The Committee on Technological Innovation in Medicine thanks the authors for presenting their papers at the Institute of Medicine workshop “Improving the Translation of Research Findings into Clinical Practice: The Changing Economics of Technological Innovation in Medicine, ” and for preparing their subsequent chapters. The committee also recognizes the substantial contributions of the moderators, panel discussants, and workshop participants, who provided valuable insights into the issues discussed in this volume. Special thanks are due to Fredrick W. Telling, Jane Newman, and Cathy Barr for their input to the planning of the workshop. The committee also values the skillful and expeditious editing of the papers by Edward Edelson.

The committee would like to express its gratitude to Samuel O. Thier, President of the Institute of Medicine, and Enriqueta Bond, Executive Officer, for inspired leadership and support of committee activities. The committee is equally grateful for the substantive and organizational support of Ruth Bulger, Steven Bongard, Kathleen Lohr, Holly Dawkins, Sharon Baratz, and Wallace Waterfall. The workshop and the publication of this volume would not have been possible without the dedicated efforts of Evanson Joseph and Thelma Cox, who devoted long hours to the logistics of the meeting as well as to the preparation of several drafts of this manuscript. Finally, the committee acknowledges a considerable debt to Clifford Goodman, Annetine Gelijns, and Ethan Halm for their organization of the workshop and for the editing of this volume.

The Committee on Technological Innovation in Medicine greatly appreciates the opportunity provided by the Howard Hughes Medical Institute and the Agency for Health Care Policy and Research (grant 5 RO9 HS055 26 02) to investigate the process of medical innovation.

GERALD D. LAUBACH

Chair

IOM Committee on Technological

Innovation in Medicine

GERALD D. LAUBACH

This volume summarizes the second in a series of Institute of Medicine workshops whose intent is to examine critically the process by which biomedical research is translated into actual benefits in medical practice. Contemporary biomedical research has given us a rich harvest of innovation—new pharmaceuticals, biotechnology products, medical devices, and clinical procedures— which in the aggregate essentially define modern medicine. As always, such success is accompanied by challenges and problems.

Not least among those challenges and problems is the fact that the economics of medical innovation itself has changed substantially. The cost of research and development (R&D)—particularly for the regulated medical technologies such as pharmaceuticals and devices—has escalated dramatically over the past two decades. Significant factors associated with higher R&D costs include the shift in research emphasis toward more complex chronic conditions and, more importantly, demands for more extensive demonstration of safety, efficacy, and cost-effectiveness. Simultaneously, the economic returns to the innovator have become increasingly constrained by a host of policies intended to contain health care expenditures. These policies take varied forms, but not infrequently they raise barriers to technology adoption, restrict reimbursement, and force price concessions among technology suppliers. In addition, we see the emergence of models of “managed care,” defined for our purposes to include various entities ranging from health maintenance organizations to modified fee-for-service programs that attempt to create incentives for physicians and hospitals to provide more cost-effective care. These policies will have implications for technology diffusion as well as for its development.

In view of these trends, the Committee on Technological Innovation in Medicine chose to devote its second workshop to an examination of the economics of medical innovation, drawing on experience in the United States, Europe, and Japan. The papers presented in this volume provide a rich array of insights into how the economic incentives for technology development and diffusion are changing, and what their likely impact will be on the provision of cost-effective care and future innovation. One of the important conclusions, however, is that the need is clear for additional research on the economics of innovation in medicine. As a result, this volume tends to pose more questions than it answers. For example, important questions remain about the impact of recent policy changes on the small and often highly entrepreneurial parts of the innovation enterprise: the new biotechnology company, the small device company, and the individual physician innovator.

The committee has decided to have its third workshop examine in more detail some of the issues raised in this volume about the impact of managed health care systems on medical innovation. In addition, a workshop is being organized that intends to explore actual case studies of medical innovation to provide more empirical data on the nature and dynamics of the innovation process itself. Together, this series of workshops will offer a coherent body of study and analysis for improving our understanding of medical innovation. It is our hope that this work will encourage a more rational and efficient transfer of biomedical research findings into direct patient care.

ACCC

Association of Community Cancer Centers

AIDS

Acquired Immune Deficiency Syndrome

AMA

American Medical Association

ANDA

Abbreviated New Drug Application

BERC

Bureau of Eligibility, Reimbursement and Coverage

CABG

Coronary Artery Bypass Graft

CON

Certificate of Need

CPT

Current Procedural Terminology

DRGs

Diagnosis-Related Groups

EEC

European Economic Community

ESWL

Extracorporeal Shock Wave Lithotripsy

FDA

Food and Drug Administration

FD&CA

Food, Drug, and Cosmetic Act

GAO

General Accounting Office

GMP

Good Manufacturing Practices

GNP

Gross National Product

HCFA

Health Care Financing Administration

HMOs

Health Maintenance Organizations

IDE

Investigational Device Exemption

IND

Investigational New Drug

IOL

Intraocular Lenses

IOM

Institute of Medicine

IRB

Institutional Review Board

MRI

Magnetic Resonance Imaging

NCE

New Chemical Entity

NCI

National Cancer Institute

NDA

New Drug Application

NHLBI

National Heart, Lung, and Blood Institute

NIH

National Institutes of Health

NSAIDs

Non-steroidal Anti-inflammatory Drugs

PLA

Product License Application

PMA

Pre-marketing Application for Devices

PMS

Post-marketing Surveillance

PPOs

Preferred Provider Organizations

PPPI

Pharmaceutical Producer Price Index

PPRC

Physician Payment Review Commission

ProPAC

Prospective Payment Assessment Commission

PTCA

Percutaneous Transluminal Coronary Angioplasty

R&D

Research and Development

RBRVS

Resource-based Relative Value Scale

RCT

Randomized Controlled Clinical Trial

SBIR

Small Business Innovation Research Program

TURP

Transurethral Resection of the Prostate