At a recent OHE Lunchtime seminar, Dr James Chambers of Tufts Medical School examined the role cost-effectiveness evidence plays in health care resource allocation in the US and the potential value of expanding that. Specifically for Medicare, Chambers discussed to what extent coverage decisions for medicines are consistent with cost-effectiveness evidence and what might be gained by explicitly including economic evidence in Medicare coverage policy--in terms both of aggregate health gains and cost-savings. His analysis also considered the challenges associated with incorporating cost-effectiveness evidence in coverage policy, including implications of the 2010 US health care reform legislation.

1. OHE Lunchtime Seminar
Can the US Afford to Ignore Cost-effectiveness
Evidence in Health Care?
James D. Chambers
Tufts Medical Center
London • 24 July 2013

2. Can the US Afford to Ignore Cost-
effectiveness Evidence in Health Care?
James D. Chambers PhD, MPharm, MSc
Assistant Professor
Center for the Evaluation of Value and Risk
Institute for Clinical Research and Health Policy Studies
Tufts Medical Center

3. Outline
1. US health care in context
2. Existing role of cost-effectiveness
3. Challenging coverage and reimbursement
environment
4. Use and potential value of cost-
effectiveness evidence – Medicare as a
case-study
5. Looking forward
3

4. 4
US health care in context

5. US health care system
1. Fragmented and decentralized
2. Public payers
• Medicare, Medicaid, Department of Veterans
Affairs, Department of Defense, and the
Children's Health Insurance Program
3. Approximately 50 private payers
• UnitedHealth Group, WellPoint, Kaiser
Permanente, Aetna Group, Humana
Group……..
5

6. 6
17.4
11.8 11.6 11.3
10.0 9.8
8.7
0
2
4
6
8
10
12
14
16
18
United
States
France
Germany
Canada
Sweden
United
Kingdom
Australia
HealthCareSpending,%GDP
Private expenditure on health
Public expenditure on health
Health expenditure as a
share of GDP, 2010

7. 7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
1970 1975 1980 1985 1990 1995 2000 2005 2010
HealthCareSpending,%GDP
Australia
Canada
France
Germany
Sweden
United Kingdom
United States
Health care spending growth

8. 8
System performance
Key health statistics
1. Fewer physicians/physician consultations
than the UK
2. Fewer hospital beds per 1,000 population
than the UK

9. Mirror, Mirror, on the
wall……
9

10. Health care system vs. health
care
Better access to medical
technology
More intensive care
Shorter waiting times
Greater choice
10

11. Existing role of cost-
effectiveness evidence
11

12. Given apparent need to increase
value of spending, US uses cost-
effectiveness to a notably limited
extent
However, cost-effectiveness
evidence is used in various aspects
of the US health care
12

14. AMCP value dossiers
Recommendations
for value dossier
preparation
14
Communication of clinical, safety, economic
and quality of life value proposition
Recommendations on how cost-
effectiveness analysis should be conducted
and reported

15. WellPoint
One in nine insured
through WellPoint
Provide framework
for submitting
economic evidence
Specific guidance for study conduct
3-year time horizon
Analyses from WellPoint perspective
15

16. Premera Blue Cross
Cost-effectiveness
evidence informs
value-based insurance
design
Drugs tiered according to cost-effectiveness:
Tier 1 – Highly cost-effective
Tier 2 – Cost-effective
Tier 3 – Somewhat cost-effective
Tier 4 – Minimally cost-effective
16

17. DoD Pharmacoeconomic
center
Conduct of pharmacoeconomic
analyses
Support formulary management,
pharmaceutical contracting, and
informing clinical practice guidelines
17

18. Veteran Affairs Health Economic
Resource Center
Multiple functions
Assists VA researchers in
assessing the cost-
effectiveness of medical care
Evaluating the efficiency of
VA programs and providers
Conduct high-quality health
economics research
18

19. Washington State Health
Care Authority
Supports various state
agencies, including
Medicaid
A stated goal: “To make
state purchased health
care more cost effective
by paying for medical
tools and procedures that
are proven to work”
HTA programme includes cost-effectiveness
analysis within its remit
19

