Medical Device Daily Washington Editor

WASHINGTON — Ronald Reagan is credited with having described an economist as "someone who sees something happen and wonders whether it would work in theory."

Disregarding the chuckles and nods of assent this statement provokes, a recent article published by the Kaiser Family Foundation (Menlo Park, California) raises yet again the theoretical debate concerning the role of device and drug investment in driving cost increases.

The article, "How Changes in Medical Technology Affect Health Care Costs," cites the usual figures on healthcare inflation, citing an average increase of 9.8% per year since 1970.

The analysis covers synthetic pharmaceuticals, biologics, devices, diagnostics and even electronic medical records, the authors saying that advances offered by novel technologies have yielded real gains, such as cutting in half the "the overall mortality rate" between 1980 and 2000.

New devices and drugs "can also reduce utilization" and exert a prophylactic effect — as with vaccine use — and replace more expensive technology or procedures, all of which make strong arguments for continued medical advances.

"Research shows that the use of medical care rises with incomes," the article says, and that the presence of health insurance provides assurance that payers will pay. Conversely, "the promise of better health through improvements in medicine may increase the demand for health insurance."

The authors note that "an estimated $111 billion was spent on U.S. health research in 2005," including $40 billion from governments, primarily the National Institutes of Health.

Medical device firms invested an average of 11.4% of sales on R&D, and a category called "drugs and medicines" invested nearly 13% of sales on R&D, according to the authors. The national average for all industries was 3.5%.

The article says: "compared to other high-income countries, the U.S. spends more" without getting a proportional value, but that "on average, increases in medical spending as a result" of technological innovation "have provided reasonable value."

When using between $50,000 and $100,000 as the value of a year of life, the $19,900 attributed to health spending seems a good deal.

The question is: How much of a good deal can the nation's pocketbook stand and just how rational are some of the decision-making mechanisms for allocating resources?

On the question of establishing a return on investment for devices and drugs, Uwe Reinhardt, professor of economics and public affairs at Princeton University (Princeton, New Jersey), told Medical Device Daily: "When we look at new technology, we must distinguish between cost-saving technology and cost-increasing — but quality-increasing — technology."

Reinhardt said that many drugs and devices save considerable sums, but that the benefits accrue principally to the patient and his/her employer and hence fall into the category of spillover benefits healthcare systems can't recoup.

Imaging technology, he said, "is very expensive per se," he said, reducing exploratory surgeries "that are hardly done anymore."

On the other hand, many new technologies "vastly enhance life but cost more. Then you get in the area of benefit/cost analysis," Reinhardt said.

When the value of a quality-adjusted life year is set at $25,000, most technology is seen as "adding more value to society than most of the consumer goods we produce," he said.

One of the sticking points is that those who are healthy do not benefit from such advances, and "they're being asked to step up to the cashier's window to pay for it," which is "where the controversy lies."

As for the apparent overuse of some devices in the U.S., Reinhardt said that "Americans are vastly under-served in primary care relative to other nations and use fewer drugs, but vastly over-served in heroic medicine and in technology such as defibrillators."

"We pay much higher prices for anything, whether it be stents, drugs, physician visits and even healthcare economists," he said, noting that salaries in the U.S. tend to run 30% to 50% higher than in Europe, while medical school is also free in many parts of the EU.

The flip side of this coin, he said, is that "nobody teaches doctors as well as in the U.S."

Asked whether the coverage decision mechanism used at CMS in lieu of pre-certification is an incentive to over-treat, Reinhardt said, "Yes, it is. In this country, you cannot mention the phrase 'cost-effectiveness' because any bureaucrat who ever raised it would be canned," citing the controversy faced by former CMS administrator Thomas Scully when he criticized the use of Nexium when the older and cheaper treatment for acid reflux, Prilosec, was largely equally effective and about to go generic.

Offering an alternate view, David Nexon, senior executive VP at the Advanced Medical Technology Association (AdvaMed; Washington) told MDD that a variety of studies "have shown that the return on spending on medical technology overall far exceeds the cost," but that such analyses are "too costly to do … routinely on individual technologies, and there are a number of technical reasons why this analysis is problematic even apart from the cost."

On the question of over-treatment in the U.S., Nexon said that the increases in U.S. healthcare spending are "hard to attribute . . . to speculative investment, particularly since the biggest sector in the health care system, the hospital sector, is predominantly nonprofit."

He said that the most recent evidence, "i.e., the RAND studies on quality of care, suggests that Americans are under-treated rather than over-treated. Americans receive recommended care only slightly more than half the time for the illnesses RAND studied."

Nexon also said that "[c]omparisons with other western nations have to be taken with a grain of salt" because other factors play into longevity and because "international measures of outcome are relatively crude — longevity, infant mortality — and do not capture many critical health outcomes."

"That being said, there is no question that we can and should work to improve both the quality and efficiency of health care in the United States," Nexon said.

Nexon had a different take from Reinhardt on the question of CMS's national coverage decision mechanism, saying: "[m]ost private insurers have actually abandoned pre-certification for most procedures, because it has been found not to be cost-effective."

On the other hand, coverage decisions "bring consistency to the treatment of beneficiaries who live in different parts of the country but have similar medical needs."