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Roll Call

Doing No Harm

Big Changes in Medical Industries Will Require the Right Touch

Bloomberg News
Doctors and medical students at a Veterans hospital in Washington access the facility’s electronic medical records.

 If President Obama had his way, every hospital and physician’s office in America would have electronic records. Those systems would allow one doctor to tell what other medical professionals are doing to treat individuals, spot safety problems and coordinate care. Government-funded research would help physicians compare different ways of treating the same condition to determine what works best for various groups of people. And better information about the differences among individuals could lead companies to develop new breakthrough treatments, with close monitoring of safety and efficacy issues by the Food and Drug Administration.

Health policy experts say the administration’s vision makes sense. But translating those goals into reality will be anything but easy.

In the past two years the president has won congressional permission to pour billions of dollars into initiatives to spur the adoption of electronic medical records, encourage medical providers to coordinate patients’ care, pay for studies comparing different treatment regimens for the same disease and fund bioscience research that could lead to new cures.

But it’s unclear how much change these investments will produce. The success of the administration’s initiatives depends in large part on persuading professionals who are actually treating patients to change their habits. Medical providers are often entrenched in the status quo.

A different challenge comes from the segments of the health care sector that depend on continual innovation — such as companies that make medical discoveries or develop new drugs or devices. Executives in some of those companies say they worry that some of the policies pushed by the Obama administration, particularly at the Food and Drug Administration, actually could slow down innovation. Medical device manufacturers are particularly wary of some FDA proposals to change the most commonly used process for approving their products.

Drug and device companies also say that the administration needs to take a broad look at all the policies affecting a company’s bottom line.

“It’s one thing to say you want innovation,” said John Castellani, the president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), the trade association for the drug industry. “It’s another thing to be able to be sure that everything that affects our ability to innovate is there.”

Paper Chase

Some health care providers are chafing at all the attention from Washington — and that’s not even taking into account the pushback from the medical insurance overhaul law enacted a year ago. The administration has tried to create incentives for doctors and hospitals to take steps that federal officials want rather than mandate the changes immediately. But in each case, some medical professionals see risks, too.

Take the reaction of some physicians to the idea of replacing the paper-based system they use in their practices with an electronic records system.

One of the first actions taken by the Democratic-controlled Congress after Obama took office was to enact the economic stimulus package. It was seen as the first plank of the president’s health care agenda to become a reality, because the package included money to pay providers bonus Medicare or Medicaid payments if they met certain criteria for demonstrating that they use electronic medical systems.

If physicians meet the so-called “meaningful use” goals for electronic medical records, they can get an additional $44,000 over five years in Medicare payments or up to $63,750 over six years through Medicaid.

But some doctors say the cost and disruption to their practices isn’t worth it. The initial cost of setting up an electronic system is at least $30,000 per doctor, according to a fact sheet from the American Medical Association. The operational costs are an additional estimated $3,000 to $15,000 per doctor every year.

If physicians don’t implement a new system, though, they will be penalized starting in four years. Some physicians say this isn’t the way to encourage innovation. They argue that the administration is being too aggressive, especially because technologists are still developing many of the tools that would be needed for an ideal electronic records system that can confidentially share information.

“Inflexible incentive program requirements will only hinder the health IT transitions under way today,” said AMA Board Secretary Steven J. Stack, adding that “unrealistic” requirements “will overly burden physicians and hamper adoption — especially for those physicians in small or solo practice.”

Like doctors, hospitals can benefit from the new bonuses or face penalties in 2015. Hospital officials are concerned about the details, including those that make it expensive to combine one system from one vendor for one hospital department with another system for another department.

“Some of the ways they have created the certification of electronic health records could hamper innovation in the marketplace,” said Don May, vice president for policy at the American Hospital Association. “If hospitals had more flexibility, that would lead to more innovation.”

Some providers and patients also are skeptical of plans by the administration to underwrite more research to compare different treatments for the same medical problem. The stimulus package provided $1.1 billion for such “comparative effectiveness” research, and the Democratic health care law set aside more funding and created a new nonprofit to support it.

