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1 ~
Manufacturers' Responses to the Increased
Demand for Outcomes Research
ANN K. M. MARSHALL
The title of this chapter would imply that health care manufacturers face a
well-defined demand for outcomes research. This is not so. Rather, they con-
front an evolving and heterogeneous set of market dynamics that may collective-
ly be referred to as the technology assessment trend. Simply stated, the technolo-
gy assessment trend emphasizes the importance of considering comparative
effectiveness and relative value in evaluating medical technologies. But the
application of this concept varies considerably among providers, payers, and
regulators and over time-creating uncertainty on the part of manufacturers as to
precisely what sorts of information will be required as the technology assessment
trend matures. Manufacturers' activities in the area of outcomes research reflect
the nascent stage of this trend.
To gain perspective into manufacturers' outcomes research activities, it is
important to highlight the factors that have driven the emphasis on technology
assessment and their connection with outcomes research. First, however, it is
useful to provide working definitions of medical technology assessment and out-
comes research.
TECHNOLOGY ASSESSMENT AND OUTCOMES RESEARCH
Medical technology assessment can be defined as the careful evaluation of a
medical technology for evidence of the health, economic, social, and ethical
consequences of its technical applications, both in absolute terms and in compari-
son with other competing technologies (Office of Technology Assessment, U.S.
Congress, 1982; Perry, 1988~. As discussed elsewhere in this volume, real-life
152
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 153
Assessment Activities
Evaluative Research
1
. ~
~ Literature Review
· Prudent Purchaser
Analysis
~ ,
~ Meta-Analysis
Expert Consensus
Panels
Prospective
Studies
Retrospective Analysis
Economic Modeling
Decision Analytic Modeling
FIGURE 12-1 The spectrum of technology assessment.
OUTCOMES RESEARCH
technology assessments are less comprehensive Wan the ideal suggested by the
above definition. Moreover, the focus of a technology assessment depends on
the technology assessed (e.g., drug, device, or procedure) and the type of organi-
zation conducting the assessment (e.g., hospital, managed care organization,
third-palty payer, government agency, academe, or a manufacturer). The spec-
trum of technology assessment ranges from more or less informed technology
appraisals to controlled clinical studies, as depicted in Figure 12-1.
Outcomes research can be viewed as a subset of technology assessment
activities. It encompasses prospective clinical studies, retrospective analyses of
large health databases, and economic and decision-analytic modeling. In addi-
tion to relevant areas of clinical expertise, outcomes research draws upon the
fields of epidemiology, economics, and health services research. Outcomes re-
search can be roughly divided into two categories: economic outcomes research
(cost-benefit, cost-effectiveness, and cost-utility analyses) and patient outcomes
research (measurement of treatment outcomes such as functional status, quality
of life, and long-term survival). Patient outcomes research extends beyond the
safety and efficacy studies traditionally conducted by pharmaceutical companies.
First, whereas traditional efficacy research often studies intermediate or surro-
gate endpoints, patient outcomes research focuses on "outcomes of real interest
to patients," such as death and disability (Eddy, 19901. Second, patient outcomes
studies generally incorporate comparisons of competing treatments and may even
compare different treatment modalities (e.g., drug versus procedure).]
1 Strictly speaking, the traditional safety and efficacy studies conducted by pharmaceutical compa-
nies to support New Drug Applications filed with the Food and Drug Administration are also out-
comes research. However, the term outcomes research is often used to refer to the study of outcomes
other than classical safety and efficacy outcomes and will be so used in this chapter.
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ANN K. M. MARSHALL
Although health care providers and third-party payers use outcomes research
findings in their technology assessments, they rarely conduct outcomes research
themselves. The Agency for Health Care Policy and Research (AHCPR) devel-
ops rigorously systematic syntheses of the literature and expert opinion, but it
produces little in the way of outcomes research, per se. In the future, more
AHCPR and third-party payer activities in meta-analysis, decision-analytic mod-
eling, and retrospective health database analysis can be expected. For the most
part, however, experimental research on patient and economic outcomes will
continue to be conducted by manufacturers arid academic or pr~vate-sector re-
searchers, the latter frequently being at least partly funded by manufacturers.
THE TECHNOLOGY ASSESSMENT TREND: WHY NOW?
Although "technology assessment" and "outcomes research" have only re-
cently become household phrases, the origins of the technology assessment trend
may be traced back almost 20 years. In the early 1970s, John Wennberg and
others documented significant geographic differences in the rates at which cer-
tain medical procedures were being performed that could not be explained by
differences in the incidence or severity of disease among the populations being
compared (Wennberg and Gittelsohn, 1973; Wennberg et al., 1987,19891. These
differences naturally raised questions about appropriateness of care and optimal
treatment pattems, questions that triggered a surge of interest in studying patient
outcomes.
The challenges of patient outcomes research lead clinical researchers to ex-
pand their scope of clinical methodologies and techniques. For example, the
limitations of randomized, controlled clinical trials (RCTs) in assessing the rela-
tive effectiveness of treatment options in clinical practice encouraged researchers
to turn to epidemiology a field in which researchers have expertise in such
areas as observational study design, analysis of large databases, and knowledge
of the natural history of diseases. Within the field of health status measurement,
new instruments were developed to measure disease-specific parameters. In ad-
dition, more responsive instruments were developed to measure more discrete,
but clinically relevant, changes in health status and quality of life.2 These meth-
odological advances helped fuel what Wennberg has called the "outcomes agen-
da," namely, the "systematic evaluation of all of the outcomes that are relevant to
patients- mortality, morbidity, complications, symptom reduction, and function-
al status improvement" (Wennberg, 1990, p. 45~.
