Unbiased Analysis of Today's Healthcare Issues

The technology of birth: Is it worth it?

Written By: Jason Shafrin - Jul• 28•06

Life expectancy for low-birthweight babies has increased dramatically in the later half of the 20th century, mostly due to improved medical technology.  Prolific use of complex medical equipment and techniques–such as phototherapy, intravenous hyperalimentation, CT scans, etc.–during premature births has increased the average lifetime spending on low-birthdweight babies $39,000 between 1950 and 1990.  Is this added cost worthwhile to society?

This is the question David Cutler and Ellen Meara (2000) wish to answer in their study in the Forum for Health Economics & Policy.  The authors find that birthdweight is the most important statistic to determine newborn survival rates.  By conditioning on the child’s birthweight, the authors attribute all increased survival rates over time to better technology.  Below, I will discuss two of the measures used to evaluate whether the neo-natal technological advances are worth the cost.

Cost-Effectiveness = ch(QALY)/ch(med. spending)

  • The authors assume that the value of one year of perfect health is $100,000.  The QALY measures the benefit of a medical intervention on a scale where 1.0 is perfect health and 0.0 is death.  In the paper, low birthweight children with severe disabilities have a QALY of 0.65, those with moderate disabilities have a QALY of 0.75 and those with no disabilities have a QALY of 1.  The medical spending term takes into account only the medical cost of the birth and disregards subsequent medical complications.
  • The authors find a cost-effectiveness measure of $3,726 per QALY.  This is less effective than influenza vaccines ($1,700/QALY) or prenatal care, but is more effective than regular Pap smears ($17,000/QALY) or bypass surgery ($34,000-$48000/QALY). 

Rate of Return =  Sum_t {b^t*(V q_t)} / Sum_t {b^t*(M_t + L_t- w_t)}

  • The numerator is the discounted value of the child’s QALY.  The discount rate is ‘b‘, the value of a year of perfect health (‘V‘) is set to $100,000 and ‘q_t‘ is the QALY each year of their life.  The denominator is the discounted costs of the child’s lifetime.  The medical costs for each year of the child’s life (including neonatal care as well as subsequent medical spending) are included in ‘M_t’.  L_t is the lifetime cost of living and w_t is lifetime wages.  The authors assume this term is 0 for healthy babies (since most people consume all their income over their lifetimes), but is positive for disabled babies since over their lifetimes they will be a net receiver of society’s generosity.  These costs to society include Social Security disability payments ($4,167/year), Medicaid payments ($6,594/year) and special education costs ($4,728/year while of school age). 
  • The authors find an extremely high rate of return.  Using a discount rate of 3% (b=0.03), the authors find a rate of return to advance neonatal care of 510%.  Using 10% discount rate still gives a rate of return of over 46%.

This paper reassures us that neonatal interventions have been welfare improving for society.  

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One Comment

  1. chantima says:

    To, the professional of health economic

    My name is Chantima Charastong. I am a nurse thai. In current, I will calculate for cost-effectiveness and cost-utility for Low birth weight have weight less than 2,500 gms. They are admited in neonatal intensive care Unit. I have a problem that I cann’t understand the method of these calculation. Can you explain or introduce way for study about health economic, please? I hope that you can help me. Thank you.