RAND: Medicare Should Weigh Cost In Coverage Decisions

The agency that oversees the Medicare program should be able to consider the cost effectiveness of drugs and medical devices when making coverage determinations, according to a new report by the RAND Corporation.



But study authors acknowledge that this recommendation — a significant change from current practice in which the Centers for Medicare & Medicaid Services is barred from considering cost – has little chance of being implemented because it would require Congressional action.

“My impression is that changing Medicare will be very difficult. It may have to wait until more people believe we’re in a crisis,” said Steve Garber, a RAND senior economist.

The report, Redirecting Innovation in U.S. Health Care, explores options to decrease spending and increase value within the American health system. Other suggestions include the creation of a Food and Drug Administration public-interest investment fund to support research that could produce less costly drugs and devices.

“The interest shouldn’t be if a product is profitable — that’s a big problem with vaccines and orphan drugs,” said Sara Rosenbaum, a professor of health policy at The George Washington University, who reviewed the report for RAND.

RAND also suggests that CMS quickly transition from the current fee-for-service model, in which providers are paid for every test and procedure , into paying doctors or hospitals a set amount for each episode of care or for a given time period.  That idea is incorporated into the health law, which seeks to promote better quality, lower cost care by spurring the formation of groups of doctors and hospitals called accountable care organizations to closely coordinate a patient’s care.

Moving aggressively on this recommendation would drive market forces to control costs, said Kip Piper, a senior consultant with Sellers Dorsey, a firm that provides Medicare and Medicaid regulatory assistance to insurers, hospitals and government agencies. Piper was not involved in the study.

“If the high price [of a drug or a device] is eating into the reimbursement of the provider, you can be assured that someone else will come in and create a product that is aligned with those dollars,” Piper said.

Other study recommendations include:

- Offering government-funded prizes for new drugs and medical devices that are cost-effective;
- Buying existing patents for drugs and devices to license them to manufacturers who would offer them at lower prices;
- Expediting FDA reviews and approvals;
- Funding research that may be valuable but not produce profits for a company;
- Implementing higher out-of-pocket costs for low-value services.
- Creating a CMS drug and device price determination approval process during the same time that FDA reviews those products to maximize the agency’s bargaining clout to hold down prices.