Decline In Public Substance Use Disorder Treatment Centers Most Serious In Counties With High Shares Of Black Residents

By Janet R. Cummings, Hefei Wen and Michelle Ko
Health Affairs, June 2016

Abstract

Previous research has associated declines in health care resources such as hospitals and trauma centers with communities’ racial composition. However, little is known about changes in the substance use disorder treatment infrastructure in recent years and the implications for black communities. We used data for the period 2002–10 from the National Survey of Substance Abuse Treatment Services to describe changes in the supply of public and private outpatient facilities for substance use disorder treatment, and to determine whether these trends had implications for the geographical availability of these facilities in counties with high percentages of black residents. During the study period the number of publicly owned facilities declined 17.2 percent, whereas the number of private for-profit facilities grew 19.1 percent. At baseline, counties with very high percentages of black residents (that is, more than one standard deviation above the mean) were more likely than counties with less than the mean percentage of black residents to be served by public facilities and were thus disproportionately affected by the overall decline in public facilities. Future research should examine the effect of expanding eligibility for Medicaid on the supply of substance use disorder treatment facilities across diverse communities.

From the Discussion

Between 2002 and 2010 there was a decline in the number of public and private nonprofit outpatient substance use treatment facilities, but considerable growth in the number of private for-profit facilities. Among counties with at least one public facility at baseline, nearly half experienced a net loss in the number of public facilities by 2010. Counties with a large percentage of black residents were disproportionately burdened by the decline in public facilities, and these losses were not offset by an increased likelihood of gains in private for-profit or nonprofit facilities.

An overall decline in the supply of public and private nonprofit facilities has important implications for vulnerable populations across all communities. Compared to private for-profit facilities, public and nonprofit facilities are less likely to turn clients away based on their ability to pay.

Although public facilities constituted only 15 percent of the sample at the beginning of the study period, the decline in this sector is especially notable because these facilities were the most likely, at baseline and follow-up, to provide services to people who could not pay. In addition, previous research has reported that public facilities serve a significantly higher percentage of clients who are unable to pay for services than private (for-profit and nonprofit) facilities do. Furthermore, public facilities are more likely than private ones to offer important services such as HIV testing and more likely than private for-profit facilities to offer comprehensive care, including physical examinations and mental health treatment. Future research is needed to better understand the implications of these declines for the accessibility of outpatient care among low-income populations and for the availability of specific types of services.

The decline of public facilities has important implications for counties with a high percentage of black residents in particular. Nearly half of the counties with a public facility at baseline experienced a net loss in this resource, and counties with higher percentages of black residents were overrepresented among these communities. Regression results indicated that there was no significant association between county percentage of black residents and the likelihood of losing a public facility after other county-level characteristics were adjusted for. Nevertheless, counties with very high or extremely high percentages of black residents were disproportionately affected by the overall downward trend in the public sector because they were more likely to be served by public facilities at baseline than counties with less than the mean percentage of black residents.

The net loss of public facilities in counties with very high or extremely high percentages of black residents was not offset by an increased likelihood of gains in private facilities. Instead, the latter counties were less likely to gain a private (for-profit or nonprofit) facility than counties with less than the mean percentage of black residents, after other county-level social and demographic characteristics were adjusted for in the analyses. Considered together, these results suggest that public facilities may help fill infrastructure gaps left by the private sector, and that losses of public providers may not necessarily result in new investments from the private sector. As a consequence of the general decline in the public sector, coupled with the similar or lower likelihood that counties with very high or extremely high percentages of black residents experienced a net gain in private facilities, the counties with higher percentages of black residents had a lower likelihood of having any outpatient facility by the end of the study period, compared to counties with less than the mean percentage of black residents.

As of March 14, 2016, thirty-one states had opted to participate in the Medicaid expansion. However, it is worth noting that the decline of public facilities was even more pronounced among states that are not participating in the expansion. In addition, more than four-fifths of counties with more than the mean percentage of black residents are located in states that have not expanded Medicaid.

Conclusion

This study provides the first empirical information about trends in the ownership mix of facilities for substance use disorder treatment since the beginning of the twenty-first century and the implications of these trends for counties with a high percentage of black residents. The general decline in the number of public facilities, coupled with a similar or reduced likelihood of gaining private facilities in these counties, resulted in an overall disparity between them and other counties in the geographic availability of treatment facilities by 2010. As national policies for substance use control continue to shift toward prevention and treatment and away from more punitive approaches, it will be essential to ensure that enough treatment facilities are available across diverse communities.

http://content.healthaffairs.org/content/35/6/1036.abstract

***

Nearly all ACA benchmark plans violate rules on addiction treatment coverage

By Steven Ross Johnson
Modern Healthcare, June 7, 2016

More than two-thirds of state benchmark plans violate federal requirements to cover treatment for addiction disorders.

The National Center on Addiction and Substance Abuse surveyed addiction treatment benefits offered among 2017 Essential Health Benefits benchmark plans and found none offered a comprehensive array of addiction treatment benefits.

The report cites benchmark plans, which determine the minimum level of benefits available to those covered in state exchange plans, frequently “excluded or not explicitly covered benefits” related to residential treatment and the use of methadone as therapy.

Calls for more comprehensive coverage of addiction treatment services have grown louder over the past few years as the number of drug overdose deaths have reached record levels. More than 28,000 people died in 2014 from overdoses involving opioid drugs, including heroin.

Last year, the federal government suggested including coverage of the full range of approved medication-assisted treatments as part of the essential health benefits to ensure more access to such therapies. But the proposal faced opposition from insurers and pharmacy benefit managers and was struck down.

http://www.modernhealthcare.com/article/20160607/NEWS/160609927

Outrageous! While the public drug abuse treatment centers decline in numbers, and the private, for-profit centers are proliferating, “the counties with higher percentages of black residents had a lower likelihood of having any outpatient facility by the end of the study period, compared to counties with less than the mean percentage of black residents” (Health Affairs). Further, more than two-thirds of private benchmark plans offered in the ACA exchanges “violate federal requirements to cover treatment for addiction disorders” (Modern Healthcare).

According to the Modern Healthcare article excerpted above, “Last year, the federal government suggested including coverage of the full range of approved medication-assisted treatments as part of the essential health benefits to ensure more access to such therapies. But the proposal faced opposition from insurers and pharmacy benefit managers and was struck down.”

Who is responsible for this egregious disregard of addiction treatment needs, coverage of which is required by the Affordable Care Act – omissions especially neglectful of our black brothers and sisters? The private, for-profit addiction treatment centers; the private, for-profit insurers; the private, for-profit pharmacy benefit managers; and the anti-government legislators who have underfunded public treatment centers, and who have turned the funding of health care over to private, for-profit intermediaries.

A well designed, publicly-funded and publicly-administered single payer system would separately budget capital expenditures, including those for facilities offering addiction services, with distribution based on needs rather than on for-profit business ventures, and the services would be paid for on an equitable basis, ensuring access and affordability for everyone. It should be about patients, not business stratagems.

