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The Impact of Technology . . Assessment on Decisions by Health Care Providers and Payers BRYAN R. LUCK AND RUTH E. BROWN Medical technology capabilities are growing at a fantastic rate. Genetically engineered treatment modalities, increasingly sophisticated lasers, diagnostic im- aging, and other biotechnical advances are expanding the means of detecting and treating many diseases. There appears to be no limit to what technology might accomplish, given infinite resources. Concurrent with technological advances, however, the health care system is under pressure to provide services to the country's growing elderly population, to extend health care services to the unin- sured and the underinsured, and to contain costs. Thus, providers and insurers are caught between constrained budgets and the demand that they pay for the use of expensive new technologies. Tough decisions must be made. In making these decisions, providers and payers increasingly turn to technology assessment as a tool to help set priorities and provide a rationale for their decisions. Technology assessment is defined as "a comprehensive form of policy re- search that examines the technical, economic, and social consequences of tech- nological applications" (U.S. Congress, Office of Technology Assessment, 1982) and as the "careful evaluation of a medical technology for evidence of its safety, efficacy, cost, cost-effectiveness and ethical and legal implications, both in abso- lute terms and in comparison with other competing technologies" (Perry, 1988~. Included under the rubric of primary technology assessment are economic, quali- ty-of-life, efficacy, and patient outcome studies. Many organizations in the gov- ernment and private sectors conduct technology assessments, and the volume of studies in the literature has increased dramatically over the past decade. As we report in this chapter, however, many providers and insurers generally consider these terms in a much narrower sense. To providers, medical technology 49
so BRYAN R. LUCK AND RUTH E. BROWN means costly devices and diagnostics, whereas technology assessments primarily consist of a net financial impact assessment (combining acquisition cost with ex- pected revenue) or a synthesis of existing data. To insurers, technology assessments are means of distinguishing experimental from state-of-the-art procedures in an effort to determine whether to cover them. OBJECTIVE i' Although it has long been suspected that technology assessment plays a role an the purchase and coverage decisions of health care providers and third-party payers, little supportive evidence for this exists in the literature besides the sheer number of assessments that have been conducted. Nevertheless, the demand for medical technology assessment has been grow- ing considerably over the past decade as health care providers and payers grapple with escalating health care expenditures. Hospitals and health maintenance orga- nizations (HMOs) are being held more financially responsible than in the past and need to provide services efficiently if they are not to exceed allowed reim- bursement levels (Sorian, 1988~. As a result, purchase decisions are made under greater scrutiny. Insurers (including self-insured employers) are focusing on the appropriate use of expensive procedures to combat rising health care expendi- tures and premiums. In 1989, the Health Care Financing Administration pro- posed a rule that would explicitly allow the federal government to consider cost- effectiveness in making Medicare coverage decisions (Federal Register, 1989~. Such a major change in the conduct of Medicare-related decisionmaking would likely be the first of similar steps by other third-party payers. Other countries have already made similar moves Australia and Ontario, Canada, are proceed- ing toward using cost-effectiveness data in the benefits approval process, prima- rily for the drug formularies.i The analysis described in this chapter was undertaken to discover how pro- viders and payers use technology assessments in their decisionmaking and it focuses on the implications for the medical products industry. A better under- standing of these decisionmaking processes will assist the medical products in- dustry and, for example, medical specialty societies in preparing to meet cur- rent and future demands for technology assessment research. Industry can thus help to ensure that decisions regarding new technology are made responsibly, with full knowledge of the value that products bring to patients and the institu- tions serving them. ~ "A formulary is a list of drugs carried by a given institutional provider. Large organizations use formularies to buy drugs in bulk, as well as to limit the number of different drugs that are covered and/or that must be kept in stock. Choices about which drugs are carried usually are made by a hospital, HMO, or Medicaid pharmacy and therapeutics advisory committee. Decisions often are based upon assessments by committees of the relative safety, effectiveness, and cost-effectiveness compared to other formulary pharmaceuticals" (Halm and Gelijns, 1991, p. 17, n.7).
IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS METHODOLOGY 51 We used a case-study design employing semistructured, in-depth telephone interviews with selected individuals from hospitals, HMOs, third-party payers, self-insured employers, and government health programs to determine the fol- lowing: · how the organizations make purchase, coverage, and utilization decisions; · what information is sought about medical technologies; · what difficulties are experienced in using available technology assess- ment information; and · what the future holds for technology assessment. We selected a nonrandom sample of institutions to be interviewed, including four hospital systems, two community hospitals, one university hospital, one university-affiliated hospital, two HMO-affiliated hospitals, one national and three regional HMOs, and two purchasing groups. The institutions were located across the United States and were of various sizes. We also interviewed five third- party payers, two third-party administrators, two case management companies, Medicaid and Medicare administrators, and four large self-insured employers. Although we interviewed a small number of individuals relative to the total number of providers and third-party payers in the country, we received similar comments from people with similar perspectives. We believe that the general picture would not be changed by interviewing additional individuals. RESULTS A summary of our findings is presented in Table 3-1. All of the organiza- tions interviewed are actively engaged in technology assessment activities at some level and use technology assessments in their decisionmaking process. Their interest in technology assessment is based on the perceived need to be cost- conscious in purchase decisions and to determine treatment efficacy before mak- ing coverage policy decisions. All respondents expected that technology assess- ment will continue to increase in importance and will become one of the several required pieces of information used in the decisionmaking process. We found that most institutions and organizations have committees respon- sible for assessing new technology before purchase or coverage policy decisions are made. The level of training and the experience of committee members vary widely. Hospital staffs are generally less sophisticated and have other duties in addition to their assessment activities. HMO and third-party-payer committees are likely to have more training in assessment methods and to concentrate on technology assessment activities. Most providers identified a threshold cost ($100,000 to $250,000) above which formal assessments are required (for example, computed tomography scan
52 BRYAN R. LUCK AND RUTH E. BROWN TABLE 3-1 Summary of Findings by Type of Organization Hospitals HMOs Third-Party Payers Why are assessments conducted? · To help control costs · To make prudent purchaser decisions · To hunt for new technology Who conducts assessments? · Formal multidisciplinary committees · Formulary committees · Department chiefs What technology is assessed? · All devices/diagnostics over a threshold ranging between $100,000 and $250,000 · Less costly items at the discretion of the requesting department · Pharmaceuticals . - To help make purchase decisions To provide basis for coverage decisions · Formal multidisciplinary committees for broad policy decisions · Multidisciplinary device committees · Formulary committees · Department chiefs · Costly procedures for . . . coverage decisions · Costly technology for purchase decisions · Less costly items at the discretion of the requesting department · Pharmaceuticals What technology assessment information is used? · Peer-reviewed journals · Manufacturers' literature · Meetings/seminars · ECRI, AHA · In-house financial analyses · To provide rationale for . . . coverage Decisions · To separate experimental from state-of-the-art procedures · Formal multidisciplinary committees · Costly procedures · Controversial procedures · Peer-reviewed journals · OHTA, OTA assessments Recommendations from . medical specialty associations and AMA - Cost-effectiveness data not used in coverage . . declslons · Peer-reviewed journals · OHTA, OTA, HIAA assessments · Recommendations from medical specialty associations and AMA · Cost-effectiveness data not used ABBREVIATIONS: OHTA, Office of Health Technology Assessment; OTA, Office of Technology Assessment of the U.S. Congress; HIAA, Health Insurers Association of America; ECRI, (formerly) the Emergency Care Research Institute; AHA, American Hospitals Association; AMA, American Medical Association.
IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS 53 ners and yttrium aluminum garnet lasers are above the threshold, whereas pace- makers and disposable endoscopes are not). Those technologies not meet-in" the threshold are typically assessed more informally at the department level in hospi- tals or HMOs. The assessments conducted by hospitals are primarily financial analyses of costs and investment "payback" so that purchasers can make prudent decisions or are a hunt for new technologies that might promote the hospital. Pharmacy formulary assessment committees are separate from other technology assessment committees. Third-party payers and HMOs as payers conduct assessments that focus on both costly and controversial technologies and procedures. Patient outcomes are included when possible for HMO purchase and coverage assessments and are always considered (if available) in insurers' coverage decisions. Long-term out- comes (e.g., survival over a year, rather than the immediate outcome of the pro- cedure) are considered by insurers if appropriate data are available. In contrast to the providers, who focus on costs, the insurers maintain that the cost of a proce- dure is not considered in their coverage decisions. The primary sources of technology assessment information used by provid- ers and payers are peer-reviewed journals and information from manufacturers. HMO and third-party-payer respondents are more likely to include information from such sources as the Office of Health Technology Assessment, the Office of Technology Assessment, medical specialty organizations, and professional orga- nizations such as the Health Insurance Association of America. Occasionally, providers or payers conduct or commission technology assessment research. Each individual we surveyed commented that his or her institution or organiza- tion will rely on technology assessment even more in the future and will require a centralized repository for technology assessment information. DISCUSSION Generally, our findings conform to what might be expected by knowledge- able observers and suggest important lessons. All the payers and providers we contacted use technology assessment information to aid in their coverage and purchase decisionmaking processes. The quality, scope, and future of payer and provider technology assessment activities vary depending on who conducts the analysis, whether the decision is related to purchase or coverage, and whether the technology assessed is a drug, a medical procedure, or a device. Quality Issues The quality of the technology assessments conducted by providers and pay- ers is often less than ideal and generally does not conform to the larger definition of technology assessment established within the research community. Nonethe- less, the state of the art has advanced significantly in recent years. In the past,
54 BRYAN R. LUCK AND RUTH E. BROWN hospitals usually provided whatever physicians requested with little, if any, eval- uation effort. Medical directors of HMOs and insurers had very little scientific information on which they could rely to make coverage decisions. Now payers and providers are establishing multidisciplinary committees that are becoming increasingly knowledgeable consumers of technology assessment research. We expect improved levels of sophistication to become the norm and to affect the demand for more comprehensive and rigorously achieved technology assessment information. To date, three major factors have limited the optimal use of technology assessment information in decisionmaking. Individual Skill Levels in Technology Assessment Vary Widely Individuals on drug formulary assessment committees are generally familiar with and understand technology assessment methods, primarily through exposure to the relatively abundant pharmaceutical clinical trial literature. By contrast, most other individuals involved in hospital technology purchase decisionmaking have not been trained in the conduct or analysis of technology assessment, nor are they experienced in adapting technology assessment data to their decision- making. HMOs and third-party payers are more likely to employ individuals trained in biostatistics or health services research and who have had experience in conducting and interpreting technology assessments. It is not surprising, there- fore, to find different levels of sophistication and rigor of assessment activities in different settings. Technology Assessment Research is Expensive Major technology assessments that use existing data generally cost between $40,000 and $5O,OOO. Prospective research (e.g., controlled, random clinical trials) is considerably more expensive and can cost upward of $500,000. Thus, providers and payers are usually limited to conducting assessments based on existing data-and even then assessments are limited to high-cost or controver- sial technologies. Payers and providers almost always rely on manufacturers, academe, and government for high-quality prospective research. Thus, core ex- pertise in technology assessment research rarely resides within the organizations that actually use the results of such research in their decisionmaking. Timely Technology Assessment Information is Scarce Nearly all of the respondents commented that currently available technology assessment data are insufficient or appear too late to be of help in their assess- ments. Drug formulary assessment committees have a richer supply of peer
IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS 55 reviewed clinical trial data on which to base their decisions. However, the pauci- ty of technology assessment information in other areas leads many inexperienced users to accept whatever is available without much discrimination. Scope Issues Costs clearly play a major role in the technology assessment process. Since assessments in hospitals are often financial analyses for purchase decisions, costs play a dominant role. This is not merely due to tight budgets; regulation also plays a role. For example, the state of Minnesota has passed legislation requiring hospitals to obtain prior approval before making major capital equipment pur- chases. Approval is granted only if the expenditure meets standards established by a commission established to keep down spending on health care (Medicine and Health, April 20, 1992~. HMOs and insurers do not conduct assessments on all new technologies but primarily limit assessments to expensive procedures. Yet, these decisionmakers uniformly assert that costs do not play a role in making coverage and reimburse- ment decisions. Most analysts would question this assertion, particularly in light of the fact that high costs are one of the major reasons that payers are conducting assessments of new technologies. We can only surmise that HMOs and insurers feel societal and constituent pressures to base decisions on health benefit issues and to avoid being perceived as rationing health care on the basis of costs. We note several developments that counter the denial that costs play a role in . . coverage c eclslons. · Every year since the mid-1960s, the scientific health literature has had a rapidly increasing number of cost-benefit and cost-effectiveness studies (Elix- hauser et al., 1993), indicating that economics generally plays a key role in medi- cal technology assessment. · The Health Care Financing Administration proposed regulations to per- mit consideration of cost-effectiveness analyses in its coverage decisionmaking (Federal Register, 1989~. · The Oregon Medicaid program made an explicit decision to ration health care on the basis of cost-effectiveness analyses (Fox and Leichter, 1991~. · Australia is the first country to require new drug approval to include cost- effectiveness analyses (Drummond, 1992~. Ontario, Canada, is preparing a simi- lar policy to include cost-effectiveness criteria in evaluating drugs (Ontario Drug Program Branch, 1991) and, in Europe, drug pricing authorities are encouraging and accepting industry's submission of cost-effectiveness data. · Battelle's and other researchers' experiences in the pharmaceutical area in the United States, Canada, and Europe suggest that market pressures and pric- ing authorities have led to cost-effectiveness assessments in the research and development of most breakthrough, and often expensive, drugs.
56 BRYAN R. LUCK AND RUTH E. BROWN . Companies often think of these assessments as "price justification" activi- ties, which is exactly what coverage decisionmakers are implicitly asking. Thus, notwithstanding our respondents' statements, economics clearly plays a major role in the reasons they engage in technology assessment and even in the assessments themselves. One problem with explicitly excluding economic con- siderations from the analysis is that decisionmakers may miss the impact that a new technology might have on patient management pathways, laboratory test expenditures, number and length of hospital stays, and other factors that affect the total costs of a medical technology. The resulting technology assessments may therefore undervalue the impacts of important innovations. Future Issues Providers will continue to conduct assessments for major capital expendi- tures from an institutional point of view and be very oriented toward "prudent purchases." However, they will become more sophisticated in reviewing data and information in the literature; they will communicate better among them- selves; and as they continue to evolve into larger hospital and managed care systems, their expertise will grow commensurately and their viewpoints will be- come less narrow. We expect that future medical device assessment committees will follow the lead of formulary committees and will include cost-effectiveness as one of the key criteria for the adoption of a new technology. HMOs and insurers will continue their technology assessment efforts. Their coordination of assessments will likely intensify to the extent allowed by law, not only in terms of more efficient information transfer but also in the pooling of resources so that they can assess more technologies better. The private-public efforts first by the Institute of Medicine's Council on Health Care Technology and, second, by the Technology Assessment Collaboration Proposal (Medicine and Health, January 20, 1992), although both stalled are indicators that there is intense interest in technology assessment and a need to pool funding and coordi- nate assessment efforts. Other indicators of the continued increase in assessments are the expansion of both the Agency for Health Care Policy and Research's outcomes research agenda and that agency's recent pharmaceutical outcomes research initiative. The trends toward increasing outcomes research come in an environment of cost constraints that is leading to greater consolidation of providers and insurers, in- cluding more managed care. These enlarged organizations will have more moti- vation and may have greater clout to require or demand information from medi- cal device and pharmaceutical manufacturers. The findings of the study described in this chapter reveal that many decision- makers, especially those at hospitals, are not well prepared to assess the available technology assessment information and do not have the resources to conduct
IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS 57 technology assessment studies on a routine basis on their own. Overall, we are left with the impression that decisionmakers are inundated with new (and usually very expensive) technologies and that physicians and patients are demanding the latest innovations. At the same time, decisionmakers are under intense budgetary pressures and have a very poor information base to assist them in making their decisions. Thus, these decisionmakers are eager for timely, relevant, and credi- ble information to help them make decisions concerning technology purchase, adoption, and coverage policy. Government, the medical products industry, and medical societies have the opportunity and perhaps the obligation to support decisionmaking by educating customers, targeting information to meet real-world needs, making information more accessible, and providing more and better tech- nology assessment studies. Efforts could be divided so that the medical drugs and devices industries assess their products, the federal government assesses medical and surgical procedures, and the medical specialty societies focus on guiding the efforts in all areas. Education Government, industry, and medical societies can assert leadership in educat- ing insurers and providers about technology assessment so that responsible deci- sions can be made. They already actively sponsor educational activities for medical professionals. The provision of materials and programs on how to use patient outcomes and cost-effectiveness data would be a natural extension of these efforts. Financial Support Government and industry can also contribute toward the costs of technology assessments. For example, better systems for tracking patient outcomes are need- ed. This requires both technical and financial investments that could be supplied in part by both government and the medical products industry. Industry and government could also team up to support public-private efforts to finance tech- nology assessments. These efforts could be similar to those attempted in the past (for example, the Institute of Medicine's Council on Health Care Technology and the recent technology assessment collaboration proposal spearheaded by the in- surance industry). Financial support for clearinghouse activities, development of data-tracking systems, and methodology research are all necessary to meet future demands for information. Information Most important, government, industry, and possibly medical specialty soci- eties have the opportunity to fill the information vacuum we have identified in
58 BRYAN R. LUCK AND RUTH E. BROWN this chapter. The health care community is currently malting technology deci- sions with insufficient data. As a result, some of these decisions may-be subopti- mal. Not only can they increase the knowledge base by supporting patient out- comes and cost-effectiveness research, but they can also target information to specific decisionmakers' needs. Appropnate studies can be sponsored early in the technology development process so that decisionmakers have the information they need when they need it. Finally, whether industry, government, and medical specialty societies capi- talize on the opportunities identified above, the demand for technology assess- ment information will continue. The respondents in the present study have iden- tified needs in education, resources, and research; they uniformly predict that technology assessment activities will become increasingly important in malting their technology purchase and coverage decisions. Indeed, both the health care market and public policy makers are already beginning to require considerably expanded technology assessment information from manufacturers. REFERENCES Drummond, M. 1992. Australian guidelines for cost-effectiveness studies of pharmaccu- ticals. Pharmacoeconomics l(Suppl.J:61~9. Elixhauser, A. E., Luce, B. R., Taylor, W. R., and Reblando, J. 1993. Health care CBA/ CEA: An update on the growth and composition of the literature. Medical Care 31~7 Suppl.~:JS 1-JS 1 1, IS 1 8-JS 149. Federal Register. Medicare Program: Criteria and procedures for making medical ser- vices coverage decisions that relate to health care technology. January 30, 1989. 54~18~. Fox, D. M., and Leicher, H. M. 1991. Rationing care in Oregon: The new accountability. Health AffCairs 10:7-27. Halm, E. A., and Gelijns, A. C. 1991. An introduction to the changing economics of technological innovation in medicine. In: Institute of Medicine. Medical Innovation at the Crossroads. Vol. 2, The Changing Economics of Medical Technology. A. C. Gelijns and E. A. Halm, eds. Washington, D.C.: National Academy Press. Medicine and Health, January 20, 1992. AHCPR rejects assessment gift. 46~31. Medicine and Health, April 20, 1992. Minnesota passes health reform bill. 46~161. U.S. Congress, Office of Technology Assessment. 1982. Strategies for Medical Technol- ogy Assessment. Washington, D.C.: U.S. Government Printing Office. Ontario Drug Program Branch. October 1991. Guidelines for drugs benefit formulary/ comparative drug index. Draft paper. Ontario Drug Program Branch. Perry, S. 1988. Technology assessment in health care: The U.S. perspective. Health Policy 9:317-324. Sorian, R. 1988. The Bitter Pill: Tough Choices in America's Health Policy. New York: McGraw-Hill.
