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Rand on Medical Products and Innovation

By April 29, 2014Commentary

Medical products–drugs, devices, equipment and health information technology–have come to account for a significant portion of all health spending in the United States over the last two decades.  Many questions are raised about the prices, margins and value of these medical products.  A Rand Corporation report looks at what steps might be taken to only encourage the development, marketing and use of high-value innovations.  (Rand Report)   The authors looked at three stages; invention, regulatory approval and adoption.  Investors can play a key role at the first stage, the FDA is the crucial party for regulatory and physicians and doctors are typically decision-makers on adoption.  In terms of why investors and inventors may avoid high-value innovations, five factors were identified: lack of basic scientific knowledge; risk of FDA approval for a new category; no special reward for spending-decreasing products; treatment creep to patient groups outside of the original targeted population and competition among providers to have the latest and fanciest technology (i.e. robot surgery).

The authors propose a number of policy options to try to encourage more cost-effective medical products, including offering large prizes, establishing a public interest investment fund, expedite FDA reviews for technologies that decrease spending, allow Medicare to consider cost in setting payment rates, better coordination of CMS and FDA reviews and policies and create faster coverage technology assessments.  While the report has some interesting ideas, it doesn’t seem to really have any striking methods of encouraging only development of cost-saving innovations.  And right now, payers seem to have great difficulty being able to refuse to pay for drugs and devices that they already know don’t likely improve outcomes, but cost a great deal.  Giving support to private payers may be the most effective way to limit low-value medicine.

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