HEALING MEDICAL PRODUCT INNOVATION
No matter how it’s tallied—in total,
per capita, or as a percentage of gross domestic product—U.S. spending on
health care outstrips that of any other nation. Many experts identify costly new technology as the
biggest driver of health care spending. Previous studies aimed at
reining in spending on technology have focused on changing how existing medical
technologies are used. But what about also encouraging the creation of
technologies that could improve health and reduce spending, or that provide
large-enough health benefits to warrant any extra spending? A recent RAND study focused on policies
that could help change which medical products—drugs, devices, and health
information technologies—get invented in the first place.
To spur inventors to create medical
products that lower health care spending and promote health, policymakers need
to address the perverse
financial incentives that lead inventors and investors in the opposite
direction. Currently,
large profits are most often available from creating increasingly expensive
products that boost spending, whether or not they also substantially improve
health. In contrast, inventors face relatively weak incentives to create
products that would help decrease spending.
The RAND research team developed ten
high-priority policy options that could change the costs, rewards, and risks
that inventors and investors face. We synthesized information from scientific,
trade, and popular literature; conducted interviews with more than 50 national
experts from a variety of fields; sought input from a panel of accomplished
technical advisors; and developed illustrative case studies of eight medical
products.
Illustrative Case Studies of Health
Care Technology
Avastin
for Metastatic Breast Cancer
A
Cardiovascular Polypill
Electronic
Health Records
Haemophilus
influenzae Type b (Hib) Vaccine
Implantable
Cardioverter-Defibrillator
Prostate-Specific
Antigen
Robotic
Surgery
Telemedicine
Who are the key players along the
medical product innovation pathway?
In its simplest form, the innovation
pathway for medical products has three stages—invention, regulatory approval, and
adoption. Figure 1 shows key actors at each stage—the individuals and entities
that make the most important decisions—as well as individuals and entities that
seek to influence them. For example, inventors and investors obviously play key
roles in the invention stage. The U.S. Food and Drug Administration (FDA) is
the dominant player in the approval stage, and the physicians and hospitals
deciding which technologies to use for which patients largely determine how
quickly and broadly a product is adopted, thus determining a product’s success
in the U.S. market.
Inventors and investors are strongly
influenced by their expectations about the prospects and costs of gaining
regulatory approval and the eventual adoption and use of their products. In
turn, these expectations determine the anticipated costs, risks, and market
rewards of pursuing their ideas for creating new medical products.
The decisions of key actors are
influenced by others—for example, the National Institutes of Health (NIH), as
the nation’s principal funder of basic biomedical research, provides fuel for
invention by virtue of its investments in creating basic scientific knowledge.
Manufacturers, patients, and payers all try to influence a product’s use for
different reasons and with varying degrees of success.
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Key actors
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Inventors
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Investors
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FDA
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Physicians
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Hospitals
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Key Influences
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NIH
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ONC
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Manufacturers
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Politicians
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Manufacturers
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Patients
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Payers
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Fig. 1 The Medical Product Innovation Pathway
NOTE: ONC=Office of the National Coordinator for Health
Information Technology.
What drives the costs, risks, and
rewards of medical product invention?
The decisions of inventors and
investors are largely driven by two considerations. The first is a technical
assessment of whether the new product can be successfully brought to market
and, if so, how much money and time it will take. The probability of success is
influenced by perceptions of risks: scientific risk (will the technology
work?) and regulatory risk (will the FDA approve it for use?).
The second consideration is
financial: Are the anticipated rewards of bringing the product to market big
enough to justify the associated costs and risks at all three stages?
We identified five features of the
U.S. health care environment that substantially affect the costs, risks, and
rewards of medical product invention for inventors and investors. The five are
set forth below; to amplify the descriptions, we include paraphrases of
comments from our expert interviews. The policy options that we developed were
designed to address these features.
Roadblocks to High-Value Medical
Product Innovation
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Lack of Basic Scientific Knowledge
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From the Experts
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Knowledge gaps increase the risk of
failure, the likely costs, and the time required to bring to market products
that could help decrease spending.
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When making decisions about where
to invest R&D resources, developers consider the state of the basic
science.
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Costs and Risks of FDA Approval
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The FDA approval process takes time
and money; until FDA approval is granted, inventors and investors may receive
no returns from the U.S. market to help recoup their investments.
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The biggest impediment to
high-value innovation—one that pushed developers to go in safer directions—is
the difficult regulatory pathway.
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Inadequate Rewards for Medical
Products That Decrease Spending
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Innovators who develop products
that could reduce spending often cannot expect adequate market rewards for
their efforts. Reasons include the facts that insured consumers do not pay
the full price once they have exceeded their deductibles; many patients assume
that newer, more expensive products must be better; and providers making
decisions to use—or not use—a particular product often reap larger financial
rewards from using a costlier alternative.
