. However, in the context of a fixed budget to cover a defined patient population’s total healthcare costs, interventions have to be compared using a common benefit unit. It is impossible to compare cost effectiveness of a new drug that slows the progress of Alzheimer’s disease with, say, a new implant that improves spinal fusions unless the benefits for each are measured on a common scale.

The scale used by healthcare economists is the Quality Adjusted Life Year, or QALY. The QALY is a measure of disease burden that takes into account the additional quality and quantity of life added by a treatment. QALYs are used to allocate healthcare resources in most developed countries with national healthcare budgets such as the United Kingdom, Australia and Western European nations.

Cost effectiveness analyses have not been commonplace in orthopaedics, but some health systems, such as the Mayo Clinic and Dartmouth Hitchcock Medical Center, and payers, including Kaiser Permanente, are collecting the patient outcome data needed to measure QALYs for various medical treatments and procedures. This domestic data buttressed with a flood of cost effectiveness data from overseers (currently the National Health Service (NHS) collects data on QALYs for all NHS patients undergoing total joint replacements, for example) means that a cost effectiveness yardstick will increasingly be applied to assess the value of new technologies coming to market. As hospitals rely more on gain sharing to sway surgeons toward less costly implants, it will be imperative for newer generations of products to justify additional cost by measuring additional benefits.

For some established orthopaedic procedures such as total joint replacement, the cost per QALY falls into the $10,000 to $20,000 per QALY range, which is comparable to other common non-orthopaedic procedures such as coronary artery bypass surgery. For spine surgery procedures, however, the data are much murkier. A 2012 review of the cost effectiveness literature in spine surgery found cost per QALY values all over the map with methodologies varying widely in the studies (Kepler Spine J. 2012 Aug;12(8):676-90).

How can this Data be Collected?
Fortunately, the data to measure the impact of a treatment on quality of life can be collected more readily now from patients due to recent improvements in data collection systems. With the Federal push toward patient-centered outcomes enshrined in the Affordable Care Act, a number of new technologies can help with asking patients directly about the effects of treatments. A number of companies now focus on the orthopaedic sector, and a plethora of new startup companies offer mobile solutions to collect outcomes more easily and cheaply from patients.

Moving forward, medical device manufacturers need to adopt the following points to successfully commercialize new technologies.

  • Several changes in the healthcare market are coalescing, resulting in an increased demand for data to show cost benefit of orthopaedic technologies.
  • To compare cost effectiveness of treatments across diseases, a common metric to measure the benefits of the intervention must be used. The Quality Adjusted Life Year, or QALY, has emerged as the standard common unit.
  • QALYs are being collected widely around the world, and cost per QALY is used in many countries for healthcare utilization decision making.
  • Companies need to incorporate patient-reported outcomes into their safety and efficacy assessments so that treatment benefits and cost effectiveness of new products can be communicated to payers, physicians and patients.
  • Quality of life impact can be more easily measured today thanks to a variety of new companies and technologies in this space.

Isabella Sledge, M.D., is an internist with 15 years of experience in health outcomes research. She is Vice President of Data Services at Tides Medical, a manufacturer and distributor of orthopaedic implants and biologics. She has experience creating patient registries and clinical studies for pharmaceutical and medical device companies. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Tides Medical


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