Sarina Lacey - Centre for International Economics

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  • Achieving better health, and a better use of

    health resources: a companion piece to the

    Know Pathology Know Healthcare campaign

    The economic value of pathology

    Presented by Sarina Lacey

    National Pathology Forum 2016

    December 2016

  • Understanding the purpose of the report

    There is a rule of thumb saying that 70 per cent of

    clinical decisions are based on pathology and

    precious little else on the value of pathology

    No doubt true, but even the source is unknown

    Pathology is so central that it cant be taken out of

    healthcare to see how medical decisions would be

    made without it

    So how do we know what its worth?

    This work focused on contribution of pathology --

    patient outcomes -- efficient healthcare spending --

    where pathology is more clearly identified as the

    source of economic

  • Understanding the purpose of the report

    The work does not provide an estimate of bankable

    savings from spending on pathology

    The evidence base for such calculations does not


    It is likely that there is over/under priced tests, and

    over/under used tests

    Ultimately aims to great a dialogue around value

    based pricing for pathology by understanding how it

    adds value (rather than just cost)

  • High level value drivers

    Economic value for individuals:

    Maintaining good health, more productive, more present,

    greater workforce opportunities, higher income

    Managing poor health, less absent, less avoidance of higher

    performing roles

    Economic value for the health system

    Helping to minimise waste (ineffective treatments)

    Helping to reduce reducing treatment costs (earlier more

    targeted intervention)

    Providing the information/database to see who is doing

    what for what a tool for performance management, best

    practice clinical care



    Economic gains

    Income and employment gains

    Improvement in productivity

    Hospital and health system efficiency

    Social wellbeing

    Health benefits and better health status

    Reduced risk of disengagement

    Improved social welfare

    Pathology outputs




    of results

    Advisory networks with

    medical specialists

    Participation in

    medical management


    Physical and

    mental patient


    Patient safety Economic gains Social and

    community gains Empowerment

    Wellness and


    Mortality and


    Pain and suffering



    medication errors

    exposure to


    Correct diagnosis

    Correct treatment





    Public health





    Social cohesion





    Pathology sector capital and labour inputs

    Laboratories Collection





    scientists, support,

    and management





    suppliers R&D

    Innovation: new/improved

    tests and procedures

  • What can we say in financial terms/activity?

  • Inputs only: taxpayer investment is low relative to other health services and demand trends upwards

    Testing rates rise as pathology becomes more

    necessary with 7 tests per patient in 2014-15 up

    from 5.8 10 years ago

    Most services are for those aged 75+, which are

    mainly the least expensive tests haematology and

    chemical tests

    The most common tests ordered by GPs relate to


  • Measuring outcomes: much harder task

    Limited literature on the economic value of


    cause/effect/ and attribution is fraught

    how much prevention/better treatment is achieved because of

    pathology information?

    Pathology informs the doctor, who makes decisions

    based on all available evidence

    Patients may or may not adhere to doctors advice or

    respond to treatment as expected

  • A case study approach: a good first start

    Pathology helps Australians with diabetes manage

    their condition and minimise risks and


  • Economic results for diabetes

    Reducing complications from diabetes reduces

    costs per person by 2-to-3 fold

    When prevention is achieved, people get better

    quality of life and avoid co-mordities such as kidney

    disease, amputation, eye disease, and myocardial

    infarction, and all their avoided costs

    Diabetes complications = 14% of potentially

    preventable hospitalisations for chronic conditions

    Diabetes prevention programs are multi-faceted,

    but analysis by Department of Health indicates

    they more than pay their way

  • Economic results for heart attack

    A pathology test can inform

    safe early ED discharge by

    separating cases of chest

    pain and heart attack

    80% of patients with chest

    pain in ED are not having a

    heart attack. Troponin result

    can discharge 40% early

    Currently ~$167million is

    being spent on those not

    being discharged early but

    could be.

  • Economic results for colorectal cancer

    Pathology is vital to

    tailored cancer

    therapies, which are

    achieving unprecedented

    survival outcomes

    5-year survival for CRC is

    up from 47% to 67%

    High cost cancer drugs

    can be only provided

    when they will work

  • Improved survival for CRC patients

    2 000

    2 500

    3 000

    3 500

    4 000

    4 500

    5 000







    1970 1975 1980 1985 1990 1995 2000 2005 2010 2015


    te p



    0 0





    Age-standardised mortality rate (LHS)

    No. of deaths (RHS)

    1998 Introduction of hepatic resection.

    2004-2006 Introduction of EGFR inhibitors and chemotherapeutics including oxaliplatin, bevacizumab, and


    2006 National bowel cancer screening program introduced.

    2008 Scientific evidence published on the status of the KRAS gene and the efficiency of the EGFR inhibitors

    2014 Clinical trials demonstrate better health outcomes if EGFR inhibitors are restricted to patients with RAS wild type genes.

    MBS funds RAS testing for Stage IV CRC.

    2011-2014 EFGR inhibitors are listed on the PBS.

    2012 MBS funds KRAS testing for stage IV CRC.

    2014 EFGR inhibitors are listed on the PBS.

    Pathology identifies those at risk and detects those with cancer early

    Pathologists confirm cancer typing to support advances in genetics and


    Pathology supports success of colonoscopy in early detection and determination of disease type.

    Strengthened pathology standards improve quality of specimen collection and analysis

    Pathology proves EGFR inhibitors work

    Pathology monitors dose response success of therapies

  • Being well is valuable!

    A persons life not shortened by avoidable death

    is worth between $1.26 million and $1.4 million

    People with 3+ chronic diseases are half as likely

    to be in the paid workforce compared to people

    that have no chronic diseases = loss to the labour

    force, with productivity losses estimated at 10%,

    compared to labour participation not being

    reduced by chronic disease

    Presenteeism costs the Australian economy

    $34.1 billion p. a. = a productivity loss of 2.6%

    and a GDP loss of 2.7%

  • What does it mean for pathology funding

    Doesnt mean funding for pathology is a panacea

    But it does mean funding access to quality

    pathology information is essential

    Need funding level to be right in terms of

    funding the right amount and type of testing.

    Need incentives to innovate and provide better

    more accurate information (currently rewards are

    largely derived from scale economies)

  • What does it mean for pathology funding

    Need a competitive and contestable pathology

    market to ensure innovation and the sharing of

    efficiency gains (i.e. not overly concentrated)

    Focus on how to ensure pathology maximises

    value, rather than minimises costs

    Increased testing activity should typically be

    value creating, providing the evidence for

    informed prevention, treatment, and monitoring


  • Sarina Lacey

    Director, Health Economics and Policy

    (02) 9250 0800 or 0418 245