Choosing an Alternative: Which Option is the Most Cost-Effective?

Cost-Effective Analysis for Proposed Alternative Interventions

for Unresolved Lower Back Pain

March 1, 2013

Pain Management Clinic, Patient Education Department, Physical Therapy Department, and Business Office of Splendid Hills Hospital

You recently conducted a cost-effectiveness analysis (CEA) of alternative interventions for the Pain Management Clinic of Splendid Hills Hospital. You were assisted by staff and practitioners from the patient education department, pain management clinic, physical therapy department, and members of the business office. The hospital has been seeking opportunities to incorporate more complementary and alternative medicine (CAM) into its existing service offerings. The CEA will be used to help the Chief of Staff determine which unconventional intervention to recommend for funding and support in FY 2014.

Historically, western prepared practitioners have been skeptical of CAM and, therefore, a bit resistant to its mainstreaming in health care. With that said, there is a growing body of evidence to support the combination of complementary medicine and conventional medical therapeutic interventions.

The first alternative is acupuncture. This is an ancient process, rooted in Eastern medicine, where thin, solid needles are strategically inserted in the body, and then are carefully manipulated by the practitioner. The next alternative is massage therapy. In this intervention, long, smooth strokes, kneading and other movements are used to focus on superficial layers of muscle. The last intervention to consider is spinal manipulation. This is an intervention where certain areas of the spine are moved using massage, articulation, and high velocity/low amplitude thrusts. Manipulation involves encouraging the “stiff” area of the spine to begin moving again, and comprises soft tissue massage, gentle mobilization movements (articulation), and firmer carefully controlled movements (high velocity low amplitude thrusts—HVTs) which stretched the stiff part often accompanied by a series of “clicks” or “pops.”

The objective of all of these interventions is to help patients find relief from lower back discomfort when more conventional medical interventions seem to fall short of expectations. An in-depth review of the literature revealed that each CAM approach has been effective in managing chronic lower back pain for a number of clients. Each is considered relatively safe when performed by certified or licensed professional.

There are certainly intangible benefits associated with each therapy. For example, many patients report being pain free after years of intolerable discomfort. Others reported being able to resume leisurely and work-related activities that were not possible due to the back pain prior to receiving complementary and alternative medical interventions. You and the other members of the committee know that in addition to the intangible benefits there are those that can be measured in dollars and cents. These include a reduced number of doctor visits; less reliance on pain management medications; and lower lost productive time at work. These tangible and intangible benefits are not quantified for the purposes of the CEA. The plan is that once an alternative is identified and implemented, it will be evaluated using a cost benefit analysis (CBA) at a later date.

Intervention Costs (FC and VC)

In order to decide which therapy to recommend for funding, you and the other members of your team identified the relevant costs (fixed and variable) associated with each alternative on a per client and annual basis, as well as developed financial assumptions which were used to estimate the costs. Fixed costs (FC) remain more of less unchanged irrespective of the volume of clients seen. However, in reality, all costs will tend to vary over time. Generally speaking, labor is considered a variable cost; however, in health care we typically consider labor a semi-fixed cost or FC. For example, fixed costs, for purposes of the CEA include hourly wages for the staff and any equipment used in the provision of care. Variable costs (VC) vary with output, so the greater the volume of clients see the greater the VC. For the CEA, the VC will include patient education materials and consumable supplies used in the provision of care.

Financial Assumptions

It was assumed that the pain management clinic, which will incorporate the chosen CAM alternative into their existing services, will have 150 clients, for the first year of operation, which will be appropriate for this new service. It was also assumed that the provider will be contracted (non-benefited) with the hospital and will be expected to dedicate a total of 10 hours per week at the facility providing care to clients. This includes time to not only evaluate and treat the clients, but also provides ample time for charting and other necessary paperwork. It is assumed that the provider will only be available 50 weeks per year allowing 2 weeks for rest and relaxation (vacation). The hospital will allot a total of 2 hours per week of one (1) clerical worker who will assist in scheduling; ensuring patient education materials are stocked and available; coordinating resources necessary to meet the clients’ needs; and place follow-up calls with clients and other persons connected with the clients’ care. For the spinal manipulation alternative, the hospital will need to retain the services of an outside Radiologist to read the radiographs. This is estimated to take a total of one (1) hour per week. There will also be a need to an X-ray Technician, who will be responsible for taking the radiographs and sending them to the Radiologist. The Technician will be employed by the hospital and supporting this alternative shouldn’t consume more than an hour per week. It was assumed that each alternative will routinely provide appropriate patient education materials (take-away pieces) for their clients, and that this cost will vary based on the market value of these collaterals. Under spinal manipulation, the clients would receive five (5) appropriate brochures at $.61 apiece; for massage therapy the clients a single brochure at a cost of $.19; and finally the acupuncture service would provide three (3) separate brochures at a unit price of $18 apiece.