20. Centers for Medicare and
Medicaid Services (CMS)
Administers Medicare, the
health insurance
programme for the
elderly
Largest US payer, annual
cost of approx. $600
billion, 21% of national
health care spending
Cost-effectiveness evidence used in a very limited
way, restricted to the occasional use for preventive
care
20

21. - Guidance for the Public,
Industry and CMS Staff
“Cost-effectiveness is not a factor CMS
considers in making NCDs. In other words,
the cost of a particular technology is not
relevant in the determination.”
21

22. American exceptionalism
“The government is best which governs
the least”
- Thomas Jefferson
22

23. 23

24. Coverage and reimbursement
24

25. A product must clear two
hurdles before patients have
access to it.
25

26. Hurdle 1: FDA
approval

27. Hurdle 2: Coverage
& reimbursement

28. FDA approval allows a medical
technology to be sold in the US,
but does not necessarily mean
that payers will pay for it.
28

29. FDA vs. CMS
– Approves drugs and
devices
Versus
– Administers Medicare
29

30. Decision-making criteria
–Safety and Efficacy
versus
– Reasonable and
Necessary
30

31. Are CMS national coverage
determinations consistent
with FDA indication?
31

32. What are NCDs?
Approx 10-15 national coverage
determinations each year
“Big-ticket” items
Controversial
Inconsistency among regional contractors
Major impact on Medicare program
32

33. Restrictiveness of CMS
coverage vs. FDA approval
1.More restrictive
2.Equivalent
3.Less restrictive
33

34. FDA approval pathway
Devices
1. Premarket Approval (PMA)
2. 510(k) clearance
Drugs and biologics
1. New Drug Application (NDA)
2. Biologics License Application (BLA)
34

35. CMS coverage of FDA approved
technologies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Overall
(n=69)
510(k)
(n=34)
PMA
(n=21)
NDA/BLA
(n=13)
Non-
coverage
35

36. For covered technologies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Overall
(n=55)
510(k)
(n=23)
PMA
(n=19)
NDA/BLA
(n=13)
CMS less restrictive
Equivalent
CMS more
restrictive
36

37. Restrictions on coverage
Patient-related
Certain comorbidities or disease severity
Sequence in therapy
Second-line therapy
Technology-related
A particular use of technology
37

38. Nature of coverage
restrictions
CMS coverage
restrictions
(not mutually
exclusive)
Type of FDA approval
All
(n=32)
510(k)
(n=18)
PMA
(n=11)
NDA/BLA
(n=3)
Patient
-related
25 12 10 3
Sequence in
therapy
12 9 3 0
Technology-
related
3 2 0 1
Multiple
restrictions
11 7 3 1
38

39. Carotid stents
FDA approval
Symptomatic patients with carotid artery stenosis
>50%
CMS coverage
Symptomatic patients with carotid artery stenosis
>70%
CMS deemed uncertain evidence associated with less
severe disease
39

40. Extracorporeal
immunoadsorption using protein
A columnsFDA approval
“Moderate to severe” rheumatoid arthritis (RA)
CMS coverage
Severe RA and failure of a minimum of 3 DMARDs
Evidence limited to severe patients. Results could
not be generalized to moderate disease
40

41. Takeaways
Challenging coverage environment for
medical technology
Different
decision-making
criteria
Different
evidentiary
requirements
=
41

43. Is CMS coverage policy
consistent with cost-
effectiveness?
43

44. Approach
Medicare national coverage
determinations from 1999-2007
Literature review to identify
estimates of cost-effectiveness
Selection of most relevant study
44

45. 0
2
4
6
8
10
12
14
16
18
20
22
24
Cost-effectiveness
Non-coverage
(n=16)
Positive coverage
(n=48)
45
Results – Overview of
findings
45

46. Covered technologies with ICER
>$100k/QALY
Medical technology ICER (US$)
Lung Volume Reduction Surgery - Severe upper lobe emphysema $172,852
Ocular Photodynamic Therapy with Verteporfin for Macular Degeneration -
Predominately classic subfoveal CNV lesions
$159,346
Liver transplantation in patients suffering from hepatitis B $160,373
Lung Volume Reduction Surgery - Non high risk patients suffering from
non-upper lobe emphysema with low exercise capacity
$337,521
Transmyocardial Revascularization for Severe Angina - patients with
refractory to standard medical therapy
$341,799
Insulin Infusion Pump $558,522
Ultrasound Stimulation for Nonunion Fracture Healing - Radius $603,374
Ultrasound Stimulation for Nonunion Fracture Healing - Scaphoid $798,587
VADs as Desintation Therapy - Chronic end-stage heart failure $820,967
46

