A American Academy of Actuaries SEPTEMBER 2008

The American Academy of Actuaries is a na- tional organization formed in 1965 to bring Health Insurance Coverage and together, in a single entity, actuaries of all spe- cializations within the United States. A major purpose of the Academy is to act as a public Reimbursement Decisions information organization for the profession. Implications for Increased Comparative Academy committees, task forces and work groups regularly prepare testimony and pro- Effectiveness Research vide information to Congress and senior fed- eral policy-makers, comment on proposed omparative effectiveness research is being pursued as a way to better as- federal and state regulations, and work closely sess the value of treatment options. Proponents believe that with the National Association of Insurance C Commissioners and state officials on issues re- this research can help identify the best courses of treatment and lead to more lated to insurance, pensions and other forms standardized practices, thus increasing the quality and value of health care of risk financing. The Academy establishes while reducing the wide variation in practice patterns. qualification standards for the actuarial pro- To provide insights into the potential implications of more formal com- fession in the United States and supports two parative effectiveness research, it is important to better understand how ad- independent boards. The Actuarial Standards Board promulgates standards of practice for vances in health technology and treatment protocols are incorporated into the profession, and the Actuarial Board for the healthcare system. The American Academy of Actuaries’ Health Care Counseling and Discipline helps to ensure Quality Work Group developed this issue brief to discuss current assess- high standards of professional conduct are ments of health care quality; the process for incorporating new treatment met. The Academy also supports the Joint Committee for the Code of Professional Con- protocols and technologies into health insurance coverage; and the policy duct, which develops standards of conduct for implications of comparative effectiveness research. the U.S. actuarial profession. Members of the Health Care Quality Work HEALTH CARE QUALITY AND VALUE TODAY Group include: Michael J. Thompson, MAAA, FSA, Chairperson; David V. Axene, MAAA, FSA, As health care spending continues to rise, significant evidence suggests FCA; Robert E. Cirkiel, MAAA, ASA, FCA, EA; Ga- that the money being spent for health care is not providing adequate qual- briela C. Dieguez, MAAA, ASA; Joel C. Hoffman, ity and value. For example, the Agency for Healthcare Research and Qual- MAAA, ASA, FCA; Timothy J. Luedtke, MAAA, ity (AHRQ) reports that for many of the most prevalent diseases health FSA; Curtis L. Robbins, MAAA, ASA; Steven spending increases faster than the rate of quality improvement.1 The ratio Rubenstein, MAAA, ASA; Geoffrey C. Sandler, MAAA, FSA; John Sardelis, MAAA, ASA; Cori of spending growth to quality improvement, however, is not the only indi- E. Uccello, MAAA, FSA, FCA; Steven X. Wang, cation that individuals may not be receiving enough value from the health MAAA, FSA. The work group also would like to care system—findings related to geographic variations in treatments and thank Winifred Hayes, PhD for her support of the prevalence of medical errors also are important factors. Data from the its efforts related to comparative effectiveness Dartmouth Atlas of Health Care suggest that despite large differences in research. spending across geographic regions, the quality of care is not A significantly greater in the higher-spending areas.2 Furthermore, the In- American Academy of Actuaries stitute of Medicine estimates that as many as 100,000 Americans die each year due to medical errors.3 1100 Seventeenth Street NW Seventh Floor Washington, DC 20036 One reason for such geographic variations and inconsistent quality of Tel 202 223 8196 Fax 202 872 1948 www.actuary.org 1Agency for Healthcare Research and Quality, National Healthcare Quality Report (Washington, Grace Hinchman, Executive Director DC: 2007). The rate of quality improvement refers to the rate at which the health care system is Steve Sullivan, Director of Communications making improvements specific to AHRQ’s 41 core measures. Craig Hanna, Director of Public Policy 2Fisher, Elliott, et al. “The Implications of Regional Variations in Medicare Spending. Part 1: The Heather Jerbi, Senior Health Policy Analyst Content, Quality and Accessibility of Care.” Annals of Internal Medicine (Volume 138, No.4, 2003). 3Institute of Medicine. To Err Is Human: Building a Better Health System. (Washington, D.C.: ©2008 The American Academy of Actuaries. National Academy Press, 2000). All Rights Reserved. care may be the lack of information on what HOW NEW HEALTH TECHNOLOGIES AND constitutes the appropriate treatments for PROTOCOLS ARE INCORPORATED INTO specific conditions. In fact, a large share of HEALTH INSURANCE COVERAGE AND services provided to patients and reimbursed REIMBURSEMENT DECISIONS by insurers has no underlying evidence base.4 While quality measures are being developed, When new health care technologies and many of them focus on fairly simple treat- treatment protocols are developed, insurers ment protocols. For instance, in its National have to determine whether and how to in- Healthcare Quality Report, AHRQ uses 41 corporate them into an insurance plan. De- core quality measures (and 211 total qual- cisions need to be made not only regarding ity measures) to evaluate the treatments for whether to cover the new technology or pro- a number of prevalent conditions. The core tocol, but also how it should be reimbursed. measures for heart disease include whether Insurers have several resources available recommended care is received for a heart to help with these decisions, specifically in attack; whether smokers, while hospital- terms of assessing existing and new technol- ized, are counseled to quit smoking; and ogies and treatments. Many private insur- whether obese adults are counseled about ers subscribe to the services of technology exercise. These are relatively simple mea- assessment organizations, which evaluate sures, but even with such guidelines there the scientific evidence of emerging health is a significant gap in the quality of care technologies. These organizations focus on received. AHRQ reports that between 1994 issues related to safety, efficacy, clinical in- dications, and when possible, comparisons and 2005, 27 of the 41 core measures showed of competing technology. Other insurers improvement, six declined, and six showed perform their own analyses rather than sub- no change.5 Similarly, a study assessing qual- scribe to an outside assessment organiza- ity of care by examining the extent to which tion. Furthermore, most large insurers that standard treatment protocols are adhered to subscribe to an outside assessment organiza- concluded that patients receive only 55 per- tion perform some health technology assess- cent of the recommended care.6 ment in-house, as well. Other resources for Determining what treatments are most assessment include federally funded assess- effective is only a first step; the information ment centers, most often housed at various must be available to and used by clinicians universities.8 for it to have value. However, studies indi- Although there may be only minor varia- cate that an average of 17 years passes before tions in assessments across these different research-generated knowledge, such as that resources, how the assessment conclusions from randomized clinical trials, is incorpo- are implemented can vary among insurers. rated into widespread clinical practice—and For instance, some insurers tend to be fairly even then the application of the knowledge restrictive in what they cover, whereas others remains uneven.7 The AHRQ’s National are less restrictive. Guideline Clearinghouse (NGC) is intended Public payers such as Medicare and Med- to make medical evidence on treatments for icaid may also use the analyses of technolo- a variety of diseases more widely available, gy assessment organizations; however, their providing information on clinical practice coverage and reimbursement decisions also guidelines and appropriate interventions. are influenced by existing legislative require-

