[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-209
 
             TECHNOLOGY, INNOVATATION AND HEALTH CARE COSTS
=======================================================================

                                HEARING

                               BEFORE THE

                        JOINT ECONOMIC COMMITTEE

                     CONGRESS OF THE UNITED STATES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 9, 2003

                               __________

          Printed for the use of the Joint Economic Committee














                      U.S. GOVERNMENT PRINTING OFFICE

90-494                       WASHINGTON : 2003
____________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800, DC area (202) 512-1800 Fax: (202) 512-2250 Mail: stop SSOP, Washington, DC 20402-0001












                        JOINT ECONOMIC COMMITTEE


    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]


SENATE                               HOUSE OF REPRESENTATIVES
Robert F. Bennett, Utah, Chairman    Jim Saxon, New Jersey, Vice 
Sam Brownback, Kansas                    Chairman
Jeff Sessions, Alabama               Paul Ryan, Wisconsin
John Sununu, New Hampshire           Jennifer Dunn, Washington
Lamar Alexander, Tennessee           Phil English, Pennsylvania
Susan Collins, Maine                 Adam H. Putnam, Florida
Jack Reed, Rhode Island              Ron Paul, Texas
Edward M. Kennedy, Massachusetts     Pete Stark, California
Paul S. Sarbanes, Maryland           Carolyn B. Maloney, New York
Jeff Bingaman, New Mexico            Melvin L. Watt, North Carolina
                                     Baron P. Hill, Indiana



                  Donald B. Marron, Executive Director
                Wendell Primus, Minority Staff Director



















                            C O N T E N T S

                              ----------                              


                      Opening Statement of Members


Senator Robert F. Bennett, Chairman..............................     1

                               Witnesses

Statement of Dr. Mark McClellan, Commissioner, U.S. Food and Drug 

  Administration.................................................     2
Statement of Dr. Carolyn M. Clancy, Director, Agency for 
  Healthcare 
  Research and Quality...........................................     5
    Report entitled ``Estimates of the Impact of Selected Health 
      Information Technologies on Quality and Costs in Inpatient 
      and Outpatient Settings''..................................    49
Statement of Dr. Peter J. Neumann, Deputy Director, Program on 
  the Economic Evaluation of Medical Technology, Harvard School 
  of Public Health...............................................    23
Statement of Dr. Neil R. Powe, Director, The Welch Center for 
  Prevention, Epidemiology, and Clinical Research, The Johns 
  Hopkins Medical 
  Institution....................................................    26

                       Submissions for the Record

Prepared statement of Senator Robert F. Bennett, Chairman........    37
Prepared statement of Representative Pete Stark, Ranking Minority 
  Member.........................................................    37
Prepared statement of Dr. Mark McClellan, Commissioner, U.S. Food 
  and Drug Administration........................................    38
Prepared statement of Dr. Carolyn M. Clancy, Director, Agency for 
  Healthcare Research and Quality................................    45
Prepared statement of Dr. Peter J. Neumann, Deputy Director, 
  Program on the Economic Evaluation of Medical Technology, 
  Harvard School of Public Health................................    53
Prepared statement of Dr. Neil R. Powe, Director, The Welch 
  Center for Prevention, Epidemiology, and Clinical Research, The 
  Johns Hopkins 
  Medical Institution............................................    56
Statement submitted by AdvaMed, Advanced Medical Technology 
  Association....................................................    60




















                      TECHNOLOGY, INNOVATION AND 
                           HEALTH CARE COSTS

                              ----------                              


                        WEDNESDAY, JULY 9, 2003

                     Congress of the United States,
                                  Joint Economic Committee,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room SD-628 of the Dirksen Senate Office Building, the 
Honorable 
Robert F. Bennett, Chairman of the Committee, presiding.
    Present: Senator Bennett.
    Staff Present: Donald Marron, Mike O'Grady, Jeff Wrase, 
Angela Brimhall, Colleen J. Healy, Melissa Barnson, Wes Yeo, 
Rebecca Wilder, Frank Sammartino, John McInerney, and Nan 
Gibson.

    OPENING STATEMENT OF SENATOR ROBERT F. BENNETT, CHAIRMAN

    Senator Bennett. The hearing will come to order.
    Perhaps it's appropriate in a hearing dealing with health 
care that I have a summer cold.
    I apologize for the way I growl this morning, but there's 
not much I can do about that. We welcome everyone to today's 
hearing on how technology and innovation affect health care 
costs.
    The United States has a health care financing problem, one 
that goes well beyond the budget challenges posed by Medicare. 
For many years, our health care spending has grown at a 
significantly faster rate than the economy. Projections 
indicate that this will continue. Any financial arrangement 
where expenses grow significantly faster than income is truly 
on very shaky ground.
    In other sectors, new technologies usually lead to greater 
efficiencies and ultimately, lower costs. Yet, it's unclear 
whether the same is true for health care. So what's different 
about health care? Is it the technology or the way we pay for 
it?
    How can we strike the right balance--providing access to 
the latest breakthrough technologies, while limiting an open-
ended raid on the public and private treasuries that fund our 
health care?
    During this hearing, we will explore these issues, bringing 
together some of the best minds from the public and private 
sectors to help shed some light on this situation.
    We should first question whether technology and innovation 
have truly added to health care costs, as some claim, or have 
reduced health care costs through enhanced efficiency.
    And second, we should examine whether new technologies are 
disseminated in an efficient and effective manner, and if there 
are areas where they are being overused or underused. For 
example, some have expressed concern that advanced imaging 
technologies may be overused, in part, because of poor 
incentives in the payment formulas used by Medicare and other 
insurers. At the same time, an article in this week's Health 
Affairs, highlights how new technologies may be underused in 
treating people who lack health insurance.
    We need to find the right balance. We need to judge the 
cost-effectiveness of new technologies so that we can properly 
fund this critical work, without overpaying and without adding 
additional upward pressure on health care spending.
    Unlike most of the recent congressional debate on health 
care, this hearing is not about Medicare or its coverage of 
prescription drugs. However, this issue is crucial to Medicare 
and every other health care purchaser that faces the dilemma of 
how to add innovative new benefits without setting off an 
explosion of health care costs.

    [The prepared statement of Hon. Robert F. Bennett appears 
in the Submissions for the Record on page 37.]

    Senator Bennett. On our first panel, we're privileged to 
welcome Dr. Mark McClellan, the Commissioner of the Food and 
Drug Administration, who has testified before this Committee 
before.
    Dr. McClellan, we're delighted to have you back.
    Dr. McClellan. Thank you.
    Senator Bennett. And Dr. Carolyn M. Clancy, who is the 
Director of the Agency for Healthcare Research and Quality. Dr. 
Clancy, you're a new appearance here, but we're also delighted 
to have you.
    Dr. Clancy. Thank you.
    Senator Bennett. Congressman Stark is unable to be with us 
this morning because of a conflicting schedule. But he has an 
opening statement which will be made part of the record at this 
point.

    [The prepared statement of Representative Pete Stark 
appears in the Submissions for the Record on page 37.]

    Senator Bennett. We are expecting several other Members of 
the Committee to show up as their schedules will permit. And as 
they do show up, I will recognize them for an opening statement 
or questions as is appropriate.
    With that opening and background, Dr. McClellan, again, we 
welcome you and look forward to your testimony.

  OPENING STATEMENT OF DR. MARK McCLELLAN, COMMISSIONER, U.S. 
                  FOOD AND DRUG ADMINISTRATION

    Dr. McClellan. Good morning, Mr. Chairman. I welcome this 
opportunity to testify before this very important Committee. 
It's a pleasure to see you again and I want to thank you for 
your broad interest in health and in issues touching the FDA.
    We've talked before about the importance of nutrition and 
we're working on ways to help people improve their diet.
    In fact, we have an important announcement on this topic 
coming later this morning.
    I'd glad to be here today to talk with you about the 
critical questions you just raised on the effects of 
technological innovation in health care on the cost of health 
care.
    It doesn't take an economist to appreciate that new 
technologies often lead to higher costs of medical care. 
Millions of Americans are struggling today to afford the rising 
cost of what medical technology can do for them.
    Many new medical technologies do lower costs, such as drugs 
for treating depression that can be less expensive than non-
drug approaches to effective treatment.
    Recently, FDA has approved new, simpler tests for HIV 
exposure that can be done quickly in a doctor's office, as well 
as less costly implantable defibrillators that can reduce the 
risk of sudden cardiac death for many patients.
    But many technologies do result in increased costs. First, 
when a treatment becomes less expensive and safer, more 
patients may decide that it's worth the risk and unpleasantness 
to get it.
    Second, many treatments exist today that do things that 
were simply not possible in the past. Patients with heart 
disease, cancer, AIDS, arthritis, cystic fibrosis, low birth 
weights, and countless other conditions are living longer and 
better lives because medical innovation has transformed fatal 
illnesses, or illnesses that could only be treated with 
supportive measures, into conditions that people can live with 
and often live well.
    The important fact that Americans are living longer lives 
and better lives doesn't show up in any direct way in a 
country's national economic accounts, like health care spending 
does. But that doesn't mean that these health benefits aren't 
worth a lot.
    So from an economic standpoint, one key issue is whether 
the benefits of medical innovation are rising faster than the 
costs.
    In recent years, a number of economists and doctors and 
other health care experts have addressed this question. It's 
hard to answer since it's hard to put a value on better health 
and since there are many things besides medical care that 
influence health.
    Perhaps the best evidence comes from studies of changes in 
treatments and associated changes in costs and outcomes for 
patients with specific illnesses over time, like patients with 
heart attacks or cataracts or depression.
    While none of these studies are completely convincing in 
themselves, they generally show that medical innovation have 
been of great value to the public. That is, the value of the 
improvements in health are much greater than the increases in 
spending.
    Another way to look at this is if you are a patient with 
heart disease or at risk for breast or colon cancer with 
rheumatoid arthritis or with many other conditions, you'd 
generally be much better off with the treatments that you can 
get today compared to the inferior treatments you could get a 
decade ago, even though in all of these cases, treatment for 
your condition is much more expensive than it was a decade ago.
    But just because our leadership in medical innovation in 
America has added great value in the form of longer and better 
lives for millions of Americans, it doesn't mean that we should 
just be sitting back and doing nothing.
    Just because changes in medical technology have been good 
overall doesn't mean that we can't do better. There are lots of 
examples of medical treatments used inappropriately or 
erroneously or in other ways that add to costs without 
providing much, if any, benefits. And in addition, many people 
can't afford some of the valuable new treatments and that's a 
public health problem, too.
    We must work hard to find better ways to increase value in 
the development and use of medical technologies. We must work 
to keep modern care affordable while still encouraging medical 
innovation.
    I'm quite concerned about threats to valuable innovation in 
health care today. On the one hand, the process of medical 
innovation, turning sound ideas from insights in the biomedical 
sciences into safe and effective treatments for patients. This 
process has become steadily more expensive, more time-consuming 
and more uncertain.
    That means it's getting much more expensive to get new 
technologies to patients.
    On the other hand, we are also under more pressure than 
ever to find ways to bring health care costs down, and some of 
the ideas for reducing health care costs would unfortunately 
reduce the financial incentives needed to bring valuable, life-
saving technologies to patients.
    We're facing this crisis at a critical time from the 
standpoint of medical innovation. The number of new 
technologies coming to patients is down.
    For example, we got fewer applications for truly new drugs 
last year than at any time in the past decade. But this is 
happening at the same time as the investment in research and 
development by the National Institutes of Health and by the 
private sector is higher than ever--over $80 billion, with the 
promise of new breakthroughs ahead from understanding the human 
genome and many other sciences like genomics and medical 
nanotechnology.
    If the cost of developing new products that are safe and 
effective keep going up, while short-term efforts to control 
costs increasingly focus on controlling payment rates, we may 
not get more valuable new treatments in the years ahead.
    I think there's a better solution, one that means better 
health and greater value for medical technology in the years 
ahead.
    We can take steps today to improve the development and use 
of medical technologies and find creative policy solutions that 
both support innovation and make health care more affordable, 
particularly for those with limited means and great needs.
    As part of a new FDA initiative on improving medical 
technology announced in January of this year, the FDA is taking 
many steps to help foster more efficient innovation, especially 
in emerging areas or those with great medical need.
    We are working not only to reduce the time for reviewing 
new products and determining whether they are safe and 
effective. We are also working with partners at the NIH and 
with product developers to find ways to make the development 
process less costly and more predictable. For example, by 
providing clear guidance on what it takes for a product 
developer to show that a new treatment is safe and effective.
    Lower costs and more certainty in developing new medical 
technologies means more safe and effective treatments can reach 
more patients faster.
    In order to get more value from the medical technology we 
use, however, after new technologies are approved, we also need 
to work to do more to help doctors and patients use new medical 
innovations more effectively. And so, we're working closely 
with many participants in health care, including with the 
Agency for Healthcare Research and Quality, led by my friend 
and colleague, Dr. Carolyn Clancy, who I'm delighted to testify 
with today.
    We're working with health care organizations to collect 
more information, automatically, on potential safety problems 
with products after they've been approved.
    We're implementing new bar-coding requirements to make sure 
the right patient gets the right treatment, avoiding costly 
medication errors.
    And we're conducting more post-approval studies to develop 
better, more up-to-date evidence on safety and effectiveness, 
the risks and benefits of medical products after they are 
approved.
    We're working on a daily med program for physicians using 
an electronic version of our product label for physicians that 
is easier for them to use to get the treatment information they 
need for each patient they're treating. And it can be updated 
daily to include the most current information about the risks 
and benefits of the drug after it's on the market.
    Only by facilitating development of complete, timely, and 
easily used information can the FDA help make sure that people 
are making the best decisions about their health based on the 
best available information.
    Mr. Chairman, the FDA is working with AHRQ and with our 
partners throughout the Federal Government and the private 
sector to promote increased access to high-quality, safe and 
effective medical technologies, including drugs, biologics, 
devices and combinations of all three.
    This is the best way from a public health standpoint to 
make health care more affordable and to make sure that we get 
the most value for medical technology.
    I'm sorry we don't have any more products coming along 
sooner for the common cold, but I would appreciate the 
opportunity to have my written testimony read into the record 
and I'd be very pleased at this point to hear what Dr. Clancy 
has to say.

    [The prepared statement of Dr. Mark McClellan appears in 
the Submissions for the Record on page 38.]

    Senator Bennett. Thank you. Your written testimony will be 
part of the record.
    Dr. Clancy.

              OPENING STATEMENT OF DR. CAROLYN M. CLANCY,

                    DIRECTOR, AGENCY FOR HEALTHCARE

                          RESEARCH AND QUALITY

    Dr. Clancy. Good morning, Mr. Chairman. I'm very pleased to 
be here today to discuss the important issues of how we can 
facilitate, sustain and promote health care innovation and 
ensure that we have a health care system that is affordable.
    And I'm also quite delighted to be here with Dr. McClellan.
    I wanted to start off by just telling you a little bit 
about the Agency for Healthcare Research and Quality (AHRQ).
    Our focus is improving the effectiveness, quality, safety 
and efficiency of the health care delivery system. So our work 
complements that of the Centers for Disease Control, which 
focuses more on public health, for example, through the use of 
public health ad campaigns.
    To improve health care, we focus both on the clinical 
content of the care, as well as the systems or settings where 
people receive care.
    So it's that dual focus that is a unique focus for the 
agency.
    We contribute to efforts to speed the diffusion of 
effective medical breakthroughs. Through effectiveness in cost-
effectiveness research, we can extend the findings of 
biomedical research to populations not included in clinical 
trials, determine whether patients in daily practice actually 
achieve the promising benefits seen in clinical trials, and 
identify which people benefit most and least.
    So, for example, if a new breakthrough came along for the 
common cold, we would be able to help clinicians understand 
which patients were most likely to benefit and which patients 
might be harmed or not likely to benefit at all.
    Our expanding portfolio of implementation research develops 
effective strategies to facilitate the rapid adoption of 
effective services and technologies.
    We also facilitate adoption of new knowledge by putting 
into perspective available scientific evidence so that 
clinicians and their patients can better assess the importance 
of recent breakthroughs, an issue of increasing importance as 
new interventions appear almost daily in the media.
    So, for example, where the FDA determines that a drug, 
biologic or device is safe and that it has an impact, usually 
when compared to a placebo, those making coverage decisions and 
those making clinical decisions need more information regarding 
its relative effectiveness and relative cost--how does it 
compare to the other options I have?
    For example, our evidence reports and technology 
assessments assist Medicare in making coverage decisions of new 
clinical interventions.
    One area of increasing importance that's relevant to this 
discussion is in assessing safe use and minimizing unintended 
harm of health care interventions.
    While FDA plays a key role in ensuring the safety of drugs, 
biologics and devices, their inappropriate use can still lead 
to patient harm, and that's an area where our agencies are 
collaborating closely.
    But there are other innovations in health care, such as new 
surgical procedures and medical interventions, or new 
applications of existing technology, for which there is no 
comparable up-front evaluation of safety.
    While some of these innovations offer unprecedented 
breakthroughs for some patients, they may also result in 
unintended harm, if not used appropriately.
    And this unsafe use is both a personal tragedy for 
individuals and their families, as well as a big source of 
unnecessary costs as clinicians struggle to repair the damage 
and as medical liability expenses mount.
    This is a growing focus for AHRQ, and the area of drugs, 
biologics, and devices is an area where we work closely with 
the FDA.
    Mr. Chairman, the pace of health care innovation continues 
to accelerate. It's increasingly difficult for clinicians and 
patients to assess their options adequately.
    Many of these developments offer patients the potential for 
greatly improving the quality of life for patients, as Mark has 
noted. In other cases, the improvements are marginal at best.
    Some innovations lead to significantly lower costs, while 
others are cost increasing.
    The big challenge underlying this is to effectively sort 
through the increasing array of clinical care options to 
develop objective scientific information so that those making 
decisions--policymakers, systems leaders, insurers, employers, 
clinicians and patients--can make informed choices.
    Whether you favor our current insurance-based system or 
favor a more consumer-driven model of care, the need for 
objective evidence is compelling and remains constant 
throughout.
    The resurgence of health care cost inflation, combined with 
expected growths attributable to the investments that Mark 
McClellan noted in biomedical research, will only accelerate 
this demand for objective information.
    So I wanted to tell you five ways in which AHRQ can help.
    First, AHRQ research identifies what's effective and cost 
effective in daily practice.
    Experience suggests that new drugs, technologies and 
medical or surgical interventions are seldom equally effective 
for all types of patients.
    For example, will a breakthrough for the treatment of 
arthritis tested in clinical trials for patients who only have 
arthritis work as well with patients who also have diabetes, 
heart failure and hypertension?
    Or how well will it work in patients whose racial, ethnic 
and demographic characteristics differ from those enrolled in 
the original trial?
    My written testimony provides two examples that demonstrate 
the importance of avoiding simplistic judgments about new 
technologies.
    In one case, treating middle ear infections in kids, a very 
common cause of seeing physicians, we demonstrate the value of 
using the low-cost option, generic antibiotics.
    In contrast, in a study of the use of very expensive, but 
highly effective drugs to treat AIDS, we demonstrated that the 
long-run savings that result from the use of these much more 
expensive drugs more than warrants their use.
    Second, AHRQ research identifies strategies for overcoming 
barriers to the use of effective services.
    Two weeks ago, you may have seen a lot of headlines about a 
study that was published in the New England Journal of Medicine 
from the Rand Corporation saying that getting quality of care 
in this country was effectively a little bit better than 
flipping a coin--about 54 percent of the time is what they 
found.
    The vast majority of the areas that they measured in 
quality of care related to underuse of effective treatments.
    Great opportunities for improving health developed through 
biomedical research are easily lost if physicians and patients 
aren't able to make the best use of that knowledge in every-day 
care. And that is a big focus for the agency.
    Third, AHRQ facilitates the use of evidence-based medicine.
    Developing and synthesizing evidence and objective 
information about various clinical options is important. Making 
it useful in real time is essential.
    In recent years, AHRQ has focused increased attention on 
the development of technologies and tools to facilitate the use 
of evidence-based medicine.
    For example, every year, tens of thousands of patients go 
to an emergency department with chest pain and they're worried, 
as are their clinicians, that they might be having a heart 
attack.
    We developed a tool that has now been incorporated into 
EKGs that helps clinicians make better decisions and which we 
estimate could prevent 200,000 unnecessary hospitalizations and 
100,000 unnecessary coronary care unit admissions a year, 
saving over $700,000 million annually in costs.
    Fourth, AHRQ research assesses the effectiveness of cost 
containment and management strategies.
    Medicaid pharmaceutical costs are increasing at about 20 
percent a year and obviously are the source of great focus and 
attention by states right now.
    As an example of how our past research was helpful to 
today's decisionmakers involved a study of a strategy used by 
one of the New England states. And what they did was that they 
limited Medicaid prescriptions to three drugs per patient.
    Indeed, they saved money on pharmaceutical costs.
    The only problem was that they spent more than 17 times 
what they saved in unnecessary admissions to emergency rooms, 
nursing homes and to the hospital.
    So that was of an unintended harm or unwanted aspect of an 
intervention that was intended to control costs.
    When I actually mentioned this to state legislators in Dr. 
McClellan's home state, their eyes got really big because I 
think they had been thinking about this strategy as well.
    The results from this study led nine other states to change 
their policies.
    Finally, AHRQ has a role to play in speeding the pace of 
evaluation of health care innovation.
    One of the critical roadblocks to coverage of innovation 
interventions is the lack of solid scientific evidence 
regarding their effectiveness, especially in contrast to 
existing interventions.
    This is often frustrating to those whose creativity leads 
to the development of new breakthrough interventions and then 
come to realize that they have to get through FDA and CMS 
scrutiny, that that's only part of the journey toward seeing 
their innovation and widespread use.
    I wanted to give you an example of a surgical procedure 
because that does not come through the FDA.
    We work very closely with the Centers for Medicare and 
Medicaid Services and they asked us several years ago to 
evaluate a new surgical procedure called lung volume reduction 
surgery.
    We did an assessment using existing data and found that 
some patients benefited enormously, near-miraculously. Others 
were harmed.
    And what we said to the Medicare program was we can't say 
with confidence ahead of time which patients are most likely to 
benefit. We think conditional coverage linked to a randomized 
clinical trial might be the way to go here.
    As a result, the Medicare program turned around and said 
that they would only pay for this procedure for the patients 
enrolled in a clinical trial.
    What happened was that we now know which patients are 
likely to benefit and very importantly, we identified a very 
high-risk subgroup of patients who are likely to be harmed. 
That is to say, they are likely to die from their end-stage 
lung disease, much more rapidly, which I think is a very 
important contribution to the public's health overall.
    There are at least two other ways in which we can improve 
how we work as a science partner to promote private-sector 
innovation.
    First, we want to work closely with industry trade 
associations to assist their members who have products moving 
to the end of the FDA review process to better understand the 
types of studies that will be needed to assess the 
effectiveness of their products.
    This simple step will facilitate more timely assessment of 
health care innovations.
    Second, as our existing investments in patient safety come 
to an end, we want to expand our focus on human factors 
research. This is research that helps us idiot-proof our 
technology--for example, making sure that the controls on all 
new machines and devices work consistently in the same way that 
a pilot, any time that he or she steps into a 747, knows that 
the dials are all in the same place.
    That way, even if health care professionals are distracted, 
stressed or, sometimes, sleep-deprived, they will provide safe 
care.
    By ensuring that this type of critical information is in 
the public domain, we can be a science partner for these 
private industries to develop even more effective and safer 
health care technologies.
    Before I conclude, I just want to say a few words about the 
future directions of AHRQ.
    We're determined to make the agency even more of a problem-
solving agency. This will entail a greater focus on 
implementation research to help overcome barriers in the 
adoption of clinical interventions that are both effective and 
cost effective.
    We've developed closer linkages throughout the research 
process between the ultimate customers of our work and our 
researchers to ensure that we're addressing their highest 
priority challenges.
    We're also giving greater emphasis to identifying 
strategies for eliminating waste, assuring that evidence-based 
information is current and up-to-date, bringing our health care 
infrastructure, particularly information technology, into the 
21st Century, and redesigning work-flow so that health care 
professionals can work more efficiently and effectively. And 
finally, evaluating financial and other incentives to encourage 
safe, high-quality care.
    In conclusion, let me just say that a series of studies 
have demonstrated that the timeframe for approval of a research 
grant that ultimately leads useful findings to the widespread 
diffusion and adoption of those results was, on average, about 
17 years.
    We consider this timeframe unacceptable.
    Now this study did not actually look at the products 
developed by the private sector, but I can tell you that there 
are many other studies that would suggest that they're probably 
not all that much far ahead of the curve.
    We're prepared to play an important role in identifying 
effective interventions and increasing the pace of their 
diffusion.
    Thank you very much.

