Medicare’s Vision for Delivery-System Reform — The Role of ACOs

By Hoangmai H. Pham, M.D., M.P.H., John Pilotte, M.H.S., Rahul Rajkumar, M.D., J.D., Elizabeth Richter, M.A., Sean Cavanaugh, M.P.H., and Patrick H. Conway, M.D. (all from the Centers for Medicare and Medicaid Services)
The New England Journal of Medicine, September 10, 2015

Earlier this year, the Department of Health and Human Services announced the goals of tying 30% of Medicare payments to alternative payment models by the end of 2016 and 50% by the end of 2018. That move was reinforced by the Medicare Access and CHIP Reauthorization Act of 2015, which replaced the sustainable growth rate formula for calculating physician payments with a Merit-based Incentive Payment System (MIPS) that consolidates and incorporates key components of the Physician Quality Reporting System, the Physician Value-Based Payment Modifier, and the Medicare Electronic Health Records Incentive program for eligible professionals. The MIPS will adjust payment rates on the basis of physicians’ performance on quality measures, resource use, clinical practice improvement activities, and meaningful use of electronic health records. Eligible professionals participating in eligible alternative payment models could receive a 5% lump-sum incentive payment each year from 2019 through 2024. If they meet program criteria, accountable care organizations (ACOs) could thus be central to Medicare’s strategy for delivery-system reform

Three principles guide CMS as we seek to further improve ACO policies and programs.

First is the importance of maintaining an ongoing test bed of ACO models through the Center for Medicare and Medicaid Innovation.

The second principle is that a concrete strategy for expanding successful models should be based on our testing experience.

The third principle is that ACO initiatives require multiple, distinct “tracks” to engage different types of beneficiaries and providers. Understanding the market’s diversity led to the conclusion that experienced ACOs willing to take financial-performance risks could be allowed to handle more flexible payment structures such as capitation or specific payment waivers but that less-experienced ACOs may take longer than anticipated to establish core capabilities in coordinating care for a population. Those organizations need protection from financial-performance risk during the development phase and, sometimes, direct capital support such as through the ACO Investment Model.

It’s also important to understand what factors do not drive the CMS approach to ACO policies. Our programs are not premised on the expectation that ACOs should evolve into Medicare Advantage health plans. Medicare beneficiaries are the ones who decide to enroll in Medicare Advantage or remain in traditional Medicare. Some now also proactively select an ACO as part of traditional Medicare. We believe that all beneficiaries deserve access to high-quality, coordinated care regardless of which program they choose and that provider organizations should decide which lines of business are most appropriate for them. Some may choose to serve patients as both an ACO and a health plan; others may choose one path or the other or take advantage of other alternative payment models such as bundled payments. We are therefore striving to maintain comparable business cases for ACO initiatives and Medicare Advantage, but some disparities in program requirements will persist because of statutory provisions and other factors inherent in the programs (for example, actuarial approaches must acknowledge that a health plan can choose the counties where it offers a Medicare Advantage product, but an ACO is constrained by the bricks and mortar of its available providers and facilities and cannot easily change location).

CMS policies are also not premised on the expectation that for an ACO program to be successful, all ACOs in it must succeed financially. Design elements certainly shape the potential for ACOs to earn shared savings, but ACOs also vary widely in their capabilities and decisions regarding staffing, infrastructure, and specific interventions. We judge the performance of initiatives on the basis of whether our policies appropriately reward good quality of care and savings to Medicare — results that might be achieved only by the most prepared subset of ACOs. We believe it’s important that with experience, ACOs be able to settle into the payment arrangements that best match their readiness and appetite for risk.

Finally, although CMS has implemented policies to promote improvement in ACO performance, we don’t believe that all ACOs can consistently improve on their spending performance over the long run or that it would be ideal for beneficiaries if spending continually declined. There are challenges, however, in setting national policies given large geographic disparities in practice patterns, Medicare spending, and beneficiary needs. We’re therefore emphasizing rewarding improvement in spending performance in these early years of ACO initiatives and aim to exercise sound judgment regarding the appropriate pace and approach to setting spending benchmarks over the long term. Ideally, our strategy would gradually shift from rewarding only spending reductions to also rewarding absolute spending levels, as in the Next Generation ACO Model, while considering the level of ACO penetration in Medicare and the degree of spending improvement — and do so without imparting sudden shocks to health care markets or exacerbating inequities.

