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Research Questions

  1. Which policy options will encourage the creation of new medical products that will also reduce total health care spending with the smallest possible loss of health benefits?
  2. Which policy options will encourage the creation of new medical products that will increase spending only if they confer health benefits that are worth the spending increases?

Abstract

New medical technologies are a leading driver of U.S. health care spending. This report identifies promising policy options to change which medical technologies are created, with two related policy goals: (1) Reduce total health care spending with the smallest possible loss of health benefits, and (2) ensure that new medical products that increase spending are accompanied by health benefits that are worth the spending increases. The analysis synthesized information from peer-reviewed and other literature, a panel of technical advisors convened for the project, and 50 one-on-one expert interviews. The authors also conducted case studies of eight medical products. The following features of the U.S. health care environment tend to increase spending without also conferring major health benefits: lack of basic scientific knowledge about some disease processes, costs and risks of U.S. Food and Drug Administration (FDA) approval, limited rewards for medical products that could lower spending, treatment creep, and the medical arms race.

The authors identified ten policy options that would help advance the two policy goals. Five would do so by reducing the costs and/or risks of invention and obtaining FDA approval: (1) Enable more creativity in funding basic science, (2) offer prizes for inventions, (3) buy out patents, (4) establish a public-interest investment fund, and (5) expedite FDA reviews and approvals. The other five options would do so by increasing market rewards for products: (1) Reform Medicare payment policies, (2) reform Medicare coverage policies, (3) coordinate FDA approval and Centers for Medicare & Medicaid Services coverage processes, (4) increase demand for technologies that decrease spending, and (5) produce more and more-timely technology assessments.

Key Findings

Features of the U.S. Health Care Environment That Substantially Affect the Costs, Risks, and Financial Rewards of Medical Product Invention

  • Lack of basic scientific knowledge about some disease processes
  • Costs and risks of U.S. Food and Drug Administration (FDA) approval
  • Limited rewards for medical products that could lower spending
  • Treatment creep
  • The medical arms race

Options to Reduce Costs and Risks of Invention and FDA Approval

  • Enable more creativity in funding basic science
  • Offer prizes for inventions
  • Buy out patents
  • Establish a public-interest investment fund
  • Expedite FDA reviews and approvals

Options to Increase Market Rewards

  • Reform Medicare payment policies
  • Reform Medicare coverage policies
  • Coordinate FDA approval and CMS coverage processes
  • Increase demand for technologies that decrease spending
  • Produce more and more-timely technology assessments

Recommendations

  • Because the stakes in reining in health care spending and getting more health benefits from the money we do spend are so high, all promising options should be considered — and the sooner the better. The longer we wait to institute fundamental reforms, the more money we will spend on health care offering little or no health benefit — and the harder it will be to achieve other major social priorities.

Related Products

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    The Context for Medical Product Innovation

  • Chapter Three

    Methods

  • Chapter Four

    Analysis

  • Chapter Five

    Policy Options to Improve the U.S. Medical Product Innovation System

  • Chapter Six

    In Conclusion

  • Appendix A

    Cost-Effectiveness and Value

  • Appendix B

    An Economic Model of Innovation

Research conducted by

The research described in this report was supported by a grant from the Bill & Melinda Gates Foundation and was conducted in RAND Health, a division of the RAND Corporation.

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