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The value of cost-effectiveness analyses for reimbursement decisions: Perspectives from Medicare
The value of cost-effectiveness analyses for reimbursement decisions: Perspectives from Medicare Steven H. Sheingold, PhD Baltimore, Md
The financing and delivery of health care have undergone a significant restructuring in recent years as relationships among payers, providers, and purchasers of health care have changed dramatically. Recent terms such as “third-party payer” and “hospital” have been replaced by current terms such as “health-plan” and “health system.” Even Medicare, the nation’s largest payer—and still predominantly a fee-for-service plan— has shifted its focus and its resources to health-plan and provider-purchasing strategies.A key feature of the present system is that health plans, whether using a fee-forservice or managed care arrangement, are increasingly held accountable for reducing the growth in costs while simultaneously enhancing the quality of care.The pressure has considerably changed the way new technologies are evaluated for coverage and reimbursement. Indeed, a substantial evolution in the technology assessment/coverage processes has occurred within Medicare and many private plans.The paradigm for these decisions has shifted from one that uses less formal, opinion-dominated decisions to one that uses more formal, evidence-based methods for evaluating services.1 The increasing use of these latter methods represents the recognition that controlling costs while ensuring the highest quality of care will not be possible without scientific evidence about the value of each medical care service.The general policy objective for using the evidence-based methods includes 2 aims: first, to ensure payment for services that benefit patients for their intended uses, and second, to avoid payment for services that harm patients or are ineffective. The use of cost analyses and cost-effectiveness analyses (CEAs) as explicit criteria for coverage decisions has not, however, been widely accepted or adopted in the health care community. Despite the pressure to reduce health care costs, strong social, legal, and political pressures exist to bar the use of cost as a factor in decisions about the coverage or provision of services.Thus, From the Division of Program Analysis and Performance, Measurement Health Care Financing Administration. Steven H. Sheingold, PhD, Director, Division of Program Analysis and Performance Measurement, Health Care Financing Administration, 7500 Security Blvd, Baltimore, MD 21244-8150. Am Heart J 1999;137:S81-S86. Copyright © 1999 by Mosby, Inc. 0002-8703/99/$8.00 + 0 4/0/96323
although Medicare and other health plans have substantially tightened coverage criteria for the effectiveness of services, little formal use of CEA has been made. Cost considerations, however, may play less formal roles in the evaluation of heath care services, and the results of high-quality CEAs may in well-defined circumstances be quite useful to decision makers. What is the value of economic studies and cost-effectiveness studies of cardiovascular therapies (or other therapies) for Medicare’s reimbursement decisions? The answer depends both on the quality of the CEAs and on the ability of health care decision makers to find, in the current climate of opposition to CEAs, acceptable ways to use CEA results in decisions.This article describes Medicare’s processes for making coverage decisions and also the criteria it uses in these decisions. It examines the role of effectiveness studies and cost-effectiveness studies and argues that in some circumstances, CEAs may be very useful in making health care decisions, even if cost-effectiveness ratios (CERs) are not explicitly used.
Medicare’s criteria for coverage In the more than 30 years since the Medicare program began, one of the primary responsibilities and challenges for the Health Care Financing Administration (HCFA) has been to maintain a dynamic decision making process to ensure that the Medicare program, on behalf of its beneficiaries, keeps pace with changing medical technology.Although the processes and criteria for doing so have evolved to meet scientific trends and health care industry trends, HCFA’s discretionary decisions about new technologies have always been guided by Section 1862(a)(l)(A) of the Social Security Act, which states:“no payment may be made for items or services which are not reasonable and necessary for the diagnosis or treatment of illness or injury.”To determine whether and under what conditions a service or item is “reasonable and necessary” and therefore covered, HCFA has developed the following criteria for the service or item: (1) its demonstrated effectiveness, (2) its appropriateness, and (3) its comparability with alternatives.
Demonstrated effectiveness To ensure a service or an item meets the standard of demonstrated effectiveness, authoritative evidence must be presented that the benefits of the service or item outweigh the reasonably anticipated risks for its intended
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uses.There are 2 parts to this criterion. First, if the item or service is regulated by the Food and Drug Administration (FDA), it must have the relevant approval or clearance from that agency to be considered for coverage. Second, sufficient scientific evidence must demonstrate that the service or item, whether regulated or not, improves the patient outcomes deemed relevant for its intended uses. The first part of this criterion provides a key link between FDA status and Medicare coverage. Because FDA approval or clearance is considered authoritative evidence that at least some basic safety and efficacy issues have been resolved, FDA decisions about such issues are considered sufficient to provide the minimum level of evidence required for coverage. However, the second part of the demonstrated effectiveness criterion means that although FDA decisions about a service are necessary for Medicare coverage, they may not be sufficient.The safety and efficacy issues that must be resolved for FDA approval or clearance may or may not address key points in Medicare requirements about patient outcomes, value, and relative effectiveness.Thus FDA approvals do not guarantee Medicare coverage.
Appropriateness To meet the criterion of appropriateness, a service must be consistent with the patient’s needs and condition; it must also be provided in a setting commensurate with the patient’s needs by personnel qualified by training, experience, and licensure. For example, it may be considered appropriate for some patients to undergo cardiac catheterization in a freestanding facility but not appropriate for other patients at high risk for complications related to the procedure. For the latter group the service would be covered only in a facility with necessary support services, such as a hospital.
Comparability Comparability is a requirement that applies when sufficient evidence exists to allow a comparison of the relevant costs and effectiveness of 2 or more technologies closely related by their being used for the same diagnostic or therapeutic purpose. Medicare will cover services meeting the demonstrated effectiveness and appropriateness criteria under conditions dictated by the evidence. Comparability is an additional criterion allowing coverage and payment decisions refined in cases where services are found more costly, but no more effective, than closely related alternatives.When such a finding is made, Medicare may cover the service and pay for it at the rate of the lower-cost alternative, or Medicare may limit the service to specific patients or specific conditions for which it has been found more effective than the alternative services.The objective of the comparability criterion is to ensure value for the Medicare program and its beneficiaries.
