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Quantifying the Healthcare Value of New Technology

Originally Published MX September/October 2005


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Demonstrating Value to Payers

One technique that has been employed to determine the economic value of a medical therapy is the calculation of its cost-effectiveness ratio, which is the dollar cost of a defined unit of effectiveness.

For example, if joint-repair surgery costs $20,000 and improves pain-free mobility in that joint by 20° of motion, then the cost-effectiveness ratio is $20,000 divided by 20°, or $1000 per degree of additional pain-free movement. The chief alternative, joint-replacement surgery, might cost $45,000 and improve pain-free mobility by 70°. The incremental cost-effectiveness ratio for this therapy is calculated by dividing the extra $25,000 in cost by the 50° of greater freedom of movement that results. The additional range of mobility costs $500 per degree. Thus, the more expensive procedure is the better buy in terms of cost per unit of improvement in outcome.

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