By Mark Thill
Revisiting the issue of physician preference items – as we do in this month’s issue – is to open a door onto the huge puzzle that is our healthcare system today. We read again and again that this country has marvelous facilities, marvelous practitioners, and marvelous medical technologies – yet we don’t live longer or even as healthy as people in countries that spend less money on healthcare. We worry that the dollars spent on healthcare are choking other societal needs, such as education, infrastructure, environment and defense.
Hence today’s emphasis on value. Are we getting our money’s worth? It’s a question that was seldom asked – at least in healthcare circles – 30, 40 or 50 years ago. The money was there, and our faith in the medical establishment unquestioned. Not so today.
Of all the components of healthcare spending, contracting executives are probably closest to spending on medical products, devices and equipment. A new report from RAND Corporation focuses on that issue. Contracting executives might want to take a look, as it offers the perspective of healthcare providers as well as inventors of new medical technologies.
“Our work for this project focused on identifying promising policy options to change which medical technologies are created in the first place, with these two related policy goals: 1) reduce total health care spending with the smallest possible loss of health benefits, and 2) ensure that new medical products that increase spending are accompanied by health benefits that are worth the spending increases,” write the authors.
That’s how we spell value today.
Inventors of products that lower spending may enjoy limited rewards for their work, according to the authors. In most U.S. industries, customers tend to buy from sellers that provide the best value. But that’s not always true in healthcare. One reason is fee-for-service, which rewards providers for providing more care, even if the clinical benefit of that care is questionable. “Because hospitals want to keep equipment operating near capacity in order to recoup its costs – and physicians make money by helping them do so – providers often use expensive technologies for patients for whom the health benefits are small,” write the authors. Add to that the fact that Medicare is limited in its ability to consider cost in coverage and payment decisions.
You’d think that technologies that improve and maintain health over a long period of time would be in high demand. Not so, point out the RAND authors. Payers figure that the patient who benefits from such technology will probably be part of a different health plan 10 years hence, so why make the initial investment in the technology?
Closely related is the fragmented decision-making that characterizes today’s healthcare system. “Most decision-makers consider only the costs and benefits for their parts of their organizations, and few take into account savings that accrue outside of their silos,” write the authors.
So, how can we reduce spending while maximizing the clinical benefits of medical technology? By encouraging the invention of drugs and devices by 1) reducing the costs and risks of invention, and 2) increasing market rewards. RAND offers some suggestions.
Some ideas for reducing the costs and risks of invention and approval:
- Enable more creativity in funding basic science. The National Institutes of Health, the largest federal investor in biomedical research, favors low-risk projects, and if investigators fail to achieve their project goals, future NIH funding becomes less likely. Funding sources need to encourage risk-taking.
- Offer prizes for inventions. One idea: A share of future savings to the Medicare program that could be attributed to an invention.
- Buy out patents. Public agencies, private philanthropists, or public-private partnerships might purchase patents in order to ensure that a product is commercialized and offered at low prices. As with prizes, the best approach might be to offer patent-holders a share of the savings to the Medicare program that could be attributed to the patented inventions.
- Establish a public-interest investment fund. The market rewards for inventing products that reduce spending are often too low to be attractive to private investors. A public-interest investment fund could finance such inventive efforts.
- Expedite FDA reviews and approvals for technologies that decrease spending. Creating the mechanism would require new legislation to expand the FDA’s mission to include spending.
Options to increase the market rewards of inventing drugs and devices that reduce spending:
- Reform Medicare payment policies. If CMS were allowed to consider cost in determining payment rates, the agency could set Medicare rates to save money in the short run and improve inventors’ incentives over the long run.
- Reform Medicare coverage policies. For example, CMS could expand use of its existing “coverage with evidence” process, and stop paying for tests, procedures, and technologies that clinical experts have deemed inappropriate or ineffective.
- Coordinate FDA approval and CMS coverage processes. This could involve, for example, concurrent reviews.
- Increase demand for technologies that decrease spending. A promising alternative is expanding use of value-based insurance designs (VBIDs), which require patients to pay more out of pocket to receive low-value services than for high-value ones. A key challenge for VBID is determining whether a service has high or low value for individual patients.
- Provide additional – and more timely – technology assessments. Comparative-effectiveness and cost-effectiveness analyses can help payers and providers predict which patients are likely to benefit substantially from a technology’s use
Making such changes won’t be easy, say the RAND authors. There likely will be cries of “rationing,” for example. And many of these proposals are out of the hands of Journal of Healthcare Contracting readers. Still, it’s a good idea for contracting executives to be aware of the larger issues, as you find yourself at the heart of the debate about the value of medical technologies.