Countervailing incentives in value-based payment

By Daniel R. Arnold
Healthcare, May 17, 2016

Abstract

Payment reform has been at the forefront of the movement toward higher-value care in the U.S. health care system. A common belief is that volume-based incentives embedded in fee-for-service need to be replaced with value-based payments. While this belief is well-intended, value-based payment also contains perverse incentives. In particular, behavioral economists have identified several features of individual decision making that reverse some of the typical recommendations for inducing desirable behavior through financial incentives. This paper discusses the countervailing incentives associated with four behavioral economic concepts: loss aversion, relative social ranking, inertia or status quo bias, and extrinsic vs. intrinsic motivation.

From the Introduction

The Department of Health and Human Services (HHS) intends to have 85% of Medicare fee-for-service (FFS) payments tied to quality or value by 2016 and 90% by 2018. In addition, HHS is moving away from FFS in favor of alternative payment models, such as accountable care organizations and bundled-payment arrangements. HHS’s goal is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016 and 50% by the end of 2018. The U.S. health care system’s transition to value-based payment is underway.

Loss aversion

While upfront payment has the potential to leverage physician’s loss aversion and nudge them toward providing higher-value care, it is also important to recognize the implications loss aversion has for current design features of value-based payment. One example is wage variation. Wage variation under value-based payment is likely to be greater than wage variation under FFS, particularly if value-based payment is tied to patient outcomes that are highly variable. Loss aversion implies that employees respond poorly to variable wages – relatively low wage years are more painful than relatively high wage years are pleasurable. There is some evidence that physicians may respond to low wage years by boosting their incomes in subsequent years, either through increasing prices or shortening patient appointments. Thus, as long as there is some level of productivity-based compensation, certain value-based payment arrangements could increase the likelihood of unappealing income boosting activities that stem from perceived low wage years.

Relative social ranking

There are, however, drawbacks to comparing physicians to their peers. After New York and Pennsylvania began releasing coronary artery bypass graft (CABG) report cards, both states saw surgeons turn away sick patients in an effort to avoid poor outcomes and lower publicly reported ratings. In Pennsylvania, 63% of cardiac surgeons admitted to being reluctant to operate on high-risk patients. In New York, 67% of cardiac surgeons refused to treat at least one patient in the preceding year that was perceived to be high risk.

Another concern is the power of rankings: individuals often attribute more meaning to rankings than is warranted. For instance, Isaac and Schindler have identified a “top 10″ effect–people categorize performance by round numbers (i.e. you are either inside or outside the top ten). This makes moving from rank 11 to rank 10 more important than moving from rank 10 to rank 9, even if the absolute change in performance is the same. Furthermore, the importance of rankings can lead individuals to sabotage others in order to improve their relative ranks. Finally, rankings become particularly problematic when all participants perform well, there is random variation in outcomes, or performance is difficult to measure — all of which can be true for physicians. Outside of health care, team-based, rather than individual, incentives have been shown to reduce these undesirable behaviors.

Inertia or status quo bias

But what happens when the default choice is not clear? Is it still better to give physicians a default option, or instead rely on physicians to actively decide which treatment option is best. A recent study introduced the notion of a “default pull” effect: defaults shape what a decision maker prefers by making him consider whether he prefers the default. This pull can have a substantial effect on choice, even when the default itself is not chosen. It may be better to allow physicians to have their undistorted preferences in situations where there is no obvious best course of treatment.

Another downside of imposed defaults is that they reduce physician autonomy. Ariely and Lanier vividly describe that physicians without autonomy “may feel like Charlie Chaplin’s character in Modern Times, pulled through the gears and cogs of a machine in a factory, and as a consequence they often feel defeated when attempting to put their hearts and souls into their profession.” But in the opposite direction, some argue that nudges are too weak. For example, calorie labeling has done little to reduce people’s calorie intake, which has led some to argue that some public health policies need to be more aggressive – shoves rather than nudges.

The effect of explicit incentives on intrinsic motivation

Himmelstein et al. highlight two important assumptions of pay-for-performance that are rarely made explicit: (1) variation in performance is caused by variation in motivation, and (2) financial incentives will add to total motivation, not undermine it. Incentive pay is unlikely to improve variation in poor performance that is not due to motivation, such as mistakes from fatigue that come from overworked physicians. Assuming a lack of motivation as the problem, pay-for-performance then assumes financial incentives can increase motivation. Financial incentives clearly affect behavior. For instance, shifting physicians from fixed salaries to FFS has been shown to increase the amount of clinical work performed and improve billing practices.

But there is mounting evidence that extrinsic rewards can undermine intrinsic motivation. Of the numerous findings that relate to the crowd-out of intrinsic motivation, two seem particularly relevant to physicians: (1) negative effects of monetary rewards are strongest for complex cognitive tasks and (2) motivational crowd-out spreads to work that is not directly incentivized. With respect to complex cognitive tasks, even very large financial incentives undermine performance. For example, rural villagers in India offered half their annual money income experienced worsened performance on complex memory and puzzle-solving tasks. The spread of motivational crowd-out to work not directly incentivized has been observed in England. In 2004, the U.K. government introduced a pay-for-performance scheme with 136 indicators for family practices. By 2007, improvement for incentivized measures had plateaued, and quality deteriorated for two measures that were not incentivized.

Conclusion

Insights from behavioral economics can be used to create value-based payment policies that promote high-value care. Upfront bonuses, physician rankings, and better default options can all help promote high-value care. But it is important to follow the implications of these behavioral motivators through to all areas of physician decision-making and performance. In doing so, unintended consequences may be revealed along the way.

http://www.sciencedirect.com/science/article/pii/S2213076416300392

***

Comment:

By Don McCanne, M.D.

As the government moves away from payment based on volume and forward to payment based on value, it is important to have a thorough understanding of behavioral economics, and the application needs to be done right. The excerpts selected from the article above describe the problem of countervailing incentives in value-based payments.

There will always be a certain volume of care and payment must take that volume into consideration, but that care should be of value. Through approaches such as comparative effectiveness, cost effectiveness, and outcomes research we can determine to a great extent what care is beneficial and affordable, that is, what care is of value.

Through the application of behavioral economics we can motivate health care professionals to strive for higher value care, but we have to get it right. Dedicated, altruistic health professionals are much more likely to set the compass in the right direction than are business school academics and government bureaucrats. But the strategists do need a good foundation in behavioral economics.

Countervailing incentives in value-based payment

By Daniel R. Arnold
Healthcare, May 17, 2016

Abstract

Payment reform has been at the forefront of the movement toward higher-value care in the U.S. health care system. A common belief is that volume-based incentives embedded in fee-for-service need to be replaced with value-based payments. While this belief is well-intended, value-based payment also contains perverse incentives. In particular, behavioral economists have identified several features of individual decision making that reverse some of the typical recommendations for inducing desirable behavior through financial incentives. This paper discusses the countervailing incentives associated with four behavioral economic concepts: loss aversion, relative social ranking, inertia or status quo bias, and extrinsic vs. intrinsic motivation.

From the Introduction

The Department of Health and Human Services (HHS) intends to have 85% of Medicare fee-for-service (FFS) payments tied to quality or value by 2016 and 90% by 2018. In addition, HHS is moving away from FFS in favor of alternative payment models, such as accountable care organizations and bundled-payment arrangements. HHS’s goal is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016 and 50% by the end of 2018. The U.S. health care system’s transition to value-based payment is underway.

