Health care costs are going up. No news there. But who's to blame?

That was the central issue of some lively crossfire that broke out last month between some major health insurers and groups representing the medical manufacturing sector, with a key governmental agency then offering its own analysis, the various parties pointing fingers in various directions.

The first salvo in the skirmish came in early march from the Health Insurance Association of America and the Blue Cross Blue Shield Association which unveiled a report that said much of the blame for health care increases should go to new technologies that will fuel as much as a third of these increases over the next 10 years. The study was produced by the Center for Health Affairs, a unit of Project HOPE (Washington). Chip Kahn, president of the organization, said that the report places "technology and other factors that drive health care costs [as] the root causes of the growth in health insurance premiums."

The study relies on an analysis of what it defines as "residual" cost, that is, "estimating the impact of determinants of spending, such as inflation and population aging, and then isolating the 'residual,' as the unique contribution of medical technology." With that approach, it estimates an increase in personal care expenditures of from 6% to 7% per year, with the residual accounting for 25% to 33% of the growth. Additionally, the report offers case studies of nine specific medical technologies – five of them diagnostic. And it concludes that medical technology's "upward impact" on health care costs will continue over the next five years "at perhaps a slightly higher pace than the average trend for the 1990s."

In response, representatives of AdvaMed (Washington) and the Medical Device Manufacturers Association (MDMA; also Washington) criticized the report both for flaws in both its methodologies and assumptions.

In an aggressive response to the HOPE study, AdvaMed charged that the analysis demonstrated a bias in its selection of medical technologies and didn't take into account "the reality of innovation." In particular, the group singled out the "residual" analysis and the selection of medical technology case studies, as flawed. And AdvaMed also faulted the technologies selected for case studies, noting that five of the nine were diagnostics systems that "show economic benefit over time. Identifying a disease early can substantially save health care costs in later years for which the study provides no spending reduction." Additionally, it pointed to lowered costs for some technologies as markets mature and encompass broader uses. As to the assumption that both per-person spending and residual costs will increase simultaneously, it replied: "to the contrary, the past decade has shown an overall trend toward a declining rate of growth for personal health spending. In fact, 1998 was the only year of the 1990s in which both the overall health care spending and the residual increased."

Steve Northrup, executive director of MDMA, said the HOPE report "didn't really tell us anything that we didn't already know. There are some technologies that add costs to the health care system but also result in improved quality and saving of lives." And the insurance industry itself, he told The BBI Newsletter, must share the blame for participating in a health care system that is failing to emphasize preventive health. And he offered another conclusion for the report: "I guess they're saying technology costs more so we need to raise our premiums," adding that the groups that commissioned the report "by and large are resistant" to advances in medical technology.

Just a few days after the unveiling of the HOPE study, the Health Care Financing Administration (HCFA; Baltimore, Maryland) released its own analysis of the source of rising health care costs, pointing to pharmaceuticals as the major source of future cost increases.Published in the March/April issue of Health Affairs, the report in several ways selects new and higher-priced prescription drugs as the major driver of health care increases through the year 2010.

Overall, the report sees an annual average health care growth rate of 7.2% from 1998 through 2010, with that rate falling between the 5.2% average rate of growth seen from 1993 through 1998 and the high average rate of 10.5% seen in the period from 1980 through 1993. And compared to the 7.2% growth rate in medical spending over the next decade, the increase in drug spending will grow an average of 12.6% per year throughout the decade. Additionally, drug expenditures will increase from 9.4% of personal health spending in 1999 to 16% in year 2010, according to the report.

Insurance payers are identified as one of the key drivers behind this increase in double-digit drug spending and payment increases, according to the report, and they will continue to have this effect. Thus, the report authors write, "Perhaps the most significant [driver] was proliferation of health plans with low copayments for coverage of drugs. Consequently, drug spending rose, as prescription sizes increased and as the proportion of people using medications grew."

