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A Better Way to Generate and Use Comparative-Effectiveness Research by Michael F

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A Better Way to Generate and Use Comparative-Effectiveness Research by Michael F 360451_PA632_1stClass:3603_PA632_1stClass 2/6/2009 3:44 PM Page 1 View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by IssueLab No. 632 February 6, 2009 A Better Way to Generate and Use Comparative-Effectiveness Research by Michael F. Cannon Executive Summary President Barack Obama, former U.S. Senate industry will prevent the agency from conduct- majority leader Tom Daschle, and others propose ing useful research and prevent purchasers a new government agency that would evaluate the from using such research to eliminate low-value relative effectiveness of medical treatments. The care. need for “comparative-effectiveness research” is The current lack of comparative-effectiveness great. Evidence suggests Americans spend $700 research is due more to government failure than billion annually on medical care that provides no to market failure. Federal tax and entitlement value. Yet patients, providers, and purchasers typ- policies reduce consumer demand for such ically lack the necessary information to distin- research. Those policies, as well as state licensing guish between high- and low-value services. of health insurance and medical professionals, Advocates of such an agency argue that com- inhibit the types of health plans best equipped to parative-effectiveness information has character- generate comparative-effectiveness information. istics of a “public good,” therefore markets will A better way to generate comparative-effective- not generate the efficiency-maximizing quantity. ness information would be for Congress to elimi- While that is correct, economic theory does not nate government activities that suppress private conclude that government should provide com- production. Congress should let workers and parative-effectiveness research, nor that govern- Medicare enrollees control the money that pur- ment provision would increase social welfare. chases their health insurance. Further, Congress Conservatives warn that a federal compara- should require states to recognize other states’ tive-effectiveness agency would lead to govern- licenses for medical professionals and insurance ment rationing of medical care—indeed, that’s products. That laissez-faire approach would both the whole idea. If history is any guide, the more increase comparative-effectiveness research and likely outcome is that the agency would be com- increase the likelihood that patients and providers pletely ineffective: political pressure from the would use it. _____________________________________________________________________________________________________ Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It. 360451_PA632_1stClass:3603_PA632_1stClass 2/6/2009 3:44 PM Page 2 Americans product, on medical services of no discernible spend more than Introduction value. 4 Data on the relative effectiveness of differ - $700 billion Economists describe medicine as a “cre - ent modes of care can reduce uncertainty and each year, or dence good” because patients have difficulty help purchasers, providers, and patients avoid 5 5 percent of judging its value even after consuming it, and unnecessary expenditures. Research shows therefore must rely on the advice of doctors, there is much less variation in medical spend - gross domestic who know more about such things. 1 Yet doc - ing when there is a consensus about the best product, on tors themselves frequently have difficulty course of treatment. 6 making accurate judgments about the quali - Unfortunately, current institutions appear medical services ty of their services, both before and after they to underprovide such data. In terms of med - of no discernible have provided them. Doctors (and nurses, ical interventions, estimates of the share of value. pharmaceutical manufacturers, etc.) may existing interventions that have a solid evi - think they were responsible for a good out - dence base vary, though many researchers come, or not responsible for a bad outcome, believe the share is “well below half.” 7 David but it is often impossible to know for sure. Eddy, a leading advocate of evidence-based That uncertainty guarantees that patients medicine, estimates the share to be as low as 15 will receive some services that provide little or percent. 8 In terms of overall medical spending, no value, and even some services that prove the Institute of Medicine estimates that “less harmful. than 0.1 percent is invested in assessing the A growing body of evidence suggests that comparative effectiveness of available inter - the problem of low-value medical care is ventions.” 9 That seems small relative to the much larger than it need be—that Americans estimated 30 percent of expenditures lost to spend hundreds of billions of dollars each services of no discernible value. As discussed year on medical care that delivers no value— below, a number of government activities and that many of those expenditures could reduce incentives for private entities to gener - be identified and eliminated without harm - ate comparative-effectiveness research, provid - ing health or reducing patient satisfaction. ing further reason to believe that the current Much of that evidence comes from Medi- level of spending on such research is subopti - care, the federal health insurance program for mal. the elderly and disabled, which is the single In theory, additional spending on com - largest purchaser of medical care in the nation. parative-effectiveness research could pay for Examining Medicare records, researchers have itself by reducing spending on low-value ser - found that per-beneficiary spending varies vices. To that end, many policymakers seek to widely from one area of the country to the next. boost the production of comparative-effec - In some areas, Medicare spends twice as much tiveness research. per senior as it does in other areas. Researchers Comparative-effectiveness information has have also found that beneficiaries in high- characteristics of a “public good.” Economists spending areas do not start out sicker, do not argue that markets often do not generate the end up healthier, and are no happier with the efficiency-maximizing quantity of such goods. care they receive, than beneficiaries in low- Many observers therefore propose creating a spending areas. 2 That suggests that a signifi - new federal agency devoted to generating com - cant amount of Medicare spending provides parative-effectiveness research, on the assump - no discernible benefit to the program’s intend - tion that doing so would improve economic ed beneficiaries. Those researchers estimate efficiency. 10 For example, the Medicare Mod- that as much as 30 percent of total U.S. medical ernization Act of 2003 provides funding for the spending provides no discernible value. 3 If so, Agency for Healthcare Research and Quality to then Americans spend more than $700 bil- conduct comparative-effectiveness research rel - lion each year, or 5 percent of gross domestic evant to Medicare, Medicaid, and the State 2 360451_PA632_1stClass:3603_PA632_1stClass 2/6/2009 3:44 PM Page 3 Types of Medical-Effectiveness Research 1. Clinical effectiveness “Does Treatment A work?” 2. Comparative effectiveness “Does Treatment A work better than Treatment B?” 3. Cost-effectiveness “Treatment A works better and costs more than Treatment B. Is the added benefit worth the added cost?” Children’s Health Insurance Program. Recent cludable, since anyone who can look skyward proposals to expand SCHIP would create such can enjoy them without paying. As a result, an agency. 11 President Barack Obama pro - many will effectively free ride on the fireworks posed a comparative-effectiveness agency dur - displays purchased by others. If pyrotechni - ing his campaign. 12 Former U.S. Senate major - cians could exclude nonpayers, those free rid - ity leader Tom Daschle proposes a “Federal ers would have to pay in order to watch. With Health Board” that would conduct such that additional revenue, the pyrotechnicians research and use it to make coverage deci - could then produce more (and more impres - sions. 13 sive) fireworks displays. Data on The case for government provision of pub - Economic theory does not suggest that the relative lic goods in general, and comparative-effec - markets will provide no public goods. Some effectiveness of tiveness research in particular, is not so clear- people are willing to pay for fireworks dis - cut. This paper examines the factors that plays. Markets also devise innovative strate - different modes determine whether government provision of gies for boosting production of nonexclud - of care can reduce comparative-effectiveness research would able goods, such as bundling them with uncertainty and increase economic efficiency. It also examines excludable goods. Examples include the fol - state and federal policies that discourage the lowing: help avoid private generation of such information, and unnecessary that block its use. Finally, it suggests reforms Lobbying groups face a free-rider prob - that would encourage the private sector to • lem because legislative victories that expenditures. produce more comparative-effectiveness benefit members also may benefit non - research and develop innovative ways of over - members. Lobbying groups get around coming the public-goods problem. that problem by bundling additional (excludable) services, such as insurance and information, with (nonexcludable) The Public-Goods
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