The fear is that comparative effectiveness studies may be used by Medicare or Medicaid officials or insurance executives to justify limits on care. If a study says that one treatment is more effective on average for the general population than another, then some providers and patients worry that the less-favored treatment won’t be covered — even if it actually works better for an individual whose personal circumstances differ from those of most of the population.

If officials who make reimbursement decisions do not force physicians to use a treatment that studies say is usually better than alternatives, another concern arises: Physicians might ignore the research, and the improvements in care that the administration wants might never take hold.

The ACO Decision

Physicians, particularly those in small practices, also are unsure whether they will participate in another big experiment that the Obama administration is undertaking to update the health care system. Under a proposed rule released on March 31, the administration would give bonuses to physicians, hospitals and other providers that create new networks — known as “accountable care organizations”  or ACOs — that manage patients’ care more carefully and effectively. If the networks save money, then the providers get to keep some of it.

But under the proposal, physicians or hospitals that don’t save money could face penalties. The plan allows providers to choose between two options. In one, providers willing to bet big on their potential to save money would be eligible for greater increases than under the other alternative, but also would risk losses in the first year if they don’t save money. The other, somewhat safer route would give providers less return, but they wouldn’t face financial risks until the third year.

The fact that the rule included a downside risk at all was something of a surprise. Physicians running their own practices don’t have the same access to capital that large hospital systems do, and many are worried about running afoul of federal antitrust laws even though the rule proposes to waive those in certain cases.

“ACOs offer great promise for improving care coordination and quality while reducing cost, but only if all physicians who wish to are able to lead and participate in them,” said Jeremy A. Lazarus, Speaker of the American Medical Association House of Delegates. “For this to happen, significant barriers must be addressed.”

The rule for the Medicare ACO program is expected to be finalized later this year and the program will start next year.

Devices, Drugs and Uncertainty

These tensions are playing out as a more routine debate held every few years between the health industry and the executive branch is gearing up. By September 2012, Congress is supposed to act to renew the laws authorizing user fees that drug and device companies pay to help fund the Food and Drug Administration. Negotiations between the industry and the FDA are finishing up.

Already, friction between the medical device industry and the FDA is fairly high.

The director of the FDA’s Center for Devices and Radiological Health, Jeffrey Shuren, has launched an ambitious effort to revise the approval process for most devices through new regulations. Some of the changes to the so-called 510(k) process, which is known for the section of law that created it, are not controversial. But others are anathema to device manufacturers, who say that the administration is stifling innovation.

The animosity between the industry and the agency was barely contained at one February hearing before the House Energy and Commerce Health Subcommittee. Two industry witnesses repeatedly complained that the FDA prevents companies from selling devices that could help patients because agency officials have set regulatory standards that are too strict or because various officials give executives different messages.

“The U.S. is in danger of losing its preeminent status in this field,” said the subcommittee’s chairman, Republican Joe Pitts of Pennsylvania, taking the side of industry. “Shorter, more predictable, and more transparent approval processes in Europe have led many device companies to seek a market for their products in Europe before submitting them to the FDA, and they are taking good-paying American jobs overseas with them.”

Shuren said that because the FDA requires more data proving safety and efficacy than do European regulators, Americans have been better protected from devices that prove dangerous.

The statement of Pitts and other GOP members made it clear that Shuren’s efforts could be vulnerable to congressional intervention. Congress could delay controversial rules through riders on other bills, or could block them next year when lawmakers rewrite the laws authorizing device user fees.

The discussions between the drug industry and the FDA have been less contentious, at least in public. But drugmakers have concerns about the pace of FDA reviews, especially if they will be asked to increase the user fees they pay.

And Castellani of PhRMA said that the government sometimes sends mixed messages.

One example of inconsistency came when the latest presidential budget proposed undoing a compromise in the 2010 health care overhaul. The law called on the FDA to create an approval process so that generic companies could make copies of brand-name biologic drugs — such as certain vaccines — that are made with live organisms. Obama proposed shortening the time period, from 12 years to seven years, during which brand-name drug companies would have protections for original products.

“It sends two conflicting signals,” said Castellani — which is just the sort of thing that causes uncertainty and can stifle innovation.

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