Medical Costs and Clinical Value: Playing the Long Game

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Even as soaring medical costs strain public and private budgets around the world, patients yearn for therapeutic breakthroughs. Game-changing cancer treatments, emerging antiviral agents, and mRNA vaccines are powerful reminders of medical technology’s potential. But insurance premiums and out-of-pocket payments underscore medicine’s financial burden.

Restraining costs and catalyzing innovation are often said to be at odds. They needn’t be. We propose a strategy that pursues both aims by targeting the future trajectory of innovation and rewarding advances in proportion to their therapeutic and public health benefits.

M. Gregg Bloche, MD, JD

M. Gregg Bloche, MD, JD

Neel U. Sukhatme, PhD, JD

Neel U. Sukhatme, PhD, JD

John L. Marshall, MD

John L. Marshall, MD

The Trajectory of Innovation

Were medical innovation to be moving the world, in the main, toward high-value services, we wouldn’t worry about rising health-care spending.1 It’s the disconnect between cost and value that’s cause for concern.

Rising health spending is the product of multiple interlocking influences. Insurance, both public and private, is part of this story: Developers of new technology—drugs, devices, and more—count on the availability of coverage. They thus commit more financial and human capital to research and development than they otherwise would.

Psychology, culture, and clinical ethics reinforce this. Were insurers to refuse to cover clinical advances unless they yielded benefits commensurate with cost, prospective innovators would eschew the development of tests and treatments likely to produce only marginal efficacy at high cost. But it’s difficult for public or private insurers to withhold payment for therapeutic advances, however minimal, once they emerge.

Ethics, Law, and Political Clout

People are wired to aid those they see in distress—and to expect others to do so—even when restraint would preserve resources for more cost-effective use. Films and novels celebrate such empathy and sacrifice. Behavioral scientists are illuminating its origins. Health spending, so biased toward urgent need over long-term benefit, reflects it.2

Clinical and research ethics entrench rescue without regard for cost.3 Though recent years have seen more attention to stewardship of limited resources,4 Hippocratic commitment to individual patients pushes physicians to provide all care they believe will yield net benefit, however small. Likewise, the prerequisite of “equipoise” prohibits clinical trials of less expensive measures that researchers believe are even slightly less effective than high-priced tests or treatments.

Law reinforces this commitment to paying for the state-of-the-art regardless of cost. Medical malpractice law and a federally mandated independent review scheme for disputes over coverage of tests and treatments obligate health-care providers and payers to meet reigning standards of care—standards minimally restrained by cost.2 So, in practice, does the Medicare program’s “medically necessary and reasonable” standard for coverage: Government efforts to construe “reasonable” in cost-sensitive fashion have been repeatedly thwarted by stakeholder pushback.5

Current intellectual-property law, moreover, favors low-benefit innovation. Patents are one-size-fits-all—up to 20 years of market exclusivity in the United States, regardless of clinical efficacy. This encourages research-and-development decision-makers to choose high-probability-of-success projects with limited therapeutic potential over riskier investments that might produce major breakthroughs. So long as these safe bets yield even modest therapeutic advantage, medical practice incorporates them.6

Not only can developers and adopters of new technology count on this path to profitability; once they bring technologies into broad use, they have powerful motivation and means to protect their investment. Political clout, the legal regimes we’ve noted, and marketing that stirs patients’ hopes and fears are parts of their toolkit for sustaining high-cost clinical practices.

Reshaping Incentives for Innovation

Thus, it is exceedingly difficult to restrain the use of costly technologies once they emerge. Enhancing price competition, empowering payers (public or private) to drive harder bargains, and increasing patients’ out-of-pocket obligations all have some potential to ratchet down spending. But such proposals, politically in play in the United States and other industrialized nations, would do little to stem the use of marginally beneficial tests and treatments.

The dynamics we’ve described have so far stymied the control of low-value spending. Rather than flail against them, cost-control efforts should finesse them, by targeting the trajectory of future innovation. Consider a truth that hides in plain sight. Tests and treatments that don’t yet exist aren’t the object of vested expectations. Investors, developers, doctors, and hospitals haven’t yet made large commitments to them. Patients and their loved ones aren’t outraged by lack of access, and medical ethics do not command their provision. But once clinical practice incorporates a technology, limiting its use arouses resistance—from needy patients as well as health-care stakeholders who’ve invested in its provision.7

Discouraging the future emergence of high-cost, low-value measures could slow the growth of medical costs without meeting such resistance. Such a strategy, though, should foster research and development with potential to produce major therapeutic advances. To this end, we propose reshaping incentives to reward advances in proportion to clinical impact.

Doing so wouldn’t immediately reduce medical spending, since it wouldn’t address ill-restrained use of already-established tests and treatments. But it would extract greater value from future health spending as technologies emerge.