We look forward to finding more strategies to help ACOs succeed faster, spur participation in more communities, combine multiple payment approaches for providers, and strengthen the business case for ACOs. Providers should compare ACO earnings not with what they could earn in today’s fee-for-service payment environment but with what they could expect to earn in the future if they didn’t participate in such alternative payment models. Although the challenges are protean, so are the opportunities, and we look forward to continued partnership with patients and providers.

http://www.nejm.org/doi/full/10.1056/NEJMp1507319

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Comment:

By Don McCanne, MD

We are moving full steam ahead with delivery reform through alternative payment models in which accountable care organizations (ACOs) are anticipated to play a major role. That is why it is important to read and understand the vision that our CMS bureaucrats have for the future of Medicare.

A quick read indicates that we are well on our way to pretending that we are paying for value rather than volume through ACOs. But a careful read of the full, unedited article suggests that CMS has really low expectations for ACOs, even though their rhetoric does not suggest that.

We are headed in the wrong direction. We need a single payer national health program if we expect to increase efficiency and value in our delivery of heath care.

The way our CMS bureaucrats are clogging up our Medicare program should make us consider using all caps for “improved,” as in “IMPROVED Medicare for All.” Or just simply call it “single payer” – that’s a more precise label anyway.

The Prescription Drug Affordability Act of 2015

Statement by Sen. Bernard Sanders
September 10, 2015

Thank you all for coming. And let me say a special thanks to Congressman Elijah Cummings.

No one in Congress has done more to lower the outrageously high price of prescription drugs than Congressman Cummings and I thank him for his leadership not only on this issue, but so many others in the House.

We are here today to talk about a huge issue of consequence to the American people. And, that is the fact that the American people pay, by far, the highest prices for prescription drugs in the entire world.

In the richest country in the history of the world, Americans should not have to live in fear that they will die because they cannot afford to take the life-saving medication they need.

The American people should not have to go without the medication they need because Congress does not have the courage to stand up to the prescription drug industry.

The time has come to say very loudly and very clearly that enough is enough. The greed of the pharmaceutical industry is killing Americans. It has got to stop.

It is time for the United States to join the rest of the industrialized world by implementing prescription drug policies that work for everybody, not just the CEOs of the pharmaceutical industry.

That’s exactly what the legislation that Congressman Cummings and I will be introducing today begins to do.

Specifically:

1. This bill requires Medicare to use its bargaining power to negotiate with the prescription drug companies for better prices – a practice that was banned by law. Not only would this substantially reduce the prices seniors pay for drugs, it could save Medicare over half a trillion dollars over the next decade.

2. This bill would allow individuals, pharmacists, and wholesalers to import prescription drugs from licensed Canadian pharmacies where drug prices are 40 percent lower per person than they are in the U.S.

3. This bill would hold the pharmaceutical industry accountable when they defraud the American people. Today, nearly every major pharmaceutical company has been convicted of either civil or criminal fraud. And even though the Justice Department has won suits requiring them to pay billions in fines, the prescription drug companies simply treat these fines as the cost of doing business. Our bill would say that if a drug company is convicted of fraud, they will lose their market exclusivity on the drugs they sell.

4. This bill would end “pay for delay” – a practice in which brand name prescription drug companies pay other companies not to manufacture cheaper generic drugs. The FTC has estimated that pay for delay is costing consumers and taxpayers about $3.5 billion a year in higher drug prices. That is unacceptable.

5. This bill would demand more transparency from drug companies, who have been concealing the true cost of their research and development.

Let me just conclude my remarks by saying this. I know how hard it will be to pass this legislation. I know how hard it will be to defeat the prescription drug industry. In fact, to my knowledge the prescription drug industry has never lost a battle on Capitol Hill.

But at a time when a huge majority of the American people want us to take action, when 74 percent of Republicans and 93 percent of Democrats, want the federal government to negotiate with the drug companies to lower prices, the time has come to say enough is enough. We cannot let the drug companies continue to rip-off Americans who are suffering any longer.

http://www.sanders.senate.gov/download/prepared-remarks-on-the-prescription-drug-affordability-act-of-2015

Prescription Drug Affordability Act of 2015 (Bill number pending): http://www.sanders.senate.gov/download/text-of-prescription-drug-affordability-act-of-2015

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Comment:

By Don McCanne, MD

When we enact an improved Medicare for all, it would be important for Medicare to have the power to negotiate better drug prices with the prescription drug companies. The Prescription Drug Affordability Act of 2015 would establish that principle, clearing one more hurdle on our way to health care justice for all.

