Does Real-World Evidence Play a Role in the US HTA?

By Woojung Lee and Boshen Jiao

Why do we want to know how real-world evidence (RWE) is being used in health technology assessment (HTA) and what is RWE anyway?

Based on the FDA’s definition, RWE is clinical evidence regarding the usage and potential benefits or risks of a medical product derived from the analysis of real-world data. Real-world data is defined as data relating to patient health status and/or the delivery of health care routinely collected from a variety of sources.

There has been a growing interest in incorporating RWE into the HTA process to assess the clinical outcomes and economic value of drugs, mainly due to the limited availability of evidence from randomized clinical trials (RCTs) and the desirable property of RWE in reflecting outcomes in the real-world setting.  Despite RCTs being the gold standard, long-term drug effects and economic outcomes are often challenging to collect from the RCTs.  The US FDA’s recently released guidance in 2018 on how drug companies may communicate health care economic information to payers and formulary committees that enable the use of off-label evidence related to approved indications also likely increased the use of RWE in economic analysis. Furthermore, US payers increasingly recognize the value of RWE in informing healthcare decision making, believing that RWE, while not a replacement for RCTs, can provide the best available evidence for a HTA in situations when well-controlled clinical trials are difficult to implement.

However, it remains unclear how RWE can be incorporated into the HTA of pharmaceuticals in the US (there has been a few studies in Europe though!). We thought that a quantitative examination of RWE use in the US may give US payers an objective view of the possible roles that RWE can play in the HTA of drugs. This is especially important considering that the use of RWE varies from payer to payer and is generally limited because of the lack of understanding of how to incorporate RWE into the value assessment process. A better understanding of the current roles of RWE can help facilitate its use in the HTA.

What did we do?

We conducted two studies.  In the first study, we assessed the use of RWE in the economic assessment of drugs by the Institute for Clinical and Economic Review (ICER), a nonprofit independent research organization that evaluates the clinical and economic values of medical interventions. Their reports have been increasingly used by the US payers in their decision-making processes. Specifically, we reviewed the long-term cost-effectiveness analysis (CEA) and potential budget impact analysis (BIA) sections of final evidence reports published by the ICER between January 2014 and June 2019 and extracted evidence of RWE use. 

 We identified 407 RWE uses in CEA and BIA sections of the ICER reports, which accounted for 33% of all model inputs (i.e. 67% of model inputs were not informed by RWE). However, this proportion ranged from 4% – 77% for each final evidence report, showing a large variance. (Figure)

We found that over time (from 2014-2019) there is an increase in the use of RWE to inform model inputs. The most common reasons were to inform mortality or disease progression rate (29%) and health care costs (21%) (Figure).

Drug-specific clinical inputs such as drug effectiveness, drug-specific discontinuation rate, and adverse drug events were rarely informed by RWE (<3%). The most frequently used study design was a retrospective cohort (50%) followed by a prospective cohort study (17%). In terms of the data sources, registry data were the most frequently used data (40%), followed by administrative claims data (18%) and patient survey/diary data (18%).

Nondrug-specific clinical inputs (e.g., disease progression and mortality rate, patient characteristics, and incidence) and economic inputs (e.g., health care costs and treatment pattern) were mostly informed by retrospective studies whereas drug-specific clinical inputs (e.g., drug effectiveness and adverse drug events) were more likely to be informed by prospective studies. In terms of the data sources, registry data and administrative claims data were the main sources of nondrug-specific clinical inputs and economic inputs. Drug-specific clinical inputs were informed by diverse sources including electronic health records, claims, as well as registry data. Not surprisingly, only 1% of RWE were pre-registered (one meta-analysis and 4 prospective studies). We also found that about 30% of RWE was sponsored by industry.

In the second study, we assessed the use of RWE in ICER’s scoping and comparative clinical effectiveness (CCE) assessments. We examined the frequency of use, trends, and reasons of RWE use overall and further stratified by the therapeutic areas. We also reviewed the relevant clinical guidelines that were cited in the CCE assessments.