Loss aversion

While upfront payment has the potential to leverage physician’s loss aversion and nudge them toward providing higher-value care, it is also important to recognize the implications loss aversion has for current design features of value-based payment. One example is wage variation. Wage variation under value-based payment is likely to be greater than wage variation under FFS, particularly if value-based payment is tied to patient outcomes that are highly variable. Loss aversion implies that employees respond poorly to variable wages – relatively low wage years are more painful than relatively high wage years are pleasurable. There is some evidence that physicians may respond to low wage years by boosting their incomes in subsequent years, either through increasing prices or shortening patient appointments. Thus, as long as there is some level of productivity-based compensation, certain value-based payment arrangements could increase the likelihood of unappealing income boosting activities that stem from perceived low wage years.

Relative social ranking

There are, however, drawbacks to comparing physicians to their peers. After New York and Pennsylvania began releasing coronary artery bypass graft (CABG) report cards, both states saw surgeons turn away sick patients in an effort to avoid poor outcomes and lower publicly reported ratings. In Pennsylvania, 63% of cardiac surgeons admitted to being reluctant to operate on high-risk patients. In New York, 67% of cardiac surgeons refused to treat at least one patient in the preceding year that was perceived to be high risk.

Another concern is the power of rankings: individuals often attribute more meaning to rankings than is warranted. For instance, Isaac and Schindler have identified a “top 10″ effect–people categorize performance by round numbers (i.e. you are either inside or outside the top ten). This makes moving from rank 11 to rank 10 more important than moving from rank 10 to rank 9, even if the absolute change in performance is the same. Furthermore, the importance of rankings can lead individuals to sabotage others in order to improve their relative ranks. Finally, rankings become particularly problematic when all participants perform well, there is random variation in outcomes, or performance is difficult to measure — all of which can be true for physicians. Outside of health care, team-based, rather than individual, incentives have been shown to reduce these undesirable behaviors.

Inertia or status quo bias

But what happens when the default choice is not clear? Is it still better to give physicians a default option, or instead rely on physicians to actively decide which treatment option is best. A recent study introduced the notion of a “default pull” effect: defaults shape what a decision maker prefers by making him consider whether he prefers the default. This pull can have a substantial effect on choice, even when the default itself is not chosen. It may be better to allow physicians to have their undistorted preferences in situations where there is no obvious best course of treatment.

Another downside of imposed defaults is that they reduce physician autonomy. Ariely and Lanier vividly describe that physicians without autonomy “may feel like Charlie Chaplin’s character in Modern Times, pulled through the gears and cogs of a machine in a factory, and as a consequence they often feel defeated when attempting to put their hearts and souls into their profession.” But in the opposite direction, some argue that nudges are too weak. For example, calorie labeling has done little to reduce people’s calorie intake, which has led some to argue that some public health policies need to be more aggressive – shoves rather than nudges.

The effect of explicit incentives on intrinsic motivation

Himmelstein et al. highlight two important assumptions of pay-for-performance that are rarely made explicit: (1) variation in performance is caused by variation in motivation, and (2) financial incentives will add to total motivation, not undermine it. Incentive pay is unlikely to improve variation in poor performance that is not due to motivation, such as mistakes from fatigue that come from overworked physicians. Assuming a lack of motivation as the problem, pay-for-performance then assumes financial incentives can increase motivation. Financial incentives clearly affect behavior. For instance, shifting physicians from fixed salaries to FFS has been shown to increase the amount of clinical work performed and improve billing practices.

But there is mounting evidence that extrinsic rewards can undermine intrinsic motivation. Of the numerous findings that relate to the crowd-out of intrinsic motivation, two seem particularly relevant to physicians: (1) negative effects of monetary rewards are strongest for complex cognitive tasks and (2) motivational crowd-out spreads to work that is not directly incentivized. With respect to complex cognitive tasks, even very large financial incentives undermine performance. For example, rural villagers in India offered half their annual money income experienced worsened performance on complex memory and puzzle-solving tasks. The spread of motivational crowd-out to work not directly incentivized has been observed in England. In 2004, the U.K. government introduced a pay-for-performance scheme with 136 indicators for family practices. By 2007, improvement for incentivized measures had plateaued, and quality deteriorated for two measures that were not incentivized.

Conclusion

Insights from behavioral economics can be used to create value-based payment policies that promote high-value care. Upfront bonuses, physician rankings, and better default options can all help promote high-value care. But it is important to follow the implications of these behavioral motivators through to all areas of physician decision-making and performance. In doing so, unintended consequences may be revealed along the way.

http://www.sciencedirect.com/science/article/pii/S2213076416300392

As the government moves away from payment based on volume and forward to payment based on value, it is important to have a thorough understanding of behavioral economics, and the application needs to be done right. The excerpts selected from the article above describe the problem of countervailing incentives in value-based payments.

There will always be a certain volume of care and payment must take that volume into consideration, but that care should be of value. Through approaches such as comparative effectiveness, cost effectiveness, and outcomes research we can determine to a great extent what care is beneficial and affordable, that is, what care is of value.

Through the application of behavioral economics we can motivate health care professionals to strive for higher value care, but we have to get it right. Dedicated, altruistic health professionals are much more likely to set the compass in the right direction than are business school academics and government bureaucrats. But the strategists do need a good foundation in behavioral economics.

By Uwe E. Reinhardt
Health Affairs Blog, June 1, 2016

Corporate executives, the management consultants who advise them, and the financial industry executives who help corporations finance their capital investments tend to believe that whenever their joint work enhances the wealth of a firm’s shareholders, they ipso facto enhance also the nation’s wealth. It is a soothing narrative, one routinely trotted out to college students in their textbooks of economics, which often slouch vaguely toward propaganda.

Very often this narrative is, of course, valid. It is especially so for venture capitalism, which acts as the midwife, so to speak, of newly-born companies creating valuable products hitherto unknown. It is valid also when established companies introduce new products or even when they merely expand existing product lines. Hereafter in this post, this version of capitalism will be labeled “value creation.”

But, as the pharmaceutical industry has been busily teaching us in recent times, alongside this value-creating facet, modern capitalism can also play a more dubious role by merely redistributing wealth from some members of society (for example, sick people) to the shareholders of particular enterprises, without making any net contribution to overall social value. Hereafter we refer to this process as “value shifting,” meaning that value is taken away from some members of society and channeled to the owners of capital.

It is widely thought that the proper fraction of total social value to be garnered by health care product manufacturers as sales revenue is one that just covers research and development (R&D) and production costs, with a profit margin designed to encourage further innovation — hence the demand that drug manufacturers make their costs transparent to the public. Health care product manufacturers, on the other hand, argue that the proper base for their pricing policies is not the cost of developing and producing their products, but the total social value they create for society. This pricing policy is called “value pricing.” At its extreme, it can extract enormous prices from seriously stricken patients or their insurers, because better health and longer life are so precious.

There is growing evidence that, save perhaps for some economists, American society is not comfortable with the idea of value pricing in health care, as can be inferred from the uproar over the pricing policy adopted by Turing Pharmaceuticals, which raised the price of one long-established product by 5,000 percent, and of Valeant Pharmaceuticals International. Valeant’s business model has been to acquire already existing pharmaceutical companies with long-established products, substantially increase the prices of these products and further enhance short-run cash flow to shareholders, reducing outlays on R&D by the acquired firms. These strategies are purely value shifting. In fact, it can be argued that by reducing R&D spending, Valeant destroyed social value.

