MEDICAL INNOVATION IN THE CHANGING HEALTHCARE MARKETPLACE

CONFERENCE SUMMARY

Philip Aspden, Editor

Board on Science, Technology, and Economic Policy

Policy and Global Affairs

Board on Health Care Services

Institute of Medicine

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.



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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary MEDICAL INNOVATION IN THE CHANGING HEALTHCARE MARKETPLACE CONFERENCE SUMMARY Philip Aspden, Editor Board on Science, Technology, and Economic Policy Policy and Global Affairs Board on Health Care Services Institute of Medicine National Research Council NATIONAL ACADEMY PRESS Washington, D.C.

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary NATIONAL ACADEMY PRESS 2101 Constitution Avenue, N.W. Washington, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report was supported by funding from the Department of Veterans Affairs, the Alfred P. Sloan Foundation, Philips Medical Systems, (formerly part of Agilent Technologies’ Healthcare Solutions Group, and before that, part of Hewlett-Packard), KeraVision, Inc., and Pfizer, Inc. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number 0-309-08416-4 Additional copies of this report are available from National Academy Press, 2101 Constitution Avenue, N.W., Lockbox 285, Washington, D.C. 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu Printed in the United States of America Copyright 2002 by the National Academy of Sciences. All rights reserved.

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary THE NATIONAL ACADEMIES National Academy of Sciences National Academy of Engineering Institute of Medicine National Research Council The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Wm. A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary THE COMMITTEE ON MEDICAL INNOVATION IN THE CHANGING HEALTHCARE MARKETPLACE M. Kathleen Behrens, Cochair, Managing Director, RS Investments Edward E. Penhoet, Cochair, Dean, School of Public Health, University of California, Berkeley Robert S. Adler, Professor of Legal Studies, Kenan-Flagler Business School, North Carolina Charles R. Buck, Jr., General Electric Company (ret.) Carol C. Diamond, Managing Director of the Information Technologies for Better Health Program, Markle Foundation Alan M. Garber, Henry J. Kaiser, Jr. Professor and Professor of Medicine, Stanford University David McK. Lawrence, Chief Executive Officer, Kaiser Permanente Glen D. Nelson, Vice Chairman, Medtronic, Inc. Gilbert S. Omenn, Executive Vice President for Medical Affairs, University of Michigan Staff Philip Aspden, Senior Program Officer and Project Director Craig M. Schultz, Research Associate Shari M. Erickson, Research Assistant Camille M. Collett, Program Associate

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary THE BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY Dale W. Jorgenson, Chair, Frederic Eaton Abbe Professor of Economics, Harvard University Bill Spencer, Vice chair, The Washington Advisory Group M. Kathleen Behrens, Managing Director, RS Investments Vinton G. Cerf, Senior Vice President, Internet Architecture and Technology, WorldCom Bronwyn H. Hall, Professor of Economics, University of California, Berkeley James J. Heckman, Henry Schultz Distinguished Service Professor of Economics, University of Chicago Ralph Landau, Consulting Professor of Economics, Stanford University Richard C. Levin, President, Yale University David T. Morgenthaler, Founding Partner, Morgenthaler Ventures Mark B. Myers, Senior Vice President, Xerox Corporation, ret. Roger G. Noll, Morris M. Doyle Centennial Professor of Economics, Stanford University Edward E. Penhoet, Dean, School of Public Health, University of California, Berkeley William J. Raduchel, Chief Technology Officer, AOL Time Warner, Inc. Alan Wm. Wolff, Managing Partner, Dewey Ballantine, Washington, D.C. Staff Stephen A. Merrill, Executive Director Charles W. Wessner, Program Director