2 See Medical Innovation at the Crossroads. Vol. 1, Modern Methods of Clinical Investigation
(Institute of Medicine, 1990) for an overview of the techniques and methods that have been employed
in outcomes research, including observational methodologies, meta-analysis, decision analysis, and
health status measurement. See Freund and Dittus (1992) for a concise summary of the techniques
and methods specific to economic outcomes research.
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 155
Despite its potential to significantly advance the practice of medicine, pa-
tient outcomes research probably would have remained in the domain of academ-
ic researchers were it not for the intractable escalation of health care costs. As
the 1980s progressed and the oft-recited waves of belt-tightening and cost-shift-
ing rippled through the U.S. health care system, policymakers noted the potential
of outcomes research concepts and methodologies to help rationalize health care
expenditures. Patient outcomes research held out the hope that, by eliminating
inappropriate and suboptimal health care, costs could be controlled without di-
minishing quality of or access to care. Faith in the promise of health care ration-
alization was the impetus behind the U.S. Congress' creation and aggressive
funding of AHCPR in 1989-1990.
The emphasis on economic outcomes research has been fueled by public-
sector "prudent purchaser" initiatives and the growth of managed care. Third-
party payers, health maintenance organizations (HMOs), and formulary commit-
tees are now important decisionmakers in the process of technology adoption and
diffusion. Unlike physicians, these new decisionmakers have a direct interest in
cost containment, and they have the consolidated market clout to demand evi-
dence of the comparative effectiveness and relative value of new drugs, devices,
and procedures. Hospital, HMO, and Medicaid formulary committees are in-
creasingly considering outcomes research particularly economic outcomes re-
search in their drug formulary decisions. Third-party payers, both public and
private, now often require evidence of the comparative effectiveness of new
therapeutic or diagnostic procedures before granting coverage or adjusting reim-
bursement levels for those procedures. These market trends are creating new
informational requirements for pharmaceutical companies and high-tech, proce-
dure-related device companies.
MANUFACTURERS' RESPONSE TO THE
TECHNOLOGY ASSESSMENT TRENDS
Device Companies
The U.S. medical device industry comprises roughly 7,000 manufacturers
whose varied outputs include mundane commodity products such as tongue de-
pressors and surgical masks, expensive capital equipment such as gammaradia-
tion sterilizers and magnetic resonance imaging scanners, high-technology single-
use products such as percutaneous transluminal coronary angioplasty catheters
3 This chapter utilizes information obtained through 23 interviews with representatives of 15 man-
ufacturers and 4 consulting or research organizations. To ensure the anonymity of interviewees and
their companies, only publicly disclosed examples of manufacturer outcomes research activities are
cited specifically. The comments and opinions expressed in this chapter are the author's and do not
represent the views or policies of Abbott Laboratories.
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ANN K. M. MARSHALL
and biodegradable sutures, and equipment ranging from ventilators to endoscopic
staplers. It should be acknowledged from the start that only a small percentage of
these companies view outcomes research as critical to the commercial success of
their products. For the most part, only manufacturers of high-cost and innovative
technologies that have a direct impact on patient therapeutic or diagnostic out-
comes are likely to consider conducting outcomes research.
Historically, device companies' introduction to outcomes research arose out
of their struggles with coverage and reimbursement in the early to mid-1980s. At
that time, a number of essentially new, medically complex devices and technolo-
gies had been approved by the Food and Drug Administration (FDA) but were
not immediately granted coverage by the Health Care Financing Administration
(HCFA), the Blue Cross and Blue Shield carriers (the Blues), or private insurers.
Instead, third-party payers conducted their own technology assessments of such
FDA-approved devices before making coverage decisions, often consuming two
or three years in the process. (Examples of devices subjected to additional third-
party payer scrutiny include the implantable infusion pump, cardiac defibrillator,
magnetic resonance imaging scanners, extracorporeal shock wave lithotripter,
and cochlear implant.) The delay of third-party payer coverage created an ex-
tremely costly post-FDA hurdle that had to be crossed before a manufacturer
could accomplish full commercialization.4
As mentioned above, payers' newly activist stance in questioning costly new
technologies was prompted by the cost-containment imperative. When a new
medical technology threatened to significantly increase expenditures, payers
wanted to know whether and to what extent it improved the quality of patient
care in comparison with existing treatment options. Payers were obliged, howev-
er, to pose their questions in terms of the regulatory and contractual language that
governed their coverage obligations: Was the new device or procedure "reason-
able and necessary" (Medicare) or "medically standard and acceptable"/"not in-
vestigational" (private payers and the Blues). The underlying question, however,
was one of value: Will the additional cost of this new technology yield improved
outcomes (or outcomes at least equivalent to those from existing technologies)
for the beneficiary?
The fact that payers answered these questions by conducting their own tech-
nology assessments sent two clear messages to the involved device manufactur-
ers. First, FDA's process of approval for devices did not leave payers sufficient-
ly comfortable about the effectiveness of novel devices. Second, even granting
the effectiveness issue, the fact that FDA approval could be obtained without
presenting comparative data left open the question of whether a new technology
4 See Bucci et al. (1985), Kane and Manoukian (1989), McGivney (1991), and VanAntwerp (1985)
for background on the impact of technology assessment activities of third-party payers on the adop-
tion and diffusion of new device and procedure technologies. Bucci et al., Kane and Manoukian, and
McGivney also discuss the related but additional impact of inadequate reimbursement.