We found that the mean frequency of RWE was 3.8 per ICER scoping document, 0.7 per drug per ICER CCE assessment, and 1.6 per drug per clinical guideline. In the ICER scoping documents, RWE was most frequently used to inform the outcome (55%), followed by the population (20%) (Figure).

To inform the effectiveness, safety, and treatment patterns of the drugs, 53%, 44% and 3% of RWE were used in ICER CCE assessments, and 41%, 30% and 39% were used in the relevant clinical guidelines, respectively. When stratified by disease areas, our findings indicated that RWE was used least in the area of oncology, compared to the other areas. Additionally, we also found a positive association between the time a drug has been on the market and RWE use.

Why is RWE infrequently used to inform drug-specific clinical outcomes?

RWE has a minor role in informing drug-specific clinical outcomes such as effectiveness, safety, and drug discontinuation in ICER’s value assessment process. Main reasons for the slow uptake include payers’ concern about the quality of RWE and their lack of ability to evaluate RWE, implying an overall lack of awareness and underutilization of quality assessment tools for RWE (there is one tool developed by the CHOICers!)  Another reason is the time required to generate RWE. ICER reports are usually published near the time drugs are approved, while generating RWE requires a drug to be on the market at least sometime. Our second study found that a drug that has existed on the market for a longer period of time may produce more available RWE to inform its clinical benefits and harms. ICER often updates the assessments and incorporates recent RWE that was not available originally, which can sometimes result in a significant difference in conclusions. Our finding suggests that there may be a need for reassessment of a drug and adjustment of health care decisions based on updated evidence after the launch as more RWE becomes available. Finally, our study indicated that RWE was rarely used in the setting of oncology. This finding suggests that the assessment of oncology drugs still relies heavily on trials. Perhaps RWE does not fit into the current framework of the regulatory process for cancer drug development. Also, there may be a lack of incentive to conduct post-marketing research to assess RWE after FDA approval.

There are few pre-registered RWE. Is this a problem? What is being done to encourage registration?

The infrequent preregistration of RWE is an issue. Preregistration can improve reliability and transparency of RWE which become increasingly important with the growing interest in the use of RWE. Lack of transparency regarding how evidence is generated using secondary data has been one of the major barriers to using RWE for high-stakes decisions. However, existing study registries such as ENCePP/EU-PAS and are mostly oriented towards (randomized) clinical trials where data are prospectively collected and lack many of the features that are relevant for studies performed on existing data (e.g., insurance claims and electronic health records). There have been several efforts to facilitate the registration of observational studies, such as a certification process for payers and the RWE Transparency Initiative to establish a culture of RWE transparency. The initiative’s steering committee, in its recent white paper, outlined an approach designed to facilitate the registration of observational studies, particularly those evaluating effectiveness or safety (i.e., hypothesis evaluation treatment effect (HETE) study). Key steps being suggested for RWE transparency initiative are identifying a location for registration, determining what a good registration process entails, and providing incentives for routine pre-registration for HETE studies.

Why is the use of RWE by ICER increasing in economic valuation over time? Was there any specific action?

The increasing proportion of model inputs informed by RWE is in part explained by the evolution of ICER’s value framework. While the essential valuation criteria did not change, there have been updates in the economic model framework that may have affected the use of RWE. The most notable change was the use of a societal perspective for CEAs in 2017. Since this change requires models to have non-healthcare sector benefits and costs (e.g., productivity costs) that are hard to be informed by RCTs, this change might have increased the number of RWE uses.

Main takeaway

We found limited use of RWE to inform drug-specific effectiveness and safety in the US despite calls for greater inclusion of RWE in value assessments for real-world drug effectiveness.  While some of the barriers to using RWE are inherent to the lack of data available at the time of drug approval, there are definitely several actions that can be taken to improve the use of RWE as we mentioned above. The gaps we identified in this study regarding what has been called for and what has been done in the use of RWE will give directions to the better use of RWE in HTAs.