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary THE BOARD ON HEALTH CARE SERVICES Don E. Detmer, M.D., Chair, Dennis Gillings Professor of Health Management, The Judge Institute of Management Studies, University of Cambridge (UK) Barbara J. McNeil, M.D., Ph.D., Vice chair, Ridley Watts Professor, Department of Health Care Policy, Harvard Medical School Linda Aiken, Ph.D., Claire M. Fagin Professor of Nursing and Sociology and Director, Center for Health Outcomes and Policy Research, University of Pennsylvania at Philadelphia Harris Berman, M.D., Chief Executive Officer, Tufts Health Plan Brian Biles, M.D., Chair and Professor, Department of Health Services Management and Policy, School of Public Health and Health Services, The George Washington University J. Lyle Bootman, Ph.D., Dean and Professor, College of Pharmacy and Executive Director, Center for Health Outcomes and PharmacoEconomics (HOPE) Research, Arizona Health Sciences Center, University of Arizona Christine Cassel, M.D., Chair, Henry L. Schwartz Department of Geriatrics & Adult Development and Professor of Geriatrics and Internal Medicine, Mount Sinai School of Medicine Paul D. Clayton, Ph.D., Medical Informaticist, Intermountain Health Care Ruby P. Hearn, Ph.D., Senior Vice President, Robert Wood Johnson Foundation Peter Barton Hutt, LL.M., Partner, Covington & Burling L.L.P. Robert L. Johnson, M.D., Professor of Pediatrics & Clinical Psychiatry and Director, Adolescent & Young Adult Medicine, University of Medicine & Dentistry of New Jersey, New Jersey Medical School Sheila T. Leatherman, Founder, The Center for Health Care Policy and Evaluation and Executive Vice President, UnitedHealth Group Uwe E. Reinhardt, Ph.D., James Madison Professor of Political Economy, Professor of Economics and Public Affairs, Princeton University Shoshanna Sofaer, D.P.H., Robert P. Luciano Professor of Health Care Policy, School of Public Affairs, Baruch College Paul C. Tang, M.D., Chief Medical Information Officer, Palo Alto Medical Foundation Gail L. Warden, President and Chief Executive Officer, Henry Ford Health System Staff Janet M. Corrigan, Director

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary Preface Throughout the 1990s the U.S. health care system underwent significant changes. There were concerted efforts by large corporations and government purchasers of health care to limit increases in health care costs. In particular, managed care organizations sought to introduce greater selectivity in providing services. At the same time, the Clinton Administration committed to doubling the NIH research budget over 10 years. The Bush Administration subsequently endorsed this commitment. Throughout the decade pharmaceutical companies significantly increased their investment in R&D, and Congress instigated a fee-based system at the FDA to accelerate the review and approval of new drugs. There were also important changes on the demand side. The largest consumers of health care, the population over 65 years, increased at a much faster rate than the overall population. Health care consumers, particularly “baby boomers”, became better informed, increasingly through information drawn from the world-wide web, and, as a consequence, more demanding. Against the background of a wave of new health care innovation and a growing demand for health care coupled with continuing concerns about escalating health care costs, the National Academies’ Board on Science, Technology, and Economic Policy (STEP) and the Board on Health Care Services initiated a project to identify the public policies needed to stimulate the development, adoption, and diffusion of high-value medical innovation. As a first step a conference on “Medical Innovation in the Changing Healthcare Marketplace” was convened June 14–15, 2001 in Washington, D.C.

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary For the STEP Board, concern with medical technology is part of an ongoing examination of economic performance and innovation changes at the sectoral level. In 1999, the Board completed U.S. Industry in 2000: Studies in Competitive Performance,1 a study of the competitive performance in eleven industries, including the pharmaceuticals industry. For the Board on Health Care Services, the project builds on important parts of two reports of the Committee on the Quality of Health Care in America—To Err Is Human: Building a Safer Health System2 and Crossing the Quality Chasm: A New Health System for the 21st Century.3 The project also seeks to update earlier work of the Board on Health Care Services and the former Council on Health Care Technology. Between 1989 and 1993, an IOM committee on technological innovation in medicine convened five workshops to “critically examine the process by which biomedical research is translated into actual benefits in medical practice.” Proceedings of each workshop were published and widely disseminated under the general series title Medical Innovation at the Crossroads.4 The Conference on “Medical Innovation in the Changing Healthcare Marketplace” highlighted many of the key factors that either foster or inhibit medical innovation. Two particular areas seem to us to warrant further attention. One is finding ways to improve the diffusion of highvalue innovation, and the other is to identify ways to foster the development of a much more sophisticated, yet affordable, health care information infrastructure. During the conference David Lawrence of Kaiser Permanente reported on how the IOM Roundtable on Health Care Quality documented three types of quality problems—underuse, overuse, and misuse. With regard to underuse the Cochairs of the Roundtable commented,5 “Failure to use effective treatments (e.g., thrombolytics, beta-blockers, aspirin, and angiotensin-converting enzyme inhibitors) for acute myocardial infarction for all 1   National Research Council. 1999. U.S. Industry in 2000: Studies in Competitive Perfor-mance. Washington, D.C.: National Academy Press. 2   Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, Editors; Committee on Quality of Health Care in America, Institute of Medicine. 2000. To Err is Human: Building a Safer Health System. Washington, D.C.: National Academy Press. 3   Committee on Quality of Health Care in America, Institute of Medicine. 2001. Crossing the Quality Chasm: A New Health System for the 21st Century. Washington, D.C.: National Academy Press 4   Institute of Medicine. 1990, 1991, 1992, 1994. Medical Innovation at the Crossroads. Washington, D.C.: National Academy Press. 5   Chassin, Mark R., Robert W. Galvin, and the National Roundtable on Health Care Quality. 1998. The urgent need to improve health care quality. JAMA 280(11):1000-1005.

