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90–494 PDF 2003

S. HRG. 108–209

TECHNOLOGY, INNOVATATION AND HEALTH

CARE COSTS

HEARING

BEFORE THE

JOINT ECONOMIC COMMITTEE

CONGRESS OF THE UNITED STATES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JULY 9, 2003

Printed for the use of the Joint Economic Committee

(

(II)

JOINT ECONOMIC COMMITTEE

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE

ROBERT F. BENNETT, Utah, Chairman

SAM BROWNBACK, Kansas

JEFF SESSIONS, Alabama

JOHN SUNUNU, New Hampshire

LAMAR ALEXANDER, Tennessee

SUSAN COLLINS, Maine

JACK REED, Rhode Island

EDWARD M. KENNEDY, Massachusetts

PAUL S. SARBANES, Maryland

JEFF BINGAMAN, New Mexico

HOUSE OF REPRESENTATIVES

JIM SAXON, New Jersey, Vice Chairman

PAUL RYAN, Wisconsin

JENNIFER DUNN, Washington

PHIL ENGLISH, Pennsylvania

ADAM H. PUTNAM, Florida

RON PAUL, Texas

PETE STARK, California

CAROLYN B. MALONEY, New York

MELVIN L. WATT, North Carolina

BARON P. HILL, Indiana

DONALD B. MARRON, Executive Director

WENDELL PRIMUS, Minority Staff Director

(III)

CONTENTS

OPENING STATEMENT OF MEMBERS

Senator Robert F. Bennett, Chairman ................................................................... 1

WITNESSES

Statement of Dr. Mark McClellan, Commissioner, U.S. Food and Drug

Administration ..................................................................................................... 2

Statement of Dr. Carolyn M. Clancy, Director, Agency for Healthcare

Research and Quality .......................................................................................... 5

Report entitled ‘‘Estimates of the Impact of Selected Health Information

Technologies on Quality and Costs in Inpatient and Outpatient Settings’’ .............................................................................................................. 49

Statement of Dr. Peter J. Neumann, Deputy Director, Program on the Economic Evaluation of Medical Technology, Harvard School of Public Health .. 23

Statement of Dr. Neil R. Powe, Director, The Welch Center for Prevention,

Epidemiology, and Clinical Research, The Johns Hopkins Medical

Institution ............................................................................................................. 26

SUBMISSIONS FOR THE RECORD

Prepared statement of Senator Robert F. Bennett, Chairman ............................ 37

Prepared statement of Representative Pete Stark, Ranking Minority Member 37

Prepared statement of Dr. Mark McClellan, Commissioner, U.S. Food and

Drug Administration ............................................................................................ 38

Prepared statement of Dr. Carolyn M. Clancy, Director, Agency for

Healthcare Research and Quality ....................................................................... 45

Prepared statement of Dr. Peter J. Neumann, Deputy Director, Program

on the Economic Evaluation of Medical Technology, Harvard School of

Public Health ........................................................................................................ 53

Prepared statement of Dr. Neil R. Powe, Director, The Welch Center for

Prevention, Epidemiology, and Clinical Research, The Johns Hopkins

Medical Institution ............................................................................................... 56

Statement submitted by AdvaMed, Advanced Medical Technology Association 60

(1)

TECHNOLOGY, INNOVATION AND

HEALTH CARE COSTS

WEDNESDAY, JULY 9, 2003

CONGRESS OF THE UNITED STATES, JOINT ECONOMIC COMMITTEE, Washington, DC

The Committee met, pursuant to notice, at 9:30 a.m., in room

SD–628 of the Dirksen Senate Office Building, the Honorable

Robert F. Bennett, Chairman of the Committee, presiding.

Present: Senator Bennett.

Staff Present: Donald Marron, Mike O’Grady, Jeff Wrase,

Angela Brimhall, Colleen J. Healy, Melissa Barnson, Wes Yeo,

Rebecca Wilder, Frank Sammartino, John McInerney, and Nan

Gibson.

OPENING STATEMENT OF SENATOR ROBERT F. BENNETT,

CHAIRMAN

Senator Bennett. The hearing will come to order.

Perhaps it’s appropriate in a hearing dealing with health care

that I have a summer cold.

I apologize for the way I growl this morning, but there’s not

much I can do about that. We welcome everyone to today’s hearing

on how technology and innovation affect health care costs.

The United States has a health care financing problem, one that

goes well beyond the budget challenges posed by Medicare. For

many years, our health care spending has grown at a significantly

faster rate than the economy. Projections indicate that this will

continue. Any financial arrangement where expenses grow significantly faster than income is truly on very shaky ground.

In other sectors, new technologies usually lead to greater efficiencies and ultimately, lower costs. Yet, it’s unclear whether the

same is true for health care. So what’s different about health care?

Is it the technology or the way we pay for it?

How can we strike the right balance—providing access to the latest breakthrough technologies, while limiting an open-ended raid

on the public and private treasuries that fund our health care?

During this hearing, we will explore these issues, bringing together some of the best minds from the public and private sectors

to help shed some light on this situation.

We should first question whether technology and innovation have

truly added to health care costs, as some claim, or have reduced

health care costs through enhanced efficiency.

And second, we should examine whether new technologies are

disseminated in an efficient and effective manner, and if there are

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areas where they are being overused or underused. For example,

some have expressed concern that advanced imaging technologies

may be overused, in part, because of poor incentives in the payment formulas used by Medicare and other insurers. At the same

time, an article in this week’s Health Affairs, highlights how new

technologies may be underused in treating people who lack health

insurance.

We need to find the right balance. We need to judge the cost-effectiveness of new technologies so that we can properly fund this

critical work, without overpaying and without adding additional

upward pressure on health care spending.

Unlike most of the recent congressional debate on health care,

this hearing is not about Medicare or its coverage of prescription

drugs. However, this issue is crucial to Medicare and every other

health care purchaser that faces the dilemma of how to add innovative new benefits without setting off an explosion of health care

costs.

[The prepared statement of Hon. Robert F. Bennett appears in

the Submissions for the Record on page 37.]

Senator Bennett. On our first panel, we’re privileged to welcome Dr. Mark McClellan, the Commissioner of the Food and Drug

Administration, who has testified before this Committee before.

Dr. McClellan, we’re delighted to have you back.

Dr. McClellan. Thank you.

Senator Bennett. And Dr. Carolyn M. Clancy, who is the Director of the Agency for Healthcare Research and Quality. Dr. Clancy,

you’re a new appearance here, but we’re also delighted to have you.

Dr. Clancy. Thank you.

Senator Bennett. Congressman Stark is unable to be with us

this morning because of a conflicting schedule. But he has an opening statement which will be made part of the record at this point.

[The prepared statement of Representative Pete Stark appears in

the Submissions for the Record on page 37.]

Senator Bennett. We are expecting several other Members of

the Committee to show up as their schedules will permit. And as

they do show up, I will recognize them for an opening statement

or questions as is appropriate.

With that opening and background, Dr. McClellan, again, we

welcome you and look forward to your testimony.

OPENING STATEMENT OF DR. MARK McCLELLAN,

COMMISSIONER, U.S. FOOD AND DRUG ADMINISTRATION

Dr. McClellan. Good morning, Mr. Chairman. I welcome this

opportunity to testify before this very important Committee. It’s a

pleasure to see you again and I want to thank you for your broad

interest in health and in issues touching the FDA.

We’ve talked before about the importance of nutrition and we’re

working on ways to help people improve their diet.

In fact, we have an important announcement on this topic coming later this morning.

I’d glad to be here today to talk with you about the critical questions you just raised on the effects of technological innovation in

health care on the cost of health care.

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It doesn’t take an economist to appreciate that new technologies

often lead to higher costs of medical care. Millions of Americans are

struggling today to afford the rising cost of what medical technology can do for them.

Many new medical technologies do lower costs, such as drugs for

treating depression that can be less expensive than non-drug approaches to effective treatment.

Recently, FDA has approved new, simpler tests for HIV exposure

that can be done quickly in a doctor’s office, as well as less costly

implantable defibrillators that can reduce the risk of sudden cardiac death for many patients.

But many technologies do result in increased costs. First, when

a treatment becomes less expensive and safer, more patients may

decide that it’s worth the risk and unpleasantness to get it.

Second, many treatments exist today that do things that were

simply not possible in the past. Patients with heart disease, cancer,

AIDS, arthritis, cystic fibrosis, low birth weights, and countless

other conditions are living longer and better lives because medical

innovation has transformed fatal illnesses, or illnesses that could

only be treated with supportive measures, into conditions that people can live with and often live well.

The important fact that Americans are living longer lives and

better lives doesn’t show up in any direct way in a country’s national economic accounts, like health care spending does. But that

doesn’t mean that these health benefits aren’t worth a lot.

So from an economic standpoint, one key issue is whether the

benefits of medical innovation are rising faster than the costs.

In recent years, a number of economists and doctors and other

health care experts have addressed this question. It’s hard to answer since it’s hard to put a value on better health and since there

are many things besides medical care that influence health.

Perhaps the best evidence comes from studies of changes in

treatments and associated changes in costs and outcomes for patients with specific illnesses over time, like patients with heart attacks or cataracts or depression.

While none of these studies are completely convincing in themselves, they generally show that medical innovation have been of

great value to the public. That is, the value of the improvements

in health are much greater than the increases in spending.

Another way to look at this is if you are a patient with heart disease or at risk for breast or colon cancer with rheumatoid arthritis

or with many other conditions, you’d generally be much better off

with the treatments that you can get today compared to the inferior treatments you could get a decade ago, even though in all of

these cases, treatment for your condition is much more expensive

than it was a decade ago.

But just because our leadership in medical innovation in America

has added great value in the form of longer and better lives for millions of Americans, it doesn’t mean that we should just be sitting

back and doing nothing.

Just because changes in medical technology have been good overall doesn’t mean that we can’t do better. There are lots of examples

of medical treatments used inappropriately or erroneously or in

other ways that add to costs without providing much, if any, beneVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00007 Fmt 6601 Sfmt 6601 90494.TXT SSC3 PsN: SSC3
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fits. And in addition, many people can’t afford some of the valuable

new treatments and that’s a public health problem, too.

We must work hard to find better ways to increase value in the

development and use of medical technologies. We must work to

keep modern care affordable while still encouraging medical innovation.

I’m quite concerned about threats to valuable innovation in

health care today. On the one hand, the process of medical innovation, turning sound ideas from insights in the biomedical sciences

into safe and effective treatments for patients. This process has become steadily more expensive, more time-consuming and more uncertain.

That means it’s getting much more expensive to get new technologies to patients.

On the other hand, we are also under more pressure than ever

to find ways to bring health care costs down, and some of the ideas

for reducing health care costs would unfortunately reduce the financial incentives needed to bring valuable, life-saving technologies

to patients.

We’re facing this crisis at a critical time from the standpoint of

medical innovation. The number of new technologies coming to patients is down.

For example, we got fewer applications for truly new drugs last

year than at any time in the past decade. But this is happening

at the same time as the investment in research and development

by the National Institutes of Health and by the private sector is

higher than ever—over $80 billion, with the promise of new breakthroughs ahead from understanding the human genome and many

other sciences like genomics and medical nanotechnology.

If the cost of developing new products that are safe and effective

keep going up, while short-term efforts to control costs increasingly

focus on controlling payment rates, we may not get more valuable

new treatments in the years ahead.

I think there’s a better solution, one that means better health

and greater value for medical technology in the years ahead.

We can take steps today to improve the development and use of

medical technologies and find creative policy solutions that both

support innovation and make health care more affordable, particularly for those with limited means and great needs.

As part of a new FDA initiative on improving medical technology

announced in January of this year, the FDA is taking many steps

to help foster more efficient innovation, especially in emerging

areas or those with great medical need.

We are working not only to reduce the time for reviewing new

products and determining whether they are safe and effective. We

are also working with partners at the NIH and with product developers to find ways to make the development process less costly and

more predictable. For example, by providing clear guidance on

what it takes for a product developer to show that a new treatment

is safe and effective.

Lower costs and more certainty in developing new medical technologies means more safe and effective treatments can reach more

patients faster.

5

In order to get more value from the medical technology we use,

however, after new technologies are approved, we also need to work

to do more to help doctors and patients use new medical innovations more effectively. And so, we’re working closely with many

participants in health care, including with the Agency for

Healthcare Research and Quality, led by my friend and colleague,

Dr. Carolyn Clancy, who I’m delighted to testify with today.

We’re working with health care organizations to collect more information, automatically, on potential safety problems with products after they’ve been approved.

We’re implementing new bar-coding requirements to make sure

the right patient gets the right treatment, avoiding costly medication errors.

And we’re conducting more post-approval studies to develop better, more up-to-date evidence on safety and effectiveness, the risks

and benefits of medical products after they are approved.

We’re working on a daily med program for physicians using an

electronic version of our product label for physicians that is easier

for them to use to get the treatment information they need for each

patient they’re treating. And it can be updated daily to include the

most current information about the risks and benefits of the drug

after it’s on the market.

Only by facilitating development of complete, timely, and easily

used information can the FDA help make sure that people are

making the best decisions about their health based on the best

available information.

Mr. Chairman, the FDA is working with AHRQ and with our

partners throughout the Federal Government and the private sector to promote increased access to high-quality, safe and effective

medical technologies, including drugs, biologics, devices and combinations of all three.

This is the best way from a public health standpoint to make

health care more affordable and to make sure that we get the most

value for medical technology.

I’m sorry we don’t have any more products coming along sooner

for the common cold, but I would appreciate the opportunity to

have my written testimony read into the record and I’d be very

pleased at this point to hear what Dr. Clancy has to say.

[The prepared statement of Dr. Mark McClellan appears in the

Submissions for the Record on page 38.]

Senator Bennett. Thank you. Your written testimony will be

part of the record.

Dr. Clancy.

OPENING STATEMENT OF DR. CAROLYN M. CLANCY,

DIRECTOR, AGENCY FOR HEALTHCARE

RESEARCH AND QUALITY

Dr. Clancy. Good morning, Mr. Chairman. I’m very pleased to

be here today to discuss the important issues of how we can facilitate, sustain and promote health care innovation and ensure that

we have a health care system that is affordable.

And I’m also quite delighted to be here with Dr. McClellan.

I wanted to start off by just telling you a little bit about the

Agency for Healthcare Research and Quality (AHRQ).

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Our focus is improving the effectiveness, quality, safety and efficiency of the health care delivery system. So our work complements

that of the Centers for Disease Control, which focuses more on public health, for example, through the use of public health ad campaigns.

To improve health care, we focus both on the clinical content of

the care, as well as the systems or settings where people receive

care.

So it’s that dual focus that is a unique focus for the agency.

We contribute to efforts to speed the diffusion of effective medical

breakthroughs. Through effectiveness in cost-effectiveness research,

we can extend the findings of biomedical research to populations

not included in clinical trials, determine whether patients in daily

practice actually achieve the promising benefits seen in clinical

trials, and identify which people benefit most and least.

So, for example, if a new breakthrough came along for the common cold, we would be able to help clinicians understand which patients were most likely to benefit and which patients might be

harmed or not likely to benefit at all.

Our expanding portfolio of implementation research develops effective strategies to facilitate the rapid adoption of effective services and technologies.

We also facilitate adoption of new knowledge by putting into perspective available scientific evidence so that clinicians and their patients can better assess the importance of recent breakthroughs, an

issue of increasing importance as new interventions appear almost

daily in the media.

So, for example, where the FDA determines that a drug, biologic

or device is safe and that it has an impact, usually when compared

to a placebo, those making coverage decisions and those making

clinical decisions need more information regarding its relative effectiveness and relative cost—how does it compare to the other options I have?

For example, our evidence reports and technology assessments

assist Medicare in making coverage decisions of new clinical interventions.

One area of increasing importance that’s relevant to this discussion is in assessing safe use and minimizing unintended harm of

health care interventions.

While FDA plays a key role in ensuring the safety of drugs, biologics and devices, their inappropriate use can still lead to patient

harm, and that’s an area where our agencies are collaborating

closely.

But there are other innovations in health care, such as new surgical procedures and medical interventions, or new applications of

existing technology, for which there is no comparable up-front evaluation of safety.

While some of these innovations offer unprecedented breakthroughs for some patients, they may also result in unintended

harm, if not used appropriately.

And this unsafe use is both a personal tragedy for individuals

and their families, as well as a big source of unnecessary costs as

clinicians struggle to repair the damage and as medical liability expenses mount.

7

This is a growing focus for AHRQ, and the area of drugs, biologics, and devices is an area where we work closely with the FDA.

Mr. Chairman, the pace of health care innovation continues to

accelerate. It’s increasingly difficult for clinicians and patients to

assess their options adequately.

Many of these developments offer patients the potential for

greatly improving the quality of life for patients, as Mark has

noted. In other cases, the improvements are marginal at best.

Some innovations lead to significantly lower costs, while others

are cost increasing.

The big challenge underlying this is to effectively sort through

the increasing array of clinical care options to develop objective scientific information so that those making decisions—policymakers,

systems leaders, insurers, employers, clinicians and patients—can

make informed choices.

Whether you favor our current insurance-based system or favor

a more consumer-driven model of care, the need for objective evidence is compelling and remains constant throughout.

The resurgence of health care cost inflation, combined with expected growths attributable to the investments that Mark McClellan noted in biomedical research, will only accelerate this demand

for objective information.

So I wanted to tell you five ways in which AHRQ can help.

First, AHRQ research identifies what’s effective and cost effective

in daily practice.

Experience suggests that new drugs, technologies and medical or

surgical interventions are seldom equally effective for all types of

patients.

For example, will a breakthrough for the treatment of arthritis

tested in clinical trials for patients who only have arthritis work

as well with patients who also have diabetes, heart failure and hypertension?

Or how well will it work in patients whose racial, ethnic and demographic characteristics differ from those enrolled in the original

trial?

My written testimony provides two examples that demonstrate

the importance of avoiding simplistic judgments about new technologies.

In one case, treating middle ear infections in kids, a very common cause of seeing physicians, we demonstrate the value of using

the low-cost option, generic antibiotics.

In contrast, in a study of the use of very expensive, but highly

effective drugs to treat AIDS, we demonstrated that the long-run

savings that result from the use of these much more expensive

drugs more than warrants their use.

Second, AHRQ research identifies strategies for overcoming barriers to the use of effective services.

Two weeks ago, you may have seen a lot of headlines about a

study that was published in the New England Journal of Medicine

from the Rand Corporation saying that getting quality of care in

this country was effectively a little bit better than flipping a coin—

about 54 percent of the time is what they found.

The vast majority of the areas that they measured in quality of

care related to underuse of effective treatments.

8

Great opportunities for improving health developed through biomedical research are easily lost if physicians and patients aren’t

able to make the best use of that knowledge in every-day care. And

that is a big focus for the agency.

Third, AHRQ facilitates the use of evidence-based medicine.

Developing and synthesizing evidence and objective information

about various clinical options is important. Making it useful in real

time is essential.

In recent years, AHRQ has focused increased attention on the development of technologies and tools to facilitate the use of evidencebased medicine.

For example, every year, tens of thousands of patients go to an

emergency department with chest pain and they’re worried, as are

their clinicians, that they might be having a heart attack.

We developed a tool that has now been incorporated into EKGs

that helps clinicians make better decisions and which we estimate

could prevent 200,000 unnecessary hospitalizations and 100,000

unnecessary coronary care unit admissions a year, saving over

$700,000 million annually in costs.

Fourth, AHRQ research assesses the effectiveness of cost containment and management strategies.

Medicaid pharmaceutical costs are increasing at about 20 percent

a year and obviously are the source of great focus and attention by

states right now.

As an example of how our past research was helpful to today’s

decisionmakers involved a study of a strategy used by one of the

New England states. And what they did was that they limited

Medicaid prescriptions to three drugs per patient.

Indeed, they saved money on pharmaceutical costs.

The only problem was that they spent more than 17 times what

they saved in unnecessary admissions to emergency rooms, nursing

homes and to the hospital.

So that was of an unintended harm or unwanted aspect of an

intervention that was intended to control costs.

When I actually mentioned this to state legislators in Dr.

McClellan’s home state, their eyes got really big because I think

they had been thinking about this strategy as well.

The results from this study led nine other states to change their

policies.

Finally, AHRQ has a role to play in speeding the pace of evaluation of health care innovation.

One of the critical roadblocks to coverage of innovation interventions is the lack of solid scientific evidence regarding their effectiveness, especially in contrast to existing interventions.

This is often frustrating to those whose creativity leads to the development of new breakthrough interventions and then come to realize that they have to get through FDA and CMS scrutiny, that

that’s only part of the journey toward seeing their innovation and

widespread use.

I wanted to give you an example of a surgical procedure because

that does not come through the FDA.

We work very closely with the Centers for Medicare and Medicaid Services and they asked us several years ago to evaluate a

new surgical procedure called lung volume reduction surgery.

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We did an assessment using existing data and found that some

patients benefited enormously, near-miraculously. Others were

harmed.

And what we said to the Medicare program was we can’t say

with confidence ahead of time which patients are most likely to

benefit. We think conditional coverage linked to a randomized clinical trial might be the way to go here.

As a result, the Medicare program turned around and said that

they would only pay for this procedure for the patients enrolled in

a clinical trial.