Choosing between a managed care residency and a fellowship: the struggles of a pharmacy student

By Tae J. Park

I’ll set the scene for you.

Maybe it will sound similar to what you (a current pharmacy student) are grappling with. You made it into pharmacy school. You’re at an elite academic institution with a renowned medical center and your professors and preceptors are the best of the best. They equipped you with more clinical pearls than you asked for and now you are off to a great start in your pharmacy career. There seems to be a big push at your school to pursue a clinical residency, and most students seem to be riding that wave. But only after memorizing the top 200 brand/generic drugs and learning which antibiotics cover Pseudomonas do you realize maybe clinical pharmacy isn’t really for you… so what now?

It’s a struggle that I, and a handful of my classmates, encountered about halfway through pharmacy school.  Luckily, there’s a whole different side to post-graduate opportunities: managed care residencies and fellowships. To the pondering student looking for other avenues, let me break it down for you.

What is a managed care residency?

Managed care can have a relatively loose definition depending on whom you ask. In this context, managed care refers to insurance companies and pharmacy benefit managers (PBMs). As such, a managed care residency is a post-graduate program taking place at these types of companies. These programs are typically 1 year.

What does a managed care resident do?

Insurance companies and PBMs are often very large companies, with many different departments dedicated to managing pharmacy insurance benefits. Accordingly, a managed care resident can expect to dip his/her feet in many of these departments throughout the residency in blocks, similar to rotation blocks during school. Some examples of departments/blocks include formulary management, drug utilization review and clinical programs. Post-residency, many people end up working in one of these specific departments. Some managed care residents may also end up working in administrative roles within hospital systems or health maintenance organizations (i.e. formulary management at Kaiser), or even switch over to an industry role that is focused on negotiating with managed care companies.

What is a fellowship?

A fellowship is a broad umbrella term for a post-graduate program that usually takes place in the pharmaceutical industry (AKA drug manufacturers). But this is not always the case! There are also fellowships in academia and fellowships that are a hybrid of academia and the pharmaceutical industry, like the UW CHOICE fellowships. Fellowships are typically 2 years, although some are 1 year.

What does a fellow do?

Unlike managed care residencies, fellowships are usually offered by a specific department of a pharmaceutical company. A fellowship applicant can apply to a specific department, such as clinical development, regulatory affairs, medical communications, market access, or health economics. Depending on the company, departments can have slightly different names and some departments may have the term “managed care” in their titles (i.e. managed care medical affairs). This can be a bit confusing, but these are still departments within pharmaceutical companies and not payers. Rather, these departments are focused on communicating with managed care organizations for reimbursement and coverage purposes. Knowing which fellowship to apply to requires the applicant to have some prior knowledge of what department he/she is interested in.

In the case of academic fellowships, they are often specialized in a certain field of study and tied to an academic institution with a medical center. These fellowships are focused on conducting original research for publication and guiding treatment decisions. Some fellowships in academia also involve didactic coursework that confers a degree upon completion. As mentioned previously, some fellowships are purely academic and others are a hybrid of academia and industry. The UW CHOICE fellowships are a great example of this, where fellows complete coursework and an academic thesis to earn an MS degree during the 1st year and then transition to industry during the 2nd year. It is important to note that not all fellowships require the applicant to have a pharmacy degree. Some fellowships are open to people with PhDs, MDs and other science degrees! It all depends on the department and what type of skill set they are looking for. From my experience, it seems like the fellowships that are focused on research & development are often open to applicants from different educational backgrounds.

How do you decide between a managed care residency or a fellowship?

If you’ve read this far, you may have noticed that managed care residencies and fellowships are really quite different. They take place in different settings, are focused on different things, and have different structures. One thing I have noticed is that many pharmacy schools and student organizations tend to lump them together and tell the students, “hey, all these non-clinical opportunities are over there” without going into much detail about what’s what.

So here’s the news: it takes some effort on your part to decide what you want to pursue. Sounds cliché? Totally. But there isn’t much of a way around it.