Health Savings Accounts: Growth Concentrated Among High-Income Households And Large Employers

By Lorens A. Helmchen, David W. Brown, Ithai Z. Lurie and Anthony T. Lo Sasso
Health Affairs, September 2015

Between 2005 and 2012, the share of employers whose employees had health savings accounts (HSAs) and the share of employees working at these employers grew more than tenfold. High-income and older tax filers both established HSAs and fully funded their HSAs at least four times as often as did low-income and younger filers.

Although suggestive, the evidence to date on the take-up of HSAs has been limited to surveys, which rely on modest samples of several thousand individuals or employers that have chosen to participate. In this study we examined US tax records to offer a definitive depiction of the growth and ownership patterns of HSAs.

http://content.healthaffairs.org/content/34/9/1594.abstract

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Comment:

By Don McCanne, MD

Although there are innumerable surveys available on health savings accounts (HSAs), this is the definitive word since it used actual US tax records of filings on these tax-advantaged accounts. We can now say with absolute certainty that four times as many high-income and older tax filers both established and fully funded their HSAs as did low-income and younger filers.

This is what was predicted by many of us since the tax expenditures associated with these accounts (taxes not paid since the contributions are deducted from taxable income) are regressive tax policies benefiting higher income individuals with little or no benefit for those with low incomes. It is patently unfair to use our tax funds to subsidize the rich but not the poor.

But there is another consequence of HSAs that has a much greater negative impact. That is that an HSA must be combined with a high-deductible health plan. Many studies have confirmed that these high-deductible plans have left many middle- and low-income individuals and families underinsured. They face financial hardship should they need health care, because of the high out-of-pocket expenses associated with these insurance plans that shift health care costs from the insurers to patients in need.

Although HSAs are designed to pay for care received before reaching the deductible, this study confirms that the HSA accounts of lower-income individuals contain few if any funds at all. An empty HSA account doesn’t open doors to health care.

Another annoying feature is that these accounts can be used for retirement expenses once reaching age 65. What is fair about supporting these accounts for wealthier individuals with our tax expenditures that lower income individuals do not receive, even if they do have some funds in their accounts? Because of these regressive tax policies, the charge that they work for the wealthy and healthy but not the sick and poor really is true.

Many conservatives recognize that we need public policies to help support those with lower incomes. It is difficult to reconcile that view with their current push to expand the use of HSAs that are designed primarily to benefit the rich.

This issue would go away if we enacted an improved Medicare for all.

The Financial Effect of Value-Based Purchasing and the Hospital Readmissions Reduction Program on Safety-Net Hospitals in 2014

By Matlin Gilman, BA; Jason M. Hockenberry, PhD; E. Kathleen Adams, PhD; Arnold S. Milstein, MD; Ira B. Wilson, MD, MSc; and Edmund R. Becker, PhD
Annals of Internal Medicine, September 7, 2015

Background:

Medicare’s value-based purchasing (VBP) and the Hospital Readmissions Reduction Program (HRRP) could disproportionately affect safety-net hospitals.

Measurements:

Safety-net hospitals were defined as being in the top quartile of the Medicare disproportionate share hospital (DSH) patient percentage and Medicare uncompensated care (UCC) payments per bed. The differences in penalties in both total dollars and dollars per bed between safety-net hospitals and other hospitals were estimated with the use of bivariate and graphical regression methods.

Results:

Safety-net hospitals in the top quartile of each measure were more likely to be penalized under VBP than other hospitals (62.9% vs. 51.0% under the DSH definition and 60.3% vs. 51.5% under the UCC per-bed definition). This was also the case under the HRRP (80.8% vs. 69.0% and 81.9% vs. 68.7%, respectively). Safety-net hospitals also had larger payment penalties ($115 900 vs. $66 600 and $150 100 vs. $54 900, respectively). On a per-bed basis, this translated to $436 versus $332 and $491 versus $314, respectively. Sensitivity analysis setting the cutoff at the top decile rather than the top quartile decile led to similar conclusions with somewhat larger differences between safety-net and other hospitals. The quadratic fit of the data indicated that the larger effect of these penalties is in the middle of the distribution of the DSH and UCC measures.