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 157
was worth the (usually) higher cost. These concerns were evident in the negative
recommendations of the technology assessments conducted by the Office of
Health Technology Assessment (OHTA), as commissioned by the HCFA, during
this pivotal period of the mid-1980s. OHTA cited the lack of well-controlled
clinical trials demonstrating safety and effectiveness as the basis for its negative
recommendations although it is worth noting that few of the devices receiving
positive OHTA recommendations had been supported by well-controlled clinical
trials showing safety and effectiveness (Bucci et al., 1985~. Nonetheless, by the
mid-1980s manufacturers began to realize that they could significantly reduce the
risk of coverage delay or denial if they produced well-controlled clinical trials
that showed the comparative effectiveness of their devices.
It should be mentioned that, since the late 1980s, trends in the FDA device
approval process have been consistent with the technology assessment trend.
Whereas previously the FDA tended to focus on whether a device was safe and
performed as intended, by the late 1980s reviewers also emphasized that "the
'clinical utility' of all devices undergoing review in a . . . Epre-marketing approv-
al application] must be established prior to approval" (Office of Drug Evaluation,
Food and Drug Administration, 1991~. For example, the issue of clinical utility
was central to the FDA's unwillingness to approve Healthdyne's home uterine
monitor for use in preterm labor. Although the FDA was satisfied that the device
accurately monitored the intensity and timing of contractions, it required evi-
dence that such monitoring made a difference in the outcomes of deliveries.
More broadly, device manufacturers noted that the FDA had come to require
more rigorous biostatistical analyses to support effectiveness claims in premar-
keting approval applications, and by the end of the 1980s often required control
arms and even comparative analysis in cases in which it would not have done so
in the past. This new rigor is at the root of the protracted difficulties experienced
by the companies Dornier and Medstone in trying to show the clinical effective-
ness of their biliary lithotripter devices (Stern, 19901.
In this environment, device companies have become much more sensitized
to the need to conduct patient outcomes research. However, the decision to
conduct such research is very much product specific and depends on affirmative
answers to such questions as: Is this an essentially new product (as opposed to a
"follow on") that will increase expenditures by the health care system? Is the
reimbursement structure for procedures in which this product is used likely to
pose difficulties for users of the product? Are payers likely to try to restrict the
use of this product to a limited set of indications?
Because a limited number of new medical devices face these issues, the pool
of device manufacturers who conduct outcomes research is rather small and quite
sophisticated compared with the broader population of device manufacturers.
These "high-tech" device manufacturers have tended to sponsor prospective con-
trolled clinical trials, typically focusing on patient outcomes. The types of end-
points that have been studied vary by technology, but include survival, disease,
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ANN K. M. MARSHALL
functional status, and quality-of-life measures. Some medical devices are partic-
ularly well suited to quality-of-life studies (e.g., artificial hips and-incontinence
devices), and a fair amount of work has been done in that area. In a number of
cases, device manufacturers have undertaken considerable work in support of
their outcomes research capabilities. For example, they have developed databas-
es (e.g., using coding and cost data), they have contracted with outside consult-
ants to do meta-analyses of device-relevant therapeutic areas, and they have de-
veloped or validated instruments to measure quality of life in patient outcomes
research.
Most high-tech device manufacturers employ a professional dedicated to
outcomes research activities, usually housed in the "medical" area. Device com-
panies almost always commission outside researchers to run the clinical trials
associated with their outcomes research, largely because they do not have the
extensive clinical research infrastructures found in pharmaceutical companies.
But device companies also emphasize research credibility as an important reason
for commissioning independent researchers. On the whole, device companies
supporting prospective outcomes research seem to be extremely concerned that
the research be conducted to the highest standards, indicating, for example, "We
want our clinicals to be run like the highest caliber pharmaceutical trials" or "We
follow National Institute of Health standards for clinical trials in contracting with
outside researchers." This strong emphasis on credibility makes sense when one
recalls that, historically, the need to do outcomes research arose out of payers'
skepticism about the effectiveness of devices and procedures.
Most device manufacturers engaged in outcomes research are very clear
about why they are doing the research and who their audience is: They do
outcomes research to secure coverage and reimbursement for the procedures in
which their devices are used. Their primary audience is the HCFA, the Blues,
and the large commercial payers. Because third party payers have historically
questioned comparative effectiveness, device manufacturers have tended to focus
on patient outcomes. However, this is beginning to change. Many now include
an economic component in their studies, although patient outcomes still domi-
nate the focus of study designs. Retrospective analyses do not play a large role,
because studies are typically conducted prior to widespread coverage.
It is worth reemphasizing that the above remarks refer to a rather small
subset of device manufacturers that have developed a fairly sophisticated ap-
proach to outcomes research. Most device manufacturers do not conduct multi-
arm clinical trials, develop economic models, or employ rigorous syntheses of
observational and experimental data. This is not to deny the increasing efforts of
many device companies to develop cost data pertaining to the use of their prod-
ucts. But these data are typically used to develop accounting-oriented cost analy-
ses, as opposed to cost-benefit or cost-effectiveness analyses based on patient
outcomes. It is important to note that accounting-oriented cost analyses can be
quite useful, particularly for direct purchasers of devices such as hospitals. As a
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 159
matter of fact, such cost analyses are better suited to the ways that most hospitals
actually make their financial decisions than are true economic outcomes analy-
ses-which is one very good reason why a broad array of device manufacturers
produce them.