    [The prepared statement of Dr. Carolyn Clancy appears in 
the Submissions for the Record on page 45.]

    Senator Bennett. Thank you. Let me give you a personal 
example of the dilemma that we face here when we're looking at 
the overall system.
    My wife used to jog. She's gotten more sensible in her 
later years, and she doesn't do that anymore.
    She tore the cartilage in her knee. And went in, got 
examined, and was called for surgery. She spent, my 
recollection is, a week in the hospital. She has a scar on her 
knee as a consequence.
    Obviously, the surgery and hospital stay were expensive.
    Some years later, she had to have the same kind of surgery 
on her other knee. Arthroscopic surgery done as an out-patient 
took about an hour. I waited in the waiting room while it was 
done and took her home the same day.
    Obviously, there was no increase in cartilage injury by 
virtue of the invention of the arthroscopic procedure. So you 
can't say that the technology stimulated enough new procedures 
to take the cost up.
    The number of injuries were the number of injuries were the 
number of injuries.
    So the dramatic cost savings in arthroscopic knee surgery 
entering the overall economic picture would indicate that the 
cost would come down.
    Now, when you look at the fact that costs go up while this 
kind of innovation is going on, and there are a number of other 
examples like that, you come to the issue that I think you 
addressed a little, Dr. Clancy, that there must be some parts 
of the system where the cost has gone up exponentially, because 
it's not just gone up the 15 percent per year that we're 
looking at right now.
    In those areas, it has gone up enough more than the savings 
to eat up all of the savings and produce on top of the savings 
a 15-percent per year increase.
    Now, is there ever any prospect in the future that we're 
finally going to catch up with this, whether we do it through 
evidence-based medicine--which is a great phrase that I like--
or through the analysis, Dr. McClellan, of the benefits 
outweighing the costs so that we can continue to justify doing 
this?
    At some point, will the impact of the--if I can put it in 
these terms, the arthroscopic surgery lowering of costs--catch 
up with whatever it is that's driving the increase of costs so 
that the overall number levels out?
    Do either of you have a view of what the next 5 to 10 years 
might bring in that regard?
    Dr. McClellan. I think there are many examples like the one 
that your wife experienced where innovations in medical 
technology and capabilities have made it safer and less 
expensive to achieve a given treatment, to achieve a given 
improvement in outcome for a patient.
    In your wife's case, it was repairing some damaged 
cartilage.
    There are a couple of reasons why, even though that's less 
expensive in terms of both the procedure itself and hospital 
time and complications, that may not even in itself translate 
into lower health care costs overall.
    One reason is that when the procedure gets easier to do, 
more patients tend to decide that it's worth having it. So that 
people with milder injuries, for example, may be more likely to 
undergo arthroscopic surgery when they would never consider 
going into the hospital for that more miserable week's stay and 
major surgery that your wife experienced some years ago.
    Senator Bennett. So you're saying that knee or cartilage 
injury is a case of elasticity of demand.
    Dr. McClellan. If you look at the number of procedures, it 
has gone up a lot.
    And in fact, picking up on something that Dr. Clancy talked 
about earlier in terms of appropriate use, there have been some 
studies recently, including the study in the Veterans 
Administration, that showed that, in a number of cases, 
arthroscopic surgery may be being performed where the benefits 
don't outweigh the costs or the risks to the patient.
    And that's why developing better information, as Dr. Clancy 
and I both emphasized, on risks and benefits of a new 
technology for a particular kind of patient, can be very 
helpful.
    And it's also why the linking up of incentives for using 
those technologies in certain patients so that people think 
about the costs, might be helpful as well. And that's where a 
lot of health policies have been directed in recent years.
    There also have been a number of new treatments coming 
along for knee injuries that just didn't exist before. It's now 
a lot easier to get a knee replacement for people with severe 
arthritis who couldn't walk or couldn't walk easily, so that 
they can get around and even take up jogging again.
    The technology has gotten a lot better.
    So, previously, that wasn't very expensive if people just 
sat around at home and didn't do much because their knee was 
gone.
    Now, they can have a much better quality of life in getting 
around, but it's added to our health care costs.
    All this just goes to show, as you said, that we need to 
make sure, or do more to make sure that we're getting a lot of 
value out of the new treatments when they're actually used in 
practice.
    Senator Bennett. So your answer to my overall question is 
no, there's not going to be a time in the future when it starts 
to level off?
    Dr. McClellan. Well, I think a lot of people have been 
reluctant, a lot of economists have been reluctant to predict 
that because they look back on 50 years of experience of health 
care costs growing significantly faster than our overall 
economy, and then they look down the pipeline in terms of new 
treatments being developed as a result of genomics and other 
sciences that are just now starting to have an impact on 
medical care.
    They see a lot of conditions that are either not treated 
today or not treated well--Alzheimer's, many forms of cancer, 
other illnesses where people really do have to live with a lot 
of disability, if not die, because they suffer from it.
    And that gives them reason to think that costs can go up.
    On the other hand, I wouldn't be completely pessimistic 
that we can't do a lot better if we make the right policy 
choices.
    There are a huge number of examples, and Dr. Clancy talked 
about many of them, of us spending a lot of money on health 
care for treatments that don't do much or anything for 
patients' health outcomes and may even, in the case of medical 
errors and preventable adverse events, make outcomes worse and 
add to costs.
    And by some estimates, the savings could be in the many 
billions of dollars per year.
    So if we can find ways to get the new technologies, the 
valuable new technologies, moved along, while at the same time 
reducing the spending on treatments that don't really do much 
for patients, we can have a much more viable health care 
system, one that does more for patients.
    It may cost more overall. It may cost less. But we'd be 
getting a lot more for our money. And that's what I think we 
need to focus on.
    Senator Bennett. Dr. Clancy.
    Dr. Clancy. Yes, I would agree with all of Dr. McClellan's 
comments, and we've confirmed this, his observation that if you 
make a procedure much easier and less painful, that more people 
are likely to want to do it.
    For example, we had a research team in place when the new 
procedure for gallbladder surgery was introduced, which made an 
incredibly miserable operation far more bearable and much more 
faster recovery.
    Since I'm a physician, but not an economist, unlike my 
colleague who is both, I don't have to be quite so embarrassed 
about predictions, I don't think.

    [Laughter.]

    But if I were to look at the population's health and 
demographic changes affecting our population, what you see is a 
general aging of the population here and in all developed 
nations.
    I think the great opportunity for savings is two-fold.
    One is waste in the health care system and that's a big 
focus of the agency's efforts.
    The second, though, is really improving the quality of life 
for people who now suffer impairments in quality of life.
    If you look back over the 20th Century, the huge 
achievement was the expansion in life expectancy. What that has 
not translated into far enough is improvements in quality of 
life in the later years.
    So that mantra of adding life to years does make a lot of 
sense and I think actually has an enormous opportunity for us 
to be able to save money downstream.
    What this will mean is a lot more focus on helping people 
with chronic illnesses, whether that's arthritis, who benefit 
from joint replacements, or people who benefit from new drugs 
for treating a variety of conditions.
    And I think the other contributor here that will be very 
helpful is information technology. I think as more and more 
people become engaged as partners in managing their own care, 
whether it's diabetes, high blood pressure, or other things, 
that will help us actually obtain greater value from our 
investments in health care.
    Senator Bennett. Let me go to the question of waste. It's 
something that you dealt with in your testimony, which again 
triggered another personal experience.
    I woke up in the middle of the night one night having some, 
for me, unique and a little bit strange and ultimately 
frightening kinds of symptoms.
    Finally, my wife woke up and said, ``Do you think we need 
to go to the hospital?'' And I said, ``Yes.''
    She drove me to Georgetown Hospital in the middle of the 
night. I just presented my Federal employee's card and was very 
impressed with how excited everybody got about taking care of 
me in the midst of what was an apparent heart attack.
    I commented to her about how somebody just off the street 
that they'd never seen before was being taken care of. And she 
made it very clear, she told everybody I was a United States 
Senator.
    The head of the cardiac department at Georgetown University 
showed up immediately.
    It turned out what I had was known as an esophageal spasm, 
which has exactly the same kind of symptoms as a heart attack, 
particularly for somebody who has never gone through it. But 
it's not life-threatening and, indeed, disappears. As mine did.
    They thought I was having a heart attack and the reason 
that it disappeared is because they put a nitroglycerine tablet 
under my tongue. In fact, it had nothing whatever to do with my 
condition.
    I was in the hospital for, I think, 3 days, on all kinds of 
monitoring machines, et cetera.
    Finally, they decided after the most extensive and 
obviously expensive series of tests, that, no, this wasn't a 
heart attack at all.
    Now you referred in your testimony to some kind of 
technology that can determine that. Right at admission, they 
could have patted me on the head and given me a purple pill and 
sent me home that same night and everything would have been 
fine.
    I've had some of those symptoms since, and all I do is take 
Prilosec and it goes away.
    According to the latest stress test that I had at the 
Bethesda Naval Hospital, they said, ``We don't need to see you 
for another 10 years. Your heart is as sound and solid as any 
we've seen.''
    So that raises--you talk about waste being one of the major 
problems. We think of waste, fraud and abuse as a continuum, 
and there's something sinister about it.
    Here was a case of waste where there was nothing sinister 
whatsoever, and there was certainly no fraud and there was no 
abuse of the system.
    They didn't know and they were taking every intelligent 
precaution to see to it that I stayed alive. Because if it had 
been a heart attack and they had not done the things they had 
done, they would have been guilty of malpractice.
    What are the prospects of dealing with waste through 
technology? The Federal bureaucratic mentality, as I say, is 
that waste, fraud and abuse are all a single thing. So we 
simply say, we're not going to pay, like the example you gave 
of the state legislature saying, well, you can only have three 
prescriptions. You may need five or six, but we're not going to 
pay because doctors are overusing and overcharging and engaging 
in waste, fraud and abuse.
    We'll fix that by passing a law that says that you can only 
have three. But this ends up costing the system a whole lot 
more in another area that doesn't get counted as you're 
congratulating yourselves on how much you've brought down your 
prescription drug cost.
    What are the prospects of dealing with what I would call 
from the example I've just given you, benign waste, well-
intentioned waste, through greater technology, bringing down 
the cost of that kind of waste through greater technology?
    Dr. Clancy. I want to make a distinction between diagnostic 
uncertainty, which in your case, even though in retrospect you 
could have just gotten your purple pill and gone home, it 
sounds to me from how you've described it that they did 
everything appropriately. And I don't think anyone would have 
wanted them to do one thing less.
    Senator Bennett. I wasn't complaining.
    Dr. Clancy. Yes.

    [Laughter.]

