Click for next page ( 105


The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 104
A Conflict: Medical Innovation, Access and Cost Containment SEYMOUR PERRY AND FLORA CHU Technology is both praised for improving medical care and blamed for contributing to the current problems of the health care system. Technological innovation has enhanced life expectancy, access to care, and health status. At the same time, however, these gains have exacted a substantial price in economic terms. Real per capita health care expenditures rose an average of 4.6 percent and hospital expenses experienced a 5.4 percent increase in real growth from 1973 to 1983, to the mounting concern of policymakers (Merrill and Wasserman, 19851. Though there are other important contributing factors, medical technology has been implicated in from 30 percent (Office of Technology Assessment, 1985a) to 50 percent (Ruby et al., 1985) of this increase. The medical device industry has produced more than 1,700 different devices (General Accounting Office, 1986), many of them expensive. These devices give physicians tools to improve patient care through life-saving therapy, intensive monitoring, relief of pain, and amelio- ration of disability. Because modern medical technologies tend to be expensive, however, conflict arises between the desire of policymakers to reduce health care expenditures and the demand for medical technology by health care providers and the public. Early medical devices were frequently unwieldy and cumbersome, but modern devices are often compact and more versatile. New models of existing devices often expand the useful range of diagnosis or treatment and are superior in durability, reliability in performance, and convenience in application. For example, in 1957 the original cardiac pacemaker weighed 12 pounds and had to be strapped onto 104

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS kD COST CONTAINMENT 105 the patient, much like a backpack. During the succeeding 30 years, experimentation and development led to important improvements and a broadened range of therapeutic applications. Today the pacemaker weighs 1.5 ounces and is implantable and programmable. It can be designed to treat both rapid and slow cardiac arrhythmias and can control either one or two chambers of the heart (Bessey, 19861. Yet the "reign of technology" in medicine is also viewed with suspicion (Reiser, 19781. The potential of new medical technologies to produce unintentional harm, their substitution for personal care, and their failure to produce a "magic cure" for the chronic ills of modern society have led observers to challenge the worth of these technologies (Moloney and Rogers, 19791. Furthermore, some medical technologies add to the inflationary rise in health care costs without adding appreciable benefit (Bunker and Schaffarzick, 19861. Few new medical devices are likely to cost less per unit than the devices they supplant, at least in the short run. New devices tend to be more complex and sophisticated and to entail considerable costs for research and development; when introduced into the health care system, they usually increase costs (Hillman, 19861. Developing the physician's skills in interpreting and refining clinical applications of new devices generates additional costs. Traditionally, new medical devicesas yet unproven are often employed in tandem with existing technologies with which the physician is familiar. Until their effec- tiveness and performance in relation to competing technologies are established, the long-term cost-saving potential of new technologies is difficult to ascertain (Steinberg et al., 19851. In recent years, critics have increasingly decried the health care provider's reliance on therapeutic and rehabilitative technologies and advocate greater efforts in preventive medicine. Although a better life- style, proper diet, and regular exercise are laudable goals, it is important to recognize that there are no effective preventive measures currently available for the chronic and degenerative diseases of modern society. Until such measures become available, health care practitioners will have to rely on technological innovations in diagnosis and treatment. INCENTIVES AND DISINCENTIVES FOR MEDICAL DEVICE INNOVATION In the years since World War II, the medical device industry has made remarkable contributions to medical progress. Among the tech- nologies developed during the past two decades are computed tomog- raphy (CT), magnetic resonance imaging (MRI), hemodialysis systems,

OCR for page 104
106 CURRENT TRENDS artificial joints, fiber-optic endoscopy, and intraocular lenses (Roe, 19851. This technological progress has been enhanced by reliance on cost- and charge-based health care reimbursement and its bias toward medical technology. From 1958 to 1983, sales of medical devices increased from $1 billion to $17 billion (White, 19851. However, the open-ended era of health care reimbursement is drawing to a close. The medical device industry has become acutely sensitive to the marketplace and faces unprecedented uncertainties in the current push to contain health care costs. The Prospective Payment System Medicare's Prospective Payment System (PPS), enacted in 1983, established a set of diagnosis-related group (DRG) categories for hospitalized Medicare beneficiaries and payment rates to hospitals based on those categories. Under PPS, hospitals have strong incentives to provide the least resource-intensive treatment. This may lead them to decrease the provision of inpatient services, change the mix of hospital services toward those that are more profitable, and increase specialization to take advantage of savings associated with higher service volumes (Office of Technology Assessment, 1985b). Since payment is fixed per case, hospital administrators may prefer technologies that produce short-term over long-term savings. Hospital administrators may shy away from adopting some new technologies because of initial capital and start-up costs and uncertainty about their value in patient care. They also may shift care to outpatient settings, thus escaping the cost controls of the DRG payment system. There is evidence that all of the foregoing are happening to at least some extent (General Accounting Office, 1985; Iglehart, 19861. Medical devices are at a disadvantage in PPS since, with few exceptions, they have not been identified or specified in the construction of DRG categories (Office of Technology Assessment, 1984~. Reim- bursement associated with the use of implantable devices, such as pacemakers, generally fall under surgical DRG categories, but services using medical devices that do not require surgical intervention, such as gastroscopy or diagnostic imaging, are not independently specified in the DRG reimbursement structure (Bunker and Schaffarzick, 19861. Incentives embodied in the PPS could stifle innovation of costly medical technologies even if they prove beneficial, but PPS may also lead providers to avoid ineffective, unsafe, or wasteful technologies and may induce innovators and manufacturers to focus on true "breakthrough" and cost-effective technologies (Office of Technology Assessment, 1985b).

