Medicare Needs A Hard Look at Treatment Costs
By Steven Pearlstein
Wednesday, May 26, 2004; Page E01
Two obscure provisions in the recently passed Medicare drug bill provide a window into a high-stakes political battle taking shape in Washington.
One provision authorizes a modest amount of new money for the Agency for Health Care Research and Quality, part of the Department of Health and Human Services, to study the comparative effectiveness of drugs or medical devices. The purpose is to use rigorous scientific and economic analysis to calculate the costs and benefits of these new technologies and help determine if they're really worth what the drug companies and device makers propose to charge for them.
Then there is the second provision, the one that explicitly forbids the government from using this information in deciding whether Medicare should pay for these new products.
You can probably guess who is responsible for inserting the second provision into the Medicare bill. What you may not realize is that the industry had the tacit support of the AARP, the senior citizen lobby that is making headlines today with its study revealing that drug prices have risen at three times the rate of everything else. On this issue, however, seniors and the medical industries have been united in their defense of the cherished notion that cost should be no object when it comes to treating the health of the American people.
This notion is given legal expression in two innocent-sounding words written into nearly every private health insurance policy. They require insurers to pay for any "medically necessary" treatment, which turns out to be anything that is safe and more effective than a placebo.
In the case of Medicare, the law requires the government to pay for any treatment that is "reasonable and necessary." Over the years, various Medicare administrators have proposed new regulations that would allow cost to be considered as part of the analysis of what is "reasonable." But each time, well-organized opponents snuffed out the effort.
What this means, in effect, is that when a company comes up with a breakthrough drug or device, it can effectively name its price. After all, neither patients nor doctors have incentive to walk away if they think cost is too high, while the one party that does -- the insurer -- has its hands tied by contracts and laws. The only leverage it has is to threaten to drag out the approval process, dig up some medical evidence to justify limiting use to a narrower group of patients, or embarrass the company through bad publicity (which often has the perverse effect of boosting the company's stock price).
All this, however, may be about to change. Big strides have been made in analytical tools for measuring costs and benefits of new treatments that take into consideration things like the quality of life and long-term impact on health expenditures. And even lobbyists for the elderly acknowledge that, with so many expensive new biotech breakthroughs on the horizon, some limits are inevitable.
As significantly, health insurers and policymakers like Medicare chief Mark B. McClellan are determined to avoid a political showdown with the medical industries, preferring to search for indirect ways to let cost-effectiveness criteria seep into the health system.
Rather than looking to Medicare to take the lead, for example, they are asking simply for the government to perform the studies, with the hope that private insurers, doctors and even consumers will use the information to make better decisions about coverage and treatment.
And rather than aiming at some arbitrary limit on what is covered -- in Britain, for example, the cutoff is 30,000 pounds for each year of extended life -- the expectation is that insurers will take the less-coercive step of creating different tiers of coverage with higher co-payments for the less-cost-effective treatments.
In truth, this is nothing more than rationing and managed care traveling in disguise. The question isn't whether we'll ration and manage, but who will do it and how. And sooner we start talking about it openly, the better things will turn out.
Steven Pearlstein will lead an online discussion today at 11 a.m. at washingtonpost.com. He can be reached at email@example.com.
© 2004 The Washington Post Company