Although Turing Pharmaceuticals’ and Valeant Pharmaceuticals’ business models are extreme versions of value shifting, the entire drug industry has for some time now leaned more and more toward that model by repeated price increases for long-existing products. Substantial price hikes have been observed even for off-patent generic products.

Spokespeople for the industry argue that the cash from these price increases flows directly to higher spending on R&D. Some of it probably does. But these firms spend considerably more on SG&A, which stands for “sales [marketing] and general and administrative expenses.” Spending on R&D by these companies tend to be well below 20 percent of revenue, while spending on SG&A is well above 20 percent. From the endless series of advertisements for prescription drugs on cable and network news and entertainment, patients (sick people) can infer that with the prices they pay for drugs, directly out of pocket or through health-insurance premiums, they now have become the main source of financing for the television industry — a truly bizarre circumstance.

Another part of the added cash flow generated by price hikes on existing pharmaceutical products often flows to shareholders through buy-backs of these firms’ stocks in the open market, to boost the earnings per share of the remaining stock outstanding. As Obi Ezekoye, Tim Koller, and Ankit Mittal of McKinsey and Co. argued in a recent article, these stock buy-backs usually do not create value even for the remaining shareholders, let alone add social value.

In short, it is far from clear to what end the industry’s repeated price increases under value shifting are used by the industry. There is no reason to believe that they will all, or even predominantly, flow into R&D.

Consolidation in both the R&D-based and the generics industry through mergers appear to have contributed to value shifting. When large pharmaceutical firms acquire smaller entrepreneurial companies, the objective usually is to expand the R&D pipeline of the large companies whose own R&D shops may have failed to produce enough new breakthroughs. But when large pharmaceutical companies or other health care companies merge, the objective is likely to be mainly to reduce price competition.

There is ample empirical research in health economics showing that consolidation on the supply side of the health care sector has served to drive up prices. It is another way of saying that it supports value shifting, rather than value creation.

My gratuitous advice to the drug industry, and to the health care industry in general, is to be very mindful of the distinction between value creation and value shifting in their pricing policies, lest they eventually invoke the wrath of the losers in that game, with dire consequences.

A healthy addition to corporate board meetings at these companies, for example, might be a presentation on the distribution of family income in the United States, whose median now is around $52,000 (meaning 50 percent of American families have a lower family income). Similarly, the boards should know more about the health insurance status of the American people, including the ever-increasing deductibles and coinsurance families are made to bear. These data might give boards some feel for how much money can reasonably and humanely be extracted from their fellow Americans, especially those in the bottom half of the income distribution, with whom the boards and business executives have lost touch.

http://healthaffairs.org/blog/2016/06/01/value-creation-and-value-shifting-in-health-care/

***

Comment:

By Don McCanne, M.D.

Uwe Reinhardt once again helps us to understand another aspect of the inequitable economics in our health care system by explaining the difference between value creation and value shifting.

Bringing us new beneficial health care services and products creates value, whereas extracting more revenues from the ill without providing any further health benefit shifts value, creating more wealth for the owners of capital (rent-seekers). Value shifting is pervasive throughout our health care system and has been detrimental to the health and finances of middle- and low-income individuals and families.

Reinhardt concludes, “My gratuitous advice to the drug industry, and to the health care industry in general, is to be very mindful of the distinction between value creation and value shifting in their pricing policies, lest they eventually invoke the wrath of the losers in that game, with dire consequences.”

Dire consequences for the health care rent-seekers, anyone? It’s about time.

By Uwe E. Reinhardt
Health Affairs Blog, June 1, 2016

Corporate executives, the management consultants who advise them, and the financial industry executives who help corporations finance their capital investments tend to believe that whenever their joint work enhances the wealth of a firm’s shareholders, they ipso facto enhance also the nation’s wealth. It is a soothing narrative, one routinely trotted out to college students in their textbooks of economics, which often slouch vaguely toward propaganda.

Very often this narrative is, of course, valid. It is especially so for venture capitalism, which acts as the midwife, so to speak, of newly-born companies creating valuable products hitherto unknown. It is valid also when established companies introduce new products or even when they merely expand existing product lines. Hereafter in this post, this version of capitalism will be labeled “value creation.”

But, as the pharmaceutical industry has been busily teaching us in recent times, alongside this value-creating facet, modern capitalism can also play a more dubious role by merely redistributing wealth from some members of society (for example, sick people) to the shareholders of particular enterprises, without making any net contribution to overall social value. Hereafter we refer to this process as “value shifting,” meaning that value is taken away from some members of society and channeled to the owners of capital.

It is widely thought that the proper fraction of total social value to be garnered by health care product manufacturers as sales revenue is one that just covers research and development (R&D) and production costs, with a profit margin designed to encourage further innovation — hence the demand that drug manufacturers make their costs transparent to the public. Health care product manufacturers, on the other hand, argue that the proper base for their pricing policies is not the cost of developing and producing their products, but the total social value they create for society. This pricing policy is called “value pricing.” At its extreme, it can extract enormous prices from seriously stricken patients or their insurers, because better health and longer life are so precious.

There is growing evidence that, save perhaps for some economists, American society is not comfortable with the idea of value pricing in health care, as can be inferred from the uproar over the pricing policy adopted by Turing Pharmaceuticals, which raised the price of one long-established product by 5,000 percent, and of Valeant Pharmaceuticals International. Valeant’s business model has been to acquire already existing pharmaceutical companies with long-established products, substantially increase the prices of these products and further enhance short-run cash flow to shareholders, reducing outlays on R&D by the acquired firms. These strategies are purely value shifting. In fact, it can be argued that by reducing R&D spending, Valeant destroyed social value.

Although Turing Pharmaceuticals’ and Valeant Pharmaceuticals’ business models are extreme versions of value shifting, the entire drug industry has for some time now leaned more and more toward that model by repeated price increases for long-existing products. Substantial price hikes have been observed even for off-patent generic products.

Spokespeople for the industry argue that the cash from these price increases flows directly to higher spending on R&D. Some of it probably does. But these firms spend considerably more on SG&A, which stands for “sales [marketing] and general and administrative expenses.” Spending on R&D by these companies tend to be well below 20 percent of revenue, while spending on SG&A is well above 20 percent. From the endless series of advertisements for prescription drugs on cable and network news and entertainment, patients (sick people) can infer that with the prices they pay for drugs, directly out of pocket or through health-insurance premiums, they now have become the main source of financing for the television industry — a truly bizarre circumstance.

Another part of the added cash flow generated by price hikes on existing pharmaceutical products often flows to shareholders through buy-backs of these firms’ stocks in the open market, to boost the earnings per share of the remaining stock outstanding. As Obi Ezekoye, Tim Koller, and Ankit Mittal of McKinsey and Co. argued in a recent article, these stock buy-backs usually do not create value even for the remaining shareholders, let alone add social value.

In short, it is far from clear to what end the industry’s repeated price increases under value shifting are used by the industry. There is no reason to believe that they will all, or even predominantly, flow into R&D.

Consolidation in both the R&D-based and the generics industry through mergers appear to have contributed to value shifting. When large pharmaceutical firms acquire smaller entrepreneurial companies, the objective usually is to expand the R&D pipeline of the large companies whose own R&D shops may have failed to produce enough new breakthroughs. But when large pharmaceutical companies or other health care companies merge, the objective is likely to be mainly to reduce price competition.