Overall, the effect of low co-payments was extensive, according to the report. "Since 1995 a steady shift toward health insurance plans with small out-of-pocket requirements for drugs has raised consumer demand. Corresponding growth in private health insurance payments reached 43% of prescription drug spending in 1999, compared with 27% in 1993. Public insurers also increased spending, as growth in Medicaid spending for drugs exceeded program spending growth in most years over the past decade."

The report does credit payers with attempting to stem this tide by putting into place tiered systems that provide incentives for choosing lower-cost drugs and that this trend will continue. Countering this trend, however, was what the report termed an "explosion" in advertising to consumers that fueled an increase in the demand for prescription drugs. Additionally, "As better therapies were produced, consumers substituted newer, high-priced drugs for less expensive ones." The report termed this a "substitution effect."

While this effect will be slowed by the increasing number of generic competitors, the report sees this also countered by the rapid introduction of new drugs through company pipelines, a trend it sees in the next decade as more rapid than in the 1980s and early 1990s, but not so fast as the drug introductions of "the 1996-97 peak."

While the report does not specifically address the impact of costs for new devices and other medical technologies, it does look at home health, nursing homes and hospital costs which use those technologies.

And, the report concludes in an echoing of the HOPE report, "The nation has clearly expressed its desire for the best possible health care, including rapid development of new medical technologies, but has not yet determined how best to meet its substantial costs."

Federal regulation preempts state authority

The Supreme Court, in late February, issued a long-awaited ruling that, in certain instances, puts federal regulatory power over state law and puts a limit on those filing class action suits against medical device makers. In a unanimous vote, the court threw out a lawsuit filed in behalf of 5,000 plaintiffs in a class action seeking damages for injuries resulting from implanted bone screws.

The court said that companies cannot be sued in state courts even if they have won an FDA product clearance by means alleged as fraudulent. Such suits, according to the justices, are pre-empted by the federal regulations outlined in the Food, Drug and Cosmetic Act.

The ruling came in a case against the Buckman Co., a firm which, acting as a product consultant, allegedly had misrepresented data presented to the FDA to win clearance for the Variable Screw Placement Spinal Plate Fixation System, produced by AcroMed, with that approval given in 1986. The FDA had rejected two applications made by AcroMed. A third application then separated the device into two component parts, and clearance was granted for an indication in which the screw would be used in arm and leg bones, but not in the spine. The plaintiffs charged that they were injured when the screws were implanted to correct spinal problems and that this constituted fraud against the FDA since this use had not yet been approved. This use was cleared in 1995.

Giving the court's opinion was Chief Justice William Rehnquist, who wrote that the federal regulatory authority "amply empowers the FDA to punish and deter fraud against the agency." That authority, he said, would be undercut and "skewed" if state courts were given the power to hear such lawsuits.

Rehnquist's opinion stated a clear distinction from a 1996 decision because the earlier case, he said, had focused on the issue of product manufacturing. The case against Buckman involved issues of federal regulation which superceded the manufacturing issue, according to Rehnquist's opinion. Justice John Paul Stevens concurred with the other members of the court, but issued a separate opinion saying that in those cases in which a company committed fraud and removed a product from the market, people should be able to sue.

Besides being a victory for manufacturers, the decision was also a victory for the U.S. Justice Department, which had argued that lawsuits alleging fraud against the FDA were precluded by federal regulation of medical devices.

Online clinical trials database launched

CenterWatch (Boston, Massachusetts) has launched a new online database of clinical trial results that is designed to serve as a reference resource for patients, health care professionals, researchers and financial analysts. The Trial Results database provides access to information about the results of recently completed and ongoing clinical trials. It allows patients and professionals to search the database by specific medical conditions, providing information on the safety and effectiveness of specific treatments in active clinical trials that are targeting a given medical condition. CenterWatch, a sister company of American Health Consultants, publisher of The BBI Newsletter, said Trial Results is the first database of its kind readily available for patients and health consumers.

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