    Dr. Clancy. One big source of waste or increased efficiency 
that I think is achievable is in the care of people with 
chronic illnesses.
    There was a study published a couple of months ago, also in 
the journal, Health Affairs, that surveyed people in five 
countries with various chronic illnesses.
    And what you heard consistently--it's interesting, sort of 
a global phenomenon--was that many of these folks saw multiple 
doctors. They tended to have the same test ordered twice. After 
all, I might know that Dr. McClellan has ordered a test on my 
patient or my patient might tell me that. But if I can't find 
the result or if I'm not really sure, I'm going to order it 
again. They also had medication errors and that were lots of 
opportunities for miscommunication.
    I think that's where investments in information technology 
can make a huge difference because I don't have to look for the 
result. I can actually just check on it in the computer.
    Very recently, the Department of Veterans Affairs has shown 
that those types of investments can pay off huge benefits in 
terms of improving the quality of care.
    So that's one obvious source.
    There are lots of opportunities I think to make our health 
care systems more efficient and that is a big focus of our 
research right now.
    Senator Bennett. A central repository of information about 
every patient would lend itself to what you've just described.
    Dr. Clancy. That would be one model.
    Senator Bennett. It raises all kinds of privacy 
implications.
    Dr. Clancy. Right.
    Senator Bennett. And confidentiality of medical records. 
And I've spent a lot of time on that issue, too.
    The technology exists, I believe, to do what I'm about to 
describe. Let's follow that road for a minute.
    I step off the curb in New York City, don't look the right 
way, and get hit by a taxicab and become unconscious. No one 
has the slightest idea who I am or anything about my medical 
records, but I am rushed to a hospital.
    They find in my wallet a card, which they can put into a 
reader somewhere, where my entire medical history is available 
on a chip.
    All of a sudden, they not only know my name and my social 
security number, but they know the level of daily medications 
that I take, they know that I've had two hernia operations, an 
appendectomy, that my EKG is abnormal, but my heart is not, et 
cetera, et cetera.
    They know all about me instantly.
    And you say you didn't have the information of the latest 
test. On that chip, on the card in my wallet, they can know the 
date of my latest stress test at Bethesda Naval Hospital, dial 
it up somewhere, and instantly get those results.
    So that as they work on this unconscious, unknown 
individual at Bellevue Hospital or wherever it is I'm taken in 
New York City, they have everything in front of them, 
everything available to them, and presumably, can then make not 
only the best diagnosis, but save huge amounts of money and 
give me the right kind of treatment.
    The technology to do that exists. Let's set aside the 
confidentiality and privacy issue for just a moment and ask 
ourselves what would be the economic benefit if that technology 
were implemented and everybody carried such a card?
    Would health care costs go up or down?
    Dr. McClellan. It would certainly help avoid some of the 
kinds of duplicative costs of delivering health care that Dr. 
Clancy has emphasized exists too often today. And that could 
lead to some improvements in costs through less duplicative 
tests and higher quality of care for exactly the reason that 
you mentioned.
    That's a more efficient system.
    There are some obstacles to implementing that system.
    Senator Bennett. There are a few, yes.
    Dr. McClellan. You know, the department has implemented a 
strong new privacy regulation. I think it has given people much 
more confidence about how their electronic sensitive medical 
records are being handled.
    There are some other obstacles in terms of standards and 
different institutions and organizations store their electronic 
data in different ways, using different codes.
    Dr. Clancy and the rest of the Department of Health and 
Human Services and the rest of the Federal Government have been 
involved recently under Secretary Thompson's leadership to try 
to get more standardized systems for keeping track of medical 
information so that it can be shared across health care systems 
effectively.
    But there's another type of benefit from using health 
information more effectively and that's it can let us learn 
more about what treatments are working and which ones aren't, 
which ones may actually be causing safety problems and harming 
patients in actual use.
    It can be difficult for us to get that kind of information 
today.
    For example, at the FDA, we've long relied on reports from 
manufacturers of products to tell us when something is going 
wrong. They in turn have to rely on increasingly busy and 
harried health care professionals to send information in to 
them when something goes wrong with a drug or device.
    With the kind of information system that you described, 
we'd have a way of capturing automatically in real time or 
close to it information that could put us on to an important 
safety problem or maybe even an important benefit that's not 
well understood for patients. And we can in turn get that 
information out to doctors much more effectively by using that 
information system going the other direction.
    So it should be a two-way street.
    So there are a lot of potential benefits there. There are 
some obstacles along the way, including confidentiality and 
standards and providing the right kinds of incentives for 
health care organizations to adopt these modern information 
systems.
    But there is a tremendous potential there.
    Senator Bennett. Well, you get to the question of common 
database protocols. I think that's what you're describing here.
    Another example.
    Intermountain Health Care in Salt Lake City ran a series of 
hospitals--still does. And I believe I have these numbers 
right. It's been a while since I dredged up this particular 
example, but you've triggered it with this testimony.
    The question of infections after operations is a serious 
question. People go into the operating room. The operation goes 
well, but they get an infection.
    The standard that was established was 2 percent. If you 
could get your infection rate down to 2 percent of the 
operations, you were labelled as an acceptable and, indeed, 
admirable, kind of operation.
    At Intermountain Health Care, they decided that they were 
going to experiment a little, not with the patients, but with 
the data. And they started checking various things that 
happened in the operating room to discover if there was any 
correlation between certain things and the elimination of 
infection.
    I can't remember exactly what they discovered. My memory 
tells me that it had something to do with the timing of the 
injection, or the introduction of antibiotics, or whatever, 
that if they waited past a certain period of time, then there 
were infections. And if they did it within a certain period of 
time, there were none.
    They changed the protocol in the operating room to 
correlate with the information they had discovered by virtue of 
their research and they brought the infection rate down to 2/
10ths of 1 percent.
    Now industry standard would say, if you meet the 2 percent, 
you get the seal of approval and everybody accepts that as 
being normal.
    And they were able to bring that down to 2/10ths of 1 
percent.
    So, naturally, if you're going to have an operation, you 
want to be in one of IHC's hospitals with respect to the 
infection problem.
    Is there some way that could be devised or adapted to where 
you work where that kind of discovery--it's not a research 
discovery in the sense that you've got a new drug or a new 
device. It's simply a statistical discovery of examining what's 
going on and saying, wait a minute. It really matters whether 
you do this in the first 20 minutes or the first hour.
    To create a central repository of that kind of information 
that could then produce a national protocol that says, this is 
the way every hospital ought to do it, and take that example 
and spread it out over all of the things that can be discovered 
that you're talking about, Dr. Clancy.
    Respond to that and see if that is something that the 
government should be involved in.
    Dr. Clancy. Well, I'm very proud to say that we actually 
funded the study you're talking about at Intermountain Health 
Care.
    Senator Bennett. Oh, did you?
    Dr. Clancy. [Continuing.] Which identified just how 
important it is to get the timing of the pre-operative 
antibiotics right.
    They also demonstrated that information technology can be a 
very important part of reinforcing and making sure that that 
happens.
    The type of research that you're describing, the systems 
research, how do we make sure that what we know works is 
actually what happens, is very much a focus of the agency's 
work right now.
    This fall, we're going to be putting out a big report on 
quality of health care, sort of a national report card, if you 
will. And in preparation for that, we're beginning to review 
all the evidence about what we know works best and are also 
hoping to use that as a launching pad for improvements.
    So we'll make sure that you get one of the first copies.
    Senator Bennett. That's nice to know that there's a report. 
But just to pick a city at random, suppose I go into a hospital 
in Detroit, where they haven't read the report.
    Is there any system for getting the information out other 
than we published a report and hope somebody picks it up?
    Dr. McClellan. Dr. Clancy emphasized that AHRQ and other 
Federal agencies, including us, are trying to get better 
information developed so that doctors would have access to the 
best and latest information on risks and benefits for a 
particular patient of a particular treatment.
    And I think that the kind of system that you're talking 
about may not come together as just one single global database, 
but there are a lot of programs out there that can help doctors 
get more accurate information for treating patients.
    I'd like to emphasize, though, that that's not enough. As 
you emphasized, this is something that happens at the local 
level when doctors and nurses and other health professionals 
delivering care to individual patients, just having an attitude 
and having the support they need to make the right decision at 
the right time and avoid errors is something that needs to be 
part of the system, part of the environment in which health 
care practitioners are functioning.
    And having access to information technology can help with 
that. But other steps are necessary, too.
    For example, one barrier that many institutions cite about 
trying to develop that same kind of information so that they 
can keep track of why infections are occurring and how we might 
prevent them, is concerns about liability.
    They're afraid that if they write down what might go 
wrong--what went wrong or might have gone wrong for a 
particular patient, that's going to end up being held against 
them in court.
    And I'm pleased to say that there's bipartisan legislation 
working its way through Congress, at least the House, which I 
know AHRQ and we strongly support that would provide liability 
protections that are needed to encourage the environments that 
promote safe and effective medical practice.
    And also financial incentives matter as well.
    Some institutions still today get paid more for treating a 
patient for not only the condition that brought him into the 
hospital, but for the infection that might keep them there 
longer or get them re-admitted to the hospital.
    Incentives should be in the right place for getting 
patients well and preventing errors in the first place. There 
are more supporting things that need to help, that if you get 
them in the right place, would help make that kind of national 
data that you're talking about be used much more effectively.
    Senator Bennett. You're not suggesting that anybody 
rejoices or deliberately does things that would cause a patient 
to stay in the hospital longer?
    Dr. McClellan. Not at all. I'm just pointing out that 
financial incentives to help people stay healthy can make a big 
difference.
    Dr. Clancy. And just to build on that. In your home state 
again, at Intermountain Health Care, Brent James has a long and 
impressive list of examples where they have improved quality 
and the safety of health care and have lost money.
    Now they're doing it because it's the right thing to do. 
And the reason they've lost money is related to payment policy 
and the fact that we pay institutions more for taking care of 
sicker patients.
    Actually, treating patients more effectively, they have 
lost some money and they can provide very clear evidence of 
that.
    So one of the pieces of this puzzle will indeed be payment 
policies to make sure that institutions that do a better job 
for a lower cost don't lose. Because for some institutions, 
that's not going to be a sustainable approach.
    Senator Bennett. How do we deal with that? Back to my 
example of my non-heart attack.
    They diagnose me instantly as having an esophageal spasm 
and they've lost money. I rejoice. They rejoice. How do we get 
some kind of financial incentive into the system to do just 
what you've described and say to people that if you do it right 
and come up with the right diagnosis, you get a bonus of some 
kind?
    And what are the implications of that because people would 
say, oh, this would be great. That is, somebody who is 
disreputable would say, this will be great. I'll tell them that 
they don't have any real problem. I'll get the bonus for not 
having done the other procedure. They'll walk out of here. 
They'll have the heart attack. They'll be back and I get two 
dips at the ice cream dish on that basis.
    Do you have any ideas?
    I agree with what you're saying, but do we have any ideas 
practically as to how we can do it?
    Dr. Clancy. We're getting there. And it's an area of 
intense focus for my agency, for CMS, and for other parts of 
the department, including FDA.
    How do you create the right incentives? At 20,000 feet, we 
would all love to pay for quality. We'd pay more for better 
quality care.
    It's drilling down to make sure that we do that in the 
right way.
    What I can tell you, Mr. Chairman, is that we recently 
developed a summary of the best evidence that we have, short on 
how IT information technology can be part of that solution.
    And I'd be happy to submit that for you.
    Dr. McClellan. I think that, in building on that, there are 
a lot of things that can be done to make the kind of care that 
you got even more efficient.
    First, we need better treatment so that you don't have to 
stay in the hospital 3 days to make sure that you don't have 
heart disease. It can be done more quickly.
    Earlier this year, for example, FDA approved some new 
diagnostic tests for the presence of the enzymes that go along 
with a heart attack that make it possible to get patients 
determined whether they've got a heart attack or not more 
quickly.
    It's uncommon for someone to stay in the hospital as long 
as 3 days to make sure that they don't have a heart attack.
    We need better incentives for payments, as you and Dr. 
Clancy have mentioned. A lot of people are concerned these days 
about the rising amount of costs that people have to pay out of 
pocket.
    But that has made some people more sensitive to the overall 
cost of care that they're getting, doctors and patients, to try 
to work together to find ways to keep those total costs down.
    And it would be nice to have added incentives as well to 
prevent the diseases in the first place. If there are a lot of 
steps that people can take to keep them from getting heart 
disease in the first place through a good diet, through regular 
exercise, good nutrition, that significantly reduces the chance 
of developing heart disease and many other chronic diseases 
that are extremely costly today in the first place.
    That's the kind of health care system that we need. And the 
kinds of incentives that we've been talking about would help us 
move in that direction.
    Senator Bennett. Now you opened the door to another whole 
area, which is the possibility through technology to do 
screening and thereby be in a position, A, for preventive care 
or, B, maybe a subset of A, counseling, where you could not in 
the pre-technology age justify the cost of screening tests for 
everybody.
    You'd have to wait until you have some kind of symptom 
before you run the test because the test is so expensive.
    When you've got a screening test that is very, very cheap, 
you could go into a school, for example, and screen all the 
high school seniors and tell 4 percent of them that they are 
going to be at risk for this, that, or the other in their 
lives, and they have no symptoms yet.
    And, presumably, the long-term benefit of identifying those 
that are at risk for a variety of reasons, and then treating it 
before the symptoms start out would bring down the long-term 
societal cost of health care, would it not?
    Dr. McClellan. Well, it would certainly help people get 
longer and healthier lives for the same, if not less, money.
    I think it would be worthwhile from that standpoint to 
encourage the development of these technologies.
    You mentioned, you're obviously on top of what's going on 
in new medical technology. But there are a lot of technologies 
coming along as a result of breakthroughs in genomics and 
understanding how gene function works that will potentially 
allow us to have much more individualized therapy.
    So we can tell for people, not only which drugs or medical 
treatments may be indicated to prevent diseases or keep them at 
bay based on their specific molecular basis of disease, but 
this goes beyond medicine as well.
    People are increasingly going to have information about 
specific changes they can make in their diet and there are 
increasingly going to be foods available that are tailored to 
people that have particular nutritional needs to help them 
prevent diseases.
    So there's a lot of potential there for more individualized 
high-value medicine. That's not the kind of health care system 
that we have now.
    Senator Bennett. No.
    Dr. McClellan. Those technologies are not yet in place. We 
need to think carefully about how the policies that we're 
implementing today might encourage or discourage the 
development of that potentially better future.
    Senator Bennett. Since this Committee has no legislative 
authority, we can go anywhere we want. And that's what we're 
trying to do with this hearing, is to get an understanding of 
what the ideal health care system might be, which we could then 
recommend to the committees that have legislative authority.
    And of course, underpinning it all is the overall economic 
impact.
    Let's take an example that we don't think of as technology, 
but that's an example of what we're talking about--inoculation.
    We routinely inoculate every child in this country with a 
variety of shots. Now, we have some problems in some areas of 
the country where the parents or guardians, whatever, don't 
bring the children in.
    I remember we had this debate at the beginning of the 
Clinton Administration when they very appropriately said the 
Federal Government ought to finance inoculations for everybody.
    All of the concern about the people who are left out, the 
uninsured, which has become the shorthand name to describe 
those who don't have health care. And the government is going 
to pay for all this.
    And then we discovered, somewhat to our chagrin, that money 
is not the problem, that the inoculations are available 
everywhere to everyone, and the problem is that the parents or 
guardians, if there are some--in many cases, there are 
neither--don't bring the kids in to be inoculated.
    The technology is there, but in this case, it's not used. 
They don't have access. They don't take advantage for a variety 
of socio-economic and other reasons.
    But that's an example. Let's just set the non-participation 
issue aside for just a minute. That's an example of where the 
cost has come down so low, that society can afford to fund a 
100 percent participation. And we've stamped out smallpox. 
We've stamped out a lot of the things that were normal when I 
was a little kid growing up.
    We've done it universally. It is a form of universal health 
care, to pick a phrase.
    Could the day come when stepping up from that level to 
screening tests and diagnostic examinations would be universal 
in the same fashion, and be administered through the school 
system and produce the kind of economic benefits that come from 
the fact that we no longer have the epidemics of many of these 
diseases that have been taken care of through vaccination?
    In this case, there wouldn't be a vaccine. There would be a 
treatment. There would be a tailored drug, the kind of thing 
that you're talking about.
    Is that something that we can envision and maybe drive 
toward as policymakers down the line? I understand that there 
are going to have to be all kinds of cost studies and 
examination.
    But is that an idea to which we should aspire or is that a 
stupid idea that we should forget?
    Dr. McClellan. I think it's a great idea to aspire to. But 
I do think that it's a long way off. There is a tremendous 
amount of research going on now in terms of what kinds of 
impacts the latest genomic sciences have for patient care.
    But the problem is that we really don't know a lot of the 
answers yet. Virtually every pharmaceutical company and biotech 
company is now doing extensive testing of all of their 
compounds in development on what are called micro-rays--chips 
that have literally hundreds, if not thousands, of genes on 
them, to see how the genes are up-regulated or down-regulated.
    And these are genes that might be involved in disease 
processes like cancer, heart disease, or genes that might be 
involved in toxicities from drugs, like liver enzymes or 
something like that.
    So we're getting a lot of information in now. The problem 
is we don't have much translational research yet to tie what 
happens with these gene expressions to what it actually means 
for a patient's outcomes, for impacting the course of the 
disease or determining whether or not a treatment would be 
harmful to an individual patient.
    And that's what I meant when I talked earlier about a lot 
of research going on more than ever before in biomedicine that 
is moving in this direction of a more individualized, highly 
effective health care system.
    But we don't yet know, we're not yet there and we're still 
a ways away.
    One of the main things that we're focusing on at FDA is to 
try to make that, what could be a long process and a costly and 
uncertain process, more certain and less costly.
    But even if we get those technologies developed, and that's 
iffy at this point, there needs to be financing mechanisms in 
place, incentives in place to encourage the adoption of these 
more individualized treatments rather than the one-size-fits-
all policies.
    Senator Bennett. Well, we've examined a whole series of 
what-ifs here, and I appreciate your willingness to take this 
journey with me.
    Commissioner McClellan, I understand that you have to leave 
at this point.
    Dr. McClellan. Thank you.
    Senator Bennett. We've probably reached the point of 
diminishing returns in our speculation as to what might happen.
    Let me thank you both very much for being with us today. 
And if you have any additional thoughts that this conversation 
may have triggered, we'd appreciate hearing from you and we'd 
be happy to make them part of the record.
    Dr. Clancy. Thank you. We'd be delighted.
    Dr. McClellan. We're going to, obviously, keep working 
closely together on many of these issues and would hope to be 
able to keep in close touch with you as well.
    I've learned a lot from this session and maybe the most 
important thing is your good cardiology report.
    Glad to know that you'll be up there for quite a while 
working with us on this.
    Senator Bennett. Mitch McConnell gave us all a scare when 
he took his stress test and ended up having a triple bypass.
    He's 10 years younger than I am and said, ``You'd better 
have one.'' I went to the same place where he had his and they 
said, ``you don't need to come back for another 10 years.''
    Dr. Clancy. Well, I was going to say, I would agree with 
Dr. McClellan's comments and also say that it's really unusual 
to be told that we don't need to see you for 10 years. That's 
about the highest approval that you could get.
    Senator Bennett. Yes. Thank you both very much.
    Our second panel will provide further insights on health 
care innovation. We're privileged to have Dr. Peter Neumann, 
who is the Associate Professor of Policy and Decision Sciences 
at Harvard School of Public Health, and Dr. Neil Powe, Director 
of the Welch Center for Prevention, Epidemiology, and Clinical 
Research at Johns Hopkins Medical Institution.
    We have Harvard and Johns Hopkins. The only thing that's 
missing is the University of Utah.

    [Laughter.]

    But at least we have two of the three.

    [Laughter.]

    We very much appreciate your both being here. We welcome 
your thoughts on the challenges. And we'd be happy now to hear 
from you in your opening statement, and then continuation of 
the dialog that we had with the first panel.
    Professor Neumann, let's start with you.

           OPENING STATEMENT OF DR. PETER J. NEUMANN, DEPUTY

              DIRECTOR, PROGRAM ON THE ECONOMIC EVALUATION

                 OF MEDICAL TECHNOLOGY, HARVARD SCHOOL

                            OF PUBLIC HEALTH

    Dr. Neumann. Well, thank you very much, Mr. Chairman, for 
your invitation to speak before this Committee on the topic of 
technology, innovation and their effects on cost growth in 
health care.
    My name is Peter Neumann. I'm Associate Professor of Policy 
and Decision Sciences at the Harvard School of Public Health.
    I would like to speak today about how we can better 
understand the value or cost-effectiveness of medical 
technology.
    Broadly speaking, medical technology contributes to growth 
in health care expenditures, as we've been hearing.
    But as we've also heard, this research says nothing by 
itself about the benefit side of the equation. As we consider 
medical technology, it is important to address not just how 
much medical technology contributes to health costs, but 
whether the investments in medical technology are worth the 
health benefits produced.
    We would all like to get good value for our money when we 
pay for new drugs, devices and procedures. How do we get there? 
What tools do we have to use and what policy options are 
available?
    Formal economic evaluation can help us answer these 
questions.
    The field of economic evaluation of health and medical 
interventions has been an active area of research in recent 
years. It includes cost-effectiveness analysis, which shows the 
relationship between the total societal resources used, the 
costs, and the health benefits achieved, the effects for an 
intervention compared to an alternative strategy.
    Often, a standard metric such as life-expectancy or 
quality-adjusted life expectancy, is used as the measure of 
health benefits.
    In part, with funding from the Agency for Health Care 
Research and Quality, my colleagues and I have compiled a list 
of over 1500 cost-effectiveness ratios covering a wide variety 
of medical technologies and public health strategies in many 
disease areas.
    More information is available on our website.
    These data underscore several important points about the 
cost-effectiveness of medical technology.
    First, a great deal of information on the topic has become 
available to policymakers in recent years. Unlike many 
unsupported assertions about the cost-effectiveness of drugs 
and other medical technology, these studies quantify costs and 
health effects using data and a standard, well-accepted 
methodological technique.
    Second, according to peer-reviewed articles, many 
technologies are indeed cost-effective. Examples include 
warfarin therapy to prevent stroke in those with atrial 
fibrillation, immuno-suppressive drugs for those with kidney 
transplants, and treatment with mood-altering drugs for those 
suffering from depression.
    These interventions provide good value in the sense that 
they produce health benefits for relatively little cost, or may 
actually save money for the health care system, despite their 
sometimes high pricetag.
    Third, cost-effectiveness does not mean cost savings. Over 
the years, people have sometimes confused these terms. But 
restricting the term cost-effective to cost-saving 
interventions would exclude many widely accepted interventions 
which do not save money, but are cost-effective in the sense 
that their additional benefits are worth their additional 
costs.
    A related point is that a critical aspect of any medical 
technology's cost-effectiveness involves the manner in which 
the question is framed. A technology is not intrinsically cost-
effective or cost-ineffective.
    It is only meaningful to say that a technology is cost-
effective compared to something else.
    A drug prescribed to lower an individual's blood pressure 
may in fact be cost-effective compared to the option of no 
treatment, but not necessarily when compared to an alternative 
intervention such as an intensive program of diet and exercise 
or other medication.
    Similarly, claims of cost-effectiveness often depend on the 
population under investigation.
    For example, statin drugs used to lower an individual's 
cholesterol have been found to be relatively cost-effective as 
secondary prevention in persons with existing heart disease, 
but considerably less cost-effective as primary prevention.
    Well, does anyone actually use cost-effectiveness analysis?
    Logically, cost-effectiveness analysis should be used by 
private insurers and state and Federal policymakers. However, 
many payers, including Medicare, have shied away from using 
cost-effectiveness analysis in coverage and reimbursement 
decisions.
    But why?
    Cost-effectiveness analysis promises to inform decisions 
and enhance population health in an explicit, quantitative, and 
systematic manner. Medical journals, including the most 
prestigious ones, routinely publish cost-effectiveness 
analyses.
    Furthermore, many other countries have incorporated cost-
effectiveness analysis into their policy decisions.
    How do we explain this paradox?
    Studies point to a couple of explanations. Some of them 
fault the methodology itself. But, in fact, most experts agree 
on the basic tenants. Instead, the opposition more likely 
relates to the hardened American distaste for explicit 
rationing.
    This is understandable, perhaps, but still, how do we get 
good value in face of this opposition?
    I would offer five observations as we look ahead.
    First, cost-effectiveness analysis should not be used 
rigidly. Leaders in the field have always warned against using 
cost-effectiveness analysis mechanically, but experiences teach 
us that rigid use of cost-effectiveness analysis will be 
resisted.
    Expectations for cost-effectiveness analysis should be more 
modest. Cost-effectiveness analysis should inform decisions, 
not dictate them.
    Second, cost-effectiveness analysis will probably not save 
money. Cost-effectiveness analysis should not be conceptualized 
or promoted as a cost-containment tool, but rather, as a 
technique for obtaining better value.
    Paradoxically, using cost-effectiveness analysis may 
actually increase health spending because it often reveals 
under- rather than over-treatment.
    Third, how you say it probably matters.
    Research shows that physicians understand that resources 
are limited, but they are not willing to admit to rationing.
    Similarly, health plan managers deny that they ration care, 
but admit that their budgets are constrained. These responses 
are instructive. It suggests that the term ``cost-
effectiveness,'' may be part of the problem. We might instead 
use terms such as ``value analysis'' or ``comparability,'' 
rather than ``cost-effectiveness analysis'' and ``rationing.''
    Context also matters.
    Cost-effectiveness analysis may be acceptable to guide 
choices on how frequently to screen for certain diseases. It 
may not be acceptable to guide choices for those in need of 
life-saving treatments.
    Fourth, incentives matter.
    Debates about the use of cost-effectiveness analysis cannot 
be separated from debates about the underlying health system 
and the incentives it embodies.
    Cost-effectiveness analysis is sometimes opposed because it 
is is used centrally by a single decisionmaker. How to 
reconfigure incentives in the system is a related but somewhat 
separate and still critical challenge.
    Fifth, the final message involves the importance of 
thinking expansively about applications of cost-effectiveness 
information.
    Cost-effectiveness analysis should not simply focus on 
medical interventions, but more broadly, on interventions to 
improve health by reducing environmental exposures, injuries at 
home and in the workplace, and motor vehicle accidents.
    In closing, let me emphasize that whether medical 
technology offers good value is a question that can be best 
informed by careful analysis.
    I would encourage the judicious use of cost-effectiveness 
analysis in the years ahead.
    Thank you very much, Mr. Chairman, again for your 
invitation and I'd be pleased to answer any questions you have.

    [The prepared statement of Dr. Peter Neumann appears in the 
Submissions for the Record on page 53.]

    Senator Bennett. Thank you very much.
    Now am I pronouncing your name correctly, sir?
    Dr. Powe. ``Po.''
    Senator Bennett. ``Po.'' Very good. Thank you for being 
with us and we'd appreciate hearing your testimony.

