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How Prices Affect Patient Choices
Cost-effective Treatment	Patient outcomes are improving and the cost of treatment is even declining for some specific diseases, accordng to studies by the National Bureau of Economic Research. Thus for these conditions the cost-effectiveness of health care -- cost for a given level of health benefit achieved -- is increasing. Take treatment of heart attacks, for example. The single most important factor in increasing the lifespan of the average American between 1950 and today is the reduction in death from cardiovascular disease. Overall death rates from cardiovascular disease have been cut in half. Just between 1984 and 1991 life expectancy for a heart patient increased about 13 percent, from five years and two months to five years and ten months. Medicare claims data show the cost of treating a heart attack rose from $11,000 to $15,000 during that period. Conservatively estimating the value of an additional year of life at $25,000, researchers found the benefits of increased survival were about three times the additional cost. Thus even though the cost of treatment for a heart attack increased an average of 3 percent annually, the cost of restoring a given level of health fell about 1 percent per year. Since Medicare reimbursement rates for each type of heart attack treatment service were virtually unchanged over the period, researchers conclude that spending increased due to more intensive and innovative treatment with surgery or drugs. Similarly, researchers found the cost of appropriate treatment for acute depression fell by about 25 percent over the 1991-95 period -- mainly due to the use of new, more effective drug therapies. Source: David Cutler et al. (National Bureau of Economic Research), "Measuring the Prices of Medical Treatments," December 1, 1997, Pharmaceutical Research and Manufacturers of America, 1100 Fifteenth Street, N.W., Washington, D.C. 20005, (202) 835-3420.
Prices Matter	Do consumers buy less medical care when faced with higher prices? Are they similarly responsive to the prices of health insurance? The extensive literature on the subject indicates that price sensitivity ranges from moderate to considerable. When physician visits are fully covered by insurance, both visits and expenditures go up by about two-thirds, but the increase is only about half as much if patients have to pay 25 percent of the bill. Emergency room visits increase by 54 percent and expenses by 45 percent when they are fully covered by insurance compared with when there is no coverage-and most of the increase is for less urgent visits. Hospital admissions are the least price sensitive, with admissions and expenditures increasing by about 30 percent for full coverage, compared to no coverage. Mental health services tend to be the most price sensitive, with expenditures increasing by about 300 percent for full coverage compared to no coverage. Source: Michael A . Morrisey, Price Sensitivity in Health Care: Implications for Health Care Policy, 1992, NFIB Foundation. 600 Maryland Avenue, SW, Suite 700, Washington DC 20024, (202) 5549000. Return to Rising Health Care Costs

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