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AND COST CONTAINMENT 107 The overall level of hospital payments under PPS is probably more important in determining the level of future technological innovation than specific DRG classifications and rates. Historically, the intensity of medical care, which includes increased use of existing services and introduction of new technologies, has risen 4 to 5 percent each year (Anderson and Steinberg, 19841. However, total payment increases under the PPS have thus far been substantially less, ranging from 1 to 2 percent per year. Adoption and use of new medical technologies must be accommodated within the overall operating margin of the hospital. Recent evidence indicates that this margin has been surpris- ingly large under PPS (Prospective Payment Assessment Commission, 1987~. However, operating funds are not specifically set aside for investing in technological change. They may be used for alternative and pressing needs, such as covering the costs of uncompensated care and of cases that cost more than the DRG reimbursement, particularly at rural and public institutions. The Health Care Finance Administration Decision-Making Process In the Medicare program, the use of a new technology may first surface when a question about its coverage status arises in the submission of a claim for reimbursement or because of inquiries from providers and manufacturers. Intermediaries may detect the use of a new technology when a claim form is submitted with unrecognizable codes, no codes, or excessive fees for known, established procedures within which the charge for a new technology may be hidden (Bunker et al., 19821. Medicare contractors generally decide most coverage questions locally. Coverage issues of national interest are referred to the Health Care Finance Administration's (HCFA's) Office of Coverage Policy. If the central office requires medical input to reach a decision, the issue may be placed before the Physician's Panel, made up of repre- sentatives from HCFA and the Public Health Service. This panel may then request a formal technology assessment and recommendation from the Office of Health Technology Assessment of the National Center for Health Services Research and Health Care Technology Assessment. HCFA then uses this information to make the final coverage policy decision and notifies Medicare contractors, state Medicaid agencies, and providers. However, Medicare contractors across the country vary in their implementation of HCFA policy transmittals (Roe et al., 1986; Ruby et al., 19851. This lack of uniformity has been attributed to such factors as the absence of a requirement for legally binding compliance with

OCR for page 104
108 CURRENT TRENDS national coverage policy, insufficient information about specific tech- nologies, and difficulties in understanding HCFA's coverage instruc- tions (Office of Technology Assessment, 1984; Ruby et al., 19854. A review of technology assessments performed for Medicare and Blue Cross-Blue Shield plans revealed that such assessments were "highly subjective . . . and serve as complements torather than substitutes for scientific evaluations" (Finkelstein et al., 19841. Tech- nology assessments were based on input from published reports and recommendations of government agencies, medical advisory boards, and medical specialty societies. If data on safety and effectiveness were very convincing, then a technology was usually recommended for coverage. Recently, emphasis on cost control has expanded the scope of reimbursement decision-making processes to include questions of cost and cost-effectiveness (Ruby et al., 1985), although in practice consideration of cost-effectiveness remains limited. Under Medicare's PPS, a decision to cover the costs of a new device or technology marks only the beginning of the process of accommo- dating that device or technology within the hospital. A new technology must also be assigned to a DRG that is clinically coherent and promotes homogeneity of resource consumption. This centralized assignment process considers the costs of the new technology, available alternate treatment methods, and the administrative aspects of a DRG price adjustment. Conflicts and delays can, therefore, arise between deciding on the appropriateness of covering a particular new medical technology and determining a payment for that health service (Roe et al., 19861. The Prospective Payment Assessment Commission (ProPAC) has been charged with responsibility for advising the Department of Health and Human Services on updating the DRG system, with one of its stated priorities being to facilitate innovation and assure that beneficial technologies are accommodated in the health care delivery system (Prospective Payment Assessment Commission, 19854. Innovation Under Alternative Health Care Delivery Systems Under alternative health care delivery systems, such as the managed care approaches in health maintenance organizations and the price competitive models of preferred provider organizations, incentives are to delay coverage or acquisition of major new technologies until adoption is justified on the basis of cost savings or high-volume use. Instead of the short-term savings incentives embodied in the PPS, these providers emphasize long-term cost-effectiveness in selecting new medical devices and technologies. Technologies for use in the ambulatory and home settings will also be highly desirable.

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AIDED COST CONTAINMENT 109 The trend toward investor-owned health care enterprises, entrepre- neurship, and corporatization of medicine stresses the "bottom line" and the profit potential of new technologies as well as exploitation of the profitability of existing technologies. For-profit hospitals tend to be newer and more capital-intensive than not-for-profit facilities (In- stitute of Medicine, 1986) and may promote state-of-the-art technology as a marketing tool. However, technologies that are relevant to the needs of less profitable patients or are inadequately reimbursed will fare less well under these conditions. The growing clout of large employers who self-insure their workers also adds to a cautionary attitude toward adoption of costly new technology. Increasingly, businesses employ utilization review mech- anisms to monitor the use of health care technology by their providers. They are also negotiating contracts with providers on the basis of price and service packages to control health care expenditures for their employees and retirees (Fruen and DiPrete, 19861. Another recent development has been the increasing monetarization of medicine (Ginzberg, 1984), impinging on the unique, historical relationship between the physician and patient. Increased entrepre- neurism, intense competition, and commercialization of medical care have influenced physicians' practice styles and economic self-interests. Under cost-based reimbursement, the physician could deliberately or inadvertently increase the intensity of health care services to the patient, and there were few disincentives to exceed optimal care (Myers and Schroeder, 1981~. Now, realities of cost containment end competition have introduced the physician to a greater awareness of and in some cases a liability for the economic consequences of prescribed medical care. Hospitals and alternative health care delivery systems are increas- ingly monitoring physicians' patterns of care, pressuring them to limit hospital stays and modify treatment procedures, or offering physicians ownership interests or financial incentives to enhance institutional revenues. These arrangements seek to align the economic motives of the physician with those of the institution (Institute of Medicine, 19861. Medical centers, businesses, and multihospital systems have also entered into employment or contractual agreements with physicians, potentially reducing the dominance of the physician's role in deciding appropriate patient care. The ultimate resolution of this "double agent" role in which the physician is placed in the position of acting both for the patient and for a business institution is uncertain (Relman, 19851. The resultant impact on the use of technology is also unclear at present. Physicians may assert their fiduciary responsibility to provide cost-conscious