Evidence-based decisions Like many private health plans, Medicare has enthusiastically adopted evidence-based procedures so that it can make coverage determinations consistent with the criteria described previously.Although the term evidence-based may have different interpretations across the industry, agreement exists on some basic characteristics to which the term refers. Evidence-based decisions are those that: (1) focus on patient outcomes rather than intermediate or surrogate outcomes, (2) focus on effectiveness as opposed to efficacy, and (3) involve a systematic review and grading of medical evidence.
Outcomes Several types of outcomes may be the targets of clinical studies, including patient outcomes (eg, mortality, quality of life), intermediate outcomes (eg, changes in hematocrit), or surrogate outcomes (eg, tumor shrinkage). Studies of the effectiveness or efficacy of new technologies have often examined the latter 2 outcomes. However, Medicare and other health plans increasingly require evidence of improved patient outcomes to secure a favorable coverage determination. One reason for this shift is that the growing pressure to improve and measure quality of care and patient satisfaction places more emphasis on measures that reflect health status in ways meaningful to patients (eg, pain, suffering, or functional status). Moreover, in a growing number of examples, intermediate or surrogate outcomes have proved poor predictors of change in patient health status and in some cases have been misleading in ways that might endanger patients.2 In evaluating services for coverage, Medicare places considerable emphasis on the evidence for improvements in outcomes such as morbidity, mortality, quality of life, functional status, and changes in the need for medical services.
Efficacy versus effectiveness In examining evidence to determine the impact of a technology on patient outcomes, increasing attention is being paid to the distinction between the 2 commonly used terms,“efficacy” and “effectiveness.” Efficacy may be defined as the benefit of a technology for a particular use under ideal conditions such as those that might exist under clinical study protocols. Effectiveness may be defined as the benefit of a technology when used under routine conditions found in general practice, that is, in typical settings and practice patterns, for patients who may differ in many ways from those in clinical trials. The Medicare program must carefully consider whether coverage policies must be targeted to particular facilities, patients, or indications to ensure that its beneficiaries may realize any beneficial effects found in clinical studies. Given the eligibility rules, Medicare
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patients are either aged or disabled; thus their health status and health needs are often different from those of the population in general.The Medicare program must therefore take extra care in examining the evidence from clinical trials so that it can establish that the findings from these trials can be generalized to standard practice settings.
Systematic review of evidence A universal aspect of the trend toward evidencebased processes is the systematic manner in which medical evidence is reviewed, graded, weighted, and combined to guide coverage or practice decisions.3 The steps in this systematic approach have been designed to provide a basis for judging the overall strength of medical evidence for drawing inferences about the impact of a service on patient outcomes. Formal technology assessment has evolved from a process that often examined the technical properties of a technology to what is now a structured review of evidence geared toward drawing conclusions. In applying systematic review, Medicare prefers evidence published in peer-reviewed journals.The program recognizes, however, that when a technology is evolving, valuable evidence may be available but not yet published. It also recognizes that publication is not always a guarantee of peer review and that data are not always valuable for assessment purposes.Therefore, in many cases Medicare relies on formal assessments of published and unpublished data made by the Agency for Health Care Policy and Research or by private assessment entities. Regardless of whether HCFA relies on an external assessment or it reviews data internally, the evaluation and grading of medical evidence focuses on the following key questions.Were the appropriate outcomes measured? Was the study design (eg, for a randomized trial or case series) adequate for the drawing of inferences about these outcomes? Were a sufficient number of patients studied? How were patients selected? Was the follow-up period of sufficient length? Was follow-up complete and consistent? Finally, can the results be generalized to Medicare patients in standard practice settings?
The role of CEA in medicare’s coverage process The brief description in this article of Medicare’s coverage criteria and coverage process provides a backdrop for discussing the role and value of CEA for policy decisions. Medicare’s coverage criteria have evolved to meet the program’s need to keep pace with developments in medical technology, and they have been formulated within the social/political/legal context in which the program operates.Within that context Medicare criteria require that for new technologies to be covered, strong medical evidence
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must support the effectiveness of a service in improving patient outcomes. Under defined and limited circumstances, both costs and effectiveness may be integral components of reimbursement policy, but establishing the cost-effectiveness of a service is not an explicit requirement for coverage, nor are services ranked by CEAs to make “threshold”decisions for coverage, nor are CEAs required for a service to be considered for coverage. An interesting question—and one important to assessing the value of CEA for Medicare coverage decisions—is:Why have Medicare and private health plans been reasonably successful in implementing more stringent criteria for evidence of effectiveness (and in doing so raising the thresholds for the acceptance of new technologies), while the role of CEA remains controversial and underdeveloped? After all, although the appropriate measurement of costs is by no means a trivial issue, the most substantial part of many CEAs is the measurement of effectiveness. In considering this question, it is useful to look briefly at the societal concerns about, and the societal obstacles to, the more explicit use of CEA.After some analysis of this subject, the remainder of this article will discuss how CEA can be valuable to the making of coverage policy.
