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The Medical Professionalism Blog

It’s a Mad, Mad World: Medicare and Cost-Effectiveness

The recent establishment of the Patient-Centered Outcomes Research Institute (PCORI) stipulates that its findings from comparative effectiveness research cannot be construed as mandates for coverage recommendations and that the government cannot use these reports to determine coverage and payment decisions. This in effect, prohibits PCORI from determining cost-effectiveness of alternative treatments. This explicit stipulation in the PCORI legislation under the Affordable Care Act makes this bill “business as usual” since the enactment of Medicare in 1965.

I was curious about the origins of this policy so I called a colleague who was an expert in the area. He said it was a complicated issue and suggested I read a 2005 article by Jacqueline Fox in the Buffalo Law Review entitled “Medicare Should, but Cannot, Consider Cost: Legal Impediments to a Sound Policy.” After reading this article, I became aware how this policy was determined by the initial legislation and why it hasn’t changed much over the past 46 years, in spite of repeated thwarted efforts to do so.

Apparently, it all began at the time of Creation, when Medicare was being enacted. Opponents of the act spearheaded by the American Medical Association insisted that there be “no appearance of the government interfering in physicians’ decisions regarding their patient care.” Thus the inclusion of the “reasonable and necessary” language that permeates all Medicare coverage decisions in the past and today.

Statutory language stipulates that:

“No payment may be made under Part A and Part B for any expenses incurred for items or services which…are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” (42 USC section 1395y (a)(1)(A) (2002).

According to Fox, the “necessary” standard is what CMS uses to decide whether or not to cover a given procedure or technology. “Reasonable” is related mostly to reimbursement rates. “Necessary” is defined by the prescribing physician.

Fox describes a poignant moment in 1970 when the Senate Finance Committee released a report on the cost of Medicare where they observed that “as structured, Medicare had little incentive for providers to contain costs or to produce services in the most efficient and effective manner.” (page 604) The Committee proposed Professional Standards Review Organizations (PSROs) charged with determining the less expensive site of treatment and determining whether there was a less expensive treatment available. The latter recommendation obviously did not make the final statute.

In 1979, Carter proposed a hospital cost containment bill but was defeated after opponents said it would “lead to rationing and would inhibit the development of life-saving technology.” (page 607)

In 1983, the Prospective Payment Assessment Commission was charged with assessing the safety, efficacy and cost-effectiveness of new and current in-use medical procedures and technology. In reality, the enacted legislation relied on medical necessity and how much to pay for a service rather than cost effectiveness of alternative treatments. Fox notes that putting cost control on providers was easier than putting it on the public.

Fox draws a picture of a mad world.

Congress understands all too well the “potent political and social ramifications of including costs in any manner as a factor for national coverage determinations.” (page 631) So care is implicitly rationed, hidden from the public sight.

Present-day Congress has entered a dialogue about costs in Medicare. Currently, their continued attitude towards excluding costs reflects the general attitude of the public. How can we change this? First and foremost, we must have continued conversations with entities that have influence on the attitudes of the public such as the media, social networks, community leaders and other national and regional influential figures.

It’s time to reflect on how we can change the Medicare law through thoughtful dialogue. The government needs vehicles outside of PCORI to look at cost after effectiveness and evidence has been determined. Obtaining the evidence through comparative effectiveness will certainly help in reducing unnecessary and unproven therapies. It’s time the government incorporates language into its legislation that introduces cost in its coverage decisions if the system is to remain sustainable.

4 Comments to It’s a Mad, Mad World: Medicare and Cost-Effectiveness

  • July 12, 2011 at 1:42 pm | Permalink

    Dear Dan,
    I have really enjoyed your blog entries over the past year as they eloquently highlight the key underlying issues that physicians must view as part of our “job” if we are to be effective patient advocates for a more just, and sustainable, health care system. In regards to this blog entry I wanted to bring your attention to what I believe is a significant effort to engage physicians and the public in questions about how medical policies about coverage and payment for services can be framed to control costs. Recently launched, the New England Comparative Effectiveness Public Advisory Council (CEPAC) (http://cepac.icer-review.org./) includes clinician and public policy experts from all six New England states who deliberate in public over how best to use “adapted” AHRQ evidence reviews to guide medical policies. One key way the reviews are adapted for this public discussion is by adding a cost-effectiveness and budget impact analysis; the CEPAC discusses all the evidence and supplementary information and then takes votes to rate the comparative clinical effectiveness AND the comparative value of different ways to care for patients. The first meeting focused on catheter and surgical ablation treatments for atrial fibrillation, and the CEPAC tackled head-on the question of whether ablation for certain patients should be considered “high value” whereas ablation for others is “low value.” Seeing this kind of honest engagement from physicians and the public, in partnership with public and private payers, gives me at least some hope that we can build a common sense of purpose to meet the challenges of the “mad, mad world” you describe so well. Great writing, keep it up!

  • June 28, 2011 at 10:31 am | Permalink

    Thanks for recounting the history of current resistance to considering cost when making coverage decisions.
    Changing public attitudes on this point will not be easy. While we can understand objectively why this is important, most of us spend little time contemplating the objective health needs of the population. Rather, our imaginations take us immediately to our own experience of illness, where a sick mom or child life might be saved by something deemed too expensive to be possible. See the commentary by Sheila Rothman in JAMA for an account of how this is manifested in patient advocacy.

    [2011;305(24):2569-2570. doi: 10.1001/jama.2011.866]

    • Daniel Wolfson's Gravatar Daniel Wolfson
      July 8, 2011 at 3:55 pm | Permalink

      Thanks, Jessie for your poignant comment. In his piece “Personal Reflections on the High Cost of American Medical Care: Many Causes but Few Politically Sustainable Solutions” published in the Archives of Internal Medicine, Steve Schroeder reflects on the political and social climate of our times and the inability of the nation to address the cost of care in the face of attempts to do so. He examines the causes of the problem (i.e., new, expensive technology and drugs with marginal benefit, procedure-based financing, lack of primary care) and measures that have tried unsuccessfully to address these issues. His final lines are worth repeating:

      “Yet, given our past performance, it seems naive to assume that these latest efforts (e.g., electronic health records) will be any more successful than their predecessors. In the long run, reining in costs will require mobilizing political forces that can withstand the inevitable claims of rationing sure to come from the industries currently benefiting from the 17% of the economy spent on health care, and from consumers who have come to expect unlimited access to what they feel they need. Until there exist sufficient countervailing forces so that a comprehensive, multipronged strategy could be implemented, politicians and health policy experts will continue to embrace tepid and ultimately ineffective solutions that may sound good in theory but will fall short in practice.”

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