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The Impact of Technology
. .
Assessment on Decisions by Health Care
Providers and Payers
BRYAN R. LUCK AND RUTH E. BROWN
Medical technology capabilities are growing at a fantastic rate. Genetically
engineered treatment modalities, increasingly sophisticated lasers, diagnostic im-
aging, and other biotechnical advances are expanding the means of detecting and
treating many diseases. There appears to be no limit to what technology might
accomplish, given infinite resources. Concurrent with technological advances,
however, the health care system is under pressure to provide services to the
country's growing elderly population, to extend health care services to the unin-
sured and the underinsured, and to contain costs. Thus, providers and insurers
are caught between constrained budgets and the demand that they pay for the use
of expensive new technologies. Tough decisions must be made. In making these
decisions, providers and payers increasingly turn to technology assessment as a
tool to help set priorities and provide a rationale for their decisions.
Technology assessment is defined as "a comprehensive form of policy re-
search that examines the technical, economic, and social consequences of tech-
nological applications" (U.S. Congress, Office of Technology Assessment, 1982)
and as the "careful evaluation of a medical technology for evidence of its safety,
efficacy, cost, cost-effectiveness and ethical and legal implications, both in abso-
lute terms and in comparison with other competing technologies" (Perry, 1988~.
Included under the rubric of primary technology assessment are economic, quali-
ty-of-life, efficacy, and patient outcome studies. Many organizations in the gov-
ernment and private sectors conduct technology assessments, and the volume of
studies in the literature has increased dramatically over the past decade.
As we report in this chapter, however, many providers and insurers generally
consider these terms in a much narrower sense. To providers, medical technology
49
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so
BRYAN R. LUCK AND RUTH E. BROWN
means costly devices and diagnostics, whereas technology assessments primarily
consist of a net financial impact assessment (combining acquisition cost with ex-
pected revenue) or a synthesis of existing data. To insurers, technology assessments
are means of distinguishing experimental from state-of-the-art procedures in an
effort to determine whether to cover them.
OBJECTIVE
i'
Although it has long been suspected that technology assessment plays a role
an the purchase and coverage decisions of health care providers and third-party
payers, little supportive evidence for this exists in the literature besides the sheer
number of assessments that have been conducted.
Nevertheless, the demand for medical technology assessment has been grow-
ing considerably over the past decade as health care providers and payers grapple
with escalating health care expenditures. Hospitals and health maintenance orga-
nizations (HMOs) are being held more financially responsible than in the past
and need to provide services efficiently if they are not to exceed allowed reim-
bursement levels (Sorian, 1988~. As a result, purchase decisions are made under
greater scrutiny. Insurers (including self-insured employers) are focusing on the
appropriate use of expensive procedures to combat rising health care expendi-
tures and premiums. In 1989, the Health Care Financing Administration pro-
posed a rule that would explicitly allow the federal government to consider cost-
effectiveness in making Medicare coverage decisions (Federal Register, 1989~.
Such a major change in the conduct of Medicare-related decisionmaking would
likely be the first of similar steps by other third-party payers. Other countries
have already made similar moves Australia and Ontario, Canada, are proceed-
ing toward using cost-effectiveness data in the benefits approval process, prima-
rily for the drug formularies.i
The analysis described in this chapter was undertaken to discover how pro-
viders and payers use technology assessments in their decisionmaking and it
focuses on the implications for the medical products industry. A better under-
standing of these decisionmaking processes will assist the medical products in-
dustry and, for example, medical specialty societies in preparing to meet cur-
rent and future demands for technology assessment research. Industry can thus
help to ensure that decisions regarding new technology are made responsibly,
with full knowledge of the value that products bring to patients and the institu-
tions serving them.
~ "A formulary is a list of drugs carried by a given institutional provider. Large organizations use
formularies to buy drugs in bulk, as well as to limit the number of different drugs that are covered
and/or that must be kept in stock. Choices about which drugs are carried usually are made by a
hospital, HMO, or Medicaid pharmacy and therapeutics advisory committee. Decisions often are
based upon assessments by committees of the relative safety, effectiveness, and cost-effectiveness
compared to other formulary pharmaceuticals" (Halm and Gelijns, 1991, p. 17, n.7).