            OPENING STATEMENT OF DR. NEIL R. POWE, DIRECTOR,

             THE WELCH CENTER FOR PREVENTION, EPIDEMIOLOGY,

                AND CLINICAL RESEARCH, THE JOHNS HOPKINS

                          MEDICAL INSTITUTION

    Dr. Powe. Good morning, Senator Bennett. I'm a general 
internist, a clinical epidemiologist, and a health services 
researcher. My research has assessed the clinical and economic 
impacts of biomedical innovation in medicine.
    It examines the impact of new and established technologies 
on patients' longevity, functioning, quality of life and, of 
course, cost. I've conducted cost-effectiveness studies of 
technologies in several areas of medicine and I've attempted to 
do so with equipoise.
    I've also studied physician decisionmaking and other 
determinants of the use of medical technology, including 
payers' decisions about insurance coverage for new medical 
technologies and the impact of financial incentives on the use 
of technology.
    New medical technologies include drugs, devices, procedures 
and the systems in which we, as medical professionals, deliver 
them. They include so-called ``little-ticket'' technologies 
which cost relatively little individually, but when used at 
high frequency, can become expensive. One such emerging 
``little-ticket'' technology is the C-reactive protein 
laboratory test for detecting inflammation now being debated as 
a useful technology for detection of heart attack risks. ``Big-
ticket'' technologies such as body scans and organ 
transplantation have high individual price tags and can 
generate high costs, even when used relatively infrequently. In 
theory, a new medical technology can increase costs, have 
similar costs or decrease costs relative to an existing 
standard technology. Evidence to date suggests that much of new 
biomedical innovation increases cost to the health care system, 
especially in the short-term. ``Little-ticket'' or ``big-
ticket'' technology should not be judged based simply on costs. 
The more important question that I'd like to address is what is 
the technology's value?
    Value is commonly seen as the benefit that's derived 
relative to the cost. In theory, a technology can produce 
benefit relative to the existing standard if patient outcomes 
are better. On the other hand, it can produce no benefit if 
outcomes are similar or even produce harm if patient outcomes 
are worse. High value occurs when substantial improvement in 
patient outcomes occurs at a reasonable cost.
    Americans believe in the concept of value and understand 
it. For example, they're willing to pay more for many things--a 
particular type of clothing, food, service, house, automobile--
because they believe that the utility that's derived from the 
purchase is worth the higher price. Cost is a relevant factor, 
but value is paramount, so much so that medical technology 
needs to be judged in the same way.
    Twenty-five years ago, the science of assessing value in 
medicine was rudimentary and underdeveloped. Many of the tools 
that Dr. Neumann talked about for assessing value were first 
applied to health care in the late 1970s and early 1980s. These 
include patient outcomes research comprising clinical trials, 
evidence synthesis and cost-effectiveness.
    These have undergone refinement by researchers at 
universities around the country. Much of the work has been 
catalyzed and funded by the Agency for Healthcare Research and 
Quality. These researchers have sought to create rigorous 
standards of high quality research for value science.
    Despite the maturation of and demand for the science of 
values, its impact has been limited for three reasons.
    First, there is an unprecedented number of new technologies 
now entering the healthcare marketplace. These include 
minimally invasive surgery, as you mentioned, the 
transplantation of hearts, lungs, livers, kidneys, 
biotechnology drugs, indistinguishable from natural hormones 
for patients with congenital or acquired deficiencies, dialysis 
therapy for end-stage kidney disease, automatic implantable 
defibrillators and cardiac resynchronization devices to bring 
life to those with life-threatening arrhythmias and heart 
failure.
    Knowledge of the structure and function of the genes and 
proteins is advancing rapidly and the future will yield even 
more promising technologies we never imagined for identifying, 
preventing, and treating acute and chronic illnesses.
    However, the level of funding for high-quality and unbiased 
value assessment pales in comparison to the explosion of new 
biomedical innovations.
    To the public, payers, and providers, the entry of new 
medical technologies into the practice of medicine now seems 
like a series of intermittent ``surprise attacks'' on the 
pursestrings of American health care. It has been suggested 
that less than a fifth of all practices in medicine are 
subjected to rigorous evaluation and still less receive an 
adequate assessment of the cost consequences in addition to the 
clinical consequences.
    We are likely to witness a continuing salvo of surprise 
attacks in the coming years without adequate funding to do 
early, comprehensive, balanced and rapid assessments.
    In a study with researchers at AHRQ, I found that medical 
directors making coverage decisions for new medical 
technologies at private health care plans across our country 
are impeded in their decisions because of the lack of timely 
effectiveness and cost-effectiveness information. There is 
considerable trepidation to decide against covering potentially 
useful technology without adequate evidence.
    Likewise, there is a concern about making a coverage 
decision in favor of a technology that might later be shown to 
have minimal benefits at a large cost to society. The 
preference of those making decisions about coverage and payment 
for technology was for high-quality outcomes research funded by 
authoritative government entities.
    Early assessments of clinical and economic outcomes could 
be accomplished with investment of a small fraction of annual 
health care expenditures on value assessments. The payoff would 
be substantial.
    For example, contrary to relentless, direct-to-consumer 
advertising for body CT scans to detect occult disease, my 
colleagues and I recently found that screening smokers for lung 
cancer with helical CT scans is unlikely to be cost-effective 
unless certain conditions are met.
    The high number of false positive lung nodules detected by 
the scans can potentially lead to more harm from invasive and 
costly surgical procedures.
    Early assessments such as this, which include primary data 
collection, secondary data collection, data synthesis, and 
sometimes modeling and forecasting will secure information for 
the American public and its policymakers in a timely fashion 
needed to prevent premature dissemination of costly technology 
with little or no value.
    The Agency for Healthcare Research and Quality, as well as 
the National Institutes of Health, could act as a focal point 
to bring the best team of value researchers in the country to 
attack these issues by performing clinical effectiveness 
trials, observational studies, cost-effectiveness analyses, and 
meta-analyses.
    If introduction of some new technologies does not decrease 
cost, at least through generation of better and more timely 
information, Americans can make sure that what they are 
purchasing provides good value for the dollars they spend.
    Early assessments are particularly important given rising 
numbers and costs of pharmaceuticals, current consideration of 
a Medicare prescription drug benefit and use of tiered pricing 
arrangements in the private sector to control drug spending.
    Tiered pricing is a mechanism to allow consumers choice in 
particular drug treatments when they believe one drug has value 
over another. However, they must pay more when choosing to use 
a more expensive medication.
    Placement of a pharmaceutical into a particular tier and 
patient decisions to buy and use it are dependent on unbiased 
information about the benefits and the costs of the 
pharmaceutical relative to the benefits and costs of competing 
medications. That is, relative value.
    Second, as a corollary, funding for career development of 
value scientists needs substantial bolstering to expand the 
cadre of people with the capability to perform such research.
    Far too few physicians and other health care professionals 
and scientists have the necessary training to understand and 
produce value science that integrates clinical and economic 
issues.
    Third, understanding how technologies affect cost and value 
involves an understanding of the barriers to decisionmaking for 
health care providers. Barriers to optimal decisionmaking can 
lead to technologies being overused, underused, or misused.
    My colleagues and I performed a study of the factors 
affecting physician decisionmaking with regard to adherence to 
clinical practice guidelines. We found that there is a process 
that must take place for a new technology to become routine 
standard practice.
    Physicians must be aware that a new technology exists, 
agree that it has value, be willing to try it--that is, adopt 
it--and then they must adhere to its use.
    Lack of awareness leads to underuse. Underuse of an 
effective technology can lead to higher expenditures in the 
future.
    For example, if physicians were not aware that in patients 
with diabetes, urine protein screening for detection of occult 
kidney disease and application of ACE inhibitors can delay or 
prevent expensive dialysis treatment at greater than $50,000 
per patient per year for end-stage kidney failure, they might 
never employ the strategy in their practice.
    Fortunately, methods of communicating new information to 
clinicians are improving through rapid summary publications, 
clinical practice guidelines by professional societies, and 
dissemination through electronic means. Ways for helping them 
acquire and assimilate new information are needed.
    If aware of a technology, physicians must agree with the 
evidence that a technology is effective or safe. If high-
quality evidence on representative patient populations is not 
available, physicians may disagree on whether the technology 
provides benefit.
    We studied how early assessments, released through brief 
clinical alerts that were not comprehensive, influenced the use 
of carotid endarterectomy. We found that clinicians may 
extrapolate research findings to populations without clear 
evidence and indications. Value science can provide clear 
evidence.
    Awareness and agreement are necessary for appropriate use 
of technology, but insufficient. Even being aware and with 
strong evidence of effectiveness, physicians may not adopt 
innovations if there are administrative barriers to its use or 
the lack of self-efficacy.
    They may also adopt technologies with little benefit if 
payment policies that we talked about and heard before 
prematurely promote a technology's use.
    Financial incentives in payment policy influence both 
adoption of and adherence to use of technologies.
    Thus, proper use of new technologies means that the 
physicians who apply them and the systems into which they are 
placed are adequately configured and incentivized to make 
optimal use of the technology.
    To this end, there's a need for more behavioral and systems 
research that studies how biomedical innovation from 
laboratories is optimally and rapidly translated into 
interventions to improve the health of patients treated at 
hospitals and physicians' offices.
    In conclusion, biomedical innovation has brought the United 
States new, unprecedented medical advances that save and 
improve the quality of patients' lives. We need to continue to 
encourage biomedical innovation. But we must recognize that for 
many health conditions, technologies will bring higher rather 
than lower absolute cost.
    Cost is relevant, but value is far more important.
    We need to protect biomedical innovation and America's 
purse by furthering the science of assessing value in medicine.
    Strengthening our nation's capacity to perform value 
science will help private and public payers in this regard and 
provide information that physicians and consumers of medical 
technologies need to make decisions about their care.
    The American people cannot afford to have technology used 
unwisely. A fraction of health care expenditures in the U.S. 
should be targeted to the value science of medical care.
    Thank you for the opportunity to address you today and I 
would be happy to entertain any questions you have.

    [The prepared statement of Dr. Powe appears in the 
Submissions for the Record on page 56.]

    Senator Bennett. Thank you very much, both of you, for your 
thoughtful presentations.
    You listened to the first panel. Were either of you anxious 
to break in with something that you really wanted to say and 
straighten out any of the conversation that we had in the first 
panel?
    Dr. Powe. Well, I'd like to comment on your experience with 
the esophageal spasm, which I thought was interesting. Your 
question about whether there might be some innovation in the 
future, a test in the future that might have prevented the 
sequence of events that you went through. And in fact, I think 
that there are likely to be technologies that do that.
    One of the problems is that there may be 50 technologies 
that are tried out before we get it right. And what that means 
is that as we experiment and use those technologies, we don't 
know what effect each one of them is going to have on the 
system.
    Senator Bennett. That means high cost at the front end, 
but, presumably, you end up with one that means low cost at the 
back end.
    Dr. Powe. Right.
    Senator Bennett. And we're not seeing the low cost yet. 
We're still getting all of the high-cost front-end stuff.
    Dr. Powe. Right. And while we're trying them out, the 
typical situation is not that one technology will supplant 
another technology, but that it will add on in the process as 
we learn how to use it. Then maybe, in fact, later on, it may 
supplant another, our existing technologies.
    Senator Bennett. Yes. Did you have anything?
    Dr. Neumann. I just wanted to add one----
    Senator Bennett. Don't worry about my spasm because it's 
fine.

    [Laughter.]

    Dr. Neumann. OK.
    Senator Bennett. But the conversation, generally.
    Dr. Neumann. Yes, and I'm very glad to hear that.
    Senator Bennett. Yes.

    [Laughter.]

    Dr. Neumann. I agree with much of what was said earlier 
today.
    One issue that perhaps was alluded to, but I would just 
amplify on, and I think it's an important policy lever, is 
funding for value research, cost-effectiveness research.
    We spend a lot of money, and a lot of it is well spent, on 
biomedical research. We spend really, as Dr. Powe said, very 
little on health services research and value research.
    Senator Bennett. Maybe part of our problem as we address 
this as policymakers, coming through in your testimony and in 
the first panel, is that we're looking down a stovepipe.
    Let me give you another example out of real life.
    Merrill-Lynch hired a doctor to come lecture to all of 
their brokers. That's a pretty good contract to have if you're 
the doctor. You get to train every Merrill-Lynch broker.
    They did that. Every new broker hired at Merrill-Lynch had 
a session with this doctor. They said, ``We decided to pay that 
cost, an increased training cost, because we suddenly realized 
how many of our brokers were dropping dead from stress, having 
heart attacks and literally dropping dead. We figured out how 
much it cost us to replace them in terms of training, 
experience, et cetera.''
    A manager of a large Merrill-Lynch office told me--now this 
was before the days of online trading and all the rest of this, 
this was at a time when everything was done in a particular 
office--``If we have a branch manager drop dead from a heart 
attack, that's hundreds of thousands of dollars that we have 
invested in him''--and it's usually a him. ``And if, with tens 
of thousands----

    [Pause.]

    Senator Bennett. [Continuing.] Excuse me. The spasm may be 
fine, but my cold is still here.
    ``If with tens of thousands of dollars training people on 
diet, stress management, et cetera, up front, we can save the 
hundreds of thousands that would come from having these people 
die, it's worth it.''
    Now, we are focusing entirely in public policy discussions 
on the cost of health care premiums, the cost of Medicare. And 
I think the government is dealing with the cost of Medicare in 
exactly the wrong way by simply saying that we will arbitrarily 
pay only X-percentage of this.
    But that's another debate and I said at the outset, we're 
not going to get into that debate here.
    But I think when we're talking about value and costs, we're 
saying the country as a whole and the economy as a whole is 
better off, even if we're seeing an increase of 15 percent per 
year in cost, because of the increase in productivity, the 
increase in contribution, et cetera, of the lives that are 
saved. And we don't figure that into the conversation.
    Now it does get figured in, wearing your economist's hat 
for just a minute--you both say you're not economists, but the 
Commissioner was.
    Let's look at health care cost as a percentage of GDP, and 
say if the health care cost does not grow more rapidly than the 
GDP grows, we're fine, because we're getting the benefit of 
increased GDP.
    Now, as soon as you do that, you're at 3 percent. And 
nobody's going to bring health care costs down to 3 percent. 
But if we could find some calculation that says the 
contribution to GDP is 12 percent per year by virtue of what we 
get, then we could say, society as a whole can justify this 
kind of an increase every year.
    The problem for the employer is, the individual employer, 
he's getting hit with that 15 percent compound every year and 
he does not see the benefit in his employee pool because most 
of the benefit is coming for the retired. And he says, I can't 
sustain this any longer.
    Just react to that and give me what you think the real 
value to society is from--to pick a number for sake of 
conversation, a 15-percent per year compounded increase in 
health care costs, which is enormous in terms of the burden 
that it puts on employers--and taxpayers.
    Dr. Neumann. Right. Well, you raise many very good points.
    I guess I would say a few things.
    One, I think we in the academic community, maybe society at 
large, feel frustrated because we see increases in health care 
spending. We see the 15 percent. We see the 14 percent of GDP. 
And there's a feeling that perhaps we're not getting the 
benefits, the health gains we should be getting, or perhaps we 
don't have the tools to measure it very well.
    I think some research that Dr. McClellan referred to by 
economists in recent years have begun to document better, that 
in fact, the additional spending on health is resulting in 
measurable gains that are worth paying for, gains in terms of 
increased life expectancy, gains in terms of decreased 
disability rates, and so forth.
    Now, even if we can get ourselves there, there's still the 
other problem you referred to, which is employers now feeling 
that they are getting those gains, that the gains are coming to 
retirees later in life and so forth.
    I think that's a real problem and challenge.
    Part of it may be a measurement issue, that in fact, 
productivity is growing and the employers genuinely are getting 
returns and we just haven't been able to measure them very 
well.
    But part of it may be kind of a structural issue, that they 
are being asked to pay for health gains that occur later in 
life.
    And that's a challenge.
    Dr. Powe. I would agree that some of the benefits or value 
is coming in terms of longevity and improved quality of life. 
And at least for the working population in terms of increased 
productivity--and they've been measured in many types of the 
studies that we've talked about.
    The issue of the pressure from retiree health expenditures, 
I think, is a vivid illustration of what Dr. McClellan was 
talking about, about incentives not being aligned correctly 
within our society with regards to health care.
    So I think that's going to take an alignment of incentives 
in order to have everything work in concert to address that 
issue.
    Senator Bennett. Do either of you have an opinion as to 
whether or not Federal laws and regulations distort the 
creation or the use of new technologies and innovations in 
health care? Or do they encourage?
    Dr. Neumann. I guess I would say two things.
    One, they probably do both and there are probably certain 
incentives in the system that encourage and some that 
discourage.
    One issue that I've been doing some thinking and writing 
about is Medicare and cost-effectiveness. Medicare hasn't 
formally incorporated cost-effectiveness analysis into its 
decisionmaking process, despite attempts to do so, and even 
attempts to offer proposed regulations that would allow it to 
do so.
    It doesn't seem to be a statutory issue. That is to say, 
Medicare's statute says that it will pay for reasonable and 
necessary services in some categories.
    That seems to allow it to use cost-effectiveness analysis. 
It has never been able to get there because of larger issues, 
fear of rationing and so forth.
    That may have to change with legislation eventually.
    Dr. Powe. I think that our regulations and laws actually 
strike an appropriate balance, checks and balances within the 
system.
    In some sense, we have patent regulation that promotes 
biomedical innovation because it provides a period of time 
where competitors cannot come in and sell particular products.
    So I think that that promotes biomedical innovation and 
it's probably a necessary thing that we have.
    But, on the other hand, then we have an approval process 
for drugs that the Food and Drug Administration on the back end 
says that you have to show efficacy and safety.
    So that there's checks and balances there.
    On the coverage side, whether things are paid for, I think 
that things are a little bit more helter skelter, both in 
regards to public and private coverage of new medical 
technologies.
    And we don't really have a uniform system of criteria for 
doing that. I think that some of the points that we're trying 
to make is the use of value science to actually help in that 
process to develop the kinds of criteria that should be used to 
cover technologies.
    Senator Bennett. Getting back to one of the questions that 
probably I should have asked the first panel, but you have just 
as much expertise in here.
    One of the statements that is made is that once a provider 
invests in new equipment--say he buys an MRI machine--he then 
feels he has to use it, even if, medically and diagnostically, 
it isn't necessary because he has to get his money back by 
running as many tests as possible through it and charging.
    Then another provider decides he has to buy an MRI machine 
if he's going to compete and you have overcapacity and then, 
ultimately, overuse.
    Again, let me describe a brief experience that I had when I 
was on the campaign trail the first time and visiting a 
hospital. I'm a businessman by background. I innocently asked 
these people if they had an MRI machine. This is when MRIs were 
relatively new.
    And they looked at me like I was an idiot--which I was--and 
they said, ``Well, of course. We have to have an MRI machine.'' 
And I said, ``What's your usage?'' And they said, ``30 percent 
of its capacity.''
    And, being a businessman, I said to them, ``Well, the 
marketplace is trying to tell you something. It's trying to 
tell you that you don't need an MRI machine. Maybe we ought to 
do something at the Federal level to change the anti-trust laws 
in such a way that you could make a deal with the hospital down 
the street. If you're only using their MRI machine at 30 
percent, then you could contract that you'd send your stuff 
there.''
    Again, they looked at me like I was a bigger idiot and 
said, ``The marketplace demands that we have an MRI machine.'' 
And I said, ``No. If the marketplace was demanding that you 
have an MRI machine, you'd be getting 100-percent 
utilization.''
    We talked past each other on this issue until the light 
suddenly went on in my mind, that when they were talking about 
the marketplace and their customers, they were talking about 
insurance companies. When I was talking about the marketplace, 
I was talking about customers--that is, patients.
    Insurance companies told them, ``We will not approve 
patients being sent to your hospital if you don't have an MRI 
machine.'' So they really didn't care whether it was utilized 
ever, as long as it was on the premises so they could certify, 
we have an MRI machine.
    When I was talking about the marketplace, selling things to 
customers, I was talking about the number of customers walking 
through the door. The patients walking through the door weren't 
their customers. The insurance company paying the bills was 
their customer.
    Now, do we have, in fact, an overcapacity built in by 
virtue of the third-party payer system and then a sense of we 
have to get our money back by running tests through this 
machine that is part of the escalating health care situation 
created by technology?
    Dr. Powe. Well, that's a tough question to debate.
    Senator Bennett. That's why the staff came up with it.

    [Laughter.]

    Dr. Powe. I guess one solution would be to do away with 
insurance companies and have patients pay. But I think that 
that would cause even greater problems by having many people 
pay out of pocket.
    There are safeguards that insurance companies do on the 
other hand in terms of making sure that the populations they 
serve receive the very best care and can do that because they 
have large purchasing power and can actually influence the 
quality of care that providers provide.
    So I'm not sure that we ought to go to a system in which 
patients would pay directly out of pocket like we do in other 
areas, other sectors of the economy.
    Dr. Neumann. I would agree with Dr. Powe, especially with 
the notion that that's a very tough question.
    But I guess I would say two things.
    One, in some sense it's an evidence question, it seems to 
me, and Dr. Clancy talked about this. As we move as a culture, 
as medical establishment toward evidence-based medicine, one 
hopes that tests that are ordered will be tied to studies that 
shows that they're appropriate, that they work for the patients 
they're being given to.
    And part of the problem that you identified might be 
addressed with better evidence.
    But another issue, and perhaps more important issue, is the 
structure of the marketplace and the incentives that it 
embodies.
    Why the situation exists in the first place, that the 
hospital felt the need to buy the MRI in this case. And that's 
a very complicated question.
    We create insurance because it solves a problem. But it 
also creates some other problems.
    We can talk about establishing the structure of the 
marketplace and the incentives, changing incentives, but that's 
a very large debate.
    Senator Bennett. Yes, and it's a debate I'll have in 
another forum at another time.
    But, Dr. Powe, I'd be happy to talk to you about this. I 
think getting rid of the third-party payer for routine activity 
would actually be beneficial.
    I think insurance ought to be for catastrophic events. 
Health is the only place where insurance pays for routine 
activities. If I have car insurance, it doesn't pay me for 
changing the oil. It only pays me when I'm in a wreck.
    And I think health insurance should only pay me when I have 
a serious health problem. I should not necessarily have to file 
an insurance claim for a routine kind of test. But that's 
another debate for another day.
    Dr. Powe. In fact, I think we're evolving to a system in 
that way. I think most people when they see a physician have to 
pay something out of pocket today in terms of coinsurance and 
deductibles.
    Senator Bennett. Yes.
    Dr. Powe. So the cost is not entirely free for non-
catastrophic services today.
    Senator Bennett. Do either of you know the extent to which 
Medicare or the veterans health program, as well as private 
insurers, are already using some kind of cost-benefit analyses 
to make judgment calls?
    And if so, how do they do it? Or is this a brand new idea 
that still hasn't caught on?
    Dr. Neumann. Well, for the most part, Medicare has not. 
There are a couple of exceptions over the years. They've added 
some preventive services that were informed by cost-
effectiveness analysis. But they haven't formally incorporated 
into their coverage process.
    Despite some attempts to do so, they haven't been able to 
for various reasons that probably have more to do with politics 
and fears of rationing than they do with statutory limitations.
    My sense is that the VA does use it on occasion to inform 
decisions about which drugs go on formulary, which drugs go on 
first-line treatment, second-line treatment, and so forth.
    But, again, my sense is it's limited there as well.
    Senator Bennett. What about private insurers?
    Dr. Neumann. Well, that's I think a difficult question to 
answer in the sense that surveys--and Dr. Powe has done some of 
these--surveys of health plan managers, medical directors, that 
ask them, ``Do you use cost-effectiveness analysis?'', often 
yield a response, ``No, we don't use it.''
    We look up clinical evidence and base our decisions on 
clinical evidence.
    I think if you drill down a bit, though, it becomes clearer 
that cost-effectiveness evidence and other economic information 
does inform decision.
    And in some sense, perhaps they're not willing to admit it 
because they're afraid of admitting to the rationing. And in 
some sense, I think it's almost an indirect piece of evidence 
that they use because they've read a journal article or they 
adhere to a clinical guideline that has, in fact, used cost-
effectiveness evidence.
    Senator Bennett. Dr. Powe.
    Dr. Powe. I would concur with Dr. Neumann. The entities 
that you mentioned are making value judgments. They may not 
formally be using cost-effectiveness analysis in the formal 
sense that researchers might, but they are making value 
judgments and using the components and the logic of the science 
of value in making those judgments.
    They may not call it cost-effectiveness analysis as such.
    Senator Bennett. Well, ultimately, who should decide 
whether the additional cost of a new drug or a new medical 
device is worth it? The provider? The drug company? The 
government? NIH?
    Dr. Powe. I think we all should.
    Senator Bennett. When everybody decides, then nobody 
decides.
    Dr. Powe. Right. But I think individuals have to decide 
when they cost-share in medical care, so they have to know the 
value of the treatments that they might pay for.
    I think that the Medicare program needs to know the value 
of the treatments that they're paying for. I think private 
insurers need to know the value.
    So I think we all are in this together. We do it for 
different things. But what will help us all is better 
information on what value technology has.
    Senator Bennett. A vote has just started, and we've been 
going for 2 hours. I would love to continue this dialog, but I 
think we probably will close.
    Let me thank you both again for your being here and your 
willingness to share your expertise, and invite you, if either 
of you come across anything that you think would help inform 
the issue that we're addressing here, to send it on in to the 
Committee.
    Again, thank you all.
    Dr. Neumann. Thank you.
    Dr. Powe. Thank you.
    Senator Bennett. The hearing is adjourned.