4“What Proportion of Healthcare is Evidence Based? Resource Guide,” www.shef.ac.uk/~scharr/ir/percent.html 5Agency for Healthcare Research and Quality, National Healthcare Quality Report (Washington, DC: 2007). The change in two of the core measures could not be determined. 6McGlynn, Elizabeth A., et al. “The Quality of Health Care Delivered to Adults in the United States.” The New England Journal of Medicine, Volume 348:2635-2645. June 26, 2003. 7Balas, E.A. 2001. Information Systems Can Prevent Errors and Improve Quality. [Comment]. Journal of the American Medical Informatics Association 8 (4):398-9. 8As opposed to large insurers and health plans, many of the smaller, local third party administrators (TPAs) have limited resources, and their coverage decisions recognize the transactional nature of their business. Decisions tend to follow pre- vailing industry practice, favoring expediency and approving claims where possible.

2 Issue Brief SEPTEMBER 2008 ments and internal procedures. For instance, there are often patient-specific requests for Medicare processes claims using regional services for which no formal policies exist, intermediaries, which are required by law to necessitating brief, focused literature search- form a physician committee to make local es and expert opinion. coverage determinations (LCDs). And while Beyond coverage decisions, health tech- some may, these committees are not re- nology assessments are also used to de- quired to make use of evidence-based health termine how a medical treatment will be technology assessments in their determina- reimbursed. If an insurer decides to cover tions. Instead, decisions tend to conform to a particular treatment, the level of reim- generally accepted regional practice patterns bursement may depend not only on its cost and/or the professional experience of the but also on evidence regarding whether it is committee members. At the national level, proven to be more effective than other ex- the Centers for Medicare and Ser- isting treatments. A new technology that is vices (CMS) periodically provide coverage more costly, but more effective in the long decisions through federal directives, termed run, is more likely to be reimbursed at a national coverage determinations (NCDs). higher rate than the existing technology. Such directives are prepared by a review For instance, a total hip replacement panel that assesses available primary re- prosthesis includes artificial joints made search and relevant descriptive information with titanium, ceramic, and other materials. and may consider testimony from interested Conventional wisdom is that newer joint re- stakeholders. placements made with composite materials Private health insurance plan documents will pay for themselves in the long term due to having a longer functional life. However, typically contain provisions that affect there are no comparative studies to sup- whether specific benefits are determined to port that conclusion. As a result, insurers be covered by the policy. These types of pro- could opt to reimburse the newer joints at visions usually come in three forms. First, the same rate as the older ones or pay the a plan document could contain language higher price only for younger patients with specifying that any covered medical services longer life expectancies. In contrast, local be of “proven benefit” (i.e., not experimental third party administrators could simply re- or investigational). Second, a plan document imburse at the higher rate for the “newest” could contain language stating that covered joint replacement, with little review. services must be “medically necessary.” And Beyond relying solely on an economic as- third, plan documents often contain a list of sessment of relative long-term costs, insurers specific exclusions. For example, most plans could opt to reimburse newer technologies specifically exclude cosmetic procedures or at a higher rate when they are proven to in- speech therapy unless it is restorative. Al- crease safety, be more effective, or reduce re- though they may be covered at times, some covery times. One example is minimally in- more discretionary or lifestyle-related servic- vasive surgery for heart valve replacements. es such as bariatric surgery may be excluded, Instead of performing open-heart surgery regardless of supporting clinical evidence. with its inherent risks, the surgeon performs Insurers then make specific coverage the surgery through small incisions in the determinations based on the information patient’s chest. For suitable candidates, this available. Formal policies are developed has been shown to reduce recovery time sig- proactively whenever possible, using evi- nificantly and the inpatient stay is generally dence-based health technology assessments reduced. Health plans often cover such pro- to determine whether a health service or cedures at a higher reimbursement rate. procedure is of “proven benefit.” The health As new technology assessments are made, technologies examined tend to be new and/ they are often limited by a lack of credible or controversial treatments, as opposed to clinical data. Either there are no data at all therapies, diagnostics, or other services that or the data that are available do not offer have been in use for some time. However, enough high-quality evidence comparing