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary patients who could benefit from these interventions may lead to as many as 18,000 preventable deaths each year in the United States.” Given the documented underuse of some medical technologies and the documented overuse of other medical technologies, several speakers at the conference questioned whether the right incentives are in place for the diffusion of high-value innovation. We believe that, rather than addressing the issue of incentives directly, a better understanding is required of all aspects of the diffusion process. The incentive structure may not be the only, or even the dominant, factor affecting the diffusion of high-value medical technology. As a result, we believe that a better understanding is needed of the drivers of and barriers to the diffusion of medical technology in order to identify the public policy levers that could foster the rapid diffusion of high-value medical innovation and limit the use of low-value technologies. As has been observed before, the health care delivery industry invests in information technology much less than other information-intensive industries. On the basis of the presentations and discussions at the conference, we believe there are opportunities to add value in this area. One is to investigate how to integrate the thinking of production management and quality control into the health care delivery system. Such thinking is a necessary precursor to the acquisition of information technology in the health care delivery system. Another opportunity is to examine how government has stimulated the development of infrastructures in the fairly recent past to help develop a model for government stimulation of a much more advanced information infrastructure for health care delivery. Examples include the interstate highway system, the health care facility program (Hill-Burton Act), the Superfund, and the Internet. This document summarizes the conference presentations. From the outset, the committee recognized that the conference could never comprehensively cover the subject of medical innovation. As a result, many issues such as reimbursement barriers to innovation, cooperation among government agencies regarding medical innovation, the impact of direct-to-consumer advertising, and how to deal with the bureaucratic burden imposed on the health care industry were only partially explored. Further, this report is not intended to be a comprehensive report on the presentations. This is available on the Web (www.nationalacademies.org/med_innovations) through the transcripts of the presentations and the speakers’ PowerPoint presentations. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: Robert M. Califf, Duke University Medical Center; Molly J. Coye, The Health Technology Center; David M. Cutler, Harvard University; Joseph V. Simone, Simone Consulting; and Ellen Stoval, National Coalition for Cancer Survivorship. Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Richard A. Rettig, RAND Corp. Appointed by the National Research Council, he was responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. Finally, we would like to thank the other members of the committee for their valuable advice on the issues that should be addressed at the conference, their analyses of the issues raised at the conference, and their suggestions for initiatives that could foster high-value medical innovation. We would also like to thank the staff of the Board on Science, Technology, and Economic Policy and of the Board on Health Care Services for their support throughout the project. M. Kathleen Behrens Ed Penhoet Cochair Cochair

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Medical Innovation in the Changing Healthcare Marketplace: Conference Summary Contents     Executive Summary   1 1   Introduction   9 2   The Characteristics of Medical Innovation   12 3   The Costs and Benefits of Medical Innovation   15 4   Cost-Effectiveness Studies: A Key to Innovation Development   25 5   Barriers to Medical Innovation   34     Appendixes         A Conference Agenda   45     B Conference Participant List   50     C Keynote Speech: Encouraging High-Value Medical Innovation Mark McClellan, Council of Economic Advisers   57     D Keynote Speech: Bridging the Quality Chasm David Lawrence, Kaiser Permanente   65

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