    [Whereupon, at 11:30 a.m., the hearing was adjourned.]
                       Submissions for the Record

=======================================================================

       Prepared Statement of Senator Robert F. Bennett, Chairman
    Good morning and welcome to today's hearing on how technology and 
innovation affect health care costs.
    The United States has a health care financing problem that goes 
well beyond the budget challenges posed by Medicare. For many years, 
our health care spending has grown at a significantly faster rate than 
the economy, and projections indicate that this will continue. Any 
financial arrangement where expenses grow significantly faster than 
income is truly on very shaky ground.
    In other sectors, new technologies usually lead to greater 
efficiencies and lower costs, yet it is unclear whether the same is 
true for health care. What's different about health care? Is it the 
technology or the way we pay for it?
    How can we strike the right balance--providing access to the latest 
breakthrough technologies, while limiting an open-ended raid on the 
public and private treasuries that fund our health care?
    During this hearing, we will explore these issues, bringing 
together some of the best minds from the public and private sectors to 
help shed some light on this situation.
    We should first question whether technology and innovation have 
truly added to health care costs, as some claim, or have reduced health 
care costs through enhanced efficiency.
    Secondly, we should examine whether new technologies are 
disseminated in an efficient and effective manner, and if there are 
areas where they are being overused or underused. For example, some 
have expressed concern that advanced imaging technologies may be 
overused, in part because of poor incentives in the payment formulas 
used by Medicare and other insurers. At the same time, an article in 
this week's Health Affairs highlights how new technologies may be 
underused in treating people who lack health insurance.
    We need to find the right balance. We need to judge the cost-
effectiveness of new technologies, so that we properly fund this 
critical work, without overpaying and adding additional upward pressure 
on health care spending.
    Unlike most of the recent congressional debate on health care, this 
hearing is not about Medicare or its coverage of prescription drugs. 
However, this issue is crucial to Medicare and every other health care 
purchaser that faces the dilemma of how to add innovative new benefits 
without setting off an explosion of health care costs.
    On our first panel, we are privileged to welcome Dr. Mark 
McClellan, the Commissioner of the Food and Drug Administration, and 
Dr. Carolyn M. Clancy, the Director of the Agency for Healthcare 
Research and Quality (AHRQ).
    Our second panel will provide further insights on health care 
innovation. We are privileged to have Dr. Peter Neumann, Associate 
Professor of Policy and Decision Sciences atHarvard School of Public 
Health, and Dr. Neil Powe, Director of the Welch Center for Prevention, 
Epidemiology, and Clinical Research at Johns Hopkins Medical 
Institution.
    We welcome each witness's thoughts on the challenges facing health 
care today. I want to thank Ranking Member Stark for his interest and 
help in organizing this hearing and in bringing these distinguished 
experts before the Committee. I ask all of you to join me in a 
bipartisan spirit as we engage in this important task.
                               __________
           Prepared Statement of Representative Pete Stark, 
                        Ranking Minority Member
    Thank you, Chairman Bennett. I would like to commend you for 
holding this hearing on ``Technology, Innovation, and Health Care 
Costs.'' It's an important topic that requires serious inquiry.
    Finding the right balance between cost consciousness and allowing 
access to new, potentially life-saving, innovations is crucial. 
Progress and technology often extend and improve lives, such as an MRI 
that provides early detection of a tumor or new surgical techniques for 
cataract treatment. Yet in too many cases, the latest technology simply 
becomes a profit center for hospitals when other, less costly, 
treatments would serve patients equally as well.
    Smart utilization can spread the benefits of new technology without 
substantially increasing health care costs. I believe that providing 
the highest quality health services should be our goal--a goal that 
cannot be compromised. As we've seen with HMOs, it is too easy to deny 
patients access to appropriate care in the name of cost cutting. 
Analysis of cost-effectiveness must be mindful of the needs and 
interests of the patient.
    New drugs and medical devices are not the only advances we need. 
Better use of information technology would not only improve care, it 
could save lives. An estimated 44,000 to 98,000 Americans die each year 
because of medical errors, according to an institute of Medicine study. 
This is unacceptable and unconscionable. Many medical errors are 
attributed to poor handwriting and other sloppy mistakes. Storing 
medical records on IT systems would prevent many of these mistakes--and 
deaths--as well as allow for the easy transfer of records when a 
patient switches doctors or visits a specialist. The technology is 
available, but it is not being fully used.
    Cutting-edge medical technology may as well be science fiction for 
the 41 million Americans without health care--people without the means 
to utilize innovative, and often, preventative treatments available to 
those with insurance. Among the uninsured, illnesses and deaths that 
may have been avoided if they had access to new technologies for the 
treatment of just three conditions--heart attacks, cataracts, and 
depression--cost our society more than $1 billion a year. The inequity 
in access to health care prevents health outcomes from being as 
universally successful as they could be.
    Thank you Mr. Chairman and I look forward to the testimony of our 
witnesses.
                               __________
Prepared Statement of Mark B. McClellan, M.D., Commissioner of Food and 
          Drugs, U.S. Department of Health and Human Services
    Good morning Mr. Chairman and Members of the Committee. I am Dr. 
Mark B. McClellan, Commissioner of Food and Drugs, and I welcome this 
opportunity to testify before the Committee today. As we enter the 21st 
century, America leads the world in developing and commercializing new 
medical innovations and technologies. From information technology to 
biotechnology to materials science, United States (U.S.) scientists and 
high technology workers are making new discoveries and developing new 
products every day that are steadily improving the quality of our 
lives. This progress is critical to our health and our economic 
prosperity.
    Innovations resulting from breakthroughs in science and technology 
fuel economic growth. According to the Department of Commerce, the 
information technology sector accounts for just seven percent of all 
businesses in the U.S. economy, yet between 1996 and 2000, it drove 28 
percent of the overall U.S. real economic growth and created jobs at 
twice the pace of other sectors. These jobs paid twice as much on 
average as well. Many leading economists now believe that new 
discoveries in information technology led to investments over the last 
couple of decades that helped account for the historic surge in 
economy-wide productivity growth in the 1990s.
                               background
    While all economists appreciate the contribution of such economic 
growth to the well-being of the U.S., there is often less appreciation 
of the contribution of innovations in biomedical technology. A primary 
reason is that technological change in medicine brings benefits in 
addition to direct economic gains, including increased longevity, 
improved quality of life, and less time absent from work. These 
benefits are not taken into account in standard measures of aggregate 
economic output. If a country had real gains in its overall health, but 
not in its material well being (most often measured by per-capita 
income) the national income accounts would not change, even though 
those accounts are often thought to measure the well being of a 
population.\1\ In addition, the direct economic and public health 
benefits of developing important new medicines often takes considerable 
time to be realized. If a high-technology firm invents a better memory 
chip, the time to get that innovation into products sold in the U.S. 
could potentially be as short as a matter of weeks or months. 
Regardless of how promising a drug or other new treatment appears in 
the laboratory or even in animals, it must undergo extensive clinical 
trials before it can be approved as safe and effective for market 
introduction.
---------------------------------------------------------------------------
    \1\ ``Measuring the Health of the United States Population'', 
Brookings Papers on Economic Activity, Microeconomics, 1997, 217-272 
(with Elizabeth Richardson).
---------------------------------------------------------------------------
    In recent years, economists have tried to quantify the value of 
biomedical innovation to society. Some economists actually estimate 
that the value of the longer and better lives that have resulted from 
translating new biomedical knowledge into steps to prevent and slow 
diseases is worth literally many trillions of dollars in better health. 
In particular, the value of biomedical innovation to the U.S. equals 
the value of innovation in all other sectors of the American economy 
combined.\2\ Even with the benefits of new medical technology, the fact 
remains that technological innovation is a major source of increase in 
real per-capita medical spending in the U.S. Innovations in medicine 
can reduce spending on medical care. For example, treatments ranging 
from effective care for depression to laser eye surgery are much less 
expensive than in years past. But many new technologies result in 
increased costs, and in some instances the net effect of overall 
technological change has been to raise health care expenditures. First, 
when a treatment becomes less expensive and safer (fewer 
complications), more patients may decide that a treatment is worth the 
risks and unpleasantness. In the early 1980s, relatively few seniors 
had cataracts removed because the procedure required an unpleasant 
hospital stay, often had complications, and yielded imperfect results. 
Today, thanks to improvements in technology, millions more seniors with 
more modest visual impairment find that modern cataract surgery 
improves their lives. Second, many treatments exist that do things that 
simply were not possible before, such as allowing many patients to 
survive previously fatal or impairing diseases. Americans spend much 
more on transportation today than they did a century ago because of 
innovations in transportation ranging from automobiles to airplanes, 
allow people to go places they simply could not before. Similarly, 
patients with heart disease, cerebrovascular disease, cancer, 
arthritis, AIDS, and countless other conditions are living longer and 
better lives because of medical innovations that transformed fatal 
illnesses or illnesses that could only be treated with comfort measures 
into manageable conditions.
---------------------------------------------------------------------------
    \2\ Cutler, David M. and Mark McClellan. ``Is technological change 
in medicine worth it?'' Health Affairs; September/October 2001: 11-29. 
Grabowski, H., J. Vernon, J.A. DiMasi. ``Returns on research and 
development for 1990s new drug introductions.'' In ``The Cost and Value 
of New Medicines in An Era of Change.'' PharmacoEconomics 2002; 20 
(Suppl. 3):11-29.
---------------------------------------------------------------------------
    The increased spending on health care does not necessarily reflect 
negatively on technological change. While many studies attribute a 
large share of the age- and price-adjusted growth in per capita medical 
spending in recent decades to technological innovation, a key issue is 
whether the benefits of innovation are rising faster or slower than the 
costs.
    This important question is difficult to answer. It depends on our 
ability to determine the value of output from the health services 
sector, and putting a value on a longer life or a higher quality of 
life is hard to appraise. Nonetheless, a limited number of studies have 
attempted to aggregate the medical value of new innovations across the 
whole health care economy in general and the drug industry in 
particular. Even with these studies, it can be difficult to sort out 
whether the observed improvements in health are from medical 
technology, or from other factors that may influence health outcomes, 
such as higher incomes, improved public health measures, or changes in 
behavior as a result of greater biomedical knowledge. To try to 
identify the net value of medical technology itself, several studies 
have attempted to measure the value of specific kinds of innovations. A 
number of studies have examined outcomes for specific illnesses, such 
as heart attacks and depression, where the impact of specific changes 
in technology can be examined more closely. While none of these studies 
are completely convincing in themselves, they generally show that 
medical innovation has greatly increased value, that is, the value of 
the improved health is far larger than the increase in spending.\3\
---------------------------------------------------------------------------
    \3\ Lichtenberg, Frank R. ``Are the Benefits of Newer Drugs Worth 
Their Cost? Evidence From the 1996 MEPS,'' reprinted from Health 
Affairs, Vol. 20, No. 5, September/October 2001. Kleinke, J.D. ``The 
Price of Progress: Prescription Drugs in the Health Care Market,'' 
reprinted from Health Affairs, Vol. 20, No. 5, September/October 2001. 
Lichtenberg, Frank R. ``The Effect of New Drugs on Mortality from Rare 
Diseases and HIV.'' NBER Working Paper W8677, December 2001.
---------------------------------------------------------------------------
    The reasons are quite intuitive. Individuals are living longer and 
better lives, because our nation is making real progress in the quality 
of medical care for many conditions. While the achievements of health 
improvements in past decades have been impressive, recent progress in 
genomics, proteomics, nanotechnology, information technology, and many 
other fields promise even greater improvements in our lives in the 
years ahead.
    We achieved the improvements of the last few decades without a 
sophisticated science of genomics--the human genome was sequenced in 
just the last few years. Genomically-based drugs, and gene and tissue 
therapies based on genomic sciences, are making up a growing number of 
the new drugs entering clinical trials. We also achieved our recent 
progress without the new science of proteomics, and an increasingly 
sophisticated understanding of how gene and protein expression interact 
to cause disease in individual patients. We also did it without a new 
generation of increasingly powerful biomedical tools based on the 
latest information technology that can enable sophisticated systems for 
supporting effective medical decision-making. These additional tools 
increase the future potential for more effective, more targeted, even 
individualized medical treatments that can cure or at least slow or 
halt disease progression.
                      impact on health care costs
    As health care costs have gone up, it is increasingly important to 
make sure we are realizing the full value of the new medical 
technologies that we create. Maximizing our public health gains and our 
economic gains from new medical technology also requires that we 
encourage high value innovations and also realize more value from the 
products that we use. This is important for the future, because while 
the cost of new medical technologies may continue to rise, the 
potential benefits of new treatments could grow even more dramatically.
    We must find better ways to increase value, to keep modern care 
affordable, while still encouraging medical innovation. With these 
unprecedented technological achievements have also come unprecedented 
concerns about the total spending on healthcare and, in particular, 
about the rising spending on these new medical technologies. Many worry 
that, even if these new technologies come along, they will not benefit 
because they will not be able to afford the high cost. While we need to 
take new steps to address the problem of health care affordability, we 
need to do it carefully. We must address this issue in a way that will 
not risk the tremendous potential for public health and economic 
benefits from continuing medical innovation by putting significant new 
limits on the payments or the intellectual property protections of 
innovative treatments that have made it through an increasingly long 
and costly development process.
    In particular, there is concern about the threats to innovation 
because the process of medical innovation--of turning sound ideas from 
insights in the biomedical laboratory sciences into safe and effective 
products for treatments--has steadily become more costly. Getting a 
product into general use is an increasingly lengthy and costly business 
and fraught with significant risk.\4\ Some estimates put the total cost 
of developing a novel drug at more than $800 million, and by all 
estimates it has increased substantially in the past decade.\5\ Too 
often, the process is unpredictable, and may take years of hard work 
with high costs for product testing and developing reliable production 
lines.\6\
---------------------------------------------------------------------------
    \4\ DiMasi, J.A. ``Uncertainty in drug development: approval 
success rates for new drugs'' Chapter 20 in Clinical Trials and 
Tribulations, 2d Edition, revised and expanded. Cato AE Sutton L Cato A 
III, editors. New York: Marcel Dekker, 2002:361-77.
    \5\ DiMasi, J.A., Hansen, R.W., Grabowski, H.G. ``The Price of 
Innovation: New Estimates of Drug Development Costs.'' Journal of 
Health Economics, 2003 Mar; 22(2):151-85. Kaitin KI, Ed. ``Post-
approval R&D raises total drug development costs to $897 million.'' 
Tufts Center for the Study of Drug Development Impact Report 2003 May/
Jun;5(3).
    \6\ Horrobin, David F. ``Modern Biomedical Research: An Internally 
Self-Consistent Universe with Little Contact with Medical Reality?'' 
Nature Drug Discovery; February 2003:151-154.
---------------------------------------------------------------------------
    Many people involved in the development of new medical technology 
believe the slowdown in drug approvals is likely to be only temporary. 
Currently, the National Institutes of Health (NIH) is completing a 
five-year doubling of its budget, to more than $27 billion. Less well 
known is that spending on research and development by pharmaceutical 
companies worldwide has also doubled since 1995 and now is estimated to 
be more than $54 billion. R&D spending by biotech and medical device 
companies is also rising. The impact of these investments in research 
is already becoming evident in the form of more investigational new 
drugs (INDs) under development than ever.
    But if the impact of information technology on the economy is any 
guide, it may require a decade or more of increased investments in 
order to have a real impact on productivity--on how much output we get 
as a result of these inputs. And it could take much longer, because of 
the unusual length and uncertainty of the product development process 
in health care. At this point in genomics, for example, scientists are 
still primarily gathering information, sorting out patterns, and only 
starting to understand what the turning on or off of hundreds of genes 
by a new drug means for whether it is safe and effective in patients. 
The increase in the time and cost of product development has already 
been associated with a decline in the number of truly new drugs and 
biological treatments being approved by FDA. Last year, FDA approved 21 
new molecular entities (the truly new drugs) down from 44 such entities 
in 1996. And FDA approved 12 new biological license applications 
(BLAB), down from 27 BLAB in 1998. The decline in products approved is 
not the result of FDA rejecting more applications; it is directly 
related to a decline in the number of new applications for drugs and 
biologics coming in to the Agency, and it is a worldwide phenomenon.\7\
---------------------------------------------------------------------------
    \7\ CDER 2002 Report to the Nation: ``Improving Public Health 
through Human Drugs.'' May 13, 2003.
---------------------------------------------------------------------------
             traditional approaches versus new technologies
    While there are and no doubt will continue to be traditional 
``blockbuster''-type drugs in development that may bring important 
public health benefits to many millions of patients, breakthroughs in 
genomics, proteomics, and other new fields of molecular biology also 
hold great promise for truly individualized drug therapy in which 
diagnostic tests and novel drug delivery mechanisms guide the use of 
medications, turning heterogeneous diseases like cancer and heart 
disease into distinct types of pathologies that appropriately require 
distinct therapeutic approaches. Other new technologies are breaking 
down the traditional barriers between drugs, tissues, and devices, 
including products in development that are combinations.
    Translating the new biomedical sciences into these new kinds of 
treatments for patients requires major new investments, and it seems 
plausible that such investments may take many years to reach fruition. 
It should not be surprising that we haven't yet seen the huge increase 
in biomedical investment of the past decade, and especially the last 
few years, turn into more and more valuable medical products for 
patients. But the fact remains that developers of biomedical products 
are not producing drugs particularly faster than they were before all 
these innovations came along. From a public health standpoint, with 
millions of Americans suffering from diseases that may be curable or at 
least manageable in the not too distant future, we cannot afford to 
wait many more years for all these investments to become valuable 
products.
    On the research and development side, it's possible that the costs 
and uncertainty of developing new treatments could keep rising. It's 
easy to see how this could happen: there are not many more obvious drug 
targets left to exploit, and developing genomics- and proteomics-based 
therapies remains very costly. So far, genomics has mainly added steps 
at the front end of the development process, through microarray testing 
of gene responses, and has not reduced the costs of clinical research 
significantly. On the policy side, there is intense pressure to make 
health care more affordable, and so policymakers may focus only on 
reducing medical costs in the short run--which, if not done properly, 
could reduce the incentive to incur these high and rising development 
costs. This combination of rising costs of product development and 
pressures to control costs rather than increase value is not a good one 
for keeping the United States at the forefront of biomedical 
innovation, and more importantly it's not a good combination for 
affordable and high-quality, innovative health care for our population. 
Instead, a more effective approach would involve bringing costs down by 
reducing the high cost and uncertainty of developing new medical 
treatments, and taking more steps to help patients and doctors use them 
effectively after they are approved by FDA.
                       potential policy solutions
    We can take steps today to improve the development and use of 
medical technologies, and find creative policy solutions that both 
support innovation and make healthcare more affordable, particularly 
for those with limited means and great needs. There are many ways to do 
this, but above all, we need to increase value in the process of 
developing and using new medical technologies. To these ends, a key 
element of FDA's new strategic action plan is efficient risk 
management. In all of FDA's major policies and regulations, the Agency 
is seeking to use the best biomedical science, the best risk management 
science, and the best economic science to achieve its health policy 
goals as efficiently as possible.
    The enormous growth in research investment has required the Agency 
to deal with more complex and innovative products in development than 
ever before. As discoveries made in the laboratory are flowing into the 
medical products consumers are using, it means that the Agency is 
challenged to upgrade its own science to keep pace with this new 
innovation and the growing sophistication of manufactures. As part of a 
new FDA initiative on improving medical innovation announced in January 
2003, the FDA is taking specific steps to help foster more efficient 
innovation, especially in emerging areas or those of great medical 
need. The initiative has several elements that are described below.
Need for Performance Measures
    One element of this plan is the development of ``quality systems'' 
for the Agency's review procedures. The idea is to build on FDA's 
professional staff expertise to identify and apply best management 
practices internally to the review processes. This includes using peer 
review programs coupled with more empirical data for drug and device 
reviewers to exchange ideas and use each other's experience to learn 
about best practices. A key part of this effort is developing 
performance measures that the Agency's experts believe are related to 
the goal of approving safe and effective treatments as efficiently as 
possible.
    FDA is also working to develop new guidance documents that can 
bring more predictability to regulatory process. These are in a 
tradition of FDA documents that serve as roadmaps for drug and device 
developers, offering guidance on how to structure studies to prove that 
new treatments work. These new documents represent an enhanced effort 
to combine internal expertise with input from outside experts to make 
sure that are regulatory methods are up to date in important areas of 
technology development. Some of the guidance will focus specifically on 
diabetes, obesity, and cancer. Despite all the innovation that has 
already occurred, these are therapeutic areas that remain underserved 
by effective treatments and that have promising technologies under 
development today.
Developing New Guidance for New Areas
    The Agency is also developing guidance in new areas of technology 
development, including pharmacogenomics, novel drug delivery systems, 
and cell and gene therapy. In each of these cases, the Agency expects 
to learn something from outside experts in the open process of 
developing them. For example, FDA is setting up a ``research 
exemption'' program for product developers as well as academic experts 
to share data on pharmacogenomic results, such as microarray studies, 
that may be useful for predicting clinical benefits and risks and thus 
reducing the costs of demonstrating safety and effectiveness. This kind 
of information can also be used to increase the value of a new medicine 
by allowing doctors to target drugs to patients most likely to derive a 
clinical benefit or least likely to suffer a rare side effect. The goal 
in all of these endeavors is to use the new regulatory standards to 
reduce the time and cost of product development and to ensure that the 
Agency's regulatory procedures are current at the same time. We hope 
this will lead to earlier and broader access to new treatments.
Rapid Access to Generic Drugs
    Supporting the development of safe and effective new treatments is 
one of the most important ways that FDA can promote the public health. 
But when appropriate patents have expired, we need to facilitate 
broader access through lower-cost generic drug alternatives. Generic 
drug manufacturers produce medications that are just as safe and 
effective as their brand counterparts. Yet the prices of generics are 
generally much lower. A generic version of a $72 average brand-name 
prescription costs about $17. With more brand-name medications coming 
off patent--more than 200 of them in the next few years--and with ever-
improving scientific knowledge and public awareness about the benefits 
of generic drugs, the health and economic benefits of using generic 
drugs are constantly growing.
    Encouraging rapid and fair access to more affordable generic 
medications is one of FDA's major priorities. FDA is proposing new 
resources to enable us to implement major reforms in its generic drug 
programs to reduce the time it takes to get a generic drug approved. 
Right now, it takes well over a year and a half on average to approve a 
new generic medication and we think we can significantly improve. In 
addition, the Agency recently finalized a generic drug final rule that 
would expedite and increase access to more affordable generic drugs by 
limiting the ability of innovator drug companies to receive multiple 
extensions that delay entry of generic competition. This final rule is 
projected to save American consumers $35 billion dollars over the next 
10 years. Furthermore, this rule makes changes to the patent listing 
process that are also designed to improve generic competition.
Revised Good Manufacturing Practices
    Another application of the principle of efficient risk management 
to reduce medical costs and improved outcomes is in improving the way 
that medical products are manufactured. These guidelines are referred 
to as good manufacturing practices (GMPs), and these GMP regulations 
for drugs have not been updated in 25 years. Meanwhile, best practices 
in manufacturing technologies and methods have undergone significant 
progress over that time, particularly in other high-tech industries. 
For example, the semiconductor industry also has a very low tolerance 
for impurities and inaccuracies in production. When its production 
processes were lagging because of high costs and too many errors that 
industry helped invent the ``six sigma'' production methods. Through 
continuous quality improvement, those methods achieved enormous 
improvements in production cost and quality, and they have since been 
widely adopted in manufacturing industries.
    But continuous quality improvement in manufacturing hasn't been the 
subject of as much attention in the pharmaceutical industry, even 
though many experts on manufacturing processes believe that large 
savings in production costs could be realized while maintaining very 
high standards for purity and accuracy. FDA wants to make sure that 
regulations are encouraging such progress, not standing in the way. The 
Agency is working on a program for developing new GMPs based on the 
latest science of risk management and quality assurance. The new 
standards would be designed to encourage cost-reducing and precision-
enhancing innovation in manufacturing and technology, and to ensure 
that all three FDA medical centers use consistent and up-to-date 
methods, including inspectors specializing in particular types of 
production methods.
    In addition to substantial savings in the development and 
manufacturing of safe and effective medical products, there are many 
more opportunities to increase the value of the medical products FDA 
regulates after they are approved and maximize their public health 