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IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS
METHODOLOGY
51
We used a case-study design employing semistructured, in-depth telephone
interviews with selected individuals from hospitals, HMOs, third-party payers,
self-insured employers, and government health programs to determine the fol-
lowing:
· how the organizations make purchase, coverage, and utilization decisions;
· what information is sought about medical technologies;
· what difficulties are experienced in using available technology assess-
ment information; and
· what the future holds for technology assessment.
We selected a nonrandom sample of institutions to be interviewed, including
four hospital systems, two community hospitals, one university hospital, one
university-affiliated hospital, two HMO-affiliated hospitals, one national and
three regional HMOs, and two purchasing groups. The institutions were located
across the United States and were of various sizes. We also interviewed five third-
party payers, two third-party administrators, two case management companies,
Medicaid and Medicare administrators, and four large self-insured employers.
Although we interviewed a small number of individuals relative to the total
number of providers and third-party payers in the country, we received similar
comments from people with similar perspectives. We believe that the general
picture would not be changed by interviewing additional individuals.
RESULTS
A summary of our findings is presented in Table 3-1. All of the organiza-
tions interviewed are actively engaged in technology assessment activities at
some level and use technology assessments in their decisionmaking process.
Their interest in technology assessment is based on the perceived need to be cost-
conscious in purchase decisions and to determine treatment efficacy before mak-
ing coverage policy decisions. All respondents expected that technology assess-
ment will continue to increase in importance and will become one of the several
required pieces of information used in the decisionmaking process.
We found that most institutions and organizations have committees respon-
sible for assessing new technology before purchase or coverage policy decisions
are made. The level of training and the experience of committee members vary
widely. Hospital staffs are generally less sophisticated and have other duties in
addition to their assessment activities. HMO and third-party-payer committees
are likely to have more training in assessment methods and to concentrate on
technology assessment activities.
Most providers identified a threshold cost ($100,000 to $250,000) above
which formal assessments are required (for example, computed tomography scan
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52
BRYAN R. LUCK AND RUTH E. BROWN
TABLE 3-1 Summary of Findings by Type of Organization
Hospitals HMOs Third-Party Payers
Why are assessments conducted?
· To help control costs
· To make prudent purchaser
decisions
· To hunt for new technology
Who conducts assessments?
· Formal multidisciplinary
committees
· Formulary committees
· Department chiefs
What technology is assessed?
· All devices/diagnostics over
a threshold ranging between
$100,000 and $250,000
· Less costly items at the
discretion of the requesting
department
· Pharmaceuticals
.
- To help make purchase
decisions
To provide basis for
coverage decisions
· Formal multidisciplinary
committees for broad
policy decisions
· Multidisciplinary device
committees
· Formulary committees
· Department chiefs
· Costly procedures for
. . .
coverage decisions
· Costly technology for
purchase decisions
· Less costly items at the
discretion of the requesting
department
· Pharmaceuticals
What technology assessment information is used?
· Peer-reviewed journals
· Manufacturers' literature
· Meetings/seminars
· ECRI, AHA
· In-house financial analyses
· To provide rationale for
. . .
coverage Decisions
· To separate experimental from
state-of-the-art procedures
· Formal multidisciplinary
committees
· Costly procedures
· Controversial procedures
· Peer-reviewed journals
· OHTA, OTA assessments
Recommendations from
.
medical specialty
associations and AMA
- Cost-effectiveness data
not used in coverage
. .
declslons
· Peer-reviewed journals
· OHTA, OTA, HIAA
assessments
· Recommendations from
medical specialty associations
and AMA
· Cost-effectiveness data
not used
ABBREVIATIONS: OHTA, Office of Health Technology Assessment; OTA, Office of Technology
Assessment of the U.S. Congress; HIAA, Health Insurers Association of America; ECRI, (formerly)
the Emergency Care Research Institute; AHA, American Hospitals Association; AMA, American
Medical Association.
