The prevailing sentiment among most healthcare and budget experts in Washington is that demands on federal resources have reached a critical point. The growth of entitlement spending has risen to a level where difficult decisions will have to be made about the future of several critical programmes.

At the forefront of the debate are the two largest areas of entitlement spending: Medicare and Social Security. Both programmes constitute a significant portion of the budget and require functioning as efficiently as possible.

“Medicare expenditures were $432bn in 2007, or 3.2% of GDP, and are projected to increase to nearly 11% of GDP in 75 years.”

While Social Security is expected to reach insolvency in the next few decades, Medicare is at the epicentre of the budget debate. Medicare is the Federal health insurance programme for citizens over the age of 65.

The Centers for Medicare and Medicaid Services (CMS), the agency responsible for administering the Medicare and Medicaid programme, recently released the Medicare Trustee Report regarding the current state of the programme. According to the report, Medicare expenditures were $432bn in 2007, or 3.2% of GDP, and are projected to increase to nearly 11% of GDP in 75 years.

The trustees also reported that Medicare’s Hospital Insurance (HI) Trust Fund would become insolvent earlier in 2019 than previously expected. HI expenditure growth is estimated to average 7.4% each year during the next ten years – a higher rate than either GDP or CPI growth.

During 2008 the HI Trust Fund will spend more than its income, and from 2009 until 2019, about $443bn will need to be transferred from the federal treasury to cover beneficiaries’ hospital insurance costs. These statistics are alarming for lawmakers and stakeholders. While many agree that extensive problems exist, it appears a more daunting challenge is to find agreement on both causes and solutions.

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A more pertinent dialogue involving the medtech industry has unfolded over the past few years. At the core of this debate is determining which factors are responsible for the sustained increases in expenditures in the Medicare programme and how to address those factors to control costs. Some argue the induction of new technologies into the market is the primary cause for increased spending. However, on closer examination of the data, the salary, benefits and overhead costs for staff represent nearly 70% of a hospital’s expenditures. Other factors, such as liability insurance, also drive up the cost of healthcare.

While this debate continues, lawmakers and regulators appear to move forward with policies that may affect coverage. In recent years, the Congressional Budget Office (CBO) has released specific reports addressing the increased spending in federal healthcare programmes. Although facts demonstrate otherwise, the CBO also points to technology as a driving factor of increased healthcare costs. However, it fails to capture the value of technologies that result in better outcomes or shorter hospital stays.

“Patients have received imaging and other diagnostic tests more in the past decade than ever before.”

In an effort to address the perceived impact of new technologies, some in Washington have begun to explore various ways to control cost.


There has been a significant growth in the development of medical technologies over the past 20 years. More importantly, clinical benefits have increased because of these developments. Patients are now living longer, healthier lives. However, the influx of developments has resulted in more patients being treated, ultimately increasing costs. For example, patients have received imaging and other diagnostic tests more in the past decade than ever before.

While there is no doubt that these tests are revealing patient ailments, payers are looking more closely at the utilisation rates to determine if therapies or tests are reasonable and necessary. Insurers, including Medicare, want to see a greater correlation between the increased allocation of resources and benefits in the beneficiary pool. For Medicare, comparative effectiveness is seen as a viable solution to address this issue.

Comparative clinical effectiveness research has been discussed as an avenue for producing information to help healthcare decision-makers reach informed, evidence-based decisions. Most people agree that the research compares the “effectiveness” of two or more healthcare services or treatments. It evaluates outcomes resulting from different treatments or services and provides information about the relative effectiveness of treatments.

Specifics about the research and the definition, however, seem to be sources of contention. In particular, two areas that are the source of the most contention are the definition of ‘effectiveness’ and whether costs should be included in comparative effectiveness research.

“Measuring the benefits and effectiveness of a treatment often requires making assumptions about the population benefiting from it.”

Determining clinical benefit or effectiveness is not easy to quantify. The factors included in the research and how they are measured can greatly influence the results of a study. Measuring the benefits and effectiveness of a treatment often requires making assumptions about the population benefiting from it.

To what extent will the benefits from the treatment vary across the country and in different settings? How should the benefits observed in a clinical trial be extrapolated to the rest of the population?

It also is important to note that effectiveness is different from efficacy. Efficacy and effectiveness research results may differ because often in clinical practice patients may have more than one illness, doses may vary, methods of administering the treatment may vary and patients simultaneously may take treatments for multiple illnesses. Moreover, large segments of the potential patient population are often excluded from efficacy trials to achieve a more uniform study population.

Another point of issue is whether to include costs. The issue is most controversial if results that include costs are used to make insurance reimbursement, pricing or coverage decisions. The inclusion of costs in research tends to not be as controversial when the results are not directly linked to medical and health policy decision-making.

The UK operates under a paradigm of comparative effectiveness. The National Institute for Health and Clinical Excellence (NICE) is an independent organisation that provides guidance on technology assessments and other recommendations to the NHS. NICE expansively employs methods of comparative and cost effectiveness in recommending to the NHS what services and technologies to cover under the programmes. One prevailing concern among spectators in the US is that a comparative effectiveness agency could become analogous to NICE and employ similar coverage methodologies.


Why is comparative effectiveness research of concern to device manufacturers seeking reimbursement? It is important to examine the realities that exist in treatment options, starting with paying attention to how effectiveness studies will be designed.

“By the time a comparative effectiveness study is complete, it is possible that a device may be on the second or even third generation.”

Most comparative effectiveness studies tend to last well beyond the device lifecycle. If a research study to determine effectiveness lasts a minimum of three years, it is difficult to ignore the reality that medical devices are products of improving innovation and technology. Most devices have a market lifespan of about 18 months before the next-generation model is available.

In many cases, the newer generations will bring greater clinical benefit to a patient. Thus, by the time a comparative effectiveness study is complete, it is possible that a device may be on the second or even third generation, which may be substantially different and provide significantly more clinical benefit than the previous device. Therefore, it becomes much more difficult to make a coverage decision based on this incomplete information.

It appears that Congress has an appetite to move forward on legislation on comparative effectiveness.

Most recently, Sen. Max Baucus (D-MT), chairman of the US Senate Committee on Finance, announced legislation to create a private-public entity that would work with federal health agencies to establish comparative effectiveness methodologies. Although the legislation mentioned that costs initially would not be included in research studies, it left open the possibility that they could be included down the road.

With a limited legislative schedule ahead, it appears there is a short window of opportunity to move forward on such measures. However, comparative effectiveness will continue to be part of the dialogue as Congress deals with the long-term budget constraints.