benefits. By making better information available to patients and 
doctors about the benefits and side effects of new medical 
technologies, and by taking other steps to help doctors and patients 
avoid errors and adverse events, people can realize more value from 
these products by making better decisions about when to utilize them 
for maximum advantage.
Prevention of Medical Errors
    Approved medical products, while safe and effective when used as 
intended, can be involved in costly and potentially preventable adverse 
events, including medical errors. A November 1999 report of the 
Institute of Medicine (I0M), entitled ``To Err Is Human: Building a 
Safer Health System,'' focused a great deal of attention on the issue 
of medical errors and patient safety. The report indicated that as many 
as 44,000 to 98,000 people die in hospitals each year as the result of 
medical errors. About 7,000 people per year are estimated to die from 
medication errors alone--about 16 percent more deaths than the number 
attributable to work-related injuries.\8\ Preventable errors and 
complications involving prescription drugs alone are also responsible 
for billions of dollars in additional health care costs each year, in 
addition to all of the unnecessary suffering. The IOM report estimates 
that medical errors cost the Nation about $37.6 billion each year; 
about $17 billion of those costs are associated with preventable 
errors. About half of the expenditures for preventable medical errors 
are for direct health care costs. That's too much money that would be 
better spent on proper care.
---------------------------------------------------------------------------
    \8\ To Err Is Human: Building a Safer Health System. Institute of 
Medicine Press, 2000.
---------------------------------------------------------------------------
    FDA has a role in helping to avoid these costly errors by 
supporting the development and use of safer health care systems; 
systems that help health professionals avoid errors and deliver higher 
quality care. The majority of medical errors do not result from 
individual recklessness, the report says, but from basic flaws in the 
way the health system is organized. Stocking patient-care units in 
hospitals, for example, with certain full-strength drugs (even though 
they are toxic unless diluted) has resulted in deadly mistakes. And 
illegible writing in medical records has resulted in administration of 
a drug for which the patient has a known allergy.
    To help mitigate these risks, earlier this year FDA proposed a 
universal bar coding system for prescription medications and blood 
products. Coupled with barcode readers and electronic medical records, 
bar codes on drugs are expected to reduce the rate of medication errors 
that occur at the stage of dispensing and administering medications by 
half or more. Bar codes can help make sure that the right patient gets 
the right medication in the right dose at the right time, and soon a 
standardized system of codes will be built in to all drug packaging. 
Based on the published relationships between hospital admissions and 
adverse drug events, FDA has estimated that of 372,000 preventable 
adverse drug events per year in hospitals, bar code identifiers on drug 
products could be expected to avoid about 22 percent of these events. 
Over 20 years, FDA expects more than 413,000 fewer adverse drug events 
because of bar coded products. The average annual benefit of avoiding 
these events is $3.9 billion dollars in patient pain and suffering and 
direct treatment costs.\9\ FDA's work on standards has another benefit. 
According to the hospital industry and many health care purchasers, 
standard bar codes will speed the adoption of electronic health 
information systems by hospitals and other healthcare organizations, 
because the standardized codes increase the payoff from having 
electronic systems.
---------------------------------------------------------------------------
    \9\ Bates, D.W., D.J. Cullen, N Laird, L.A. Peterson, S.D. Small, D 
Servi, et al. ``Incidence of Adverse Drug Events and Potential Adverse 
Drug Events: Implications for Prevention.'' The Journal of the American 
Medical Association. July 5, 1995. Classen, D.C., S.L. Pestonik, R.S. 
Evans, J.F. Floyd, and J.P. Burke. 1997. ``Adverse Drug Events in 
Hospitalized Patients: Excess Length of Stay, Extra Costs, and 
Attributable Mortality.'' The Journal of the American Medical 
Association. January 22/29. Jha, A.K., G.J. Kuperman, J.M. Teich, L 
Leape, B Shea, E Rittenberg, et al. 1998. ``Identifying Adverse Drug 
Events.'' The Journal of the American Medical Association. May.
---------------------------------------------------------------------------
    Even with the best available data, drugs are sometimes found to 
have adverse effects that could not have been predicted or uncovered in 
any feasible clinical trial. Most of these subtle or rare problems, 
such as liver toxicities, that occur in a small number of people and 
most become apparent only after drugs have been used in real-world 
patient populations for some period of time. The Agency must have 
effective systems in place to detect such problems, so that preventable 
adverse events are identified, and better ways can be found to prevent 
these events.
    As part of this effort, the Agency is working on developing 
information technology tools that will allow it to link into the 
electronic; medical records of large healthcare institutions and 
organizations, and automatically scan medical records for combinations 
of new drugs and clinical endpoints such as blood test results that 
might contain harbingers of trouble. The idea is to use modern 
information technology to acquire information on associations between 
adverse events and use of a medical product that might warrant focused 
further investigation. FDA wants to have systems in place that allow us 
to be proactive in collecting this clinical information, rather than 
continuing to rely primarily on vigilant doctors and FDA's voluntary 
adverse event reporting systems.
Safety and Efficacy Studies for Approved Medical Products
    More studies of the safety and effectiveness of medical products 
after they are approved can be very helpful for learning more about the 
risks and benefits of medications in special populations and can help 
guide more informed medical decisions. For example for a new cancer 
drug that recently gained accelerated approval, the National Cancer 
Institute is funding so-called ``Phase 4'' studies to confirm clinical 
benefits and help assess longer-term risks. These efforts to use modern 
information systems and post-approval studies can add substantially to 
the body of knowledge about which patients are most and least likely to 
benefit from an approved treatment, in turn leading to higher-value 
treatment decisions.
Better Informed Consumers
    FDA is also working to encourage more effective, high-value use of 
medical treatments by helping patients and health professionals get 
access to the latest and best information on risks and benefits. For 
all that improving medical technology can do, it is much less than 
people can do through their own choices to improve their health. From 
encouraging better guidance to patients in pharmacy labels, to clearer 
guidance on communicating risk and benefit information in direct to 
consumer advertising, to new enforcement initiatives against dietary 
supplement manufacturers who make health claims without scientific 
foundation, to food labeling that better discloses diet-disease 
information, FDA is undertaking new efforts to help consumers make 
better-informed decisions about how to use their health care dollars. 
In one recent example, FDA is working on a DailyMed program for 
physicians, so that a redesigned electronic product label that can be 
updated daily to include the most current information about a drug 
after they are already on the market. Only by facilitating access to 
complete, timely, and easily used information available to consumers 
and health professionals can FDA help to make sure that people are 
making the best decisions about their health based on the best 
available information.
                               conclusion
    Medical innovation is a difficult and complex process, but one that 
can bring great value to patients. This long and difficult process is 
also a delicate one that requires the right mix of incentives, 
safeguards, and effective regulation to make sure people can derive the 
maximum benefit from safe and effective new medical technologies. Only 
by adopting policies that protect the incentives to develop new drugs 
and medical devices, and reward cost-effective medical practice and the 
most high value use of new technology, will we continue to realize the 
full benefits of these innovations. As described in this testimony, at 
FDA, as Commissioner of Food and Drugs, I am working to implement 
numerous policies, initiatives, and regulatory improvements that 
reflect these critical needs in order to promote increased access to 
high quality, high value, safe and effective medical products, 
including drugs, biologics, devices and combinations of all three.
    I appreciate the opportunity to provide this testimony and I would 
be pleased to respond to any questions.
                               __________
         Prepared Statement of Carolyn Clancy, M.D., Director, 
               Agency for Healthcare Research and Quality
    Good morning, Mr. Chairman and Members of the Committee. I am very 
pleased to be here today to discuss the important issues of how we can 
facilitate, sustain, and promote health care innovation while we ensure 
that we have a health care system that is affordable. As my testimony 
will indicate, I believe that the work of the Agency for Healthcare 
Research and Quality (AHRQ) is critical to achieving these goals and 
complements the important work of the National Institutes of Health 
(NIH) and the Food and Drug Administration (FDA) and supports decision-
making by the Centers for Medicare and Medicaid Services (CMS).
                              ahrq's role
    Let me begin with a few words about where AHRQ fits within the 
Department of Health and Human Services. The basic and biomedical 
research supported by the NIH serves as the foundation for many of the 
advances in the prevention, diagnosis, and management of disease and 
impairment. Its work greatly expands the realm of possible public 
health and clinical interventions. While the Centers for Disease 
Control and Prevention (CDC) takes the lead on public health, 
community-based interventions often led by state and local health 
departments or public service media campaigns to improve health, AHRQ 
focuses on the role of clinical care and the health care delivery 
system.
    AHRQ's mission is to improve the effectiveness, quality, safety, 
and efficiency of healthcare services that patients receive. What is 
unique about our mission is that it encompasses both the evaluation of 
the effectiveness and quality of clinical services and the most 
effective and efficient ways to organize, manage, and safely deliver 
those services. As the Institute of Medicine report To Err Is Human 
made clear, this dual focus--on services and systems--is critical to 
improving health care.
    AHRQ contributes to efforts to speed the diffusion of effective 
medical breakthroughs. Our research can extend the findings of 
biomedical research to populations not included in clinical trials, 
evaluate the effectiveness and cost-effectiveness of interventions to 
determine which populations benefit most, and develop effective 
strategies to facilitate their rapid adoption. We also facilitate 
adoption of new knowledge by putting into perspective the available 
scientific evidence so that clinicians can better assess the importance 
of recent breakthroughs.
    In the area of drugs and devices that have received FDA approval, 
AHRQ focuses on their effectiveness (especially in comparison to 
existing options) and cost-effectiveness. We complement FDA's focus on 
the safety of drugs, biologics, and devices, with our focus on their 
safe use in daily practice. In the context of this hearing, this role 
is especially important. The harm that can result from inappropriate 
use of otherwise safe drugs, biologics, and devices is not only a 
tragedy for the patients involved but adds to health care inflation 
through the costs involved in attempting to repair the damage and 
related increases in medical liability expenditures. As a result, I am 
delighted to report that Dr. McClellan and I are developing an 
increasingly strong partnership between FDA and AHRQ in these areas.
    However, innovations in health care are not limited to drugs and 
devices but may also include new surgical procedures, new applications 
of existing technology, information technology or communications 
advances. Moreover, while some of these innovations offer unprecedented 
breakthroughs for some patients they may also result in unintended harm 
if not used appropriately. AHRQ's role, then, is to provide the best 
evidence regarding how to match specific services to patients' needs 
and preferences to promote the best possible outcomes.
    Finally, we serve as a science partner for efforts by the Centers 
for Medicare and Medicaid Services to improve the effectiveness, 
quality, and safety of services they support and improve the ability of 
beneficiaries to make more informed health care choices. Prior to our 
1999 reauthorization, we were required by law to make recommendations 
to CMS on coverage decisions. Today, upon request, we undertake 
technology assessments and other research activities to objectively 
synthesize all existing evidence on the effectiveness of medical 
interventions under consideration for coverage by CMS. We do not make 
recommendations.
              health care innovation and health care costs
    Mr. Chairman, America has a track record for health care innovation 
that is the envy of the world. The Administration and Congress in 
partnership have done much to accelerate and sustain that record 
through their commitment to biomedical and health care research. As a 
result, the pace of innovation has accelerated, the number of 
scientific journals and published research studies is exploding, and 
reports of scientific breakthroughs appear almost daily.
    Many of these developments offer the potential for greatly 
improving the quality of life for patients; in other cases the 
improvements are marginal at best. In some cases, innovation leads to 
the same or even higher quality of care at significantly lower costs 
while other innovation is cost increasing. The underlying challenge, 
therefore, is to effectively sort through the increasing array of 
clinical care options to develop objective scientific information so 
that those who make decisions--policymakers, systems managers, 
insurers, purchasers, clinicians, or patients--can make informed 
choices. The ultimate goal is to ensure that they can get real value 
for their health care dollar. Each of us may make different decisions 
as we weigh the evidence. My Agency's role is not to make those 
judgments. It is to develop and synthesize the evidence regarding 
health care interventions so that, whether you favor the current 
insurance-based system or favor a more consumer-driven model of health 
care decisionmaking, objective credible scientific information--on 
effectiveness, cost-effectiveness, and benefits (including downstream 
cost savings)--is available to inform those decisions.
    The need for such information has never been more compelling. 
Moreover, the resurgence of health care cost inflation at a time of 
increasingly constrained resources, both in the public and private 
sector, will only accelerate the demand for proof that we are getting 
real value for the health care dollars that we spend. Because our 
research focuses on both the effectiveness and cost-effectiveness of 
health care services as well as ways to improve the effectiveness, 
efficiency, and safety of the ways we deliver and use health care 
services, AHRQ is uniquely positioned to develop this type of 
scientific evidence.
                           how ahrq can help
    Let me suggest five broad areas in which AHRQ can assist in sorting 
through the array of new health care innovation and help to speed the 
adoption of effective interventions.
    First, AHRQ research identifies what is effective and cost-
effective in daily practice. Experience suggests that new drugs, 
technologies, and medical or surgical interventions are seldom equally 
effective for all types of patients. Will a breakthrough for the 
treatment of arthritis, tested in clinical trials with patients who 
only have that affliction, work as well in patients who not only have 
arthritis but are also taking medications for diabetes, congestive 
heart failure, and hypertension? Or how well does it work in patients 
whose racial, ethnic, and demographic characteristics differ from those 
in the clinical trial? Consider two examples from our research, one 
demonstrating the value of using the low-cost option; the other 
demonstrating the value of investing in much more expensive 
pharmaceuticals.
    The first example, treatment of otitis media (middle ear 
infection), is the most frequent reason for administering antibiotics 
to children. Over-prescribing increases the chance for adverse 
reactions, leads to the development of bacterial resistance, and 
increases expenditures. AHRQ supported researchers found that the use 
of the less expensive generic antibiotics resulted in the same or lower 
failure rates. They concluded conservatively that substituting low cost 
antibiotics for only half of the expensive antibiotic prescriptions 
would have saved Medicaid nearly $400,000. This research has led to the 
development of guidelines by the American Academy of Pediatrics 
recommending less-expensive antibiotics and to a metric used to 
accredit health plans.
    By contrast, in some cases, costly new interventions can reduce the 
long-term use of other health care resources. AHRQ research 
demonstrated that new, more costly anti-retroviral therapy for treating 
AIDS patients is both effective and cost-effective. The increased 
expenditures for those drugs are much less than the savings in 
inpatient, outpatient, and emergency room costs. Overall annual costs 
per patient were reduced from $20,300 to $18,300. If extrapolated to 
the approximately 335,000 adults receiving care for HIV infection in 
1996, over $500 million will be saved in HIV related healthcare.
    Second, AHRQ research identifies strategies for overcoming barriers 
to the use of effective services. Great opportunities for improving 
health, developed through biomedical research, are easily lost if 
physicians and patients are unable to make the best use of the 
knowledge in everyday care. These wasted opportunities are apparent 
daily in the under use of effective interventions and continued 
reliance upon outmoded approaches to patient care, which in turn 
contributes to the ever-increasing cost of care and avoidable loss of 
lives. By conducting and supporting research that focuses on their 
effective use, and working with clinicians and health care 
organizations to assure that this information is accessible when 
decisions are made, AHRQ ensures that Americans reap the full rewards 
of basic research and medical innovation.
    For example, NIH-supported research identified the potential of 
warfarin, a blood thinner, to reduce the risk of stroke in patients 
with atrial fibrillation. But physicians seldom prescribed warfarin for 
their patients. AHRQ-supported researchers concluded that warfarin was 
effective in daily practice, identified the reasons that physicians 
were reluctant to use warfarin, and developed a program of providing 
warfarin that would have an expected annual net savings of $1.45 
million per 100,000 people aged 65 years or older, of whom 6,000 would 
be expected to have atrial fibrillation. Using this knowledge, Medicare 
Peer Review Organizations implemented projects to increase 
anticoagulation, and 28 projects in 20 states had a 58-71% increase, 
with a projection of 1,285 strokes prevented. The findings of this AHRQ 
funded study were influential in the development of guidelines by the 
American College of Physicians, American Heart Association, American 
College of Chest Physicians, and the Joint Council of Vascular 
Surgeons. Based on this work, United HealthCare has included use of 
anticoagulation therapy for patients with atrial fibrillation in the 
profiling of its 262,000 physicians.
    Third, AHRQ facilitates the use of Evidence Based Medicine. In 
recent years AHRQ has focused increased attention on the development of 
technology and tools to facilitate the use of evidence-based medicine. 
For example, each year tens of thousands of patients who go to an 
emergency department worried that their chest pain is being caused by a 
heart attack, are inappropriately sent home, inappropriately 
hospitalized, or suffer because of delay in treatment due to an 
inconclusive electrocardiogram (EKG). These delayed or missed diagnoses 
have serious implications for patient survival or impairment rates, 
hospital costs and subsequent malpractice lawsuits. An increasing 
number of EKGs are now equipped with special software developed by AHRQ 
research that improves diagnosis by predicting the likelihood of 
whether chest pain is the result of a heart attack. The software could 
prevent 200,000 unnecessary hospitalizations and more than 100,000 
coronary care unit admissions a year and save roughly $728 million a 
year in hospital costs if implemented in half of the hospitals 
nationally. Soon-to-be-published research estimates that improved 
accuracy of diagnosis that results from use of this predictive tool 
could reduce malpractice costs nationally by $1.2 billion per year.
    Approximately 600,000, or 15 percent, of the 4 million Americans 
who develop pneumonia each year are hospitalized. Because of the lack 
of evidence-based admission criteria and the tendency to overestimate 
the risk of death, many low-risk patients who could be safely treated 
outside the hospital are admitted for inpatient care. An easy-to-use 
method developed by AHRQ-supported researchers accurately predicts 
which pneumonia patients can be safely treated at home, which costs 10 
to 15 times less than hospital care for pneumonia. The findings from 
this study also suggest that hospitals could reduce pneumonia hospital 
stays in many cases by 1 day without adversely affecting patient 
health. Criteria were developed to assist physicians with determining 
when patients could be discharged safely.
    Fourth, AHRQ research assesses the effectiveness of cost 
containment and management strategies. With Medicaid pharmaceutical 
costs increasing 20% per year, States are considering and implementing 
a variety of cost containment strategies. An example of how our past 
research can be helpful to today's decisionmakers involves a study of 
an initiative by a New England legislature to limit Medicaid 
reimbursement to three prescriptions per month. AHRQ concluded that the 
strategy back-fired. Increases in utilization costs were 17 times 
greater than the savings in drug expenditures. The result was that the 
state abolished the prescription cap, and another 9 states have also 
changed their policies based on this research.
    AHRQ research has also demonstrated that 85% of women with pelvic 
inflammatory disease, the leading cause of infertility, can be safely 
and effectively treated as outpatients, and developed an evidence-based 
approach to identify which nursing home patients require 
hospitalization for possible pneumonia and which can be treated at the 
nursing home This approach not only saves the cost of a hospitalization 
but also helps frail, elderly patients avoid the risks of experiencing 
additional hospital complications.
    Fifth, AHRQ's role in speeding the pace of evaluation of health 
care innovation. AHRQ's 1999 reauthorization directed us to serve as a 
science partner for public and private sector efforts to improve 
quality and urged us to continue our efforts, begun in the mid-1990s, 
to speed the pace of the evaluation of health care innovations.
    One of the critical roadblocks to coverage of innovative 
interventions is the lack of solid scientific evidence regarding their 
effectiveness, especially in comparison with existing interventions. 
While the FDA determines that a drug, biologic, or device is safe and 
that it has an impact when compared to placebo, those making coverage 
decisions, including clinicians and patients, still need more 
information regarding its relative effectiveness and relative costs. 
Similarly, promising biomedical research breakthroughs face a similar 
test. This is often frustrating for those whose creativity leads to the 
development of promising new technologies as they come to realize that 
passing FDA scrutiny is only part of the journey toward seeing their 
innovation in widespread use.
    While these constraints are not of AHRQ's making--and are certainly 
not unique to the public sector; the private sector takes technology 
assessment seriously as well--we have begun, and will continue, our 
efforts to facilitate the speed of this process. For example, when 
Medicare asked us to evaluate the effectiveness of lung-volume 
reduction surgery, we concluded that there was insufficient evidence to 
reach a determination at that time. But we pointed out to Medicare the 
potential for developing the evidence through an innovative process of 
conditional coverage--in which Medicare would pay for the procedure in 
selected institutions, provided the surgeons and patients agreed to the 
collection of outcomes data. This resulted in a partnership between 
Medicare, the National Heart Lung and Blood Institute, and AHRQ to 
assess the procedure. As a result of this study, we now know which 
patients are likely to benefit, and very importantly, a subgroup of 
patients who experienced increased mortality as a result of the 
procedure were identified so that avoidable and unintended deaths can 
be reduced.
    Similarly, AHRQ has revamped its ability to provide Medicare with 
much more timely scientific advice, in as little as two weeks for brief 
assessments of the volume of available evidence to full-scale 
technology assessments that might take a year. These time frames 
reflect as significant improvement in our ability to serve Medicare 
more effectively.
    There are at least two other ways in which we can serve as a 
science partner for private sector innovation. First, most technology 
assessments conclude that there is a lack of credible scientific 
studies from which to judge whether a technology is effective or 
ineffective. We are prepared to work with industry trade associations 
to assist their members, who have products moving to the end of the FDA 
review process, to better understand the types of studies that will be 
needed to assess the effectiveness of their products. This simple step 
would make a significant contribution to facilitating timely assessment 
of health care innovation.
    Second, in future years, as existing patient safety grants end, we 
will want to expand our focus on human factors research. As one wag 
commented, human factors research helps us to ``idiot proof our 
technology.'' More accurately, this research helps us to develop 
controls for our technologies so that they remain easy to program even 
by a harried, stressed, distracted, sleep-deprived health care 
professional. One example is the infusion pumps, used to administer 
fluids to patients through their veins, that are often involved in 
patient safety adverse events. Human factors research would help us to 
understand approaches for reducing inadvertent errors in programming 
these pumps. As we expand our support for human factors research within 
our patient safety portfolio we will want to work with industry to 
ensure that we are targeting the critical questions that will improve 
the safety and quality of the products they design in the future. By 
ensuring that this type of critical information in the public domain, 
we can be a science partner for their efforts to develop even more 
effective and safe health care technologies.
                          ahrq's new direction
    Mr. Chairman, before concluding, I would like to say just a few 
words about the future direction of AHRQ. As you know, I have been 
serving as Acting Director since March, 2002 and Director now for five 
months. During that time, our senior staff and I have undertaken a top 
to bottom review of our procedures and processes to determine how we 
can better fulfill the mandate of our 1999 reauthorization legislation 
to serve as a science partner for public and private sector efforts to 
improve quality.
    We are determined to make AHRQ a ``problem solving'' agency. This 
entails a greater focus on ``implementation research'' that is designed 
to develop strategies for overcoming barriers to the adoption of 
clinical interventions that are both effective and cost-effective. We 
need to be more pro-active in closing the gap between what we know is, 
effective and cost-effective in health care and what is done in daily 
practice.
    We have developed closer linkages, at every stage of the research 
process, between the ultimate customers of our work and researchers, to 
ensure that we are addressing their highest priority challenges. In the 
public sector, we are beginning to work more closely than ever before 
with Medicare, Medicaid, the Community Health Centers, the Federal 
Employee Health Benefit Program, and the Departments of Defense and 
Veterans Affairs.
    We also will be giving greater priority to identifying strategies 
for eliminating waste, assuring that evidence-based information is 
current, bringing our health care infrastructure, especially 
information technology, into the 21st century, redesigning workflow so 
that health care professionals can work more efficiently and 
effectively, and evaluating our financial and other incentives to 
ensure that we encourage safe, high quality care.
                               conclusion
    Mr. Chairman, in conclusion, let me note that one study 
demonstrated that the time frame from the approval of a research grant 
that ultimately yields useful findings to the widespread diffusion and 
adoption of those results was at least 17 years. That time frame is 
unacceptable. AHRQ is committed to playing its role in developing the 
scientific evidence for identifying effective interventions sooner and 
increasing the pace of their diffusion.
    This concludes my formal testimony. I will be happy to respond to 
any questions.
                                 ______
                                 
estimates of the impact of selected health information technologies on 
         quality and costs in inpatient and outpatient settings
                           executive summary:
    Healthcare Information Technology has the potential to improve the 
quality, safety and efficiency of healthcare by helping health care 
professionals make the best decisions and by assuring that those 
decisions are implemented as intended. This potential value will be 
realized in better adherence to clinical protocols, utilization of 
clinical decision support, reduction in medical errors, cost reductions 
and improved access to healthcare information.
    In order to estimate and put in context the relative value of these 
high-impact HIT functions AHRQ compiled the following analysis. The 
relative impact on quality, cost and net savings for selected in/
outpatient HIT functions is outlined below:

