The Costs of Cancer Care in the United States: Implications for Action

November 1, 1995

The total annual cost of cancer care in the United States (including direct and indirect costs) has been estimated at more than $96 billion. Although third-party payers have led the effort to reduce these costs, such high

The total annual cost of cancer care in the United States (including direct and indirect costs) has been estimated at more than $96 billion. Although third-party payers have led the effort to reduce these costs, such high expenditures must concern society as a whole, since money spent on cancer care, whether through insurance premiums, taxes to support Medicare, or payouts from family savings, could be used for other purposes. In the future, attention may be shifted to more cost-effective strategies, including greater prevention efforts and development of better diagnostic tools to permit early detection. Improved diagnosis, however, presents an anomaly in that with earlier detection, survival is greater but the overall direct treatment costs are higher. This is why when making decisions about allocation of medical resources, the indirect costs of morbidity and mortality (which are reduced with early diagnosis) must be considered as well as the direct cost.

Introduction

The costs of cancer in the United States have been documented in a number of studies that portray the consequences of increased incidence and rising costs of treatment. The direct costs of cancer represent approximately 5% of total direct US health care expenditures. Studies reported by Brown et al estimate the direct costs of cancer diagnosis and treatment for the United States at $27.4 billion in 1990, with an additional $9.9 billion in morbidity costs and $58.7 billion in mortality costs (Figure 1). This estimated total annual cost of $96.1 billion for 1990 includes the direct outlays of resources from major payers: insurance, Medicare/Medicaid, managed care, and personal sources. It also includes estimates of the indirect costs of lost productivity and time spent by family and friends to support the cancer patient.

In the following discussion, we will examine the sources of these costs and suggest the implications of these economic outlays for health care policy. What do we know about these costs? What differences should that knowledge make for our health care decisions? What do we not know about cancer costs that would make a difference for the future?

Stimulus for Action

The economic facts about cancer should prompt concern about the level of the collective effort required to deal with this disease, especially in the context of possible alternative uses of these expenditures. From the patient's perspective, economic statistics are useful only if they can help society make better decisions in the future. This knowl edge can make a difference in the future impact of cancer by:

  • Affecting the timing of diagnosis and treatment
  • Changing the direction of research and development for finding better diagnostic and treatment tools
  • Restructuring our clinical standards of care to improve outcomes
  • Increasing the proportion of at-risk individuals who can experience productive and happy lives in spite of their encounter with cancer.

In the United States and other industrialized countries where clinical expertise is widespread and an economic surplus is available for medical uses, there have been adequate resources for aggressive clinical intervention to treat new cancer cases. The US and other industrialized countries have also experienced an increase in the incidence of cancer cases. In the US, the number of new cancer cases has grown steadily.

In 1995, there will be an estimated 1.2 million new cancer cases in the United States. For many of these cancers, the eventual prognosis is dismal, leading the patient, family, and physician to accept a course of care appropriate for a terminal condition. However, early detection has provided opportunities to intervene aggressively in many cancers, leading to high rates of remission and recovery. Breast, cervical, and colon cancers demonstrate perhaps the most dramatic differences in outcomes between early- and late-stage diagnosis.

Thus, it is important to understand the total costs (direct and indirect) can be lowered when more cancers are detected early, and to develop detection technologies and strategies that yield high rates of recovery. Prevention strategies for cancers with known causes, such as lung cancer, are also critical to lowering the costs and the level of patient suffering.

Types of Costs

There are three components of the total costs of disease: direct medical costs, morbidity costs, and mortality costs. The direct costs include all resource outlays for prevention, diagnosis, and treatment of the disease. Common elements are physician fees, wages for nursing and support staff, drugs, medical supplies, and a share of capital costs for equipment and facilities. The largest use of these direct costs is for hospital care (65.3%). This is considerably higher than the proportion of direct costs allocated to hospital care for all diseases (49.0%). However, cancer care expenditures are less for drugs, nursing home care and other professional services when compared to all other health care expenditures. Direct expenditures for cancer patient physician services (24.1%) are nearly equal to all health care expenditures for physician services (24.5%). Figure 2 shows the proportions of direct expenditures for cancer and all health care accounted for by hospitals, physicians, nursing homes, drugs, and other professional services.

