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Health Care Costs: Why Do They Increase? What Can We Do?

Assessing New Technologies


Clifford S. Goodman, Ph.D., Senior Scientist, Medical Technology, The Lewin Group, Falls Church, VA.

Advances in health care technology are at the heart of policy debates concerning health care access and costs. It is reported that new technology accounts for from one-third to one-half of health care cost increases. Given the proliferation of health technology and its impact on health care costs, there is a growing demand for assessment of drugs, devices, procedures, and systems used in health care.

According to Clifford S. Goodman, Ph.D., health technology assessment (HTA) is the systematic evaluation of the properties, effects, or other impacts of health technology. Its main purpose is to inform policymaking on health care interventions involving medical technology.

Goodman noted that technologies must be understood broadly, including in terms of their physical nature (drug, device, procedure, etc.), their clinical applications (prevention, diagnosis, treatment, etc.), and stage of maturity or diffusion. New technologies present certain challenges for regulators and payers such as managing decisionmaking in the face of the high volume of new technologies and having the necessary expertise to evaluate highly advanced technologies. Some of these new technologies cross regulatory jurisdictions, such as certain new hybrid technologies that combine aspects of drugs, devices, and biologics.

Depending upon the policy to be informed, HTA can assess the technical properties of a technology, as well as its safety; its efficacy or effectiveness; its costs and other economic attributes; and other social, legal, ethical, and political impacts. Regulators, coverage decisionmakers, hospital managers, and other decisionmakers can seek out HTA information to meet their particular needs.

In performing health technology assessment, it is important to identify and interpret studies according to their methodological rigor and relevance to the clinical problem or coverage decision at hand. Technology-related decisions increasingly rely on evidence-based approaches, which are derived from the validity of different study designs (ranging from large randomized controlled trials to observational studies to simple anecdotes and case studies) for determine the causal effect of a health care technology on health outcomes. In the U.S. and internationally, various HTA organizations use evidence-grading schemes based on these methodological hierarchies to interpret available evidence and form the basis of making findings and recommendations.

An example of such a hierarchy is shown below:

Level Description
I Well-designed randomized controlled trials.
II-1a Well-designed controlled trial with pseudo-randomization.
II-1b Well-designed controlled trials with no randomization.
II-2a Well-designed cohort (prospective) study with concurrent controls.
II-2b Well-designed cohort (prospective) study with historical controls.
II-2c Well-designed cohort (retrospective) study with concurrent controls.
II-3 Well-designed case-control (retrospective) study.
III Large differences from comparisons between times and/or places with and without intervention (in some circumstances these may be equivalent to level II or I).
IV Opinions of respected authorities based on clinical experience; descriptive studies; reports of expert committees.

Source: NHS Centre for Reviews and Dissemination (UK), 1996.


With regard to assessing the cost or economic impact of health care technology, there are multiple types of cost studies, including:

  • Cost of illness analysis: economic impact of illness/condition.
  • Cost minimization analysis: least costly among alternatives that are assumed to produce equivalent outcomes.
  • Cost effectiveness analysis (CEA): costs in monetary units, outcomes in quantitative non-monetary units, e.g., reduced mortality, morbidity; life-years saved.
  • Cost consequence analysis: form of CEA, but without aggregating or weighting across costs or outcomes.
  • Cost utility analysis: form of CEA, with outcomes in terms of utility or quality of life, e.g., quality-adjusted life-years (QALYs).
  • Cost benefit analysis: costs and outcomes in monetary units, both of which are quantified in common monetary units.

When reviewing the evidence from cost studies, it is important to consider such cost study characteristics as:

  • Perspective of analysis (e.g., society, payer, provider, patient).
  • Direct costs (medical and non-medical).
  • Indirect costs (e.g., loss of productivity).
  • Actual costs vs. charges/prices.
  • Time horizon (short-term or long-term).
  • Marginal costs vs. average costs.
  • Discounting.
  • Correction for inflation.
  • Sensitivity analysis.

Goodman offered a ten-step framework for conducting HTA:

  1. Identify assessment topics.
  2. Specify assessment problem.
  3. Determine locus or responsibility of assessment.
  4. Retrieve evidence.
  5. Collect new primary data.
  6. Interpret evidence.
  7. Synthesize evidence.
  8. Formulate findings and recommendations.
  9. Disseminate findings and recommendations.
  10. Monitor impact.

There are numerous resources available to policymakers to assess new health care technologies. Among the various types of HTA information resources are computerized databases of published literature and clinical and administrative data, policy and research institute reports, professional association reports, and practice guidelines. Many of these are available via the Internet.

There are several Federal agencies with HTA-related functions. Agencies within the U.S. Department of Health and Human Services include:

  • Agency for Healthcare Research and Quality (AHRQ).
  • Centers for Disease Control and Prevention (CDC).
  • Food and Drug Administration (FDA).
  • Centers for Medicaid and Medicare Services (CMS, formerly Health Care Financing Administration, HCFA ).
  • National Institutes of Health (NIH).

Other Federal agencies with HTA-related functions include:

  • Department of Veterans Affairs (VA).
  • Medicare Payment Advisory Commission (MedPAC).
  • Congressional Budget Office (CBO).
  • Government Accounting Office (GAO).

One of the greatest sources of HTA-related information is the National Library of Medicine (NLM) at NIH, which maintains several searchable databases useful for health technology assessment, including MEDLINE. Another resource is the Cochrane Collaboration Library, an international database of systematic reviews of the effects of health care interventions.

Goodman noted that market approval of a health care technology does not mean it is always sufficient for payment approval. For example, a certain technology may not fall within a covered benefit, or even if covered, may not be medically necessary in certain cases. Even if a technology has gained regulatory approval, the evidence assembled to establish safety and efficacy for that purpose may not suffice for demonstrating effectiveness in a given beneficiary population (e.g., the Medicare population).

Furthermore, payers may conclude that, even though a technology offers a marginal health benefit for a given population, the cost of achieving that health benefit may not be worth the associated marginal cost, and may take away from other, more cost-effective ways to use health care resources.

Additional Resources

Centers for Education and Research on Therapeutics. Annual Report. U.S. Department for Health and Human Services, Agency for Healthcare Research and Quality: Rockville, MD;2000 Oct.

Eisenberg JM. Ten Lessons for Evidence-Based Technology Assessment. JAMA 1999 Nov 17; 282(19):1865-9.

Goodman CS. Healthcare Technology Assessment: Methods, Framework, and Role in Policy Making. The American Journal of Managed Care 1998 Sep;4(SP):200-16.

Hunt DL, Jaeschke R, McKibbon KA. Users' Guides to the Medical Literature: XXI. Using Electronic Health Information Resources in Evidence-Based Practice. JAMA 2000 Apr 12;283(14):1875-9.

Current as of July 2002

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Internet Citation:

Health Care Costs: Why Do They Increase? What Can We Do? Workshop Brief, User Liaison Program, May 21-23, 2001. Agency for Healthcare Research and Quality, Rockville, MD.

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