 
------------------------------------------------------------------------
                                                      Impact on Cost/Net
          HIT Function             Impact on Quality        Savings
------------------------------------------------------------------------
Computerized Physician Order      Decrease rate of    Total annual
 Entry (inpatient).                serious med error   savings range
                                   by 55%; decrease    from $7 to $14
                                   rate of potential   billion
                                   adverse drug        (nationally)
                                   events by 84%.
Clinical Decision Support         Decrease ordering   Decrease
 Technologies.                     of drugs that pt.   antibiotic cost
                                   is allergic to;     by -$200 per
                                   decrease in         hospitalization;
                                   orders for wrong    lower cost of
                                   (ineffective)       hospital care
                                   meds.               ($26,315 v
                                                       $35,283) and
                                                       shorter hospital
                                                       stays (10 v 12.9
                                                       days)
Automated Medication Dispensing   Significantly       One hospital
 Systems (inpatient).              fewer missed        realized savings
                                   doses of drugs (-   of $1.28 million
                                   16.9%).             over 5 yrs.
Bar Coding Technologies.........  75% decease in      Annual national
                                   errors caused by    savings of $15.3
                                   administration of   billion.
                                   wrong meds; 93%
                                   reduction in
                                   errors from wrong
                                   med to wrong pt..
E-Prescribing in Physician        Decreased           One study
 Practices.                        medication          demonstrated
                                   errors; Improved    reduced pharmacy
                                   physician           costs of $1.15
                                   efficiency.         PMPM; 30%
                                                       decrease in
                                                       physician to
                                                       pharmacy phone
                                                       calls.
Computerized Physician Order      Eliminate 2         $27 billion
 Entry (outpatient).               million adverse     savings in
                                   drug events;        medication
                                   Avoid 1.3 million   expenses
                                   office visits and   (nationally)
                                   190,000
                                   hospitalizations.
Electronic Medical Records        34% reduction in    Reduced Spending
 (Primary Care Settings).          adverse drug        by $44 billion
                                   events; 15%         per year: Savings
                                   decrease in drug    of $86,400 per
                                   utilization; 9%     provider over a
                                   decrease in         five yr. period.
                                   unnecessary lab
                                   utilization.
------------------------------------------------------------------------

                         estimated net savings:
    Our analysis demonstrates potential savings ranging in the tens to 
hundreds of billions for these few high value functions.
        computerized physician order entry in inpatient settings
     Description. Computerized physician order entry (CPOE) 
systems allow physicians to submit orders for medications and 
laboratory tests using an online system. The technology includes 
algorithms that prompt physicians about possible drug-drug 
interactions, drug allergies, and the need to order certain laboratory 
tests to measure whether a medication is effective. A study by Bates et 
al., conducted at Massachusetts General Hospital and Brigham and 
Women's Hospital in Boston, Massachusetts, compared the rates of 
adverse drug events before and after implementation of CPOE.
     Impact on Quality. The study showed that use of CPOE in 
those hospitals reduced the rate of serious medication errors resulting 
in patient injuries by 55 percent, from 10.7 events per 1000 patient-
days to 4.86 events. The rate of potential adverse drug events--that 
is, errors that did not result in an injury--decreased by 84 percent. 
The study found that the rate of errors in ordering of medications fell 
by 19 percent, the rate of errors in transcription of orders fell by 84 
percent, the rate of errors in dispensing of medications fell by 68 
percent, and the rate of errors in administration of medications fell 
by 59 percent.
     Another study by Teich et al. (2000) examined the CPOE 
system at Brigham and Women's Hospital and Massachusetts General 
Hospital as well. The study compared physician prescribing practices 
before and after implementation of the CPOE system. It found that use 
of CPOE occurred contemporaneously with an increase in adherence with 
certain clinical guidelines that were programmed into the CPOE system. 
Use of computerized guidelines was associated with an increase in the 
use of a recommended drug, while use of a dose selection menu was 
associated with a decrease in variation in drug dosages among similar 
patients. The proportion of doses that exceeded the recommended maximum 
dosage decreased from 2.1 percent to 0.6 percent, while the display of 
a guideline for administration of a particular drug increased the 
proportion of orders that complied with the guideline. Each of those 
results was statistically significant.
     Impact on Cost. An earlier study by Bates and colleagues 
found that the annual cost of preventable adverse drug events at 
Brigham and Women's Hospital was $2.8 million. A 17 percent reduction 
in preventable adverse drug events was observed in this study, which 
would equate to annual savings of $480,000 for that hospital.
    Estimated Net Savings. Implementing computerized patient order 
entry in all hospitals in the U.S. could reduce the rate of preventable 
adverse drug events by 17 percent, avoiding 656,800 preventable adverse 
drug events per year.
    The additional cost of treating a preventable adverse drug event 
has been estimated at $5,857. Thus, the savings from averted 
preventable adverse drug events could total $654 million per year.
    A study of the implementation of CPOE in a hospital with 726 beds 
found that annual savings for that hospital were between $5 and $10 
million. If this savings can be extrapolated to the over 1 million 
hospital beds in the U.S., total annual savings would range from $7 to 
$14 billion.
    The first year cost of implementing a CPOE system in an individual 
hospital ranges from $2,480 to $15,000 per bed, while the ongoing cost 
of maintaining the system ranges from $870 to $1500 per bed. Amortizing 
the initial costs over 20 years at 7 percent interest, the national 
costs of implementing CPOE systems in each of the 1 million hospitals 
in the U.S. could range from $1.1 to $2.9 billion. (Amortizing those 
costs over 5 years would equate to annual costs of $1.5 to $5.1 
billion, while amortizing those costs over 10 years would equate to 
annual costs of $1.2 to $3.6 billion.)
                 clinical decision support technologies
     Description. LDS Hospital in Salt Lake City, Utah, 
implemented a clinical decision support system that assists clinicians 
in choosing a course of antibiotic and anti-infective therapy for 
patients in the intensive care unit. The decision support system uses 
information about the patient's diagnosis, white-cell count, body 
temperature, and information from pathology and microbiology reports to 
recommend a course of anti-infective therapy for identified and 
potential pathogens. The system also considers information about drug 
allergies, drug-drug interactions, and costs in choosing a recommended 
course of therapy. A study of the system was reported by Evans et al., 
1998.
     Impact on Quality. The study found that the system was 
associated with a significant reduction in orders for drugs to which 
patients had reported allergies (from 146 to 35 during the previous 
two-year period), reduced excess drug dosages (from 405 to 87), and 
reduced antibiotic-susceptibility mismatches (from 206 to 12). The 
average number of days of excessive drug dosage was significantly 
reduced (from 5.9 to 2.7), as was the number of adverse events caused 
by anti-infective agents (from 28 to 4.) Each of those results was 
statistically significant.
     Impact on Costs. The study found that patients who 
received the recommended anti-infectives had lower costs of anti-
infective agents ($102 vs. $340 for those in the preintervention 
period), lower costs of hospital care ($26,315 vs. $35,283 for those in 
the pre-intervention period), and shorter hospital stays (10 days vs. 
12.9 days for those in the pre-intervention period.)
    automated medication dispensing systems in the inpatient setting
     Description. Automated medication dispensing systems 
replace the existing manual systems used in many hospitals to dispense 
a 24-hour supply of each patient's drugs to nurses on the floor. The 
automated system is connected to the pharmacy computer system, so that 
orders for new prescriptions are transferred electronically to the 
automated dispenser. The automated system stores and dispenses most of 
the medications that nurses administer to patients, while automatically 
billing for the drugs used. A study of the use of an automated 
dispensing system at the University of California, San Francisco 
Hospital was reported by Schwarz et al., 1995.
    Another study of an automated dispensing technology in a 600-bed 
teaching hospital in Dallas, Texas, was conducted by Borel and Rascati 
(1995).
     Impact on Quality. The University of California study 
found that after implementation of the automated dispensing system, 
there were significantly fewer missed doses of drugs. The number of 
reported medication errors decreased for the surgical unit, but 
increased for the coronary intensive care unit.
    The Texas study found that before implementation of the automated 
dispensing system, the medication error rate was 16.9 percent, while 
after implementation of the system, the error rate dropped to 10.4 
percent. (Most errors consisted of administering a drug at the wrong 
time.)
     Impact on Costs. The authors estimate that the automated 
dispensing system could save the hospital $1 million over five years if 
all personnel time savings could be translated into reductions in 
staffing. The cost of the automated dispensing system for 330 acute 
care beds and 48 critical care beds was $1.28 million over five years. 
The savings of $2.08 million over 5 years was attributable to decreased 
labor costs for pharmacists, pharmacy technicians, pharmacy billers, 
and nurses.
                        bar coding technologies
     Description. Bar code technologies replace traditional 
data entry. Bar codes similar to those utilized in many other 
industrial sectors allow the quick accurate linkages between component 
parts of a complex process. For example, a patient's ID bracelet with a 
bar code is scanned and compared against a similar code in a medication 
dispensing unit prior to medication delivery. Another example is the 
usage of bar codes to conduct inventory in a hospital pharmacy. Both 
these examples allow for faster entry of information with fewer errors.
     Impact on Quality. A review of the use of bar code 
technologies was conducted by Bridge Medical, Inc. The Colmery-O'Neil 
Veterans Affairs Medical Center, a division of the Eastern Kansas 
Health Care System, developed proprietary Bar Code Medication 
Administration software. In 2001, the health system reported a 
medication error rate of 3.0 incidents per 100,000 units dispensed, 
compared with 21.7 incidents per 100,000 units in 1993, the last year 
in which a manual medication system was used. The health system 
experienced a 75 percent decrease in errors caused by administration of 
the wrong medication; a 62 percent decrease in errors caused by 
incorrect dosing, a 193 percent improvement in errors related to giving 
drugs to the wrong patient, and an 87 percent decrease in errors 
related to administering drugs to patients at the wrong time.
     Impact on Cost. FDA expects their proposed bar coding 
rule, once fully implemented, to lead to 12.8 fewer adverse drug events 
per hospital, a national reduction of 84,200 (23% less).
    Full implementation of this rule would lead to annual net savings 
of about $190 million in hospital treatment costs, roughly $29,000 per 
hospital. This considers an average additional treatment cost of $2,257 
per adverse drug event associated with errors occurring at bedside. The 
average start up costs for a hospital is $369,000, and, after 
installation, the average annual operating costs are predicted to be 
$312,000 per hospital.
    The annual societal benefit from avoiding medication errors is 
about $2.3 million per hospital, an estimated benefit of $15.3 billion 
nationally. Approximately 2,400 mortalities and 1,600 permanent 
disabilities would be avoided each year.
    When both treatment and societal savings are combined, annual 
reductions per hospital would be $2,329,000. Considering start up costs 
(amortized over 20 years at 7%) and annual operating costs, the net 
annual benefit is likely to be $1,983,000 per hospital.
                  e-prescribing in physician practices
     Description. E-prescribing technologies allow physicians 
to submit prescriptions to pharmacies electronically. The technologies 
eliminate problems associated with hand-written prescriptions and 
incomplete orders, and also allow physicians to check potential drug 
interactions at the time the prescription is ordered. Advocates of e-
prescribing believe it is capable of improving patient safety, 
improving adherence to formularies, and increasing online access to 
patient information and decision support resources. Quantum, Inc., a 
physician practice management company in San Antonio, Texas, 
implemented an e-prescribing system sold by Allscripts, Inc., in 1998. 
Another example includes the Tufts Health Plan and AdvancePCS 
implementation of an e-prescribing technology called PocketScript. The 
technology which can be used remotely on Personal Digital Assistants or 
even Blackberries was introduced to 100 physicians' offices in 
Massachusetts. Finally, in another study Gandhi and colleagues (2002) 
compared rates of medication errors and adverse drug events in two 
physician practices that used electronic prescribing technologies with 
two practices that used traditional hand-written prescribing over a 
six-week period.
     Impact on Quality. The Cap Gemini Ernst and Young studied 
the Quantum/Allscripts implementation and found the system improved the 
practices' efficiency and increased use of generic drugs by about 4 
percent. In survey conducted following the Pocketscript implementation, 
35 percent of physicians reported patient care benefits due to the 
ability to check drug interactions and prescription accuracy. The 
Gandhi study found that the practices that used electronic prescribing 
had fewer violations of prescribing rules and fewer medication errors, 
but the rates of preventable and non-preventable adverse drug events 
were not significantly different. The main types of errors were related 
to identifying medication-related symptoms and inappropriate drug 
choice. Computerized ordering checks would have prevented only one-
third of the preventable adverse drug events that occurred.
     Impact on Cost. One of the Quantum physician practices in 
which the technology was used experienced savings of $1.15 per member 
per month in pharmacy costs, for a total of $69,000. Increased 
operational efficiency contributed to an additional $12,000 in savings 
for that practice. Pocketscript technology improved operational 
efficiency for the practices. It reduced phone calls between physician 
practices and pharmacists by 30 percent, and saved nearly one hour per 
pharmacist in a typical day.
             ambulatory computerized physician order entry
     Description. Computerized Physician Order Entry (CPOE) 
systems in the ambulatory (or outpatient) setting allow physicians to 
submit orders for medications, immunizations, lab tests, radiology 
studies, nursing interventions, and referrals. A key component of CPOE 
in the ambulatory setting is clinical decision support, which gives 
physicians tools for diagnosing and treating patients while avoiding 
medical errors. Clinical decision support, one of the most important 
attributes of CPOE, essentially gives the physician access to a bank of 
medical knowledge at the point and time of care. A review of CPOE in 
ambulatory settings was conducted by the Center for Information 
Technology Leadership. It included a literature review, interviews of 
vendors, and an expert panel meeting.
     Impact on Quality. The review found that nationwide 
adoption of advanced CPOE systems in the ambulatory setting would 
eliminate more than 2 million adverse drug events, and over 130,000 
life-threatening adverse drug events. In addition, nationwide use of 
CPOE would avoid nearly 1.3 million physician office visits per year, 
and more than 190,000 hospitalizations per year.
     Impact on Cost: The study estimates that nationwide use of 
CPOE in the ambulatory setting could save nearly $27 billion in 
medication expenses each year. Those savings include switches from 
brand to generic drugs, switches from more expensive to less expensive 
drugs within the same therapeutic class and more appropriate drug 
utilization. Of that total, savings of more than $2 billion would be 
achieved through averted hospitalizations from prevented adverse drug 
events, while $10 billion of savings would come from reduced radiology 
costs and nearly $5 billion in reduced laboratory costs.
     Estimated Net Savings: The Center for Information 
Technology Leadership estimates that implementing advanced CPOE systems 
in the outpatient setting would eliminate over 2 million adverse drug 
events per year, and would avoid nearly 1.3 million physician visits, 
190,000 hospital admissions, and over 130,000 lifethreatening adverse 
drug events per year.
    Nationwide adoption of advanced CPOE systems in the outpatient 
setting would avoid about $44 billion per year in health care spending. 
That savings would consist of savings on medications (60%), radiology 
services (24%), laboratory services (11%) and avoided adverse drug 
events (5%).
    The cost of adopting advanced CPOE systems that include ambulatory 
electronic medical record systems is over $29,000 per provider in the 
first year, and about $4000 per provider in subsequent years. If those 
costs were applied to each of the over 473,000 office-based physicians 
in the U.S. and amortized over 20 years at 7 percent interest, the 
annual cost of implementing an advanced CPOE system across the U.S. 
would be $2.2 billion. (Amortizing those costs over 5 years would 
equate to annual costs of $2.7 billion, while amortizing those costs 
over 10 years would equate to annual costs of $2.4 billion.)
          electronic medical records in primary care settings
     Description. Partners Healthcare System in Boston, 
Massachusetts, internally developed an electronic medical record that 
replaces paper medical charts. The system aggregates a patient's 
complete medical record--including physician notes, lab test, radiology 
results, immunization records and a host of other data elements--into 
an electronic version. The record, up to date and secure, is then 
available to providers either at the patient's primary point of care 
(physician office) or via secure linkage, at other sites of care (ER, 
specialist, etc . . .). A cost-benefit analysis of the electronic 
medical record was conducted by Wang et al., 2003.
     Impact on Quality: The authors estimated that the 
electronic medical record was associated with a 34 percent reduction in 
adverse drug events, a 15 percent decrease in drug utilization, a 9 
percent decrease in laboratory utilization, and a 14 percent reduction 
in radiology utilization.
     Impact on Cost. The study found that the electronic 
medical record had net financial benefits of $86,400 per provider over 
a five-year period. Savings in drug expenditures made up one-third of 
that amount, with the remainder of savings attributable to decreased 
radiology utilization, decreased billing errors, and improved charge 
capture.
                               __________
  Prepared Statement of Peter Neumann, Sc.D., Associate Professor of 
      Policy & Decision Sciences, Harvard School Of Public Health
    Thank you very much Mr. Chairman for your invitation to speak 
before this committee on the topic of technology, innovation, and their 
effects on cost growth in health care.
    I would like to speak today about how we can better understand the 
value or cost-effectiveness of medical technology.
    Broadly speaking, medical technology contributes to growth in 
health care expenditures.
    But this research says nothing by itself about the benefit side of 
the equation. As we consider medical technology, it is important to 
address not just how much medical technology contributes to health 
costs, but whether the investments in medical technology are worth the 
health benefits produced.
    We all would like to get good value for our money when we pay for 
new drugs, devices, and procedures. How do we get there? What tools do 
we have to use, and what policy options are available? Formal economic 
evaluation can help us answer these questions.
    The field of economic evaluation of health and medical 
interventions has been an active area of research in recent years. It 
includes cost-effectiveness analysis, which shows the relationship 
between the total resources used (costs) and the health benefits 
achieved (effects) for an intervention compared to an alternative 
strategy. Often a standard metric such as life-expectancy or quality 
adjusted life-expectancy is used as the measure of health benefits.
    In part with funding from the Agency for Health Care Research and 
Quality, my colleagues and I have compiled a list of over 1500 cost-
effectiveness ratios, covering a wide variety of medical technologies 
and public health strategies in many disease areas. More information is 
available on our website www.lispb.harvard.edu/cearegistry.
    These data underscore several important points about the cost-
effectiveness of medical technology. First, a great deal of information 
on the topic has become available to policymakers in recent years. 
Unlike many unsupported assertions made about the ``cost-
effectiveness'' of drugs and other medical technology, these studies 
quantify costs and health effects using data and a standard, well-
accepted methodological technique.
    Second, according to peer-reviewed articles, many technologies are 
indeed cost-effective. Examples include warfarin therapy to prevent 
stroke in those with atrial fibrillation, immunosuppressive drugs for 
those with kidney transplants, and treatment with mood-altering drugs 
for those suffering from depression. These interventions provide good 
value in the sense that they produce health benefits for relatively 
little cost, or may actually save money for the health care system.
    Third, cost-effectiveness does not mean cost-savings. Over the 
years, people have sometimes confused these terms. But restricting the 
term cost-effective to cost-saving interventions (where equal or better 
health outcomes is implied) would exclude many widely accepted 
interventions, which do not save money but are ``cost-effective'' in 
the sense that their additional benefit are worth their additional 
cost.
    A related point is that a critical aspect of any medical 
technology's cost-effectiveness involves the manner in which the 
question is framed. A technology is not intrinsically cost-effective or 
cost-ineffective. It is only meaningful to say that a technology is 
cost-effective compared to something else. A drug prescribed to lower 
an individual's blood pressure may in fact be cost-effective compared 
to the option of no treatment, but not necessarily when compared to an 
alternative intervention, such as an intensive program of diet and 
exercise, or another medication. Similarly, claims of cost-
effectiveness often depend on the population under investigation. For 
example, statin drugs used to lower an individual's cholesterol have 
been found to be relatively cost-effective as secondary prevention in 
persons with existing heart disease, but considerably less cost-
effective as primary prevention.
    Does anyone actually use CEA? Logically, cost effectiveness 
analysis should be used by private insurers and state and federal 
policy makers. However, many payers, including Medicare, have shied 
away from using CEA in coverage and reimbursement decisions.
    But why? Cost-effectiveness analysis promises to inform decisions 
and enhance population health in an explicit, quantitative and 
systematic manner. Medical journals, including the most prestigious 
ones, routinely publish CEAs. Furthermore, many other countries have 
incorporated CEA into their policy decisions.
    How do we explain this paradox? Studies point to a couple of 
explanations. Some of them fault the methodology itself. But in fact, 
most experts agree on the basic tenets. Instead, the opposition more 
likely relates to the hardened American distaste for explicit 
rationing. This is understandable, perhaps. But still, how do we get 
good value in face of this opposition?
    I would offer five observations as we look ahead.
    CEA should not be used rigidly. Leaders in the field have always 
warned against using CEA mechanically, but experiences teaches that 
rigid use of CEA will be resisted. Expectations for CEA should be 
modest. CEA should inform decisions not dictate them.
    CEA will not save money. CEA should not be conceptualized or 
promoted as a cost containment tool, but rather as a technique for 
obtaining better value. Paradoxically, using CEA may actually increase 
health spending, because it often reveals under--than over treatment.
    How you say it matters. Research shows that physicians understand 
that resources are limited but they are not willing to admit to 
rationing. Similarly, health plan managers deny that they ration care 
but admit that their budgets are constrained. These responses are 
instructive. It suggests that the term ``cost-effectiveness'' may be 
part of the problem. We might instead use terms such as ``value 
analysis'' and comparability, rather than cost-effectiveness analysis 
and rationing.
    Incentives first. Debates about the use of cost-effectiveness 
cannot be separated from debates about the underlying health system and 
the incentives they embody. The technique is sometimes opposed if used 
centrally. But reconfiguring the incentives facing providers and 
patients is challenging and critical.
    Think broadly across sectors. A final message involves the 
importance of thinking expansively about applications of CE 
information. CEAs should not simply focus on medical interventions but 
more broadly on interventions to improve health by reducing 
environmental exposures, injuries at home and in the workplace, and 
motor vehicle accidents.
    In closing let me emphasize that whether medical technology offers 
good value is a question that can only be informed by careful analysis. 
I would encourage the judicious use of cost-effectiveness analysis in 
the years ahead.
    Thank you very much.

