Health Care Cost Reduction – Cost Estimation

The conceptual framework for our study has the following three segments.

  1. First, we determine if the supplement produces a physiological effect as shown by a change in biological markers;
  2. Then, we ask if the physiological effect creates a change in health status;
  3. And finally, we determine if the change in health status is associated with a decrease in health care expenditures.

In order to consider costing the supplement, there has to be evidence in the form of clinical trials and other well-designed research studies that can support each of the above questions.

Gross Cost. To determine gross cost, we started with the size of the at-risk population using data from the Medicare Trustees Report (rates, hospitalization, new beneficiaries, costs, etc). To find the cost of the supplement, we created a simple average across products, both generic and branded. We then applied the take up rate to obtain a gross cost.

Benefit. The benefits accrue from avoided health care by the segment of the at-risk population that would have achieved the therapeutic effect (e.g., hospitalizations for hip fractures for users of calcium with Vitamin D). We considered the number of new users who take the supplement as directed and achieve the full therapeutic effect, such as those involved in the Veterans Administration’s Lutein studies. The benefit is either the reduction in Medicare spending (such as hospitalizations, skilled nursing facility admissions, physician visits) or the health care and societal savings associated with avoiding either NTDs in the case of folic acid, or the single year expenses associated with the transition to dependency because of a loss of central vision.15

Net Costs. The net costs over the five year period (2008 – 2012) were derived by subtracting the benefits from the costs. For studies of potential benefits to the Medicare program, the cost estimation takes into account a 20% premium effect.

To estimate the impact on a federal program (e.g., Medicare), we then compare the net costs to baseline spending by Medicare on the services. In cases where the net costs are negative, the negative costs represent savings.


Table of Contents | Next - Study Findings


15 Guralnik JM, Alecxih LM, Branch LB, Wiener JM. (2002). Medical and long-term care costs when older persons become more dependent. Amer Journal of Public Health, 92(8): 35-48.


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