What happened was that we now know which patients are likely

to benefit and very importantly, we identified a very high-risk subgroup of patients who are likely to be harmed. That is to say, they

are likely to die from their end-stage lung disease, much more rapidly, which I think is a very important contribution to the public’s

health overall.

There are at least two other ways in which we can improve how

we work as a science partner to promote private-sector innovation.

First, we want to work closely with industry trade associations

to assist their members who have products moving to the end of

the FDA review process to better understand the types of studies

that will be needed to assess the effectiveness of their products.

This simple step will facilitate more timely assessment of health

care innovations.

Second, as our existing investments in patient safety come to an

end, we want to expand our focus on human factors research. This

is research that helps us idiot-proof our technology—for example,

making sure that the controls on all new machines and devices

work consistently in the same way that a pilot, any time that he

or she steps into a 747, knows that the dials are all in the same

place.

That way, even if health care professionals are distracted,

stressed or, sometimes, sleep-deprived, they will provide safe care.

By ensuring that this type of critical information is in the public

domain, we can be a science partner for these private industries to

develop even more effective and safer health care technologies.

Before I conclude, I just want to say a few words about the future directions of AHRQ.

We’re determined to make the agency even more of a problemsolving agency. This will entail a greater focus on implementation

research to help overcome barriers in the adoption of clinical interventions that are both effective and cost effective.

We’ve developed closer linkages throughout the research process

between the ultimate customers of our work and our researchers

to ensure that we’re addressing their highest priority challenges.

We’re also giving greater emphasis to identifying strategies for

eliminating waste, assuring that evidence-based information is current and up-to-date, bringing our health care infrastructure, particularly information technology, into the 21st Century, and redesigning work-flow so that health care professionals can work more

efficiently and effectively. And finally, evaluating financial and

other incentives to encourage safe, high-quality care.

In conclusion, let me just say that a series of studies have demonstrated that the timeframe for approval of a research grant that

10

ultimately leads useful findings to the widespread diffusion and

adoption of those results was, on average, about 17 years.

We consider this timeframe unacceptable.

Now this study did not actually look at the products developed

by the private sector, but I can tell you that there are many other

studies that would suggest that they’re probably not all that much

far ahead of the curve.

We’re prepared to play an important role in identifying effective

interventions and increasing the pace of their diffusion.

Thank you very much.

[The prepared statement of Dr. Carolyn Clancy appears in the

Submissions for the Record on page 45.]

Senator Bennett. Thank you. Let me give you a personal example of the dilemma that we face here when we’re looking at the

overall system.

My wife used to jog. She’s gotten more sensible in her later

years, and she doesn’t do that anymore.

She tore the cartilage in her knee. And went in, got examined,

and was called for surgery. She spent, my recollection is, a week

in the hospital. She has a scar on her knee as a consequence.

Obviously, the surgery and hospital stay were expensive.

Some years later, she had to have the same kind of surgery on

her other knee. Arthroscopic surgery done as an out-patient took

about an hour. I waited in the waiting room while it was done and

took her home the same day.

Obviously, there was no increase in cartilage injury by virtue of

the invention of the arthroscopic procedure. So you can’t say that

the technology stimulated enough new procedures to take the cost

up.

The number of injuries were the number of injuries were the

number of injuries.

So the dramatic cost savings in arthroscopic knee surgery entering the overall economic picture would indicate that the cost would

come down.

Now, when you look at the fact that costs go up while this kind

of innovation is going on, and there are a number of other examples like that, you come to the issue that I think you addressed a

little, Dr. Clancy, that there must be some parts of the system

where the cost has gone up exponentially, because it’s not just gone

up the 15 percent per year that we’re looking at right now.

In those areas, it has gone up enough more than the savings to

eat up all of the savings and produce on top of the savings a 15-

percent per year increase.

Now, is there ever any prospect in the future that we’re finally

going to catch up with this, whether we do it through evidencebased medicine—which is a great phrase that I like—or through

the analysis, Dr. McClellan, of the benefits outweighing the costs

so that we can continue to justify doing this?

At some point, will the impact of the—if I can put it in these

terms, the arthroscopic surgery lowering of costs—catch up with

whatever it is that’s driving the increase of costs so that the overall

number levels out?

Do either of you have a view of what the next 5 to 10 years

might bring in that regard?

11

Dr. McClellan. I think there are many examples like the one

that your wife experienced where innovations in medical technology and capabilities have made it safer and less expensive to

achieve a given treatment, to achieve a given improvement in outcome for a patient.

In your wife’s case, it was repairing some damaged cartilage.

There are a couple of reasons why, even though that’s less expensive in terms of both the procedure itself and hospital time and

complications, that may not even in itself translate into lower

health care costs overall.

One reason is that when the procedure gets easier to do, more

patients tend to decide that it’s worth having it. So that people

with milder injuries, for example, may be more likely to undergo

arthroscopic surgery when they would never consider going into the

hospital for that more miserable week’s stay and major surgery

that your wife experienced some years ago.

Senator Bennett. So you’re saying that knee or cartilage injury

is a case of elasticity of demand.

Dr. McClellan. If you look at the number of procedures, it has

gone up a lot.

And in fact, picking up on something that Dr. Clancy talked

about earlier in terms of appropriate use, there have been some

studies recently, including the study in the Veterans Administration, that showed that, in a number of cases, arthroscopic surgery

may be being performed where the benefits don’t outweigh the

costs or the risks to the patient.

And that’s why developing better information, as Dr. Clancy and

I both emphasized, on risks and benefits of a new technology for

a particular kind of patient, can be very helpful.

And it’s also why the linking up of incentives for using those

technologies in certain patients so that people think about the

costs, might be helpful as well. And that’s where a lot of health

policies have been directed in recent years.

There also have been a number of new treatments coming along

for knee injuries that just didn’t exist before. It’s now a lot easier

to get a knee replacement for people with severe arthritis who

couldn’t walk or couldn’t walk easily, so that they can get around

and even take up jogging again.

The technology has gotten a lot better.

So, previously, that wasn’t very expensive if people just sat

around at home and didn’t do much because their knee was gone.

Now, they can have a much better quality of life in getting

around, but it’s added to our health care costs.

All this just goes to show, as you said, that we need to make

sure, or do more to make sure that we’re getting a lot of value out

of the new treatments when they’re actually used in practice.

Senator Bennett. So your answer to my overall question is no,

there’s not going to be a time in the future when it starts to level

off?

Dr. McClellan. Well, I think a lot of people have been reluctant,

a lot of economists have been reluctant to predict that because they

look back on 50 years of experience of health care costs growing

significantly faster than our overall economy, and then they look

down the pipeline in terms of new treatments being developed as

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a result of genomics and other sciences that are just now starting

to have an impact on medical care.

They see a lot of conditions that are either not treated today or

not treated well—Alzheimer’s, many forms of cancer, other illnesses where people really do have to live with a lot of disability,

if not die, because they suffer from it.

And that gives them reason to think that costs can go up.

On the other hand, I wouldn’t be completely pessimistic that we

can’t do a lot better if we make the right policy choices.

There are a huge number of examples, and Dr. Clancy talked

about many of them, of us spending a lot of money on health care

for treatments that don’t do much or anything for patients’ health

outcomes and may even, in the case of medical errors and preventable adverse events, make outcomes worse and add to costs.

And by some estimates, the savings could be in the many billions

of dollars per year.

So if we can find ways to get the new technologies, the valuable

new technologies, moved along, while at the same time reducing

the spending on treatments that don’t really do much for patients,

we can have a much more viable health care system, one that does

more for patients.

It may cost more overall. It may cost less. But we’d be getting

a lot more for our money. And that’s what I think we need to focus

on.

Senator Bennett. Dr. Clancy.

Dr. Clancy. Yes, I would agree with all of Dr. McClellan’s comments, and we’ve confirmed this, his observation that if you make

a procedure much easier and less painful, that more people are

likely to want to do it.

For example, we had a research team in place when the new procedure for gallbladder surgery was introduced, which made an incredibly miserable operation far more bearable and much more

faster recovery.

Since I’m a physician, but not an economist, unlike my colleague

who is both, I don’t have to be quite so embarrassed about predictions, I don’t think.

[Laughter.]

But if I were to look at the population’s health and demographic

changes affecting our population, what you see is a general aging

of the population here and in all developed nations.

I think the great opportunity for savings is two-fold.

One is waste in the health care system and that’s a big focus of

the agency’s efforts.

The second, though, is really improving the quality of life for people who now suffer impairments in quality of life.

If you look back over the 20th Century, the huge achievement

was the expansion in life expectancy. What that has not translated

into far enough is improvements in quality of life in the later years.

So that mantra of adding life to years does make a lot of sense

and I think actually has an enormous opportunity for us to be able

to save money downstream.

What this will mean is a lot more focus on helping people with

chronic illnesses, whether that’s arthritis, who benefit from joint

13

replacements, or people who benefit from new drugs for treating a

variety of conditions.

And I think the other contributor here that will be very helpful

is information technology. I think as more and more people become

engaged as partners in managing their own care, whether it’s diabetes, high blood pressure, or other things, that will help us actually obtain greater value from our investments in health care.

Senator Bennett. Let me go to the question of waste. It’s something that you dealt with in your testimony, which again triggered

another personal experience.

I woke up in the middle of the night one night having some, for

me, unique and a little bit strange and ultimately frightening kinds

of symptoms.

Finally, my wife woke up and said, ‘‘Do you think we need to go

to the hospital?’’ And I said, ‘‘Yes.’’

She drove me to Georgetown Hospital in the middle of the night.

I just presented my Federal employee’s card and was very impressed with how excited everybody got about taking care of me in

the midst of what was an apparent heart attack.

I commented to her about how somebody just off the street that

they’d never seen before was being taken care of. And she made it

very clear, she told everybody I was a United States Senator.

The head of the cardiac department at Georgetown University

showed up immediately.

It turned out what I had was known as an esophageal spasm,

which has exactly the same kind of symptoms as a heart attack,

particularly for somebody who has never gone through it. But it’s

not life-threatening and, indeed, disappears. As mine did.

They thought I was having a heart attack and the reason that

it disappeared is because they put a nitroglycerine tablet under my

tongue. In fact, it had nothing whatever to do with my condition.

I was in the hospital for, I think, 3 days, on all kinds of monitoring machines, et cetera.

Finally, they decided after the most extensive and obviously expensive series of tests, that, no, this wasn’t a heart attack at all.

Now you referred in your testimony to some kind of technology

that can determine that. Right at admission, they could have patted me on the head and given me a purple pill and sent me home

that same night and everything would have been fine.

I’ve had some of those symptoms since, and all I do is take

Prilosec and it goes away.

According to the latest stress test that I had at the Bethesda

Naval Hospital, they said, ‘‘We don’t need to see you for another

10 years. Your heart is as sound and solid as any we’ve seen.’’

So that raises—you talk about waste being one of the major problems. We think of waste, fraud and abuse as a continuum, and

there’s something sinister about it.

Here was a case of waste where there was nothing sinister whatsoever, and there was certainly no fraud and there was no abuse

of the system.

They didn’t know and they were taking every intelligent precaution to see to it that I stayed alive. Because if it had been a

heart attack and they had not done the things they had done, they

would have been guilty of malpractice.

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What are the prospects of dealing with waste through technology? The Federal bureaucratic mentality, as I say, is that waste,

fraud and abuse are all a single thing. So we simply say, we’re not

going to pay, like the example you gave of the state legislature saying, well, you can only have three prescriptions. You may need five

or six, but we’re not going to pay because doctors are overusing and

overcharging and engaging in waste, fraud and abuse.

We’ll fix that by passing a law that says that you can only have

three. But this ends up costing the system a whole lot more in another area that doesn’t get counted as you’re congratulating yourselves on how much you’ve brought down your prescription drug

cost.

What are the prospects of dealing with what I would call from

the example I’ve just given you, benign waste, well-intentioned

waste, through greater technology, bringing down the cost of that

kind of waste through greater technology?

Dr. Clancy. I want to make a distinction between diagnostic uncertainty, which in your case, even though in retrospect you could

have just gotten your purple pill and gone home, it sounds to me

from how you’ve described it that they did everything appropriately. And I don’t think anyone would have wanted them to do

one thing less.

Senator Bennett. I wasn’t complaining.

Dr. Clancy. Yes.

[Laughter.]

Dr. Clancy. One big source of waste or increased efficiency that

I think is achievable is in the care of people with chronic illnesses.

There was a study published a couple of months ago, also in the

journal, Health Affairs, that surveyed people in five countries with

various chronic illnesses.

And what you heard consistently—it’s interesting, sort of a global

phenomenon—was that many of these folks saw multiple doctors.

They tended to have the same test ordered twice. After all, I might

know that Dr. McClellan has ordered a test on my patient or my

patient might tell me that. But if I can’t find the result or if I’m

not really sure, I’m going to order it again. They also had medication errors and that were lots of opportunities for

miscommunication.

I think that’s where investments in information technology can

make a huge difference because I don’t have to look for the result.

I can actually just check on it in the computer.

Very recently, the Department of Veterans Affairs has shown

that those types of investments can pay off huge benefits in terms

of improving the quality of care.

So that’s one obvious source.

There are lots of opportunities I think to make our health care

systems more efficient and that is a big focus of our research right

now.

Senator Bennett. A central repository of information about

every patient would lend itself to what you’ve just described.

Dr. Clancy. That would be one model.

Senator Bennett. It raises all kinds of privacy implications.

Dr. Clancy. Right.

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Senator Bennett. And confidentiality of medical records. And

I’ve spent a lot of time on that issue, too.

The technology exists, I believe, to do what I’m about to describe.

Let’s follow that road for a minute.

I step off the curb in New York City, don’t look the right way,

and get hit by a taxicab and become unconscious. No one has the

slightest idea who I am or anything about my medical records, but

I am rushed to a hospital.

They find in my wallet a card, which they can put into a reader

somewhere, where my entire medical history is available on a chip.

All of a sudden, they not only know my name and my social security number, but they know the level of daily medications that I

take, they know that I’ve had two hernia operations, an appendectomy, that my EKG is abnormal, but my heart is not, et cetera, et

cetera.

They know all about me instantly.

And you say you didn’t have the information of the latest test.

On that chip, on the card in my wallet, they can know the date of

my latest stress test at Bethesda Naval Hospital, dial it up somewhere, and instantly get those results.

So that as they work on this unconscious, unknown individual at

Bellevue Hospital or wherever it is I’m taken in New York City,

they have everything in front of them, everything available to

them, and presumably, can then make not only the best diagnosis,

but save huge amounts of money and give me the right kind of

treatment.

The technology to do that exists. Let’s set aside the confidentiality and privacy issue for just a moment and ask ourselves what

would be the economic benefit if that technology were implemented

and everybody carried such a card?

Would health care costs go up or down?

Dr. McClellan. It would certainly help avoid some of the kinds

of duplicative costs of delivering health care that Dr. Clancy has

emphasized exists too often today. And that could lead to some improvements in costs through less duplicative tests and higher quality of care for exactly the reason that you mentioned.

That’s a more efficient system.

There are some obstacles to implementing that system.

Senator Bennett. There are a few, yes.

Dr. McClellan. You know, the department has implemented a

strong new privacy regulation. I think it has given people much

more confidence about how their electronic sensitive medical

records are being handled.

There are some other obstacles in terms of standards and different institutions and organizations store their electronic data in

different ways, using different codes.

Dr. Clancy and the rest of the Department of Health and Human

Services and the rest of the Federal Government have been involved recently under Secretary Thompson’s leadership to try to get

more standardized systems for keeping track of medical information so that it can be shared across health care systems effectively.

But there’s another type of benefit from using health information

more effectively and that’s it can let us learn more about what

treatments are working and which ones aren’t, which ones may acVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00019 Fmt 6601 Sfmt 6601 90494.TXT SSC3 PsN: SSC3
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tually be causing safety problems and harming patients in actual

use.

It can be difficult for us to get that kind of information today.

For example, at the FDA, we’ve long relied on reports from manufacturers of products to tell us when something is going wrong.

They in turn have to rely on increasingly busy and harried health

care professionals to send information in to them when something

goes wrong with a drug or device.

With the kind of information system that you described, we’d

have a way of capturing automatically in real time or close to it

information that could put us on to an important safety problem

or maybe even an important benefit that’s not well understood for

patients. And we can in turn get that information out to doctors

much more effectively by using that information system going the

other direction.

So it should be a two-way street.

So there are a lot of potential benefits there. There are some obstacles along the way, including confidentiality and standards and

providing the right kinds of incentives for health care organizations

to adopt these modern information systems.

But there is a tremendous potential there.

Senator Bennett. Well, you get to the question of common database protocols. I think that’s what you’re describing here.

Another example.

Intermountain Health Care in Salt Lake City ran a series of hospitals—still does. And I believe I have these numbers right. It’s

been a while since I dredged up this particular example, but you’ve

triggered it with this testimony.

The question of infections after operations is a serious question.

People go into the operating room. The operation goes well, but

they get an infection.

The standard that was established was 2 percent. If you could

get your infection rate down to 2 percent of the operations, you

were labelled as an acceptable and, indeed, admirable, kind of operation.

At Intermountain Health Care, they decided that they were

going to experiment a little, not with the patients, but with the

data. And they started checking various things that happened in

the operating room to discover if there was any correlation between

certain things and the elimination of infection.

I can’t remember exactly what they discovered. My memory tells

me that it had something to do with the timing of the injection, or

the introduction of antibiotics, or whatever, that if they waited past

a certain period of time, then there were infections. And if they did

it within a certain period of time, there were none.

They changed the protocol in the operating room to correlate

with the information they had discovered by virtue of their research and they brought the infection rate down to 2/10ths of 1

percent.

Now industry standard would say, if you meet the 2 percent, you

get the seal of approval and everybody accepts that as being normal.

And they were able to bring that down to 2/10ths of 1 percent.

17

So, naturally, if you’re going to have an operation, you want to

be in one of IHC’s hospitals with respect to the infection problem.

Is there some way that could be devised or adapted to where you

work where that kind of discovery—it’s not a research discovery in

the sense that you’ve got a new drug or a new device. It’s simply

a statistical discovery of examining what’s going on and saying,

wait a minute. It really matters whether you do this in the first

20 minutes or the first hour.

To create a central repository of that kind of information that

could then produce a national protocol that says, this is the way

every hospital ought to do it, and take that example and spread it

out over all of the things that can be discovered that you’re talking

about, Dr. Clancy.

Respond to that and see if that is something that the government

should be involved in.

Dr. Clancy. Well, I’m very proud to say that we actually funded

the study you’re talking about at Intermountain Health Care.

Senator Bennett. Oh, did you?

Dr. Clancy. [Continuing.] Which identified just how important

it is to get the timing of the pre-operative antibiotics right.

They also demonstrated that information technology can be a

very important part of reinforcing and making sure that that happens.

The type of research that you’re describing, the systems research,

how do we make sure that what we know works is actually what

happens, is very much a focus of the agency’s work right now.

This fall, we’re going to be putting out a big report on quality of

health care, sort of a national report card, if you will. And in preparation for that, we’re beginning to review all the evidence about

what we know works best and are also hoping to use that as a

launching pad for improvements.

So we’ll make sure that you get one of the first copies.

Senator Bennett. That’s nice to know that there’s a report. But

just to pick a city at random, suppose I go into a hospital in Detroit, where they haven’t read the report.

Is there any system for getting the information out other than

we published a report and hope somebody picks it up?

Dr. McClellan. Dr. Clancy emphasized that AHRQ and other

Federal agencies, including us, are trying to get better information

developed so that doctors would have access to the best and latest

information on risks and benefits for a particular patient of a particular treatment.

And I think that the kind of system that you’re talking about

may not come together as just one single global database, but there

are a lot of programs out there that can help doctors get more accurate information for treating patients.

I’d like to emphasize, though, that that’s not enough. As you emphasized, this is something that happens at the local level when

doctors and nurses and other health professionals delivering care

to individual patients, just having an attitude and having the support they need to make the right decision at the right time and

avoid errors is something that needs to be part of the system, part

of the environment in which health care practitioners are functioning.

18

And having access to information technology can help with that.

But other steps are necessary, too.

For example, one barrier that many institutions cite about trying

to develop that same kind of information so that they can keep

track of why infections are occurring and how we might prevent

them, is concerns about liability.

They’re afraid that if they write down what might go wrong—

what went wrong or might have gone wrong for a particular patient, that’s going to end up being held against them in court.

And I’m pleased to say that there’s bipartisan legislation working

its way through Congress, at least the House, which I know AHRQ

and we strongly support that would provide liability protections

that are needed to encourage the environments that promote safe

and effective medical practice.

And also financial incentives matter as well.

Some institutions still today get paid more for treating a patient

for not only the condition that brought him into the hospital, but

for the infection that might keep them there longer or get them readmitted to the hospital.

Incentives should be in the right place for getting patients well

and preventing errors in the first place. There are more supporting

things that need to help, that if you get them in the right place,

would help make that kind of national data that you’re talking

about be used much more effectively.

Senator Bennett. You’re not suggesting that anybody rejoices

or deliberately does things that would cause a patient to stay in

the hospital longer?

Dr. McClellan. Not at all. I’m just pointing out that financial

incentives to help people stay healthy can make a big difference.

Dr. Clancy. And just to build on that. In your home state again,

at Intermountain Health Care, Brent James has a long and impressive list of examples where they have improved quality and the

safety of health care and have lost money.