From the Discussion

Although the payment penalties that safety-net hospitals are receiving under VBP and the HRRP were usually small, supplemental analysis reveals that approximately 1 in every 10 safety-net hospitals in the top quartile of DSH definition are receiving payment rate reductions totaling 1.0% or greater in 2014. Because safety-net hospitals are known to have had historically low margins even before the 2008 economic recession, losing 1.0% or more of Medicare inpatient payments could have a significant effect on these hospitals’ financial conditions for 2 reasons. First, if they were to receive persistent annual reductions in payment rate despite quality improvement efforts, the accumulation of these small penalties on overall financial position would further disadvantage these hospitals. Second, the transition from DSH to the Medicare UCC payments mandated under the ACA will mean less revenue as the proportion of uninsured patients decreases and mandated reduction in the total pool of funds increases. As such, it is not clear that these reductions will be fully offset from revenue by newly insured patients covered by the ACA’s insurance expansion, given earlier evidence from insurance expansions in Massachusetts. When safety-net hospitals close, patients in these communities are negatively affected, and close monitoring of the financial condition of these institutions is warranted as the stakes in VBP and the HRRP increase.

http://annals.org/article.aspx?articleid=2434617

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Collateral Damage: Pay-for-Performance Initiatives and Safety-Net Hospitals

By Steffie Woolhandler, MD, MPH and David U. Himmelstein, MD
Annals of Internal Medicine, September 7, 2015

In this issue, Gilman and colleagues document a side effect of Medicare’s pay-for-performance (P4P) initiatives: They divert money from underresourced safety-net hospitals that are mainstays of care in many minority communities to hospitals serving more affluent patients.

Medicare’s P4P program, which does not adjust for patients’ socioeconomic status, assumes that bonuses and penalties will prod substandard providers to improve or see their patients migrate to higher-quality options. However, when quality problems are due to a hospital’s financial distress and patients cannot go elsewhere, penalizing low scorers may well punish patients and exacerbate quality disparities. Prescribing a starvation diet for safety-net hospitals that are strapped for cash and are quality challenged makes no sense unless the goal is to close them.

Are P4P’s benefits worth the risk? The evidence is surprisingly slim. A few small, randomized, controlled trials in outpatient settings have shown improvement on surrogate measures, but most have found no improvement, and none have demonstrated reductions in death or disability rates.

Safety-net providers spend less on administration and may lack the administrative resources to keep up in the gaming arms race — the health care equivalent of teaching to the test. Expensive computer systems and consultants facilitate aggressive upcoding and meticulous documentation of comorbid conditions that can exaggerate patients’ severity of illness and inflate risk-adjusted quality scores. Costly administrative efforts can also ferret out exceptions and ensure that boxes are checked (for example, “Yes, we counseled against smoking”), increasing process-of-care scores, regardless of whether they improve care.

Tethering physicians’ rewards to box checking and redundant documentation risks both substituting insurers’ priorities for patients’ goals and demoralizing physicians. Pay for performance can crowd out intrinsic motivation that keeps us doing good work even when no one is looking.

Paying for quality has strong intuitive appeal. However, as with other medical interventions, intuition may mislead, and adopting everywhere policies that have been proven nowhere puts millions at risk for unintended side effects.

http://annals.org/article.aspx?articleid=2434618

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Comment:

By Don McCanne, MD

Now that the Affordable Care Act has withstood constitutional challenges and five years of implementation, attention has turned to efforts to improve quality while controlling costs – paying for quality rather than volume through various pay-for-performance schemes (P4P) including Medicare’s value-based purchasing (VBP) and the Hospital Readmissions Reduction Program (HRRP). Those closely following the reform process realize that such efforts to date have provided only negligible, if any, improvements in quality and cost containment.

Today’s report shows that these programs also can have adverse consequences. Because of factors such as chronic underfunding, high pressures placed on clinical and administrative staff, and patient populations that are less capable of interacting efficiently with the health care system, safety-net hospitals do not and are not expected to perform well on these measures. As a result, these underfunded institutions suffer further financial penalties which can only compound their difficulties in trying to meet the needs of the vulnerable populations they serve.

The lesson here is that we are diverting our resources and talent to efforts that will fall far short of our goals on quality and affordability, primarily because we passively accept the fact that our dysfunctional system under the Affordable Care Act is here to stay. Instead we should be working on introducing a system that actually will meet our goals, not only for quality and affordability, but also for universality, efficiency, comprehensiveness, accessibility, and, especially, equity – a single payer national health program.