It could also slow this spending’s long-term growth. That’s because large therapeutic leaps forward typically arise from breakthroughs in biological science, which open the way to treatments with decisive effect. By contrast, the most expensive care is often sophisticated in an engineering sense but crude in its biological action—“halfway technology,” in Lewis Thomas’ famous phrase—a substitute, not a fix, for physiology gone awry.8 It employs costly personnel to oversee complex processes, often for extended periods, since it doesn’t put our biology back on track.2

Tying Payment and Patents to Efficacy

How, then, might advances be rewarded in proportion to their clinical value? Payment policy and patent protection offer two avenues.

First, variable payment for new tests and treatments, tied to evidence of efficacy, would link the rewards of research and development to therapeutic payoff. By doing so for emerging clinical approaches (and grandfathering established services), such a payment policy would transform incentives going forward, averting resistance from stakeholders who stand to lose from reduced reward for widely used services. We distinguish here between this strategy and “pay-for-performance” (which we endorse); the latter links providers’ financial rewards to their compliance with present-day best practice.9

Second, replacing one-size-fits-all patent protection with variable-length terms, tied to an innovation’s therapeutic impact, would invite decision-makers in research and development to aim high. After patent rights have been granted, patent duration could be adjusted as evidence of clinical value emerges. Linking the patent system’s rewards to clinical efficacy would compensate for the disconnect between efficacy and willingness to pay that health insurance creates.

A large challenge confronts efforts to tie rewards to therapeutic value: the difficulty of measuring efficacy. Prospective, randomized trials have long been the gold standard, but their cost, duration, and narrow patient-inclusion criteria are obstacles to widespread use. Retrospective and other nonrandomized study designs, meanwhile, are beset by the problem of confounding influences.

However, the big-data and analytics revolutions are opening the way for ongoing, rigorous comparison of tests and treatments in the course of clinical practice. Interoperable information systems, collection of rich patient data, and software that can reduce confounding influences and track multiple metrics of therapeutic success are making it possible to evaluate relative, “real-world” performance of alternative approaches.10

Toward Multidimensional Indicators of Value

Metrics of success, moreover, can be combined to create multidimensional indicators of value, incorporating life expectancy, side effects, and levels of capability and distress. Models for such indicators have already been developed—for example, ASCO’s framework for comparing “Net Health Benefits” of therapeutic alternatives.10

Work must be done to refine such indicators, root them in rigorous efficacy data, allow for varying clinical situations, and translate these indicators into relative-value ratings for the purpose of setting payment rates and patent terms. This effort will require negotiation of methodologic agreement among health-care stakeholders.

We envision starting with several “proof-of-concept” indicators. There is a promising precedent: Medicare’s “Resource-Based Relative Value Scale” (for paying physicians) and “Diagnosis-Related Groups” (for paying hospitals) followed from consultation among affected providers. What’s different about the indicators we envision is that they tie value to health outcomes, not resource inputs.

These indicators could be designed to adjust as efficacy data stream from ongoing clinical practice. Industry stakeholders, moreover, could be given the opportunity to rebut unfavorable findings by performing prospective trials. Payment rates and patent terms could be periodically revised to incorporate updates to these indicators.


This approach doesn’t count on cuts in the use of already-available high-cost services; we concede the difficulty of achieving such reductions once expectations vest. Rather, it plays the long game, by shifting innovators’ calculus of economic risk and reward, away from low-
value projects toward pursuit of breakthroughs. This could change the trajectory of therapeutic advance toward technologies that yield greater benefit-per-dollar-spent. It could also, over time, slow medical spending’s growth to rates that national economies can sustain. 

Dr. Bloche is Carmack Waterhouse Professor of Health Law, Policy, and Ethics at Georgetown University Law Center. Dr. Sukhatme is Professor of Law at Georgetown University Law Center; Thomas Alva Edison Visiting Scholar at the U.S. Patent and Trademark Office; and Andrew Carnegie Fellow. Dr. Marshall is Director, The Ruesch Center for the Cure of GI Cancers; Frederick P. Smith Endowed Chair, Chief, Hematology and Oncology, Lombardi Comprehensive Cancer Center, Georgetown University Medical Center.

Disclaimer: This commentary represents the views of the author and may not necessarily reflect the views of ASCO or The ASCO Post.

DISCLOSURE: Dr. Bloche and Dr. Sukhatme reported no conflicts of interest. Dr. Marshall reported relationships with Indivumed, Caris, Pfizer, Bayer, Taiho, AstraZeneca, Seagen, and Merck.


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9. European Observatory on Health Systems and Policies: Paying for Performance in Health Care: Implications for Health System Performance and Accountability, Berkshire, England; Open University Press; 2014.

10. Schnipper LE, Davidson NE, Wollins DS, et al: American Society of Clinical Oncology statement: A conceptual framework to assess the value of cancer treatment options. J Clin Oncol 33:2563-2577, 2015.