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Medicare: Should It Pay Less For Less-Effective Care?

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 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.

Per the WSJ blog:

“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?

*This blog post was originally published at The ACP Advocate Blog by Bob Doherty*

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