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The reason that developers are
deterred or discouraged from creating high-value technology that lowers
overall spending revolves around reimbursement… There’s no market incentive.
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Treatment Creep
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Medical technologies that provide
substantial health benefits to particular kinds of patients are often used
for other kinds of patients, including many for whom there are small, or no,
health benefits.
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Companies will sometimes focus on
one population to get over regulatory hurdles and then shift the focus for
longer-term marketing.
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Medical Arms Race
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Health care providers such as
hospitals often compete for business by offering the latest high-tech
equipment or service rather than by offering greater value through larger
health benefits and/or lower prices.
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Marketing robotic surgery to
hospitals for use in prostate surgery was “genius,” but there was no evidence
that using the robot improved health outcomes.
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In
short, the medical innovation system is broken.
Nader Moussa/Wikimedia Commons/CC-BY-SA-3.0/GFDL
About 80 percent of all radical prostatectomies in the United
States today are performed with robotic assistance, but there is no good
evidence that robotically assisted radical prostatectomies produce better
outcomes or have fewer serious side effects than manual radical
prostatectomies.
WavebreakMediaMicro/Fotolia
The FDA approved the use of Avastin for metastatic breast cancer
patients, but later withdrew that approval. Nonetheless, by law, Medicare
continues to pay for Avastin used for those patients because this use is listed
in major drug compendia.
rustle_69/Fotolia
A major limitation of today’s electronic health records is the
lack of interoperability between systems.
Eldin Muratovic/Fotolia
A cardiovascular polypill, a multidrug combination that reduces
blood pressure and cholesterol, could offer substantial health benefits per
dollar spent, but development is slowed because inventors cannot justify the
cost required to seek regulatory approval.
How can we redirect invention of
medical products?
Our analysis led us to ten
high-priority policy options that could alter the financial incentives driving
medical-product innovation. Some options would directly affect inventor
and investor decisions by lowering invention or approval costs and risks. Other
options would indirectly influence inventor and investor incentives by
altering the expected market rewards of an invention. Figure 1 highlights the
stage of the innovation pathway at which each option operates. Policy options
are described briefly on the pages that follow.
These options, individually or in
combination, could redirect inventive efforts toward products that would help
reduce health care spending and/or ensure that new products will provide health benefits that warrant any
spending increases.
Ten Policy Options for Healing
Medical Product Innovation
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Enable More Creativity in
Funding Basic Science
NIH’s method
for selecting which research to fund typically favors low-risk projects; if
investigators fail to achieve their project goals, prospects for future NIH
funding are greatly reduced. A different model is used by the Howard Hughes
Medical Institute. It funds scientists rather than projects, encourages
risk-taking, and seems more willing than NIH is to continue funding promising
scientists whose past risky endeavors did not pan out.
.
Offer Prizes for Inventions
Substantial prizes could be awarded
to the first individual or group that invents a drug or device that satisfies
pre-specified criteria. Prizes could be offered by public entities such as the
Centers for Medicare & Medicaid Services (CMS) or NIH, by private health
care systems, by philanthropists or charitable foundations, or by
public-private partnerships. An alternative to an immediate cash prize is to offer a percentage of future
savings to the Medicare program attributed to the invention.
Buy Out Patents
Purchasing
the patents of products that have already been invented could ensure that a
product is commercialized at a lower price, increasing the immediate reward for
inventing products that decrease spending. Public agencies, private
philanthropists, or public-private partnerships might be purchasers. A
purchaser could put the patent in the public domain, generating price
competition, or license the technology selectively,
specifying the highest price that licensees could charge. The
best approach might be to offer patent sellers a share of the savings to the
Medicare program attributed to the invention.
Establish a Public-Interest Investment Fund
Private investors often find the
likely market rewards for inventing products that reduce spending too low to be
attractive. When this is the case, a public-interest investment fund could
provide the required investment capital. A private-public partnership could tap
the expertise of private-sector investors who are most capable of assessing the
promise of technical concepts and inventors. They could be motivated to
participate by being allowed to invest in projects supported by the fund, with
their financial returns coming from a share of Medicare savings attributed to
the inventions.
Expedite FDA Reviews and Approvals for Technologies That
Decrease Spending
The FDA could offer expedited—but not watered-down—review and
approval processes for medical products with clear potential to substantially
reduce health care spending. Creating such mechanisms could lower inventors’
regulatory costs and speed entry to market.
Reform Medicare Payment Policies
Currently, CMS is not allowed to consider cost in determining
payment rates—if it were, the agency could set Medicare rates to save money in
the short run and improve inventors’ incentives over the long run. One widely
discussed possibility is for Medicare to move more swiftly to adopt
approaches—such as bundled and capitated payment arrangements—that put
providers at financial risk for costs not required to deliver high-quality
care. Expanding the numbers of providers facing and circumstances involving
such risks should boost demand for cost-saving drugs, devices, and other health
care technologies.