Pharmaceutical Companies
Pharmaceutical firms did not suffer from the sorts of coverage difficulties
experienced by device manufacturers and described above. Throughout the early
1980s, the HCFA and virtually all other third-party payers automatically covered
FDA-approved drugs (to the extent that they covered drugs at all). Nevertheless,
a few pharmaceutical firms recognized the importance of the burgeoning technol-
ogy assessment trend. Those firms supported the development of in-house ex-
pertise in the evolving methods of clinical investigation. Equally important, they
perceived the receptivity of the market toward outcomes information and under-
stood the marketing opportunity inherent in that receptivity (Jack, 1991~.
these early efforts In outcomes research began to near fruit In the mid-
1980s. The two classic studies of that period, on auranofin and captopril, were
both published in 1986 (Bombardier et al., 1986; Croog et al., 1986~. The study
of auranofin (for adult rheumatoid arthritis) used well-developed, multidimen-
sional health status measures that provided a consolidated health status score for
each patient. The study of captopril (for essential hypertension) employed nine
unrelated functional status and quality of life instruments, some of which were
newly developed for the study. Despite their methodological differences, both
studies used nontraditional methods of clinical investigation to measure clinical
endpoints that were too subjective to be measured by traditional approaches. In
addition, both companies undertook these studies with the physician audience in
mind, to show the impact of their drugs on dimensions of life that are meaningful
and important to patients. This contrasts sharply to the payer orientation of
.
device companies.
However, most pharmaceutical firms did not begin to think seriously about
outcomes research until the 1987-1989 time frame. By then the increasingly
restrictive practices of hospital, HMO, and Medicaid formulary committees had
forced pharmaceutical companies to address directly the issue of value with their
customers. In the U.S. Congress, the pharmaceutical industry faced escalating
criticism of its prices. In addition, the HCFA and some managed care organiza-
tions were beginning to voice an interest in new concepts like therapeutic substi-
tution and drug utilization review. It became increasingly evident that key con-
stituencies were narrowly focusing on drug prices. To show the value of their
products, pharmaceutical companies had to move the discussion to the topic of
cost-effectiveness and then provide credible evidence of that cost-effective-
ness. Outcomes research, particularly economic outcomes research, was well-
suited to this task.
~. . .
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ANN K. M. MARSHALL
In most pharmaceutical firms these market dynamics were initially observed
in public policy or managed care marketing functions, and those functional areas
often took the lead in espousing the importance of outcomes research. Typically,
such early efforts met with widespread skepticism. The business side expressed
doubts. After all, outcomes research is costly and one can legitimately question
its cost-effectiveness. The clinical research and development (R&D) areas also
registered resistance. This resistance was partly due to a lack of confidence in (or
familiarity with) the clinical methodologies used in outcomes research, but it also
arose from the perception that outcomes research draws resources away from
conducting the studies required to support New Drug Application filings. Thus,
most pharmaceutical firms went through a period of "conversion" before com-
mitting to the importance of outcomes research. Relatively few pharmaceutical
firms established departments, or even individual positions, fully dedicated to
outcomes research until the l990s. The companies that did have early involve-
ment of their R&D and marketing divisions in outcomes research have more
advanced outcomes research capabilities today.
With few exceptions, pharmaceutical companies are still grappling with the
central questions of how to structure their outcomes research activities. Exper-
tise is situated in such widely disparate organizational locations as marketing,
public policy, corporate planning, R&D, and medical affairs. In broad terms,
there appears to be a general trend to locate the primary outcomes research func-
tion in clinical R&D, with communication linkages to the marketing and new
product development divisions. That said, however, few companies have satis-
factorily integrated outcomes research into their clinical development processes.
In most companies, the outcomes research function is still quite protean and will
continue to evolve over the coming years (Freeman, 1991; Steward, l991a,b,
1992; The Zitter Group and Technology Assessment Group, 1992~.
Although the very early outcomes research efforts of pharmaceutical compa-
nies focused on patient outcomes, recent emphasis has shifted to economic out-
comes. In fact, cost-e~ectiveness seems to be the dominant buzzword in pharma-
ceutical industry conversations about outcomes research and technology
assessment. A number of companies report that patient outcomes (e.g., function-
al status and quality of life) are studied in the course of conducting economic
studies, but are rarely the sole subject of a study. Even those companies that
follow a more balanced approach to outcomes research acknowledge a bias to-
ward economic outcomes. This is not surprising when one recalls that aggressive
cost consciousness has driven most of the market dynamics that lead the majority
of pharmaceutical firms to do outcomes research in the first place. Nonetheless,
the more balanced approach will likely prevail over time, as indicated in a per-
sonal communication from the director of the outcomes research function at a
large pharmaceutical firm:
Given the current market trends, there is increasing emphasis on economic stud
ies. You don't make the market; the market makes you. But, ultimately, good
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 161.
medicine is good economics. In the end, if you can show patient benefit, the
economics will follow. On the other hand, no amount of pharmacoeconomics
studies will support a product that doesn't offer a meaningful clinical advan
tage unless you were to price it at a fraction of the price of competitive thera
p~es.
Pharmaceutical firms employ a wide variety of outcomes research methodol-
ogies. This variety is as indicative of the infant stage of the discipline as it is of
differences among companies. There is a significant degree of disagreement
among knowledgeable parties regarding the usefulness, validity, and limits of the
investigational methodologies and instruments that are being employed in the
service of outcomes research.
