Rational Rationing

This is a Chris Conover post at another list serve:

87ssgs32-1366688517Garber and Phelps (1997) have demonstrated that the optimal cost-effectiveness ratio varies greatly by income and risk aversion. Interestingly, it did not vary that much by age, gender or discount rate. The optimal cost/QALY cutoff for Medicaid thus would be much lower than the optimum for Medicare patients. So what’s rational economically may be a tough sell politically, especially when you consider that Medicare by law is prohibited from taking cost-effectiveness into account when making coverage decisions!

In a perfect world, public programs would indeed set an upper limit on the CE ratio which would adjust up or down based on the amount of funds the legislature has been willing to allocate each year (essentially what Oregon Medicaid has done). In that perfect world, the threshold actually would be set pretty low (in Garber/Phelps, the optimum was just under 3 times per capita income and the figures roughly scaled with income, so for someone at poverty, that would imply a threshold of about $35K/QALY). The rationale is that in other domains of life, such families are presumably trading off at that rate — car purchases, housing location decisions, whether to buy smoke alarms. Setting such a cap would be a far more efficient (and arguably fair) way to allocate limited public resources than trying to rely on price controls or other micro-management of health care delivery to keep costs in publicly financed health plans “affordable.”

Comments (13)

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  1. Bubba says:

    The risks people are willing to assume also changes depending on who is paying the cost of risk-aversion. It is well known that people do all manner of things that are detrimental to their health. This includes poor lifestyle choices, smoking, overeating, not taking medications, etc. Why cannot we assume these are revealed preferences and not attempt to interceded using OPM (other people’s money) to mitigate the damages?

  2. Lucas says:

    It doesn’t make sense that medicare wouldn’t take cost effectiveness into account.

  3. James says:

    What other systems has Oregon medicaid implemented that we can follow?

    • Hal Dall, MD says:

      The priority list has been bastardized since the Oregon Health Plan was conceived. Initially the plan worked well, and the first year was successful. After that first year, the Feds periodically required changes to the coverage which diluted the concept to homeopathic strength.

      Lesson #1. If you use Federal dollars, expect the Feds to overrule any good idea.

  4. Lucas says:

    “what’s rational economically may be a tough sell politically”

    Isn’t this usually the case?