Economic winners and losers after introduction of an effective new therapy depend on the type of payment system


Journal Article

An effective therapy for a costly illness will have economic consequences. There may also be differences between providers and payers costs, initial versus long term costs, and costs may vary with the reimbursement scheme. Consider the case of an effective therapy to prevent restenosis after coronary angioplasty. Assume the initial provider cost of angioplasty is $12,000, thai restenosis within 6 months results repeat angioplasty in 20%, resulting in a followup cost of $2400, or $14,400 total. Assume a therapy costs $1000 per angioplasty and decreases restenosis 50%, resulting in 10% repeat procedures. This will result in an initial cost of $13,000 and followup cost of $1300, or $14,300. Thus, the total societal costs will be -$100, a slight savings. Thus, even though $1100 goes to the company providing the therapy, the societal costs are almost neutral. Assume under fee for service, providers charge costs plus 10%, and that without the new therapy either a package price or capitated system are revenue neutral. Changes in costs resulting from therapy to prevent restenosis (signs: + cost or loss, - savings or profit): Providers Payers Initial 6 Months Initial 6 Months Fee for Service -$100 +$90 +$1100 -$1210 Package Price +$800 +$200 0 -$1200 Capitated +$1100 -$900 0 0 Under fee for service, the payer takes the risks and the economic consequences to providers are minimal. The situation is reversed under a capitation. For whoever takes the risk, there is an initial loss to pay for the therapy, but long term gain due to less restenosis. Under package pricing, ihe providers lose due to cost of therapy and less procedures, while the payers gain A new therapy, even if overall revenue neutral to society may have considerable economic consequences, which vary with time and provider versus payer perspective.

Duke Authors

Cited Authors

  • Weintraub, WS; Warner, C; Mauldin, PD; Becker, E; Gomes, D; Cook, J; Kosinski, A; Boccuzzi, S

Published Date

  • January 1, 1996

Published In

Volume / Issue

  • 44 / 3

International Standard Serial Number (ISSN)

  • 1708-8267

Citation Source

  • Scopus