Medicare rates will be influenced by comparative effectiveness

From its inception, Medicare has been agnostic about the effectiveness of different treatments when it sets payment rates. Once a treatment is found to be “reasonable and necessary,” Medicare establishes a payment rate that takes into account complexity and other “inputs” that go into delivering the service. But it is prohibited by law from varying payments based on how well an intervention works.

This would change under a “dynamic pricing” approach proposed by two experts in this month’s issue of Health Affairs. The article itself is available only to Health Affairs subscribers, but the Wall Street Journal‘s Health Blog has a good summary. The researchers propose that Medicare pay more for therapies with “superior” results and the same for two therapies with comparable effectiveness. A new service without any evidence on its relative effectiveness would be reimbursed in the usual way for the first three years, during which research would be conducted on its comparative effectiveness. If such research found that the service was less effective than other interventions, Medicare would have the authority to reduce payments; if it was found to be more effective, Medicare could pay more than for other available interventions. The WSJ blog gives an example of how this would work:

“They [the authors] use intensity-modulated radiation therapy, which was rolled out in the early 2000s, as an example. Medicare’s reimbursement for the treatment was set at about $42,000 for prostate cancer treatment, compared to $10,000 for an older form of radiation – though there were no gold-standard studies comparing the risks and benefits of the two procedures. Hospitals bought the spiffy new equipment … and Medicare spent an estimated $1.5 billion more on prostate cancer treatment, the authors write. If that reimbursement rate had been guaranteed only for three years before being revisited, there’d have been an ‘incentive for manufacturers and clinicians to perform the research needed to evaluate the clinical performance of the new therapy in comparison to the standard three-dimensional treatment,’ the authors write.”

Arguably, such dynamic pricing could save Medicare (and taxpayers) many billions of dollars and improve outcomes by encouraging more research on effectiveness and rewarding physicians and hospitals for providing more effective treatments. Such a radical departure from Medicare agnosticism on clinical effectiveness, though, would almost certainly be opposed by manufacturers and providers with a vested interest in sustaining higher payments. Consumers and patients might worry that Medicare would use pricing to reduce their access to potentially beneficial services s just to save money. Physicians might chafe that the government is cutting their reimbursement based on population-based research that might not take into account the unique circumstances of their own patients. Politicians likely would scream that the government would be allowed to use its new pricing authority to “ration” care. (The accusation that Comparative Effectiveness Research could lead to “rationing” resulted in Congress writing language in the Affordable Care Act to expressly prohibit Medicare denials based “solely” on such research.)

On the other hand, at a time when rising health care spending threatens to break the (federal) bank, can the country afford Medicare’s agnosticism in what it pays for services of differing effectiveness?

Today’s question: Do you think Medicare should pay less for less effective treatments and more for more effective ones?

Bob Doherty is Senior Vice President of Governmental Affairs and Public Policy, American College of Physicians and blogs at The ACP Advocate Blog.

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  • SmartDoc

    Vaguely interesting, but in the end it will be just another cover screen for the vast ($600 billion) in Medicare cuts mandated in ObamaCare.

    Not to mention a moot point if the 25% cuts in doctors is not reversed by January 1, 2011 (hint: there will be no reversal in time). You won’t need rationing to see a decline in physician visits after that.

  • Steven Reznick MD

    My concern is that certain treatment options, though less successful will stop being made available to patients. For example. I have a patient with breast carcinoma that has been resected twice with wide margins and the pathology claims it still has not completely removed the tumor. A mastectomy was advised by the Boston teaching hospital where she was refusing treatment.The patient refused and will get less effective radiation therapy instead even though she is aware of this. What would happen if this alternative therapy was reimbursed at a lower rate and they stopped offering it?

  • David Allen, MD

    Yes. Its really hard for the government to make these complex decisions. Can we just phase Medicare out already? I really don’t think they can handle it.

  • Annie Stith, e-Patient

    Where is the consideration for the “n=1″ theory that acknowledges each patient can (and IMO) should be treated with whatever works best for them as an individual? What happens when Option #3 would ne the best choice, but it’d been downgraded so far it’s not going to pay off for the physician? Must the patient undergo Option #1 first, then Option #2, before finally reaching Option #3, the one that works, in order to make it worthwhile financially for the physician?

    The problem with calling something “best” is it assumes “best for all,” which simply isn’t true.



    Another contribution from a “policy guy”. At the risk of sounding dour, arrogant and rude, please consider the schematic below. The long story short is as follows…

    people want care.

    people don’t want to pay for care.

    government wants to get elected and stay in power.

    government “guarantees” care…whatever that may be.

    government wants you (the people) to have a card in your wallet or pocketbook stating that you have access to care.

    If you are no longer contributing to society financially, the fiscal pressures on the health system conspire with the government’s financial incentive to have you be dead. This is potentially offset by that individual’s or populations’ ability to vote and influence the balance of power.

    The government, and “the people” don’t really care if the health care providers are adequately compensated as long as the card in their wallets and purses say that they have access to healthcare. I will be honest in saying that I don’t really care how my mail carrier is treated or paid as long as I get my mail delivered.

    When you finally accept that these are the real underlying tenants of the health care concerns, the sooner you will make changes (as a physician) to confront the new reality.

    If you know what those changes should be, please blog on it so I can carefully consider it as an option.

    People, like nature in general, will find a way to get what they need if they are equipped to do so. To nod your head gleefully with the policy wonks and our glorious government is akin to baking brownies for the executioner.

    You don’t have to be an Oracle to figure out this one.

    Have a nice day!

    • Smart Doc

      “To nod your head gleefully with the policy wonks and our glorious government is akin to baking brownies for the executioner.”

      Quote of the Day!

      Medicare is the new Medicaid. Thanks a lot, Washington for ruining the health care of anyone over 65.

  • JoeOncology

    I find it comical that supposed researchers believe that the effectiveness of a treatment for cancer could be determined in 3 years. It tells us how much they know about cancer. I find it even more comical that as we further discover that each individual responds differently to differing treatment types based on their genetic makeup that we would pay the most for the treatment that benefited the largest gene pool. The hell with the rest of you!

  • http://nostrums.blogspot,com Doc D

    I’d rather somebody give me the comparative effectiveness information and let me decide. Patients are unique, and what’s most effective for a population says nothing about any individual patient’s needs.

    After all, the body in question belongs to me.

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