               Table 1: Selected Cost-Effectiveness Ratios
------------------------------------------------------------------------
                                                         Cost per QALY
                    Interventions                       ratio (US $2002)
------------------------------------------------------------------------
Onetime colonoscopic screening for colorectal cancer        Cost-saving.
 at 60-64 yrs old vs. no screening in women over 40
 years old...........................................
Cost-saving Chemoprevention with tamoxifen vs.                    $1,800
 surveillance in 40-year-old women with high-risk
 breast cancer 1/2 mutations.........................
Drug treatment vs. no treatment in stage I                        $4,800
 hypertensive patients: men, age 80..................
High-dose palliative radiotherapy vs. best supportive            $13,000
 care in patients with advanced non-small-cell lung
 cancer..............................................
Combined outreach for the pneumococcal and influenza             $13,000
 vaccines vs. no new outreach program in persons aged
 65 years old and older never vaccinated with
 pneumococcal vaccine and/or not vaccinated for
 influenza in the last year..........................
Screening for diabetes mellitus vs. no systematic                $22,000
 diabetes mellitus screening in all ndividuals age 35-
 44..................................................
Driver side air bag vs. no air bags in driving                   $30,000
 population (and passengers).........................
Bypass surgery vs. medical management + aspirin over             $35,000
 5 years in ischaemic heart disease patients.........
Automated external defibrillators on large-capacity              $36,000
 aircraft, selective training vs. no automated
 external defibrillators, attendants with basic life
 support training in patients experiencing cardiac
 arrest onboard US commercial aircraft during a 12
 month period........................................
Coronary artery bypass graft surgery vs. percutaneous            $99,000
 transluminal coronary angioplasty (PTCA) in 55-yr.
 old men with 3-vessel coronary artery disease and
 type A lesions with severe angina and normal
 ventricular function................................
Intensive school-based tobacco prevention program vs.     $5,300-650,000
 status quo (Current average national tobacco
 educational practices) in every 7th and 8th grade in
 the U.S.............................................
MRI + dynamic susceptibility contrast-enhanced (DSC)            $530,000
 magnetic resonance imaging (MRI) vs. head computed
 tomography (CT) scan only in patients presenting for
 the first time to an Alzheimer's Disease center/
 clinic..............................................
Triple therapy with zidovudine, lamivudine, and                 $850,000
 indinavir for all exposures vs. the current United
 States Public Health Services (USPHS) post-exposure
 prophylaxis guidelines in health care workers dosed
 to known HIV+ blood.................................
Surgical strategy vs. Medical strategy in 45 year old        $1,900,000
 men with severe esophagitis.........................
------------------------------------------------------------------------
Source: Harvard School of Public Health Cost-Effectiveness Registry,
  2003. www.hsph.harvard.edu.cearegistry.


    Cost-Effectiveness of Underutilized Interventions in the Medicare
                               Population
------------------------------------------------------------------------
                                                            Percent
                                  Cost-Effectiveness   Implementation in
       Health Intervention             ($/QALY)            Medicare
                                                          Population
------------------------------------------------------------------------
Influenza vaccine...............  Cost saving.......  40-70
Pneumococcal vaccine............  Under $1OK/QALY...  55-60
Beta blocker treatment after      Under $1OK/QALY...  85
 myocardial infarction.
Mammogram.......................  Under $20K/QALY...  75 (depending on
                                                       age)
Colon cancer screening..........  Under $20K/QALY...  20-40 (depending
                                                       on age)
Osteoporosis screening..........  Under $20K/QALY...  35
Antidepressant medication         Under $25K/QALY...  40-55
 management.
Hypertension control............  Under $50K/QALY...  35
------------------------------------------------------------------------
Source: Harvard School of Public Health, 2003.
QALY=quality-adjusted life year.
Note: The estimates in this table are intended to provide a rough guide
  to cost-effectiveness and implementation. However, study methodology
  for estimated cost-effectiveness often varies across analyses.
  Moreover, cost-effectiveness may depend on factors such as the age and
  gender of the population, and the particular screening and
  technologies used.

                               __________
    Prepared Statement of Neil R. Powe, M.D., MPH, MBA, Professor of
         Medicine, Epidemiology and Health Policy & Management,
                        Johns Hopkins University
    Good morning Mr. Chairman, Senators and Representatives. I am Neil 
R. Powe, MD, MPH, MBA, Professor of Medicine, Epidemiology and Health 
Policy & Management at Johns Hopkins University in Baltimore, Maryland. 
I direct the Welch Center for Prevention, Epidemiology and Clinical 
Research, an interdisciplinary research center of the Johns Hopkins 
School of Medicine and Bloomberg School of Public Health. I am a 
general internist, clinical epidemiologist and health services 
researcher. My research has assessed the clinical and economic impacts 
of biomedical innovation in medicine. It examines the impact of new and 
established technologies on patients' longevity, functioning, quality 
of life and costs. I have conducted cost-effectiveness studies of 
technologies in several areas of medicine and have attempted to do this 
with equipoise. Among the technologies I have studied are kidney 
replacement therapies such as dialysis and transplantation, 
biotechnology medications such as recombinant human erythropoietin, 
cardiac revascularization procedures, imaging tests for lung and heart 
disease, laboratory testing for periodic screening, laser therapies, 
vascular procedures to prevent stroke and minimally invasive surgery. I 
have also studied physician decision making and other determinants of 
use of medical technology including payers' decisions about insurance 
coverage for new medical technologies and the impact of financial 
incentives on the use of technology.
    New medical technologies include drugs, devices, procedures and the 
systems of care in which we, as medical professionals, deliver them. 
These include so called ``little ticket'' technologies which cost 
relatively little individually, but when used at high frequency, can 
become expensive. One such emerging ``little ticket'' technology is the 
C-reactive protein (CRP) laboratory test for detecting inflammation now 
being debated as a useful technology for detection of heart attack 
risk. ``Big ticket'' technologies such as ``body scans'' and organ 
transplantation have high individual price tags and can generate high 
cost even when used relatively infrequently. In theory, a new medical 
technology can increase costs, have similar costs or decrease costs 
relative to the existing standard. Evidence to date suggests that much 
of new biomedical innovation increases cost to the health system, 
especially in the short run. ``Little ticket'' or ``big ticket'', 
technology should not be judged based simply on costs. The more 
important question that I would like to address is ``what is a 
technology's value''.
    Value is commonly seen as the benefit that is derived relative to 
the cost. In theory, a technology can produce benefit relative to the 
existing standard if patient outcomes (effectiveness and/or safety) are 
better; on the other hand it can produce no benefit if outcomes are 
similar, or even produce harm if patient outcomes are worse. High value 
occurs when substantial improvement in patient outcomes occurs at a 
reasonable cost. Americans believe in the concept of value and 
understand it. For example, they are willing to pay more for many 
things--a particular type of clothing, food, service, house or 
automobile--because they believe that the utility (happiness, 
satisfaction, health, well-being) that is derived from the purchase is 
worth the higher price. Cost is a relevant factor, but value is 
paramount. So much so, that medical technology needs to be judged in 
the same way.
    Twenty-five years ago, the science of assessing value in medicine 
was rudimentary and underdeveloped. Many of the tools for assessing 
value were first applied to health care in the late 1970s and early 
1980s. These include patient outcomes research comprising clinical 
trials, evidence synthesis (including meta-analysis) and cost 
effectiveness analysis. At that time it was uncertain how these tools 
would fare in assessing health care. They have undergone refinement by 
researchers at universities across the country. Much of this work has 
been catalyzed and funded by the Agency Healthcare Research and 
Quality. These researchers have sought to create rigorous standards of 
high quality research for value science. Teams of clinicians, 
epidemiologists, health services researchers, health economists and 
others are involved in assessing value. Despite the maturation of and 
demand for the science of value, its impact has been limited for three 
reasons.
    First, there is an unprecedented number of new technologies now 
entering into the healthcare marketplace. These technologies earn the 
admiration of the world and are made possible from continual progress 
in biomedical science. They include minimally invasive surgery, 
transplantation of hearts, lungs, kidneys and livers, biotechnology 
drugs indistinguishable from natural hormones for patients with 
congenital or acquired deficiencies, dialysis therapy for end stage 
kidney disease, automatic implantable defibrillators and cardiac 
resynchronization to bring life to those with life threatening 
arrhythmias and heart failure. Knowledge of the structure and function 
of genes and proteins is advancing rapidly and the future will yield 
promising technologies we never imagined for identifying, preventing 
and treating acute and chronic diseases in an aging population. For 
example, genetic tests are now in the making for early detection of 
breast cancer, Huntington's disease and Alzheimer's disease. However, 
the level of funding for high quality and unbiased value assessments 
pales in comparison to the explosion of new biomedical innovations.
    To the public, payers and providers, the entry of new medical 
technologies into the practice of medicine now seems like a series of 
intermittent ``surprise attacks'' on the pursestrings of American 
health care. It has been suggested that less than a fifth of all 
practices in medicine are subjected to rigorous evaluation and still 
less receive an adequate assessment of the cost consequences in 
addition to the clinical consequences. We are likely to witness a salvo 
of ``surprise attacks'' in the coming years without adequate funding to 
do early, comprehensive, balanced and rapid assessments. In a study 
with researchers at the AHRQ, I found that medical directors making 
coverage decisions for new medical technologies at private healthcare 
plans across our country were impeded in their decisions because of 
lack of timely effectiveness and cost-effectiveness information.\1\ 
There is considerable trepidation to decide against covering 
potentially useful technology without adequate evidence. Likewise there 
is concern about making a coverage decision in favor of a technology 
that might later be shown to have minimal benefits at a large cost to 
society.\2\ The preference of those making decisions about coverage and 
payment for technology was for high quality outcomes research funded by 
authoritative government entities.\3\
---------------------------------------------------------------------------
    \1\ Steiner CA, Powe NR, Anderson GF, Das A. Technology coverage 
decisions by health care plans and considerations by medical directors. 
Medical Care. 1997; 35:472-89.
    \2\ Boren SD. I had a tough day today, Hillary. New Engl. Jour. of 
Med. 1994; 330:500-2.
    \3\ Steiner CA, Powe N, Anderson GF, Das A. The Review Process and 
Information Used by Health Care Plans in the United States to Evaluate 
New Medical Technology. Journal of General Internal Medicine 1996; 
11:294-302.
---------------------------------------------------------------------------
    Early assessments of clinical and economic outcomes could be 
accomplished with investment of a small fraction of annual healthcare 
expenditures on value assessments. The payoff would be substantial. For 
example, contrary to relentless, direct-to-consumer advertising for 
body scans to detect occult disease, my colleagues and I recently found 
that screening smokers for lung cancer with helical CT scans is 
unlikely to be cost-effective unless certain conditions are met.\4\ The 
high number of false positive lung nodules detected by the scans can 
potentially lead to more harm from invasive and costly surgical 
procedures. We have performed similar cost-effectiveness studies to 
guide decision making for detection of mild thyroid gland failure using 
thyroid stimulating hormone (TSH) laboratory tests and use of cardiac 
ultrasound devices in patients with stroke showing what tests have 
substantial value.\5,\ \6\ Early assessments such as these, which 
include primary data collection, secondary data collection, data 
synthesis, modeling and forecasting would secure information for the 
American public and its policymakers in the timely fashion needed to 
prevent premature dissemination of costly technology with no or little 
value. The Agency for Healthcare Research and Quality as well as the 
National Institutes of Health could act as the focal point to bring the 
best teams of ``value researchers'' in the country to attack these 
issues, by performing clinical effectiveness trials, observational 
studies, cost-effectiveness analyses and meta-analyses. If introduction 
of some new technologies does not decrease costs, at least through 
generation of better and more timely information, Americans can make 
sure that what they are purchasing provides good value for the dollars 
they spend.
---------------------------------------------------------------------------
    \4\ Mahadevia PJ, Fleisher LA, Frick KD, Eng J, Goodman SN, Powe 
NR. Lung cancer screening with helical computed tomography in older 
adult smokers: a decision and cost-effectiveness analysis. Journal of 
the American Medical Association 2003; 289:313-22.
    \5\ Danese MD, Powe NR, Sawin CT, Ladenson PW. Screening for Mild 
Thyroid Gland Failure at the Periodic Health Examination. A Decision 
and Cost-Effectiveness Analysis. Journal of the American Medical 
Association 1996; 276:285-292.
    \6\ McNamara R L, Lima JAC, Whelton PK, Powe NR. Echocardiographic 
Identification of Cardiovascular Sources of Emboli to Guide Clinical 
Management of Stroke: A Cost-effectiveness Analysis. Annals of Internal 
Medicine 1997; 127:775-787.
---------------------------------------------------------------------------
    Early assessments are particularly important given rising numbers 
and costs of pharmaceuticals, current consideration of a Medicare 
prescription drug benefit and use of tiered pricing arrangements in the 
private sector to control drug spending. Tiered pricing is a mechanism 
to allow consumers choice in particular drug treatments when they 
believe one drug has value over another. However, they must pay more 
when choosing to use a more expensive medication. Placement of a 
pharmaceutical into a particular tier and patient decisions to buy and 
use it are dependent on unbiased information about the benefits and 
costs of the pharmaceutical relative to the benefits and costs of 
competing medications, i.e. relative value.
    Second, as a corollary, funding for career development of ``value 
scientists'' needs substantial bolstering to expand the cadre of people 
with the capability to perform such research. The AHRQ and the NIH 
could amplify training programs focused on preparing and assuring 
experienced value scientists to perform this function, just as the AHRQ 
and NIH have support training of biomedical scientists who innovate. 
Far too few physicians and other health care professionals and 
scientists have the necessary training to understand and produce value 
science that integrates clinical and economic issues.
    Third, understanding how technologies affect cost and value 
involves an understanding of the barriers to decision making for health 
care providers. Barriers to optimal decision making can lead to 
technologies being overused, underused or misused. Physicians are 
responsible for most of the decisions in medicine and therefore the use 
of medical technologies. My colleagues and I performed a study of the 
factors affecting physician decision making with regard to adherence to 
clinical practice guidelines.\7\ We found there is a process that must 
take place for a new technology to become routine, standard practice. 
Physicians must be aware that a new technology exists, agree that it 
has value, be willing to try it (adopt) and then, they must adhere to 
its use. Lack of awareness leads to underuse. Underuse of an effective 
technology can lead to higher expenditures in the future. For example, 
if physicians were not aware that in patients with diabetes, urine 
protein screening for detection of occult kidney disease and 
application of angiotensin converting enzyme inhibitors can delay or 
prevent expensive ($>50,000 per year) dialysis treatment for endstage 
kidney failure, they might never employ this strategy in their 
practice. Fortunately, methods of communicating new information to 
clinicians are improving through rapid summary publications (Up To 
Date, ACP journal club), clinical practice guideline production by 
professional societies and dissemination through electronic means. The 
continued proliferation of technology will be even more challenging for 
physicians to keep abreast of new technology. Ways for helping them 
acquire and assimilate new information are needed.
---------------------------------------------------------------------------
    \7\ Cabana MD, Rand CS, Powe NR, Wu AW, Wilson MH, Abboud PA, Rubin 
HR. Why Don't Physicians Follow Clinical Practice Guidelines? A 
Framework for Improvement. Journal of the American Medical Association, 
1999; 282(15):1458-1465.
---------------------------------------------------------------------------
    If aware of a technology, physicians must agree with the evidence 
that a technology is more effective or safe. If high quality evidence 
on representative patient populations is not available, physicians may 
disagree on whether the technology provides benefit.\8\ We studied how 
early assessments, released through brief clinical alerts that were not 
comprehensive influenced the use of carotid endarterectomy.\9\ We found 
that clinicians may extrapolate research findings to populations 
without clear evidence and indications. Value science can provide clear 
evidence.
---------------------------------------------------------------------------
    \8\ Cruz-Correa M, Gross CP, Canto MI, Cabana M, Sampliner RE, 
Waring JP, McNeilSolis C, Powe NR. The Impact of Practice Guidelines in 
the Management of Barrett's Esophagus: A national prospective cohort 
study of physicians. Archives of Internal Medicine 2001; 161:2588-2595.
    \9\ Gross CP, Steiner CA, Bass EB, Powe NR. The Relation Between 
Pre-publication Release of Clinical Trials Results and the Diffusion of 
Carotid Endarterectomy. Journal of the American Medical Association 
2000; 284(22):2886-2893.
---------------------------------------------------------------------------
    Awareness and agreement are necessary for appropriate use of 
technology but insufficient. Even being aware and with strong evidence 
of effectiveness, physicians may not adopt innovations if there are 
administrative barriers to its use or lack of self-efficacy (i.e. 
belief in their ability to use the technology to improve outcomes). 
They may also adopt technologies with little benefit if payment 
policies prematurely promote a technology's use. Financial incentives 
in payment policy influence both adoption of and adherence to use of 
technologies. We found that providers responded to financial incentives 
in payment policy for a biotechnology product (recombinant 
erythropoietin) used to treat the profound anemia associated with 
kidney disease.\10,\ \11\ Under a fixed, per case payment system, 
administered doses of this medication were less than optimal to achieve 
the maximal benefit. Changes in payment policies by the Centers for 
Medicare and Medicaid Studies were necessary to assure that Medicare 
spending was leading to maximal value for recombinant erythropoietin. 
Thus, proper use of new technologies means that the physicians who 
apply them and the systems into which they are placed are adequately 
configured and incentivized to make optimal use of the technology. To 
this end, there is a need for more behavioral and systems research that 
studies how biomedical innovation from laboratories is optimally and 
rapidly translated into interventions to improve the health of patients 
treated at hospitals and physicians offices. The AHRQ can play a role 
in this regard.
---------------------------------------------------------------------------
    \10\ Powe NR, Griffiths RI, Anderson GF, de Lissovoy GV, Watson AJ, 
Greer JW, Herbert RJ, Whelton PK. Medicare Payment Policy and 
Recombinant Erythropoietin Prescribing for Dialysis Patients. American 
Journal of Kidney Diseases 1993; 22:557-567.
    \11\ Powe NR. Prescription Drugs in Medicare and the ESRD Program. 
Seminars in Nephrology 2000; 20(6):535-5.
---------------------------------------------------------------------------
    A final issue affecting cost and value is whether new technologies 
supplant older ones and whether technology induces more demand. New 
tests do not always replace older ones.\12\ For example, CRP testing is 
a new test that could be routinely adopted for assessing heart attack 
risk. But it is unlikely to substitute for other tests such as 
cholesterol and diabetes testing. Similarly, ambulatory blood pressure 
monitors are unlikely to substitute for traditional office-based blood 
pressure monitoring. Minimally invasive surgery is an example of a 
technology that may induce persons who would otherwise not have a 
surgical procedure to undergo an operation. Although these technologies 
may not substitute for older traditional tests and may induce further 
expenditures through wider use, they may provide health value.
---------------------------------------------------------------------------
    \12\ Eisenberg JM, Schwartz JS, McCaslin FC, Kaufman R, Glick H, 
Kroch E. Substituting diagnostic services. New tests only partly 
replace older ones. Journal of the American Medical Association 1989; 
262:1196-200.
---------------------------------------------------------------------------
    In conclusion, biomedical innovation has brought the United States 
new, unprecedented, medical advances that save and improve the quality 
of patients' lives. We need to continue to encourage biomedical 
innovation. But we must recognize that for many health conditions, 
technologies will bring higher rather than lower absolute costs. Cost 
is relevant, but value is far more important. We need to protect 
biomedical innovation and the America's purse by furthering the science 
of assessing value in medicine. Strengthening our nations' capacity to 
perform value science will help private and public payers in this 
regard and provide information that physicians and consumers of medical 
technologies need to make decisions about their care. The American 
people cannot afford to have technology used unwisely. A fraction of 
health care expenditures in the U.S. should be targeted to the value 
science of medical care.
    Thank you for the opportunity to address you today. I would be 
happy to entertain any questions you may have.



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



                                
