Value of New Medical Technologies Worth Their Cost

The Joint Economic Committee held a hearing yesterday to examine the link between new health technologies and health care costs. Witnesses included Dr. Mark McClellan, commissioner of the FDA, Dr. Carolyn Clancy of the Agency for Healthcare Research and Quality, Peter Neumann of the Harvard School of Public Health, and Dr. Neil Powe of the Johns Hopkins Medical Center.

Senator Robert Bennett, chairman of the Joint Economic Committee, asked why new technologies in health care often lead to higher health care costs, while new technologies in other sectors generally lead to greater efficiencies and lower costs? ?What?s different about health care,? asked Bennett. ?Is it the technology or the way we pay for it??

Dr. Mark McClellan said that while new technologies often do lead to increased costs, many medical innovations actually lower costs, such as new drugs for depression. McClellan said the real question is whether the benefits of medical innovations are rising faster than the costs. McClellan said he is convinced that new technologies are giving Americans a better quality of life, outpacing their costs. ?Medical technologies may cost more or less, but we?re getting much better health care in return,? said McClellan.

McClellan said one reason new technologies often lead to higher health care costs is because demand for services grows as the treatments become less invasive and take less time. For example, someone who has a knee injury may opt to have outpatient arthroscopic knee surgery to correct the problem, whereas ten years ago they may have decided the more invasive surgery was not worth the time and cost of hospitalization. The quality of life for the individual has improved because they had the treatment, but at an added cost to the health system.

Dr. Carolyn Clancy stressed the importance of measuring the effectiveness of new technologies compared to existing options and their cost-effectiveness. Cost-effectiveness analysis shows the relationship between the resources used on a new technology and the health benefits achieved, compared to an alternative strategy. ?The challenge is to provide more objective information on these new technologies,? said Clancy.

Clancy mentioned two areas where she thinks new technologies can result in health care savings: reducing waste and coordination of care. Investments in information technology can reduce duplicative services ordered by doctors and better manage care for those with chronic illnesses, leading to cost savings and a higher quality of life in later years.

Peter Neumann explained why cost-effectiveness data for new technologies is not used very often by Medicare, Medicaid, VA, or private insurers when making coverage and reimbursement decisions. Opposition to the use of cost-effectiveness analysis relates to the ?hardened American distaste for explicit rationing.?

Dr. Neil Powe emphasized the importance of early assessments of the value of new medical technologies. Powe found medical directors making coverage decisions for private healthcare plans wanted to use effectiveness data, but were impeded by the lack of timely cost-effectiveness information. Powe suggested investing more money into value assessments that would secure information in a timely fashion and prevent premature dissemination of costly technology with no or little value.

Chairman Bennett suggested there might be incentives built into our third-party payment system to overuse new technologies and suggested looking at changing those incentives. Peter Neumann agreed, saying, ?Debates about the use of cost-effectiveness cannot be separated from debates about the underlying health system and the incentives they embody?reconfiguring the incentives facing providers and patients is challenging and critical.?

–Joe Moser
Galen Institute

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The Joint Economic Committee held a hearing yesterday to examine the link between new health technologies and health care costs. Witnesses included Dr. Mark McClellan, commissioner of the FDA, Dr. Carolyn Clancy of the Agency for Healthcare Research and Quality, Peter Neumann of the Harvard School of Public Health, and Dr. Neil Powe of the Johns Hopkins Medical Center.

Senator Robert Bennett, chairman of the Joint Economic Committee, asked why new technologies in health care often lead to higher health care costs, while new technologies in other sectors generally lead to greater efficiencies and lower costs? ?What?s different about health care,? asked Bennett. ?Is it the technology or the way we pay for it??

Dr. Mark McClellan said that while new technologies often do lead to increased costs, many medical innovations actually lower costs, such as new drugs for depression. McClellan said the real question is whether the benefits of medical innovations are rising faster than the costs. McClellan said he is convinced that new technologies are giving Americans a better quality of life, outpacing their costs. ?Medical technologies may cost more or less, but we?re getting much better health care in return,? said McClellan.

McClellan said one reason new technologies often lead to higher health care costs is because demand for services grows as the treatments become less invasive and take less time. For example, someone who has a knee injury may opt to have outpatient arthroscopic knee surgery to correct the problem, whereas ten years ago they may have decided the more invasive surgery was not worth the time and cost of hospitalization. The quality of life for the individual has improved because they had the treatment, but at an added cost to the health system.

Dr. Carolyn Clancy stressed the importance of measuring the effectiveness of new technologies compared to existing options and their cost-effectiveness. Cost-effectiveness analysis shows the relationship between the resources used on a new technology and the health benefits achieved, compared to an alternative strategy. ?The challenge is to provide more objective information on these new technologies,? said Clancy.

Clancy mentioned two areas where she thinks new technologies can result in health care savings: reducing waste and coordination of care. Investments in information technology can reduce duplicative services ordered by doctors and better manage care for those with chronic illnesses, leading to cost savings and a higher quality of life in later years.

Peter Neumann explained why cost-effectiveness data for new technologies is not used very often by Medicare, Medicaid, VA, or private insurers when making coverage and reimbursement decisions. Opposition to the use of cost-effectiveness analysis relates to the ?hardened American distaste for explicit rationing.?

Dr. Neil Powe emphasized the importance of early assessments of the value of new medical technologies. Powe found medical directors making coverage decisions for private healthcare plans wanted to use effectiveness data, but were impeded by the lack of timely cost-effectiveness information. Powe suggested investing more money into value assessments that would secure information in a timely fashion and prevent premature dissemination of costly technology with no or little value.

Chairman Bennett suggested there might be incentives built into our third-party payment system to overuse new technologies and suggested looking at changing those incentives. Peter Neumann agreed, saying, ?Debates about the use of cost-effectiveness cannot be separated from debates about the underlying health system and the incentives they embody?reconfiguring the incentives facing providers and patients is challenging and critical.?

–Joe Moser
Galen Institute

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About the author