Health plans and CEA In 1989 HCFA published a notice of proposed rule-making with the objective of codifying Medicare’s coverage criteria, process, and policies. One of the coverage criteria proposed was that a service must be cost-effective. Although a number of policies in the notice of proposed rule-making raised different concerns among providers, manufacturers, and beneficiaries, these groups were united in their opposition to including cost-effectiveness as a criterion. Ultimately, this controversy kept the regulation from being published in final form and resulted in the current set of coverage criteria that are still being developed. It is likely that private plans have reacted in similar ways. Despite the many changes in the health care industry during the 9 years since the notice of proposed rulemaking and despite the greater focus on controlling medical care expenditures, the opposition to using or requiring CEAs for coverage or medical practice decisions remains strong. Eddy4 has described a significant irony in noting that society is demanding that health plans maximize quality while minimizing cost—without considering costs.There are other ironies.Although the pharmaceutical and device industries spend millions of dollars sponsoring CEAs and therefore have a substantial investment in their value and use, lobbyists representing these same industries have consistently opposed the use of CEAs by Medicare. It is also ironic that many fear that the use of CEA will focus decision making on cost. High-quality CEAs enhance our ability to compare costs and effectiveness, that is, to assess
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value. It is without these analyses that the most visible and available information may refer to cost. Indeed, it is likely that most health plans implicitly and less formally use CEA, despite the current climate of opposition to it, by requiring stronger evidence of effectiveness for highcost technologies. The “cost taboo” described by Eddy4 is an impediment to health plans when they attempt to determine appropriate cost/quality tradeoffs. Unfortunately, as mentioned earlier, several social, legal, and ethical barriers to a greater consideration of CEA continue to stand. Aside from these factors, however, misunderstandings about CEA methods, about how the results of CEA would be used, and the misuse of the very term costeffective may present the most significant barriers to a wider acceptance of CEAs. The practitioners, sponsors, and users of CEAs understand that these analyses focus on the value of technologies, that is, that CEAs provide an enumeration and comparison of relevant benefits and costs for a technology. Many groups in the health care community, however, still associate CEA with a focus on the immediate cost of a service.At a meeting with members of the Health Industry Manufacturers Association, I participated in an exchange that illustrates this confusion.A representative from a large manufacturer of health care products pronounced that it was inappropriate for HCFA to use CEAs and that his company would oppose any coverage criteria based on such methods.The same representative criticized HCFA for focusing only on immediate or purchase costs for a technology rather than accounting for future changes in medical care use that might be associated with that technology. I explained to that individual that the CEAs his company opposed would provide exactly the latter kind of information that he had identified for Medicare decision making. Perhaps the greatest source of confusion and concern about CEA is the frequent misuse and misinterpretation of the term cost-effective. Many in the health care profession know that the use of this term with regard to the results of CEAs should be avoided. Other methods of classifying such results have been developed. For example, under one system the results of economic studies are classified in terms of providing evidence of strong dominance, weak dominance, or nondominance for making a decision about a technology.5 As discussed in the following text, Medicare uses the evidence of strong or weak dominance for reimbursement decisions. CEAs for many new technologies, however, would lead to a finding of nondominance, that is, that the new technology is both more costly and more effective than the appropriate comparator. In these cases deciding what is “cost-effective” is based on a subjective evaluation rather than a scientific concept. Indeed, most health plans are likely to cover services demonstrated to be more effective, although more costly, because it is
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not socially acceptable for these plans to make such subjective judgments on behalf of patients and their physicians. Unfortunately, many associate “cost-effective” with cost-saving, thereby enhancing fears that costly but effective technologies will be rationed if CEAs are used for coverage decisions. Concerns about the rigor and uniformity of CEA methods and CEA reporting should also not be underestimated. Opponents of the greater use of these studies point to the variability in the methods and assumptions of different studies and to the lack of the comparability of results from studies of the same technology.The growing number of international guidelines for CEAs and a new book concerning methods may alleviate these concerns over time.6 How the results of CEAs would be used is also a source of great concern to the industry and to patients. Many fear the ranking of services by CERs and thresholds that would exclude services with a higher cost-per-unit of effectiveness.A similar approach to decision making proposed for the Oregon Medicaid system created considerable controversy about and awareness of this issue.
How CEAs can be valuable for coverage decisions Several forces currently constrain the explicit use of costs and CEAs by health plans. It is likely, however, that continuing cost/quality pressures, better understanding of CEA methods, and a clearer appreciation of the valuable information they can provide will eventually enhance their role in decision making throughout the health care industry. For now it has been recommended that CEAs be used as an important aid to decision making rather than being applied mechanically.7 In that regard high-quality CEAs can be valuable and influence Medicare coverage decisions in several ways described in the following text. Two general points might be made about what makes a CEA valuable for Medicare decisions. First, such an analysis is more likely to be considered if it represents high-quality research. In particular, the methods and reporting should follow the growing arsenal of guidelines for conducting such analyses. Second, it should be a good effectiveness study. Strong evidence about the impact of a technology on patient outcomes is required for a positive determination for Medicare coverage.The criteria used to evaluate medical evidence in this regard should be no less stringent than those for accepting evidence for use in modeling critical outcomes for cost-effectiveness studies. It is important to note that CEAs that make extensive use of modeling can be very useful. Many basic questions about effectiveness must be answered by evidence that meets the requirements discussed previously, and “modeled” effectiveness is not an adequate substitute. However, HCFA realizes that often some critical risk/benefit issues arise, especially regarding
