"Dynamic Pricing" Would Use CER To Save Medicare Costs

October 06, 2010

Despite barriers built into the health reform law to prevent use of comparative cost analyses to set Medicare reimbursement rates, allowing such analyses could enable billions in savings, according to an article in the October issue of Health Affairs.
"The time is ripe for Medicare to use comparative effectiveness research to reach a new paradigm, which would include equal payments for services that provide equivalent results," consultant Steven Pearson proposed during a Washington, D.C., conference hosted by Health Affairs Oct. 5. Pearson, who is president of the Institute for Clinical and Economic Review (ICER) at Massachusetts General Hospital's Institute for Technology Assessment, coauthored the paper on the proposed pricing scheme with physician Peter B. Bach, Memorial Sloan-Ketteringm Cancer Center, New York.

Innovative Treatment Coverage For Three Years

Under the "dynamic pricing" model envisioned by Pearson and Bach, CMS would cover and
reimburse an innovative new technology or new drug therapy under Medicare the same way it does now, but only for three years. During that time, manufacturers and clinicians would have to carry out research to compare the performance of the new treatment to a traditional approach. If evidence showed that the treatment did not offer clinical advantages, then CMS would cut the price to the level it pays for
the equivalent, conventional treatment. But if the evidence showed that the new intervention was superior to the traditional method,then Medicare would continue to pay the higher rate. The model would apply to both medical devices and drugs, Pearson said, and it would be similar to the coverage-with-evidence-development model that CMS used for positron emission tomography for cancer back in 2009.
The new model would save money by avoiding continued high payments for technologies or therapies for which there is insufficient evidence to show their clinical worth versus traditional approaches.
Pearson cited Medicare coverage of drug-eluting stents as one example of when higher prices were set for an innovative medical technology even though there was little or no evidence to show that the newly covered technology was superior, or even equal to, a less expensive traditional option. If dynamic pricing had been used in cases such as this, manufacturers would have had three years to prove their product's superiority over older therapies, or if they could not, the new treatments would be reimbursed at a lower rate, at the end of that period. "We would use the pricing analysis mechanism of Medicare" to achieve the lower costs results offered by dynamic pricing, Pearson said.

Industry Opposition And New Legislation Foreseen

Because dynamic pricing might ultimately result in lower Medicare reimbursement for
treatments that fail to prove their superiority in comparative studies, Pearson said he believes that the model is likely to be contested by device and drug manufacturers. Another challenge would be the need to amend the Affordable Care Act to allow the approach,Pearson noted. As was pointed out in a separate study presented at the Health Affairs briefing by Harold Sox of Dartmouth Medical School, there are several places in the Affordable Care Act stipulating that the Patient-Centered Outcomes Research Institute (PCORI) is not allowed to use cost considerations in designing comparative effectiveness studies. Similarly, the health reform law prohibits comparative effectiveness studies from being used by the Medicare program to set reimbursement rates. However, the prohibitions in the law do not restrict a private individual or institution from using clinical comparative information developed by PCORI to make their own private analyses of which technologies may be effective, and save money at the same time, Sox said.
"The public is paying for [comparative effectiveness research], and these measurements are a public good," Sox remarked.

[Editor's note: More news on the medical device and diagnostics industries is available each week in 1 'The Gray Sheet.' Visit our website to sign up for a free trial, or call 1-800-332-2181.]

- Sue Darcey (2 s.darcey@elsevier.com)

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