Now they’re doing it because it’s the right thing to do. And the

reason they’ve lost money is related to payment policy and the fact

that we pay institutions more for taking care of sicker patients.

Actually, treating patients more effectively, they have lost some

money and they can provide very clear evidence of that.

So one of the pieces of this puzzle will indeed be payment policies

to make sure that institutions that do a better job for a lower cost

don’t lose. Because for some institutions, that’s not going to be a

sustainable approach.

Senator Bennett. How do we deal with that? Back to my example of my non-heart attack.

They diagnose me instantly as having an esophageal spasm and

they’ve lost money. I rejoice. They rejoice. How do we get some

kind of financial incentive into the system to do just what you’ve

described and say to people that if you do it right and come up with

the right diagnosis, you get a bonus of some kind?

And what are the implications of that because people would say,

oh, this would be great. That is, somebody who is disreputable

would say, this will be great. I’ll tell them that they don’t have any

real problem. I’ll get the bonus for not having done the other proceVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00022 Fmt 6601 Sfmt 6601 90494.TXT SSC3 PsN: SSC3
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dure. They’ll walk out of here. They’ll have the heart attack. They’ll

be back and I get two dips at the ice cream dish on that basis.

Do you have any ideas?

I agree with what you’re saying, but do we have any ideas practically as to how we can do it?

Dr. Clancy. We’re getting there. And it’s an area of intense

focus for my agency, for CMS, and for other parts of the department, including FDA.

How do you create the right incentives? At 20,000 feet, we would

all love to pay for quality. We’d pay more for better quality care.

It’s drilling down to make sure that we do that in the right way.

What I can tell you, Mr. Chairman, is that we recently developed

a summary of the best evidence that we have, short on how IT information technology can be part of that solution.

And I’d be happy to submit that for you.

Dr. McClellan. I think that, in building on that, there are a lot

of things that can be done to make the kind of care that you got

even more efficient.

First, we need better treatment so that you don’t have to stay in

the hospital 3 days to make sure that you don’t have heart disease.

It can be done more quickly.

Earlier this year, for example, FDA approved some new diagnostic tests for the presence of the enzymes that go along with a

heart attack that make it possible to get patients determined

whether they’ve got a heart attack or not more quickly.

It’s uncommon for someone to stay in the hospital as long as 3

days to make sure that they don’t have a heart attack.

We need better incentives for payments, as you and Dr. Clancy

have mentioned. A lot of people are concerned these days about the

rising amount of costs that people have to pay out of pocket.

But that has made some people more sensitive to the overall cost

of care that they’re getting, doctors and patients, to try to work together to find ways to keep those total costs down.

And it would be nice to have added incentives as well to prevent

the diseases in the first place. If there are a lot of steps that people

can take to keep them from getting heart disease in the first place

through a good diet, through regular exercise, good nutrition, that

significantly reduces the chance of developing heart disease and

many other chronic diseases that are extremely costly today in the

first place.

That’s the kind of health care system that we need. And the

kinds of incentives that we’ve been talking about would help us

move in that direction.

Senator Bennett. Now you opened the door to another whole

area, which is the possibility through technology to do screening

and thereby be in a position, A, for preventive care or, B, maybe

a subset of A, counseling, where you could not in the pre-technology age justify the cost of screening tests for everybody.

You’d have to wait until you have some kind of symptom before

you run the test because the test is so expensive.

When you’ve got a screening test that is very, very cheap, you

could go into a school, for example, and screen all the high school

seniors and tell 4 percent of them that they are going to be at risk

20

for this, that, or the other in their lives, and they have no symptoms yet.

And, presumably, the long-term benefit of identifying those that

are at risk for a variety of reasons, and then treating it before the

symptoms start out would bring down the long-term societal cost

of health care, would it not?

Dr. McClellan. Well, it would certainly help people get longer

and healthier lives for the same, if not less, money.

I think it would be worthwhile from that standpoint to encourage

the development of these technologies.

You mentioned, you’re obviously on top of what’s going on in new

medical technology. But there are a lot of technologies coming

along as a result of breakthroughs in genomics and understanding

how gene function works that will potentially allow us to have

much more individualized therapy.

So we can tell for people, not only which drugs or medical treatments may be indicated to prevent diseases or keep them at bay

based on their specific molecular basis of disease, but this goes beyond medicine as well.

People are increasingly going to have information about specific

changes they can make in their diet and there are increasingly

going to be foods available that are tailored to people that have

particular nutritional needs to help them prevent diseases.

So there’s a lot of potential there for more individualized highvalue medicine. That’s not the kind of health care system that we

have now.

Senator Bennett. No.

Dr. McClellan. Those technologies are not yet in place. We need

to think carefully about how the policies that we’re implementing

today might encourage or discourage the development of that potentially better future.

Senator Bennett. Since this Committee has no legislative authority, we can go anywhere we want. And that’s what we’re trying

to do with this hearing, is to get an understanding of what the

ideal health care system might be, which we could then recommend

to the committees that have legislative authority.

And of course, underpinning it all is the overall economic impact.

Let’s take an example that we don’t think of as technology, but

that’s an example of what we’re talking about—inoculation.

We routinely inoculate every child in this country with a variety

of shots. Now, we have some problems in some areas of the country

where the parents or guardians, whatever, don’t bring the children

in.

I remember we had this debate at the beginning of the Clinton

Administration when they very appropriately said the Federal Government ought to finance inoculations for everybody.

All of the concern about the people who are left out, the uninsured, which has become the shorthand name to describe those who

don’t have health care. And the government is going to pay for all

this.

And then we discovered, somewhat to our chagrin, that money is

not the problem, that the inoculations are available everywhere to

everyone, and the problem is that the parents or guardians, if there

21

are some—in many cases, there are neither—don’t bring the kids

in to be inoculated.

The technology is there, but in this case, it’s not used. They don’t

have access. They don’t take advantage for a variety of socio-economic and other reasons.

But that’s an example. Let’s just set the non-participation issue

aside for just a minute. That’s an example of where the cost has

come down so low, that society can afford to fund a 100 percent

participation. And we’ve stamped out smallpox. We’ve stamped out

a lot of the things that were normal when I was a little kid growing up.

We’ve done it universally. It is a form of universal health care,

to pick a phrase.

Could the day come when stepping up from that level to screening tests and diagnostic examinations would be universal in the

same fashion, and be administered through the school system and

produce the kind of economic benefits that come from the fact that

we no longer have the epidemics of many of these diseases that

have been taken care of through vaccination?

In this case, there wouldn’t be a vaccine. There would be a treatment. There would be a tailored drug, the kind of thing that you’re

talking about.

Is that something that we can envision and maybe drive toward

as policymakers down the line? I understand that there are going

to have to be all kinds of cost studies and examination.

But is that an idea to which we should aspire or is that a stupid

idea that we should forget?

Dr. McClellan. I think it’s a great idea to aspire to. But I do

think that it’s a long way off. There is a tremendous amount of research going on now in terms of what kinds of impacts the latest

genomic sciences have for patient care.

But the problem is that we really don’t know a lot of the answers

yet. Virtually every pharmaceutical company and biotech company

is now doing extensive testing of all of their compounds in development on what are called micro-rays—chips that have literally hundreds, if not thousands, of genes on them, to see how the genes are

up-regulated or down-regulated.

And these are genes that might be involved in disease processes

like cancer, heart disease, or genes that might be involved in

toxicities from drugs, like liver enzymes or something like that.

So we’re getting a lot of information in now. The problem is we

don’t have much translational research yet to tie what happens

with these gene expressions to what it actually means for a patient’s outcomes, for impacting the course of the disease or determining whether or not a treatment would be harmful to an individual patient.

And that’s what I meant when I talked earlier about a lot of research going on more than ever before in biomedicine that is moving in this direction of a more individualized, highly effective

health care system.

But we don’t yet know, we’re not yet there and we’re still a ways

away.

22

One of the main things that we’re focusing on at FDA is to try

to make that, what could be a long process and a costly and uncertain process, more certain and less costly.

But even if we get those technologies developed, and that’s iffy

at this point, there needs to be financing mechanisms in place, incentives in place to encourage the adoption of these more individualized treatments rather than the one-size-fits-all policies.

Senator Bennett. Well, we’ve examined a whole series of whatifs here, and I appreciate your willingness to take this journey with

me.

Commissioner McClellan, I understand that you have to leave at

this point.

Dr. McClellan. Thank you.

Senator Bennett. We’ve probably reached the point of diminishing returns in our speculation as to what might happen.

Let me thank you both very much for being with us today. And

if you have any additional thoughts that this conversation may

have triggered, we’d appreciate hearing from you and we’d be

happy to make them part of the record.

Dr. Clancy. Thank you. We’d be delighted.

Dr. McClellan. We’re going to, obviously, keep working closely

together on many of these issues and would hope to be able to keep

in close touch with you as well.

I’ve learned a lot from this session and maybe the most important thing is your good cardiology report.

Glad to know that you’ll be up there for quite a while working

with us on this.

Senator Bennett. Mitch McConnell gave us all a scare when he

took his stress test and ended up having a triple bypass.

He’s 10 years younger than I am and said, ‘‘You’d better have

one.’’ I went to the same place where he had his and they said,

‘‘you don’t need to come back for another 10 years.’’

Dr. Clancy. Well, I was going to say, I would agree with Dr.

McClellan’s comments and also say that it’s really unusual to be

told that we don’t need to see you for 10 years. That’s about the

highest approval that you could get.

Senator Bennett. Yes. Thank you both very much.

Our second panel will provide further insights on health care innovation. We’re privileged to have Dr. Peter Neumann, who is the

Associate Professor of Policy and Decision Sciences at Harvard

School of Public Health, and Dr. Neil Powe, Director of the Welch

Center for Prevention, Epidemiology, and Clinical Research at

Johns Hopkins Medical Institution.

We have Harvard and Johns Hopkins. The only thing that’s

missing is the University of Utah.

[Laughter.]

But at least we have two of the three.

[Laughter.]

We very much appreciate your both being here. We welcome your

thoughts on the challenges. And we’d be happy now to hear from

you in your opening statement, and then continuation of the dialog

that we had with the first panel.

Professor Neumann, let’s start with you.

23

OPENING STATEMENT OF DR. PETER J. NEUMANN, DEPUTY

DIRECTOR, PROGRAM ON THE ECONOMIC EVALUATION

OF MEDICAL TECHNOLOGY, HARVARD SCHOOL

OF PUBLIC HEALTH

Dr. Neumann. Well, thank you very much, Mr. Chairman, for

your invitation to speak before this Committee on the topic of technology, innovation and their effects on cost growth in health care.

My name is Peter Neumann. I’m Associate Professor of Policy

and Decision Sciences at the Harvard School of Public Health.

I would like to speak today about how we can better understand

the value or cost-effectiveness of medical technology.

Broadly speaking, medical technology contributes to growth in

health care expenditures, as we’ve been hearing.

But as we’ve also heard, this research says nothing by itself

about the benefit side of the equation. As we consider medical technology, it is important to address not just how much medical technology contributes to health costs, but whether the investments in

medical technology are worth the health benefits produced.

We would all like to get good value for our money when we pay

for new drugs, devices and procedures. How do we get there? What

tools do we have to use and what policy options are available?

Formal economic evaluation can help us answer these questions.

The field of economic evaluation of health and medical interventions has been an active area of research in recent years. It includes cost-effectiveness analysis, which shows the relationship between the total societal resources used, the costs, and the health

benefits achieved, the effects for an intervention compared to an alternative strategy.

Often, a standard metric such as life-expectancy or quality-adjusted life expectancy, is used as the measure of health benefits.

In part, with funding from the Agency for Health Care Research

and Quality, my colleagues and I have compiled a list of over 1500

cost-effectiveness ratios covering a wide variety of medical technologies and public health strategies in many disease areas.

More information is available on our website.

These data underscore several important points about the costeffectiveness of medical technology.

First, a great deal of information on the topic has become available to policymakers in recent years. Unlike many unsupported assertions about the cost-effectiveness of drugs and other medical

technology, these studies quantify costs and health effects using

data and a standard, well-accepted methodological technique.

Second, according to peer-reviewed articles, many technologies

are indeed cost-effective. Examples include warfarin therapy to prevent stroke in those with atrial fibrillation, immuno-suppressive

drugs for those with kidney transplants, and treatment with moodaltering drugs for those suffering from depression.

These interventions provide good value in the sense that they

produce health benefits for relatively little cost, or may actually

save money for the health care system, despite their sometimes

high pricetag.

Third, cost-effectiveness does not mean cost savings. Over the

years, people have sometimes confused these terms. But restricting

the term cost-effective to cost-saving interventions would exclude

24

many widely accepted interventions which do not save money, but

are cost-effective in the sense that their additional benefits are

worth their additional costs.

A related point is that a critical aspect of any medical technology’s cost-effectiveness involves the manner in which the question is framed. A technology is not intrinsically cost-effective or

cost-ineffective.

It is only meaningful to say that a technology is cost-effective

compared to something else.

A drug prescribed to lower an individual’s blood pressure may in

fact be cost-effective compared to the option of no treatment, but

not necessarily when compared to an alternative intervention such

as an intensive program of diet and exercise or other medication.

Similarly, claims of cost-effectiveness often depend on the population under investigation.

For example, statin drugs used to lower an individual’s cholesterol have been found to be relatively cost-effective as secondary

prevention in persons with existing heart disease, but considerably

less cost-effective as primary prevention.

Well, does anyone actually use cost-effectiveness analysis?

Logically, cost-effectiveness analysis should be used by private

insurers and state and Federal policymakers. However, many payers, including Medicare, have shied away from using cost-effectiveness analysis in coverage and reimbursement decisions.

But why?

Cost-effectiveness analysis promises to inform decisions and enhance population health in an explicit, quantitative, and systematic

manner. Medical journals, including the most prestigious ones, routinely publish cost-effectiveness analyses.

Furthermore, many other countries have incorporated cost-effectiveness analysis into their policy decisions.

How do we explain this paradox?

Studies point to a couple of explanations. Some of them fault the

methodology itself. But, in fact, most experts agree on the basic

tenants. Instead, the opposition more likely relates to the hardened

American distaste for explicit rationing.

This is understandable, perhaps, but still, how do we get good

value in face of this opposition?

I would offer five observations as we look ahead.

First, cost-effectiveness analysis should not be used rigidly. Leaders in the field have always warned against using cost-effectiveness

analysis mechanically, but experiences teach us that rigid use of

cost-effectiveness analysis will be resisted.

Expectations for cost-effectiveness analysis should be more modest. Cost-effectiveness analysis should inform decisions, not dictate

them.

Second, cost-effectiveness analysis will probably not save money.

Cost-effectiveness analysis should not be conceptualized or promoted as a cost-containment tool, but rather, as a technique for obtaining better value.

Paradoxically, using cost-effectiveness analysis may actually increase health spending because it often reveals under- rather than

over-treatment.

Third, how you say it probably matters.

25

Research shows that physicians understand that resources are

limited, but they are not willing to admit to rationing.

Similarly, health plan managers deny that they ration care, but

admit that their budgets are constrained. These responses are instructive. It suggests that the term ‘‘cost-effectiveness,’’ may be

part of the problem. We might instead use terms such as ‘‘value

analysis’’ or ‘‘comparability,’’ rather than ‘‘cost-effectiveness analysis’’ and ‘‘rationing.’’

Context also matters.

Cost-effectiveness analysis may be acceptable to guide choices on

how frequently to screen for certain diseases. It may not be acceptable to guide choices for those in need of life-saving treatments.

Fourth, incentives matter.

Debates about the use of cost-effectiveness analysis cannot be

separated from debates about the underlying health system and

the incentives it embodies.

Cost-effectiveness analysis is sometimes opposed because it is is

used centrally by a single decisionmaker. How to reconfigure incentives in the system is a related but somewhat separate and still

critical challenge.

Fifth, the final message involves the importance of thinking expansively about applications of cost-effectiveness information.

Cost-effectiveness analysis should not simply focus on medical

interventions, but more broadly, on interventions to improve health

by reducing environmental exposures, injuries at home and in the

workplace, and motor vehicle accidents.

In closing, let me emphasize that whether medical technology offers good value is a question that can be best informed by careful

analysis.

I would encourage the judicious use of cost-effectiveness analysis

in the years ahead.

Thank you very much, Mr. Chairman, again for your invitation

and I’d be pleased to answer any questions you have.

[The prepared statement of Dr. Peter Neumann appears in the

Submissions for the Record on page 53.]

Senator Bennett. Thank you very much.

Now am I pronouncing your name correctly, sir?

Dr. Powe. ‘‘Po.’’

Senator Bennett. ‘‘Po.’’ Very good. Thank you for being with us

and we’d appreciate hearing your testimony.

OPENING STATEMENT OF DR. NEIL R. POWE, DIRECTOR,

THE WELCH CENTER FOR PREVENTION, EPIDEMIOLOGY,

AND CLINICAL RESEARCH, THE JOHNS HOPKINS

MEDICAL INSTITUTION

Dr. Powe. Good morning, Senator Bennett. I’m a general internist, a clinical epidemiologist, and a health services researcher. My

research has assessed the clinical and economic impacts of biomedical innovation in medicine.

It examines the impact of new and established technologies on

patients’ longevity, functioning, quality of life and, of course, cost.

I’ve conducted cost-effectiveness studies of technologies in several

areas of medicine and I’ve attempted to do so with equipoise.

26

I’ve also studied physician decisionmaking and other determinants of the use of medical technology, including payers’ decisions about insurance coverage for new medical technologies and

the impact of financial incentives on the use of technology.

New medical technologies include drugs, devices, procedures and

the systems in which we, as medical professionals, deliver them.

They include so-called ‘‘little-ticket’’ technologies which cost relatively little individually, but when used at high frequency, can become expensive. One such emerging ‘‘little-ticket’’ technology is the

C-reactive protein laboratory test for detecting inflammation now

being debated as a useful technology for detection of heart attack

risks. ‘‘Big-ticket’’ technologies such as body scans and organ transplantation have high individual price tags and can generate high

costs, even when used relatively infrequently. In theory, a new

medical technology can increase costs, have similar costs or decrease costs relative to an existing standard technology. Evidence

to date suggests that much of new biomedical innovation increases

cost to the health care system, especially in the short-term. ‘‘Littleticket’’ or ‘‘big-ticket’’ technology should not be judged based simply

on costs. The more important question that I’d like to address is

what is the technology’s value?

Value is commonly seen as the benefit that’s derived relative to

the cost. In theory, a technology can produce benefit relative to the

existing standard if patient outcomes are better. On the other

hand, it can produce no benefit if outcomes are similar or even

produce harm if patient outcomes are worse. High value occurs

when substantial improvement in patient outcomes occurs at a reasonable cost.

Americans believe in the concept of value and understand it. For

example, they’re willing to pay more for many things—a particular

type of clothing, food, service, house, automobile—because they believe that the utility that’s derived from the purchase is worth the

higher price. Cost is a relevant factor, but value is paramount, so

much so that medical technology needs to be judged in the same

way.

Twenty-five years ago, the science of assessing value in medicine

was rudimentary and underdeveloped. Many of the tools that Dr.

Neumann talked about for assessing value were first applied to

health care in the late 1970s and early 1980s. These include patient outcomes research comprising clinical trials, evidence synthesis and cost-effectiveness.

These have undergone refinement by researchers at universities

around the country. Much of the work has been catalyzed and

funded by the Agency for Healthcare Research and Quality. These

researchers have sought to create rigorous standards of high quality research for value science.

Despite the maturation of and demand for the science of values,

its impact has been limited for three reasons.

First, there is an unprecedented number of new technologies now

entering the healthcare marketplace. These include minimally

invasive surgery, as you mentioned, the transplantation of hearts,

lungs, livers, kidneys, biotechnology drugs, indistinguishable from

natural hormones for patients with congenital or acquired deficiencies, dialysis therapy for end-stage kidney disease, automatic

27

implantable defibrillators and cardiac resynchronization devices to

bring life to those with life-threatening arrhythmias and heart failure.

Knowledge of the structure and function of the genes and proteins is advancing rapidly and the future will yield even more

promising technologies we never imagined for identifying, preventing, and treating acute and chronic illnesses.

However, the level of funding for high-quality and unbiased

value assessment pales in comparison to the explosion of new biomedical innovations.

To the public, payers, and providers, the entry of new medical

technologies into the practice of medicine now seems like a series

of intermittent ‘‘surprise attacks’’ on the pursestrings of American

health care. It has been suggested that less than a fifth of all practices in medicine are subjected to rigorous evaluation and still less

receive an adequate assessment of the cost consequences in addition to the clinical consequences.

We are likely to witness a continuing salvo of surprise attacks

in the coming years without adequate funding to do early, comprehensive, balanced and rapid assessments.

In a study with researchers at AHRQ, I found that medical directors making coverage decisions for new medical technologies at private health care plans across our country are impeded in their decisions because of the lack of timely effectiveness and cost-effectiveness information. There is considerable trepidation to decide

against covering potentially useful technology without adequate

evidence.

Likewise, there is a concern about making a coverage decision in

favor of a technology that might later be shown to have minimal

benefits at a large cost to society. The preference of those making

decisions about coverage and payment for technology was for highquality outcomes research funded by authoritative government entities.

