Medical Innovation: When Do the Costs Outweigh the Benefits?

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When Sunnyvale, Calif.-based Intuitive Surgical hit the market in 1999 with its surgical robot, da Vinci, the company and many of its early adopters hailed the new technology as a revolution that would benefit patients, surgeons and the health care system as a whole. Da Vinci combines high-definition visual tools with robot-guided medical instruments that allow surgeons to do complicated procedures using a few tiny incisions. The da Vinci system, which is widely used in urologic surgeries such as the removal of prostate tumors, has been shown by Intuitive and outside researchers to reduce post-surgery complications and shorten hospital stays.

But do fewer complications and faster recovery times result in meaningful financial savings for the health care system as a whole? Or does the cost of high-tech medical innovations outstrip any benefits they might provide? These questions are weighing heavily on the minds of health care economists, particularly as the movement towards health reform is putting pressure on hospitals, physicians and insurers to keep a lid on rising costs.

And while the debate over the effectiveness and costs of new medical technologies has been overshadowed this week by the shutdown of the federal government — led by a Republican faction that wants to tie government funding to a delay in implementation of the Affordable Care Act — the issues that debate raises will play an important role in ongoing discussions of the role of innovation in controlling health care costs.

Sticker Shock

In May 2012, Wharton health care management professor Ezekiel Emanuel blasted Intuitive’s da Vinci system in a New York Times editorial as “a pseudo-innovation — a technology that increases costs without improving patients’ health.” Emanuel, who is also chair of the medical ethics and health policy department at the University of Pennsylvania’s Perelman School of Medicine, expressed his concern that too much capital investment would be directed to “flashy” innovations such as robots rather than technologies that cost less but may produce more benefits, such as smartphone applications and wireless home monitoring systems for patients with chronic diseases.

Wharton health care management professor Mark V. Pauly says one of the shortcomings of the cost-effectiveness debate is that the loudest voices are often those of the doctors and the economists — not the patients. “The critics say in the long run that there’s no difference in outcomes,” he notes. “The main difference is in the short run, where there is a shorter length of stay, fewer complications — a less unpleasant experience for the patient involved. I don’t think you ought to regard that as being of no value. If I’m a patient, I don’t care about the cost. I just want to do the best thing [for myself].”

“Anything that makes the process shorter, which robotic surgery does, is something of value.” –Mark V. Pauly

The main challenge for innovators in the medical devices industry, Pauly contends, is to prove the efficacy of their inventions — both quantitatively and qualitatively — and then communicate the overall value effectively to all the stakeholders involved. “Anything that makes the process shorter, which robotic surgery does, is something of value,” he argues. “The economic question really is: How much does the value of those improvements compare to what it’s going to cost additionally to do the surgery that way? If [device makers] can demonstrate that there are benefits, and the additional cost isn’t that much higher relative to the benefits, it’s going to help them sell their devices and get payment from insurers.”

In the case of robotic surgery, the main economic burden falls on hospitals in one huge chunk — the $1.5 million that it typically costs to outfit a facility with a da Vinci system. When it comes time to bill insurance companies for robotic surgeries, hospitals don’t face much resistance, because insurers cover such surgeries much like they do other minimally invasive surgeries, including laparoscopic procedures, says Myriam Curet, chief medical advisor for Intuitive.

Some critics suggest that although patients who receive robotic surgeries may face fewer complications after the procedures, they still run the risk of long-term consequences — such as erectile dysfunction and incontinence for prostate surgery. Curet responds by pointing to a 2009 European study that determined that patients who received radical prostatectomies by robot had fewer erectile and incontinence issues than did patients who had open (more invasive) surgery. And the recovery time for robotic surgery is generally about two weeks, compared to six weeks for open surgery, she adds.

Some hospitals have set out to better define the return on investment for robotic surgery. For example, in 2008, a clinic in Sioux Falls, S.D., published research comparing robotic and open procedures performed on women with endometrial cancers. The facility found that the total average cost of the more invasive procedure was $12,943.60 — significantly higher than the $8,212 it cost the facility to perform each robotic surgery. The average length of stay for patients who had robotic procedures was two to three days, versus four to five days for those who had open surgery.

Curet contends that much of the ire over the expenses associated with robotic surgery is misguided. “Most of the criticism is just looking at the acquisition cost. But when patients have fewer complications and re-admissions and re-operations, they get back to an active life sooner. There are cost savings being realized there. What’s needed is a total cost-of-care analysis.”

Surgeon Thomas J. Guzzo, vice chief and associate program director of urology at the Hospital of the University of Pennsylvania, agrees that any assessment of robotic surgery should take a broader view towards weighing the costs against the benefits. “A lot of the studies that have been done on cost/benefit analysis haven’t taken into account the indirect effects of a quicker convalescence for patients,” such as the fact that they are getting back to work faster, he says.

Guzzo adds that patients often make the choice between invasive surgeries and robotic surgeries based on subjective factors, like the appeal of having smaller incisions, and therefore less painful recoveries and smaller scars.