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IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS
53
ners and yttrium aluminum garnet lasers are above the threshold, whereas pace-
makers and disposable endoscopes are not). Those technologies not meet-in" the
threshold are typically assessed more informally at the department level in hospi-
tals or HMOs. The assessments conducted by hospitals are primarily financial
analyses of costs and investment "payback" so that purchasers can make prudent
decisions or are a hunt for new technologies that might promote the hospital.
Pharmacy formulary assessment committees are separate from other technology
assessment committees.
Third-party payers and HMOs as payers conduct assessments that focus on
both costly and controversial technologies and procedures. Patient outcomes are
included when possible for HMO purchase and coverage assessments and are
always considered (if available) in insurers' coverage decisions. Long-term out-
comes (e.g., survival over a year, rather than the immediate outcome of the pro-
cedure) are considered by insurers if appropriate data are available. In contrast to
the providers, who focus on costs, the insurers maintain that the cost of a proce-
dure is not considered in their coverage decisions.
The primary sources of technology assessment information used by provid-
ers and payers are peer-reviewed journals and information from manufacturers.
HMO and third-party-payer respondents are more likely to include information
from such sources as the Office of Health Technology Assessment, the Office of
Technology Assessment, medical specialty organizations, and professional orga-
nizations such as the Health Insurance Association of America. Occasionally,
providers or payers conduct or commission technology assessment research.
Each individual we surveyed commented that his or her institution or organiza-
tion will rely on technology assessment even more in the future and will require a
centralized repository for technology assessment information.
DISCUSSION
Generally, our findings conform to what might be expected by knowledge-
able observers and suggest important lessons. All the payers and providers we
contacted use technology assessment information to aid in their coverage and
purchase decisionmaking processes. The quality, scope, and future of payer and
provider technology assessment activities vary depending on who conducts the
analysis, whether the decision is related to purchase or coverage, and whether the
technology assessed is a drug, a medical procedure, or a device.
Quality Issues
The quality of the technology assessments conducted by providers and pay-
ers is often less than ideal and generally does not conform to the larger definition
of technology assessment established within the research community. Nonethe-
less, the state of the art has advanced significantly in recent years. In the past,
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54
BRYAN R. LUCK AND RUTH E. BROWN
hospitals usually provided whatever physicians requested with little, if any, eval-
uation effort. Medical directors of HMOs and insurers had very little scientific
information on which they could rely to make coverage decisions. Now payers
and providers are establishing multidisciplinary committees that are becoming
increasingly knowledgeable consumers of technology assessment research. We
expect improved levels of sophistication to become the norm and to affect the
demand for more comprehensive and rigorously achieved technology assessment
information.
To date, three major factors have limited the optimal use of technology
assessment information in decisionmaking.
Individual Skill Levels in Technology Assessment Vary Widely
Individuals on drug formulary assessment committees are generally familiar
with and understand technology assessment methods, primarily through exposure
to the relatively abundant pharmaceutical clinical trial literature. By contrast,
most other individuals involved in hospital technology purchase decisionmaking
have not been trained in the conduct or analysis of technology assessment, nor
are they experienced in adapting technology assessment data to their decision-
making. HMOs and third-party payers are more likely to employ individuals
trained in biostatistics or health services research and who have had experience
in conducting and interpreting technology assessments. It is not surprising, there-
fore, to find different levels of sophistication and rigor of assessment activities in
different settings.
Technology Assessment Research is Expensive
Major technology assessments that use existing data generally cost between
$40,000 and $5O,OOO. Prospective research (e.g., controlled, random clinical
trials) is considerably more expensive and can cost upward of $500,000. Thus,
providers and payers are usually limited to conducting assessments based on
existing data-and even then assessments are limited to high-cost or controver-
sial technologies. Payers and providers almost always rely on manufacturers,
academe, and government for high-quality prospective research. Thus, core ex-
pertise in technology assessment research rarely resides within the organizations
that actually use the results of such research in their decisionmaking.
Timely Technology Assessment Information is Scarce
Nearly all of the respondents commented that currently available technology
assessment data are insufficient or appear too late to be of help in their assess-
ments. Drug formulary assessment committees have a richer supply of peer
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IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS
55
reviewed clinical trial data on which to base their decisions. However, the pauci-
ty of technology assessment information in other areas leads many inexperienced
users to accept whatever is available without much discrimination.