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longer-term factors that cannot be resolved by highquality evidence before a decision must be made. CEA models can provide valuable information about these effects both in terms of the reimbursement decision and in the monitoring of the impact of that decision. For example, Medicare provided coverage of recombinant human erythropoietin on the basis of randomized trials that demonstrated the short-term effectiveness of that treatment for raising hematocrit and improving the quality of life. CEA models of long-term effects have been helpful both for future assessment and for monitoring.8 With these quality conditions satisfied, comparability, the third criterion for determining a service to be “reasonable and necessary” under Medicare, provides an opportunity for CEAs to play a direct role in the reimbursement process. In all coverage decisions, HCFA considers the full range of costs and benefits associated with the use of a technology. Under the comparability criterion, however, reimbursement may be based on a direct comparison of costs and effectiveness in cases where strong evidence permits the conclusion that a technology is more costly and equally or less effective than a close diagnostic or therapeutic substitute. High-quality CEAs can be extremely valuable in these cases.A finding by HCFA that a particular technology was more costly—but no more effective—than another would be both visible and controversial.The support of CEAs that comprehensively measured the relevant costs and outcomes with the best data available would then be essential. Moreover, CEAs that allowed for subgroup analysis could also impact policy. For example, the demonstration that a more costly technology was more effective for some patients or indications than another technology could result in coverage policies targeted to these patients and these uses. As discussed previously, the demonstration by strong evidence that a service is effective will generally mean that Medicare coverage will be provided. In a similar manner, a high-quality CEA that demonstrated that a service was more effective, although more costly, than a comparator would provide valuable evidence for considering coverage of that service.Although the ranking of services by CERs would not be used to affect coverage decisions, the information that the higher cost service would result in incremental benefits to Medicare patients would be influential for a favorable decision about that service. Opponents of CEAs should note that in such cases, well-conducted CEAs may expedite, rather than limit, the coverage of new technologies that appear to be costly. The information from high-quality CEAs can also contribute to decisions when a diverse array of costs and outcomes are relevant to a particular technology. In addition to making coverage decisions based on highquality medical evidence, Medicare must also update and recalibrate its payment structure to accommodate
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such information. Reimbursement for inpatient hospital services is prospectively determined by a fixed, per-discharge payment based on diagnosis-related groups (DRGs).A frequent issue that arises is whether the DRG amount or assignment should be modified to reflect new technologies added to existing treatment patterns or procedures (eg, coronary stents with angioplasty). Under the prospective payment system, hospitals’ financial incentives may be at odds with the best interests of the Medicare program and its beneficiaries when such a new technology raises the cost of admission but results in a better post-discharge outcome. Medicare must recognize these situations, and CEAs can be instrumental in helping its assessments. Economic studies that focus only on current and future costs relevant to a technology can play an important role in Medicare decisions. Examples of such studies include those done for coronary stents and for glycoprotein IIb/IIIa inhibitors.9,10 In such cases decision makers are faced with considering both the increased hospital costs that result from an intervention and its complications and the present and future cost reductions that the intervention may create by causing patients to need fewer readmissions and repeat procedures.The information that there are substantial offsets to the initial increase in hospital costs can be critical. Even when there are not full offsets, as in these 2 examples, Medicare would likely place a substantial value on the unmeasured benefits to beneficiaries and their families resulting from the reduction in revascularizations and admissions. Moreover, the recent decision by Medicare to allow a larger payment for angioplasty with stents was significantly influenced by the studies documenting the increased initial cost of the service in conjunction with these measures of effectiveness. When length of life and quality of life are also important benefits of a technology, CEAs can provide extremely useful information.When confronted with a wide array of costs and outcomes, policy makers need good information and a method to help balance the potential risks and benefits to patients. By enumerating and summarizing the relevant costs and outcomes, highquality CEAs can facilitate the process of evaluating technologies and comparing them with other covered services. For example, CEAs of thrombolytic therapy and of captopril therapy after myocardial infarction might be useful in this regard, because their results can be summarized as the incremental cost per qualityadjusted life-year gained.11,12 Even without the explicit use of CERs for ranking services, decisions can be better informed by studies that demonstrate that an intervention is similar to other covered services in terms of the incremental cost per unit of effectiveness gained. For the same reasons CEAs may be valuable when diagnostic technologies are being considered for reimbursement. Medicare looks for evidence to answer 2
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questions about the coverage of diagnostic technologies: how well does the technology perform in providing diagnostic information (eg, sensitivity and specificity), and how does the information provided affect treatment plans and patient outcomes? Sensitivity and specificity calculations relative to a “gold standard” that is considered high (eg, 80% to 90%) often influence coverage decisions, although little information is available about the cost and outcome consequences of false-negative and false-positive readings.With highquality evidence and modeling techniques, CEAs can provide critical data to decision makers by enumerating all the relevant costs and outcomes for a technology.
How some Medicare coverage decisions may be valuable for conducting CEAs Finally, the ability to conduct high-quality CEAs will likely be enhanced by innovative coverage policies currently being implemented by Medicare. HCFA has either already implemented or is presently considering implementing special coverage policies for several promising but as yet unproved technologies. Such policies, called “coverage with conditions,” reimburse new technologies in the very trials that will provide evidence about their effectiveness. For example, Medicare reimbursement for lung volume reduction surgery is only provided in the National Emphysema Treatment Trial, a multicenter, randomized study. Cost-effectiveness has been added as an integral component of this trial. Because the CEA can be designed along with the clinical protocol, the likelihood of measuring all the appropriate costs and outcomes is increased.
References 1. Rettig RA. Health care in transition: technology assessment in the private sector. Santa Monica (CA): Rand; 1997. 2. Fleming TR, DeMets DL. Surrogate endpoints in clinical trials: are we being misled? Ann Intern Med 1996;125:605-13. 3. Woolf S. Manual for conducting systematic reviews. Agency for Health Care Policy and Research, August, 1996. 4. Eddy, DM. Balancing cost and quality in fee-for service versus managed care. Health Affairs 1997;16:162-71. 5. O’Brien BJ, Heyland D, Richardson WS, et al, for the Evidence Based Medicine Working Group. Users guide to the medical literature, XIII: How to use an article on economic analysis of clinical practice, B: What are the results and will they help me in caring for my patients? JAMA 1997;277:1902-6. 6. Gold MR, Siegel JE, Russel LB, editors. Cost effectiveness in health and medicine. New York: Oxford University Press; 1996. 7. Russell LB, Gold MR, Siegel JE, et al, for the Panel on Cost effectiveness in Health and Medicine. The role of cost-effectiveness analysis in health and medicine. JAMA 1996;276:1172-7. 8. Sheingold SH, Churchill D, Muirhead N, et al. The impact of recombinant human erythropoietin on medical care costs for hemodialysis patients in Canada. Soc Sci Med 1992;34:983-91. 9. Mark DB, Talley D, Topol EJ, et al. Economic assessment of platelet glycoprotein IIb/IIIa inhibition for prevention of ischemic complications of high risk coronary angioplasty. Circulation 1996;94:629-35. 10. Cohen DJ, Krumholz HM, Sukin CA, et al. In-hospital and one year economic outcomes after coronary stenting or balloon angioplasty: results from a clinical trial. Circulation 1995;92:2480-7. 11. Mark DB, Hlatky MA, Califf RM, et al. Cost effectiveness of thrombolytic therapy with tissue plasminogen activator as compared with streptokinase for acute myocardial infarction. N Engl J Med 1995;332:1418-24. 12. Tsevat J, Duke D, Goldman L, et al. Cost-effectiveness of captopril therapy after myocardial infarction. J Am Coll Cardiol 1995;26:914-9.
