Obamacare's Cost ScalpelAlex Nussbaum and Meg Tirrell and Pat Wechsler
One often-heard criticism of the health-care reform legislation that President Barack Obama has now signed into law is that it won't do enough to rein in the cost of treatment. U.S. medical spending has soared to $2.5 trillion per year (a price tag that has more than doubled in 15 years) and represents 18% of the nation's gross domestic product. Can Obamacare begin to cope with that?
The answer is a qualified yes. Tucked inside the 2,400-page bill is an item (it's right there on page 1,617) that has generated far less attention and political heat than other parts of the White House's plan to expand medical coverage to 32 million uninsured Americans. The measure requires the U.S. to put aside $500 million or more a year for something called "comparative effectiveness research," an ungainly name for a process Obama hopes will reduce costs. The studies, designed to show which drugs, devices, and medical treatments work best, could have an enormous impact on the delivery of health care in the years ahead, scrutinizing everything from cholesterol drugs and heart stents to hospital procedures.
By using statistics-driven research methods, its backers say, comparative effectiveness promises to bring scientific rigor to medical decision-making that is too often influenced by tradition and marketing. As such, the research is one of the few measures in the new law that has any chance of flattening America's medical cost curve, according to Boston-based health-care analyst John Sullivan of Leerink Swann.
That also means that comparative effectiveness may be "a headwind for the health-care industry," Sullivan says. "If research shows that less complex and maybe less expensive products and therapies work just as well, that is not good news" for many companies. On top of that, the new health-care reform law tightens restrictions on insurers and requires that most Americans be covered.
Comparative effectiveness is not the only tool in the law designed to pry savings out of the system, says Peter Orszag, Obama's budget director. The legislation also tests new payment systems for doctors, penalizes hospitals for high readmission rates, and creates an independent commission to evaluate which treatments Medicare should pay for, he says. "I don't think there's any one piece that, by itself, is the end-all, be-all" for slowing the growth in medical expenses, Orszag says. "Together, they work to move toward a higher-quality, lower-cost system over time."
Orszag, a lanky, high-octane economist who trained at Princeton University and the London School of Economics, has been a leading evangelist for comparative effectiveness research. As a scholar at the Brookings Institution in Washington, Orszag was perplexed that so much attention was being paid to the rising cost of Social Security, even though health care represented a far larger share of the nation's economy. Orszag eventually discovered the Dartmouth Atlas of Health Care, a national study on the variations in how medical resources are distributed in the U.S.
That research suggested that $700 billion in annual savings could be achieved by eliminating wide disparities in the cost of similar procedures, especially those in which pricier options don't produce better outcomes. "Huge efficiencies could be gained if we change the way we practice medicine," Orszag said in a May 2009 interview, as he lobbied for the creation of a government institute to gather the evidence.
Republican critics, meanwhile, argued throughout the yearlong overhaul struggle that the concept was a stealth effort to deny health care to people who need it. Orszag prevailed. Last year, Congress approved $1.1 billion in stimulus funding for effectiveness research. The new legislation creates a nonprofit Patient-Centered Outcomes Research Institute and charges it with setting a national agenda for the studies, as well as providing more money and disseminating results.
The institute will be run by a 19-member board of governors that must include three representatives of drug, device, and diagnostic-testing companies. The U.S. Comptroller General, a Presidential appointee, must name the board within six months.
The health-care law focuses on studies that assess effectiveness rather than compare cost. It also bars Medicare, the government insurer for the elderly, from using the research as the sole grounds for denying reimbursement for medical products or procedures.
Still, "the savings can be substantial if you're drawing a clinical study conclusion that a generic drug works as well as a branded drug," says Leerink Swann's Sullivan, who suggests that therapies used by large numbers of people are likely to be researchers' first targets. That means that Pfizer's (PFE) cholesterol blockbuster, Lipitor, could be in the crosshairs, Sullivan says, along with anti-inflammatory drugs such as Johnson & Johnson's (JNJ) Remicade, and heart stents made by Medtronic (MDT) and Boston Scientific (BSX).
Research vs. Marketing
The research may spur consolidation among health-care companies, said Jeffrey C. Lerner, chief executive officer at the ECRI Institute, which does comparative effectiveness research for government and hospitals. Smaller manufacturers may not have the resources to rebut studies questioning their products' value. A 2005 study of antipsychotic medications shows that the most effective treatment doesn't always prevail in the marketplace, says Robert Rosenheck, a psychiatry professor at Yale University School of Medicine in New Haven, Conn. The U.S.-backed study found a 50-year-old drug that cost about $2.50 a day worked as well as newer medicines that can cost eight times as much. Sales of the next-generation antipsychotics, led by AstraZeneca's (AZN) Seroquel, Eli Lilly's (LLY) Zyprexa, and Johnson & Johnson's Risperdal, still jumped 43% in four years to $14.75 billion in 2009, according to IMS Health, a collector of prescription-drug data based in Norwalk, Conn. "The overwhelming weight of very aggressive marketing for 15 years shapes attitudes in ways that aren't likely to be changed by research," says Rosenheck, author of two antipsychotic comparison studies.
Comparative studies changed practices in breast cancer, where doctors ended the routine removal of entire breasts after studies found less drastic operations were just as effective, Rosenheck says. "Those are mostly [treatments] where there was no private corporation actively marketing its perspective."
Funding for comparative effectiveness in the health law is tied to Medicare's trust fund and a new tax on insurers, which should help insulate the research from politics, says Daniel Mendelson, a former official in Bill Clinton's Office of Management & Budget who is now CEO of Avalere Health, a Washington consulting firm. Companies need to realize that comparative research is now "a permanent part of the dialogue," he says.
Drugmakers, led by Pfizer, support the effort as "an important solution for better quality and ultimately better value in health care," says Randy Burkholder, an associate vice-president at PhRMA, the industry's trade group. Device companies agree, says David Nexon, an executive vice-president at trade group AdvaMed. The industry favored the legislation because it focuses on clinical effectiveness, rather than cost and because manufacturers will be part of the decision-making, he says. Device-makers hope it can speed widespread use of technologies proven better than existing treatments, Nexon says.
"It takes about 17 years until a new technology is fully accepted as the dominant practice even for something that's new and better," he says. "If you've got something that's really superior, having these studies validate that can really speed up the adoption."
For doctors, the research results will run up against years of tradition, says Devon Herrick, senior fellow at the nonprofit National Center for Policy Analysis in Dallas. Doctors tend not to think about the cost of the drugs they're prescribing, Herrick says. "Quite often what happens is you go to your doctor, they pull a free sample out of the pill cabinet because people like getting something for free, but they don't know it's the highest-price drug that the companies want to promote," he says. Changing that mindset is what comparative effectiveness is all about.