Those concerned with the relationship of medical technology to health care costs should not miss Barry Meier’s article last week in The New York Times. Using the example of implantable defibrillators, he describes many market dysfunctions, including Medicare’s “laissez-faire approach” to soaring spending, the misalignment of physician and hospital incentives, financial ties between physicians and device companies, and the failure to develop good data through registries to track outcomes of competing devices.  The list goes on.

It is clear that if we cannot redesign the payment and delivery systems to reward value, we cannot raise quality or control spending. And to date, the device industry has successfully undermined efforts to manage utilization, align incentives among physicians and hospitals, and develop and use meaningful data.  

It is in the DNA of for-profit companies to expand markets, grow market share, create markets where none existed, and extract profit. That is true whether the product is Cheerios, iphones, or defibrillators. However, our dysfunctional health care marketplace and our politically compromised Medicare program seem unable to demand value in return for billions of health care dollars.

Medicare has become a political battleground. Pressure from health industry and provider forces in 1989 blocked Medicare and Medicaid from including cost effectiveness in its assessment of new medical technologies.

Despite improvements in Medicare’s coverage process in the 1990s, which determine if and under what circumstances Medicare will cover and pay for new technologies or procedures, my research has shown that the policies are rarely enforced and don’t change physician behavior. And, Medicare’s payment methodology allows the calculation of the flat rate “diagnostic related group (DRG)” to include all the input costs – so the rates build in the high costs of certain technologies. 

Admittedly, the Medicare pricing method is fraught with irrationalities and arbitrariness – all greatly lamented by those subject to it. But, overall, Medicare has been a pushover to both rising prices and excessive utilization.

As costs continue to rise without reform, however, CMS is likely to try to ratchet down prices across the board. Given what the Dartmouth Atlas research has taught us about regional variations in technology utilization, downward pricing pressure will punish those who use technology appropriately and give others the incentive to do more to make up the lost income.

The device industry has also fought hard against efforts among physicians and hospitals to align their interests for greater efficiency and lower costs. There has been a strong industry backlash against “gain sharing demonstrations” – the term refers to a process to allow hospitals and physicians to benefit from efforts to reduce expenditures. Integrated and accountable health plans – with insurance, hospital, and physician functions aligned – have done a better job than conventional fee-for-service providers in resisting unnecessary and harmful overutilization and are better positioned to pay for value not volume.

While I’m a strong advocate of health reform and am mindful of the challenges, the current proposals have backed away from many of the changes required to use technology more effectively. The comparative effectiveness provisions have been watered down, with bans on the use of cost information and restrictions on the use of any comparative information for actually making decisions. Gather data, but don’t use it, is the message.

Efforts by the Blue Dogs to reduce wide variations in utilization from region to region (we need to study what the Dartmouth Atlas has demonstrated for years), while quite timid, have also been watered down by pilots and demonstrations. I’m more hopeful that the payment reforms in early stages at the Centers for Medicare and Medicaid Services (bundling payments for episodes of care and pay for performance demonstrations, for example) might bear some fruit in the long run.

CMS must have the authority and the tenacity to implement these reforms. But for now, even discussion of managing the use of technology gets converted into cries of “rationing” or “government interference.”

Meanwhile, proposals in the House bill to levy a 2.5 percent excise tax on the sale of medical devices and in the Senate Finance Committee bill to assess $4 billion in annual fees on the medical device manufacturers are completely at odds with the need to reduce health care costs. If, as Barry Meier described, the outlays for implanted devices in Medicare are at $76 billion and rising, taxing the manufacturers hardly gets at the challenge. I’m not opposed to these taxes because they might “stifle innovation,” as the industry alleges; I’m opposed to them because they won’t control costs, and may actually raise them.   

 I’m a great fan of innovation in medicine. I’m also a great fan of innovators. They will respond to incentives. Our current system does not demand value or reward value. The best of our medical innovators will fight change, but, if required, will respond to rational incentives to provide value and lower costs with the kind of innovation that we need. Our politicians have to have the courage to demand it. 

Susan Bartlett Foote, J.D., is a professor emerita at the University of Minnesota. Her research has focused on the influences of public policies of health care services, with an emphasis on innovation in medical technology. She is the author of Managing the Medical Arms Race: Innovation and Public Policy in the Medical Device Industry. She served on the CMS Medicare Coverage Advisory Committee from 2004 to 2006. foote003@umn.edu; 651-336-7995.