The financing and delivery of health care have undergone a significant restructuring in recent years as relationships among payers, providers, and purchasers of health care have changed dramatically. Recent terms such as “third-party payer” and “hospital” have been replaced by current terms such as “health-plan” and “health system.” Even Medicare, the nation’s largest payer—and still predominantly a fee-for-service plan— has shifted its focus and its resources to health-plan and provider-purchasing strategies.A key feature of the present system is that health plans, whether using a fee-forservice or managed care arrangement, are increasingly held accountable for reducing the growth in costs while simultaneously enhancing the quality of care.The pressure has considerably changed the way new technologies are evaluated for coverage and reimbursement. Indeed, a substantial evolution in the technology assessment/coverage processes has occurred within Medicare and many private plans.The paradigm for these decisions has shifted from one that uses less formal, opinion-dominated decisions to one that uses more formal, evidence-based methods for evaluating services.1 The increasing use of these latter methods represents the recognition that controlling costs while ensuring the highest quality of care will not be possible without scientific evidence about the value of each medical care service.The general policy objective for using the evidence-based methods includes 2 aims: first, to ensure payment for services that benefit patients for their intended uses, and second, to avoid payment for services that harm patients or are ineffective. The use of cost analyses and cost-effectiveness analyses (CEAs) as explicit criteria for coverage decisions has not, however, been widely accepted or adopted in the health care community. Despite the pressure to reduce health care costs, strong social, legal, and political pressures exist to bar the use of cost as a factor in decisions about the coverage or provision of services.Thus, From the Division of Program Analysis and Performance, Measurement Health Care Financing Administration. Steven H. Sheingold, PhD, Director, Division of Program Analysis and Performance Measurement, Health Care Financing Administration, 7500 Security Blvd, Baltimore, MD 21244-8150. Am Heart J 1999;137:S81-S86. Copyright © 1999 by Mosby, Inc. 0002-8703/99/$8.00 + 0 4/0/96323
although Medicare and other health plans have substantially tightened coverage criteria for the effectiveness of services, little formal use of CEA has been made. Cost considerations, however, may play less formal roles in the evaluation of heath care services, and the results of high-quality CEAs may in well-defined circumstances be quite useful to decision makers. What is the value of economic studies and cost-effectiveness studies of cardiovascular therapies (or other therapies) for Medicare’s reimbursement decisions? The answer depends both on the quality of the CEAs and on the ability of health care decision makers to find, in the current climate of opposition to CEAs, acceptable ways to use CEA results in decisions.This article describes Medicare’s processes for making coverage decisions and also the criteria it uses in these decisions. It examines the role of effectiveness studies and cost-effectiveness studies and argues that in some circumstances, CEAs may be very useful in making health care decisions, even if cost-effectiveness ratios (CERs) are not explicitly used.
Medicare’s criteria for coverage In the more than 30 years since the Medicare program began, one of the primary responsibilities and challenges for the Health Care Financing Administration (HCFA) has been to maintain a dynamic decision making process to ensure that the Medicare program, on behalf of its beneficiaries, keeps pace with changing medical technology.Although the processes and criteria for doing so have evolved to meet scientific trends and health care industry trends, HCFA’s discretionary decisions about new technologies have always been guided by Section 1862(a)(l)(A) of the Social Security Act, which states:“no payment may be made for items or services which are not reasonable and necessary for the diagnosis or treatment of illness or injury.”To determine whether and under what conditions a service or item is “reasonable and necessary” and therefore covered, HCFA has developed the following criteria for the service or item: (1) its demonstrated effectiveness, (2) its appropriateness, and (3) its comparability with alternatives.
Demonstrated effectiveness To ensure a service or an item meets the standard of demonstrated effectiveness, authoritative evidence must be presented that the benefits of the service or item outweigh the reasonably anticipated risks for its intended
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uses.There are 2 parts to this criterion. First, if the item or service is regulated by the Food and Drug Administration (FDA), it must have the relevant approval or clearance from that agency to be considered for coverage. Second, sufficient scientific evidence must demonstrate that the service or item, whether regulated or not, improves the patient outcomes deemed relevant for its intended uses. The first part of this criterion provides a key link between FDA status and Medicare coverage. Because FDA approval or clearance is considered authoritative evidence that at least some basic safety and efficacy issues have been resolved, FDA decisions about such issues are considered sufficient to provide the minimum level of evidence required for coverage. However, the second part of the demonstrated effectiveness criterion means that although FDA decisions about a service are necessary for Medicare coverage, they may not be sufficient.The safety and efficacy issues that must be resolved for FDA approval or clearance may or may not address key points in Medicare requirements about patient outcomes, value, and relative effectiveness.Thus FDA approvals do not guarantee Medicare coverage.
Appropriateness To meet the criterion of appropriateness, a service must be consistent with the patient’s needs and condition; it must also be provided in a setting commensurate with the patient’s needs by personnel qualified by training, experience, and licensure. For example, it may be considered appropriate for some patients to undergo cardiac catheterization in a freestanding facility but not appropriate for other patients at high risk for complications related to the procedure. For the latter group the service would be covered only in a facility with necessary support services, such as a hospital.
Comparability Comparability is a requirement that applies when sufficient evidence exists to allow a comparison of the relevant costs and effectiveness of 2 or more technologies closely related by their being used for the same diagnostic or therapeutic purpose. Medicare will cover services meeting the demonstrated effectiveness and appropriateness criteria under conditions dictated by the evidence. Comparability is an additional criterion allowing coverage and payment decisions refined in cases where services are found more costly, but no more effective, than closely related alternatives.When such a finding is made, Medicare may cover the service and pay for it at the rate of the lower-cost alternative, or Medicare may limit the service to specific patients or specific conditions for which it has been found more effective than the alternative services.The objective of the comparability criterion is to ensure value for the Medicare program and its beneficiaries.
