*Purchasing Medical Innovation*

Purchasing Medical Innovation, by James Robinson, is a worthwhile account of the forces that promote or constrain medical innovation in the U.S.

It begins with the correct observation that innovation is the source of better, but also very often more expensive health care. This alone is not necessarily problematic as we should be willing to pay for innovation that is sufficiently valuable. What is problematic is that not all innovation that we pay for meets this condition. Health care technology is often used on the wrong patient at the wrong time. These are troubling sources of waste.

From such a beginning, many authors would then consume 150 pages explaining how we might completely revamp the health system so we achieve better and cheaper care, the politics, feasibility, and even desirability of such a thing be damned. To his credit, Robinson does not take this course.

Instead, he explains what shapes the nature and cost of health care innovation in the U.S. with a clear, useful framework. To be supplied and consumed in the system, most technology must pass over four hurdles:

  1. The FDA must approve it for market access—a hurdle for safety and efficacy.
  2. Insurers must cover it—a hurdle for clinical and cost effectiveness.
  3. Physicians and hospitals must offer it—a hurdle for appropriateness and quality.
  4. Patients must want it—a hurdle sensitive to preferences and risks.

To be sure, there are other hurdles and factors relevant to each of these, and none is ideal in its specified role. But, Robinson does not argue for removal or dramatic reform of any of these hurdles. Implicitly, he seems to accept them as necessary, if imperfect, means of guiding health care innovation.

Importantly, the behavior of each is shaped by organizational structure and financial incentives, which are malleable. Indeed, today they are changing, in some cases in helpful ways. The overriding message of the book is that the era of “cost-unconsciousness” is ending and one emphasizing “value” is underway.

How can we enhance that value? Each of the four hurdles is covered in at least one chapter (the second and third hurdles received two each) that explains its role and address that question.

The FDA chapter was the first thing I’ve read about the agency’s process that I could follow. Perhaps I’ve been reading the wrong things, but most accounts of the FDA I’ve seen either assume I know how it works or only explain a small part of what it does, then move quickly to how it fails. Robinson is more thorough and balanced, specifying the purpose and value of the FDA’s activities, but also indicating where it might make some useful changes to avoid both over- and under-regulating.

The insurance chapters address how Medicare and commercial market insurers make coverage and payment decisions. I suspect most health policy wonks will find much (though perhaps not all) of the material in these chapters familiar: Medicare’s national and regional coverage decision processes, the roles of comparative and cost effectiveness, medical/utilization management, selective- and value-based design and contracting, the variety of reimbursement and payment mechanisms (fee for service, per case, per diem, per episode, capitation, and the like).

My favorite chapters of the book were on hospital purchasing. Robinson doesn’t specify which hurdle plays the most significant role and is most rapidly changing, but my sense is that this is it. Whereas hospitals once competed with one another by offering all of the latest and greatest technology (at high expense) to attract physicians and their referrals, the new paradigm is for hospitals to at least attempt to manage technology purchasing to drive down costs. The basic approaches include technology assessment committees and volume purchasing that forces suppliers to compete more vigorously on price and quality. How do hospitals perform at these?

It’s a big struggle, mostly because it’s difficult to convince a large number of physicians, potentially across disparate facilities in a system, to come to (or accept) consensus on technology. The chapter that looks directly at how Orange County, CA health systems (including Kaiser) do this and the extent to which they succeed is fascinating. I’ve never read a health economist write in such specificity about how hospitals are run. (If I’d read these chapters on hospitals without knowing the author, I’d have guessed he was a physician or hospital administrator, not a health economist. I’d love for doctors who work in hospitals or hospital managers to read chapters 4 and 5 and let me know how accurately it reflects their experiences.)

The book then turns back to more familiar territory: how different varieties of cost sharing and patient engagement affect patient demand and behavior. Robinson concludes with ways in which the FDA, insurers, providers, and consumers can collaborate today to motivate development and use of more valuable technology tomorrow.

For the FDA, this implies lower barriers to initial market access, more extensive postmarket surveillance, and a willingness to retract authorization for products found to be unsafe or ineffective. For insurers, it implies rapid coverage and generous pricing for breakthrough products, thereby allowing evidence to accumulate and products to improve with experience, coupled with price discounting for follow-on therapies and medical management for inappropriate uses. For physicians and hospitals, it implies methods of payment that reward improved product assessment, procurement, and use. For consumers, it implies a structure of cost sharing that encourages adherence to evidence-based care and discourages demand for overpriced services.

I’m grateful and honored Robinson sent me a copy of his book. Though I didn’t have to pay for it, I would have. It’s an innovation worth the price.


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