The American healthcare system is at a crossroads. Shifting to a system that reimburses based on value, rather than volume, of care requires changes in how we evaluate healthcare and make spending decisions. Elsewhere in the world, governmental agencies perform health technology assessment and make coverage recommendations based on cost effectiveness and other metrics. Such an approach runs contrary to fundamental elements of American healthcare, however. To successfully move to value-based healthcare in the U.S., distinctly American approaches to measuring value must be developed that meet several key criteria.
In the wake of the recent national elections, it seems increasingly clear that Obamacare is facing a major overhaul – if not a total repeal. This coming debate raises fundamental questions about how we want to structure our healthcare system. At the core of this structure will be how much to pay for new innovations in healthcare, as these drive much of spending growth in this sector. Indeed, as the health care world is moving from paying for volume to paying for value, value-based payment systems need to be developed and evaluated.
In other countries, decisions about health care coverage are made by public health technology assessment (HTA) organizations. The U.S. is no stranger to this approach—in fact, Congress essentially invented HTA when it created the Office of Technology Assessment in the 1970's to have the government referee the market on value. More recently, the Agency for Health Care Research and Quality (AHRQ) and the Patient-Centered Outcomes Research Institute (PCORI) are organizations mandated to compare the relative value of various treatments. The U.S. has limited public efforts to determine value, however, and the power of these organizations has been limited. The OTA was shut down by Congress in 1995, and PCORI, AHRQ, and even the FDA and CMS are explicitly forbidden from relying on cost effectiveness analysis.
Some in the U.S. have proposed more regulation, allowing the prices of expensive healthcare treatments to be determined through a top-down, bureaucratic approach. The Centers for Medicare and Medicaid Services, for example, announced a Part B Drug Payment Model, which proposes using value-based pricing where value is determined by organizations such as the Institute for Clinical and Economic Review (ICER). Nonetheless, the role of cost effectiveness in U.S. healthcare has been strikingly small. By contrast, National Institute for Health and Care Excellence (NICE)’ s cost effectiveness analyses have a huge impact on coverage and policy decisions made by the National Health Systems of England and Wales.
Why does the U.S. reject the government-run health technology assessment approach adopted by much of the western world? There are at least four potential reasons:
- The U.S. is not a single payer system
In the United Kingdom, a single payer—the National Health Services—pays for the vast majority of healthcare services. In the U.S., payers include commercial insurers, employers and government. Within commercial insurers, patients have a choice of which plan they want to use. For instance, patients may have a choice between Kaiser Permanente’s more integrated health plan model compared to other insurers like Anthem or UnitedHealthcare that generally contract with, rather than employ, physicians. Priorities also differ across payers themselves. Employers, for instance, may place a high value on covering treatments that get their employees back to work. Further, “government” healthcare in the U.S. is also diverse and includes programs such as Medicare, Medicaid, Veterans Affairs, and others. Identifying a single approach to measuring value is problematic when different payers are likely to have different conceptions of what value means.
- Americans prefer treatment choice
The output from health technology assessment can be used in a variety of ways. One way is to identify a “best” treatment on average and use restrictions—such as step therapy—to compel patients to begin treatment with this “best” treatment. The problem is that that the goal of health technology assessment should not be to identify the best treatment on average, but rather to identify the best treatment for each individual patient. These “one size fits all” approaches are problematic and take the decision-making out of the hands of the people most qualified to make these decisions: patients and physicians. Ranking products based on some summary metrics, and paying for products based on that ranking, does not make sense when patients respond differently to treatments. The best product for one patient is the worst product for another. Rather, the focus should be on better matching patients to treatments.
- Americans place a high value on innovation
If technology assessment is used simply as a price control in disguise, in the long-run innovation will decrease as R&D investment will dry up. Recently, NICE rejected covering the breakthrough immunotherapy drug nivolumab for lung-cancer patients due to concerns surrounding cost effectiveness. More generally, one study showed that cancer mortality rates fell faster in the highest-spending countries than in medium- and low-spending countries. As I have stated before, you get what you pay for in most sectors, including healthcare.