Most pharmaceutical firms produce a mix of prospective studies, retrospec-
tive analyses, and economic and decision-analytic modeling. Not all of these
studies are used as "end products." A significant amount of outcomes research
and related work is conducted to support and guide study design for prospective
studies. The following are examples of the types of support work conducted by
pharmaceutical companies.
· Historical cohort studies may be conducted to develop information on the
cost and medical resource use associated with a disease and its treatment in
populations. Such analyses can also provide limited information on the natural
history of a treated disease.
· Baseline data on the direct and indirect costs of a specific type of illness
may be developed by prospectively or retrospectively collecting cost data. In
some cases, companies have invested significant resources to develop cost-of-
illness information to provide valid and consistent inputs into cost-effectiveness
studies.
.
Lconomic and decision-analytic models are often used to identify the
most important parameters that should be examined in a prospective study. It is
useful to do this sort of preliminary work, because only a limited number of
parameters can be studied in any given prospective trial. The researcher wants to
study those parameters that are most sensitive to the disease state in question
(and to its standard treatment options) to ensure that the results of the study will
provide relevant and meaningful data on the compound studied. Similarly, it is
not feasible to collect data on every disease- and treatment-related cost when
conducting a prospective study. Economic modeling is used to identify which
factors account for the bulk of the costs associated with a disease and its treat-
ment; a prospective study can then focus on the major contributors to cost.
· In some cases there is no valid and reliable instrument available for mea-
suring the set of quality-of-life or functional parameters appropriate to the dis-
ease state being studied. Researchers may do extensive work to develop and
validate new instruments or to validate existing instruments. These efforts can,
on occasion, consume years.
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ANN K. M. MARSHALL
Most firms also use economic modeling and, less frequently, retrospective
studies as end products. On the whole, there appears to be a growing reluctance
to use retrospective analysis in stand-alone studies. This is because most of the
available databases are claims databases-designed to track financial transac-
tions, not clinical data. This raises validity issues with respect to the results,
severely limiting a company's ability to communicate those results to customers.
Even when it is possible to use existing databases, the adjustments and supple-
mental work required are usually quite costly.
Economic modeling is much better accepted as a stand-alone study approach.
Most companies noted that, as long as a model's assumptions are reasonable and
clearly stated, the results can be useful and informative. Companies often follow
a three-step process in developing modeling studies: (1) develop the model struc-
ture and preliminary assumptions; (2) present the study concept, model, and pre-
liminary assumptions to an expert panel for consensus review; and (3) revise the
model and assumptions as appropriate. Modeling is particularly useful when the
endpoints being studied are rare events or take a long time to become manifest
(e.g., progression of degenerative disease or death from a chronic condition). In
such cases, prospective studies could take 10 to 15 years and require tens of
thousands of patients. Modeling allows the researcher to project economic or
patient outcomes using available data on the disease and its relevant treatment
options within a time frame that is practical for real-life decisionmaking.
In addition, modeling has been used as a decisionmaking tool in the early
stages of product development. For example, one company reported using deci-
sion-analytic modeling to determine the efficacy rate that its investigational com-
pound would have to achieve to be cost-effective. This information was then
used in developing the target profile of the product.
In some pharmaceutical firms, those who are involved in the outcomes re-
search function operate primarily as consultants to those who are involved in the
clinical R&D functions, who then run the studies (particularly when studies are
of investigational compounds and are incorporated into the clinical development
program). In other companies, those involved in the outcomes research function
operate primarily in a project manager role, and most studies are contracted to
outside researchers, including both academe and independent firms. In the ma-
jority of companies, however, a mix of internal and external personnel conduct
outcomes research.
Virtually all pharmaceutical companies use the consulting services of out-
side experts in their outcomes research activities, even those companies commit-
ted to developing substantial internal capabilities. In the case of quality-of-life
studies, companies sometimes access the expertise of consultants on the technical
aspects of instrument development or selection, but they typically conduct the
studies in-house. Companies' clinical development groups generally feel fairly
comfortable in their ability to develop and run a quality-of-life study and tend to
view such studies as relatively uncomplicated. In some cases, this betrays an
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 163
oversimplified view of the methodological issues involved in these studies, as
evidenced by the growing practice of fairly routinely inserting "short-form" or
abbreviated quality-of-life measures into clinical trials.
By contrast, pharmaceutical firms are more likely to commission outside
researchers to conduct economic outcomes studies, whether they be prospective,
retrospective, modeled, or a combination thereof. Companies are less comfort-
able with the methodological issues involved in cost-benefit and cost-effective-
ness studies because of the lack of standardized approaches to doing those stud-
ies.5 This uneasiness is accentuated by the fact that many companies have not
yet developed sufficient in-house expertise to grapple with the methodological
issues involved in designing pharmacoeconomic studies although several com-
panies stand out as notable exceptions to this general rule.
It is interesting to note that there is considerable difference of opinion re-
garding whether or not it is optimal to commission outside researchers to perform
outcomes research. Some pharmaceutical firms believe that outside researchers
enhance the perceived credibility of outcomes research by mitigating the appear-
ance of conflict of interest. These companies tend to view their internal out-
comes research function primarily as a knowledgeable and proactive sponsor of
externally conducted studies. Other pharmaceutical firms are of the opinion that
outcomes research is simply too important for a company to allow itself to be
heavily dependent on outside expertise. These companies are committed to ex-
panding their internal expertise in health economics, pharmacoepidemiology, and
health services research to increase the proportion of outcomes research conduct-
ed in-house. Moreover, they are confident that by producing high-quality studies
they will be able to defuse any lingering skepticism about the objectivity of
manufacturer-conducted outcomes research. All companies interviewed stated
that their studies, whether conducted internally or externally, are designed to be
published in peer-reviewed journals. Most companies reported that when they
sponsor the work of outside researchers, those researchers are free to publish the
results of those studies. In such cases, the sponsoring company generally does
not have the right to edit or censor the researcher's publication, although it usual-
ly has the right to read the manuscript prior to submission for publication.