Physician Payment Reform In A Post-SGR World: Challenges Remain

By John O’Shea
Health Affairs Blog, September 3, 2015

On April 16, 2015 President Barack Obama signed the Medicare Access and CHIP Reauthorization Act (MACRA) which, among other things, finally repeals the Sustainable Growth Rate (SGR) mechanism of updating fees to the Physician Fee Schedule (PFS).

The passage of MACRA, however, raises new questions about where the U.S. health care system is headed in the post-SGR world of payment and delivery reform.

Reasons For Caution

These policy changes and announcements follow widespread calls to move from the current volume-based fee-for-service (FFS) payment system to a value-based system that pays for patient outcomes rather than individual services. Value-based health care should be the goal of any health reform initiative. However, even with SGR out of the way, there are major challenges to achieving that goal, including the lack of an agreed-upon, patient-centered definition of value; a shortage of meaningful performance metrics; and a deficiency of accounting systems capable of reflecting the true cost of delivering care.

Policymakers and others involved in payment reform should also remain acutely aware that the multitude of reporting requirements associated with participation in APMs will add substantially to the already heavy administrative burden on physician practices.

Alternative Payment Models

The future course of payment reform currently centers on efforts to make fee-for-service increasingly less attractive than participation in an alternative payment model (APM). However, moving providers out of FFS assumes that they have a viable place to go. At this point, it is not clear that they do.

Value-based purchasing (VBP), the concept behind APMs includes a broad set of performance-based payment strategies that attempt to use financial incentives to influence provider performance.

MACRA provides for a significantly modified FFS payment system, the Merit-Based Incentive Payment System (MIPS), which is essentially a P4P program. In addition, the legislation encourages the development and implementation of APMs and offers incentives for providers to move into these models.

Although there are a number of individual examples of successful initiatives, the overall early results, as well as possible conceptual flaws, make the long term viability of these models uncertain.

Pay For Performance

Although P4P programs are among the oldest APMs, the success of these models is impeded by serious gaps in the current quality measurement system. According to a 2014 RAND report that looked at 49 studies examining the effect of P4P on process and intermediate outcome measures, the overall results of the studies were mixed, and any identified effects were relatively small.

A basic flaw in the design of existing P4P models is the reality that meaningful patient-centered outcome measures remain elusive.

Accountable Care Organizations

Accountable Care Organizations (ACOs) are health care organizations that tie provider reimbursements to quality and cost metrics related to the total care of an assigned population of patients.

Although ACOs are still relatively new, their ability to generate savings to share with participants is so far not encouraging, as shown by the early results among the most experienced providers in the Pioneer ACO program.

Even the most inefficient system has a finite amount of waste; although it may be relatively easy to address “low hanging fruit” early on, achieving sustained savings over time will prove increasingly difficult.

Bundled Payments

In the Bundled Payment model, a single payment is made for services delivered during an episode of care related to a medical condition or procedure.

Although the cost of each bundle may be reduced, without any control over the volume of bundles provided, overall spending may not go down. Bundled payments also need accurate risk adjustment to avoid both the underuse of appropriate care services as well as the tendency to “cherry pick” low-cost patients.

Patient-Centered Medical Homes

Although early limited evaluations and anecdotal experience with the Patient-Centered Medical Home model have suggested the promise of cost savings and higher patient and provider satisfaction, results from a large multipayer medical home pilot was associated with limited improvements in quality and no reduction in hospital usage, emergency department visits, ambulatory care services, or total costs over three years.

Impact On The Practice Of Medicine

By and large, physicians not only want to provide the best quality health care to their patients, they also want to know they are doing so. But physicians currently labor under an increasingly burdensome and often meaningless number of reporting requirements that take time away from patients and fail to help them improve the quality of their care.

According to a commentary in The New England Journal of Medicine in 2014, “the quality-measurement enterprise in U.S. health care is troubled.” Physicians, hospitals, and health plans view measurement as burdensome, expensive, inaccurate, and indifferent to the complexity of care delivery. The measures also fail to give patients the information they need to make good decisions.

The recent CMS report that 40 percent of Medicare providers will face 1.5 percent cuts for failing to submit data to the Physician Quality Reporting System underscores the fact that many providers, especially those who see few Medicare patients, likely view the cuts as a cost of business to avoid the administrative hassle.