Evidence-based decisions Like many private health plans, Medicare has enthusiastically adopted evidence-based procedures so that it can make coverage determinations consistent with the criteria described previously.Although the term evidence-based may have different interpretations across the industry, agreement exists on some basic characteristics to which the term refers. Evidence-based decisions are those that: (1) focus on patient outcomes rather than intermediate or surrogate outcomes, (2) focus on effectiveness as opposed to efficacy, and (3) involve a systematic review and grading of medical evidence.
Outcomes Several types of outcomes may be the targets of clinical studies, including patient outcomes (eg, mortality, quality of life), intermediate outcomes (eg, changes in hematocrit), or surrogate outcomes (eg, tumor shrinkage). Studies of the effectiveness or efficacy of new technologies have often examined the latter 2 outcomes. However, Medicare and other health plans increasingly require evidence of improved patient outcomes to secure a favorable coverage determination. One reason for this shift is that the growing pressure to improve and measure quality of care and patient satisfaction places more emphasis on measures that reflect health status in ways meaningful to patients (eg, pain, suffering, or functional status). Moreover, in a growing number of examples, intermediate or surrogate outcomes have proved poor predictors of change in patient health status and in some cases have been misleading in ways that might endanger patients.2 In evaluating services for coverage, Medicare places considerable emphasis on the evidence for improvements in outcomes such as morbidity, mortality, quality of life, functional status, and changes in the need for medical services.
Efficacy versus effectiveness In examining evidence to determine the impact of a technology on patient outcomes, increasing attention is being paid to the distinction between the 2 commonly used terms,“efficacy” and “effectiveness.” Efficacy may be defined as the benefit of a technology for a particular use under ideal conditions such as those that might exist under clinical study protocols. Effectiveness may be defined as the benefit of a technology when used under routine conditions found in general practice, that is, in typical settings and practice patterns, for patients who may differ in many ways from those in clinical trials. The Medicare program must carefully consider whether coverage policies must be targeted to particular facilities, patients, or indications to ensure that its beneficiaries may realize any beneficial effects found in clinical studies. Given the eligibility rules, Medicare
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patients are either aged or disabled; thus their health status and health needs are often different from those of the population in general.The Medicare program must therefore take extra care in examining the evidence from clinical trials so that it can establish that the findings from these trials can be generalized to standard practice settings.
Systematic review of evidence A universal aspect of the trend toward evidencebased processes is the systematic manner in which medical evidence is reviewed, graded, weighted, and combined to guide coverage or practice decisions.3 The steps in this systematic approach have been designed to provide a basis for judging the overall strength of medical evidence for drawing inferences about the impact of a service on patient outcomes. Formal technology assessment has evolved from a process that often examined the technical properties of a technology to what is now a structured review of evidence geared toward drawing conclusions. In applying systematic review, Medicare prefers evidence published in peer-reviewed journals.The program recognizes, however, that when a technology is evolving, valuable evidence may be available but not yet published. It also recognizes that publication is not always a guarantee of peer review and that data are not always valuable for assessment purposes.Therefore, in many cases Medicare relies on formal assessments of published and unpublished data made by the Agency for Health Care Policy and Research or by private assessment entities. Regardless of whether HCFA relies on an external assessment or it reviews data internally, the evaluation and grading of medical evidence focuses on the following key questions.Were the appropriate outcomes measured? Was the study design (eg, for a randomized trial or case series) adequate for the drawing of inferences about these outcomes? Were a sufficient number of patients studied? How were patients selected? Was the follow-up period of sufficient length? Was follow-up complete and consistent? Finally, can the results be generalized to Medicare patients in standard practice settings?
The role of CEA in medicare’s coverage process The brief description in this article of Medicare’s coverage criteria and coverage process provides a backdrop for discussing the role and value of CEA for policy decisions. Medicare’s coverage criteria have evolved to meet the program’s need to keep pace with developments in medical technology, and they have been formulated within the social/political/legal context in which the program operates.Within that context Medicare criteria require that for new technologies to be covered, strong medical evidence
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must support the effectiveness of a service in improving patient outcomes. Under defined and limited circumstances, both costs and effectiveness may be integral components of reimbursement policy, but establishing the cost-effectiveness of a service is not an explicit requirement for coverage, nor are services ranked by CEAs to make “threshold”decisions for coverage, nor are CEAs required for a service to be considered for coverage. An interesting question—and one important to assessing the value of CEA for Medicare coverage decisions—is:Why have Medicare and private health plans been reasonably successful in implementing more stringent criteria for evidence of effectiveness (and in doing so raising the thresholds for the acceptance of new technologies), while the role of CEA remains controversial and underdeveloped? After all, although the appropriate measurement of costs is by no means a trivial issue, the most substantial part of many CEAs is the measurement of effectiveness. In considering this question, it is useful to look briefly at the societal concerns about, and the societal obstacles to, the more explicit use of CEA.After some analysis of this subject, the remainder of this article will discuss how CEA can be valuable to the making of coverage policy.