47. 47

48. 48
Coverage decision
Often multiple decisions in a single
decision memo
Coverage with
restrictions
Positive coverage
Patient population
who meet
restrictions
Non-coverage
Patient population
who do not meet
restrictions

49. Analysis – Logistic regression
Coverage decision (dependent variable)
Quality of supporting evidence
Availability of an alternative intervention
Type of technology
Coverage requestor
Incremental cost-effectiveness ratio
Date of decision
49

50. *** = p<0.01; ** = p<0.05; * = p<0.1
Multivariate analysis –
All variables
Variable Effect on coverage
Alternative available
No Reference
Yes 7x Less likely**
Quality of evidence
Good 6x more likely***
Poor No more or less likely
Insufficient Reference
50

51. *** = p<0.01; ** = p<0.05; * = p<0.1
Variable Effect on coverage
Cost-effectiveness
No estimate 5x less likely
Cost saving Reference
ICER <$50 000/QALY No more or less likely
ICER >$50 000/QALY No more or less likely
Date of decision
1999-2001 Reference
2002-2003 3x less likely*
2004-2005 3x less likely*
2006-2007 10x less likely***
51

52. CMS coverage
More likely if:
Good quality clinical evidence
Less likely if:
Availability of alternative
Recent coverage decision
No available cost-effectiveness
estimate
52

54. 54
What is the potential value of using
cost-effectiveness evidence in
Medicare?

55. 55
Approach
What gains in health are achievable
from using cost-effectiveness evidence
to inform resource allocation?
League table approach
Medicare outpatient and inpatient
claims data
Prioritize use of resources to cost-
effective care

56. 140 Decision memos
203 coverage decisions -
no relevant CEA
267 individual
coverage decisions
64 coverage decisions
with a relevant CEA
49 positive
coverage decisions
20 decisions
excluded
29 positive coverage
decisions in analysis
15 non-
coverage decisions
8 decisions
excluded
7 non-coverage
decisions in analysis
56

57. Assumptions
League table assumptions
Comparator included in CEA was only
true alternative
Net present value of future
commitments
Supply of organs not a limiting factor
57

58. Analyses
Increase utilization of dominant
technologies only
Reallocate existing expenditures using
cost-effectiveness evidence from less
cost-effective to more cost-effective
care
58

59. 59
Reallocation
Additional
beneficiaries
receiving care
(millions)
(50% [10-90%])
Cost savings
(millions)
(50% [10-
90%])
QALY gain
(millions)
(50% [10-
90%])
Increase
utilization of
dominant
interventions
5.54
(1.11 – 9.96)
$12,000
($2,500 -
$22,000)
0.27
(0.05 – 0.48)
Maintaining
budget
neutrality
11.16
(2.23 - 20.10)
NA
1.90
(0.38 – 3.40)
Results

60. 60
Potential to improve aggregate health
from existing resources
Few interventions are principal drivers
of cost-savings and health gains
Major study limitation is the quality of
available evidence

61. 61

62. 62
Looking forward
Unlikely that US health care will fully
embrace cost-effectiveness
Fragmented nature of US health care system
Aversion to limits remains
Resistance from many quarters
Increased use of prospective payment
systems

63. 63
“The Patient-Centered Outcomes Research Institute . . . shall not
develop or employ a dollars per quality adjusted life year as
a threshold to establish what type of health care is cost
effective or recommended. The Secretary shall not utilize such
an adjusted life year as a threshold to determine coverage,
reimbursement, or incentive programs under title XVIII.” (emphasis
added)
— The Patient Protection and Affordable Care Act

64. 64
Cost-effectiveness in
Medicare?
Two previous failed attempts
Continued exclusion of cost-
effectiveness evidence for treatments
Some limited use for preventive care
Provenge

66. 66
Summary
Irregular use of cost-effectiveness evidence
in the US
Cost-effectiveness evidence is used across a
variety of private and public payers
While cost-effectiveness offers many
potential benefits, much resistance remains
and seems likely to endure

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