Yet, in spite of these cautionary signs, public and private payers are tying larger amounts of provider payments to a growing number of largely meaningless measures, as if doubling down will somehow fix the problem.

Given the plethora of payment and delivery reform initiatives currently underway or in development, there is relatively little discussion about the long-term goal of payment reform or the impact of these initiatives on the practice of medicine. There are at least two areas of particular concern: the administrative burden on physicians, and the push toward greater consolidation.

Nearly half (46 percent) of doctors reported that they felt burnout in 2014, and a main reason cited was increasing administrative burden, including the multitude of reporting requirements. These findings cannot be dismissed, since burnout has been positively linked to increases in medical errors and has been cited as a reason why doctors leave practice.

Another consequence of both the administrative burden and financial risk of participation in APMs is likely to be an increase in the already considerable trend toward practice consolidation. This trend has been shown to increase health care spending without increasing quality or efficiency and runs counter to the goals of APMs. Many small, independent practices will lack the resources needed to comply with the myriad of reporting requirements involved in APM participation; they are also less likely to be able to absorb the potential losses in a model that involves down-side financial risk.

Moving Forward On Physician Payment Reform

The Administration’s aims regarding value-based payments and the expanded use of APMs come with very little detail on how they will be realized; thus, it is difficult to comment other than to say that given the current state of performance measurement and the early results from existing APMs, the timeline seems overly aggressive.

Although the pursuit of better value in health care is a laudable aim and should continue, setting goals and establishing timelines is not enough. Linking more and more physician income to meaningless quality measures or mandating participation in undeveloped APMs will do little more than add to the already considerable non-clinical burden that physicians face and may force many physicians to abandon private practice in favor of employment, thereby accelerating the current trend toward consolidation. Worse yet, physicians may choose to leave practice altogether.

John O’Shea, MD, is a practicing surgeon and Senior Fellow in the Center for Health Policy Studies at the Heritage Foundation in Washington, DC. He served as a senior health policy advisor to the U.S. House Committee on Energy and Commerce, where he helped draft the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) that replaced the Sustainable Growth Rate (SGR) formula for reimbursing physician services in the Medicare program.

http://healthaffairs.org/blog/2015/09/03/physician-payment-reform-in-a-post-sgr-world-challenges-remain/

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Comment:

By Don McCanne, MD

It is indeed a rare event when we can agree with a health policy fellow from the Heritage Foundation. John O’Shea has spelled out the deficiencies and potential harms of the current directions in physician payment reform.

The goal is to drive quality and control costs. Although Dr. O’Shea does not tell us how he would do that, it is likely that he would disagree with our approach. We would adopt a single payer national health program which, by design, increases quality while improving value in our health care spending.

Health Care Spending: Historical Trends and New Directions

By Alice Chen and Dana Goldman
NBER Working Paper 21501, National Bureau of Economic Research, August 2015

Over the last five decades, broad changes in the US health care system have dramatically influenced growth in health care expenditures. These structural changes have also influenced the trajectory of the health economics research.

From the Conclusion

Chandra & Skinner (2012) categorize technological progress in health care based on its impact on cost and health: (1) high-efficiency, low-cost innovations; (2) costly innovations with high efficiency for particular subgroups; and (3) costly innovations with uncertain efficiency. The first two lead to large improvements in life expectancy, but they are not to be blamed for the rise in health spending relative to other nations. It is the third category that has been uniquely abundant in the US.

There is question of whether efforts to control technology will induce a harmful reduction in innovation, with personalized medicine – currently showing great promise but also great expense – being a notable example. We clearly need a better understanding of what precisely constitutes innovation, how it diffuses, and whether it can be harnessed to slow spending growth in a way that is socially desirable. Given the successes of the past half century, this seems well within the realm of possibility.

http://www.nber.org/papers/w21501

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The Value And Limits Of Economic Evaluation In Policy Analysis

By Victoria Phillips
Health Affairs Blog, September 1, 2015

Health care resources, no matter how represented, are ultimately finite. Trade-offs occur as spending in one area means that those same resources are unavailable to fund another program. In spite of this, U.S. policymakers remain reluctant to engage in conversations that even hint at “rationing.” This reluctance is evidenced by the fact that the Patient-Centered Outcomes Research Initiative (PCORI) is legislatively forbidden to include cost-effectiveness ratios in its comparative effectiveness evaluations.

Diametrically opposed to the U.S. system, most other countries embrace cost-effectiveness, whereby competing programs are evaluated in terms of costs and the health gains they produce.