The Burden of Proof

Still, the pressure on health care providers to prove the value of expensive treatments over less costly alternatives is only getting more intense with the implementation of the Affordable Care Act (ACA). The law created the new Patient-Centered Outcomes Research Institute and allocated more than $1 billion in funding for it. The Institute is undertaking research aimed at scrutinizing the effectiveness, risks and benefits of various medical treatments.

“Given the problem of health care cost growth, there is increasing … concern [among] private payers about whether or not they should be paying for reimbursement — whether it be for certain types of medical technology or biologics or pharmaceuticals,” notes Scott E. Harrington, Wharton professor of health care management. “There’s a demand for more information by private payers with respect to what works.”

But the issue of comparative effectiveness isn’t black-and-white, Harrington warns. That’s because it often takes many years of experience with a new medical technology to really determine how well it’s working. “One of the things I think we need to be careful about is not trying to save money by being overly restrictive, when in fact we might have fairly limited evidence about comparative effectiveness,” Harrington says. “In most real-world contexts, it takes time for information to develop. And even if something doesn’t appear to improve the quality of life or extend life on average, it may do so for sub-populations. In that case, a rule that says, ‘We don’t want to reimburse for this because it doesn’t appear to work on average,’ can actually harm the sub-populations that could benefit.”

“One of the things I think we need to be careful about is not trying to save money by being overly restrictive, when in fact we might have fairly limited evidence….” –Scott E. Harrington

As for the potential of measuring the broader economic impact of medical innovations, Harrington says he sees some researchers moving in that direction. “There has been work done on oncology therapies, where the debate is over cancer treatments that might cost $100,000 per course but only provide a modest extension to lifespan. Does it make sense to do that?” Harrington asks. “People are starting to see in many cases that spending this money and getting whatever therapeutic benefit there is does reduce hospital costs. So we’re learning more about the substitution of one type of cost for another. Ideally, what you want to do in comparative-effectiveness research is look at everything — not only extension in longevity, or improvement in quality of life, but other expenditures and the impact on employment.”

Attracting the Best

The investment community is one constituency that remains bullish on innovation in medical technology. That became clear on September 25, when Kalamazoo, Mich.-based devices firm Stryker Corp. announced it would acquire Mako Surgical Corp. for $1.65 billion in order to get access to the Fort Lauderdale, Fla.-based company’s robotic technology for performing orthopedic surgeries. Mako’s stock soared 82% to $29.46 a share on the news.

And hospitals have been expanding their use of robotic surgery in recent years. Chester Koh, director of the pediatric robotics program at Texas Children’s Hospital in Houston, says his hospital now uses da Vinci to correct a range of kidney and bladder issues in children. He believes the robotic technology has advanced to the point where hospitals must have it so they can compete — not only for patients, but for surgeons as well. “It’s not a requirement, but it’s almost standard now,” Koh says. “It’s one of the criteria hospitals are judged against. It’s necessary.”

Guy David, professor of health care management at Wharton, says the need for surgeons and hospitals to embrace every new technology — often long before the innovations are proven to be truly valuable — lies at the heart of the cost-effectiveness debate. “New and expensive technology is a means by which hospitals recruit the best physicians. Since prices are regulated in the system, really the only way hospitals can compete is on perceived quality,” David notes. “Physicians see the technology in the hospital and use it as a signal for how advanced the hospital is. And one thing feeds the other.”

“Hospitals cannot compete on price. Therefore, they resort to trying to signal quality. They do that with expensive technologies.” –Guy David

David points out that determining the cost effectiveness of new technology is also complicated by the fact that health care operates outside the standard economic model of consumer behavior. The patient may be the customer, but he or she isn’t paying the full cost of the service, so questions of value are not top-of-mind. “Patients are completely insulated from the cost of those procedures,” David notes. “If an open surgery costs $1,000, and [robotic] surgery costs $5,000, the patient still has the same $100 co-pay. Hospitals cannot compete on price; therefore, they resort to trying to signal quality. They do that with expensive technologies.”

Insurance companies could change the equation by refusing to reimburse high-tech procedures at the same rate as more invasive surgeries, at least until more evidence of cost effectiveness is produced, David says. Insurers could even decide to shift some of the added expense to the patients. But he warns that any such move towards putting the brakes on new medical technologies could backfire by discouraging innovation. “Say we decide that the incremental improvement [of robotic surgery] is not worth the cost and we’re going to put the kibosh on it, so we go back to open surgery. If we do that, we’re going to harm innovation. Maybe the version we have today of robotic surgery is not producing good enough results, but the robotic surgery of the next decade will be built on the mistakes and the knowledge that was generated in this era. That could bring about major improvement.”

What all the players in the cost effectiveness debate should keep in mind, David notes, is that the drive for efficiency in health care should not blind anyone to the potential of innovation. “There can be a lot of unintended consequences to actions that insurance companies take.” If there were limits placed on the use of new technology, “we would have a more efficient system, but also a less equitable one,” he says. “The idea of eradicating technologies ignores the fact that low-value innovation leads to high-value innovation. If you curtail anything, you’re never going to get to the high-value innovation.”

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