The following is taken from the First Plenary Session, “Balancing Affordability and Value: The
Universal Challenge in Health Care Delivery,” presented at ISPOR 11th Annual International Meeting,
May 2006, Philadelphia, PA, USA.
One approach to framing the issue of balancing affordability and value with respect to health care is
to define the dimensions of interest and place them in priority order. While the initial framing of the
question appears to focus on optimizing health care allocations and investments, the real purpose is
to maximize health. While implicitly acknowledged, we have not explicitly agreed that this is our
national priority. Quality health care is a secondary priority - as it is a critical element in enhancing
the health of the population. The third priority is value - getting the best "bang for the buck"; the fourth
priority is affordability - not spending "too much" (however that is defined).
While we have not, as a society, normatively defined what our targets are for each of these four dimensions,
we do know that our targets need to move. The United States is well below international norms
(as determined by the WHO) with respect to measures of population health for countries with similar
socio-economic standards of living. Indeed, recent data from Marmot and colleagues (JAMA
2006;295:2037-45) suggest that the richest third of Americans are not as healthy as the poorest third
of the British, even though access to health care is arguably much better for rich Americans; thus health
care is but one of many determinants of population health . We also know - based upon the work of
McGlynn and colleagues (NEJM 2003;348:2635-45) - that half the time we fail to deliver evidence-based
care. Moreover, as quality measurement has become widely adopted over the last 15 years, we can
expect that our ability to assess health care quality will only improve in the future and therefore our
expectations regarding health care quality will increase. Today we largely focus on process measures;
in the future - with the availability of inter-operable electronic health information systems - we will be able
to assess true outcomes.
But today, without the ability to measure outcomes and given our limited understanding of the "health
care production function," i.e., the incremental impact on population health of improved health care,
it is difficult to know whether we are improving or enhancing value when we make additional investments
in health care. Affordability is even more difficult to assess given U.S. cultural resistance to setting
limits on access to care for insured individuals. And what about the uninsured? How can we achieve
a goal of optimizing U.S. population health when more than 40 million Americans do not have coverage
for essential preventive, diagnostic and therapeutic services? At the end of the day, what can we
really afford? Is there a limit?
The next question to be asked is "What are health care payers and providers currently advocating
and/or implementing and how does this match up with the four priorities?" A non-exhaustive list of
current strategies that have been the focus of much attention would include: disease management,
pay-for-performance, health care information technology, and new benefit designs (tiered co-pays,
co-insurance, and consumer-directed plan designs). The first three strategies are designed to
enhance health care quality. The last focuses on improving value and affordability. While some have
argued that disease management and HIT may also improve affordability and value, data are limited
and I suspect that the return on investment will be difficult to demonstrate across broad populations.
Indeed, some have argued that disease management - originally promoted as a quality improvement
strategy - was appropriated as a cost-containment tool. Current evidence suggests that disease management
may decrease costs for certain populations (e.g., high risk patients) with specific conditions
(e.g., congestive heart failure) but it is unlikely to be a panacea for rising health care costs.
Pay-for-performance can provide incentives for improving health care quality but issues remain -
Where does the money come from? Who will pay more for higher quality? We do know that what you
pay for gets done; therefore P4P should focus on important issues where there is a clear linkage to health outcomes, though whether that can best be
accomplished through P4P or suitable payment
for those services is open for discussion.
Newer benefit designs were largely created to
address the issue of "moral hazard" - i.e., overutilization
occurs when services are free or too
inexpensive relative to their value. Without
addressing the merits of this point of view, we do
know that financial incentives are blunt instruments.
Thirty years ago the Rand Health
Insurance Experiment taught us that elasticity of
demand operates in health care as everywhere
else - if you raise the price of health care services,
the utilization of both essential and nonessential
services will decrease. A number of recent
studies show that lower adherence and higher
medication discontinuation accompany patients'
increased out-of-pocket costs- who are also
"consumers." Such behavior can lead to worse
health outcomes and can lead others to delay
seeking necessary medical care. Thus the overall
impact of increased cost-sharing with patients
is unclear as short-term decreases in "drug
spend" may be offset by increases in future medical
What I have addressed thus far can be summarized
as follows: Our ultimate priority is to
improve population health. While improving
healthcare can contribute to improvements in
health, it is not the only determinant. Therefore
we are in a difficult situation in trying to assess
the value of investments in health care quality.