If you see a summer internship at an insurance company or a pharmaceutical company, apply! Get your feet wet and see what it’s like on the inside. Didn’t get an internship or missed the deadline to apply? That’s okay, too! See if your school offers rotation blocks in these settings. Didn’t get the rotation you wanted? You’re still in luck. Spend some time to reach out to people who have worked in the field or at specific departments and ask them about their experience. Set up a one-on-one call or chat over coffee. Does it sound appealing to you? Then maybe it’s for you. Didn’t reach out to anyone? Well then now it’s really on you. There’s no free lunch.

Let me dispel a common misconception: having a managed care internship or a pharmaceutical industry internship on your CV IS NOT a prerequisite for landing a residency or fellowship. Your ability to convey that you have spent the time and effort to get to know the field and how your skills and interests match that field is more important.

My own experience…

A lot of my own experiences served as inspiration for what you just read.  I knew during my second year in pharmacy school that clinical pharmacy probably wasn’t for me. So, I started exploring elsewhere. I joined AMCP and went to their events to meet and talk to alumni who had pursued non-clinical routes in managed care and industry. I also participated in the Pharmacy & Therapeutics competition. When it came time for my teammates to split up tasks, nobody wanted to do the economic portion. It was difficult and economics seemed like a different language. Cost-effectiveness huh? What in the world is an ICER? It all seemed like stuff that was never taught in school. Nevertheless, I decided to take on the economic portion and unexpectedly enjoyed it. I learned so much while creating and interpreting a budget impact model. I never knew Excel could do so many things and it was actually pretty cool. I learned that entire departments in pharmaceutical companies were dedicated to health economics and outcomes research (HEOR), and I became curious.

I tried applying to HEOR internships two years in a row. I never managed to get one. Nonetheless, my curiosity was piqued so I didn’t stop there. I was able to find an internship at a local health plan. I took on projects that were more economic-focused and performed many cost-effectiveness analyses for the health plan. When it came time to pick rotation sites, I saw that my school offered a research block with our health economics professor. So I took that block. I was the only student in my year to choose that block. And it was awesome! I didn’t have to wear scrubs and got to work in an office setting with an endless supply of coffee. I learned new skills that weren’t taught in class, such as creating different types of economic models and using new computer programs.

When it was time to start applying for fellowships, I naturally looked into HEOR fellowships. I was intimidated, knowing that I had never done an internship in HEOR while it seemed like many other applicants had. Though I did have some relevant experience in managed care, I knew that it was still distinctly different from HEOR. Both settings perform economic analyses on medications, but from very different perspectives and scales. Managed care evaluates all the different drugs that come to market on a very broad scale, while tailoring all evaluations to the health plan’s own patient population. HEOR is much more specialized in economic evaluations and analyzes the company’s specific drugs on a deeper level for internal use while taking a national or global perspective. In some ways the skills used in managed care and HEOR overlap, but the perspective from which those skills are applied and the target audiences are different. I made sure to speak to this distinction while also highlighting how my experiences in managed care would be transferable to HEOR. I ended up choosing the CHOICE fellowship because I loved its hybrid structure—1 year in academia and 1 year in industry. Shameless plug: it’s pretty great and you should apply!

So, to the pharmacy student considering a managed care residency or fellowship, I recommend that you start exploring. And try not to fixate on just finding the exact internship you want. There’s plenty of other ways to get exposure—you just need to keep an open mind.

TLDR; check out the awesome pamphlet that Kevin Li, a current pharmacy student, made!

Alumni Interview series: CHOICE recent graduate Lizzy Brouwer

Posted by Sara Khor

Lizzy is one of our recent PhD graduates from the CHOICE Institute (Class of 2020). We are very excited to have Lizzy share her experience and tips with us!

“I found that a methodical, small-steps approach helped me not feel overwhelmed by whole process.”

Lizzy Brouwer

Why did you choose to do a PhD?  And how did you choose health economics?