OCR for page 104
110 CURRANT TRENDS patient care that is conservative of health care resources. They may increasingly practice according to set protocols, minimizing variability by using formal decision analyses to make complex choices among alternate health care technologies (Detsky, 19871. Rigid standardization of practice styles could encroach upon individuality of care and dampen the drive for innovation in medical care. On the other hand, formal decision making in patient care may be more responsive to profit- making objectives, inducing preferential use of innovative medical technologies that also promote the self-interest of the provider. FUTURE DIRECTIONS What does the future promise for technological innovation in medical care? Undoubtedly, cost-containment pressures will continue to dom- inate the health care system and shape incentives for innovation. The purchasers of care, particularly large employers, will increasingly seek to dictate the benefit mix, to control prices and use, and to determine the settings where services are provided. Managed care such as health maintenance organizations and preferred provider organiza- tions and strict utilization review will continue to increase (Fruen and DiPrete, 19861. Competition in health care delivery will intensify as the surplus of physicians and excess capacity of hospitals increases. This may induce providers to differentiate among their products on the basis of price, amenities, and quality. In response to these pressures,- providers and purchasers of care will continue to channel demand for medical devices toward cost- saving innovations. Hospitals will increasingly employ strategies to reduce costs. These may include negotiating bulk purchase orders or preferred buying contracts through multihospital chain arrangements, demanding trial periods or other inducements from device manufac- turers in return for future purchase orders, and delaying investments in new medical technologies until clinical and economic benefits are certain. Technologies that enable health care procedures to be per- formed outside hospitals, speed recovery after surgery, reduce delays between diagnostic testing and medical treatment, and minimize risks of infection and other complications will all be sought. Current examples of such technologies include extracorporeal shock wave lithotripsy for the removal of kidney stones, laser techniques in a variety of appli- cations, and arthroscopic and endoscopic diagnostic and surgical procedures. Medical device manufacturers face prospects of considerable delays in reimbursement decisions, uncertainty of payment rates, and con- straints on hospitals for major acquisitions. For example, magnetic

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AND COST CONTAINMENT 111 resonance imaging was first introduced to the United States in Decem- ber 1980, but Medicare coverage was not provided until November 1985. Such lengthy delays may serve to reduce health care costs in the short term by preventing expenditures for device acquisition, but may also make effective technologies unavailable to patient populations that could benefit from them, and may reduce the policy options than can be used to manage the introduction of new technologies (Hillman, 1986). An increasing emphasis on short-term, cost-reducing technologies may diminish the commitment of medical device manufacturers to initiate long-range projects with uncertain potentials for profit. Man- ufacturers will be less likely to invest in the health care technological needs of the less visible, less articulate, and underprivileged groups- the handicapped, the indigent, and the elderly since support for these technological innovations will be uncertain and slow in coming from public sources. Risks of suppressed or aborted medical innovation due to reimbursement constraints may also be the most damaging effect of cost-containment on the future quality of health care. Public resources allotted for health care needs have been increasingly perceived to be limited, leading to the belief that decisions to ration access to medical treatment are inevitable (Evans, 1983; Schwartz, 1987~. However, rationing is not a concept that is totally foreign to the American system of health care (Mechanic, 19851. Scarce goods and services have always had to be apportioned among needy individ- uals, and not infrequently, the less affluent have been denied access to expensive technologies. Also, third-party payment mechanisms act as implicit rationing devices, either by imposing coinsurance and deductible payments on patients or by specifying strict criteria gov- erning the context, quantity, setting, and range of reimbursable serv- ices. The cost-containment imperative has led to efforts to limit the growth of the U.S. health care system. For example, the assignment of DRG weights promotes a system of resource allocation per treatment category (Veatch, 19861. In a hospital or other provider institution, resources must be distributed among healthier and sicker patients within a DRG or shifted between profitable and unprofitable DRGs. This leaves institutions, health care professionals, and, to a lesser extent, patients to determine the distribution of health care opportu- nities and the equity of such trade-offs. This is even more apparent in the capitated practice approach of health maintenance organizations in which the individual is charged on a fixed, periodic prepayment basis regardless of the services he or she has received. Schwartz (1987) has recently suggested that current cost-control

