March 2004

Grant Results

SUMMARY

Alan B. Cohen, Sc.D., at the Boston University School of Management, examined the relative effectiveness of various cost-containment strategies in controlling the adoption and use of costly medical technology.

Cohen also:

  • Developed societal- and institutional-level models of decision-making regarding technology adoption and use that considered the cost-effectiveness of specific technologies.
  • Explored the incentives facing manufacturers and providers for developing and adopting new technology.
  • Analyzed the policy implications of adopting new cost-containment strategies under different financing schemes, including fee-for-service, managed care, prospective payment and national health care expenditure limits.

Key Findings

  • Older cost control strategies (capital expenditure review and certificate of need programs, hospital rate setting, prospective payment, and utilization review) failed because they focused narrowly on certain aspects of the health care system, not the whole system.
  • The lack of a formal process for controlling the introduction of new surgical procedures into clinical practice is a serious weakness in existing policy and warrants consideration of a process parallel to those employed by the federal Food and Drug Administration to regulate drugs and devices.
  • Assessment of cost-effectiveness depends on the nature of the technology being evaluated.
  • Under managed care, technologies that have both cost-saving and quality-enhancing properties are the most likely ones to be developed and adopted.

Funding
The Robert Wood Johnson Foundation (RWJF) supported this project with a grant of $63,060 between October 1994 and June 1996.

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THE PROBLEM

In the early 1990s, the rapid growth of health care costs was a major concern. None of the various strategies intended to stem that inflation seemed effective.

Experts generally agreed that a substantial portion of that increased cost resulted from the introduction of new medical technology and that any effort to reform the health care system had to take this problem into account.

An important goal was identifying a way to constrain the costs associated with technology adoption, without stifling innovation or sacrificing either quality or access. Although some research had been done on the relationship between health care technology and costs, there was little understanding of the decision-making processes that led to technology adoption.

There was a need both to assess the relative effectiveness of various cost-containment approaches and to develop decision-making models to guide policy in this area.

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THE PROJECT

This project had several objectives:

  • To review and assess the effectiveness of cost-control strategies on technology diffusion and utilization that have been employed in federal and state programs, as well as in other countries.
  • To develop societal- and institutional-level decision-making models regarding technology adoption and use that consider the cost-effectiveness of specific technologies.
  • To analyze the policy implications of adopting new cost-containment strategies under different financing schemes, including fee-for-service, managed care, prospective payment, and national health care expenditure limits.

Activities included a review of the literature on cost containment and medical technology; interviews with representatives of public and private organizations that play a role in technology development, evaluation, and financing; preparation of seven case studies examining the decision-making processes that led to the adoption of particular technologies; the development of decision-making models; and production of reports and papers.

The seven completed case studies are: AZT; TPA/streptokinase; coronary angioplasty (PTCA)/coronary artery bypass surgery (CABG); laparoscopic cholecystectomy; heart and liver transplantation; cochlear implants; and home uterine activity monitoring (HUAM).

The turbulent health care policy environment required the grantee to shift focus several times. The original focus on the four possible financing schemes shifted in response to the national health care debate, and later to President Clinton's proposal for managed competition. After this reform died, the focus again shifted to reflect the marketplace trends toward aggressive managed care, integrated delivery systems, and intense competition.

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KEY FINDINGS

  • Older cost control strategies (capital expenditure review and certificate of need programs, hospital rate setting, prospective payment, and utilization review) failed because they focused narrowly on certain aspects of the health care system, not the whole system. Some addressed capital but not operating costs, while others permitted cost-shifting.
  • There is still no strategy for evaluating the safety, effectiveness and cost-effectiveness of new medical technology. The federal Food and Drug Administration (FDA) evaluates the safety and effectiveness of new drugs and devices, but not their cost-effectiveness. At present, cost-effectiveness also does not factor into decisions by the federal Health Care Finance Administration (HCFA) to cover new technology under Medicare or Medicaid.
  • The lack of a formal process for controlling the introduction of new surgical procedures into clinical practice is a serious weakness in existing policy and warrants consideration of a process parallel to those employed by the FDA for the regulation of drugs and devices. Currently, evaluation of new surgical procedures falls to doctors and hospitals and can lead to diffusion without adequate evaluation of the risks and benefits.
  • Assessment of cost-effectiveness depends on the nature of the technology being evaluated. The field of technology assessment is complex, with numerous actors and a multiplicity of definitions, classification schemes, and assessment methods. No single classification scheme captures the breadth of the field, nor will any single assessment method suffice in answering the full range of questions critical to understanding a technology's effects.
  • Under managed care, technologies that have both cost-saving and quality-enhancing properties are the most likely ones to be developed and adopted. Technologies involving a tradeoff between cost and quality (either more expensive quality improvements or cost-saving approaches that sacrifice some quality) are a closer call and require careful analysis of their cost-effectiveness.