The U.S. reluctance to embrace cost-effectiveness analyses as a policy tool is misguided, particularly as concerns about the level and distribution of health care spending remain front and center. Foremost, it means missed opportunities to lead much-needed discussions about the inherent trade-offs in health care investments.

Following the model of the clinical literature, policy researchers, analysts, and foundations should become familiar with economic evaluation tools and integrate them into their work and reports as a matter of course.

Cost-effectiveness analyses generally identify what must be paid to generate a health gain. If the focus of an intervention is extending life, results are reported as the cost per life-year gained. Little appreciated is the notion that these analyses describe the cost and health benefit produced. Only in limited circumstances, for example when an intervention is cost-saving, do they prescribe that a particular investment be made.

Extending life is one type of health gain, while improving quality is another. Quality changes can be paramount in populations affected by chronic conditions. The quality-adjusted life-year (QALY) is an outcome measure developed by economists in the 1970s, which adjusts survival gains by quality of life provided over the life-years.

At present the U.S. economic evaluation literature uses both QALYs as a standard outcome measure and an informal cost-effectiveness ratio of $100,000 per QALY gained.

PCORI, however, continues to focus on outcomes alone, including QALYs.

Curing Hepatitis C, Social Values, And Rationing

While cost-effectiveness analysis offers a solid starting point for discussions about health care trade-offs and spending prioritization, there are clear limits to its contributions in decision-making. New, potent, and expensive drugs are a case in point as they increasingly pose challenges for health systems and payers.

The new drug Harvoni offers a cure for Hepatitis C. This condition was previously treated with Interferon costing $15,000 per course, while the new regimen costs approximately $84,000. The budgetary implications of providing it are game-changing, with California alone estimating a total for Medicaid of $18 billion out of a $64 billion budget.

Such breakthroughs end the pretense that the U.S. does not need to confront rationing. Further, as the chance is minimal that Harvoni will be cost effective by any standard, determining whether to fund it falls outside the cost-effectiveness domain. It will involve some stark choices, ultimately reflecting social values, which the public seems woefully unprepared to make.

Policy analysts can lay the groundwork now for these more complex discussions by incorporating cost-effectiveness and the language of trade-offs into their work. This includes embedding these concepts into research, briefs, commentaries, and policy discussions, along with helping edge PCORI in a similar direction.

http://healthaffairs.org/blog/2015/09/01/the-value-and-limits-of-economic-evaluation-in-policy-analysis/

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Comment:

By Don McCanne, MD

Although there are many factors contributing to the increases in health care spending, the advances in technology such as new drugs, innovative surgical procedures, advances in imaging, and now, the potential of pharmacogenetics in personalized medicine, are playing an increasing role in driving up health care costs.

The entrepreneurial drive in health care seems to be expanding as a manifestation of the more general trend of mega-wealth seeking behavior. The outrageous overpricing of the drugs for hepatitis C is but one example of this behavior. But just think of the potential for pharmacogenetics and personalized health care – seven digit pricing would not be beyond the aspirations of the next generation entrepreneurs in the medical-industrial complex.

It is now commonplace for prices to be based not on costs but rather on value attained. Since a quality adjusted life year (QALY) is currently considered to have a value of $100,000, it does not take much imagination for these entrepreneurs to assign a price of $1,000,000 to personalized medicine interventions that add ten QALYs to an individual’s life. Though these numbers look preposterous now, the new prices we are already seeing indicate that we are headed in that direction.

The United States is unique in having a laissez faire attitude toward pricing in health care. All other nations use some sort of public control of pricing. Although our government does play a limited role through public programs such as Medicare and Medicaid, in general we tend to rely on market forces when markets are mostly about getting the highest prices the consumers will bear.

We can no longer sit back and watch more and more of us being priced out of health care. Although as a nation we are ready to accept comparing the effectiveness of various approaches in health care, we now have to make the decision that evaluations must also include cost-effectiveness analyses. Federal law currently prohibits cost evaluations under the Patient-Centered Outcomes Research Initiative (PCORI). That prohibition must be lifted.

Under a single payer national health program, abusive pricing would not be tolerated. Opponents say that government efforts to moderate pricing would stifle innovation and research. Nonsense. There is no way that the medical-industrial entrepreneurs would walk away from trying to get as large of a share as they can of the $3 trillion that we are spending on health care.