 Research Insights Incorporating Costs into Comparative Effectiveness Research Summary making, inherent biases in cost-effectiveness analysis against new Comparative-effectiveness research attempts to establish the and less well-proven technologies, and difficulties in measuring relative health benefits of different drugs, medical devices, costs and health benefits. They also argue that reducing diagnostic and surgical procedures, diagnostic tests, and uncertainty in health care through clinical effectiveness research is medical services as a tool to improve health care outcomes a more valuable use of scarce resources than is cost analysis. and quality. Cost-effectiveness analysis, usually expressed as the cost of a medical technology per quality-adjusted life year Alternatives to formal cost-effectiveness analysis for incorporating (QALY) achieved, is a formal economic tool for comparing cost considerations into comparative effectiveness research the relative value of medical technologies. Perspectives about include analyzing higher cost services first and requiring higher the appropriateness and methods of incorporating costs into standards of evidence for high cost services. Pay-for-performance comparative effectiveness research differ greatly. programs and other innovations in payment policy are yet other strategies to promote the use of higher value services. Proponents of examining costs alongside health outcomes point to the fact that costs are already a part of health care discussions For comparative effectiveness research that does explicitly including decisions about coverage and payment for health care incorporate costs, there are a variety of “best practices” and prior services and budgetary deliberations about public sources of experiences to draw upon. In addition to several states that insurance. They argue in favor of making these considerations use cost-effectiveness analysis to guide their public insurance systematic and transparent. programs, almost all industrialized countries’ health insurance schemes use estimates of the relative value of health care services Among the arguments against incorporating costs into to make coverage and payment decisions. comparative effectiveness analysis are public discomfort and political challenges to using cost-effectiveness for decision- Genesis of This Brief: AcademyHealth’s 2009 National Health Policy Conference AcademyHealth convened a panel of experts with differing perspectives on the incorporation of costs into comparative-effectiveness analysis during its annual National Health Policy Conference (NHPC) in Washington, D.C. in February 2009. Steven Pearson, M.D., director of the Institute for Clinical and Economic Review (ICER) at the Massachusetts General Hospital and Harvard Medical School; Kathy Buto, currently with Johnson & Johnson and formerly with the Centers for Medicare and Medicaid Services (CMS) and the Congressional Budget Office; Gerard Anderson, Ph.D., Bloomberg School of Public Health at Johns Hopkins University; and Mark Gibson, Center for Evidence-Based Policy at the Oregon Health and Science University (OHSU), participated in the panel. Michael Chernew, Ph.D., from the Harvard Medical School moderated the discussion. Incorporating Costs into Comparative Effectiveness Research Introduction g Cost considerations are already implicitly a part of many Policymakers, stakeholders, and experts who seek to use clinical, coverage, and payment decisions. Incorporating comparative-effectiveness research as a mechanism to improve costs into comparative effectiveness research assures that health care quality and efficiency must consider what role analysis these considerations are transparent to patients, providers of the costs and value of health care services should play in this and payers. effort. Promoting value in health care — i.e. maximizing the health benefit achieved for each dollar spent — is one strategy g Unless costs and value are made part of the public dialogue used to slow the growth in health care spending. Policymakers in about health care services now, there will be no societal support other countries and in some U.S. states already take costs or value for considering costs and value in the future when financial or into account when deciding which health care services insurance budgetary pressures will force difficult choices about how much should cover or how much to pay for them. However, perspectives should be spent on health care and for what services. about the appropriateness and methods of incorporating costs into comparative-effectiveness research differ greatly. g State governments are already facing budgetary pressures that force hard choices about eligibility and benefits for Medicaid What are Comparative-Effectiveness Research and and other state programs. Cost-effectiveness analysis, if well Cost-Effectiveness Analysis? done, has the potential to improve quality of care for individual Comparative-effectiveness research attempts to establish the patients at the same time it helps spend scarce public dollars relative value of different drugs, medical devices, diagnostic and efficiently. surgical procedures, diagnostic tests, and medical services. It is intended as a tool to improve health care outcomes and quality.1 g Unless costs and value are made a part of comparative At a minimum, such research compares the clinical effectiveness effectiveness research, health care purchasers and insurers will of one health care technology or service with another. It provides continue to face difficulties in negotiating prices for services and information about which of the two technologies produces technologies that reflect their incremental benefits. better outcomes for a particular patient or group of patients. The concept of “value” brings health care costs together with clinical g Unless considerations of cost and value are made transparent, effectiveness; distinguishing “high value” services from “low value” patients, providers, and the public may believe that health plan services requires the measurement of costs. coverage decisions and efforts to guide