Early assessments of clinical and economic outcomes could be accomplished with investment of a small fraction of annual health

care expenditures on value assessments. The payoff would be substantial.

For example, contrary to relentless, direct-to-consumer advertising for body CT scans to detect occult disease, my colleagues and

I recently found that screening smokers for lung cancer with helical

CT scans is unlikely to be cost-effective unless certain conditions

are met.

The high number of false positive lung nodules detected by the

scans can potentially lead to more harm from invasive and costly

surgical procedures.

Early assessments such as this, which include primary data collection, secondary data collection, data synthesis, and sometimes

modeling and forecasting will secure information for the American

public and its policymakers in a timely fashion needed to prevent

premature dissemination of costly technology with little or no

value.

The Agency for Healthcare Research and Quality, as well as the

National Institutes of Health, could act as a focal point to bring the

best team of value researchers in the country to attack these issues

28

by performing clinical effectiveness trials, observational studies,

cost-effectiveness analyses, and meta-analyses.

If introduction of some new technologies does not decrease cost,

at least through generation of better and more timely information,

Americans can make sure that what they are purchasing provides

good value for the dollars they spend.

Early assessments are particularly important given rising numbers and costs of pharmaceuticals, current consideration of a Medicare prescription drug benefit and use of tiered pricing arrangements in the private sector to control drug spending.

Tiered pricing is a mechanism to allow consumers choice in particular drug treatments when they believe one drug has value over

another. However, they must pay more when choosing to use a

more expensive medication.

Placement of a pharmaceutical into a particular tier and patient

decisions to buy and use it are dependent on unbiased information

about the benefits and the costs of the pharmaceutical relative to

the benefits and costs of competing medications. That is, relative

value.

Second, as a corollary, funding for career development of value

scientists needs substantial bolstering to expand the cadre of people with the capability to perform such research.

Far too few physicians and other health care professionals and

scientists have the necessary training to understand and produce

value science that integrates clinical and economic issues.

Third, understanding how technologies affect cost and value involves an understanding of the barriers to decisionmaking for

health care providers. Barriers to optimal decisionmaking can lead

to technologies being overused, underused, or misused.

My colleagues and I performed a study of the factors affecting

physician decisionmaking with regard to adherence to clinical practice guidelines. We found that there is a process that must take

place for a new technology to become routine standard practice.

Physicians must be aware that a new technology exists, agree

that it has value, be willing to try it—that is, adopt it—and then

they must adhere to its use.

Lack of awareness leads to underuse. Underuse of an effective

technology can lead to higher expenditures in the future.

For example, if physicians were not aware that in patients with

diabetes, urine protein screening for detection of occult kidney disease and application of ACE inhibitors can delay or prevent expensive dialysis treatment at greater than $50,000 per patient per

year for end-stage kidney failure, they might never employ the

strategy in their practice.

Fortunately, methods of communicating new information to clinicians are improving through rapid summary publications, clinical

practice guidelines by professional societies, and dissemination

through electronic means. Ways for helping them acquire and assimilate new information are needed.

If aware of a technology, physicians must agree with the evidence that a technology is effective or safe. If high-quality evidence

on representative patient populations is not available, physicians

may disagree on whether the technology provides benefit.

29

We studied how early assessments, released through brief clinical alerts that were not comprehensive, influenced the use of carotid endarterectomy. We found that clinicians may extrapolate research findings to populations without clear evidence and indications. Value science can provide clear evidence.

Awareness and agreement are necessary for appropriate use of

technology, but insufficient. Even being aware and with strong evidence of effectiveness, physicians may not adopt innovations if

there are administrative barriers to its use or the lack of self-efficacy.

They may also adopt technologies with little benefit if payment

policies that we talked about and heard before prematurely promote a technology’s use.

Financial incentives in payment policy influence both adoption of

and adherence to use of technologies.

Thus, proper use of new technologies means that the physicians

who apply them and the systems into which they are placed are

adequately configured and incentivized to make optimal use of the

technology.

To this end, there’s a need for more behavioral and systems research that studies how biomedical innovation from laboratories is

optimally and rapidly translated into interventions to improve the

health of patients treated at hospitals and physicians’ offices.

In conclusion, biomedical innovation has brought the United

States new, unprecedented medical advances that save and improve the quality of patients’ lives. We need to continue to encourage biomedical innovation. But we must recognize that for many

health conditions, technologies will bring higher rather than lower

absolute cost.

Cost is relevant, but value is far more important.

We need to protect biomedical innovation and America’s purse by

furthering the science of assessing value in medicine.

Strengthening our nation’s capacity to perform value science will

help private and public payers in this regard and provide information that physicians and consumers of medical technologies need to

make decisions about their care.

The American people cannot afford to have technology used unwisely. A fraction of health care expenditures in the U.S. should be

targeted to the value science of medical care.

Thank you for the opportunity to address you today and I would

be happy to entertain any questions you have.

[The prepared statement of Dr. Powe appears in the Submissions

for the Record on page 56.]

Senator Bennett. Thank you very much, both of you, for your

thoughtful presentations.

You listened to the first panel. Were either of you anxious to

break in with something that you really wanted to say and

straighten out any of the conversation that we had in the first

panel?

Dr. Powe. Well, I’d like to comment on your experience with the

esophageal spasm, which I thought was interesting. Your question

about whether there might be some innovation in the future, a test

in the future that might have prevented the sequence of events

30

that you went through. And in fact, I think that there are likely

to be technologies that do that.

One of the problems is that there may be 50 technologies that

are tried out before we get it right. And what that means is that

as we experiment and use those technologies, we don’t know what

effect each one of them is going to have on the system.

Senator Bennett. That means high cost at the front end, but,

presumably, you end up with one that means low cost at the back

end.

Dr. Powe. Right.

Senator Bennett. And we’re not seeing the low cost yet. We’re

still getting all of the high-cost front-end stuff.

Dr. Powe. Right. And while we’re trying them out, the typical

situation is not that one technology will supplant another technology, but that it will add on in the process as we learn how to

use it. Then maybe, in fact, later on, it may supplant another, our

existing technologies.

Senator Bennett. Yes. Did you have anything?

Dr. Neumann. I just wanted to add one——

Senator Bennett. Don’t worry about my spasm because it’s fine.

[Laughter.]

Dr. Neumann. OK.

Senator Bennett. But the conversation, generally.

Dr. Neumann. Yes, and I’m very glad to hear that.

Senator Bennett. Yes.

[Laughter.]

Dr. Neumann. I agree with much of what was said earlier

today.

One issue that perhaps was alluded to, but I would just amplify

on, and I think it’s an important policy lever, is funding for value

research, cost-effectiveness research.

We spend a lot of money, and a lot of it is well spent, on biomedical research. We spend really, as Dr. Powe said, very little on

health services research and value research.

Senator Bennett. Maybe part of our problem as we address this

as policymakers, coming through in your testimony and in the first

panel, is that we’re looking down a stovepipe.

Let me give you another example out of real life.

Merrill-Lynch hired a doctor to come lecture to all of their brokers. That’s a pretty good contract to have if you’re the doctor. You

get to train every Merrill-Lynch broker.

They did that. Every new broker hired at Merrill-Lynch had a

session with this doctor. They said, ‘‘We decided to pay that cost,

an increased training cost, because we suddenly realized how many

of our brokers were dropping dead from stress, having heart attacks and literally dropping dead. We figured out how much it cost

us to replace them in terms of training, experience, et cetera.’’

A manager of a large Merrill-Lynch office told me—now this was

before the days of online trading and all the rest of this, this was

at a time when everything was done in a particular office—‘‘If we

have a branch manager drop dead from a heart attack, that’s hundreds of thousands of dollars that we have invested in him’’—and

it’s usually a him. ‘‘And if, with tens of thousands——

31

[Pause.]

Senator Bennett. [Continuing.] Excuse me. The spasm may be

fine, but my cold is still here.

‘‘If with tens of thousands of dollars training people on diet,

stress management, et cetera, up front, we can save the hundreds

of thousands that would come from having these people die, it’s

worth it.’’

Now, we are focusing entirely in public policy discussions on the

cost of health care premiums, the cost of Medicare. And I think the

government is dealing with the cost of Medicare in exactly the

wrong way by simply saying that we will arbitrarily pay only Xpercentage of this.

But that’s another debate and I said at the outset, we’re not

going to get into that debate here.

But I think when we’re talking about value and costs, we’re saying the country as a whole and the economy as a whole is better

off, even if we’re seeing an increase of 15 percent per year in cost,

because of the increase in productivity, the increase in contribution, et cetera, of the lives that are saved. And we don’t figure that

into the conversation.

Now it does get figured in, wearing your economist’s hat for just

a minute—you both say you’re not economists, but the Commissioner was.

Let’s look at health care cost as a percentage of GDP, and say

if the health care cost does not grow more rapidly than the GDP

grows, we’re fine, because we’re getting the benefit of increased

GDP.

Now, as soon as you do that, you’re at 3 percent. And nobody’s

going to bring health care costs down to 3 percent. But if we could

find some calculation that says the contribution to GDP is 12 percent per year by virtue of what we get, then we could say, society

as a whole can justify this kind of an increase every year.

The problem for the employer is, the individual employer, he’s

getting hit with that 15 percent compound every year and he does

not see the benefit in his employee pool because most of the benefit

is coming for the retired. And he says, I can’t sustain this any

longer.

Just react to that and give me what you think the real value to

society is from—to pick a number for sake of conversation, a 15-

percent per year compounded increase in health care costs, which

is enormous in terms of the burden that it puts on employers—and

taxpayers.

Dr. Neumann. Right. Well, you raise many very good points.

I guess I would say a few things.

One, I think we in the academic community, maybe society at

large, feel frustrated because we see increases in health care

spending. We see the 15 percent. We see the 14 percent of GDP.

And there’s a feeling that perhaps we’re not getting the benefits,

the health gains we should be getting, or perhaps we don’t have

the tools to measure it very well.

I think some research that Dr. McClellan referred to by economists in recent years have begun to document better, that in fact,

the additional spending on health is resulting in measurable gains

32

that are worth paying for, gains in terms of increased life expectancy, gains in terms of decreased disability rates, and so forth.

Now, even if we can get ourselves there, there’s still the other

problem you referred to, which is employers now feeling that they

are getting those gains, that the gains are coming to retirees later

in life and so forth.

I think that’s a real problem and challenge.

Part of it may be a measurement issue, that in fact, productivity

is growing and the employers genuinely are getting returns and we

just haven’t been able to measure them very well.

But part of it may be kind of a structural issue, that they are

being asked to pay for health gains that occur later in life.

And that’s a challenge.

Dr. Powe. I would agree that some of the benefits or value is

coming in terms of longevity and improved quality of life. And at

least for the working population in terms of increased productivity—and they’ve been measured in many types of the studies

that we’ve talked about.

The issue of the pressure from retiree health expenditures, I

think, is a vivid illustration of what Dr. McClellan was talking

about, about incentives not being aligned correctly within our society with regards to health care.

So I think that’s going to take an alignment of incentives in

order to have everything work in concert to address that issue.

Senator Bennett. Do either of you have an opinion as to whether or not Federal laws and regulations distort the creation or the

use of new technologies and innovations in health care? Or do they

encourage?

Dr. Neumann. I guess I would say two things.

One, they probably do both and there are probably certain incentives in the system that encourage and some that discourage.

One issue that I’ve been doing some thinking and writing about

is Medicare and cost-effectiveness. Medicare hasn’t formally incorporated cost-effectiveness analysis into its decisionmaking process,

despite attempts to do so, and even attempts to offer proposed regulations that would allow it to do so.

It doesn’t seem to be a statutory issue. That is to say, Medicare’s

statute says that it will pay for reasonable and necessary services

in some categories.

That seems to allow it to use cost-effectiveness analysis. It has

never been able to get there because of larger issues, fear of rationing and so forth.

That may have to change with legislation eventually.

Dr. Powe. I think that our regulations and laws actually strike

an appropriate balance, checks and balances within the system.

In some sense, we have patent regulation that promotes biomedical innovation because it provides a period of time where competitors cannot come in and sell particular products.

So I think that that promotes biomedical innovation and it’s

probably a necessary thing that we have.

But, on the other hand, then we have an approval process for

drugs that the Food and Drug Administration on the back end says

that you have to show efficacy and safety.

So that there’s checks and balances there.

33

On the coverage side, whether things are paid for, I think that

things are a little bit more helter skelter, both in regards to public

and private coverage of new medical technologies.

And we don’t really have a uniform system of criteria for doing

that. I think that some of the points that we’re trying to make is

the use of value science to actually help in that process to develop

the kinds of criteria that should be used to cover technologies.

Senator Bennett. Getting back to one of the questions that

probably I should have asked the first panel, but you have just as

much expertise in here.

One of the statements that is made is that once a provider invests in new equipment—say he buys an MRI machine—he then

feels he has to use it, even if, medically and diagnostically, it isn’t

necessary because he has to get his money back by running as

many tests as possible through it and charging.

Then another provider decides he has to buy an MRI machine if

he’s going to compete and you have overcapacity and then, ultimately, overuse.

Again, let me describe a brief experience that I had when I was

on the campaign trail the first time and visiting a hospital. I’m a

businessman by background. I innocently asked these people if

they had an MRI machine. This is when MRIs were relatively new.

And they looked at me like I was an idiot—which I was—and

they said, ‘‘Well, of course. We have to have an MRI machine.’’ And

I said, ‘‘What’s your usage?’’ And they said, ‘‘30 percent of its capacity.’’

And, being a businessman, I said to them, ‘‘Well, the marketplace

is trying to tell you something. It’s trying to tell you that you don’t

need an MRI machine. Maybe we ought to do something at the

Federal level to change the anti-trust laws in such a way that you

could make a deal with the hospital down the street. If you’re only

using their MRI machine at 30 percent, then you could contract

that you’d send your stuff there.’’

Again, they looked at me like I was a bigger idiot and said, ‘‘The

marketplace demands that we have an MRI machine.’’ And I said,

‘‘No. If the marketplace was demanding that you have an MRI machine, you’d be getting 100-percent utilization.’’

We talked past each other on this issue until the light suddenly

went on in my mind, that when they were talking about the marketplace and their customers, they were talking about insurance

companies. When I was talking about the marketplace, I was talking about customers—that is, patients.

Insurance companies told them, ‘‘We will not approve patients

being sent to your hospital if you don’t have an MRI machine.’’ So

they really didn’t care whether it was utilized ever, as long as it

was on the premises so they could certify, we have an MRI machine.

When I was talking about the marketplace, selling things to customers, I was talking about the number of customers walking

through the door. The patients walking through the door weren’t

their customers. The insurance company paying the bills was their

customer.

Now, do we have, in fact, an overcapacity built in by virtue of

the third-party payer system and then a sense of we have to get

34

our money back by running tests through this machine that is part

of the escalating health care situation created by technology?

Dr. Powe. Well, that’s a tough question to debate.

Senator Bennett. That’s why the staff came up with it.

[Laughter.]

Dr. Powe. I guess one solution would be to do away with insurance companies and have patients pay. But I think that that would

cause even greater problems by having many people pay out of

pocket.

There are safeguards that insurance companies do on the other

hand in terms of making sure that the populations they serve receive the very best care and can do that because they have large

purchasing power and can actually influence the quality of care

that providers provide.

So I’m not sure that we ought to go to a system in which patients

would pay directly out of pocket like we do in other areas, other

sectors of the economy.

Dr. Neumann. I would agree with Dr. Powe, especially with the

notion that that’s a very tough question.

But I guess I would say two things.

One, in some sense it’s an evidence question, it seems to me, and

Dr. Clancy talked about this. As we move as a culture, as medical

establishment toward evidence-based medicine, one hopes that

tests that are ordered will be tied to studies that shows that they’re

appropriate, that they work for the patients they’re being given to.

And part of the problem that you identified might be addressed

with better evidence.

But another issue, and perhaps more important issue, is the

structure of the marketplace and the incentives that it embodies.

Why the situation exists in the first place, that the hospital felt

the need to buy the MRI in this case. And that’s a very complicated

question.

We create insurance because it solves a problem. But it also creates some other problems.

We can talk about establishing the structure of the marketplace

and the incentives, changing incentives, but that’s a very large debate.

Senator Bennett. Yes, and it’s a debate I’ll have in another

forum at another time.

But, Dr. Powe, I’d be happy to talk to you about this. I think getting rid of the third-party payer for routine activity would actually

be beneficial.

I think insurance ought to be for catastrophic events. Health is

the only place where insurance pays for routine activities. If I have

car insurance, it doesn’t pay me for changing the oil. It only pays

me when I’m in a wreck.

And I think health insurance should only pay me when I have

a serious health problem. I should not necessarily have to file an

insurance claim for a routine kind of test. But that’s another debate for another day.

Dr. Powe. In fact, I think we’re evolving to a system in that

way. I think most people when they see a physician have to pay

something out of pocket today in terms of coinsurance and

deductibles.

35

Senator Bennett. Yes.

Dr. Powe. So the cost is not entirely free for non-catastrophic

services today.

Senator Bennett. Do either of you know the extent to which

Medicare or the veterans health program, as well as private insurers, are already using some kind of cost-benefit analyses to make

judgment calls?

And if so, how do they do it? Or is this a brand new idea that

still hasn’t caught on?

Dr. Neumann. Well, for the most part, Medicare has not. There

are a couple of exceptions over the years. They’ve added some preventive services that were informed by cost-effectiveness analysis.

But they haven’t formally incorporated into their coverage process.

Despite some attempts to do so, they haven’t been able to for various reasons that probably have more to do with politics and fears

of rationing than they do with statutory limitations.

My sense is that the VA does use it on occasion to inform decisions about which drugs go on formulary, which drugs go on firstline treatment, second-line treatment, and so forth.

But, again, my sense is it’s limited there as well.

Senator Bennett. What about private insurers?

Dr. Neumann. Well, that’s I think a difficult question to answer

in the sense that surveys—and Dr. Powe has done some of these—

surveys of health plan managers, medical directors, that ask them,

‘‘Do you use cost-effectiveness analysis?’’, often yield a response,

‘‘No, we don’t use it.’’

We look up clinical evidence and base our decisions on clinical

evidence.

I think if you drill down a bit, though, it becomes clearer that

cost-effectiveness evidence and other economic information does inform decision.

And in some sense, perhaps they’re not willing to admit it because they’re afraid of admitting to the rationing. And in some

sense, I think it’s almost an indirect piece of evidence that they use

because they’ve read a journal article or they adhere to a clinical

guideline that has, in fact, used cost-effectiveness evidence.

Senator Bennett. Dr. Powe.

Dr. Powe. I would concur with Dr. Neumann. The entities that

you mentioned are making value judgments. They may not formally be using cost-effectiveness analysis in the formal sense that

researchers might, but they are making value judgments and using

the components and the logic of the science of value in making

those judgments.

They may not call it cost-effectiveness analysis as such.

Senator Bennett. Well, ultimately, who should decide whether

the additional cost of a new drug or a new medical device is worth

it? The provider? The drug company? The government? NIH?

Dr. Powe. I think we all should.

Senator Bennett. When everybody decides, then nobody decides.

Dr. Powe. Right. But I think individuals have to decide when

they cost-share in medical care, so they have to know the value of

the treatments that they might pay for.

36

I think that the Medicare program needs to know the value of

the treatments that they’re paying for. I think private insurers

need to know the value.

So I think we all are in this together. We do it for different

things. But what will help us all is better information on what

value technology has.

Senator Bennett. A vote has just started, and we’ve been going

for 2 hours. I would love to continue this dialog, but I think we

probably will close.

Let me thank you both again for your being here and your willingness to share your expertise, and invite you, if either of you

come across anything that you think would help inform the issue

that we’re addressing here, to send it on in to the Committee.

Again, thank you all.

Dr. Neumann. Thank you.

Dr. Powe. Thank you.

Senator Bennett. The hearing is adjourned.

[Whereupon, at 11:30 a.m., the hearing was adjourned.]

(37)

Submissions for the Record

PREPARED STATEMENT OF SENATOR ROBERT F. BENNETT, CHAIRMAN

Good morning and welcome to today’s hearing on how technology and innovation

affect health care costs.

The United States has a health care financing problem that goes well beyond the

budget challenges posed by Medicare. For many years, our health care spending has

grown at a significantly faster rate than the economy, and projections indicate that

this will continue. Any financial arrangement where expenses grow significantly

faster than income is truly on very shaky ground.

In other sectors, new technologies usually lead to greater efficiencies and lower

costs, yet it is unclear whether the same is true for health care. What’s different

about health care? Is it the technology or the way we pay for it?

How can we strike the right balance—providing access to the latest breakthrough

technologies, while limiting an open-ended raid on the public and private treasuries

that fund our health care?

During this hearing, we will explore these issues, bringing together some of the

best minds from the public and private sectors to help shed some light on this situation.

We should first question whether technology and innovation have truly added to

health care costs, as some claim, or have reduced health care costs through enhanced efficiency.

Secondly, we should examine whether new technologies are disseminated in an efficient and effective manner, and if there are areas where they are being overused

or underused. For example, some have expressed concern that advanced imaging

technologies may be overused, in part because of poor incentives in the payment formulas used by Medicare and other insurers. At the same time, an article in this

week’s Health Affairs highlights how new technologies may be underused in treating

people who lack health insurance.