Despite some differences in how pharmaceutical firms approach outcomes
research, a number of clear trends can be identified. Pharmaceutical companies
are initiating outcomes research earlier in the product development cycle, con-
ducting it for more compounds, and using prospective study designs more often.
Increasingly, quality-of-life and economic outcomes studies are conducted si-
multaneously. Although the trend in economic outcomes studies is to collect cost
5 Most companies reported that they had not done any cost-utility studies, primarily because of
methodological concerns. There are very real difficulties with the generalizability of the "health state
preferences" used in such studies, because there is little basis for claiming that the health state
preferences of the study population represent those of the broader population.
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ANN K. M. MARSHALL
data prospectively, economic modeling studies are still used but often as a
preliminary tool for identifying appropriate prospective study parameters.
Pharmaceutical companies are developing a keener sense of the importance
of producing timely outcomes information about new products. It is becoming
routine for companies to ask, by phase I or II of the clinical development pro-
gram for an investigational compound, what sorties) of outcomes research should
be conducted. Prospective studies are now frequently initiated in phase II of a
clinical development and evaluation program. At the same time, companies are
developing a longer-term approach to outcomes research. A significant number
of companies have initiated long-term patient functionality studies. This high-
lights companies' recognition that the market will require outcomes data, not
only when a pharmaceutical product is launched but also as it achieves broader
use.
Biotechnology Pharmaceutical Companies
Given the high costs associated with genetically engineered drugs, the mar-
ket forces driving outcomes research should apply even more convincingly to
biotechnology pharmaceutical (biotech) companies. In an increasingly price-
sensitive market, biotech companies need to show that their products are cost-
effective, even though they are expensive in absolute terms.
In comparison with traditional pharmaceutical firms, however, biotech com-
panies have not been very active in outcomes research. This may be because
biotech firms are typically more technology driven and less market oriented than
traditional pharmaceutical firms. As a group, biotech companies have few mar-
keted pharmaceutical products. Their efforts have largely been focused on devel-
oping promising compounds and raising the capital to fuel those development
efforts. As a consequence, many biotech companies have been better attuned to
the capital markets than to the pharmaceutical marketplace. To date, only a few
biotech firms have invested in outcomes research. These are firms that have
developed a stronger market orientation either through the experience of market-
ing a pharmaceutical product or in anticipation of a product launch.
Among biotechnology companies, Amgen was a pioneer in outcomes re-
search, sponsoring both economic and quality-of-life studies of its first marketed
product, recombinant human erythropoietin (indicated for anemia associated with
chronic renal disease), in 1989.6 Those studies were undertaken because the low
level of Medicare reimbursement for erythropoietin therapy from the HCFA was
6 Although a number of early economic modeling studies comparing various thrombolytic therapy
options, including Genentech's recombinant tissue plasminogen activator, were conducted, those
studies were not sponsored by Genentech (Iones-Grizzle and Bootman, 1992). Genentech did pro-
vide partial support for the ISIS-3 study of thrombolysis patient outcomes, sponsored by the Depart-
ment of Veterans Affairs and reported in 1992 (ISIS-3 Collaborative Group, 1992).
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 165
prompting providers to underdose patients with chronic renal disease (CRD). By
showing that proper dosages of erythropoietin significantly improved the well-
being of patients with CRD, Amgen persuaded the HCFA to alter its reimburse-
ment structure for erythropoietin. Building on the success of its erythropoietin
studies, Amgen initiated outcomes studies for its next product, filgrastim (recom-
binant methionyl human granulocyte colony-stimulating factor) during phase III
clinical trials. These studies showed that filgrastim substantially reduced the
need for postchemotherapy hospitalization and provided a basis for the positive
differentiation of filgrastim from other granulocyte colony-stimulating factor
products.
Despite the evident success of Amgen's outcomes research efforts, other
biotech companies remained inactive for some time. In 1991 Centocor conduct-
ed a retrospective cost-effectiveness study of its first therapeutic product, Cen-
toxin7 (then awaiting FDA approval for the treatment of septic shock). But the
study was initiated late in the product development process- well into FDA's
review period and, even more important, well after the hospital community had
reached a widely publicized consensus about the "devastating" financial impact
of a $3,700-per-dose septic shock drug. It is unclear whether the FDA's failure
to approve Centoxin without further clinical trials was at all influenced by the
tumult surrounding its price. What is clear is that Centocor's response to the
hospitals' sticker shock was too little and too late.
In the wake of the Centoxin experience, biotech companies will likely devel-
op a keener appreciation of the importance of timely outcomes research. At least
one biotech company, Synergen, has already begun to integrate outcomes re-
search into its clinical development process (Longman, 1992~. Indeed, Syner-
gen's efforts rival those of the large, traditional pharmaceutical firms and will
probably serve as a model for other biotech companies.
Summary Observations
It is evident from the foregoing discussion that manufacturers' outcomes
research is market driven. Manufacturers produce outcomes data for more or less
defined audiences in response to the perceived informational requirements of
those audiences and to address specific marketing concerns. The audience can
include any or all of those decisionmakers who influence the approval, diffusion,
pricing, or utilization of medical products. The marketing concerns include the
various pricing, reimbursement, coverage, registration, and formulary access is-
sues faced by manufacturers.