The four major developments in recent years that
have impacted health care delivery have yet to
prove that they improve health care quality, value,
What I want to turn to now is another dimension
of value - increasing health care quality through
scientific advances in therapeutic interventions.
Advances in medical technology have contributed
greatly to the longer lifespan we now
enjoy and the enhanced quality of life enjoyed by
aging Americans. While the Congressional
Budget Office and others have calculated that the
benefits of new treatments have more than outweighed
their costs when considered from a
societal viewpoint, increasing costs are the subject
of much consternation by patients and payers.
Should health care costs continue to
increase, driven in no small part by innovative
diagnostic and therapeutics, payers (including
consumers) may exhibit a decreased "willingness
to pay." While the increased use of generic medications
will provide some headroom for innovation
- and there many "modern generics" that will
be entering the marketplace in the next several
years - payers are increasingly using formal
health technology assessments to "raise the bar" for obtaining favorable coverage of new drugs.
They are asking the following questions: "Does a
new therapy really provide advantages over current
therapy?" "Does it provide a good value?"
These are reasonable questions and represent a
shift from the latter 20th century when the questions
were: "Does a new therapy provide significant
benefit relative to any potential harms?"
"Are there patients who would benefit from its
This provides a new challenge to pharmaceutical
innovation. Investment in pharmaceutical R&D is
sensitive to the prospects for commercialization
which is in turn increasingly influenced by payer
coverage decisions. Indeed given the long lead
time between discovery and marketing, to make
informed investment decisions manufacturers
need to understand where the "goal posts" will be
10 years down the road. What is needed is for
"rules of the road" to be developed that are
acceptable to payers, providers, patients, and
pharmaceutical companies. We at Merck & Co.,
Inc. embrace the transparent and appropriate use
of evidence-based decision making as one of the
"rules of the road."
To understand what I mean by this, it is important
to distinguish between and understand the
dynamic relationship of evidence-based
review/synthesis and evidence-based decision
making (as discussed in the editorial I co-wrote
with Steve Teutsch (Med Decis Making
2005;Sept-Oct.: 487-9). [Figure 1]. An evidencebased
review and synthesis is a critical review of
the information regarding the benefits, harms if
any, and costs associated with a therapy. This is
an evolving and special discipline that answers
the questions "What do we know? and "How certain
are we about what we know?" It integrates
basic, clinical, and economic information in a
structured and a priori fashion guided by key
questions and an underlying model of disease. It may aggregate data into evidence tables and/or
include meta-analyses. Its focus is on the scientific
evidence and may employ modeling to
assess the economic impact of therapeutic
choices with cost-effectiveness analysis.
Evidence-based decision making takes these
inputs on effectiveness, safety, and economic
impact and interpolates it - in a transparent fashion
- with other considerations including
values/preferences, equity, acceptability, and
budget constraints. When optimally performed,
with adequate stakeholder involvement in a deliberative
and transparent fashion, the basis for
coverage recommendations are clearly understood
and the fairness of decisions are more likely
to be acceptable to key stakeholders, including
those who may be disadvantaged by a particular
decision. This is what Norman Daniels has called
"accountability for reasonableness."
The use of formal evidence-based reviews and decision making
remains controversial across the pharmaceutical industry, in
part because of the manner in which they have been conducted.
Some view this as a method to justify cost-cutting decisions.
Greater acceptance would follow from insulation of individuals
conducting the evidence reviews/syntheses from those making
decisions; this would minimize bias and conflicts of interest.
Transparency is also critical to acceptance. Reviewers and
decision makers must inform stakeholders about what drives their
deliberations and considerations; scientific evidence must be
distinguished from social science evidence (e.g.,. economic
models and resource constraints) and colloquial evidence (e.g.,
values, precedent, professional opinion,). Performed in this
way, I believe that decision making will be improved and that a
path forward can be found that balances the goals of
affordability and value. It's in all of our best interests to
make this work.