The Affordable Care Act invests in research to compare the effectiveness of different treatments, but it doesn’t allow Medicare to use that research to make coverage or reimbursement decisions. Currently, the program uses a “reasonable and necessary” standard when evaluating a new drug or procedure and sets a “payment level with the primary goal of reimbursing hospitals or providers for their cost plus some profit margin.” The manufacturer is not required to prove that the service in question is equally or more effective than other available options and so the government ends up spending billions of dollars a year on ineffective or overpriced treatments.

In this latest issue of Health Affairs, Steven Pearson and Peter Bach have a plan to change all that. “We believe that the time is ripe for Medicare to use comparative effectiveness research to reach a new paradigm of paying equally for services that provide equivalent results,” they write. “To accomplish this goal, the program’s coverage and reimbursement processes would need to be linked from the outset, when the evidence for or against a service’s comparative clinical effectiveness would be weighed.” Medicare would pair its traditional “reasonable and necessary” standard with an assessment of the treatment’s comparative effectiveness. Pearson and Bach propose classifying treatments into three separate categories:

1) Superior comparative clinical effectiveness: if the service is more effective or has fewer side effects, or both than the most relevant clinical standard.

2) Evidence of comparable comparative clinical effectiveness: the service’s clinical effectiveness was comparable to its most relevant alternative. Such a service would be assigned a payment level equal to that of the alternative.

3) Insufficient evidence to determine comparative clinical effectiveness: insufficient evidence for whether the new service is comparable, superior, or inferior to relevant alternatives. The program would set payments according to the current cost-plus reimbursement formula for a period of three years. At the end of this period, Medicare would decide whether additional evidence was now available to determine if the service were superior, comparable, or inferior to alternatives.

The authors use the example of intensity-modulated radiation therapy, a treatment first introduced into practice in the early 2000s, which uses “computers to create three-dimensional pictures in order to target the highest possible dose of radiation to cancerous tumors while sparing normal tissue.” Clinicians felt that intensity-modulated radiation therapy was an advance to the traditional three-dimensional therapy, but “there had been neither randomized trials nor contemporaneous cohort studies comparing the effectiveness and toxicities of intensity-modulated radiation therapy to traditional three-dimensional therapy”:

Under the existing reimbursement system: The reimbursement rate is set in recognition of the increased cost of the necessary equipment and the complexity of its treatment planning process. A single course of treatment was set at approximately $42,000. For three-dimensional therapy providers received only $10,000. “This discrepancy led providers around the country to buy intensity-modulated radiation therapy machines and to abandon conventional three-dimensional therapy.” Medicare costs increased an estimated $1.5 billion per year to for prostate cancer alone.

Reimbursement Using Proposed Framework: Medicare’s decision to cover the treatment would have been accompanied by a determination that there was insufficient evidence with which to judge the comparative clinical effectiveness of the newer treatment against the standard three-dimensional therapy. Thus, the new treatment would have been slated to receive the higher—$42,000 per course—reimbursement for only three years.

Over that period, “if the evidence had shown that the new treatment had lower risks of side effects than the old one, then reimbursement for the new service would have remained higher.” If not, “Medicare would have reduced its reimbursement for the new therapy to equal that paid for the traditional treatment.” “Intensity-modulated radiation therapy would still have been available to patients, but incentives for developing less expensive versions of the treatment would have been strong. And Medicare would not have been trapped into years of significantly higher payments for a new technology that might not improve patients’ outcomes more than the older treatment.”

This is filled with all kinds of complications and will be subject to intense resistance from PHRMA and devise manufacturers who’ll argue that the approach stifles innovation and keeps needed treatments out of reach. Politicians will interpret this as an effort to ration care and many others will have trouble reconciling this payment system with the unfortunate conventional wisdom that any medical advance as an improvement over existing treatment. As Pearson and Bach explain, we’ll have to make some trade-offs, but that’s something worth considering. “When there is insufficient evidence to assess comparative effectiveness, it is possible that further evidence would show that a new service was inferior to existing options, at least for some types of patients. Limiting the rapid dissemination of such a service is likely to be in the best interest of most patients. Therefore, it is neither unethical nor without precedent for Medicare to institute a coverage and reimbursement strategy that may limit access to some new services.”