Completing the CEA

In order for the committee to complete the CEA, you had to determine the labor costs associated with each alternative; the cost of the patient education materials; the cost of consumable supplies; and then calculate the annual and per client costs (FC and VC) for each alternative. Based on labor research and input from Human Resources, you were able to determine that an experienced, doctor prepared, licensed acupuncturist will cost $50 per hour; an experienced, certified message therapist with cost $62 per hour; and an experienced, licensed Chiropractor, with a PhD, will cost $105 per hour. The clerical worker is paid $11.00 per hour and is benefited, so this amounts to an additional 10% to the hourly rate for an adjusted hourly compensation of $12.10. For the spinal manipulation alternative, there are additional labor costs, which needed to be taken into consideration. The X-ray technician who will be needed to take the radiographs of the clients’ back will cost $23 per hour plus an additional 10% for benefits which will come to an adjusted hourly rate of $25.30.

The annual FC (i.e., salaries) was calculated using the following formula: (hourly rate of compensation * number of hours dedicated to these clients per week) * 50 weeks in a given year. (See table 1) To determine the FC cost per client, the following formula was applied: (hourly rate of compensation * number of hours dedicated to these clients per week) * 50 weeks in a given year)/150 anticipated clients during the rollout year. (See table 1). To calculate the VC (i.e., patient education materials and consumable supplies) for each alternative, we applied the following formula: unit cost of brochures and consumable supplies * the anticipated total number of clients in a given year. (See table 1) To get the annual cost (FC and VC) for each of the three (3) CAM alternatives, the committee simply added the annual FC plus the annual VC to reach the total cost (TC). (See table 1)

Table 1: Cost Effective Analysis of CAM Alternatives

Item	Cost Per Patient	Annual Cost
Fixed Costs: Acupuncture
Contracted, experienced, doctoral prepared Acupuncturist @ $50.00/hr for a total of 10 dedicated hrs/wk	$166.67	$25,000
Clerical support @ $12.10/hr, including benefits, for a dedicated 2 hrs/wk	$8.07	$1,210.00
Variable Costs: Acupuncture
Q&A Brochure	$18.00	$2,700.00
First Visit Brochure	$18.00	$2,700.00
Steps of Care Brochure	$18.00	$2,700.00
Acupuncture Needles	$3.50	$525.00
Total Cost for Acupuncture	$232.24	$34,835.00
Fixed Costs: Massage Therapy
Contracted, experienced, certified Massage Therapist @ $62/hr for a dedicated 10 hrs/wk	$206.67	$31,000.00
Clerical support @12.10/hr, inclusive of benefits, for a dedicated 2 hrs/wk	$8.07	$1,210.00
Variable Costs: Massage Therapy
Various brochures with display (anticipate one (1) per client)	$0.19	$28.50
Massage lotion (8 oz. bottle) per client	$9.35	$1,402.50
Total Cost for Message Therapy	$224.28	$33,641.00
Fixed Costs: Spinal Manipulation
Contracted, experiences, PhD prepared, licensed, Chiropractor @ $105.00/hr for a dedicated 10hrs/wk	$350.00	$52,500.00
Clerical support @12.10/hr, inclusive of benefits, for a dedicated 2 hrs/wk	$8.07	$1,210.00
Contracted, licensed, Radiologist @ $72/hr estimating an 1hr/wk of service	$24.00	$3,600.00
X-ray Technician @ $25.30/hr, inclusive of benefits, for an estimated 1 hr/wk	$8.43	$1,265.00
Variable Costs: Spinal Manipulation
Patient education brochures (assume 5 per client)	$3.05	$457.50
Total Cost for Spinal Manipulation	$393.55	$59,032.50

You and the Resources Management Committee have all the data you need to make a decision. You have agreed to prepare the PowerPoint Presentation for the Chief of Staff. You last task for the data given is to prepare a table that lists the cost per patient and annual costs for each option. This will be one of the slides you present.