The U.S. cares about innovation more than other countries for good reason. The U.S. represents the largest share of world demand for innovation by far, so the U.S. faces an innovation-access tradeoff in rewarding innovation. Paying for innovation trades off larger taxes for more future treatments. Other small countries do not face this tradeoff: innovation does not suffer if small countries cut prices unilaterally because each one makes up only a small share of world demand. European countries act in their own best interest by having price controls, cost effectiveness, and reference pricing. If the U.S. were to mimic this approach, however, it would lead to cuts in world demand and the innovation it spurs—not an outcome in the interest of U.S. citizens.
- European-style HTA takes a narrow view of value measurement
Value measurement done outside of the U.S., and within the U.S. by organizations such as ICER, typically focuses only on health gains and costs incurred by payers. Clearly, these components are highly important in determining a treatment’s value. However, our current measures of value are not only too narrow but are shortsighted. For instance, health technology assessment typically neglects to incorporate the social value of treatments, as improvements in health are not only valued by those who receive treatment but by others as well, as in the case of infectious disease or when caregiver burden is reduced among loved ones caring for someone who is ill.
There are other benefits of therapies often ignored in ranking products based on common summary metrics such as cost effectiveness. Consider, for example, how standard technology assessment would have valued the first treatment for HIV/AIDS, AZT, which was modestly valuable in improving survival. For some patients treated with AZT in the early 1990s, the drug prolonged survival long enough to receive highly active anti-retroviral therapy (HAART) in the mid-1990s. In effect, AZT created “option value”—it created the option of future treatment with more effective drugs for those who lived long enough to receive them. This “option value” has been estimated to be as large as 10% of the overall value of survival gains from existing treatments.
Further, standard HTA metrics assume that costs are static over time. In reality, expensive drugs typically decline in price, either after other competing drugs to treat the disease enter the market or after losing patent exclusivity. In both cases, the value provided to patients by a given product rises over time.
Value Assessment: A Decentralized Way
At the same time, as value-based pricing is increasingly used in the market, new tools for value assessment and pricing are needed. These tools should not be used to restrict patient choice or set prices using a centralized, top-down manner, but instead to provide information to innovators, payers and patients regarding the benefits and costs of different treatments for different patients. Value assessments ranking products should not replace the healthcare market, but the value of different products for different patients should help inform it.
Private markets will naturally give rise to a demand for such decentralized evidence. Indeed, one new organization that has voiced just such an approach is the Innovation and Value Initiative (IVI) of the firm Precision Health Economics. Launched in September, this multi-stakeholder effort aims to provide a more rigorous scientific approach to value assessment. Initiatives like IVI could help move the U.S. healthcare system in the right direction. To do so, however, they must follow four key principles.
First, value must be measured using state-of-the-science approaches that are embraced by multiple stakeholders. Some value frameworks have been developed on an advocacy basis, driven by buyer groups that want lower prices. A scientific approach that represents both the sellers and buyers in the healthcare market—guided by experts in healthcare value assessments—should be the goal.
Second, organizations like IVI must consider novel value-based pricing mechanisms. As the world moves away from volume-based pricing, other forms of reimbursement should be considered such as outcomes-based contracts (payment based on real-world patient outcomes), indication-specific pricing (allowing prices to vary based on patients’ disease), licenses (a fixed price to gain access to a treatment over a fixed time period) and others.
Third, any value assessment approach needs to consider not just value today but value in the future. Although working to minimize the price of drugs, devices and other innovations would improve patient access in the short run, in the long run patients will be left with fewer treatment options.
Fourth, value frameworks and health technology assessment programs must be guided by the patient perspective. Specifically, value frameworks that recommend a one-size-fits-all approach or product rankings for all patients are an unsatisfactory solution. Not only do clinical factors differ across patients in ways physicians generally understand but payers may not, put patient preferences differ as well. For instance, some patients with cancer may prefer a more efficacious treatment with more severe side effects; other patients may prefer a treatment with fewer side effects, even if that means sacrificing some survival gains. Any value framework or health technology assessment should inform and empower patients and physicians to make good decisions, rather than limit choice.
In short, Americans have a choice: importing health technology assessment from Europe or developing tools and institutions designed to measure the value of healthcare treatments from a more decentralized American perspective. Private multi-stakeholder institutions centered on the science are already emerging to do this, and will likely be superior to government or payer bodies that are biased by fiscal pressures to simply take the buy-side perspective of valuation.