We need to find the right balance. We need to judge the cost-effectiveness of new

technologies, so that we properly fund this critical work, without overpaying and

adding additional upward pressure on health care spending.

Unlike most of the recent congressional debate on health care, this hearing is not

about Medicare or its coverage of prescription drugs. However, this issue is crucial

to Medicare and every other health care purchaser that faces the dilemma of how

to add innovative new benefits without setting off an explosion of health care costs.

On our first panel, we are privileged to welcome Dr. Mark McClellan, the Commissioner of the Food and Drug Administration, and Dr. Carolyn M. Clancy, the Director of the Agency for Healthcare Research and Quality (AHRQ).

Our second panel will provide further insights on health care innovation. We are

privileged to have Dr. Peter Neumann, Associate Professor of Policy and Decision

Sciences atHarvard School of Public Health, and Dr. Neil Powe, Director of the

Welch Center for Prevention, Epidemiology, and Clinical Research at Johns Hopkins

Medical Institution.

We welcome each witness’s thoughts on the challenges facing health care today.

I want to thank Ranking Member Stark for his interest and help in organizing this

hearing and in bringing these distinguished experts before the Committee. I ask all

of you to join me in a bipartisan spirit as we engage in this important task.

PREPARED STATEMENT OF REPRESENTATIVE PETE STARK,

RANKING MINORITY MEMBER

Thank you, Chairman Bennett. I would like to commend you for holding this

hearing on ‘‘Technology, Innovation, and Health Care Costs.’’ It’s an important topic

that requires serious inquiry.

38

1 ‘‘Measuring the Health of the United States Population’’, Brookings Papers on Economic Activity, Microeconomics, 1997, 217-272 (with Elizabeth Richardson).

Finding the right balance between cost consciousness and allowing access to new,

potentially life-saving, innovations is crucial. Progress and technology often extend

and improve lives, such as an MRI that provides early detection of a tumor or new

surgical techniques for cataract treatment. Yet in too many cases, the latest technology simply becomes a profit center for hospitals when other, less costly, treatments would serve patients equally as well.

Smart utilization can spread the benefits of new technology without substantially

increasing health care costs. I believe that providing the highest quality health services should be our goal—a goal that cannot be compromised. As we’ve seen with

HMOs, it is too easy to deny patients access to appropriate care in the name of cost

cutting. Analysis of cost-effectiveness must be mindful of the needs and interests of

the patient.

New drugs and medical devices are not the only advances we need. Better use

of information technology would not only improve care, it could save lives. An estimated 44,000 to 98,000 Americans die each year because of medical errors, according to an institute of Medicine study. This is unacceptable and unconscionable.

Many medical errors are attributed to poor handwriting and other sloppy mistakes.

Storing medical records on IT systems would prevent many of these mistakes—and

deaths—as well as allow for the easy transfer of records when a patient switches

doctors or visits a specialist. The technology is available, but it is not being fully

used.

Cutting-edge medical technology may as well be science fiction for the 41 million

Americans without health care—people without the means to utilize innovative, and

often, preventative treatments available to those with insurance. Among the uninsured, illnesses and deaths that may have been avoided if they had access to new

technologies for the treatment of just three conditions—heart attacks, cataracts, and

depression—cost our society more than $1 billion a year. The inequity in access to

health care prevents health outcomes from being as universally successful as they

could be.

Thank you Mr. Chairman and I look forward to the testimony of our witnesses.

PREPARED STATEMENT OF MARK B. MCCLELLAN, M.D., COMMISSIONER OF FOOD AND

DRUGS, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Good morning Mr. Chairman and Members of the Committee. I am Dr. Mark B.

McClellan, Commissioner of Food and Drugs, and I welcome this opportunity to testify before the Committee today. As we enter the 21st century, America leads the

world in developing and commercializing new medical innovations and technologies.

From information technology to biotechnology to materials science, United States

(U.S.) scientists and high technology workers are making new discoveries and developing new products every day that are steadily improving the quality of our lives.

This progress is critical to our health and our economic prosperity.

Innovations resulting from breakthroughs in science and technology fuel economic

growth. According to the Department of Commerce, the information technology sector accounts for just seven percent of all businesses in the U.S. economy, yet between 1996 and 2000, it drove 28 percent of the overall U.S. real economic growth

and created jobs at twice the pace of other sectors. These jobs paid twice as much

on average as well. Many leading economists now believe that new discoveries in

information technology led to investments over the last couple of decades that

helped account for the historic surge in economy-wide productivity growth in the

1990s.

BACKGROUND

While all economists appreciate the contribution of such economic growth to the

well-being of the U.S., there is often less appreciation of the contribution of innovations in biomedical technology. A primary reason is that technological change in

medicine brings benefits in addition to direct economic gains, including increased

longevity, improved quality of life, and less time absent from work. These benefits

are not taken into account in standard measures of aggregate economic output. If

a country had real gains in its overall health, but not in its material well being

(most often measured by per-capita income) the national income accounts would not

change, even though those accounts are often thought to measure the well being of

a population.1 In addition, the direct economic and public health benefits of developing important new medicines often takes considerable time to be realized. If a

39

2 Cutler, David M. and Mark McClellan. ‘‘Is technological change in medicine worth it?’’

Health Affairs; September/October 2001: 11-29. Grabowski, H., J. Vernon, J.A. DiMasi. ‘‘Returns

on research and development for 1990s new drug introductions.’’ In ‘‘The Cost and Value of New

Medicines in An Era of Change.’’ PharmacoEconomics 2002; 20 (Suppl. 3):11-29. 3Lichtenberg, Frank R. ‘‘Are the Benefits of Newer Drugs Worth Their Cost? Evidence From

the 1996 MEPS,’’ reprinted from Health Affairs, Vol. 20, No. 5, September/October 2001.

Kleinke, J.D. ‘‘The Price of Progress: Prescription Drugs in the Health Care Market,’’ reprinted

from Health Affairs, Vol. 20, No. 5, September/October 2001. Lichtenberg, Frank R. ‘‘The Effect

of New Drugs on Mortality from Rare Diseases and HIV.’’ NBER Working Paper W8677, December 2001.

high-technology firm invents a better memory chip, the time to get that innovation

into products sold in the U.S. could potentially be as short as a matter of weeks

or months. Regardless of how promising a drug or other new treatment appears in

the laboratory or even in animals, it must undergo extensive clinical trials before

it can be approved as safe and effective for market introduction.

In recent years, economists have tried to quantify the value of biomedical innovation to society. Some economists actually estimate that the value of the longer and

better lives that have resulted from translating new biomedical knowledge into

steps to prevent and slow diseases is worth literally many trillions of dollars in better health. In particular, the value of biomedical innovation to the U.S. equals the

value of innovation in all other sectors of the American economy combined.2 Even

with the benefits of new medical technology, the fact remains that technological innovation is a major source of increase in real per-capita medical spending in the

U.S. Innovations in medicine can reduce spending on medical care. For example,

treatments ranging from effective care for depression to laser eye surgery are much

less expensive than in years past. But many new technologies result in increased

costs, and in some instances the net effect of overall technological change has been

to raise health care expenditures. First, when a treatment becomes less expensive

and safer (fewer complications), more patients may decide that a treatment is worth

the risks and unpleasantness. In the early 1980s, relatively few seniors had cataracts removed because the procedure required an unpleasant hospital stay, often

had complications, and yielded imperfect results. Today, thanks to improvements in

technology, millions more seniors with more modest visual impairment find that

modern cataract surgery improves their lives. Second, many treatments exist that

do things that simply were not possible before, such as allowing many patients to

survive previously fatal or impairing diseases. Americans spend much more on

transportation today than they did a century ago because of innovations in transportation ranging from automobiles to airplanes, allow people to go places they simply

could not before. Similarly, patients with heart disease, cerebrovascular disease,

cancer, arthritis, AIDS, and countless other conditions are living longer and better

lives because of medical innovations that transformed fatal illnesses or illnesses

that could only be treated with comfort measures into manageable conditions.

The increased spending on health care does not necessarily reflect negatively on

technological change. While many studies attribute a large share of the age- and

price-adjusted growth in per capita medical spending in recent decades to technological innovation, a key issue is whether the benefits of innovation are rising faster

or slower than the costs.

This important question is difficult to answer. It depends on our ability to determine the value of output from the health services sector, and putting a value on

a longer life or a higher quality of life is hard to appraise. Nonetheless, a limited

number of studies have attempted to aggregate the medical value of new innovations across the whole health care economy in general and the drug industry in particular. Even with these studies, it can be difficult to sort out whether the observed

improvements in health are from medical technology, or from other factors that may

influence health outcomes, such as higher incomes, improved public health measures, or changes in behavior as a result of greater biomedical knowledge. To try to

identify the net value of medical technology itself, several studies have attempted

to measure the value of specific kinds of innovations. A number of studies have examined outcomes for specific illnesses, such as heart attacks and depression, where

the impact of specific changes in technology can be examined more closely. While

none of these studies are completely convincing in themselves, they generally show

that medical innovation has greatly increased value, that is, the value of the improved health is far larger than the increase in spending.3

The reasons are quite intuitive. Individuals are living longer and better lives, because our nation is making real progress in the quality of medical care for many

conditions. While the achievements of health improvements in past decades have

been impressive, recent progress in genomics, proteomics, nanotechnology, informaVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00043 Fmt 6601 Sfmt 6621 90494.TXT SSC3 PsN: SSC3
40

4DiMasi, J.A. ‘‘Uncertainty in drug development: approval success rates for new drugs’’ Chapter 20 in Clinical Trials and Tribulations, 2d Edition, revised and expanded. Cato AE Sutton

L Cato A III, editors. New York: Marcel Dekker, 2002:361-77. 5DiMasi, J.A., Hansen, R.W., Grabowski, H.G. ‘‘The Price of Innovation: New Estimates of

Drug Development Costs.’’ Journal of Health Economics, 2003 Mar; 22(2):151-85. Kaitin KI, Ed.

‘‘Post-approval R&D raises total drug development costs to $897 million.’’ Tufts Center for the

Study of Drug Development Impact Report 2003 May/Jun;5(3). 6 Horrobin, David F. ‘‘Modern Biomedical Research: An Internally Self-Consistent Universe

with Little Contact with Medical Reality?’’ Nature Drug Discovery; February 2003:151-154.

tion technology, and many other fields promise even greater improvements in our

lives in the years ahead.

We achieved the improvements of the last few decades without a sophisticated

science of genomics—the human genome was sequenced in just the last few years.

Genomically-based drugs, and gene and tissue therapies based on genomic sciences,

are making up a growing number of the new drugs entering clinical trials. We also

achieved our recent progress without the new science of proteomics, and an increasingly sophisticated understanding of how gene and protein expression interact to

cause disease in individual patients. We also did it without a new generation of increasingly powerful biomedical tools based on the latest information technology that

can enable sophisticated systems for supporting effective medical decision-making.

These additional tools increase the future potential for more effective, more targeted, even individualized medical treatments that can cure or at least slow or halt

disease progression.

IMPACT ON HEALTH CARE COSTS

As health care costs have gone up, it is increasingly important to make sure we

are realizing the full value of the new medical technologies that we create. Maximizing our public health gains and our economic gains from new medical technology

also requires that we encourage high value innovations and also realize more value

from the products that we use. This is important for the future, because while the

cost of new medical technologies may continue to rise, the potential benefits of new

treatments could grow even more dramatically.

We must find better ways to increase value, to keep modern care affordable, while

still encouraging medical innovation. With these unprecedented technological

achievements have also come unprecedented concerns about the total spending on

healthcare and, in particular, about the rising spending on these new medical technologies. Many worry that, even if these new technologies come along, they will not

benefit because they will not be able to afford the high cost. While we need to take

new steps to address the problem of health care affordability, we need to do it carefully. We must address this issue in a way that will not risk the tremendous potential for public health and economic benefits from continuing medical innovation by

putting significant new limits on the payments or the intellectual property protections of innovative treatments that have made it through an increasingly long and

costly development process.

In particular, there is concern about the threats to innovation because the process

of medical innovation—of turning sound ideas from insights in the biomedical laboratory sciences into safe and effective products for treatments—has steadily become

more costly. Getting a product into general use is an increasingly lengthy and costly

business and fraught with significant risk.4 Some estimates put the total cost of developing a novel drug at more than $800 million, and by all estimates it has increased substantially in the past decade.5 Too often, the process is unpredictable,

and may take years of hard work with high costs for product testing and developing

reliable production lines.6

Many people involved in the development of new medical technology believe the

slowdown in drug approvals is likely to be only temporary. Currently, the National

Institutes of Health (NIH) is completing a five-year doubling of its budget, to more

than $27 billion. Less well known is that spending on research and development by

pharmaceutical companies worldwide has also doubled since 1995 and now is estimated to be more than $54 billion. R&D spending by biotech and medical device

companies is also rising. The impact of these investments in research is already becoming evident in the form of more investigational new drugs (INDs) under development than ever.

But if the impact of information technology on the economy is any guide, it may

require a decade or more of increased investments in order to have a real impact

on productivity—on how much output we get as a result of these inputs. And it

could take much longer, because of the unusual length and uncertainty of the product development process in health care. At this point in genomics, for example, sciVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00044 Fmt 6601 Sfmt 6621 90494.TXT SSC3 PsN: SSC3
41

7 CDER 2002 Report to the Nation: ‘‘Improving Public Health through Human Drugs.’’ May

13, 2003.

entists are still primarily gathering information, sorting out patterns, and only

starting to understand what the turning on or off of hundreds of genes by a new

drug means for whether it is safe and effective in patients. The increase in the time

and cost of product development has already been associated with a decline in the

number of truly new drugs and biological treatments being approved by FDA. Last

year, FDA approved 21 new molecular entities (the truly new drugs) down from 44

such entities in 1996. And FDA approved 12 new biological license applications

(BLAB), down from 27 BLAB in 1998. The decline in products approved is not the

result of FDA rejecting more applications; it is directly related to a decline in the

number of new applications for drugs and biologics coming in to the Agency, and

it is a worldwide phenomenon.7

TRADITIONAL APPROACHES VERSUS NEW TECHNOLOGIES

While there are and no doubt will continue to be traditional ‘‘blockbuster’’-type

drugs in development that may bring important public health benefits to many millions of patients, breakthroughs in genomics, proteomics, and other new fields of

molecular biology also hold great promise for truly individualized drug therapy in

which diagnostic tests and novel drug delivery mechanisms guide the use of medications, turning heterogeneous diseases like cancer and heart disease into distinct

types of pathologies that appropriately require distinct therapeutic approaches.

Other new technologies are breaking down the traditional barriers between drugs,

tissues, and devices, including products in development that are combinations.

Translating the new biomedical sciences into these new kinds of treatments for

patients requires major new investments, and it seems plausible that such investments may take many years to reach fruition. It should not be surprising that we

haven’t yet seen the huge increase in biomedical investment of the past decade, and

especially the last few years, turn into more and more valuable medical products

for patients. But the fact remains that developers of biomedical products are not

producing drugs particularly faster than they were before all these innovations came

along. From a public health standpoint, with millions of Americans suffering from

diseases that may be curable or at least manageable in the not too distant future,

we cannot afford to wait many more years for all these investments to become valuable products.

On the research and development side, it’s possible that the costs and uncertainty

of developing new treatments could keep rising. It’s easy to see how this could happen: there are not many more obvious drug targets left to exploit, and developing

genomics- and proteomics-based therapies remains very costly. So far, genomics has

mainly added steps at the front end of the development process, through microarray

testing of gene responses, and has not reduced the costs of clinical research significantly. On the policy side, there is intense pressure to make health care more affordable, and so policymakers may focus only on reducing medical costs in the short

run—which, if not done properly, could reduce the incentive to incur these high and

rising development costs. This combination of rising costs of product development

and pressures to control costs rather than increase value is not a good one for keeping the United States at the forefront of biomedical innovation, and more importantly it’s not a good combination for affordable and high-quality, innovative health

care for our population. Instead, a more effective approach would involve bringing

costs down by reducing the high cost and uncertainty of developing new medical

treatments, and taking more steps to help patients and doctors use them effectively

after they are approved by FDA.

POTENTIAL POLICY SOLUTIONS

We can take steps today to improve the development and use of medical technologies, and find creative policy solutions that both support innovation and make

healthcare more affordable, particularly for those with limited means and great

needs. There are many ways to do this, but above all, we need to increase value

in the process of developing and using new medical technologies. To these ends, a

key element of FDA’s new strategic action plan is efficient risk management. In all

of FDA’s major policies and regulations, the Agency is seeking to use the best biomedical science, the best risk management science, and the best economic science

to achieve its health policy goals as efficiently as possible.

The enormous growth in research investment has required the Agency to deal

with more complex and innovative products in development than ever before. As discoveries made in the laboratory are flowing into the medical products consumers are

42

using, it means that the Agency is challenged to upgrade its own science to keep

pace with this new innovation and the growing sophistication of manufactures. As

part of a new FDA initiative on improving medical innovation announced in January 2003, the FDA is taking specific steps to help foster more efficient innovation,

especially in emerging areas or those of great medical need. The initiative has several elements that are described below.

Need for Performance Measures

One element of this plan is the development of ‘‘quality systems’’ for the Agency’s

review procedures. The idea is to build on FDA’s professional staff expertise to identify and apply best management practices internally to the review processes. This

includes using peer review programs coupled with more empirical data for drug and

device reviewers to exchange ideas and use each other’s experience to learn about

best practices. A key part of this effort is developing performance measures that the

Agency’s experts believe are related to the goal of approving safe and effective treatments as efficiently as possible.

FDA is also working to develop new guidance documents that can bring more predictability to regulatory process. These are in a tradition of FDA documents that

serve as roadmaps for drug and device developers, offering guidance on how to

structure studies to prove that new treatments work. These new documents represent an enhanced effort to combine internal expertise with input from outside experts to make sure that are regulatory methods are up to date in important areas

of technology development. Some of the guidance will focus specifically on diabetes,

obesity, and cancer. Despite all the innovation that has already occurred, these are

therapeutic areas that remain underserved by effective treatments and that have

promising technologies under development today.

Developing New Guidance for New Areas

The Agency is also developing guidance in new areas of technology development,

including pharmacogenomics, novel drug delivery systems, and cell and gene therapy. In each of these cases, the Agency expects to learn something from outside experts in the open process of developing them. For example, FDA is setting up a ‘‘research exemption’’ program for product developers as well as academic experts to

share data on pharmacogenomic results, such as microarray studies, that may be

useful for predicting clinical benefits and risks and thus reducing the costs of demonstrating safety and effectiveness. This kind of information can also be used to increase the value of a new medicine by allowing doctors to target drugs to patients

most likely to derive a clinical benefit or least likely to suffer a rare side effect. The

goal in all of these endeavors is to use the new regulatory standards to reduce the

time and cost of product development and to ensure that the Agency’s regulatory

procedures are current at the same time. We hope this will lead to earlier and

broader access to new treatments.

Rapid Access to Generic Drugs

Supporting the development of safe and effective new treatments is one of the

most important ways that FDA can promote the public health. But when appropriate patents have expired, we need to facilitate broader access through lower-cost

generic drug alternatives. Generic drug manufacturers produce medications that are

just as safe and effective as their brand counterparts. Yet the prices of generics are

generally much lower. A generic version of a $72 average brand-name prescription

costs about $17. With more brand-name medications coming off patent—more than

200 of them in the next few years—and with ever-improving scientific knowledge

and public awareness about the benefits of generic drugs, the health and economic

benefits of using generic drugs are constantly growing.

Encouraging rapid and fair access to more affordable generic medications is one

of FDA’s major priorities. FDA is proposing new resources to enable us to implement major reforms in its generic drug programs to reduce the time it takes to get

a generic drug approved. Right now, it takes well over a year and a half on average

to approve a new generic medication and we think we can significantly improve. In

addition, the Agency recently finalized a generic drug final rule that would expedite

and increase access to more affordable generic drugs by limiting the ability of innovator drug companies to receive multiple extensions that delay entry of generic competition. This final rule is projected to save American consumers $35 billion dollars

over the next 10 years. Furthermore, this rule makes changes to the patent listing

process that are also designed to improve generic competition.

Revised Good Manufacturing Practices

Another application of the principle of efficient risk management to reduce medical costs and improved outcomes is in improving the way that medical products are

43

8To Err Is Human: Building a Safer Health System. Institute of Medicine Press, 2000.

manufactured. These guidelines are referred to as good manufacturing practices

(GMPs), and these GMP regulations for drugs have not been updated in 25 years.

Meanwhile, best practices in manufacturing technologies and methods have undergone significant progress over that time, particularly in other high-tech industries.

For example, the semiconductor industry also has a very low tolerance for impurities and inaccuracies in production. When its production processes were lagging because of high costs and too many errors that industry helped invent the ‘‘six sigma’’

production methods. Through continuous quality improvement, those methods

achieved enormous improvements in production cost and quality, and they have

since been widely adopted in manufacturing industries.

But continuous quality improvement in manufacturing hasn’t been the subject of

as much attention in the pharmaceutical industry, even though many experts on

manufacturing processes believe that large savings in production costs could be realized while maintaining very high standards for purity and accuracy. FDA wants to

make sure that regulations are encouraging such progress, not standing in the way.