Health plans and CEA In 1989 HCFA published a notice of proposed rule-making with the objective of codifying Medicare’s coverage criteria, process, and policies. One of the coverage criteria proposed was that a service must be cost-effective. Although a number of policies in the notice of proposed rule-making raised different concerns among providers, manufacturers, and beneficiaries, these groups were united in their opposition to including cost-effectiveness as a criterion. Ultimately, this controversy kept the regulation from being published in final form and resulted in the current set of coverage criteria that are still being developed. It is likely that private plans have reacted in similar ways. Despite the many changes in the health care industry during the 9 years since the notice of proposed rulemaking and despite the greater focus on controlling medical care expenditures, the opposition to using or requiring CEAs for coverage or medical practice decisions remains strong. Eddy4 has described a significant irony in noting that society is demanding that health plans maximize quality while minimizing cost—without considering costs.There are other ironies.Although the pharmaceutical and device industries spend millions of dollars sponsoring CEAs and therefore have a substantial investment in their value and use, lobbyists representing these same industries have consistently opposed the use of CEAs by Medicare. It is also ironic that many fear that the use of CEA will focus decision making on cost. High-quality CEAs enhance our ability to compare costs and effectiveness, that is, to assess
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value. It is without these analyses that the most visible and available information may refer to cost. Indeed, it is likely that most health plans implicitly and less formally use CEA, despite the current climate of opposition to it, by requiring stronger evidence of effectiveness for highcost technologies. The “cost taboo” described by Eddy4 is an impediment to health plans when they attempt to determine appropriate cost/quality tradeoffs. Unfortunately, as mentioned earlier, several social, legal, and ethical barriers to a greater consideration of CEA continue to stand. Aside from these factors, however, misunderstandings about CEA methods, about how the results of CEA would be used, and the misuse of the very term costeffective may present the most significant barriers to a wider acceptance of CEAs. The practitioners, sponsors, and users of CEAs understand that these analyses focus on the value of technologies, that is, that CEAs provide an enumeration and comparison of relevant benefits and costs for a technology. Many groups in the health care community, however, still associate CEA with a focus on the immediate cost of a service.At a meeting with members of the Health Industry Manufacturers Association, I participated in an exchange that illustrates this confusion.A representative from a large manufacturer of health care products pronounced that it was inappropriate for HCFA to use CEAs and that his company would oppose any coverage criteria based on such methods.The same representative criticized HCFA for focusing only on immediate or purchase costs for a technology rather than accounting for future changes in medical care use that might be associated with that technology. I explained to that individual that the CEAs his company opposed would provide exactly the latter kind of information that he had identified for Medicare decision making. Perhaps the greatest source of confusion and concern about CEA is the frequent misuse and misinterpretation of the term cost-effective. Many in the health care profession know that the use of this term with regard to the results of CEAs should be avoided. Other methods of classifying such results have been developed. For example, under one system the results of economic studies are classified in terms of providing evidence of strong dominance, weak dominance, or nondominance for making a decision about a technology.5 As discussed in the following text, Medicare uses the evidence of strong or weak dominance for reimbursement decisions. CEAs for many new technologies, however, would lead to a finding of nondominance, that is, that the new technology is both more costly and more effective than the appropriate comparator. In these cases deciding what is “cost-effective” is based on a subjective evaluation rather than a scientific concept. Indeed, most health plans are likely to cover services demonstrated to be more effective, although more costly, because it is
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not socially acceptable for these plans to make such subjective judgments on behalf of patients and their physicians. Unfortunately, many associate “cost-effective” with cost-saving, thereby enhancing fears that costly but effective technologies will be rationed if CEAs are used for coverage decisions. Concerns about the rigor and uniformity of CEA methods and CEA reporting should also not be underestimated. Opponents of the greater use of these studies point to the variability in the methods and assumptions of different studies and to the lack of the comparability of results from studies of the same technology.The growing number of international guidelines for CEAs and a new book concerning methods may alleviate these concerns over time.6 How the results of CEAs would be used is also a source of great concern to the industry and to patients. Many fear the ranking of services by CERs and thresholds that would exclude services with a higher cost-per-unit of effectiveness.A similar approach to decision making proposed for the Oregon Medicaid system created considerable controversy about and awareness of this issue.
How CEAs can be valuable for coverage decisions Several forces currently constrain the explicit use of costs and CEAs by health plans. It is likely, however, that continuing cost/quality pressures, better understanding of CEA methods, and a clearer appreciation of the valuable information they can provide will eventually enhance their role in decision making throughout the health care industry. For now it has been recommended that CEAs be used as an important aid to decision making rather than being applied mechanically.7 In that regard high-quality CEAs can be valuable and influence Medicare coverage decisions in several ways described in the following text. Two general points might be made about what makes a CEA valuable for Medicare decisions. First, such an analysis is more likely to be considered if it represents high-quality research. In particular, the methods and reporting should follow the growing arsenal of guidelines for conducting such analyses. Second, it should be a good effectiveness study. Strong evidence about the impact of a technology on patient outcomes is required for a positive determination for Medicare coverage.The criteria used to evaluate medical evidence in this regard should be no less stringent than those for accepting evidence for use in modeling critical outcomes for cost-effectiveness studies. It is important to note that CEAs that make extensive use of modeling can be very useful. Many basic questions about effectiveness must be answered by evidence that meets the requirements discussed previously, and “modeled” effectiveness is not an adequate substitute. However, HCFA realizes that often some critical risk/benefit issues arise, especially regarding