There is ample empirical research in health economics showing that consolidation on the supply side of the health care sector has served to drive up prices. It is another way of saying that it supports value shifting, rather than value creation.

My gratuitous advice to the drug industry, and to the health care industry in general, is to be very mindful of the distinction between value creation and value shifting in their pricing policies, lest they eventually invoke the wrath of the losers in that game, with dire consequences.

A healthy addition to corporate board meetings at these companies, for example, might be a presentation on the distribution of family income in the United States, whose median now is around $52,000 (meaning 50 percent of American families have a lower family income). Similarly, the boards should know more about the health insurance status of the American people, including the ever-increasing deductibles and coinsurance families are made to bear. These data might give boards some feel for how much money can reasonably and humanely be extracted from their fellow Americans, especially those in the bottom half of the income distribution, with whom the boards and business executives have lost touch.

http://healthaffairs.org/blog/2016/06/01/value-creation-and-value-shifting-in-health-care/

Uwe Reinhardt once again helps us to understand another aspect of the inequitable economics in our health care system by explaining the difference between value creation and value shifting.

Bringing us new beneficial health care services and products creates value, whereas extracting more revenues from the ill without providing any further health benefit shifts value, creating more wealth for the owners of capital (rent-seekers). Value shifting is pervasive throughout our health care system and has been detrimental to the health and finances of middle- and low-income individuals and families.

Reinhardt concludes, “My gratuitous advice to the drug industry, and to the health care industry in general, is to be very mindful of the distinction between value creation and value shifting in their pricing policies, lest they eventually invoke the wrath of the losers in that game, with dire consequences.”

Dire consequences for the health care rent-seekers, anyone? It’s about time.

Why Many Medicare Beneficiaries Cling to an Allegedly Worse Deal

By Uwe Reinhardt, PhD
JAMA Forum, June 1, 2016

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Congress granted private Medicare Advantage health plans more money per Medicare beneficiary than it granted traditional, government-run Medicare. In other words, the per beneficiary cost paid by the US taxpayers was higher for those enrolled in the private plans than for those enrolled under the traditional, government-run Medicare program.

In addition to these extra payments from government, the private Medicare Advantage plans are able to cut costs through tactics forbidden to traditional Medicare, such as conducting cost-effectiveness analysis for coverage decisions and offering limited networks of health care providers. As a result, the Medicare Advantage plans have been able to offer Medicare beneficiaries more benefits at lower premiums than what is available to them under traditional Medicare–evidently a better deal.

So it’s not surprising, as a recent JAMA Forum post noted, that the Medicare Advantage program has grown in popularity. Currently, about 30% of approximately 55 million beneficiaries are enrolled in a Medicare Advantage plan compared with only 6% a decade ago.

But even so, about 70% of the approximate 55 million Medicare beneficiaries still prefer the “worse” deal, traditional, government-run Medicare. What can explain this revealed preference?

Freedom of Choice

One answer, as the JAMA Forum post hinted, is that traditional Medicare still offers  beneficiaries complete freedom of choice among physicians, hospitals, and other professionals or facilities providing health care. In contrast, under Medicare Advantage, beneficiaries are confined to the limited network of such health professionals and facilities chosen by their insurer. Concerns have been raised about the adequacy of networks in the plans, and a September 2015 report from the US Government Accounting Office recommended that the Centers for Medicare & Medicaid Services increase its oversight of Medicare Advantage networks.

Does the general US public actually share the idea that freedom of choice among insurers is more important than freedom of choice among physicians, hospitals, and others who offer health care or is that merely the preference of a policy-making elite that forces the public to accept more limited choice for the sake of cost containment? It is an important question in light of the endless debate over restructuring Medicare.

The Issue of Trust

Another factor that may explain the revealed preference among Medicare beneficiaries for traditional Medicare might be the issue of trust.

It is said that in the eyes of US public, government is incompetent and cannot be trusted. But is that really so?

The strong revealed preference for traditional, government-run Medicare suggests quite the opposite. So does the tenacity with which US veterans defend the existence of the Veterans Health Administration health care system, the purest form of socialized medicine in the world; the public’s staunch opposition to privatizing Social Security, their government-run pension system; or even the most conservative state governor’s swift solicitation of assistance from the Federal Emergency Management Agency whenever natural disaster strikes. Would these same governors have the same trust in, say, an emergency management system operated by a consortium of private casualty insurers?

Enrolling in traditional Medicare can be likened to being married to a spouse who, if not generally thrilling, is an always faithful and reliable companion. The social contract under traditional Medicare is not easily changed and can be changed only after much open debate.

By contrast, by their very nature, private enterprises cannot be more than ephemeral companions. They may be acquired by another company with different ideas of management and social obligations, and their contracts with customers are easily changed, at the behest of boards and managers who make those decisions in secret. The limited networks of physicians, hospitals, and other health care professionals and facilities under Medicare Advantage can easily change over time, as can be the benefit packages they offer.

It is good that older adults in the United States have a choice between traditional, government-run Medicare and the private Medicare Advantage plans. Ideally, US veterans would be offered the same choice. But policy makers should think twice before writing off traditional, government-run Medicare, which evidently has served the elderly well enough to remain their most popular choice.

https://newsatjama.jama.com/2016/06/01/jama-forum-why-many-medicare-beneficiaries-cling-to-an-allegedly-worse-deal/

***

Comment:

By Don McCanne, M.D.

Congress has elected to overpay private Medicare Advantage plans in a scheme to entice Medicare beneficiaries out of the public plan and eventually privatize the full program through premium support (vouchers). With the extra funds the private plans are able to bribe patients with lower premiums and supplementary benefits. So why have two-thirds of Medicare beneficiaries refused to fall for this scheme since it would appear to be a better deal for them (though worse for the taxpayers)? Uwe Reinhardt gives us an astute answer, having to do with trust in our government.

Reinhardt ends with the conclusion that it is good to have the choice between the government program and the private plans, especially since it allows beneficiaries to specifically select the trusted government option. In Canada that choice is not allowed for the same reasons that it should not be allowed here. The private version costs taxpayers more, especially because of extra administrative costs due to the more complex private bureaucracies. The private sector also shamelessly manipulates the system to the detriment of those in the public program, a prime example being the ability to enable private patients to jump the queue, leaving the public patients behind. The private sector also is adept at subjecting the public sector to adverse selection, passing more health care costs onto the taxpayers. And so on.

As an interim measure, what we need to do is demand that Congress provide the same level of funding for the traditional program as they do for the private plans so that premiums and benefits can be comparable (actually better since private plan spending is less efficient). They also need to inflict greater penalties on the private plans for their transgressions in unfairly manipulating the system to their benefit. That is, Congress should provide us with an improved Medicare so that it can become the benchmark for a single payer national health program.

Why Many Medicare Beneficiaries Cling to an Allegedly Worse Deal

By Uwe Reinhardt, PhD
JAMA Forum, June 1, 2016

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Congress granted private Medicare Advantage health plans more money per Medicare beneficiary than it granted traditional, government-run Medicare. In other words, the per beneficiary cost paid by the US taxpayers was higher for those enrolled in the private plans than for those enrolled under the traditional, government-run Medicare program.