Communications

The principal investigator is the co-author of a book, Technology in American Health Care: Policy Directions for Effective Evaluation and Management, which drew heavily upon results and findings from this project. The book is scheduled to be released in April 2004 by The University of Michigan Press.

In addition, he and his colleagues have written a monograph reviewing medical technology issues, a paper on the impact of managed care on technology adoption, and seven case studies of technology diffusion and their lessons for policy. Two additional papers, on decision making and cost-containment strategies, are planned.

Four presentations based on work from this grant were made at conferences and symposia, including the 1995 International Symposium on Managed Care (Tubingen, Germany) and the 1996 John M. Olin Program in Law and Economics conference, "Regulating Medical Innovation" at the University of Virginia. (See the Bibliography for a complete listing of papers and presentations.)

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AFTER THE GRANT

The grantee plans to continue research on the decision-making strategies of manufacturers, adopters, payers, and purchasers regarding technology assessment.

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GRANT DETAILS & CONTACT INFORMATION

Project

Analysis of Cost Containment Strategies Involving Medical Technology

Grantee

Boston University School of Management (Boston,  MA)

  • Amount: $ 63,060
    Dates: October 1994 to June 1996
    ID#:  026077

Contact

Alan B. Cohen, Sc.D.
(617) 353-9222

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BIBLIOGRAPHY

(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)

Books

Cohen, Alan B., Hanfit, Ruth S., Encinosa, William E., Spernak, Stephanie M., Stewart, Shirley A., and White, Catherine C. Technology in American Health Care: Policy Directions for Effective Evaluation and Management. Ann Arbor, Mich.: University of Michigan Press, 2004. Abstract available online.

Book Chapters

Cohen, Alan B. "Managed Care und die Einfuhrung und Verbreitung medizinisches Technologien (Managed Care and the Adoption and Use of Medical Technology)." In Managed Care, pp. 157–168. Edited by M. Arnold, K Lauterbach, and K.J. Preuss. Stuttgart: Schattauer-Verlag, 1997.

Articles

Cohen AB. "Commentary: Managed Care, Medical Technology, and Health Care Cost Growth." Medical Care Research and Review, 55(3): 289–297, 1998.

Reports

Cohen, Alan B., and Nichols, Shirley S. "Cost Containment Strategies Involving Medical Technology: An Overview of the Issues," 1993. Prepared for The Robert Wood Johnson Foundation.

Cohen, Alan B. "Medical Technology Development and Diffusion: Changing Incentives Under Managed Care," 1996. Prepared for The Robert Wood Johnson Foundation.

Case Studies

Stewart, Shirley A., and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case of Cochlear Implants."

Stewart, Shirley A., and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case of Heart and Liver Transplants."

Thomas, Cindy P., and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case of Coronary Artery Bypass Graft Surgery and Percutaneous Transluminal Coronary Angioplasty."

Thomas, Cindy P., and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case Of Electronic Fetal Monitoring and Home Uterine Activity Monitoring."

Thomas, Cindy P., and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case of Laparoscopic Cholecystectomy."

Wastila, Linda, and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case of AZT (Zidovudine)."

Wastila, Linda, and Cohen, Alan B. "Cost Containment Strategies and Medical Technology: The Case of Tissue Plasminogen Activator and Streptokinase."

Presentations and Testimony

"Cost Containment and Medical Technology in the United States." Address to a Joint Workshop on the Analysis of Health Care by the Harvard School of Public Health, Brandeis University, and the University of Tubingen (Germany), Boston, Mass., February 28, 1994.

"Health Care Technology Adoption and Use under Managed Care." Address to an International Symposium on Managed Care, University of Tubingen, Tubingen, Germany, December 5, 1995.

"Managed Care and Medical Innovation." Address to a Conference, "Regulating Medical Innovation," John M. Olin Program in Law and Economics, University of Virginia School of Law, Charlottesville, Va., March 1, 1996.

"Changing Financial Incentives for Technology Adoption Under Managed Care." Address to a Conference on "Maintaining Investment in Medical Technology within a Managed Care Environment," 1996 Annual Meeting of the Boston University Health Care Management Program Alumni Association, Boston, Mass., June 5, 1996.

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Report prepared by: Marie Lyons
Reviewed by: Robert Narus
Program Officer: Joel Cantor