Scope Issues
Costs clearly play a major role in the technology assessment process. Since
assessments in hospitals are often financial analyses for purchase decisions, costs
play a dominant role. This is not merely due to tight budgets; regulation also
plays a role. For example, the state of Minnesota has passed legislation requiring
hospitals to obtain prior approval before making major capital equipment pur-
chases. Approval is granted only if the expenditure meets standards established
by a commission established to keep down spending on health care (Medicine
and Health, April 20, 1992~.
HMOs and insurers do not conduct assessments on all new technologies but
primarily limit assessments to expensive procedures. Yet, these decisionmakers
uniformly assert that costs do not play a role in making coverage and reimburse-
ment decisions. Most analysts would question this assertion, particularly in light
of the fact that high costs are one of the major reasons that payers are conducting
assessments of new technologies. We can only surmise that HMOs and insurers
feel societal and constituent pressures to base decisions on health benefit issues
and to avoid being perceived as rationing health care on the basis of costs.
We note several developments that counter the denial that costs play a role in
. .
coverage c eclslons.
· Every year since the mid-1960s, the scientific health literature has had a
rapidly increasing number of cost-benefit and cost-effectiveness studies (Elix-
hauser et al., 1993), indicating that economics generally plays a key role in medi-
cal technology assessment.
· The Health Care Financing Administration proposed regulations to per-
mit consideration of cost-effectiveness analyses in its coverage decisionmaking
(Federal Register, 1989~.
· The Oregon Medicaid program made an explicit decision to ration health
care on the basis of cost-effectiveness analyses (Fox and Leichter, 1991~.
· Australia is the first country to require new drug approval to include cost-
effectiveness analyses (Drummond, 1992~. Ontario, Canada, is preparing a simi-
lar policy to include cost-effectiveness criteria in evaluating drugs (Ontario Drug
Program Branch, 1991) and, in Europe, drug pricing authorities are encouraging
and accepting industry's submission of cost-effectiveness data.
· Battelle's and other researchers' experiences in the pharmaceutical area
in the United States, Canada, and Europe suggest that market pressures and pric-
ing authorities have led to cost-effectiveness assessments in the research and
development of most breakthrough, and often expensive, drugs.
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56
BRYAN R. LUCK AND RUTH E. BROWN
.
Companies often think of these assessments as "price justification" activi-
ties, which is exactly what coverage decisionmakers are implicitly asking.
Thus, notwithstanding our respondents' statements, economics clearly plays
a major role in the reasons they engage in technology assessment and even in the
assessments themselves. One problem with explicitly excluding economic con-
siderations from the analysis is that decisionmakers may miss the impact that a
new technology might have on patient management pathways, laboratory test
expenditures, number and length of hospital stays, and other factors that affect
the total costs of a medical technology. The resulting technology assessments
may therefore undervalue the impacts of important innovations.
Future Issues
Providers will continue to conduct assessments for major capital expendi-
tures from an institutional point of view and be very oriented toward "prudent
purchases." However, they will become more sophisticated in reviewing data
and information in the literature; they will communicate better among them-
selves; and as they continue to evolve into larger hospital and managed care
systems, their expertise will grow commensurately and their viewpoints will be-
come less narrow. We expect that future medical device assessment committees
will follow the lead of formulary committees and will include cost-effectiveness
as one of the key criteria for the adoption of a new technology.
HMOs and insurers will continue their technology assessment efforts. Their
coordination of assessments will likely intensify to the extent allowed by law, not
only in terms of more efficient information transfer but also in the pooling of
resources so that they can assess more technologies better. The private-public
efforts first by the Institute of Medicine's Council on Health Care Technology
and, second, by the Technology Assessment Collaboration Proposal (Medicine
and Health, January 20, 1992), although both stalled are indicators that there is
intense interest in technology assessment and a need to pool funding and coordi-
nate assessment efforts.
Other indicators of the continued increase in assessments are the expansion
of both the Agency for Health Care Policy and Research's outcomes research
agenda and that agency's recent pharmaceutical outcomes research initiative.
