Incentives for Inventors Could Spur Medical Innovation, Cut U.S. Healthcare Spending, Study Claims

Government should promote the development of new medical devices and medications that provide more value and so help reduce overall healthcare costs, according to a new study funded by the Santa Monica, Calif.-based RAND Corp. The firms healthcare arm, RAND Health, is an independent health policy research program, with a broad research portfolio that focuses on healthcare costs, quality and public health preparedness, among other topics.

According to the study, the National Institutes of Health should create financial incentives, such as awarding cash prizes, buying out invention patents and forming a public-interest investment fund, for pharmaceutical companies and medical-device makers to work on developing scientific breakthroughs that also address healthcare spending.

“We spend more than $2 trillion a year on healthcare in the U.S.—more per capita than any other nation,” said Steven Garber, lead author of the study and a senior economist at RAND. “The financial incentives for innovators, investors, physicians, hospitals and patients often lead to decisions that increase spending with little pay back in terms of health improvement.”

Other recommendations included expediting the U.S. Food and Drug Administration’s review of new drugs and devices that would decrease health spending to get them to market faster. Also suggested—changing rules governing the Centers for Medicare and Medicaid Services (CMS)  to allow the agency to be able to favor in its Medicare coverage technologies that are shown to help save money. Shared savings from the Medicare program, which involves more than $500 billion in spending each year, could provide much of the required money and induce top private investors to participate in the public-interest investment fund to help select the most promising ideas for investment.

Another recommendation calls for the development of technologies that help give more accurate and timely health assessments of patients to identify the health services more likely to help their outcomes. Once those are identified, the study suggests requiring patients to pay higher out-of-pocket expenses for those services that are found less helpful while having them pay less for those that are more effective.

With Medicare, CMS is not allowed by law to consider costs in its coverage policies; changing the law could open up opportunities to save money in the short run and improve innovators’ incentives in the long run. For example, researchers argue, processes to determine Medicare coverage and payment rates could be changed to favor technologies that would help save money. In addition, the agency could expand its “coverage with evidence process,” requiring as a condition for continued coverage of a product stronger evidence regarding its effectiveness. Medicare could also stop covering off-label use of costly cancer drugs in clinical circumstance where there is little or no evidence of effectiveness, the study says.

The forms of payment by Medicare and private-sector payers could be altered to put providers at greater financial risk, study authors suggest. For example, the system could be made more efficient by decreasing fee-for-service payment, which rewards physicians for doing more regardless of likely health benefits, and increasing use of bundled and capitated payments under which providers bear additional costs. Another promising approach authors proposed is to require patients to pay less out of pocket for services likely to help them and to pay more for services unlikely to do so. Because it can be hard to know which patients will benefit from which services, the researchers suggest that policymakers encourage development of more information in this area through more, and more timely, health technology assessments.

The researchers said there is urgency in making tough choices because failing to do so only delays establishment of stronger incentives for inventors to find ways to save money. Delay means more money will be spent on healthcare that isn’t worth its costs and it will take even longer to rein in U.S. healthcare spending.

“Drawing in particular on interviews with more than 50 national experts who were especially knowledgeable about different aspects of medical innovation, the authors argue that policymakers should consider how best to reshape financial incentives to meet five basic objectives,” said Jeffrey Wasserman, Vice President, RAND Corporation; Director, RAND Health. “These include: increasing basic scientific knowledge by allocating research funds to encourage more creativity and risk-taking; reducing the costs and risks associated with obtaining Food and Drug Administration approval for drugs and devices that would help decrease spending; increasing the demand for products that can be expected to lower spending—for example, by changing how providers are paid. They also should consider ways to reduce the prevalence of “treatment creep,” whereby medical products shown to benefit one group of patients are used to treat other groups where the benefits are minimal; and limiting/attenuating the “medical arms race.”

The study, titled “Redirecting Innovation to Decrease Spending and Increase Value in U.S. Healthcare,” was supported by a grant from the Bill & Melinda Gates Foundation.