Prologue: Americans often identify waste and inefficiency as the major culprits leading to the spiral of medical care costs. In-deed, when the Clinton administration unveiled its proposed reform of the health care system, its stewards argued that by removing inefficiencies, considerable savings would be generated to finance reform. In this paper William Schwartz, a physician-economist at the University of Southern California and the Pacific Center for Health Policy and Ethics, and Daniel Mendelson, a policy analyst at Lewin-VHI, Inc., take exception to this view. Their estimated potential savings from the reduction of inefficiencies in the acute care sector fall far short of the administration s cost containment goals. Schwartz and Mendelson were quick to point out in conversation that the basis of their study does not stem from ideology or opposition to reform, but rather from a belief that policymakers should have a frank discussion with the American people about the cost of reform. Schwartz is a rare figure in American medicine, combining the knowledge of a clinician with policy analysis skills. From 1950 to 1971 he headed the division of nephrology at Tufts-New England Medical Center and later served as physician-in-chief there. But in the mid-1970s, as the problem of rising medical costs grew worse, Schwartz became fascinated with its implications, and has pursued them ever since. (For details, see John Iglehart's interview with Schwartz, Health Affairs, Fall 1989.) Mendelson, who is a principal at Lewin-VHI, a nationally recognized health care consulting firm, has worked with states and the federal government to help structure and evaluate regulatory programs such as those recently proposed to reform the health system. Mendelson also has expertise in issues related to technology, such as cost-effectiveness analysis, practice guidelines, and quality measurement. He holds a master's degree in public policy from Harvard University. Abstract: This study estimates potential savings from eliminating waste and inefficiency in the acute care sector (hospital, physician, and pharmaceutical). Our analysis indicates that in the unlikely event that all potential savings are achieved between 1994 and 2000, the rise in costs would be reduced by about 1.5 percentage points annually. This would slow the real rise in costs from a projected rate of 6.5 percent to 5 percent annually. Covering the uninsured would partially offset these savings and bring the rise in costs to more than 5.5 percent annually. If our estimate of potential efficiency savings is in error by plus or minus 50 percent, the projected rise in costs would be altered by about one percentage point. We conclude that savings from eliminating inefficiency are likely to fall far short of the Clinton administration's cost containment goals.
The cost of expanding access to acute medical care is one of the least understood aspects of health-care reform. As of January 1992, over twenty health-care reform proposals had been introduced before Congress, each with a different target population, scope of benefits, source of financing, and role for the public sector.1 Analysis of these plans has produced a wide range of cost estimates, and as the debate over health-care reform intensifies, attention is likely to focus on the costs of reform. The purpose of this Article is to provide a framework for evaluating the costs of various health-care reform proposals. Most spending estimates associated with current health-care reform proposals focus on total spending for one payer (e.g., government or employers). Such estimates are misleading because they fail to identify the total increase in spending on health care that will result from expansion of coverage and the distributional impacts of changes in health-care costs. For example, it was reported that the proposal submitted by the U.S. Bipartisan Commission on Comprehensive Health Care (the Pepper Commission) was removed from serious consideration due to its high costs.2 In fact, while it was widely circulated that the acute care portion of the plan would cost $24 billion in expenditures to the Federal Government the, net new spending from the plan would represent half this figure, or $12 billion.3 To accurately and completely describe the costs of universal access or the effects of a plan to reform the health-care system, we believe that such proposals should be assessed from three perspectives:
In Medicaid, generic drug cost containment revolves around two programs: the Federal upper limit (FUL) program and State maximum allowable cost (MAC) programs. This article analyzes MAC programs in five States and finds considerable variation between these programs and the FUL program in both size and pricing aggressiveness. We conclude that expansion of existing MAC programs and creation of new ones could contribute to cost containment efforts nationwide. Options for States seeking to optimize their efforts include focusing on pricing for drugs with high sales volumes, ensuring that MAC lists include prices for all forms and dosages of listed drug entities, and collaborating with other States or the Federal Government on MAC list operations.