I fell into health economics as a way to merge my two loves as an undergraduate student: social policy and mathematics. I was interested in researching and promoting policies that increased equitable access to affordable health care, which lead me to a Master of Public Health in health policy at the University of Michigan in Ann Arbor. We were required to take several economics courses as part of the curriculum, and I loved applying economic principles to real-world data in order to answer health policy questions. After a few years in research, I realized I wanted to dive deeper into the methods I was using and eventually take a bigger leadership role in projects. That led to a PhD program.

What was the topic of your PhD?

My dissertation was titled, “Exploring the uptake of value-based formulary strategies and their application to specialty drugs.” My first aim explored whether patient out-of-pocket costs were associated with value as defined by cost-effectiveness analysis to understand the integration of value information in private formularies. My second aim looked at the use of patient assistance programs (also commonly referred to as copay coupons) for specialty drugs and how their presence affected patient demand. The purpose of this aim was to understand if patients were responsive to changes in out-of-pocket costs for specialty drugs in the face of manufacturer-provided financial assistance, and therefore whether value-based insurance design could be an effective lever in that context.

What are you currently working on?  Does this align with your training or your research interests?

I am currently working in two jobs. The first is as a research scientist at CHOICE building models in collaboration with the Institute for Clinical and Economic Review (ICER). This exciting opportunity allows me to be involved in national conversations about drug value with one of the leading health economics organizations in the United States, with the added bonus of continuing to work with the wonderful CHOICE faculty. My other role is a research associate with Curta Consulting, which was founded by CHOICE alumna, Lisa Bloudek. In this position, I work on research projects and model building for various biopharmaceutical companies. I really enjoy the fast pace and the wide variety of topics covered, as well as better understanding the role and nuances of health economics in the private sector.

Can you share one of your favorite or proudest moments during the PhD years?

I had my first child during my 3rd year, and it was harder than I anticipated to manage my family responsibilities while also moving my dissertation forward. When I returned from maternity leave at the beginning of fall quarter, I was determined to regain any lost momentum and I created an ambitious timeline for myself. Therefore, my proudest moment of the program was in the spring of that academic year when I had my long dissertation proposal approved, my general exam scheduled, and was awarded both the Lou Garrison Award for work in Health Economics and the PhARMA Foundation Predoctoral Fellowship in Health Outcomes. It felt like validation for my commitment to momentum during the previous months.

I also scheduled regular meetings with my chair and printed out an itemized agenda for each meeting to ensure our time was used efficiently… By writing everything down and methodically checking it off, I was able to feel reasonably sure I was not dropping any of the details I was juggling.

What do you think are the “secret sauces” of a successful PhD experience?

Every student is different and will have different paths to success, however I found that a methodical, small-steps approach helped me not feel overwhelmed by whole process. This meant outlining major milestones and then breaking down all the steps needed to get there. Once the larger tasks were broken down, they felt much more manageable. For example, I created deadlines for myself to produce and submit drafts of my dissertation products (short proposal, long proposal, analysis plans, manuscripts, dissertation chapters, etc), and I stayed (mostly) accountable to those deadlines. I also scheduled regular meetings with my chair and printed out an itemized agenda for each meeting to ensure our time was used efficiently. For example, if there was a roadblock in my research, I tried to outline the problem and suggest 2-3 paths forward for us to discuss. By writing everything down and methodically checking it off, I was able to feel reasonably sure I was not dropping any of the details I was juggling.

Advice for current/ future PhD students?

You can do it! Take breaks, have fun, and finish the darn thing 😊

Alumni Interview series: CHOICE recent graduate Nathaniel Hendrix

posted by Sara Khor

We are starting a series of interviews with graduates from the CHOICE Institute, and are very excited to have Nathaniel Hendrix, who graduated from the PhD program in 2020, share his experience with us.

“Grad school is like training a pet, where the pet is your own mind… You have to be intentional about figuring out what you want to teach yourself and how you’re going to do it.”