The trends toward increasing outcomes research come in an environment of cost
constraints that is leading to greater consolidation of providers and insurers, in-
cluding more managed care. These enlarged organizations will have more moti-
vation and may have greater clout to require or demand information from medi-
cal device and pharmaceutical manufacturers.
The findings of the study described in this chapter reveal that many decision-
makers, especially those at hospitals, are not well prepared to assess the available
technology assessment information and do not have the resources to conduct
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IMPACT OF TECHNOLOGY ASSESSMENT ON DECISIONS
57
technology assessment studies on a routine basis on their own. Overall, we are
left with the impression that decisionmakers are inundated with new (and usually
very expensive) technologies and that physicians and patients are demanding the
latest innovations. At the same time, decisionmakers are under intense budgetary
pressures and have a very poor information base to assist them in making their
decisions. Thus, these decisionmakers are eager for timely, relevant, and credi-
ble information to help them make decisions concerning technology purchase,
adoption, and coverage policy. Government, the medical products industry, and
medical societies have the opportunity and perhaps the obligation to support
decisionmaking by educating customers, targeting information to meet real-world
needs, making information more accessible, and providing more and better tech-
nology assessment studies. Efforts could be divided so that the medical drugs
and devices industries assess their products, the federal government assesses
medical and surgical procedures, and the medical specialty societies focus on
guiding the efforts in all areas.
Education
Government, industry, and medical societies can assert leadership in educat-
ing insurers and providers about technology assessment so that responsible deci-
sions can be made. They already actively sponsor educational activities for
medical professionals. The provision of materials and programs on how to use
patient outcomes and cost-effectiveness data would be a natural extension of
these efforts.
Financial Support
Government and industry can also contribute toward the costs of technology
assessments. For example, better systems for tracking patient outcomes are need-
ed. This requires both technical and financial investments that could be supplied
in part by both government and the medical products industry. Industry and
government could also team up to support public-private efforts to finance tech-
nology assessments. These efforts could be similar to those attempted in the past
(for example, the Institute of Medicine's Council on Health Care Technology and
the recent technology assessment collaboration proposal spearheaded by the in-
surance industry). Financial support for clearinghouse activities, development of
data-tracking systems, and methodology research are all necessary to meet future
demands for information.
Information
Most important, government, industry, and possibly medical specialty soci-
eties have the opportunity to fill the information vacuum we have identified in
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58
BRYAN R. LUCK AND RUTH E. BROWN
this chapter. The health care community is currently malting technology deci-
sions with insufficient data. As a result, some of these decisions may-be subopti-
mal. Not only can they increase the knowledge base by supporting patient out-
comes and cost-effectiveness research, but they can also target information to
specific decisionmakers' needs. Appropnate studies can be sponsored early in
the technology development process so that decisionmakers have the information
they need when they need it.
Finally, whether industry, government, and medical specialty societies capi-
talize on the opportunities identified above, the demand for technology assess-
ment information will continue. The respondents in the present study have iden-
tified needs in education, resources, and research; they uniformly predict that
technology assessment activities will become increasingly important in malting
their technology purchase and coverage decisions. Indeed, both the health care
market and public policy makers are already beginning to require considerably
expanded technology assessment information from manufacturers.
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Fox, D. M., and Leicher, H. M. 1991. Rationing care in Oregon: The new accountability.
Health AffCairs 10:7-27.
Halm, E. A., and Gelijns, A. C. 1991. An introduction to the changing economics of
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Gelijns and E. A. Halm, eds. Washington, D.C.: National Academy Press.
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Medicine and Health, April 20, 1992. Minnesota passes health reform bill. 46~161.
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ogy Assessment. Washington, D.C.: U.S. Government Printing Office.
Ontario Drug Program Branch. October 1991. Guidelines for drugs benefit formulary/
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Perry, S. 1988. Technology assessment in health care: The U.S. perspective. Health
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Sorian, R. 1988. The Bitter Pill: Tough Choices in America's Health Policy. New York:
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Representative terms from entire chapter:
technology assessments