In addition to these extra payments from government, the private Medicare Advantage plans are able to cut costs through tactics forbidden to traditional Medicare, such as conducting cost-effectiveness analysis for coverage decisions and offering limited networks of health care providers. As a result, the Medicare Advantage plans have been able to offer Medicare beneficiaries more benefits at lower premiums than what is available to them under traditional Medicare–evidently a better deal.

So it’s not surprising, as a recent JAMA Forum post noted, that the Medicare Advantage program has grown in popularity. Currently, about 30% of approximately 55 million beneficiaries are enrolled in a Medicare Advantage plan compared with only 6% a decade ago.

But even so, about 70% of the approximate 55 million Medicare beneficiaries still prefer the “worse” deal, traditional, government-run Medicare. What can explain this revealed preference?

Freedom of Choice

One answer, as the JAMA Forum post hinted, is that traditional Medicare still offers  beneficiaries complete freedom of choice among physicians, hospitals, and other professionals or facilities providing health care. In contrast, under Medicare Advantage, beneficiaries are confined to the limited network of such health professionals and facilities chosen by their insurer. Concerns have been raised about the adequacy of networks in the plans, and a September 2015 report from the US Government Accounting Office recommended that the Centers for Medicare & Medicaid Services increase its oversight of Medicare Advantage networks.

Does the general US public actually share the idea that freedom of choice among insurers is more important than freedom of choice among physicians, hospitals, and others who offer health care or is that merely the preference of a policy-making elite that forces the public to accept more limited choice for the sake of cost containment? It is an important question in light of the endless debate over restructuring Medicare.

The Issue of Trust

Another factor that may explain the revealed preference among Medicare beneficiaries for traditional Medicare might be the issue of trust.

It is said that in the eyes of US public, government is incompetent and cannot be trusted. But is that really so?

The strong revealed preference for traditional, government-run Medicare suggests quite the opposite. So does the tenacity with which US veterans defend the existence of the Veterans Health Administration health care system, the purest form of socialized medicine in the world; the public’s staunch opposition to privatizing Social Security, their government-run pension system; or even the most conservative state governor’s swift solicitation of assistance from the Federal Emergency Management Agency whenever natural disaster strikes. Would these same governors have the same trust in, say, an emergency management system operated by a consortium of private casualty insurers?

Enrolling in traditional Medicare can be likened to being married to a spouse who, if not generally thrilling, is an always faithful and reliable companion. The social contract under traditional Medicare is not easily changed and can be changed only after much open debate.

By contrast, by their very nature, private enterprises cannot be more than ephemeral companions. They may be acquired by another company with different ideas of management and social obligations, and their contracts with customers are easily changed, at the behest of boards and managers who make those decisions in secret. The limited networks of physicians, hospitals, and other health care professionals and facilities under Medicare Advantage can easily change over time, as can be the benefit packages they offer.

It is good that older adults in the United States have a choice between traditional, government-run Medicare and the private Medicare Advantage plans. Ideally, US veterans would be offered the same choice. But policy makers should think twice before writing off traditional, government-run Medicare, which evidently has served the elderly well enough to remain their most popular choice.

https://newsatjama.jama.com/2016/06/01/jama-forum-why-many-medicare-beneficiaries-cling-to-an-allegedly-worse-deal/

Congress has elected to overpay private Medicare Advantage plans in a scheme to entice Medicare beneficiaries out of the public plan and eventually privatize the full program through premium support (vouchers). With the extra funds the private plans are able to bribe patients with lower premiums and supplementary benefits. So why have two-thirds of Medicare beneficiaries refused to fall for this scheme since it would appear to be a better deal for them (though worse for the taxpayers)? Uwe Reinhardt gives us an astute answer, having to do with trust in our government.

Reinhardt ends with the conclusion that it is good to have the choice between the government program and the private plans, especially since it allows beneficiaries to specifically select the trusted government option. In Canada that choice is not allowed for the same reasons that it should not be allowed here. The private version costs taxpayers more, especially because of extra administrative costs due to the more complex private bureaucracies. The private sector also shamelessly manipulates the system to the detriment of those in the public program, a prime example being the ability to enable private patients to jump the queue, leaving the public patients behind. The private sector also is adept at subjecting the public sector to adverse selection, passing more health care costs onto the taxpayers. And so on.

As an interim measure, what we need to do is demand that Congress provide the same level of funding for the traditional program as they do for the private plans so that premiums and benefits can be comparable (actually better since private plan spending is less efficient). They also need to inflict greater penalties on the private plans for their transgressions in unfairly manipulating the system to their benefit. That is, Congress should provide us with an improved Medicare so that it can become the benchmark for a single payer national health program.

Patient-Centered Outcomes Research Institute (PCORI)

The Patient-Centered Outcomes Research Institute (PCORI), an independent nonprofit, nongovernmental organization located in Washington, DC, was authorized by Congress in 2010.

Our mandate is to improve the quality and relevance of evidence available to help patients, caregivers, clinicians, employers, insurers, and policy makers make informed health decisions. Specifically, we fund comparative clinical effectiveness research, or CER, as well as support work that will improve the methods used to conduct such studies.

The goal of our work is to determine which of the many healthcare options available to patients and those who care for them work best in particular circumstances. We do this by taking a particular approach to CER called Patient-Centered Outcomes Research, or PCOR, research that addresses the questions and concerns most relevant to patients, and we involve patients, caregivers, clinicians, and other healthcare stakeholders, along with researchers, throughout the process.

From the 2015 Financial Report

The Patient-Centered Outcomes Research Institute was authorized in 2010 by the Patient Protection and Affordable Care Act (42 U.S.C. 1301 et seq.) (Act) to “assist patients, clinicians, purchasers, and policy- makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis.” It does this by supporting comparative clinical effectiveness research (CER) projects designed to answer questions most important to patients. PCORI is also charged with disseminating the results of that research, focusing on “health outcomes, clinical effectiveness, and appropriateness of the medical treatments, services, and items” studied.

PCORI is a 501(c)(1) tax-exempt, nonprofit corporation, governed by a 21-member multi-stakeholder Board of Governors, including 19 members appointed by the Comptroller General of the United States. By law, the Comptroller General must appoint three members representing patients and healthcare consumers; seven members representing physicians and providers; three members representing private payers; three members representing pharmaceutical, device and diagnostic manufacturers or developers; one member representing quality improvement or independent health services researchers; and two members representing the federal government or the states (including at least one member representing a federal health program or agency). The Act also provides that the Directors of the Agency for Healthcare Research and Quality (AHRQ) and the National Institutes of Health (NIH), or their designees, be members of the Board.

How We’re Funded

PCORI is funded through the Patient-Centered Outcomes Research Trust Fund (PCOR Trust Fund), which was established by Congress through the Patient Protection and Affordable Care Act of 2010. The PCOR Trust Fund receives income from three funding streams:  appropriations from the general fund of the Treasury, transfers from the Centers for Medicare and Medicaid trust funds, and a fee assessed on private insurance and self-insured health plans (the PCOR fee).

PCORI receives 80 percent of the monies collected by the PCOR Trust Fund to support its research funding and operations. The Department of Health and Human Services (HHS) receives the other 20 percent of trust fund monies to support dissemination and research capacity-building efforts (the majority of HHS’s share goes to the Agency for Healthcare Research and Quality).