The next time you hear somebody say that the Affordable Care Act increases health spending or bends the cost curve up, just show them this nifty chart compiled by my colleagues at the Center for American Progress, which shows just how the law begins to lower Medicare spending:

- $100.4 billion: The amount of federal deficit reduction from 2010 to 2019 due to new revenue sources for the Medicare trust funds under ACA.

- 24 percent: The decrease in Medicare’s share of GDP under ACA provisions. Before the passage of comprehensive health care reform, the portion of GDP assumed by total Medicare spending in 2035 would have been 7.2 percent. With ACA provisions, however, this portion decreases to 5.5 percent.

- 7.5 percent: The portion of baseline Medicare spending that will be saved from 2011 to 2019.

The chart:

Of course, now that we’ve petted ourselves on the back for doing better than pre-reform Austin Frakt would have us look forward and argues that even with these savings, health care costs are still unsustainable:

Federal spending and revenue projections as a percent of GDP: Alternative Fiscal Scenario

All of this is a bit daunting when you realize that many of the policies that lead to the reductions in the first graph haven’t even been implemented and can even be reversed by weak lawmakers who will undoubtedly face intense lobbying pressure from providers, insurers, and others. Part of that is because the cost-cutting part of the law may not be specific enough. As Tom Daschle pointed out yesterday, “We lay out a very clear 10-year schedule, with great specificity about how insurance reform is going to work…[but] we don’t do that nearly as much with cost-containment and with delivery reforms.” “I think we could have put into the legislation specific targets and actions that would be required have to do with unnecessary care, in terms of primary care, transparency and even a more ambitious and delineated schedule for HIT, moving away from fee-for-service.”

But of course if we want to keep the country from going bankrupt we’ll need to keep lawmakers accountable and pave the way for more reforms.

Bloomberg is reporting that “almost a million workers, one-third of them members of New York’s teachers union, were left out of a consumer protection in U.S. health law meant to cap insurance costs after the government exempted their employers.” “Thirty companies and organizations, including Jack in the Box Inc. and the United Federation of Teachers, won’t be required to raise the minimum annual benefit included in low-cost health plans covering seasonal, part-time or low-wage employees.”

The waivers are intended to prevent employers that offer so-called mini-med plans — subprime insurance that restricts the number of covered doctor visits or imposes a relatively low maximum on insurance payouts — from dropping coverage, but there is also very real concern that this approach would deprive too many workers of the law’s protections:

The waivers are effective for a year and were granted to insurance plans and companies that showed employee premiums would rise significantly or that workers would lose coverage without them, Ms. Santillo said in an e-mailed statement. The administration announced the waiver program in a Sept. 3 memo.

Without the waivers, companies would have had to provide a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013, and without limit in 2014. Allowing a waiver for plans with limits much lower than this will ensure that those beneficiaries will “not be denied access to needed services or experience more than a minimal impact on premiums,” the administration memo said.

To be sure, HHS is in a rather tough spot. If companies respond to the new regulations by dropping insurance coverage, low-wage employees will have to either go uninsured until 2014 (when the exchanges kick in) or try to enroll in Medicaid or the new high-risk insurance pools, for which they may be ineligible and may have some trouble affording. As Aaron Carroll of the Incidental Economist explains it, Democrats are facing the three-legged-stool problem. You can’t give people access to affordable coverage without regulating the insurers, getting everyone into the risk pool through the mandate and providing subsidies for those who need them, but the law implements the regulation leg four years before the subsidy and mandate legs are even attached. And so what you’re seeing now is a stool that just can’t find its balance.

Consequently, the government is exempting these companies for a year to give them an opportunity to gradually adjust their plans so they can meet the new requirements. But Carroll predicts that the government will likely extend these exemptions through 2014. That makes for its own batch of bad headlines about the limited impact of the law’s consumer protections, but it seems to be a better solution than letting thousands of low wage Americans go without coverage.