OCR for page 104
112 CURRENT TRENDS strategies will provide only temporary relief from expansionary health care costs unless future development of new medical technologies is limited and further rationing of services is imposed. The American public, however, has repeatedly demonstrated its great appetite and expectation for increased medical care (Somers, 1986), the importance it places on access to services for the needy (Navarro, 1982), and its unstinting support for biomedical research (Blendon and Altman, 19841. It is hardly conceivable that the American public will be convinced that rationing services of proven benefit or curbing innovation of promising technical advances are in the patient's or even society's best interests. Further, there is no guarantee that the savings that may be realized by rationing health care services will be used more justly or wisely elsewhere (Daniels, 1986~. For example, the savings may accrue as profits to entrepreneurs or corporations. Indeed, the design of explicit rationing criteria other than those primarily dealing with issues of quality of care could erode public trust in policymaking and the government (Mechanic, 19851. This raises the question: "Who should have access to the new medical technologies and why?" (Capron, 19841. There exists a widely acknowledged ethical obligation to provide access to an adequate level of health care for all members of our society (President's Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research, 19831. To meet this obligation, there needs to be a broad-based decision-making process to judge if the opportunities that are expected to derive from a new technology warrant its inclusion into a "package of benefits" guaranteed to provide an adequate level of health care. Such an assessment should be performed in a timely fashion in order to anticipate future financial requirements, to meet priority health needs, and to establish a rational basis for applying a particular technology efficiently as well as equitably. An example which illustrates some of these problems is heart transplantation. Medicare issued coverage criteria for heart transplan- tation in November 1986, long after the procedure was perceived as beneficial and had diffused into accepted clinical practice. It is not inconceivable that the artificial heart and ventricular assist devices may also follow the same path, with failure to deal with their ethical and economic consequences until the technologies are fairly well established and perceived as desirable from the perspectives of phy- sicians as well as the public (Capron, 19841. Unfortunately, although the government is committing a share of its biomedical research funds to the development of these devices, it is alsoas regulator and third- party payer implicitly disavowing responsibility to fund assessments of these new medical devices.

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AND COST CONTAINMENT 113 REFORM PROPOSALS Technology Assessment Conflicts between cost-containment, access to care, and continued technological progress may never be resolved to the satisfaction of all interested parties. However, attention to improving the timeliness and accountability of coverage payment decision processes will help to make these conflicts less problematic for the health care practitioners and patients who must abide by the decisions. The reimbursement structure does not merely embody a set of prices and allowable charges, but also reflects judgments about relative values and priorities placed on health care services. The challenge is to delineate, with wisdom for the individual and for society, the balance between new health care opportunities and problems created by the introduction and broad application of expensive new medical technologies. Technology assessment can serve as a tool for reviewing the clinical, social, and economic consequences of a technology and can provide a basis for making policy decisions about resource values. Socially and fiscally responsible coverage and reimbursement policies can work together with technology assessment, both fostering effective and efficient medical care. The primary value of technology assessment for coverage decision making lies in determining the safety and efficacy of medical technologies and discriminating between appropriate and inappropriate indications for use. The reimbursement mechanism can, in turn, generate data needed for technology assessments and serve to implement the conclusions of these assessments. Technology assessment for coverage decision-making purposes will demand greater analytic resources and augmented data bases than are now available. In making assessments, policymakers and third-party payers should consider issues such as relative efficacy of a new medical technology in comparison with competing technologies; cost-effective- ness; impact on quality of life; rehabilitative potential; the relationship between productivity measures and patient outcomes; and other ethical, legal, and societal concerns. Beyond coverage decision making, government policy and decision- makers will have greater concern with the nationwide implications of major new technologies, particularly ifor when the country insti- tutes some form of a national health program. At present, there is no agency or group in the public or private sector with a mandate to conduct or sponsor such studies, including studies on the potential benefits or hazards of major technologies and their economic and resource costs for the nation. There is no available mechanism through

OCR for page 104
114 CURRENT TRENDS which the nation can deal with the array of issues raised by major technologies, new or existing. Such assessments will require broader input, multidisciplinary expertise, and investment in sophisticated data collection and analysis methods. Certainly the need is pressing, and a possible mechanism for facilitating these assessments may be available in the Council on Health Care Technologies of the Institute of Medicine. Whether the council will move in that direction, or whether a new entity will need to be established, remains to be seen. One of the most important research areas in technology assessment is the comparison of competing technologies, particularly to determine appropriate clinical indications for use of diagnostic devices (Petitti, 19861. These comparisons can be laborious and difficult, demanding large study populations and complex methodologies. One option would be to provide research support for comparative studies from federal health care delivery dollars. The results of such studies would be of direct value in improving the efficiency of the delivery system and could also lead to more informed and prompt payment decisions. Another, but probably less feasible, approach would be to include preliminary comparative safety data and perhaps even some preliminary cost and efficacy data in the device manufacturer's premarket approval submission to the Food and Drug Administration (FDA) (ECRI, 1986~. Although this would add to manufacturers' costs already considered unduly high such information could be used as a marketing tool and the costs could be spread over future device sales (ECRI, 19861. Priority List of Candidate Topics for Assessment and Policy Actions An important step in improving coverage decision making in Medi- care would be to systematically identify priorities among candidate technologies. At present, this is performed on a loosely structured basis, generated in large part by requests from intermediaries and local carriers. Reliance on this method can lead to delays in identifying important coverage concerns and wasting limited resources on non- meritorious issues. Instead, the coverage process should anticipate issues surrounding new technologies and new applications of existing technologies. A number of criteria could be adopted to screen new technologies and to order priorities for assessment purposes. These criteria might include medical significance; potential benefit and clinical utility; proportion of beneficiaries affected; spin-off effects; ease of diffusion; economic incentives; impact on the health care delivery system; and important legal, ethical, and social considerations (National Center for Health Care Technology, 1980; Perry, 1982; Roe et al., 1986~.