The Agency is working on a program for developing new GMPs based on the latest

science of risk management and quality assurance. The new standards would be designed to encourage cost-reducing and precision-enhancing innovation in manufacturing and technology, and to ensure that all three FDA medical centers use consistent and up-to-date methods, including inspectors specializing in particular types

of production methods.

In addition to substantial savings in the development and manufacturing of safe

and effective medical products, there are many more opportunities to increase the

value of the medical products FDA regulates after they are approved and maximize

their public health benefits. By making better information available to patients and

doctors about the benefits and side effects of new medical technologies, and by taking other steps to help doctors and patients avoid errors and adverse events, people

can realize more value from these products by making better decisions about when

to utilize them for maximum advantage.

Prevention of Medical Errors

Approved medical products, while safe and effective when used as intended, can

be involved in costly and potentially preventable adverse events, including medical

errors. A November 1999 report of the Institute of Medicine (I0M), entitled ‘‘To Err

Is Human: Building a Safer Health System,’’ focused a great deal of attention on

the issue of medical errors and patient safety. The report indicated that as many

as 44,000 to 98,000 people die in hospitals each year as the result of medical errors.

About 7,000 people per year are estimated to die from medication errors alone—

about 16 percent more deaths than the number attributable to work-related injuries.8 Preventable errors and complications involving prescription drugs alone are

also responsible for billions of dollars in additional health care costs each year, in

addition to all of the unnecessary suffering. The IOM report estimates that medical

errors cost the Nation about $37.6 billion each year; about $17 billion of those costs

are associated with preventable errors. About half of the expenditures for preventable medical errors are for direct health care costs. That’s too much money that

would be better spent on proper care.

FDA has a role in helping to avoid these costly errors by supporting the development and use of safer health care systems; systems that help health professionals

avoid errors and deliver higher quality care. The majority of medical errors do not

result from individual recklessness, the report says, but from basic flaws in the way

the health system is organized. Stocking patient-care units in hospitals, for example,

with certain full-strength drugs (even though they are toxic unless diluted) has resulted in deadly mistakes. And illegible writing in medical records has resulted in

administration of a drug for which the patient has a known allergy.

To help mitigate these risks, earlier this year FDA proposed a universal bar coding system for prescription medications and blood products. Coupled with barcode

readers and electronic medical records, bar codes on drugs are expected to reduce

the rate of medication errors that occur at the stage of dispensing and administering

medications by half or more. Bar codes can help make sure that the right patient

gets the right medication in the right dose at the right time, and soon a standardized system of codes will be built in to all drug packaging. Based on the published

relationships between hospital admissions and adverse drug events, FDA has estimated that of 372,000 preventable adverse drug events per year in hospitals, bar

code identifiers on drug products could be expected to avoid about 22 percent of

these events. Over 20 years, FDA expects more than 413,000 fewer adverse drug

events because of bar coded products. The average annual benefit of avoiding these

44

9 Bates, D.W., D.J. Cullen, N Laird, L.A. Peterson, S.D. Small, D Servi, et al. ‘‘Incidence of

Adverse Drug Events and Potential Adverse Drug Events: Implications for Prevention.’’ The

Journal of the American Medical Association. July 5, 1995. Classen, D.C., S.L. Pestonik, R.S.

Evans, J.F. Floyd, and J.P. Burke. 1997. ‘‘Adverse Drug Events in Hospitalized Patients: Excess

Length of Stay, Extra Costs, and Attributable Mortality.’’ The Journal of the American Medical

Association. January 22/29. Jha, A.K., G.J. Kuperman, J.M. Teich, L Leape, B Shea, E

Rittenberg, et al. 1998. ‘‘Identifying Adverse Drug Events.’’ The Journal of the American Medical

Association. May.

events is $3.9 billion dollars in patient pain and suffering and direct treatment

costs.9 FDA’s work on standards has another benefit. According to the hospital industry and many health care purchasers, standard bar codes will speed the adoption

of electronic health information systems by hospitals and other healthcare organizations, because the standardized codes increase the payoff from having electronic systems.

Even with the best available data, drugs are sometimes found to have adverse effects that could not have been predicted or uncovered in any feasible clinical trial.

Most of these subtle or rare problems, such as liver toxicities, that occur in a small

number of people and most become apparent only after drugs have been used in

real-world patient populations for some period of time. The Agency must have effective systems in place to detect such problems, so that preventable adverse events

are identified, and better ways can be found to prevent these events.

As part of this effort, the Agency is working on developing information technology

tools that will allow it to link into the electronic; medical records of large healthcare

institutions and organizations, and automatically scan medical records for combinations of new drugs and clinical endpoints such as blood test results that might contain harbingers of trouble. The idea is to use modern information technology to acquire information on associations between adverse events and use of a medical product that might warrant focused further investigation. FDA wants to have systems

in place that allow us to be proactive in collecting this clinical information, rather

than continuing to rely primarily on vigilant doctors and FDA’s voluntary adverse

event reporting systems.

Safety and Efficacy Studies for Approved Medical Products

More studies of the safety and effectiveness of medical products after they are approved can be very helpful for learning more about the risks and benefits of medications in special populations and can help guide more informed medical decisions.

For example for a new cancer drug that recently gained accelerated approval, the

National Cancer Institute is funding so-called ‘‘Phase 4’’ studies to confirm clinical

benefits and help assess longer-term risks. These efforts to use modern information

systems and post-approval studies can add substantially to the body of knowledge

about which patients are most and least likely to benefit from an approved treatment, in turn leading to higher-value treatment decisions.

Better Informed Consumers

FDA is also working to encourage more effective, high-value use of medical treatments by helping patients and health professionals get access to the latest and best

information on risks and benefits. For all that improving medical technology can do,

it is much less than people can do through their own choices to improve their

health. From encouraging better guidance to patients in pharmacy labels, to clearer

guidance on communicating risk and benefit information in direct to consumer advertising, to new enforcement initiatives against dietary supplement manufacturers

who make health claims without scientific foundation, to food labeling that better

discloses diet-disease information, FDA is undertaking new efforts to help consumers make better-informed decisions about how to use their health care dollars.

In one recent example, FDA is working on a DailyMed program for physicians, so

that a redesigned electronic product label that can be updated daily to include the

most current information about a drug after they are already on the market. Only

by facilitating access to complete, timely, and easily used information available to

consumers and health professionals can FDA help to make sure that people are

making the best decisions about their health based on the best available information.

CONCLUSION

Medical innovation is a difficult and complex process, but one that can bring great

value to patients. This long and difficult process is also a delicate one that requires

the right mix of incentives, safeguards, and effective regulation to make sure people

can derive the maximum benefit from safe and effective new medical technologies.

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Only by adopting policies that protect the incentives to develop new drugs and medical devices, and reward cost-effective medical practice and the most high value use

of new technology, will we continue to realize the full benefits of these innovations.

As described in this testimony, at FDA, as Commissioner of Food and Drugs, I am

working to implement numerous policies, initiatives, and regulatory improvements

that reflect these critical needs in order to promote increased access to high quality,

high value, safe and effective medical products, including drugs, biologics, devices

and combinations of all three.

I appreciate the opportunity to provide this testimony and I would be pleased to

respond to any questions.

PREPARED STATEMENT OF CAROLYN CLANCY, M.D., DIRECTOR, AGENCY FOR HEALTHCARE RESEARCH AND QUALITY

Good morning, Mr. Chairman and Members of the Committee. I am very pleased

to be here today to discuss the important issues of how we can facilitate, sustain,

and promote health care innovation while we ensure that we have a health care system that is affordable. As my testimony will indicate, I believe that the work of the

Agency for Healthcare Research and Quality (AHRQ) is critical to achieving these

goals and complements the important work of the National Institutes of Health

(NIH) and the Food and Drug Administration (FDA) and supports decision-making

by the Centers for Medicare and Medicaid Services (CMS).

AHRQ’S ROLE

Let me begin with a few words about where AHRQ fits within the Department

of Health and Human Services. The basic and biomedical research supported by the

NIH serves as the foundation for many of the advances in the prevention, diagnosis,

and management of disease and impairment. Its work greatly expands the realm

of possible public health and clinical interventions. While the Centers for Disease

Control and Prevention (CDC) takes the lead on public health, community-based

interventions often led by state and local health departments or public service

media campaigns to improve health, AHRQ focuses on the role of clinical care and

the health care delivery system.

AHRQ’s mission is to improve the effectiveness, quality, safety, and efficiency of

healthcare services that patients receive. What is unique about our mission is that

it encompasses both the evaluation of the effectiveness and quality of clinical services and the most effective and efficient ways to organize, manage, and safely deliver those services. As the Institute of Medicine report To Err Is Human made

clear, this dual focus—on services and systems—is critical to improving health care.

AHRQ contributes to efforts to speed the diffusion of effective medical breakthroughs. Our research can extend the findings of biomedical research to populations not included in clinical trials, evaluate the effectiveness and cost-effectiveness of interventions to determine which populations benefit most, and develop effective strategies to facilitate their rapid adoption. We also facilitate adoption of new

knowledge by putting into perspective the available scientific evidence so that clinicians can better assess the importance of recent breakthroughs.

In the area of drugs and devices that have received FDA approval, AHRQ focuses

on their effectiveness (especially in comparison to existing options) and cost-effectiveness. We complement FDA’s focus on the safety of drugs, biologics, and devices,

with our focus on their safe use in daily practice. In the context of this hearing, this

role is especially important. The harm that can result from inappropriate use of otherwise safe drugs, biologics, and devices is not only a tragedy for the patients involved but adds to health care inflation through the costs involved in attempting

to repair the damage and related increases in medical liability expenditures. As a

result, I am delighted to report that Dr. McClellan and I are developing an increasingly strong partnership between FDA and AHRQ in these areas.

However, innovations in health care are not limited to drugs and devices but may

also include new surgical procedures, new applications of existing technology, information technology or communications advances. Moreover, while some of these innovations offer unprecedented breakthroughs for some patients they may also result

in unintended harm if not used appropriately. AHRQ’s role, then, is to provide the

best evidence regarding how to match specific services to patients’ needs and preferences to promote the best possible outcomes.

Finally, we serve as a science partner for efforts by the Centers for Medicare and

Medicaid Services to improve the effectiveness, quality, and safety of services they

support and improve the ability of beneficiaries to make more informed health care

choices. Prior to our 1999 reauthorization, we were required by law to make recVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00049 Fmt 6601 Sfmt 6621 90494.TXT SSC3 PsN: SSC3
46

ommendations to CMS on coverage decisions. Today, upon request, we undertake

technology assessments and other research activities to objectively synthesize all existing evidence on the effectiveness of medical interventions under consideration for

coverage by CMS. We do not make recommendations.

HEALTH CARE INNOVATION AND HEALTH CARE COSTS

Mr. Chairman, America has a track record for health care innovation that is the

envy of the world. The Administration and Congress in partnership have done much

to accelerate and sustain that record through their commitment to biomedical and

health care research. As a result, the pace of innovation has accelerated, the number of scientific journals and published research studies is exploding, and reports

of scientific breakthroughs appear almost daily.

Many of these developments offer the potential for greatly improving the quality

of life for patients; in other cases the improvements are marginal at best. In some

cases, innovation leads to the same or even higher quality of care at significantly

lower costs while other innovation is cost increasing. The underlying challenge,

therefore, is to effectively sort through the increasing array of clinical care options

to develop objective scientific information so that those who make decisions—policymakers, systems managers, insurers, purchasers, clinicians, or patients—can make

informed choices. The ultimate goal is to ensure that they can get real value for

their health care dollar. Each of us may make different decisions as we weigh the

evidence. My Agency’s role is not to make those judgments. It is to develop and synthesize the evidence regarding health care interventions so that, whether you favor

the current insurance-based system or favor a more consumer-driven model of

health care decisionmaking, objective credible scientific information—on effectiveness, cost-effectiveness, and benefits (including downstream cost savings)—is available to inform those decisions.

The need for such information has never been more compelling. Moreover, the resurgence of health care cost inflation at a time of increasingly constrained resources,

both in the public and private sector, will only accelerate the demand for proof that

we are getting real value for the health care dollars that we spend. Because our

research focuses on both the effectiveness and cost-effectiveness of health care services as well as ways to improve the effectiveness, efficiency, and safety of the ways

we deliver and use health care services, AHRQ is uniquely positioned to develop this

type of scientific evidence.

HOW AHRQ CAN HELP

Let me suggest five broad areas in which AHRQ can assist in sorting through the

array of new health care innovation and help to speed the adoption of effective

interventions.

First, AHRQ research identifies what is effective and cost-effective in daily practice.

Experience suggests that new drugs, technologies, and medical or surgical interventions are seldom equally effective for all types of patients. Will a breakthrough for

the treatment of arthritis, tested in clinical trials with patients who only have that

affliction, work as well in patients who not only have arthritis but are also taking

medications for diabetes, congestive heart failure, and hypertension? Or how well

does it work in patients whose racial, ethnic, and demographic characteristics differ

from those in the clinical trial? Consider two examples from our research, one demonstrating the value of using the low-cost option; the other demonstrating the value

of investing in much more expensive pharmaceuticals.

The first example, treatment of otitis media (middle ear infection), is the most frequent reason for administering antibiotics to children. Over-prescribing increases

the chance for adverse reactions, leads to the development of bacterial resistance,

and increases expenditures. AHRQ supported researchers found that the use of the

less expensive generic antibiotics resulted in the same or lower failure rates. They

concluded conservatively that substituting low cost antibiotics for only half of the

expensive antibiotic prescriptions would have saved Medicaid nearly $400,000. This

research has led to the development of guidelines by the American Academy of Pediatrics recommending less-expensive antibiotics and to a metric used to accredit

health plans.

By contrast, in some cases, costly new interventions can reduce the long-term use

of other health care resources. AHRQ research demonstrated that new, more costly

anti-retroviral therapy for treating AIDS patients is both effective and cost-effective.

The increased expenditures for those drugs are much less than the savings in inpatient, outpatient, and emergency room costs. Overall annual costs per patient were

reduced from $20,300 to $18,300. If extrapolated to the approximately 335,000

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adults receiving care for HIV infection in 1996, over $500 million will be saved in

HIV related healthcare.

Second, AHRQ research identifies strategies for overcoming barriers to the use of

effective services. Great opportunities for improving health, developed through biomedical research, are easily lost if physicians and patients are unable to make the

best use of the knowledge in everyday care. These wasted opportunities are apparent daily in the under use of effective interventions and continued reliance upon

outmoded approaches to patient care, which in turn contributes to the ever-increasing cost of care and avoidable loss of lives. By conducting and supporting research

that focuses on their effective use, and working with clinicians and health care organizations to assure that this information is accessible when decisions are made,

AHRQ ensures that Americans reap the full rewards of basic research and medical

innovation.

For example, NIH-supported research identified the potential of warfarin, a blood

thinner, to reduce the risk of stroke in patients with atrial fibrillation. But physicians seldom prescribed warfarin for their patients. AHRQ-supported researchers

concluded that warfarin was effective in daily practice, identified the reasons that

physicians were reluctant to use warfarin, and developed a program of providing

warfarin that would have an expected annual net savings of $1.45 million per

100,000 people aged 65 years or older, of whom 6,000 would be expected to have

atrial fibrillation. Using this knowledge, Medicare Peer Review Organizations implemented projects to increase anticoagulation, and 28 projects in 20 states had a 58-

71% increase, with a projection of 1,285 strokes prevented. The findings of this

AHRQ funded study were influential in the development of guidelines by the American College of Physicians, American Heart Association, American College of Chest

Physicians, and the Joint Council of Vascular Surgeons. Based on this work, United

HealthCare has included use of anticoagulation therapy for patients with atrial fibrillation in the profiling of its 262,000 physicians.

Third, AHRQ facilitates the use of Evidence Based Medicine. In recent years

AHRQ has focused increased attention on the development of technology and tools

to facilitate the use of evidence-based medicine. For example, each year tens of thousands of patients who go to an emergency department worried that their chest pain

is being caused by a heart attack, are inappropriately sent home, inappropriately

hospitalized, or suffer because of delay in treatment due to an inconclusive electrocardiogram (EKG). These delayed or missed diagnoses have serious implications for

patient survival or impairment rates, hospital costs and subsequent malpractice

lawsuits. An increasing number of EKGs are now equipped with special software developed by AHRQ research that improves diagnosis by predicting the likelihood of

whether chest pain is the result of a heart attack. The software could prevent

200,000 unnecessary hospitalizations and more than 100,000 coronary care unit admissions a year and save roughly $728 million a year in hospital costs if implemented in half of the hospitals nationally. Soon-to-be-published research estimates

that improved accuracy of diagnosis that results from use of this predictive tool

could reduce malpractice costs nationally by $1.2 billion per year.

Approximately 600,000, or 15 percent, of the 4 million Americans who develop

pneumonia each year are hospitalized. Because of the lack of evidence-based admission criteria and the tendency to overestimate the risk of death, many low-risk patients who could be safely treated outside the hospital are admitted for inpatient

care. An easy-to-use method developed by AHRQ-supported researchers accurately

predicts which pneumonia patients can be safely treated at home, which costs 10

to 15 times less than hospital care for pneumonia. The findings from this study also

suggest that hospitals could reduce pneumonia hospital stays in many cases by 1

day without adversely affecting patient health. Criteria were developed to assist

physicians with determining when patients could be discharged safely.

Fourth, AHRQ research assesses the effectiveness of cost containment and management strategies. With Medicaid pharmaceutical costs increasing 20% per year, States

are considering and implementing a variety of cost containment strategies. An example of how our past research can be helpful to today’s decisionmakers involves

a study of an initiative by a New England legislature to limit Medicaid reimbursement to three prescriptions per month. AHRQ concluded that the strategy backfired. Increases in utilization costs were 17 times greater than the savings in drug

expenditures. The result was that the state abolished the prescription cap, and another 9 states have also changed their policies based on this research.

AHRQ research has also demonstrated that 85% of women with pelvic inflammatory disease, the leading cause of infertility, can be safely and effectively treated

as outpatients, and developed an evidence-based approach to identify which nursing

home patients require hospitalization for possible pneumonia and which can be

treated at the nursing home This approach not only saves the cost of a hospitalizaVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00051 Fmt 6601 Sfmt 6621 90494.TXT SSC3 PsN: SSC3
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tion but also helps frail, elderly patients avoid the risks of experiencing additional

hospital complications.

Fifth, AHRQ’s role in speeding the pace of evaluation of health care innovation.

AHRQ’s 1999 reauthorization directed us to serve as a science partner for public

and private sector efforts to improve quality and urged us to continue our efforts,

begun in the mid-1990s, to speed the pace of the evaluation of health care innovations.

One of the critical roadblocks to coverage of innovative interventions is the lack

of solid scientific evidence regarding their effectiveness, especially in comparison

with existing interventions. While the FDA determines that a drug, biologic, or device is safe and that it has an impact when compared to placebo, those making coverage decisions, including clinicians and patients, still need more information regarding its relative effectiveness and relative costs. Similarly, promising biomedical

research breakthroughs face a similar test. This is often frustrating for those whose

creativity leads to the development of promising new technologies as they come to

realize that passing FDA scrutiny is only part of the journey toward seeing their

innovation in widespread use.

While these constraints are not of AHRQ’s making—and are certainly not unique

to the public sector; the private sector takes technology assessment seriously as

well—we have begun, and will continue, our efforts to facilitate the speed of this

process. For example, when Medicare asked us to evaluate the effectiveness of lungvolume reduction surgery, we concluded that there was insufficient evidence to

reach a determination at that time. But we pointed out to Medicare the potential

for developing the evidence through an innovative process of conditional coverage—

in which Medicare would pay for the procedure in selected institutions, provided the

surgeons and patients agreed to the collection of outcomes data. This resulted in a

partnership between Medicare, the National Heart Lung and Blood Institute, and

AHRQ to assess the procedure. As a result of this study, we now know which patients are likely to benefit, and very importantly, a subgroup of patients who experienced increased mortality as a result of the procedure were identified so that avoidable and unintended deaths can be reduced.

Similarly, AHRQ has revamped its ability to provide Medicare with much more

timely scientific advice, in as little as two weeks for brief assessments of the volume

of available evidence to full-scale technology assessments that might take a year.

These time frames reflect as significant improvement in our ability to serve Medicare more effectively.

There are at least two other ways in which we can serve as a science partner for

private sector innovation. First, most technology assessments conclude that there is

a lack of credible scientific studies from which to judge whether a technology is effective or ineffective. We are prepared to work with industry trade associations to

assist their members, who have products moving to the end of the FDA review process, to better understand the types of studies that will be needed to assess the effectiveness of their products. This simple step would make a significant contribution

to facilitating timely assessment of health care innovation.

Second, in future years, as existing patient safety grants end, we will want to expand our focus on human factors research. As one wag commented, human factors

research helps us to ‘‘idiot proof our technology.’’ More accurately, this research

helps us to develop controls for our technologies so that they remain easy to program even by a harried, stressed, distracted, sleep-deprived health care professional.

One example is the infusion pumps, used to administer fluids to patients through

their veins, that are often involved in patient safety adverse events. Human factors

research would help us to understand approaches for reducing inadvertent errors in

programming these pumps. As we expand our support for human factors research

within our patient safety portfolio we will want to work with industry to ensure that

we are targeting the critical questions that will improve the safety and quality of

the products they design in the future. By ensuring that this type of critical information in the public domain, we can be a science partner for their efforts to develop

even more effective and safe health care technologies.