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longer-term factors that cannot be resolved by highquality evidence before a decision must be made. CEA models can provide valuable information about these effects both in terms of the reimbursement decision and in the monitoring of the impact of that decision. For example, Medicare provided coverage of recombinant human erythropoietin on the basis of randomized trials that demonstrated the short-term effectiveness of that treatment for raising hematocrit and improving the quality of life. CEA models of long-term effects have been helpful both for future assessment and for monitoring.8 With these quality conditions satisfied, comparability, the third criterion for determining a service to be “reasonable and necessary” under Medicare, provides an opportunity for CEAs to play a direct role in the reimbursement process. In all coverage decisions, HCFA considers the full range of costs and benefits associated with the use of a technology. Under the comparability criterion, however, reimbursement may be based on a direct comparison of costs and effectiveness in cases where strong evidence permits the conclusion that a technology is more costly and equally or less effective than a close diagnostic or therapeutic substitute. High-quality CEAs can be extremely valuable in these cases.A finding by HCFA that a particular technology was more costly—but no more effective—than another would be both visible and controversial.The support of CEAs that comprehensively measured the relevant costs and outcomes with the best data available would then be essential. Moreover, CEAs that allowed for subgroup analysis could also impact policy. For example, the demonstration that a more costly technology was more effective for some patients or indications than another technology could result in coverage policies targeted to these patients and these uses. As discussed previously, the demonstration by strong evidence that a service is effective will generally mean that Medicare coverage will be provided. In a similar manner, a high-quality CEA that demonstrated that a service was more effective, although more costly, than a comparator would provide valuable evidence for considering coverage of that service.Although the ranking of services by CERs would not be used to affect coverage decisions, the information that the higher cost service would result in incremental benefits to Medicare patients would be influential for a favorable decision about that service. Opponents of CEAs should note that in such cases, well-conducted CEAs may expedite, rather than limit, the coverage of new technologies that appear to be costly. The information from high-quality CEAs can also contribute to decisions when a diverse array of costs and outcomes are relevant to a particular technology. In addition to making coverage decisions based on highquality medical evidence, Medicare must also update and recalibrate its payment structure to accommodate
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such information. Reimbursement for inpatient hospital services is prospectively determined by a fixed, per-discharge payment based on diagnosis-related groups (DRGs).A frequent issue that arises is whether the DRG amount or assignment should be modified to reflect new technologies added to existing treatment patterns or procedures (eg, coronary stents with angioplasty). Under the prospective payment system, hospitals’ financial incentives may be at odds with the best interests of the Medicare program and its beneficiaries when such a new technology raises the cost of admission but results in a better post-discharge outcome. Medicare must recognize these situations, and CEAs can be instrumental in helping its assessments. Economic studies that focus only on current and future costs relevant to a technology can play an important role in Medicare decisions. Examples of such studies include those done for coronary stents and for glycoprotein IIb/IIIa inhibitors.9,10 In such cases decision makers are faced with considering both the increased hospital costs that result from an intervention and its complications and the present and future cost reductions that the intervention may create by causing patients to need fewer readmissions and repeat procedures.The information that there are substantial offsets to the initial increase in hospital costs can be critical. Even when there are not full offsets, as in these 2 examples, Medicare would likely place a substantial value on the unmeasured benefits to beneficiaries and their families resulting from the reduction in revascularizations and admissions. Moreover, the recent decision by Medicare to allow a larger payment for angioplasty with stents was significantly influenced by the studies documenting the increased initial cost of the service in conjunction with these measures of effectiveness. When length of life and quality of life are also important benefits of a technology, CEAs can provide extremely useful information.When confronted with a wide array of costs and outcomes, policy makers need good information and a method to help balance the potential risks and benefits to patients. By enumerating and summarizing the relevant costs and outcomes, highquality CEAs can facilitate the process of evaluating technologies and comparing them with other covered services. For example, CEAs of thrombolytic therapy and of captopril therapy after myocardial infarction might be useful in this regard, because their results can be summarized as the incremental cost per qualityadjusted life-year gained.11,12 Even without the explicit use of CERs for ranking services, decisions can be better informed by studies that demonstrate that an intervention is similar to other covered services in terms of the incremental cost per unit of effectiveness gained. For the same reasons CEAs may be valuable when diagnostic technologies are being considered for reimbursement. Medicare looks for evidence to answer 2
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questions about the coverage of diagnostic technologies: how well does the technology perform in providing diagnostic information (eg, sensitivity and specificity), and how does the information provided affect treatment plans and patient outcomes? Sensitivity and specificity calculations relative to a “gold standard” that is considered high (eg, 80% to 90%) often influence coverage decisions, although little information is available about the cost and outcome consequences of false-negative and false-positive readings.With highquality evidence and modeling techniques, CEAs can provide critical data to decision makers by enumerating all the relevant costs and outcomes for a technology.
How some Medicare coverage decisions may be valuable for conducting CEAs Finally, the ability to conduct high-quality CEAs will likely be enhanced by innovative coverage policies currently being implemented by Medicare. HCFA has either already implemented or is presently considering implementing special coverage policies for several promising but as yet unproved technologies. Such policies, called “coverage with conditions,” reimburse new technologies in the very trials that will provide evidence about their effectiveness. For example, Medicare reimbursement for lung volume reduction surgery is only provided in the National Emphysema Treatment Trial, a multicenter, randomized study. Cost-effectiveness has been added as an integral component of this trial. Because the CEA can be designed along with the clinical protocol, the likelihood of measuring all the appropriate costs and outcomes is increased.
References 1. Rettig RA. Health care in transition: technology assessment in the private sector. Santa Monica (CA): Rand; 1997. 2. Fleming TR, DeMets DL. Surrogate endpoints in clinical trials: are we being misled? Ann Intern Med 1996;125:605-13. 3. Woolf S. Manual for conducting systematic reviews. Agency for Health Care Policy and Research, August, 1996. 4. Eddy, DM. Balancing cost and quality in fee-for service versus managed care. Health Affairs 1997;16:162-71. 5. O’Brien BJ, Heyland D, Richardson WS, et al, for the Evidence Based Medicine Working Group. Users guide to the medical literature, XIII: How to use an article on economic analysis of clinical practice, B: What are the results and will they help me in caring for my patients? JAMA 1997;277:1902-6. 6. Gold MR, Siegel JE, Russel LB, editors. Cost effectiveness in health and medicine. New York: Oxford University Press; 1996. 7. Russell LB, Gold MR, Siegel JE, et al, for the Panel on Cost effectiveness in Health and Medicine. The role of cost-effectiveness analysis in health and medicine. JAMA 1996;276:1172-7. 8. Sheingold SH, Churchill D, Muirhead N, et al. The impact of recombinant human erythropoietin on medical care costs for hemodialysis patients in Canada. Soc Sci Med 1992;34:983-91. 9. Mark DB, Talley D, Topol EJ, et al. Economic assessment of platelet glycoprotein IIb/IIIa inhibition for prevention of ischemic complications of high risk coronary angioplasty. Circulation 1996;94:629-35. 10. Cohen DJ, Krumholz HM, Sukin CA, et al. In-hospital and one year economic outcomes after coronary stenting or balloon angioplasty: results from a clinical trial. Circulation 1995;92:2480-7. 11. Mark DB, Hlatky MA, Califf RM, et al. Cost effectiveness of thrombolytic therapy with tissue plasminogen activator as compared with streptokinase for acute myocardial infarction. N Engl J Med 1995;332:1418-24. 12. Tsevat J, Duke D, Goldman L, et al. Cost-effectiveness of captopril therapy after myocardial infarction. J Am Coll Cardiol 1995;26:914-9.