Issue Brief SEPTEMBER 2008 3 the new technology to existing treatments tice variations. or technologies. New drug trials provide an Current health insurer procedures that interesting example of this. Food and Drug are put in place to incorporate new treat- Administration (FDA) approval requires ment and technology assessment findings that a drug developer show, through con- into coverage and reimbursement decisions trolled clinical trials, that the drug is proven can include the findings resulting from new safe and effective. Typically, however, drug comparative effectiveness research. However, efficacy is demonstrated by comparison to a health information systems need to be able placebo. Furthermore, these clinical trials are to distinguish between specific treatments. often highly targeted and performed on rela- Otherwise, health insurers will not be able tively homogenous populations. As a result, to set different coverage and reimbursement they do not show effectiveness compared policies for the different treatment options. to other generally available drug or treat- This may require that International Classi- ment options; the drug’s effectiveness when fication of Diseases (ICD), Current Proce- released on a broader, more heterogeneous dural Terminology (CPT), and Healthcare population; or the effects of long-term use. Common Procedure (HCPC) codes be finely POLICY IMPLICATIONS differentiated to account for these variations. As the definition of quality of health care is Health insurers currently utilize health care further refined by comparative effectiveness technology assessments, in both coverage studies, it will likely lead to higher expecta- determination and reimbursement deci- tions for measuring and evaluating variation sions. Nevertheless, these assessments are around provider performance and member often limited in scope and value. New com- compliance. That data will also be essential parative effectiveness research has the po- for the implementation of potential benefit tential to be incorporated into the already incentive strategies as well as reimbursement existing mechanisms for coverage and treat- policies. ment decisions, as well as help further define Ultimately, the value of comparative ef- and improve the value and quality of health fectiveness research depends on its ability to care. positively influence treatment decisions, not Most of the existing research regarding just insurance coverage and reimbursement technology assessment is based on second- decisions. Reimbursement policies can influ- ary research of clinical analyses that are fo- ence treatment decisions by more favorably cused on and rarely go beyond proving that reimbursing treatments which are deemed a treatment is safe and effective. New com- parative effectiveness research can add more to be more effective (considering both costs value and improve upon the information and benefits) and discouraging less effective already available by increasing the body of treatments by reimbursing them at less fa- primary research of head-to-head trials that vorable rates. Pay-for-performance incen- compare new treatments and technologies tives can also incorporate comparative effec- to those already existing. It can provide in- tiveness research findings and any resulting sights into whether certain treatments are evidence-based guidelines. more effective than already existing options. Comparative effectiveness research, when The research also has the potential to pro- effectively integrated and applied into select vide information on which patients respond areas of health insurance, can help refocus better to specific treatments. Because much the health care delivery system on the value of the health care currently provided does of care received and facilitate a shift toward not have an underlying evidence base, new more evidence-based medicine. In doing so, comparative effectiveness research should it has the potential to increase the quality also include studies of existing treatments and value of care as well as reduce the varia- and technologies. Such analyses could lead tion in health care treatment and spending to a greater development of evidence-based across the country that is not associated with treatment protocols and a reduction in prac- better health care outcomes.

4 Issue Brief SEPTEMBER 2008