Nathaniel Hendrix
  1. Why did you choose to do a PhD?  How did you choose health economics?

I entered the PhD program directly after graduating with my PharmD. I went into my clinical training imagining that almost all of our decisions were grounded in a solid basis of evidence. But once I learned to read studies for myself, I began to see how complex the processes of gathering and evaluating evidence really were. This made me a bit hung up on how clinicians make decisions and how they can learn to make them better.

I had always been pretty indulgent with myself about taking electives during my PharmD training. I’d explored computer science and philosophy of science, but when I started taking classes in health economics, that gave me a vocabulary for talking and thinking about decision-making that I hadn’t been able to find before. At the same time, it’s a relatively young field and a very interdisciplinary one, so it felt to me like I could impact the direction of the field and that my curiosity about exploring different ideas would be rewarded.

2. What was the topic of your PhD?

My dissertation was on using health economics tools to solve translational issues in artificial intelligence (AI). It had two separate aims. First, I conducted a discrete choice experiment to see what primary care providers see as valuable in how AI could be used for breast cancer screening. Most women who take part in breast cancer screening make the decision to start with their primary care providers, so these providers have an outsized role to play in determining how AI will be used for breast cancer screening. We found that there were multiple ways that developers can appeal to primary care providers with their AI products: by improving sensitivity, by having a well-thought-out workflow that includes radiologists, and by having highly diverse training data.

The second aim had to do with using cost-effectiveness analysis to inform how AI algorithms are used for breast cancer screening. We used a real set of AI algorithms that had been submitted to a contest and used different methods of selecting a sensitivity/specificity threshold at which they could operate. Our model ended up selecting very similar thresholds as other heuristic methods, but it taught me a lot about the challenges of using cost-effectiveness analysis on AI.

“Write down every research idea that you have, and revisit that list frequently. Half of the ideas will be terrible in retrospect, but that’s okay.”

3. What are you currently working on?  Does this align with your training or your research interests?

After my PhD, I started a postdoc at the Harvard T.H. Chan School of Public Health, where I’m mostly studying cost-effectiveness methodology. I have three main projects right now. First, I’m working on developing methods for integrating financial risk protection into decisions about prioritizing healthcare interventions in low- and middle-income countries. Healthcare plays a major role in keeping people out of poverty, but this isn’t acknowledged in conventional cost-effectiveness analysis.

Next, I’m working on methods for assessing the cost-effectiveness of health system strengthening interventions, such as building new facilities, training personnel, or developing a new informatics infrastructure. This is challenging because these long-term projects, which almost everyone acknowledges as important, have to compete for funding against urgent needs like making more medicines available or expanding vaccinations.

Finally, I’m completing a project about how to use Deep Learning-based breast cancer risk scores to personalize screening. Even though breast cancer screening reduces cancer mortality, there are many downsides because the false-positive rate is pretty high in screening. So we’re hoping we can use AI to determine who is most likely to benefit from screening and who might have a higher risk of being harmed.

I see this last project as most connected to my PhD research, because I’m using many of the same techniques that I used in the second aim of my dissertation. But I’m also learning many methods like constrained optimization that aren’t emphasized at UW but that are important when thinking about operating a healthcare system efficiently. Of course, I’m also wrapping up several projects I started during my time at UW, so there’s some continuity there too.

4.  What are some of the things you wish you’d known when you started your PhD?

I wish I had had a better system for keeping track of the things I was reading. Ultimately, I missed the opportunity for making connections because it took me until I was well into my dissertation to discover the tools I needed for taking notes and helping myself to rediscover ideas I’d read in the past. For me, this ended up being the Zettelkasten system, which I use on the website Roam Research (read Sönke Ahrens’s book, “How to take smart notes,” for more info on this!).

5. Can you share one of your favorite or proudest moments during the PhD years?

Probably my proudest moment was when I found out that I had gotten a PhRMA Foundation fellowship for my dissertation. I was on vacation in San Francisco, waiting out an afternoon rainstorm in a café when I got the call, and it was really a pivotal moment for me. I had been feeling a bit of imposter syndrome about my dissertation, but to know that these other researchers had found my ideas exciting enough to fund was a huge boost of confidence.

