The $147,000 misunderstanding: repercussions of overestimating the cost of AIDS

The increasing incidence of AIDS in the 1980s prompted inquiry into the resources required to meet projected needs. In the first economic study to appear on the illness, the Centers for Disease Control (CDC) estimated that the costs of inpatient care were $147,000 per AIDS patient, heightening concern that the health care system would be overwhelmed by the epidemic. However, every study published subsequently has produced much lower cost estimates. As a result, many have concluded that treatment costs declined due to improved delivery of AIDS care. We offer an alternative interpretation, based on evidence demonstrating that the CDC's methods and assumptions yielded a figure about three times too high. The CDC's erroneous estimate had significant policy repercussions. Using the $147,000 figure, the health insurance industry lobbied successfully for the right to screen applicants for HIV. Next, when a study of San Francisco AIDS patients found local hospital costs per case to be $27,571, many concluded that billions of dollars could be saved if the "San Francisco model" of care (emphasizing home and community-based services and case management) were universalized. Since then, most programs for AIDS services have provided funds for community care. While such programs improve access to vital services, they are unlikely to guarantee "better care for less money." A more informed understanding of the cost of AIDS should lead to programs that also strengthen inpatient care.