Reform Medicare Coverage Policies
CMS could change its coverage
determination policies in ways that would increase the health benefits per
dollar of Medicare spending. For example, CMS could expand use of its existing
“coverage with evidence” process. Medicare could also stop paying for tests,
procedures, and products that clinical experts have deemed inappropriate or
ineffective; many of these have already been identified by the American Board of Internal
Medicine Foundation’s Choosing Wisely initiative. Medicare could
also stop covering off-label use of some very expensive cancer and other
specialty drugs in circumstances for which there is little or no evidence of
effectiveness. Some of these policy changes would require new legislation.
Coordinate FDA and CMS Processes
For products that are likely to help reduce spending, CMS
coverage and payment determination processes could be coordinated with FDA
review and approval processes. Coordination could reduce the time required to
obtain revenues from the Medicare market. Identifying the best approach might
be informed by what is learned from current efforts involving parallel review
by FDA and CMS.
Increase Demand for Technologies That Decrease Spending
Changing payer, provider, and patient incentives could increase
demand for products that decrease spending. One promising approach is expanding
use of value-based
insurance designs (VBIDs), which require individual patients to pay more
out of pocket to receive services that are less likely to benefit them. A major
challenge in implementing VBIDs is determining which services are more and less
likely to substantially benefit individual patients.
Produce More and More Timely Technology Assessments
Health technology
assessments (HTAs) provide systematic evidence about the safety, efficacy,
effectiveness, and cost of drugs, devices, and procedures. Because medical
technology evolves quickly, HTAs are more useful when they are more current. An emerging commercial model may suggest a good way to produce
more timely HTAs—namely, by keeping abreast of the literature through fairly
frequent literature searches and revising HTAs when new findings warrant.
Several of these options are novel;
thus, there are few precedents or existing analyses to help policymakers design
and successfully implement them. Others have already been proposed but not
implemented. In our view, the potential benefits of implementing specific
policies could dwarf the costs of doing so. For example, the potential savings
to the Medicare program alone that could result from implementing several of
the options would generate a large pool of money that could be used to spur
invention of products that reduce spending or provide substantial health
benefits.
Because the stakes in reining in
health care spending are so high, and the need to get more health benefits from
the money we spend is so great, we believe all of these options should be
considered—the sooner the better.
Technical Advisers
To help us achieve our project goals,
we convened a panel of national experts to review our ideas and weigh the
promise of various policy options suggested by our findings. The panel offered
comments on our draft analytical framework, weighed the pros and cons of
different case study topics, and suggested several policy options. However, the
panel members do not necessarily endorse the study findings.
Donald M. Berwick, MD
President Emeritus and Senior Fellow,
Institute for Healthcare Improvement, Cambridge, Massachusetts
Otis W. Brawley, MD, FACP
Emory University and American Cancer
Society
Philippe Chambon, MD, PhD
Managing Director, New Leaf Venture
Partners LLC
Delos M. Cosgrove, MD
CEO and President, Cleveland Clinic
Ezekiel J. Emanuel, MD, PhD
Vice Provost for Global Initiatives;
Diane v.S. Levy and Robert M. Levy University Professor; Chair, Department of
Medical Ethics and Health Policy, University of Pennsylvania
Atul Gawande, MD, MPH
Surgeon, Brigham and Women’s
Hospital; Director, Ariadne Labs; Professor, Harvard School of Public Health
and Harvard Medical School
Brent C. James, MD, MStat
Chief Quality Officer, Intermountain
Healthcare
Dean Kamen
Founder and President of DEKA
Research & Development Corporation
Karen Katen
Senior Advisor, Essex Woodlands
Larry Kessler, ScD
Professor and Chair, Department of
Health Services, School of Public Health, University of Washington
Vinod Khosla
Partner, Khosla Ventures
Kenneth W. Kizer, MD, MPH
Distinguished Professor, University
of California (UC) Davis School of Medicine and Betty Irene Moore School of
Nursing; Director, Institute for Population Health Improvement, UC Davis Health
System
Robert Langer, PhD
David H. Koch Institute Professor,
Massachusetts Institute of Technology
Mark McClellan, MD, PhD
Senior Fellow and Director,
Initiative on Value and Innovation in Health Care, The Brookings Institution
Arnold Milstein, MD
Professor of Medicine, Clinical
Excellence Research Center Director, Stanford University
Trevor Mundel, MD, PhD
President, Global Health, Bill &
Melinda Gates Foundation
Peter J. Neumann, ScD
Director, Center for the Evaluation
of Value and Risk in Health, Institute for Clinical Research and Health Policy
Studies, Tufts Medical Center; Professor, Tufts University School of Medicine
Boris Nikolic, MD
Chief Advisor for Science and
Technology to Bill Gates
Michael A. Peterson
President and Chief Operating
Officer, Peter G. Peterson Foundation
Michael E. Porter
Professor, Harvard Business School
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