clinical decision-making have been made only in an effort to save money. One formal economic tool for making such comparisons among services is cost-effectiveness analysis. Researchers usually express the relative cost-effectiveness of a service in terms of its cost in achieving a unit of health benefit, usually an extra year of life or quality-adjusted year of life (QAYL). Measuring costs and estimating QAYLs (or other Recent U.S. Initiatives to Promote Comparative Effectiveness Research measures of health benefits) can present technical difficulties, be carried out using different methodologies, and generate varying opinions Section 1013 of the Medicare Modernization Act (PL 108-173) mandated that the U.S. Agency for Healthcare Research and about the appropriateness or usefulness of cost-effectiveness as a tool to Quality (AHRQ) conduct and support research with a focus on inform clinical care or policy. outcomes, comparative clinical effectiveness, and appropriateness of pharmaceuticals, devices, and health care services. The agency Why Incorporate Costs Into Comparative- implemented this mandate through its Effective Health Care pro- Effectiveness Research? gram (www.effectivehealthcare.ahrq.gov). In the 110th Congress, Proponents of examining costs or cost-effectiveness alongside Senator Max Baucus (D-MT) introduced the Comparative Effective- health outcomes in comparative effectiveness research make several ness Research Act of 2008 (S. 3408), a bill that is expected to be arguments in favor of their point-of-view: reintroduced in the 111th Congress and would establish a federal trust fund and an independent entity to conduct such research. g cost containment occupies a more prominent place on the As More recently, the American Recovery and Reinvestment Act of health policy stage, information that distinguishes between high 2009 (PL 111-5) provided an additional $300 million to AHRQ, $400 million to the National Institutes of Health, and $400 million to and low value health care services helps direct spending to its the Office of the Secretary of the Department of Health and Human most efficient uses. All else being equal, when two treatments are Services for comparative effectiveness research. equally effective, one would want to use the less expensive option. 2 g Without consideration of costs and value, manufacturers g Economists have not proven that new technology is a major in the health care marketplace have an incentive to pursue driver health care cost increases. Analyses of health care innovations that carry a high price without regard to their spending trends assume that technological change explains marginal health benefits. cost increases not attributable to other known causes. According to this critique, cost containment efforts would be Observers who have concerns about making cost analyses a part more effectively focused on the known drivers of increased of comparative effectiveness research offer several arguments in spending: (1) geographic variations in care, (2) chronic illness, favor of their position: and (3) the fee-for-service (FFS) payment system, which always rewards doing more. g Reducing uncertainty in the provision of patient care is a higher societal priority than is distinguishing services in g Medicare, the country’s largest payer, could use cost- terms of their cost-effectiveness. Hence, clinical effectiveness effectiveness analyses in setting reimbursement rates, but it is research that improves quality of care is a better use of scarce not well positioned to use them in determining coverage policy resources than are cost analyses. because of the political expectation that Medicare will continue to offer the same benefits to all enrollees (even if only a small g public is more comfortable knowing that physicians are The percentage of enrollees might benefit from a given technology). making clinical decisions for individual patients as opposed to having a large government or private entity making decisions g Analyses that used Medicare cost data would not yield real for an entire population of patients. cost-effectiveness calculations since the program only collects proxy measurements of hospital costs. g United States has a diverse health care payment system The in which costs vary across different payers, which complicates Alternatives to Cost-Effectiveness Analysis the measurement of the costs of specific health care services. Even without conducting formal cost-effectiveness analyses, it is If costs vary by payer, then so too will cost-effectiveness still possible to incorporate costs into comparative-effectiveness estimates vary. In addition, different payers may have different research. One option is to prioritize services to be analyzed thresholds of cost-effectiveness in making coverage decisions. for their clinical effectiveness so that higher cost services are given a higher priority. Another possibility is to require higher g Using cost-effectiveness analysis as a tool for making clinical standards of evidence of clinical effectiveness for higher cost and policy decisions is politically infeasible because the public services when making coverage decisions. A third option is to sees it only as a means to limit coverage. use cost, but not cost-effectiveness in making decisions based on comparative effectiveness. For instance, if there is no good g When incremental cost-effectiveness calculations are used evidence that one drug is clinically more effective than another, to guide decisions about the coverage of new technologies decision makers could consider them comparable and choose the or services, the analysis inherently favors treatments already cheaper alternative. covered. The burden of proof falls on the new technology. In addition, Medicare could take steps on its own to g Similarly, there is a presumption against less well-proven encourage the use of services based on value. It could offer innovations. A lack of evidence about the clinical or cost- conditional coverage for particular services, limiting their use effectiveness of a service is inherently equated with evidence to