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(The RAND Blog)

April 22, 2014

Health Care Innovation: The Challenge Ahead

by Jeffrey Wasserman

Americans thrive on ingenuity. The drive to innovate has always been a national obsession—and a source of pride. Innovation is in our DNA.

We often think of products that have made our lives easier and more enjoyable as the most important innovations—the Model T, dishwashers, and big-screen TVs. A culture of innovation has also led to national programs and policies aimed at solving complex problems, from fighting wars abroad to attacking poverty at home.

Health care reform is arguably our toughest domestic problem, so it seems an obvious candidate on which to focus the laser of our innovative talents. For decades, the growth in health care expenditures has produced reactions ranging from expressions of concern to statements of alarm. We can be justly proud of the ways in which innovation has led to unimaginable technological achievements that have extended lives and alleviated pain and suffering. However, it has also produced many expensive drugs and medical devices that provide little—and in some cases no—added benefit over existing drugs and technology. In this way, innovation has been contributing to the steady rise in health care costs.

Over the last four decades, RAND Health researchers have conducted thousands of analyses of health care issues. Many of these assessments have explored innovative ways to improve health care quality, increase access to health care services, and reduce health care costs.

In conducting this work, we cast a wide net and considered innovations ranging from the impact of individual technologies to alternative means of organizing and delivering care. For example, in a recent study, RAND researchers found that the use of dedicated anesthesia providers for routine gastrointestinal procedures is medically necessary only for high-risk patients. Eliminating these services for low-risk patients would reduce costs by $1.2 billion per year.

In fact, the anesthesiology analysis highlights exactly the kinds of undesirable effects of perverse incentives on costs analyzed in one of RAND's most recent studies of health technology. With the support of the Bill & Melinda Gates Foundation, some of my RAND colleagues examined how innovation can help to decrease health care spending and increase health care value. More specifically, their work focused on identifying promising policy options that could be used to spur invention and adoption of medical technologies—primarily drugs and devices—that would help reduce total health care spending and/or produce substantial health benefits.

It will surprise no one that here, as is the case with most areas of public policy, there are no panaceas. The study's authors concluded, however, that substantial progress could be made toward the goals of reducing spending and increasing value by altering the financial incentives faced by inventors, investors, payers, providers, and patients. So rather than focusing on how health care costs might be controlled by changing how existing medical technologies are used, the RAND team took a different perspective, focusing on policies that could help change the mix of technologies developed in the first place.

Drawing in particular on interviews with more than 50 national experts who were especially knowledgeable about different aspects of medical innovation, the authors argue that policymakers should consider how best to reshape financial incentives to meet five basic objectives. These include: increasing basic scientific knowledge by allocating research funds to encourage more creativity and risk-taking; reducing the costs and risks associated with obtaining Food and Drug Administration approval for drugs and devices that would help decrease spending; increasing the demand for products that can be expected to lower spending—for example, by changing how providers are paid. They also should consider ways to reduce the prevalence of “treatment creep,” whereby medical products shown to benefit one group of patients are used to treat other groups where the benefits are minimal; and limiting/attenuating the “medical arms race.”

There is no shortage of innovative proposals for making the health care system more efficient and more effective, and the path to success necessarily involves a prolonged process of experimentation and evaluation. Along the way, we need to be cognizant of the power of appropriate financial incentives that can be applied creatively and with an eye towards reducing costs and increasing value. Yet another challenge for American ingenuity to embrace.


Jeffrey Wasserman is vice president and director of RAND Health.

Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.