OCR for page 104
A CONFI ACT: MEDICAL INNOVATION, ACCESS kD COST CONTAl~MENT 115 Candidates for assessment could be compiled from a number of sources such as the FDA, the National Institutes of Health, the Public Health Service, the National Center for Health Services Research and Technology Assessment, and the Council on Health Care Technology of the Institute of Medicine. Other professional groups knowledgeable about changes in medical practice could provide expertise and input. These include medical specialty associations, health industry manu- facturers' organizations, utilization review groups, and peer review organizations (Roe et al., 19861. It should be emphasized that the candidate technologies for assess- ment discussed in this section are not the emerging technologies. Even the identification let alone the assessmentof such technologies has aroused serious concern from device manufacturers that premature assessment of emerging medical technologies would stifle innovation (Perry, 19821. Interim Coverage Policy A decision by the federal government and other third-party payers to cover a particular medical technology need not be all or nothing as it is now. The current situation sometimes fosters enthusiastic adoption of technologies because of overestimation of the number of potential beneficiaries. It also sometimes rewards extravagant application of technology even when marginal cost outweighs marginal benefit. Alternatively, criteria could be more rigorously constructed to define specific indications, circumstances, and qualifications for use. Third- party payers could coordinate efforts with medical specialty societies to encourage the requisite standards for physician training and expe- rience with new procedures and medical device applications. Quality standards for resources, personnel, and participating medical centers could be developed for major, highly specified technologies. Such activities are already under way to a limited extent. Many procedures can be performed on an outpatient basis safely and less expensively than when provided in a hospital setting. Coverage could be specified to restrict care to the appropriate setting (Greenberg and Derzon, 1981~. Regionalization of technologies and procedures requiring highly developed skills and specialized facilities could also be encouraged by third-party payment policies (Perry, 1984~. Thus, in coordination with existing local health planning agencies, regional hospital councils, area provider groups, and third-party payers could help discourage duplication of health care services. Precedents for promoting regionalization of complex medical skills and facilities have been set in both the public and private insurance

OCR for page 104
116 CURRENT TRENDS sectors. In 1982, Blue Shield of California decided to provide coverage for percutaneous transluminal coronary angioplasty only if the physi- cians were qualified according to criteria set by the National Heart, Lung, and Blood Institute. Medicare has limited payment to specified providers for some procedures, such as therapeutic apheresis, although this has been unusual (Office of Technology Assessment, 19841. In late 1986, Medicare announced that heart transplants would be reim- bursed if the transplant centers met certain qualifying criteria. In view of the recent demise of the federal health planning program, third- party payers could play a major role in promoting appropriate region- alization of health care services, thus conserving scarce and expensive resources. A reform measure recommended by the National Center for Health Care Technology and endorsed by the Of fice of Technology Assessment would establish interim coverage policies (Office of Technology As- sessment, 1984; Towery and Perry, 1981~. This could be invoked for expensive, FDA-approved major medical technologies as they enter into the practice setting. Diffusion of the technologies would be limited to selected sites; use would follow predetermined protocols; and reimbursement would be contingent upon collecting early data on safety, effectiveness, relative efficacy, patient outcome, and cost- effectiveness. Such data would provide valuable information on the use of the technology in different clinical settings, information that is not normally collected systematically or in a coordinated fashion. It is generally the exception, rather than the rule, for a new technology to diffuse in an orderly fashion following the completion of controlled clinical trials, a determination of relative worth, and agreement on appropriate indications for use. An important current example is the MRI. Opinions may differ about the appropriate rate of diffusion of MRI, but there is little disagreement that studies of its clinical value have not proceeded in a rational manner. Acquisition has largely been based on considerations other than clinical benefit (Hillman and Schwartz, 1986). It may be difficult to prevent premature diffusion of new medical devices because the collection and reporting of data from health care delivery systems is greatly deficient. A new technology may not be identified on insurance claims or may be hidden within an existing procedure, thus forfeiting the opportunity to study its costs and outcomes (Bunker et al., 1982~. An interim coverage policy not only provides a sounder basis for more permanent coverage decisions but also adds coherence to the development and evaluation of technologies entering the health care delivery system. ProPAC also has considered

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AND COST CONTAINMENT 117 developing device-specific temporary DRGs for new medical technol- ogies (Technology Reimbursement Reports, 1986~. This approach would monitor practice patterns and price changes for new technologies prior to a permanent DRG assignment. Criteria for a permanent assignment would relate to the costs of the new technology and other technologies within the DRG, the differences in clinical utility and resource use related to the new technology, and evidence of adverse impacts on access. Senators David Durenburger (R. Minn.) and Lloyd Bentsen (D, Tex.) introduced a bill (S. 2474) in the 1986 legislative session and again in the 1987 session (S. 897) that would target funds for temporary Medicare coverage of FDA-approved technologies. Medicare would pay 60 percent of the added costs for the approved technology for those cases that cost more than 110 percent of the DRG rate. The temporary coverage would be in effect for a trial period of 2 years, during which data concerning effectiveness and costs of the new technology would be submitted to help formulate a permanent coverage . . c .eclslon. However, these policy proposals do not set priorities among new technologies, as would a selective interim coverage policy. This proposal would also necessitate estimating costs of a new technology, which would be a complicated task (Garrison and Wilensky, 19864. And although interim coverage provides support at a critical juncture between marketing and reimbursement, the level of coverage may still be insufficient for some providers and patients. Hospital claim forms for reimbursement appear to be inefficient sources of data on new devices and their complications and outcomes. Confusion and misunderstandings over which code to use can lead to inconsistencies in reporting the use of new medical devices. The classification system used in Medicare's PPS is the International Classification of Diseases, Ninth Revision, Clinical Modification PICA 9-CM). A formal mechanism for coding recommendations, formulating new procedural codes, and providing coordination between HCFA and the National Center of Health Statistics has recently been established (Office of Technology Assessment, 1985b). But no current codes describe misapplication, malfunction, failure, or other device-related complications or distinguish between the many device models. Some of these changes are proposed for the 10th revision of the ICD-CM (Thacker and Berkelman, 19861. A recent survey noted that hospitals' device-related problems were not reported to outside organizations, such as the FDA or medical device manufacturers, 49 percent of the time (General Accounting