Most device companies engaged in outcomes research have identified a pri-
mary audience and are pursuing fairly straightforward reimbursement or regula
7 Centoxin is the registered trademark.
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ANN K. M. MARSHALL
tory goals. Biotech companies also have a well-defined rationale for conducting
outcomes research. In a cost-constrained environment, therapies that add sub-
stantially to the cost of health care must provide evidence of sufficient value to
warrant that cost-even when the therapies are "breakthrough" technologies. The
fact that many biotech companies are only now beginning to recognize this ratio-
nale for outcomes research does not make it any less clear. By contrast, tradi-
tional pharmaceutical firms, whose products rarely embody the biotech extremes
of high cost and radical innovation, face more subtle and diffuse market forces.8
It is interesting to note, therefore, that traditional pharmaceutical firms have
taken the lead in outcomes research. Most pharmaceutical firms are committed
to the importance of outcomes research, even though many are uncertain about
how the outcomes research movement will evolve. This uncertainty is largely
due to the early stage of outcomes research. Most of the studies undertaken to
date are still in progress and, until the results become available, one can only
guess how diverse decisionmakers will respond to the range of information being
generated. Granted, isolated studies have been completed, but the market re-
sponse to those studies provides little guidance on the long-term role of outcomes
research in decisions about the availability, utilization, and pricing of medical
technologies.
Simply stated, it is not clear what sort of market dynamic will emerge as
outcomes research becomes more widespread. Because the technology assess-
ment trend is young, open questions abound: lIow extensively will physicians
incorporate information from outcomes research in their therapeutic choices?
Will patients become a significant audience for information on outcomes? Will
formulary committees fall back on simple cost-minimization strategies in the
face of tight budgets? Will regulatory bodies become involved in monitoring
outcomes research? These issues are of vital importance not only to manufactur-
ers but also to future medical innovation.
IMPLICATIONS FOR THE HEALTH CARE INDUSTRY
AND MEDICAL INNOVATION
Outcomes research provides answers to questions about what therapies work
best, under what conditions, to promote the outcomes that patients care about.
As mentioned above, the answers to these questions should provide a basis for
rationalizing health care expenditures and improving patient care and it is for
~ The audience for outcomes research is far more diverse in the United States than elsewhere,
particularly with respect to pharmaceuticals. Outside of the United States, pharmaceutical prices and
reimbursement levels are often controlled by government bodies that, in recent years, have placed
increasing importance on outcomes data, particularly economic outcomes data. In some countries,
the pricing determination process is closely linked to the approval process. At the extreme, Australia
and Canada are moving toward requiring cost-effectiveness data as part of the registration package
for pharmaceuticals.
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 167
these reasons that outcomes research has deservedly attracted significant atten-
tion in recent years. However, at least two major issues must be addressed if the
promise of outcomes research is to be realized.
First, although manufacturer-sponsored outcomes research generates impor-
tant and useful information, that information alone will not support the broader,
systemic promise of outcomes research. Manufacturers appropriately focus their
outcomes research activities on their own products and on the procedures in
which their products are used. Manufacturers do not sponsor outcomes research
on medical procedures or therapies that are independent of their products unless a
procedure or therapy serves as the established comparator to an alternate proce-
dure or therapy for which a manufacturer's product is used. Moreover, although
manufacturer-sponsored outcomes research is almost always comparative, such
research rarely addresses every therapeutic option relevant to the disease state in
question nor is it realistic to expect manufacturers to support such broad-based
research.
Yet, many of the most striking opportunities for improving patient care and
rationalizing health care expenditures depend on conducting outcomes research
on (1) procedures that are not product driven (e.g., prostatectomies, hysterecto-
mies, and cesarean deliveries) or (2) clinical conditions whose therapeutic op-
tions are only partially product driven (e.g., coronary artery disease, cataracts,
lower back pain, and peripheral vascular disease). In the former cases, manufac-
turers have no rationale to conduct outcomes research. In the latter cases, manu-
facturers may have a rationale to conduct outcomes research, but most likely it
would not be inclusive of all clinically relevant therapeutic modalities. It is
important to note that third-party payers have begun to sponsor outcomes re-
search on investigational procedures that are not essentially product driven, such
as autologous bone marrow transplantation for breast cancer. However, with the
exception of studies conducted by AHCPR-sponsored Patient Outcomes Re-
search Teams, there has been little comprehensive outcomes research conducted
on clinical conditions or on noninvestigational, non-product-driven medical pro-
cedures. Much more work of this sort is needed if the emerging body of out-
comes research is to provide an adequate basis for improving patient care and
. . . .
rationalizing expenditures.
The second issue is more fundamental. Even supposing that an adequate
body of outcomes research information is being generated, there remains the
critical challenge of appropriately integrating that information into actual medi-
cal practice. As indicated in other chapters of this volume, current incentive
structures do little to encourage physicians to modify their practice patterns in
response to outcomes research, particularly when such modification requires giv-
ing up an established and familiar therapeutic approach or a lucrative procedure.
Even today, few medical schools incorporate courses on outcomes research or
epidemiology in their core curricula, and correspondingly few physicians are
inclined to seriously consider outcomes research findings in their day-to-day
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ANN K. M. MARSHALL
practice decisions. Recognizing the importance of this issue, AHCPR has under-
taken research on the relative effectiveness of various means of disseminating its
technology assessment and outcomes research findings to relevant audiences.