For government fiscal years (FYs) 2010 through 2012, the PCOR Trust Fund received a total of $210 million total in appropriations from general fund revenues. For FYs 2013 through 2019, the PCOR Trust Fund will receive $150 million from the general fund annually.

http://www.pcori.org

***

Re-evaluating the Patient-Centered Outcomes Research Institute

By Zeke Emanuel, Topher Spiro, Thomas Huelskoetter
Center for American Progress, May 31, 2016

The ACA established PCORI with a clear mandate to carry out the “funding of comparative clinical effectiveness research” over 10 years. PCORI was to focus distinctly on CER and not duplicate the types of research funded by the Agency for Healthcare Research and Quality, the National Institutes of Health, or other entities. However, a Center for American Progress analysis in 2014 found that only one-third of PCORI’s funding was going toward CER.

PCORI studies should have the potential to change clinical treatment decisions or insurers’ coverage determinations. Yet to date, this potential impact on the nation’s health care system has not been fully realized. With PCORI only authorized through 2019, the institute is running out of time to make a significant impact on CER.

Cumulatively since its inception, PCORI has invested 51 percent of its almost $1.4 billion in grant funding in CER, totaling $716 million.

To evaluate whether PCORI’s funding was directed toward high-impact research areas, CAP examined how many of its awards addressed research questions that the Institute of Medicine identified as the top 25 highest-priority CER topics. In fairness, this is not the only relevant ranking of CER needs, and priorities may have evolved since the IOM list was published in 2009. However, the IOM list serves as an authoritative, independent rubric by which to judge whether PCORI is focusing on the most critical evidence gaps in medicine.

In its previous analysis, CAP found that only 12 percent of PCORI’s grants and 14 percent of its grant funding went toward research topics in the IOM’s top quartile. In the new CAP analysis, this first figure declined to 4 percent of grants. However, the percentage of funding allocated to the IOM topics increased to 18.5 percent. IOM top-quartile priority topics cumulatively represent 16 percent of PCORI’s funding to date, representing relatively little change from CAP’s previous analysis.

In response to this analysis, PCORI asserts that 72 percent of the IOM’s top 25 topics have been addressed by a PCORI-funded study, along with 62 percent of the IOM’s top 100 topics. Yet this alternate framing of the issue still leaves almost 30 percent of the top quartile and almost 40 percent of the top 100 unaddressed after several years. Furthermore, this metric explains nothing about whether these studies involved significant or merely minimal funding. Many of these research topics concern broad areas of medicine where many studies are needed; as a result, CAP feels it is important not only that high-impact research topics be addressed but that a significant percentage of PCORI’s funding be connected to such topics.

Thus far, PCORI has not made the impact on the health care system that the drafters of the Affordable Care Act envisioned. The need for CER remains urgent, and PCORI still has the potential to help reduce health care costs and improve the quality of care.

https://www.americanprogress.org/issues/healthcare/report/2016/05/31/138242/re-evaluating-the-patient-centered-outcomes-research-institute/

***

Report: Federally funded institute avoids comparing drugs, other treatments

By Jane O’Donnell
USA Today, May 31, 2016

An institute that pays researchers to compare medical treatments has spent only half of its more than $1.4 billion in available federal money on what is called comparative effectiveness research and has largely ignored prescription drugs, despite their role in driving up health care costs, according to a study released Tuesday by a Washington-based policy group.

PCORI has been criticized since it first appeared in the legislation that became the ACA. Although CER had bipartisan support, the institute got caught in the politics surrounding what Republican former vice presidential candidate Sarah Palin called “death panels” that could decide who received medical treatment.

Now despite widespread concerns about rising drug costs, CER is being attacked by patient groups supported by the pharmaceutical industry that claim the research could limit access to some life-saving drugs.

Congress limited the ability of PCORI to consider costs when comparing health care, drugs or prioritizing research studies.

Patient groups, which are nearly always backed by pharmaceutical companies, are major players in what PCORI decides to research. That can limit the focus on finding lower-cost options, which could hurt the profitability of the companies that pay for the patient groups.

http://www.usatoday.com/story/news/politics/2016/05/31/report-federally-funded-institute-avoids-comparing-drugs-other-treatments/84676320/

***

Comment:

By Don McCanne, M.D.

The Patient-Centered Outcomes Research Institute (PCORI) is an independent, nonprofit, nongovernmental organization authorized by the Affordable Care Act and funded predominantly by the federal government. They in turn fund comparative clinical effectiveness research (CER), especially through Patient-Centered Outcomes Research (PCOR). The purpose is to determine the relative effectiveness of various clinical approaches, including the comparison of drug therapies. But Congress specifically prohibited a comparison of costs.

Some readers of yesterday’s report on the ICER (Institute for Clinical and Economic Review) were concerned about the potential conflict of interest that could result from the involvement of various stakeholders. The same concern could be expressed about PCORI. Although we have no reason to doubt the integrity of the individuals involved in these organizations, it would be preferred that their organizations have an infrastructure that did not include the influence of vested interests.

An additional concern regarding PCORI is the interference by Congress in preventing crucial determinations about cost effectiveness. Transparency in pricing is essential if we are to ensure value in our health care purchasing.

Another unique feature of PCORI is that it is only a ten year program, scheduled to end in 2019. It is astonishing that members of the policy community, working with Congress, could ever think that we could complete all important comparative effectiveness research by 2019, and that future drugs and technology would not require such reviews.

Just as with ICER, PCORI is under attack by conservatives and by stakeholders, motivated by ideology and by greed. Once again, it appears that, with their influence, the patient is not always being kept foremost in our policy decisions.

We want health care that is the most effective and with the fairest prices. We don’t want health care that gives the most powerful stakeholders a greater advantage in the health care marketplace while also ensuring them a maximum return on their investments. ICER and PCORI seem to be above that, but 100 percent public funding without stakeholder involvement in governance could give us further assurance that their work product is strictly in the patients’ best interests.

Patient-Centered Outcomes Research Institute (PCORI)

The Patient-Centered Outcomes Research Institute (PCORI), an independent nonprofit, nongovernmental organization located in Washington, DC, was authorized by Congress in 2010.

Our mandate is to improve the quality and relevance of evidence available to help patients, caregivers, clinicians, employers, insurers, and policy makers make informed health decisions. Specifically, we fund comparative clinical effectiveness research, or CER, as well as support work that will improve the methods used to conduct such studies.

The goal of our work is to determine which of the many healthcare options available to patients and those who care for them work best in particular circumstances. We do this by taking a particular approach to CER called Patient-Centered Outcomes Research, or PCOR, research that addresses the questions and concerns most relevant to patients, and we involve patients, caregivers, clinicians, and other healthcare stakeholders, along with researchers, throughout the process.

From the 2015 Financial Report

The Patient-Centered Outcomes Research Institute was authorized in 2010 by the Patient Protection and Affordable Care Act (42 U.S.C. 1301 et seq.) (Act) to “assist patients, clinicians, purchasers, and policy- makers in making informed health decisions by advancing the quality and relevance of evidence concerning the manner in which diseases, disorders, and other health conditions can effectively and appropriately be prevented, diagnosed, treated, monitored, and managed through research and evidence synthesis.” It does this by supporting comparative clinical effectiveness research (CER) projects designed to answer questions most important to patients. PCORI is also charged with disseminating the results of that research, focusing on “health outcomes, clinical effectiveness, and appropriateness of the medical treatments, services, and items” studied.