OCR for page 104
118 CURRENT TRENDS Office, 19861. Claims data and postmarketing surveillance networks are potentially valuable sources for information on device practice patterns and should be made more useful. Periodic Payment Adjustments A reimbursement structure should be responsive to and provide appropriate incentives for beneficial technological change. Medical progress does not always advance in a step-by-step, straightforward fashion. Instead, it may draw upon a mix of contributions from a broad array of sciences and fortuitous discoveries (Moloney and Rogers, 19791. A reimbursement structure cannot feasibly acknowledge each minor step in the evolution of a technology's development and refinement, nor should it. However, recognition of the cumulative iterative process and interim products of the learning and development phases of a technology (Feeny, 1985) could help maintain the sensitivity of payment rates to ongoing practice patterns. In a fixed-rate reimbursement system, periodic adjustments are needed in order to maintain the correlation between payments and the cost of efficient care (Office of Technology Assessment, 1985b). If a cost-saving technology is introduced, or if the cost of a technology decreased after the initial phases of development, the per-case payment should reflect this decrease. Likewise, the use of costly innovations that prove to be advantageous for diagnostic efficiency or treatment should elicit an upward adjustment in payments. Such an evolutionary process would more evenhandedly encourage the diffusion of both cost-saving and cost-increasing, but beneficial, technologies. Charges for the application of expensive devices should be better defined in order to verify the calculation of DRG weights. In some DRGs, the inclusion of costly device-related cases with cases where such devices are not used may suggest that patient characteristics are distinct and may warrant reclassification in order to maintain DRG homogeneity (Prospective Payment Assessment Commission, 1986c). Two or more types of a medical device can be used for patients within the same diagnosis or treatment group, but may vary significantly in resource costs. For example, four DRG categories describe patient groups requiring pacemaker implantation. There are also four major device types, each with a different cost. This distinction is not recognized in the existing DRG rate structure (Altman, 19851. ProPAC has recommended that the grouping of pacemaker implantations be reclassified in order to correlate resource use with payment rates more effectively (Prospective Payment Assessment Commission, 1986b), but this recommendation was rejected by HCFA.

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AND COST CONTAINMENT 119 Greater Public Input into Coverage Decision Making Promulgating clearly defined rules and criteria governing coverage and payment policy decisions would improve the accountability and reliability of such decisions (Roe et al., 19861. Until recently, HCFA has not made public its rules regarding national coverage decisions, perhaps because they were not explicit. The absence of a clear understanding of this process bars effective public participation and appeal and may lead to geographical variations in coverage policy. If the steps involved in appealing for additional reimbursement for a new technology or if the rationale for denial of coverage are unknown, then manufacturers, physicians, and patients are unable to challenge such decisions on a rational basis. Coverage decision-making processes should also permit greater public participation by hospital providers and patients (Roe et al., 19861. Presently, there is no opportunity for public review of the reports of the Office of Health Technology Assessment before the policy determinations are made by HCFA. Disclosure of coverage policy decisions would encourage responses and recommendations from experts and interested groups. In turn, these groups could submit relevant economic or clinical data related to the coverage decision. Impartial advisory boards composed of clinicians, health profes- sionals, policy analysts, economists, and others could fulfill an impor- tant function in ensuring that the coverage process responds to the needs of the health care community. Congress established an inde- pendent body, ProPAC, to help provide fairness and objectivity in setting hospital rates (Verville, 19851. However, a number of DRG adjustments proposed by ProPAC in response to changing medical practices were rejected by HCFA. In some cases, Congress itself has enacted adjustments to hospital payments (Prospective Payment As- sessment Commission, 1986d). ProPAC's deliberations and recom- mendations should be afforded greater weight, and there should be mechanisms to provide review and a recourse to appeal HCFA's reimbursement decisions (ECRI, 19861. Identification of Outmoded, Ineffective, and Overutilized Existing Technologies There are few data on the continued use of technologies that are ineffective or have been superseded by superior technologies; indis- criminate application of old or existing technologies is fairly common. Present reimbursement procedures on the whole do not discourage such practices, and in fact, PPS tends to make them even less visible.

OCR for page 104
120 CURRENT TRENDS Identification and elimination of outdated technologies has, on the whole, been neglected, although a great deal has been said and written about the subject. New evidence may warrant a reassessment of an already covered service or a technology that has been denied coverage. Such evidence may include advances in the state of the art, the introduction of alternative techniques, emerging safety concerns, new evidence about the effectiveness of a procedure or device, or refinement of clinical applications. Additional criteria for selecting old technologies for review could include the magnitude of the economic impact of com- peting technologies including both prevalence of practice and cost per unit, potential for misuse, feasibility of an assessment, or evidence of cost-ineffectiveness of an outdated device or procedure (National Center for Health Care Technology, 19801. Based on periodic review, coverage for these technologies could be eliminated, redefined, or limited. CONCLUSION In this era of cost-containment, there is increasing discussion of the issues surrounding quality of care; thus far, there has been relatively little action. No longer are improvements in health or expansions in access to care heralded as a mark of success. Instead, total savings now serve as the yardstick of achievement for health benefits programs (Eisenberg, 19841. As third-party payers, self-insurers, and other parties increasingly intervene to mandate service utilization patterns and clinical practices, they should also accept partial responsibility for the consequent health outcomes. A comprehensive effort should be undertaken to monitor the impact of alternative payment systems. Technological change, access, and quality of care should all be evaluated. These studies should also seek to identify significant "spillover" effects into other components of the health care delivery system. If an economically oriented reimbursement system inadvertently creates hardship for hospitals providing public services, if patients are unable to gain access to medical care for financial reasons, or if there is a redistribution of the gains of technological change from the less wealthy to the more wealthy, then the social costs of such programs are too high. Research of this type needs to be conducted before a new reim- bursement program is established. Relatively little was known about the long-term impact of the PPS on both costs and quality of care prior to its institution nationally. Any thought of changing to another

