Improving Health Care Cost Projections for the Medicare Population Summary of a Workshop (2010) / Chapter Skim
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3 Modeling Medical Technology
3 Modeling Medical Technology
Pages 31-46
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From page 31... ...
2. Innovation in medical technology, which has been estimated to ac count for about half of health care cost increases over the past 50 years, is a prime target for research to identify policy changes that could moderate cost growth.
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From page 32... ...
In general equilibrium models, prices adjust and spending growth in any sector slows down because there is a budget constraint that individuals face. However, institutional features of the health care system that are embodied in current law, such as public financing of care and administratively set prices, weaken the budget constraint.
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From page 33... ...
If cost growth in the private sector slows because it does not face current law, how will that influence Medicare spending? Will there be divergence, or will there not be convergence?
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From page 34... ...
There is a potential for positive spillover (in which slower non-Medicare health care spending reduces spending in Medicare) and cost shifting (in which providers try to recoup losses in the non-Medicare sector by increasing costs for Medicare)
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From page 35... ...
He briefly described research undertaken by him and colleagues flowing from FEM.1 Technology is a major driver of health care spending. In the last 50 years, roughly half of the key factors behind increases in total medical spending are attributed to technology, while other factors, such as aging, income, insurance, and prices, have played smaller roles.
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From page 36... ...
Regulatory Choices Have Global Effects Innovation in pharmaceuticals and other medical technology spills across the entire globe, which makes the modeling of innovation challenging. Innovation is a global good, and the global nature of innovation creates linkages across markets.
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From page 37... ...
This is more akin to Medicare Part D, which was designed to affect out-of-pocket spending but not to have direct effects on prices paid to manufacturers. Using these two types of policies -- changes in manufacturer prices, all else being equal, and changes in consumer prices, all else being equal -- the research team built a model based on FEM that incorporated the effects of new drug launches and the effect of pharmaceutical policy on the rates of new drug discovery.
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From page 38... ...
In contrast, consumer copay reduction policies are robustly beneficial. Reducing patient out-of-pocket costs, without changing manufacturer prices, fosters innovation although it leads to modest increases in health care spending on pharmaceuticals.
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From page 39... ...
spoke about the role of technology in rising health care costs and ways to estimate the effects on expenditures globally and for specific medical conditions. He noted that the impact of technology on health care costs is well recognized.
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From page 40... ...
Similarly, increases in spending per case can be attributable to a combination of factors: increases in clinical disease incidence and changes in treatment patterns, in addition to technological advances. For example, using data from the 1987 National Medical Expenditure Survey and 2001 Medical Expenditure Panel Survey Household Component, Thorpe and colleagues examined the impact of obesity on rising medical spending.
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From page 41... ...
Again, an important question left unanswered through use of the case study method was what factors drove the change in treated prevalence, which Thorpe notes as an important avenue for future research. Suggested Advances in Modeling In order to improve the predictive accuracy of health care spending projection models, Thorpe suggested supplementing the more traditional GDPbased approach, which relies largely on demand-side factors, with data that are traditionally built into epidemiological models, such as projected trends in disability, obesity, and smoking.
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From page 42... ...
Supply Side in Projection Models Dana Goldman observed that researchers working on the RAND FEM he have tried to think about technology, starting with just asking people, but then incorporating technology and pharmaceutical spending into the process of modeling. Thorpe is doing the same from a disease perspective.
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From page 43... ...
Electronic health records and baseline data sets will probably be needed. Policy Options Relating to Pricing Referring to Lakdawalla's presentation, Garber remarked that he did not understand the two policy options relating to pricing.
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From page 44... ...
In response to the next question regarding consumer prices, Lakdawalla stated that they were thinking about consumers paying 20 percent less out-of-pocket on a unit-adjusted basis. Garber remarked that that is an outcome, not an instrument.
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From page 45... ...
asked Lakdawalla to elaborate the part of the model that goes from prices in drug launches to life expectancy. If there is a global market, why is there still a difference between the United States and Europe in life expectancy?
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From page 46... ...
But on balance it is becoming more expensive, even though people are getting more in return. Some people have identified the productivity slowdown in the pharmaceutical sector and in other areas of the medical care system as one contributor to that.
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