circumstances, settings, or providers for which research has of a lack of benefit. established that they are clinically effective. Second, Medicare could base payments to providers on their meeting quality or g Cost-effectiveness calculations are based on population efficiency standards established by clinical effectiveness research. averages and can underestimate the value of services for Medicare already uses this approach, referred to as “pay-for- individual patients. performance” (P4P) or “value-based purchasing” to some extent for hospitals and on a voluntary basis for physician services. g Cost-effectiveness methods are imperfect and can vary in how Expanding P4P would help diffuse “best practices” among they measure costs or QAYLs or other metrics of value. Medicare providers. And finally, Medicare could develop new 3 Incorporating Costs into Comparative Effectiveness Research policies that deal directly with Medicare’s known cost-drivers, the work, it could lead to distrust of the clinical-effectiveness especially chronic disease and FFS payment. results because they are mixed with cost analysis that patients, providers and the public may not trust. How Should Cost-Effectiveness Be Incorporated g Although clinical effectiveness is often examined without Into Comparative-Effectiveness Research? incorporating cost into the research, the costs of two Experts have suggested several “best practices” for policymakers services should never be compared without simultaneous and researchers who decide to make costs or cost-effectiveness a consideration of their relative clinical benefits. component of their comparative-effectiveness research.2 g methods employed for incorporating costs into The Other Countries’ Experiences comparative effectiveness research should depend on how the Other countries consider costs in comparative-effectiveness information will be used. The first question should be “What research; a recent study of 10 industrialized countries drew decision are we trying to make?” and then, “What information five general conclusions. 3 First, the study found that all of the best supports that decision?” countries’ comparative-effectiveness research programs explicitly include costs in their analyses. A few of these programs added g Because costs vary by provider and location, researchers cost considerations to their methods sometime after their should focus on collecting cost data that reflect the population founding. Second, each country’s stated purpose for considering that will potentially receive the services under study. cost was to promote value, not to achieve savings. Third, most countries’ research adopts the perspective of a payer, although g Determining costs often requires laying out complex clinical a few say they do their analysis from the perspective of society pathways that depend on intermediate outcomes. Hence, as a whole. Fourth, most countries’ comparative effectiveness estimates of the overall costs associated with a service require research involves syntheses of published literature that can knowing the costs associated with each pathway and averaging combine studies that are done from differing perspectives. For them to reflect the probabilities of each occurring. Specifying example, studies that rely on claims data have a payer perspective, complex clinical pathways can be a difficult and resource- but randomized controlled trials may have payer, patient, or intensive part of comparative effectiveness research. societal perspective. And fifth, methods used to measure costs vary from country to country and usually reflect the purpose for g public is less likely to oppose cost and cost-effectiveness The which the research is intended. In some countries, comparative- analysis when they see it as only a tool to help inform effectiveness research is used to inform or determine coverage treatment options than when they believe it is being used to policy; in others, it is used to inform the amount paid for a make coverage decisions. particular drug, device or procedure. g Researchers should do both cost- and clinical-effectiveness The experiences of three countries in particular illustrate some analysis in a transparent way to assure public trust in the of the diversity of approaches to handling costs. In Australia, quality of the research. comparative-effectiveness research is used to determine the clinical equivalence of drugs. If a new drug is equivalent to an g costs are to be taken into account in comparative effectiveness If existing drug and results in lower costs, health insurance will research, policymakers need to decide organizationally who cover it. The national agency responsible for this research has should do it and with what governance structure. One existed since 1911, but it has only considered costs since 1990. option would be for individual payers, including Medicare, to commission cost and cost-effectiveness research. The In most of the United Kingdom (England and Wales), the downside of this option is that patients, providers, and the National Institute for Clinical Excellence (NICE), established public may distrust the analysis since payers have a stake in its in 1997, analyzes the clinical- and cost-effectiveness of drugs, outcome. A second option would be to fund cost analyses as devices, treatments, and public health measures. Their research part of the overall comparative-effectiveness effort, but have is the basis for coverage decisions for particular technologies the analyses undertaken by an allied, separate organization. under the UK’s National Health Service. For most services, there A third alternative is to have a single organization carry out is a $30,000 to $40,000 per QALY threshold, beyond which, NHS both the clinical and cost analyses as part of a jointly funded does not provide coverage. Some conditions, like cancer and effort. Although this may be the most efficient way to carry out rare diseases, have higher thresholds. These cost-effectiveness 4 Assessing Comparative Effectiveness and Value: ICER’s Integrated Evidence Rating SystemTM The Institute for Clinical and Economic