Dissemination strategies are only part of the picture, however. If outcomes re-
search is to have a meaningfully positive impact on the U.S. health care system,
then the systemic factors that affect the ability and willingness of health care
professionals to act on outcomes research information must be confronted.
It is important to recognize and address those factors that limit the potential
benefits of outcomes research, because substantial resources are being devoted to
it. The cost of a single prospective study can easily exceed $1 million. Meta-
analyses and retrospective studies are less expensive, but these approaches are
usually feasible only after a drug or a device has achieved relatively broad use,
which typically happens only after it has been marketed. Since key decisionmak-
ers are increasingly demanding that manufacturers provide outcomes research
when a product is launched, manufacturers are increasingly conducting prospec-
tive studies, the costliest type of outcomes research.
Thus, an important consequence of heightened market demand for outcomes
research is that the investment required to bring a new drug or high-tech device
to market has increased. Because the outcomes research trend is still so new, one
can only speculate about the ultimate implications of this shift. However, the
classic theory of competitive dynamics is suggestive. Generally, as an industry
moves toward requiring larger investments to bring new products to market, the
number of players in that industry will decrease and the size of each player will
increase. This is because larger up-front product development costs require that
firms have a larger revenue base (critical mass) to sustain the increased cash
outflow during the development stage of product life cycles. This would imply
that the increased demand for outcomes research constitutes a competitive advan-
tage for larger firms and will tend to reduce the number of smaller firms through
acquisitions, mergers, or failures.
This dynamic is likely to affect high-tech device companies more profound-
ly than pharmaceutical companies, because (1) the increased expense of out-
comes research, viewed as a percentage of total product development costs, is
considerably higher for high-tech device companies than for pharmaceutical com-
panies, and (2) unlike the pharmaceutical industry, the high-tech device industry
includes a significant number of relatively small companies, which makes the
device industry more sensitive to competitive shifts in the requisite critical mass.
Indeed, looking at the change in the average size of companies receiving FDA
approval for class III devices between 1981 and 1988 a period during which
class III device approval times lengthened and the FDA placed increasing em-
phasis, for devices for which premarketing approval was being sought, on evi-
dence of clinical utility and rigor in biostatistical analysis, it appears that the
high-tech device industry responded predictably to the escalating cost of bringing
new products to market. In 1981, the average size of companies who received
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MANUFACTURERS' RESPONSES TO DEMAND FOR OUTCOMES RESEARCH 169
approval for class III devices was $300 million, whereas by 1988 the average size
had increased fourfold to $1.2 billion (in constant 1980 dollars; Bucci- et al.,
1990).
The competitive dynamics of the pharmaceutical industry are also likely to
be affected by the increased demand for outcomes research, but differently. In-
vestment in outcomes research can be used to create barriers to entry in specific
markets, particularly in markets for pharmaceutical therapies that treat chronic
conditions. This is because key decisionmakers show keen interest in outcomes
research on the comparative impact of pharmaceutical therapies on endpoints
such as survival and disease progression in patients with chronic diseases; but
such studies can take 5 to 15 years, require thousands of patients, and cost mil-
lions of dollars. When firms that are established in a chronic therapy market
(e.g., for hypertension) invest in such research, they create a twofold barrier to
entry. First, they raise the ante for any newcomer wishing to enter the market.
Second, they create a "time-buffered" competitive advantage, because the new
entrant will have to wait years before the results of outcomes research on its new
compound are available. Predictably, this sort of competitive positioning is al-
ready under way in some of the markets for therapies that treat chronic condi-
tions such as asthma and hypertension. The strength of such barriers to entry will
be directly proportional to the market's insistence on long-term outcomes re-
search information.
The potential impact of these competitive dynamics on innovation is sober-
ing. Clearly, if the above speculations about demand for outcomes research and
barriers to entry in the pharmaceutical industry were to prove correct, the effect
would be to dampen pharmaceutical innovation in certain markets. Of greater
concern is the predicted impact on the high-tech device industry. As Alan Kahn
has described, innovation in the medical device industry is characterized by
"smaller companies taking the lead, twith] a more fluid innovation process" that
can respond to an ill-defined and rapidly changing market (Kahn, 1991, p. 89~.
Smaller companies are better able to stay close to their customers, approach
unmet needs in an entrepreneurial fashion, and respond quickly to market input
about product performance and features-qualities that have driven much of the
innovation in high-tech devices for the past 20 years. If the high-tech device
industry evolves toward fewer and larger companies, the United States can ex-
pect a decline in radical medical product innovations.
CONCLUSION
Rarely in life does one encounter an unequivocally positive trend, and the
trend toward increasing demand for outcomes research is no exception to this
cheerless observation. The growing market demand for outcomes research, par-
ticularly as a condition for registration, reimbursement, or formulary acceptance,
will likely slow the pace of innovation in drugs and devices to some degree. It
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ANN K. M. MARSHALL
would be a mistake, however, to conclude that the outcomes research trend is
therefore ill advised. The information generated by outcomes research has real
potential to improve patient care and help rationalize health care expenditures.
Of course, as discussed above, realizing this potential requires that (1) sufficient
outcomes research be conducted on procedures and clinical conditions that are
not product driven and (2) outcomes information be appropriately incorporated
into actual medical practice. Given the cooperative efforts by the venous stake-
holders in the U.S. health care system to address these issues, the promise of
outcomes research may warrant a limited trade-off with the pace of medical
product innovation.
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Representative terms from entire chapter:
pharmaceutical firms