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS ED COST CONTAINMENT 121 mode of reimbursement, such as capitation, should be accompanied by foresight, planning, and testing. Ultimately, cost-containment strategies must redirect funds away from unnecessary and ineffective care and toward effective medical care (Angel!, 19851. The primary obstacle to distinguishing effective medical care from care of little or unproven value is lack of knowledge and data on new and existing technologies (Jennett, 19841. Public sector investments in primary data collection have decreased at the same time that the needs to improve and refine coverage polic~and the subsequent need for more and better data have accelerated. The Institute of Medicine has recommended that "payment for medical technology assessment should be made through the system that pays for medical care." Such funds could be raised either by "a set-aside percentage of the health care dollar" (Institute of Medicine, 1985), as has been proposed previously, or by a per capita levy on insurers (Bunker et al., 1982; Relman, 19821. As Arnold Relman, the editor of the New England Journal of Medicine, notes, "It is the cost of this ignorance, not of medical progress, that has now become too steep for us to bear. The cost culprit is not technology per se, but only technology that is ineffective, superfluous or unsafe" (Relman, 1982). It is time for the government, insurers, manufacturers, and providers to embrace common objectives and to acknowledge and fully support the crucial role of medical technology assessment in the enhancement of the quality of health care and the discriminate and equitable use of scarce resources. To ignore this need through preoccupation with management by numbers or reliance on cost-competitive choices would be seriously shortsighted and an injustice to our society. REFERENCES Altman, S. H. 1985. Will the Medicare Prospective Payment System succeed? Technical adjustments can make the difference. Arthur Weissman Memorial Lecture, University of California, Berkeley, School of Public Health. Anderson, G., and E. Steinberg. 1984. To buy or not to buy: Technology acquisition under prospective payment. New England Journal of Medicine 311:182-185. Angell, M. 1985. Cost containment and the physician. Journal of the American Medical Association 254:1203-1207. Bessey, E. C. 1986. Don't let cost containment stifle technological innovation. Medical Marketing and Media 21 :8-10, 1~16. Blendon, R. J., and D. E. Altman. 1984. Public attitudes about health care costs: A lesson in national schizophrenia. New England Journal of Medicine 311:613-616. Bunker, J. P., and R. W. Schaffarzick. 1986. Reimbursement incentives for hospital care. Annual Review of Public Health 7:391009.

OCR for page 104
122 CURRENT TRENDS Bunker, J. P., J. Fowles, and R. W. Schaffarzick. 1982. Evaluation of medical technology strategies: Proposal for an Institute for Health Care Evaluation. New England Journal of Medicine 306:62~624, 687-692. Capron, A. M. 1984. An ethical obligation to ensure access to new medical technologies? Journal of Health Care Technology 1:103-120. Daniels, N. 1986. Why saying no to patients in the United States is so hard: Cost containment, justice and provider autonomy. New England Journal of Medicine 314: 138~1383. Detsky, A. S. 1987. Decision analysis: What's the prognosis? Annals of Internal Medicine 106:321-322. ECRI. 1986. Medicare payment for new technologies~an the process be improved despite conflicting goals? Journal of Health Care Technology 3:13-32. Eisenberg, L. 1984. Rudolf Ludwig Karl Virchow, where are you now that we need you? American Journal of Medicine 77:524-532. Evans, R. W. 1983. Health care technology and the inevitability of resource allocation and rationing decisions. Journal of the American Medical Association 249:2047-2053, 2209-2219. Feeny, D. 1986. Neglected issues in the diffusion of health care technologies: The role of skills and learning. International Journal of Technology Assessment 1:681-692. Finkelstein, S. N., K. A. Isaacson, and J. J. Frishkopf. 1984. The process of evaluating medical technologies for third-party coverage. Journal of Health Care Technology 1:89-102. Fruen, M. A., and H. A. DiPrete. 1986. Health Care in the Future. Boston, Mass.: John Hancock Mutual Life Insurance Company. Garrison, L. P., and G. R. Wilensky. 1986. Cost containment and incentives for technology. Health Affairs 5:46-58. General Accounting Office. 1985. Information Requirements for Evaluating the Impacts of Medicare Prospective Payment on Post-Hospital Long-Term Care Services: Pre- liminary Report. GAO/PEMD-85-8. Washington, D.C.: U.S. Government Printing Office. General Accounting Office. 1986. Medical Devices: Early Warning of Problems Is Hampered by Severe Underreporting. GAO/PEMP-87-1. Washington, D.C.: U.S. Government Printing Office. Ginzberg, E. 1984. The monetarization of medical care. New England Journal of Medicine 310:1162-1165. Greenberg, B., and R. A. Derzon. 1981. Determining health insurance coverage of technology: Problems and options. Medical Care 19:967-978. Hillman, A. 1986. Government health policy and the diffusion of new medical devices. Health Services Research 21:68~711. Hillman, A. S., and J. S. Schwartz. 1986. The diffusion of MRI: Patterns of siting and ownership in an era of changing incentives. American Journal of Radiology 146:963- 969. Iglehart, J. K. 1986. Health policy report: Early experience with prospective payment of hospitals. New England Journal of Medicine 314:146~1464. Institute of Medicine. 1985. Assessing Medical Technologies. Washington, D.C.: National Academy Press. Institute of Medicine. 1986. For-Profit Enterprise in Medicine. Washington, D.C.: National Academy Press. Jennett, B. 1984. High-technology medicine: Benefits and burdens. London: The Nuffield Provincial Hospital Trusts.