Review (ICER) based at the Massachussetts General Hospital has developed a systematic approach to integrating the results of comparative effectiveness and “comparative value,” which ICER defines as a “judgment largely based on the incremental cost-effectiveness of the technology being appraised.”4 In assessing comparative effectiveness, ICER combines judgment about the magnitude of net benefits of the technology – i.e. the overall balance between benefits and harms – with the level of confidence in the evidence supporting the assessment. In comparing the effectiveness of one technology against another, ICER classifies it into one of six categories: A Superior (High confidence of a moderate-large net health benefit) B Incremental (High confidence of a small net health benefit) C Comparable (High confidence of a comparable net health benefit) D Inferior (High confidence of an inferior net health benefit) U/P Unproven with Potential (High confidence of at least comparable health benefit and limited confidence suggesting a small or moderate-large net health benefit) I Insufficient (The evidence does not provide high confidence that the technology gives patients at least as much net benefit as does its comparator.) In evaluating comparative value, ICER assesses the differences in utilization, system impact, and cost-effectiveness of alternative treatment pathways. In head-to-head comparisons, ICER classifies technologies into one of three categories reflecting their relative value: high, reasonable or comparable, and low. There are no strict thresholds linked solely to estimates of cost-effectiveness; rather, ICER analyzes cost-effectiveness and uses it as a component of an overall judgment of comparative value. To facilitate dialogue about value, and to render its assessment more able to support innovative patient decision aids, clinical guidelines, and health plan policies concerning coverage and reimbursement, ICER combines comparative effectiveness and comparative value in an “Integrated Evidence Rating”™ that places a technology into one of the cells on the following table: Comparative Value Comparative Clinical Effectiveness High (a) Reasonable/Comparable (b) Low (c) Superior (A) Aa Ab Ac Incremental (B) Ba Bb Bc Comparable (C) Ca Cb Cc Inferior (D) Da Db Dc Unproven with Potential (U/P) Ua Ub Uc Insufficient (I) I I I By arraying particular medical technologies in this manner, ICER highlights how their clinical benefits “come at varying relative values based on their cost and their impact on the outcomes of care and the health care system.”5 5 Incorporating Costs into Comparative Effectiveness Research thresholds are not specified in law; rather, they are derived from Despite these limitations, experience suggests that cost- the body of past NHS coverage decisions. NICE estimates that its effectiveness analyses can help policymakers pragmatically set analyses of services cost, on average, about $250,000. priorities among health care services. For example, OHSU’s Center for Evidence-Based Policy, the Drug Effectiveness Review The German Institute for Quality and Efficiency in Health Project (DERP) and the Medicaid Evidence-Based Decisions Care (IQWiG), established in 2004, conducts clinical- and cost- Project (MED), provide reviews of clinical- and cost-effectiveness effectiveness studies as a condition for insurance reimbursement in health care technologies for states and other payers. ICER also that country. A joint committee of representatives from Germany’s conducts reviews of particular clinical services and technologies different sickness funds makes coverage decisions, and each sickness for the State of Washington. As part of this work, ICER most fund sets a ceiling (“reference”) reimbursement price for clinically recently analyzed virtual colonoscopy and coronary computed equivalent treatments using IQWiG’s cost-effectiveness estimates. tomography angiography. These reference prices vary by disease and sickness fund. About the Author The State Perspective Michael E. Gluck, Ph.D., is a director at AcademyHealth States face competing pressures as they set eligibility and benefits (www.academyhealth.org) with the Changes in Health Care for Medicaid and other insurance programs within their budgets. Financing and Organization (HCFO) initiative. On the one hand, patient advocates and industry want maximum coverage of services, and on the other, taxpayers want to limit Endnotes expenditures. Because this dilemma forces states to deal with the 1 U.S. Medicare Payment Advisory Commission, Report to the Congress: Reforming the Delivery System. 2008. Washington, DC: US Government cost of health services as they make health spending decisions, some Printing Office, p. 107. states have begun to use cost-effectiveness analysis to guide them. 2 Like the other points summarized in this issue brief, participants in The studies that states use are primarily funded by the vendors who AcademyHealth’s panel on “Incorporating Costs into Comparative- manufacturer the technologies under consideration. In addition, effectiveness Research” suggested these “best practices.” AcademyHealth National Health Policy Conference. (February 3, 2009). Washington, DC. experts have observed that the evidence of clinical effectiveness 3 The countries are Australia, Brazil, Canada, England and Wales, France, included in these cost-effectiveness models is often of dubious Germany, the Russian Federation, South Korea, Sweden, and Turkey. quality, and the studies often employ complicated, quantitative 4 Institute for Clinical and Economic Review. Methodology: ICER Integrated modeling techniques when simple comparisons of technologies Evidence RatingTM.. Monograph, 2008. www.icer-review.org/index. php?option=com_content&task=blogsection&id=13&Itemid=42 .Accessed on would be sufficient to inform policy. And finally, policymakers and February 27, 2009. the public are often resistant to studies that employ complicated 5 Institute for Clinical and Economic Review, op. cit metrics like QALYs since their meaning and the methods used to calculate them are not necessarily intuitive. 6