PCORI is a 501(c)(1) tax-exempt, nonprofit corporation, governed by a 21-member multi-stakeholder Board of Governors, including 19 members appointed by the Comptroller General of the United States. By law, the Comptroller General must appoint three members representing patients and healthcare consumers; seven members representing physicians and providers; three members representing private payers; three members representing pharmaceutical, device and diagnostic manufacturers or developers; one member representing quality improvement or independent health services researchers; and two members representing the federal government or the states (including at least one member representing a federal health program or agency). The Act also provides that the Directors of the Agency for Healthcare Research and Quality (AHRQ) and the National Institutes of Health (NIH), or their designees, be members of the Board.

How We’re Funded

PCORI is funded through the Patient-Centered Outcomes Research Trust Fund (PCOR Trust Fund), which was established by Congress through the Patient Protection and Affordable Care Act of 2010. The PCOR Trust Fund receives income from three funding streams:  appropriations from the general fund of the Treasury, transfers from the Centers for Medicare and Medicaid trust funds, and a fee assessed on private insurance and self-insured health plans (the PCOR fee).

PCORI receives 80 percent of the monies collected by the PCOR Trust Fund to support its research funding and operations. The Department of Health and Human Services (HHS) receives the other 20 percent of trust fund monies to support dissemination and research capacity-building efforts (the majority of HHS’s share goes to the Agency for Healthcare Research and Quality).

For government fiscal years (FYs) 2010 through 2012, the PCOR Trust Fund received a total of $210 million total in appropriations from general fund revenues. For FYs 2013 through 2019, the PCOR Trust Fund will receive $150 million from the general fund annually.

http://www.pcori.org

***

Re-evaluating the Patient-Centered Outcomes Research Institute

By Zeke Emanuel, Topher Spiro, Thomas Huelskoetter
Center for American Progress, May 31, 2016

The ACA established PCORI with a clear mandate to carry out the “funding of comparative clinical effectiveness research” over 10 years. PCORI was to focus distinctly on CER and not duplicate the types of research funded by the Agency for Healthcare Research and Quality, the National Institutes of Health, or other entities. However, a Center for American Progress analysis in 2014 found that only one-third of PCORI’s funding was going toward CER.

PCORI studies should have the potential to change clinical treatment decisions or insurers’ coverage determinations. Yet to date, this potential impact on the nation’s health care system has not been fully realized. With PCORI only authorized through 2019, the institute is running out of time to make a significant impact on CER.

Cumulatively since its inception, PCORI has invested 51 percent of its almost $1.4 billion in grant funding in CER, totaling $716 million.

To evaluate whether PCORI’s funding was directed toward high-impact research areas, CAP examined how many of its awards addressed research questions that the Institute of Medicine identified as the top 25 highest-priority CER topics. In fairness, this is not the only relevant ranking of CER needs, and priorities may have evolved since the IOM list was published in 2009. However, the IOM list serves as an authoritative, independent rubric by which to judge whether PCORI is focusing on the most critical evidence gaps in medicine.

In its previous analysis, CAP found that only 12 percent of PCORI’s grants and 14 percent of its grant funding went toward research topics in the IOM’s top quartile. In the new CAP analysis, this first figure declined to 4 percent of grants. However, the percentage of funding allocated to the IOM topics increased to 18.5 percent. IOM top-quartile priority topics cumulatively represent 16 percent of PCORI’s funding to date, representing relatively little change from CAP’s previous analysis.

In response to this analysis, PCORI asserts that 72 percent of the IOM’s top 25 topics have been addressed by a PCORI-funded study, along with 62 percent of the IOM’s top 100 topics. Yet this alternate framing of the issue still leaves almost 30 percent of the top quartile and almost 40 percent of the top 100 unaddressed after several years. Furthermore, this metric explains nothing about whether these studies involved significant or merely minimal funding. Many of these research topics concern broad areas of medicine where many studies are needed; as a result, CAP feels it is important not only that high-impact research topics be addressed but that a significant percentage of PCORI’s funding be connected to such topics.

Thus far, PCORI has not made the impact on the health care system that the drafters of the Affordable Care Act envisioned. The need for CER remains urgent, and PCORI still has the potential to help reduce health care costs and improve the quality of care.

https://www.americanprogress.org/issues/healthcare/report/2016/05/31/138242/re-evaluating-the-patient-centered-outcomes-research-institute/

***

Report: Federally funded institute avoids comparing drugs, other treatments

By Jane O’Donnell
USA Today, May 31, 2016

An institute that pays researchers to compare medical treatments has spent only half of its more than $1.4 billion in available federal money on what is called comparative effectiveness research and has largely ignored prescription drugs, despite their role in driving up health care costs, according to a study released Tuesday by a Washington-based policy group.

PCORI has been criticized since it first appeared in the legislation that became the ACA. Although CER had bipartisan support, the institute got caught in the politics surrounding what Republican former vice presidential candidate Sarah Palin called “death panels” that could decide who received medical treatment.

Now despite widespread concerns about rising drug costs, CER is being attacked by patient groups supported by the pharmaceutical industry that claim the research could limit access to some life-saving drugs.

Congress limited the ability of PCORI to consider costs when comparing health care, drugs or prioritizing research studies.

Patient groups, which are nearly always backed by pharmaceutical companies, are major players in what PCORI decides to research. That can limit the focus on finding lower-cost options, which could hurt the profitability of the companies that pay for the patient groups.

http://www.usatoday.com/story/news/politics/2016/05/31/report-federally-funded-institute-avoids-comparing-drugs-other-treatments/84676320/

The Patient-Centered Outcomes Research Institute (PCORI) is an independent, nonprofit, nongovernmental organization authorized by the Affordable Care Act and funded predominantly by the federal government. They in turn fund comparative clinical effectiveness research (CER), especially through Patient-Centered Outcomes Research (PCOR). The purpose is to determine the relative effectiveness of various clinical approaches, including the comparison of drug therapies. But Congress specifically prohibited a comparison of costs.

Some readers of yesterday’s report on the ICER (Institute for Clinical and Economic Review) were concerned about the potential conflict of interest that could result from the involvement of various stakeholders. The same concern could be expressed about PCORI. Although we have no reason to doubt the integrity of the individuals involved in these organizations, it would be preferred that their organizations have an infrastructure that did not include the influence of vested interests.

An additional concern regarding PCORI is the interference by Congress in preventing crucial determinations about cost effectiveness. Transparency in pricing is essential if we are to ensure value in our health care purchasing.

Another unique feature of PCORI is that it is only a ten year program, scheduled to end in 2019. It is astonishing that members of the policy community, working with Congress, could ever think that we could complete all important comparative effectiveness research by 2019, and that future drugs and technology would not require such reviews.

Just as with ICER, PCORI is under attack by conservatives and by stakeholders, motivated by ideology and by greed. Once again, it appears that, with their influence, the patient is not always being kept foremost in our policy decisions.

We want health care that is the most effective and with the fairest prices. We don’t want health care that gives the most powerful stakeholders a greater advantage in the health care marketplace while also ensuring them a maximum return on their investments. ICER and PCORI seem to be above that, but 100 percent public funding without stakeholder involvement in governance could give us further assurance that their work product is strictly in the patients’ best interests.