OCR for page 104
A CONFLICT: MEDICAL INNOVATION, ACCESS AND COST CONTAINMENT 123 Mechanic, D. 1985. Cost containment and the quality of medical care: Rationing strategies in an era of constrained resources. Milbank Memorial Fund Quarterly/ Health and Society 63:453-475. Merrill, J. C., and R. J. Wasserman. 1985. Growth in national expenditures: Additional analyses. Health Affairs 4:91-97. Maloney, T. W., and D. E. Rogers. 1979. Medical technology A different view of the contentious debate over costs. New England Journal of Medicine 301:1413-1419. Myers, L. P., and S. A. Schroeder. 1981. Physician use of services for the hospitalized patient: A review, with implications for cost containment. Milbank Memorial Fund Quarterly/Health and Society 59:481-507. National Center for Health Care Technology. 1980. Procedures, Priorities and Policy for the Assessment of Health Care Technology. Washington, D.C.: U.S. Government Printing Office. Navarro, V. 1982. Sounding boards: Where is the popular mandate? New England Journal of Medicine 307:151~1518. Office of Technology Assessment. 1984. Medical Technology and the Costs of the Medicare Program. OTA-H-227. Washington, D.C.: U.S. Government Printing Office. Office of Technology Assessment. 1985a. Technology and Aging in America. OTA-BA- 264. Washington, D.C.: U.S. Government Printing Office. Office of Technology Assessment. 1985b. Medicare's PPSStrategies for Evaluating Costs, Quality and Medical Technology. OTA-H-262. Washington, D.C.: U.S. Government Printing Office. Perry, S. 1982. The brief life of the National Center for Health Care Technology. New England Journal of Medicine 307: 1095-1100. Perry, S. 1984. Rational and irrational diffusion of new technologies. Journal of Health Care Technology 1:73-88. Petitti, D. B. 1986. Competing technologies: Implications for the costs and complexity of medical care. New England Journal of Medicine 315:148~1483. President's Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research. 1983. Securing Access to Health Care: The Ethical Implications of Differences in the Availability of Health Services, Volume 1: Report. Washington, D.C.: U.S. Government Printing Office. Prospective Payment Assessment Commission. 1985. Report and Recommendations to the Secretary, U.S. Department of Health and Human Services, April 1, 1985. Washington, D.C.: Prospective Payment Assessment Commission. Prospective Payment Assessment Commission. 1986b. Report and Recommendations to the Secretary, U.S. Department of Health and Human Services. Washington, D.C.: Prospective Payment Assessment Commission. Prospective Payment Assessment Commission. 1986c. Report and Recommendations with Technical Appendixes to the Secretary, U.S. Department of Health and Human Services. Washington, D.C.: Prospective Payment Assessment Commission. Prospective Payment Assessment Commission. 1986d. 1987 Adjustments to the Medicare Prospective Payment System: Report to the Congress. Washington, D.C.: Prospective Payment Assessment Commission. Prospective Payment Assessment Commission. 1987. Medicare Prospective Payment and the American Health Care System: Report to the Congress. Washington, D.C.: Prospective Payment Assessment Commission. Reiser, S. J. 1978. Medicine and the Reign of Technology. Cambridge, England: Cambridge University Press. Relman, A. S. 1982. An institute for health care evaluation. New England Journal of Medicine 306:669~70.

OCR for page 104
124 CURRENT TRENDS Relman, A. S. 1985. Antitrust law and the physician entrepreneur. New England Journal of Medicine 313:884-885. Roe, W., M. Anderson, J. Gong, and M. Strauss. 1986. A forward plan for Medicare coverage and technology assessment. Prepared for the Assistant Secretary of Planning and Evaluation, U.S. Department of Health and Human Services. Washington, D.C.: Lewin and Associates. Roe, W. I. 1985. Medical technology under PPS: An uncertain future. Hospitals 59:8 92. Ruby, G., H. D. Banta, and A. K. Burns. 1985. Medicare coverage, Medicare costs and medical technology. Journal of Health Politics, Policy and Law 10:141-155. Schwartz, W. B. 1987. The inevitable failure of current cost-containment strategies. Why they can provide only temporary relief. Journal of the American Medical Association 257:22~224. Somers, A. R. 1986. The changing demand for health services: A historical perspective and some thoughts for the future. Inquiry 23:395~02. Steinberg, E. P., J. E. Sisk, and K. E. Locke. 1985. X-ray CT and magnetic resonance imagers: Diffusion patterns and policy issues. New England Journal of Medicine 313:859-864. Technology Reimbursement Reports. 1986. Temporary '~Device-Specific" DRGs should be used for some new technologies, ProPAC recommends. Technology Reimbursement Reports 2:2. Thacker, S. B., and R. L. Berkelman. 1986. Surveillance of Medical Technologies. Journal of Public Health Policy 7:363-377. Towery, O. B., and S. Perry. 1981. The scientific basis for coverage decisions by third- party payers. Journal of the American Medical Association 245:59~1. Veatch, R. M. 1986. DRGs and the ethical reallocation of resources. Hastings Center Report 16:32-40. Verville, R. E. 1985. Medicare rate setting and its problems: A fixed price per bundled product. Journal of Legal Medicine 6:85-106. White, J. K. 1985. Data watch: Health care innovation in an era of cost containment. Health Affairs 4:105-118.