AHRQ’S NEW DIRECTION

Mr. Chairman, before concluding, I would like to say just a few words about the

future direction of AHRQ. As you know, I have been serving as Acting Director since

March, 2002 and Director now for five months. During that time, our senior staff

and I have undertaken a top to bottom review of our procedures and processes to

determine how we can better fulfill the mandate of our 1999 reauthorization legislation to serve as a science partner for public and private sector efforts to improve

quality.

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We are determined to make AHRQ a ‘‘problem solving’’ agency. This entails a

greater focus on ‘‘implementation research’’ that is designed to develop strategies for

overcoming barriers to the adoption of clinical interventions that are both effective

and cost-effective. We need to be more pro-active in closing the gap between what

we know is, effective and cost-effective in health care and what is done in daily

practice.

We have developed closer linkages, at every stage of the research process, between

the ultimate customers of our work and researchers, to ensure that we are addressing their highest priority challenges. In the public sector, we are beginning to work

more closely than ever before with Medicare, Medicaid, the Community Health Centers, the Federal Employee Health Benefit Program, and the Departments of Defense and Veterans Affairs.

We also will be giving greater priority to identifying strategies for eliminating

waste, assuring that evidence-based information is current, bringing our health care

infrastructure, especially information technology, into the 21st century, redesigning

workflow so that health care professionals can work more efficiently and effectively,

and evaluating our financial and other incentives to ensure that we encourage safe,

high quality care.

CONCLUSION

Mr. Chairman, in conclusion, let me note that one study demonstrated that the

time frame from the approval of a research grant that ultimately yields useful findings to the widespread diffusion and adoption of those results was at least 17 years.

That time frame is unacceptable. AHRQ is committed to playing its role in developing the scientific evidence for identifying effective interventions sooner and increasing the pace of their diffusion.

This concludes my formal testimony. I will be happy to respond to any questions.

ESTIMATES OF THE IMPACT OF SELECTED HEALTH INFORMATION TECHNOLOGIES ON

QUALITY AND COSTS IN INPATIENT AND OUTPATIENT SETTINGS

EXECUTIVE SUMMARY:

Healthcare Information Technology has the potential to improve the quality, safety and efficiency of healthcare by helping health care professionals make the best

decisions and by assuring that those decisions are implemented as intended. This

potential value will be realized in better adherence to clinical protocols, utilization

of clinical decision support, reduction in medical errors, cost reductions and improved access to healthcare information.

In order to estimate and put in context the relative value of these high-impact

HIT functions AHRQ compiled the following analysis. The relative impact on quality, cost and net savings for selected in/outpatient HIT functions is outlined below:

HIT Function Impact on Quality Impact on Cost/Net Savings

Computerized Physician Order Entry (inpatient).Decrease rate of serious med error by

55%; decrease rate of potential adverse drug events by 84%.

Total annual savings range from $7 to

$14 billion (nationally)

Clinical Decision Support Technologies Decrease ordering of drugs that pt. is

allergic to; decrease in orders for

wrong (ineffective) meds.

Decrease antibiotic cost by -$200 per

hospitalization; lower cost of hospital care ($26,315 v $35,283) and

shorter hospital stays (10 v 12.9

days)

Automated Medication Dispensing Systems (inpatient).Significantly fewer missed doses of

drugs (-16.9%).

One hospital realized savings of $1.28

million over 5 yrs.

Bar Coding Technologies ........................ 75% decease in errors caused by administration of wrong meds; 93%

reduction in errors from wrong med

to wrong pt..

Annual national savings of $15.3 billion.

E-Prescribing in Physician Practices ..... Decreased medication errors; Improved

physician efficiency.

One study demonstrated reduced pharmacy costs of $1.15 PMPM; 30%

decrease in physician to pharmacy

phone calls.

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HIT Function Impact on Quality Impact on Cost/Net Savings

Computerized Physician Order Entry

(outpatient).

Eliminate 2 million adverse drug

events; Avoid 1.3 million office visits and 190,000 hospitalizations.

$27 billion savings in medication expenses (nationally)

Electronic Medical Records (Primary

Care Settings).

34% reduction in adverse drug events;

15% decrease in drug utilization;

9% decrease in unnecessary lab

utilization.

Reduced Spending by $44 billion per

year: Savings of $86,400 per provider over a five yr. period.

ESTIMATED NET SAVINGS:

Our analysis demonstrates potential savings ranging in the tens to hundreds of

billions for these few high value functions.

COMPUTERIZED PHYSICIAN ORDER ENTRY IN INPATIENT SETTINGS

• Description. Computerized physician order entry (CPOE) systems allow physicians to submit orders for medications and laboratory tests using an online system.

The technology includes algorithms that prompt physicians about possible drug-drug

interactions, drug allergies, and the need to order certain laboratory tests to measure whether a medication is effective. A study by Bates et al., conducted at Massachusetts General Hospital and Brigham and Women’s Hospital in Boston, Massachusetts, compared the rates of adverse drug events before and after implementation of CPOE.

• Impact on Quality. The study showed that use of CPOE in those hospitals reduced the rate of serious medication errors resulting in patient injuries by 55 percent, from 10.7 events per 1000 patient-days to 4.86 events. The rate of potential

adverse drug events—that is, errors that did not result in an injury—decreased by

84 percent. The study found that the rate of errors in ordering of medications fell

by 19 percent, the rate of errors in transcription of orders fell by 84 percent, the

rate of errors in dispensing of medications fell by 68 percent, and the rate of errors

in administration of medications fell by 59 percent.

• Another study by Teich et al. (2000) examined the CPOE system at Brigham

and Women’s Hospital and Massachusetts General Hospital as well. The study compared physician prescribing practices before and after implementation of the CPOE

system. It found that use of CPOE occurred contemporaneously with an increase in

adherence with certain clinical guidelines that were programmed into the CPOE

system. Use of computerized guidelines was associated with an increase in the use

of a recommended drug, while use of a dose selection menu was associated with a

decrease in variation in drug dosages among similar patients. The proportion of

doses that exceeded the recommended maximum dosage decreased from 2.1 percent

to 0.6 percent, while the display of a guideline for administration of a particular

drug increased the proportion of orders that complied with the guideline. Each of

those results was statistically significant.

• Impact on Cost. An earlier study by Bates and colleagues found that the annual cost of preventable adverse drug events at Brigham and Women’s Hospital was

$2.8 million. A 17 percent reduction in preventable adverse drug events was observed in this study, which would equate to annual savings of $480,000 for that hospital.

Estimated Net Savings. Implementing computerized patient order entry in all

hospitals in the U.S. could reduce the rate of preventable adverse drug events by

17 percent, avoiding 656,800 preventable adverse drug events per year.

The additional cost of treating a preventable adverse drug event has been estimated at $5,857. Thus, the savings from averted preventable adverse drug events

could total $654 million per year.

A study of the implementation of CPOE in a hospital with 726 beds found that

annual savings for that hospital were between $5 and $10 million. If this savings

can be extrapolated to the over 1 million hospital beds in the U.S., total annual savings would range from $7 to $14 billion.

The first year cost of implementing a CPOE system in an individual hospital

ranges from $2,480 to $15,000 per bed, while the ongoing cost of maintaining the

system ranges from $870 to $1500 per bed. Amortizing the initial costs over 20

years at 7 percent interest, the national costs of implementing CPOE systems in

each of the 1 million hospitals in the U.S. could range from $1.1 to $2.9 billion. (Amortizing those costs over 5 years would equate to annual costs of $1.5 to $5.1 billion,

51

while amortizing those costs over 10 years would equate to annual costs of $1.2 to

$3.6 billion.)

CLINICAL DECISION SUPPORT TECHNOLOGIES

• Description. LDS Hospital in Salt Lake City, Utah, implemented a clinical decision support system that assists clinicians in choosing a course of antibiotic and

anti-infective therapy for patients in the intensive care unit. The decision support

system uses information about the patient’s diagnosis, white-cell count, body temperature, and information from pathology and microbiology reports to recommend

a course of anti-infective therapy for identified and potential pathogens. The system

also considers information about drug allergies, drug-drug interactions, and costs in

choosing a recommended course of therapy. A study of the system was reported by

Evans et al., 1998. • Impact on Quality. The study found that the system was associated with a

significant reduction in orders for drugs to which patients had reported allergies

(from 146 to 35 during the previous two-year period), reduced excess drug dosages

(from 405 to 87), and reduced antibiotic-susceptibility mismatches (from 206 to 12).

The average number of days of excessive drug dosage was significantly reduced

(from 5.9 to 2.7), as was the number of adverse events caused by anti-infective

agents (from 28 to 4.) Each of those results was statistically significant. • Impact on Costs. The study found that patients who received the rec- ommended anti-infectives had lower costs of anti-infective agents ($102 vs. $340 for

those in the preintervention period), lower costs of hospital care ($26,315 vs. $35,283

for those in the pre-intervention period), and shorter hospital stays (10 days vs. 12.9

days for those in the pre-intervention period.)

AUTOMATED MEDICATION DISPENSING SYSTEMS IN THE INPATIENT SETTING

• Description. Automated medication dispensing systems replace the existing

manual systems used in many hospitals to dispense a 24-hour supply of each patient’s drugs to nurses on the floor. The automated system is connected to the pharmacy computer system, so that orders for new prescriptions are transferred electronically to the automated dispenser. The automated system stores and dispenses

most of the medications that nurses administer to patients, while automatically billing for the drugs used. A study of the use of an automated dispensing system at

the University of California, San Francisco Hospital was reported by Schwarz et al.,

1995.

Another study of an automated dispensing technology in a 600-bed teaching hospital in Dallas, Texas, was conducted by Borel and Rascati (1995). • Impact on Quality. The University of California study found that after implementation of the automated dispensing system, there were significantly fewer

missed doses of drugs. The number of reported medication errors decreased for the

surgical unit, but increased for the coronary intensive care unit.

The Texas study found that before implementation of the automated dispensing

system, the medication error rate was 16.9 percent, while after implementation of

the system, the error rate dropped to 10.4 percent. (Most errors consisted of administering a drug at the wrong time.) • Impact on Costs. The authors estimate that the automated dispensing system could save the hospital $1 million over five years if all personnel time savings could

be translated into reductions in staffing. The cost of the automated dispensing system for 330 acute care beds and 48 critical care beds was $1.28 million over five

years. The savings of $2.08 million over 5 years was attributable to decreased labor

costs for pharmacists, pharmacy technicians, pharmacy billers, and nurses.

BAR CODING TECHNOLOGIES

• Description. Bar code technologies replace traditional data entry. Bar codes

similar to those utilized in many other industrial sectors allow the quick accurate

linkages between component parts of a complex process. For example, a patient’s ID

bracelet with a bar code is scanned and compared against a similar code in a medication dispensing unit prior to medication delivery. Another example is the usage

of bar codes to conduct inventory in a hospital pharmacy. Both these examples allow

for faster entry of information with fewer errors.

• Impact on Quality. A review of the use of bar code technologies was conducted

by Bridge Medical, Inc. The Colmery-O’Neil Veterans Affairs Medical Center, a division of the Eastern Kansas Health Care System, developed proprietary Bar Code

Medication Administration software. In 2001, the health system reported a medication error rate of 3.0 incidents per 100,000 units dispensed, compared with 21.7 incidents per 100,000 units in 1993, the last year in which a manual medication system

52

was used. The health system experienced a 75 percent decrease in errors caused by

administration of the wrong medication; a 62 percent decrease in errors caused by

incorrect dosing, a 193 percent improvement in errors related to giving drugs to the

wrong patient, and an 87 percent decrease in errors related to administering drugs

to patients at the wrong time.

• Impact on Cost. FDA expects their proposed bar coding rule, once fully implemented, to lead to 12.8 fewer adverse drug events per hospital, a national reduction

of 84,200 (23% less).

Full implementation of this rule would lead to annual net savings of about $190

million in hospital treatment costs, roughly $29,000 per hospital. This considers an

average additional treatment cost of $2,257 per adverse drug event associated with

errors occurring at bedside. The average start up costs for a hospital is $369,000,

and, after installation, the average annual operating costs are predicted to be

$312,000 per hospital.

The annual societal benefit from avoiding medication errors is about $2.3 million

per hospital, an estimated benefit of $15.3 billion nationally. Approximately 2,400

mortalities and 1,600 permanent disabilities would be avoided each year.

When both treatment and societal savings are combined, annual reductions per

hospital would be $2,329,000. Considering start up costs (amortized over 20 years

at 7%) and annual operating costs, the net annual benefit is likely to be $1,983,000

per hospital.

E-PRESCRIBING IN PHYSICIAN PRACTICES

• Description. E-prescribing technologies allow physicians to submit prescriptions to pharmacies electronically. The technologies eliminate problems associated

with hand-written prescriptions and incomplete orders, and also allow physicians to

check potential drug interactions at the time the prescription is ordered. Advocates

of e-prescribing believe it is capable of improving patient safety, improving adherence to formularies, and increasing online access to patient information and decision

support resources. Quantum, Inc., a physician practice management company in

San Antonio, Texas, implemented an e-prescribing system sold by Allscripts, Inc.,

in 1998. Another example includes the Tufts Health Plan and AdvancePCS implementation of an e-prescribing technology called PocketScript. The technology which

can be used remotely on Personal Digital Assistants or even Blackberries was introduced to 100 physicians’ offices in Massachusetts. Finally, in another study Gandhi

and colleagues (2002) compared rates of medication errors and adverse drug events

in two physician practices that used electronic prescribing technologies with two

practices that used traditional hand-written prescribing over a six-week period.

• Impact on Quality. The Cap Gemini Ernst and Young studied the Quantum/

Allscripts implementation and found the system improved the practices’ efficiency

and increased use of generic drugs by about 4 percent. In survey conducted following the Pocketscript implementation, 35 percent of physicians reported patient

care benefits due to the ability to check drug interactions and prescription accuracy.

The Gandhi study found that the practices that used electronic prescribing had

fewer violations of prescribing rules and fewer medication errors, but the rates of

preventable and non-preventable adverse drug events were not significantly different. The main types of errors were related to identifying medication-related

symptoms and inappropriate drug choice. Computerized ordering checks would have

prevented only one-third of the preventable adverse drug events that occurred.

• Impact on Cost. One of the Quantum physician practices in which the technology was used experienced savings of $1.15 per member per month in pharmacy

costs, for a total of $69,000. Increased operational efficiency contributed to an additional $12,000 in savings for that practice. Pocketscript technology improved operational efficiency for the practices. It reduced phone calls between physician practices and pharmacists by 30 percent, and saved nearly one hour per pharmacist in

a typical day.

AMBULATORY COMPUTERIZED PHYSICIAN ORDER ENTRY

• Description. Computerized Physician Order Entry (CPOE) systems in the ambulatory (or outpatient) setting allow physicians to submit orders for medications,

immunizations, lab tests, radiology studies, nursing interventions, and referrals. A

key component of CPOE in the ambulatory setting is clinical decision support, which

gives physicians tools for diagnosing and treating patients while avoiding medical

errors. Clinical decision support, one of the most important attributes of CPOE, essentially gives the physician access to a bank of medical knowledge at the point and

time of care. A review of CPOE in ambulatory settings was conducted by the Center

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for Information Technology Leadership. It included a literature review, interviews

of vendors, and an expert panel meeting.

• Impact on Quality. The review found that nationwide adoption of advanced

CPOE systems in the ambulatory setting would eliminate more than 2 million adverse drug events, and over 130,000 life-threatening adverse drug events. In addition, nationwide use of CPOE would avoid nearly 1.3 million physician office visits

per year, and more than 190,000 hospitalizations per year.

• Impact on Cost: The study estimates that nationwide use of CPOE in the ambulatory setting could save nearly $27 billion in medication expenses each year.

Those savings include switches from brand to generic drugs, switches from more expensive to less expensive drugs within the same therapeutic class and more appropriate drug utilization. Of that total, savings of more than $2 billion would be

achieved through averted hospitalizations from prevented adverse drug events,

while $10 billion of savings would come from reduced radiology costs and nearly $5

billion in reduced laboratory costs.

• Estimated Net Savings: The Center for Information Technology Leadership

estimates that implementing advanced CPOE systems in the outpatient setting

would eliminate over 2 million adverse drug events per year, and would avoid nearly 1.3 million physician visits, 190,000 hospital admissions, and over 130,000

lifethreatening adverse drug events per year.

Nationwide adoption of advanced CPOE systems in the outpatient setting would

avoid about $44 billion per year in health care spending. That savings would consist

of savings on medications (60%), radiology services (24%), laboratory services (11%)

and avoided adverse drug events (5%).

The cost of adopting advanced CPOE systems that include ambulatory electronic

medical record systems is over $29,000 per provider in the first year, and about

$4000 per provider in subsequent years. If those costs were applied to each of the

over 473,000 office-based physicians in the U.S. and amortized over 20 years at 7

percent interest, the annual cost of implementing an advanced CPOE system across

the U.S. would be $2.2 billion. (Amortizing those costs over 5 years would equate

to annual costs of $2.7 billion, while amortizing those costs over 10 years would

equate to annual costs of $2.4 billion.)

ELECTRONIC MEDICAL RECORDS IN PRIMARY CARE SETTINGS

• Description. Partners Healthcare System in Boston, Massachusetts, internally

developed an electronic medical record that replaces paper medical charts. The system aggregates a patient’s complete medical record—including physician notes, lab

test, radiology results, immunization records and a host of other data elements—

into an electronic version. The record, up to date and secure, is then available to

providers either at the patient’s primary point of care (physician office) or via secure

linkage, at other sites of care (ER, specialist, etc . . .). A cost-benefit analysis of the

electronic medical record was conducted by Wang et al., 2003.

• Impact on Quality: The authors estimated that the electronic medical record

was associated with a 34 percent reduction in adverse drug events, a 15 percent decrease in drug utilization, a 9 percent decrease in laboratory utilization, and a 14

percent reduction in radiology utilization.

• Impact on Cost. The study found that the electronic medical record had net

financial benefits of $86,400 per provider over a five-year period. Savings in drug

expenditures made up one-third of that amount, with the remainder of savings attributable to decreased radiology utilization, decreased billing errors, and improved

charge capture.

PREPARED STATEMENT OF PETER NEUMANN, SC.D., ASSOCIATE PROFESSOR OF POLICY

& DECISION SCIENCES, HARVARD SCHOOL OF PUBLIC HEALTH

Thank you very much Mr. Chairman for your invitation to speak before this committee on the topic of technology, innovation, and their effects on cost growth in

health care.

I would like to speak today about how we can better understand the value or costeffectiveness of medical technology.

Broadly speaking, medical technology contributes to growth in health care expenditures.

But this research says nothing by itself about the benefit side of the equation. As

we consider medical technology, it is important to address not just how much medical technology contributes to health costs, but whether the investments in medical

technology are worth the health benefits produced.

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We all would like to get good value for our money when we pay for new drugs,

devices, and procedures. How do we get there? What tools do we have to use, and

what policy options are available? Formal economic evaluation can help us answer

these questions.

The field of economic evaluation of health and medical interventions has been an

active area of research in recent years. It includes cost-effectiveness analysis, which

shows the relationship between the total resources used (costs) and the health benefits achieved (effects) for an intervention compared to an alternative strategy. Often

a standard metric such as life-expectancy or quality adjusted life-expectancy is used

as the measure of health benefits.

In part with funding from the Agency for Health Care Research and Quality, my

colleagues and I have compiled a list of over 1500 cost-effectiveness ratios, covering

a wide variety of medical technologies and public health strategies in many disease

areas. More information is available on our website www.lispb.harvard.edu/

cearegistry.

These data underscore several important points about the cost-effectiveness of

medical technology. First, a great deal of information on the topic has become available to policymakers in recent years. Unlike many unsupported assertions made

about the ‘‘cost-effectiveness’’ of drugs and other medical technology, these studies

quantify costs and health effects using data and a standard, well-accepted methodological technique.

Second, according to peer-reviewed articles, many technologies are indeed cost-effective. Examples include warfarin therapy to prevent stroke in those with atrial fibrillation, immunosuppressive drugs for those with kidney transplants, and treatment with mood-altering drugs for those suffering from depression. These interventions provide good value in the sense that they produce health benefits for relatively

little cost, or may actually save money for the health care system.

Third, cost-effectiveness does not mean cost-savings. Over the years, people have

sometimes confused these terms. But restricting the term cost-effective to cost-saving interventions (where equal or better health outcomes is implied) would exclude

many widely accepted interventions, which do not save money but are ‘‘cost-effective’’ in the sense that their additional benefit are worth their additional cost.

A related point is that a critical aspect of any medical technology’s cost-effectiveness involves the manner in which the question is framed. A technology is not intrinsically cost-effective or cost-ineffective. It is only meaningful to say that a technology is cost-effective compared to something else. A drug prescribed to lower an

individual’s blood pressure may in fact be cost-effective compared to the option of

no treatment, but not necessarily when compared to an alternative intervention,

such as an intensive program of diet and exercise, or another medication. Similarly,

claims of cost-effectiveness often depend on the population under investigation. For

example, statin drugs used to lower an individual’s cholesterol have been found to

be relatively cost-effective as secondary prevention in persons with existing heart

disease, but considerably less cost-effective as primary prevention.