Morbidity and mortality costs are also referred to as indirect costs. These costs are not always connected with a direct payment for services but, rather, account for value that would have been generated in the absence of the disease, ie, an opportunity cost. Estimates of morbidity costs attempt to account for the economic value of lost days of work due to illness. Mortality costs reflect the value of the economic output that is lost from premature death of workers due to disease. Premature death often triggers life insurance payouts that would not otherwise be required, while prolonged illness may lead to payments from welfare or other support agencies to supplant wages lost while undergoing treatment and recovery.

Of all the direct expenditures for cancer, 83% is attributable to just four types of cancer: breast ($6.6 billion), colorectal ($6.4 billion), lung ($5.1 billion), and prostate ($4.7 billion). Table 1 shows the allocation of these costs to various types of cancer. Table 2 outlines the timing of treatment expenses per patient by cancer site.

Note that the costs of terminal care significantly exceed initial diagnosis and treatment costs. These direct costs are those that are most visible to taxpayers and employers concerned about rising health care costs. Whether through health insurance premiums, taxes to support Medicare, or payouts from family savings, these direct costs are resources that could be used for other purposes.

The policy question is: How best to reduce these costs through prevention, early detection, and treatment strategies? By understanding the components of these costs and the economic impact of changes in our approach to the disease, we may shift attention to more cost-effective strategies, just as we did with our attacks on malaria, polio, and influenza.

Value of Early Detection

Riley et al have estimated the average per patient costs of breast cancer to Medicare by stage of disease at time of diagnosis. Table 3 illustrates the anomaly in our assessment strategies for cost reduction. The most advantageous time for detection, given current technology, is in situ when the disease is at the earliest detectable stage and more intervention options are available. Average survival at this stage is 13.7 years for Medicare patients with average age of onset of about 62 years. For these pa tients, conservative surgical treatment followed by chemotherapy often provides a means for maintaining lifestyle and avoiding recurrence. However, because of the need for life-long monitoring and a significant probability of recurrence, the total costs of care are highest when disease is detected early. A distant stage diagnosis has the shortest survival but also the lowest total cost.

To resolve this anomaly about early diagnosis, we must look at the total costs, not just direct costs, including the implicit value of living longer. Similarly, if only direct treatment costs were considered, costs could be minimized by not treating patients at all.

However, when the perspective is broadened to include indirect costs, the issue becomes: what strategies of prevention, screening, treatment, and care yield optimal health benefits in terms of quantity and quality of life, in return for the cost of committing healthcare resources to these uses? Traditional staff model Health Maintenance Organizations (HMOs) have, historically, stressed preventive services, including screening for early detection of cancer. In recent years, Congress has also mandated coverage of some cancer screening services under Medicare, and is considering others (OTA). The policy problem for Medicare, health insurers, and managed care organizations is: when and with what frequency should one try to screen for early detection of cancer on those covered members, who, at the time, do not show any symptom of disease?

For example, one problem in the debate about breast cancer screening is the large numbers of women screened, compared to the number of eventual malignant tumors. This is compounded by the costs and human suffering due to follow-up on "abnormal readings", which eventually turn out to be negative. This problem applies to screening for other types of cancer as well. This cost-benefit ratio might be shifted in a favorable direction through two channels of innovative research and development. First, research and development aimed at finding ways to identify those individuals at higher than average risk for the disease could result in targeted and more efficient screening programs. Second, new types of screening modalities, such as biomarkers, and technological improvements of existing modalities, such as better imaging techniques, could result in improved accuracy of screening tests, ie, fewer positive tests per health benefit provided.

What We Need to Know

In the coming era of managed care, many of these issues will be magnified, as the direct and indirect costs become concentrated in the employer-managed care organization nexus. The direct costs for cancer over the full lifetime will now reside with the managed care group. As Medicare increases the level of risk-based contracting for health care, the managed care organization must find a way to assess the likely costs of care and health outcomes for different types of cancer and for the various clinical pathways that arise. Today, there is little solid information about these combinations of costs and outcomes, making it difficult to determine a sensible capitation rate for various types of cancer. With NCI sponsorship, two large HMOs have begun studies in this area.

The full value of cost data will be realized as we develop a means to assess the clinical outcomes for diagnosis, treatment, and long-term cancer monitoring. Certainly, the ideal state of a cancer-free world will not be attainable any time soon. But with proper coordination of cancer prevention and control efforts and R&D in response to these costs, a world is attainable in which we can detect cancer early, control its growth, and thus allow patients to live a long life with the disease in a latent state.

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