PROLOGUE: Practically since its inception, the Agency for Health Care Policy and Research (AHCPR) has been a target of budget-cutting Congressmen. To take one recent example, in May 1998 the House Budget Committee proposed a $90 million reduction in AHCPR's annual budget—a substantial sum when one considers the fact that the agency's current budget is a fairly modest $146 million. Underlying this proposal was the committee's belief that the agency duplicates private-sector activity in the area of medical practice standards and guidelines. Contrary to what some in Congress might believe, Dan Mendelson and colleagues report that, although there is considerable private-sector activity under way in this area, government's role is by no means obviated by this activity. The authors boast a wealth of experience in the field of science and technology policy, with scores of journal articles to their credit. Mendelson recently became the associate director for health at the Office of Management and Budget. Prior to entering government, Mendelson spent eight years with the Lewin Group in Fairfax, Virginia, where he was most recently senior vice-president and director of the medical technology practice. He holds a master's degree from Harvard's Kennedy School. Cliff Goodman is a senior manager with the Lewin Group. He earned a doctorate from Pennsylvania's Wharton School. Robert Rubin, president of the Lewin Group, earned his medical degree from Cornell University. Roy Ahn was an associate in the medical technology practice at the Lewin Group when this paper was written. He holds a master's degree from Yale University. ABSTRACT: Private-sector health care organizations increasingly tout the use of outcomes and effectiveness research in activities ranging from pharmaceutical research to insurance coverage determinations. The rapid development of this research raises important questions about the role of the Agency for Health Care Policy and Research (AHCPR) as the producer, funder, and champion of outcomes and effectiveness research. To address this issue, we reviewed the activities of pharmaceutical companies, insurers, managed care organizations, health information technology companies, and other private-sector actors in outcomes and effectiveness research. We found that it is being used in a focused way to promote business goals and other organizational objectives, particularly in the pharmaceutical, insurance, and managed care industries. We also found significant gaps in its application to important public health issues and virtually no overlap with prior federal activities in this area.
PROLOGUE: The idea that information plays an important role in performance measurement and quality assurance in health care settings is neither new nor controversial. And yet a lack of useful, relevant information to support medical and health care decisions has long plagued clinicians, policymakers, and the public alike. This chasm between the ideal and the real was not lost on the 104th Congress, which enacted the Health Insurance Portability and Accountability Act in the summer of 1996. In addition to its well-known guarantees of portability and its restrictions on denials of coverage, the law's administrative simplification provisions are designed to improve the “efficiency and effectiveness of the health care system … through the establishment of standards and requirements for the electronic transmission of certain health information.” As Daniel Mendelson and Eileen Salinsky point out in this paper, there is already considerable activity under way at the state level to exploit emerging information technologies with the aim of improving health and increasing system efficiency. Mendelson, a vice-president with The Lewin Group, is an expert on state health policy with a strong background in strategic and regulatory issues surrounding health information technology. He holds a master's degree in public policy from Harvard. Salinsky, a senior manager at Lewin, has a long-standing interest in the role that health information systems play in supporting reform objectives at the state and federal levels. She holds a master of business administration degree from Temple University. ABSTRACT State government entities have created a range of innovative electronic information systems to support their diverse and evolving roles in the health care system. Primary goals of these initiatives include improvement of traditional public health programs, meaningful oversight of providers, simplification of administrative procedures, and support of state purchasing decisions. We establish a taxonomy of state efforts, describing primary capabilities to (1) provide meaningful data to state decisionmakers; (2) disseminate information to purchasers and consumers; (3) coordinate and improve government services; (4) establish mechanisms for electronic transactions; and (5) support tele-medicine services. Reductions in the costs of technology and use of the Internet have dramatically increased state capabilities in recent years. Both the successes and failures of existing programs offer important lessons for states that are initiating new electronic communication initiatives.