Does anyone actually use CEA? Logically, cost effectiveness analysis should be

used by private insurers and state and federal policy makers. However, many payers, including Medicare, have shied away from using CEA in coverage and reimbursement decisions.

But why? Cost-effectiveness analysis promises to inform decisions and enhance

population health in an explicit, quantitative and systematic manner. Medical journals, including the most prestigious ones, routinely publish CEAs. Furthermore,

many other countries have incorporated CEA into their policy decisions.

How do we explain this paradox? Studies point to a couple of explanations. Some

of them fault the methodology itself. But in fact, most experts agree on the basic

tenets. Instead, the opposition more likely relates to the hardened American distaste

for explicit rationing. This is understandable, perhaps. But still, how do we get good

value in face of this opposition?

I would offer five observations as we look ahead.

CEA should not be used rigidly. Leaders in the field have always warned against

using CEA mechanically, but experiences teaches that rigid use of CEA will be resisted. Expectations for CEA should be modest. CEA should inform decisions not

dictate them.

CEA will not save money. CEA should not be conceptualized or promoted as a cost

containment tool, but rather as a technique for obtaining better value. Paradoxically, using CEA may actually increase health spending, because it often reveals

under—than over treatment.

How you say it matters. Research shows that physicians understand that resources are limited but they are not willing to admit to rationing. Similarly, health

plan managers deny that they ration care but admit that their budgets are conVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00058 Fmt 6601 Sfmt 6621 90494.TXT SSC3 PsN: SSC3
55

strained. These responses are instructive. It suggests that the term ‘‘cost-effectiveness’’ may be part of the problem. We might instead use terms such as ‘‘value analysis’’ and comparability, rather than cost-effectiveness analysis and rationing.

Incentives first. Debates about the use of cost-effectiveness cannot be separated

from debates about the underlying health system and the incentives they embody.

The technique is sometimes opposed if used centrally. But reconfiguring the incentives facing providers and patients is challenging and critical.

Think broadly across sectors. A final message involves the importance of thinking

expansively about applications of CE information. CEAs should not simply focus on

medical interventions but more broadly on interventions to improve health by reducing environmental exposures, injuries at home and in the workplace, and motor vehicle accidents.

In closing let me emphasize that whether medical technology offers good value is

a question that can only be informed by careful analysis. I would encourage the judicious use of cost-effectiveness analysis in the years ahead.

Thank you very much.

Table 1: Selected Cost-Effectiveness Ratios

Interventions Cost per QALY ratio

(US $2002)

Onetime colonoscopic screening for colorectal cancer at 60-64 yrs old vs. no screening in women over

40 years old ............................................................................................................................................... Cost-saving.

Cost-saving Chemoprevention with tamoxifen vs. surveillance in 40-year-old women with high-risk

breast cancer 1/2 mutations .................................................................................................................... $1,800

Drug treatment vs. no treatment in stage I hypertensive patients: men, age 80 ...................................... $4,800

High-dose palliative radiotherapy vs. best supportive care in patients with advanced non-small-cell

lung cancer ................................................................................................................................................ $13,000

Combined outreach for the pneumococcal and influenza vaccines vs. no new outreach program in persons aged 65 years old and older never vaccinated with pneumococcal vaccine and/or not vaccinated for influenza in the last year ....................................................................................................... $13,000

Screening for diabetes mellitus vs. no systematic diabetes mellitus screening in all ndividuals age 35-

44 ............................................................................................................................................................... $22,000

Driver side air bag vs. no air bags in driving population (and passengers) .............................................. $30,000

Bypass surgery vs. medical management + aspirin over 5 years in ischaemic heart disease patients ... $35,000

Automated external defibrillators on large-capacity aircraft, selective training vs. no automated external defibrillators, attendants with basic life support training in patients experiencing cardiac arrest

onboard US commercial aircraft during a 12 month period .................................................................... $36,000

Coronary artery bypass graft surgery vs. percutaneous transluminal coronary angioplasty (PTCA) in 55-

yr. old men with 3-vessel coronary artery disease and type A lesions with severe angina and normal

ventricular function ................................................................................................................................... $99,000

Intensive school-based tobacco prevention program vs. status quo (Current average national tobacco

educational practices) in every 7th and 8th grade in the U.S. ............................................................... $5,300-650,000

MRI + dynamic susceptibility contrast-enhanced (DSC) magnetic resonance imaging (MRI) vs. head

computed tomography (CT) scan only in patients presenting for the first time to an Alzheimer’s Disease center/clinic ...................................................................................................................................... $530,000

Triple therapy with zidovudine, lamivudine, and indinavir for all exposures vs. the current United States

Public Health Services (USPHS) post-exposure prophylaxis guidelines in health care workers dosed to

known HIV+ blood ..................................................................................................................................... $850,000

Surgical strategy vs. Medical strategy in 45 year old men with severe esophagitis .................................. $1,900,000

Source: Harvard School of Public Health Cost-Effectiveness Registry, 2003. www.hsph.harvard.edu.cearegistry.

Cost-Effectiveness of Underutilized Interventions in the Medicare Population

Health Intervention Cost-Effectiveness ($/QALY) Percent Implementation in Medicare

Population

Influenza vaccine ..................................................... Cost saving ................................... 40-70

Pneumococcal vaccine ............................................. Under $1OK/QALY ......................... 55-60

Beta blocker treatment after myocardial infarction Under $1OK/QALY ......................... 85

Mammogram ............................................................. Under $20K/QALY .......................... 75 (depending on age)

Colon cancer screening ............................................ Under $20K/QALY .......................... 20-40 (depending on age)

Osteoporosis screening ............................................. Under $20K/QALY .......................... 35

Antidepressant medication management ................ Under $25K/QALY .......................... 40-55

Hypertension control ................................................. Under $50K/QALY .......................... 35

Source: Harvard School of Public Health, 2003.

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QALY=quality-adjusted life year.

Note: The estimates in this table are intended to provide a rough guide to cost-effectiveness and implementation. However, study methodology for estimated cost-effectiveness often varies across analyses. Moreover, cost-effectiveness may depend on factors such as the age and

gender of the population, and the particular screening and technologies used.

PREPARED STATEMENT OF NEIL R. POWE, M.D., MPH, MBA, PROFESSOR OF

MEDICINE, EPIDEMIOLOGY AND HEALTH POLICY & MANAGEMENT,

JOHNS HOPKINS UNIVERSITY

Good morning Mr. Chairman, Senators and Representatives. I am Neil R. Powe,

MD, MPH, MBA, Professor of Medicine, Epidemiology and Health Policy & Management at Johns Hopkins University in Baltimore, Maryland. I direct the Welch Center for Prevention, Epidemiology and Clinical Research, an interdisciplinary research center of the Johns Hopkins School of Medicine and Bloomberg School of

Public Health. I am a general internist, clinical epidemiologist and health services

researcher. My research has assessed the clinical and economic impacts of biomedical innovation in medicine. It examines the impact of new and established technologies on patients’ longevity, functioning, quality of life and costs. I have conducted cost-effectiveness studies of technologies in several areas of medicine and

have attempted to do this with equipoise. Among the technologies I have studied

are kidney replacement therapies such as dialysis and transplantation, biotechnology medications such as recombinant human erythropoietin, cardiac

revascularization procedures, imaging tests for lung and heart disease, laboratory

testing for periodic screening, laser therapies, vascular procedures to prevent stroke

and minimally invasive surgery. I have also studied physician decision making and

other determinants of use of medical technology including payers’ decisions about

insurance coverage for new medical technologies and the impact of financial incentives on the use of technology.

New medical technologies include drugs, devices, procedures and the systems of

care in which we, as medical professionals, deliver them. These include so called

‘‘little ticket’’ technologies which cost relatively little individually, but when used at

high frequency, can become expensive. One such emerging ‘‘little ticket’’ technology

is the C-reactive protein (CRP) laboratory test for detecting inflammation now being

debated as a useful technology for detection of heart attack risk. ‘‘Big ticket’’ technologies such as ‘‘body scans’’ and organ transplantation have high individual price

tags and can generate high cost even when used relatively infrequently. In theory,

a new medical technology can increase costs, have similar costs or decrease costs

relative to the existing standard. Evidence to date suggests that much of new biomedical innovation increases cost to the health system, especially in the short run.

‘‘Little ticket’’ or ‘‘big ticket’’, technology should not be judged based simply on costs.

The more important question that I would like to address is ‘‘what is a technology’s

value’’.

Value is commonly seen as the benefit that is derived relative to the cost. In theory, a technology can produce benefit relative to the existing standard if patient outcomes (effectiveness and/or safety) are better; on the other hand it can produce no

benefit if outcomes are similar, or even produce harm if patient outcomes are worse.

High value occurs when substantial improvement in patient outcomes occurs at a

reasonable cost. Americans believe in the concept of value and understand it. For

example, they are willing to pay more for many things—a particular type of clothing, food, service, house or automobile—because they believe that the utility (happiness, satisfaction, health, well-being) that is derived from the purchase is worth the

higher price. Cost is a relevant factor, but value is paramount. So much so, that

medical technology needs to be judged in the same way.

Twenty-five years ago, the science of assessing value in medicine was rudimentary

and underdeveloped. Many of the tools for assessing value were first applied to

health care in the late 1970s and early 1980s. These include patient outcomes research comprising clinical trials, evidence synthesis (including meta-analysis) and

cost effectiveness analysis. At that time it was uncertain how these tools would fare

in assessing health care. They have undergone refinement by researchers at universities across the country. Much of this work has been catalyzed and funded by the

Agency Healthcare Research and Quality. These researchers have sought to create

rigorous standards of high quality research for value science. Teams of clinicians,

epidemiologists, health services researchers, health economists and others are involved in assessing value. Despite the maturation of and demand for the science of

value, its impact has been limited for three reasons.

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1Steiner CA, Powe NR, Anderson GF, Das A. Technology coverage decisions by health care

plans and considerations by medical directors. Medical Care. 1997; 35:472-89. 2 Boren SD. I had a tough day today, Hillary. New Engl. Jour. of Med. 1994; 330:500-2. 3Steiner CA, Powe N, Anderson GF, Das A. The Review Process and Information Used by

Health Care Plans in the United States to Evaluate New Medical Technology. Journal of General Internal Medicine 1996; 11:294-302. 4Mahadevia PJ, Fleisher LA, Frick KD, Eng J, Goodman SN, Powe NR. Lung cancer screening with helical computed tomography in older adult smokers: a decision and cost-effectiveness

analysis. Journal of the American Medical Association 2003; 289:313-22. 5Danese MD, Powe NR, Sawin CT, Ladenson PW. Screening for Mild Thyroid Gland Failure

at the Periodic Health Examination. A Decision and Cost-Effectiveness Analysis. Journal of the

American Medical Association 1996; 276:285-292. 6McNamara R L, Lima JAC, Whelton PK, Powe NR. Echocardiographic Identification of Cardiovascular Sources of Emboli to Guide Clinical Management of Stroke: A Cost-effectiveness

Analysis. Annals of Internal Medicine 1997; 127:775-787. 7 Cabana MD, Rand CS, Powe NR, Wu AW, Wilson MH, Abboud PA, Rubin HR. Why Don’t

Physicians Follow Clinical Practice Guidelines? A Framework for Improvement. Journal of the

American Medical Association, 1999; 282(15):1458-1465.

First, there is an unprecedented number of new technologies now entering into

the healthcare marketplace. These technologies earn the admiration of the world

and are made possible from continual progress in biomedical science. They include

minimally invasive surgery, transplantation of hearts, lungs, kidneys and livers, biotechnology drugs indistinguishable from natural hormones for patients with congenital or acquired deficiencies, dialysis therapy for end stage kidney disease, automatic implantable defibrillators and cardiac resynchronization to bring life to those

with life threatening arrhythmias and heart failure. Knowledge of the structure and

function of genes and proteins is advancing rapidly and the future will yield promising technologies we never imagined for identifying, preventing and treating acute

and chronic diseases in an aging population. For example, genetic tests are now in

the making for early detection of breast cancer, Huntington’s disease and Alzheimer’s disease. However, the level of funding for high quality and unbiased value

assessments pales in comparison to the explosion of new biomedical innovations.

To the public, payers and providers, the entry of new medical technologies into

the practice of medicine now seems like a series of intermittent ‘‘surprise attacks’’

on the pursestrings of American health care. It has been suggested that less than

a fifth of all practices in medicine are subjected to rigorous evaluation and still less

receive an adequate assessment of the cost consequences in addition to the clinical

consequences. We are likely to witness a salvo of ‘‘surprise attacks’’ in the coming

years without adequate funding to do early, comprehensive, balanced and rapid assessments. In a study with researchers at the AHRQ, I found that medical directors

making coverage decisions for new medical technologies at private healthcare plans

across our country were impeded in their decisions because of lack of timely effectiveness and cost-effectiveness information.1 There is considerable trepidation to decide against covering potentially useful technology without adequate evidence. Likewise there is concern about making a coverage decision in favor of a technology that

might later be shown to have minimal benefits at a large cost to society.2 The preference of those making decisions about coverage and payment for technology was

for high quality outcomes research funded by authoritative government entities.3

Early assessments of clinical and economic outcomes could be accomplished with

investment of a small fraction of annual healthcare expenditures on value assessments. The payoff would be substantial. For example, contrary to relentless, directto-consumer advertising for body scans to detect occult disease, my colleagues and

I recently found that screening smokers for lung cancer with helical CT scans is unlikely to be cost-effective unless certain conditions are met.4 The high number of

false positive lung nodules detected by the scans can potentially lead to more harm

from invasive and costly surgical procedures. We have performed similar cost-effectiveness studies to guide decision making for detection of mild thyroid gland failure

using thyroid stimulating hormone (TSH) laboratory tests and use of cardiac

ultrasound devices in patients with stroke showing what tests have substantial

value.5, 6 Early assessments such as these, which include primary data collection,

secondary data collection, data synthesis, modeling and forecasting would secure information for the American public and its policymakers in the timely fashion needed

to prevent premature dissemination of costly technology with no or little value. The

Agency for Healthcare Research and Quality as well as the National Institutes of

Health could act as the focal point to bring the best teams of ‘‘value researchers’’

in the country to attack these issues, by performing clinical effectiveness trials, observational studies, cost-effectiveness analyses and meta-analyses. If introduction of

some new technologies does not decrease costs, at least through generation of better

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7 Cabana MD, Rand CS, Powe NR, Wu AW, Wilson MH, Abboud PA, Rubin HR. Why Don’t

Physicians Follow Clinical Practice Guidelines? A Framework for Improvement. Journal of the

American Medical Association, 1999; 282(15):1458-1465. 8 Cruz-Correa M, Gross CP, Canto MI, Cabana M, Sampliner RE, Waring JP, McNeilSolis C,

Powe NR. The Impact of Practice Guidelines in the Management of Barrett’s Esophagus: A national prospective cohort study of physicians. Archives of Internal Medicine 2001; 161:2588-2595. 9Gross CP, Steiner CA, Bass EB, Powe NR. The Relation Between Pre-publication Release

of Clinical Trials Results and the Diffusion of Carotid Endarterectomy. Journal of the American

Medical Association 2000; 284(22):2886-2893. 10Powe NR, Griffiths RI, Anderson GF, de Lissovoy GV, Watson AJ, Greer JW, Herbert RJ,

Whelton PK. Medicare Payment Policy and Recombinant Erythropoietin Prescribing for Dialysis

Patients. American Journal of Kidney Diseases 1993; 22:557-567.

and more timely information, Americans can make sure that what they are purchasing provides good value for the dollars they spend.

Early assessments are particularly important given rising numbers and costs of

pharmaceuticals, current consideration of a Medicare prescription drug benefit and

use of tiered pricing arrangements in the private sector to control drug spending.

Tiered pricing is a mechanism to allow consumers choice in particular drug treatments when they believe one drug has value over another. However, they must pay

more when choosing to use a more expensive medication. Placement of a pharmaceutical into a particular tier and patient decisions to buy and use it are dependent

on unbiased information about the benefits and costs of the pharmaceutical relative

to the benefits and costs of competing medications, i.e. relative value.

Second, as a corollary, funding for career development of ‘‘value scientists’’ needs

substantial bolstering to expand the cadre of people with the capability to perform

such research. The AHRQ and the NIH could amplify training programs focused on

preparing and assuring experienced value scientists to perform this function, just

as the AHRQ and NIH have support training of biomedical scientists who innovate.

Far too few physicians and other health care professionals and scientists have the

necessary training to understand and produce value science that integrates clinical

and economic issues.

Third, understanding how technologies affect cost and value involves an understanding of the barriers to decision making for health care providers. Barriers to

optimal decision making can lead to technologies being overused, underused or misused. Physicians are responsible for most of the decisions in medicine and therefore

the use of medical technologies. My colleagues and I performed a study of the factors affecting physician decision making with regard to adherence to clinical practice

guidelines.7 We found there is a process that must take place for a new technology

to become routine, standard practice. Physicians must be aware that a new technology exists, agree that it has value, be willing to try it (adopt) and then, they

must adhere to its use. Lack of awareness leads to underuse. Underuse of an effective technology can lead to higher expenditures in the future. For example, if physicians were not aware that in patients with diabetes, urine protein screening for detection of occult kidney disease and application of angiotensin converting enzyme inhibitors can delay or prevent expensive ($>50,000 per year) dialysis treatment for

endstage kidney failure, they might never employ this strategy in their practice.

Fortunately, methods of communicating new information to clinicians are improving

through rapid summary publications (Up To Date, ACP journal club), clinical practice guideline production by professional societies and dissemination through electronic means. The continued proliferation of technology will be even more challenging for physicians to keep abreast of new technology. Ways for helping them acquire and assimilate new information are needed.

If aware of a technology, physicians must agree with the evidence that a technology is more effective or safe. If high quality evidence on representative patient

populations is not available, physicians may disagree on whether the technology

provides benefit.8 We studied how early assessments, released through brief clinical

alerts that were not comprehensive influenced the use of carotid endarterectomy.9

We found that clinicians may extrapolate research findings to populations without

clear evidence and indications. Value science can provide clear evidence.

Awareness and agreement are necessary for appropriate use of technology but insufficient. Even being aware and with strong evidence of effectiveness, physicians

may not adopt innovations if there are administrative barriers to its use or lack of

self-efficacy (i.e. belief in their ability to use the technology to improve outcomes).

They may also adopt technologies with little benefit if payment policies prematurely

promote a technology’s use. Financial incentives in payment policy influence both

adoption of and adherence to use of technologies. We found that providers responded

to financial incentives in payment policy for a biotechnology product (recombinant

erythropoietin) used to treat the profound anemia associated with kidney disVerDate 03-FEB-2003 11:07 Dec 11, 2003 Jkt 090494 PO 00000 Frm 00062 Fmt 6601 Sfmt 6621 90494.TXT SSC3 PsN: SSC3
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11Powe NR. Prescription Drugs in Medicare and the ESRD Program. Seminars in Nephrology

2000; 20(6):535-5. 12 Eisenberg JM, Schwartz JS, McCaslin FC, Kaufman R, Glick H, Kroch E. Substituting diagnostic services. New tests only partly replace older ones. Journal of the American Medical Association 1989; 262:1196-200. 1Steiner CA, Powe NR, Anderson GF, Das A. Technology coverage decisions by health care

plans and considerations by medical directors. Medical Care. 1997; 35:472-89.

ease.10, 11 Under a fixed, per case payment system, administered doses of this medication were less than optimal to achieve the maximal benefit. Changes in payment

policies by the Centers for Medicare and Medicaid Studies were necessary to assure

that Medicare spending was leading to maximal value for recombinant erythropoietin. Thus, proper use of new technologies means that the physicians who apply

them and the systems into which they are placed are adequately configured and

incentivized to make optimal use of the technology. To this end, there is a need for

more behavioral and systems research that studies how biomedical innovation from

laboratories is optimally and rapidly translated into interventions to improve the

health of patients treated at hospitals and physicians offices. The AHRQ can play

a role in this regard.

A final issue affecting cost and value is whether new technologies supplant older

ones and whether technology induces more demand. New tests do not always replace older ones.12 For example, CRP testing is a new test that could be routinely

adopted for assessing heart attack risk. But it is unlikely to substitute for other

tests such as cholesterol and diabetes testing. Similarly, ambulatory blood pressure

monitors are unlikely to substitute for traditional office-based blood pressure monitoring. Minimally invasive surgery is an example of a technology that may induce

persons who would otherwise not have a surgical procedure to undergo an operation.

Although these technologies may not substitute for older traditional tests and may

induce further expenditures through wider use, they may provide health value.

In conclusion, biomedical innovation has brought the United States new, unprecedented, medical advances that save and improve the quality of patients’ lives. We

need to continue to encourage biomedical innovation. But we must recognize that

for many health conditions, technologies will bring higher rather than lower absolute costs. Cost is relevant, but value is far more important. We need to protect biomedical innovation and the America’s purse by furthering the science of assessing

value in medicine. Strengthening our nations’ capacity to perform value science will

help private and public payers in this regard and provide information that physicians and consumers of medical technologies need to make decisions about their

care. The American people cannot afford to have technology used unwisely. A fraction of health care expenditures in the U.S. should be targeted to the value science

of medical care.

Thank you for the opportunity to address you today. I would be happy to entertain any questions you may have.

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