The use of and payment for erythropoietin-stimulating agents (ESA) has become a source of controversy in the nephrology and policy communities, as evidenced by the recent series of articles in CJASN and other journals (1–7), a high-profile Ways and Means Committee hearing last December, and a recent Government Accountability Office study on bundling payment for ESRD services (8). The drama of these deliberations was illustrated when Chairman Bill Thomas told Medicare officials, “You seriously need to consider that your payment policy is killing people.” At the core of this debate is concern that current Medicare payment policy, based on “tainted” guidelines, inappropriately stimulates overuse of ESA, thereby harming patients and increasing Medicare costs. Some historical context is needed to understand that the current policy is in fact a good faith attempt by Medicare officials to promote optimal therapy. In 1994, Medicare began the Clinical Performance Measures (CPM) Project to measure and improve patient outcomes, and designated anemia as a CPM. Aligning clinical and economic incentives produced remarkable results. The percentage of patients with hemoglobin ≤11 g/dl has decreased to 17% from 57% in 1997. Currently only 6% of dialysis patients have hemoglobin ≤10 g/dl. Conversely, the mean hemoglobin was 12.0 g/dl in 2004 (9). These numbers are collected from every dialysis unit and monitored by the networks. The clear message articulated through the policy is a desire to maintain hemoglobin at ≥11 g/dl. It is important to understand that these numbers are “snapshots” not “movies” of patient hemoglobin. A recent study showed that, when followed for 6 mo, the mean hemoglobin is indistinguishable from the population mean regardless of whether the starting hemoglobin was <11 g/dl, 11 g/dl to <12.5 g/dl or ≥12.5 g/dl (10). A recent analysis of the Fresenius Medical Care (FMC-NA) database shows that of 21.6% (“snapshot”) of patients that start with hemoglobin >13 g/dl, only 2.6% (“movie”) still have hemoglobin >13 g/dl after 3 mo (11). The Centers for Medicare and Medicaid Services (CMS) Erythropoietin Monitoring Policy recognizes this and urges physicians to implement a dose reduction of ESA as hemoglobin approaches 12 g/dl. Consequently, it is critical for CMS to allow payment in such cases. The Erythropoietin Monitoring Policy has “right-censored” the hemoglobin distribution curve through economic penalties for hemoglobin ≥13 without dose reduction. This has effectively shifted the curve to the left. Data from both DaVita (11) and FMC-NA (personal communication with Kent Thiry, CEO DaVita, Inc., November 16, 2006) show an increase in the proportion of patients with hemoglobin <11 g/dl (1.5 to 2.5%) and an even smaller change in the number of patients with hemoglobin >13 g/dl. It is important to remember that the lower limit of hemoglobin recommended by the Kidney Disease Outcomes Quality Initiative is 11 g/dl and is evidenced-based (12). It appears that CMS, with input from industry and the nephrology community, seems to have gotten it about right. Further “right-censoring” of the curve will increase the number of beneficiaries with hemoglobin <11 g/dl, and the cycling data suggest that very few people exhibit hemoglobin >13 g/dl for very long. Given the importance of this policy, further monitoring and research is clearly needed, but current evidence does not support dramatic changes. Disclosures R.R. is or has recently been a paid consultant to Amgen, Fresenius, DaVita, and the Centers for Medicare and Medicaid Services. In addition, he is the co-chair of the congressionally mandated advisory committee on bundling of ESRD services. D.M. is president of Avalere Health, which has provided advisory services on ESRD to Amgen, the Centers for Medicare and Medicaid Services, and various managed-care companies. We would like to thank DaVita and FMC-NA for their willingness to share their data with us.
Prologue: America's belief in science and technology has been a defining force in the evolution of our health care system. But conflicting pressures surround the advent of technologies, involving the innovator, the third parties that pay for the innovations' use, and a host of other stakeholders in between. As medical costs have soared and the heavy use of technology has been identified as a culprit, its assessment has become a more frequent tool in determining the value of new products. Reflecting society's uncertain attitudes about limiting the diffusion of technology, the National Center for Health Care Technology and the Institute of Medicine s Council for Health Care Technology were abandoned in the 1980s. Now Congress has targeted the Office of Technology Assessment for obliteration, and there has been little visible public reaction. In sharp contrast, as Daniel Mendelson and his coauthors report, an increasing number of states, facing pressures to reduce the growth of medical spending are reevaluating their once-limited role in the assessment of medical technology. The authors suggest that “the future of state-level technology assessment may lie in collaborative ventures with other states, the federal government, or private industry.” Mendelson is a vice-president at Lewin-VHI, with a strong background in strategic and regulatory issues related to medical technology. He holds a master's degree in public policy from Harvard. Richard Abramson, a member of the Medical Technology practice at Lewin-VHI, holds a bachelor's degree from Harvard and will enter Harvard Medical School this fall. Robert Rubin, a board-certified internist and nephrologist, is president of Lewin-VHI. He served as assistant secretary for planning and evaluation at the Department of Health and Human Services during the Reagan administration. Abstract: State governments are reevaluating their role in the assessment of medical technologies. This paper outlines a range of state technology assessment activities, highlighting programs in Minnesota, Oregon, and Washington, and discusses the issues associated with state government involvement. Clinically oriented activities on the state level can inform efforts to contain costs, educate consumers and providers, and facilitate local consensus on the appropriate uses of new and existing technologies. Although current programs are still in their infancy and their viability remains uncertain, the importance of technology assessment is growing as technology continues to fuel increasing costs. The future of state-level technology assessment may lie in collaborative ventures with other states, the federal government, or private industry.