“I’m convinced that you can’t be a good researcher without learning to be a good reader.”

6. What do you think are the “secret sauces” of a successful PhD experience?

Completing a PhD program is a great chance to explore. I didn’t quite understand this when I went into it and felt pressured (by myself, really!) to focus more on one area or another. Once I started just saying yes to every experience I had time for, I started to learn a lot more. This meant not just learning more about different technical matters, but also learning about what sort of work styles and communication styles I’m most comfortable with. That’s super important, because our work is usually so collaborative.

As you go through a PhD program and learn more, what’s expected from you also changes. In the beginning, you’re soaking up new methods and concepts, so you end up doing a lot of work on tasks like data cleaning or literature review that are really time consuming but necessary. With more experience, you should be able to start making suggestions to your collaborators about the directions for your work. And then finally, with your dissertation, you get a lot more independence about its direction.

Part of this development process is having good reading habits. That means keeping track of what journals are publishing so that you have a sense of what current conversations are happening. And then, again, finding ways to make connections between what you read. Ultimately, I’m convinced that you can’t be a good researcher without learning to be a good reader.

7. What do you think is the best metaphor for your grad school experience?  How would you complete this sentence: “Grad school is like…”

Grad school is like training a pet, where the pet is your own mind. During grad school, you’ll have to teach yourself a lot of new skills, so it’s important to think about how to keep yourself motivated. It’s also vital to learn to recognize when you’re tired and need to do something entertaining. But overall, you have to be intentional about figuring out what you want to teach yourself and how you’re going to do it.

8.    Do you have any other advice for current/future PhD students?

Write down every research idea that you have, and revisit that list frequently. Half of the ideas will be terrible in retrospect, but that’s okay. It’s easier to come up with good ideas if you come up with lots of ideas. And, again, to come up with ideas, it’s important to cultivate a very intentional habit of reading academic literature.

Also, I would encourage students to publish broadly. Look at the areas where they’re doing projects, compare it to the major areas in the CHOICE curriculum, and see if there are any weaknesses. You’ll have a lot more flexibility with your job search if you publish broadly. One way to do this is to collaborate with a lot of different people who are working in different areas.

Medicare Advantage for All – A Conversation with Chuck Phelps

by Sara Khor, Yilin Chen, and Joyce Jiang

From left to right:  Brennan Beal, Joyce Jiang, Yilin Chen, Jacinda Tran, Sara Khor, Charles Phelps

The coronavirus disease 2019 (COVID-19) pandemic has shone a spotlight on the shortcomings of the current US health care system.  There is an urgent need to address the problems with healthcare access, costs, and equity.  Conversations related to health care reform have been and will continue to be front and center in the upcoming presidential election.  Many health care reform proposals have been put forward, including the expansion of the Affordable Care Act, Medicare-for-All, and Medicare expansion that maintains a role for private insurers.

Earlier this year, Dr. Charles Phelps, a renowned health economist and the author of the Health Economics textbook, visited the CHOICE Institute and gave a lecture on his proposed health care plan: Medicare-Advantage-for-All.  Under this proposal, all permanent residents will be able to choose among a wide variety of private insurance plans, similar to the Medicare Advantage program that is currently available to the older US population.  All individuals will have health care coverage, with the minimum coverage being a high-deductible health plan with a health savings account.  The health savings account can be filled up based on income levels.  High value care such as preventative medicine can bypass the deductible.

We had the honor of sitting down with Dr. Phelps to talk more about his proposal. 

Part 1 – On health care costs:

What are the most important drivers of the current cost growth in the healthcare system?

Dr. Phelps identified two main drivers of the healthcare cost growth:  introduction of new technologies and the aging population.  In the long run, he said, the introduction of new technologies, which includes diagnostic tools, pharmaceuticals, and genetic-based medicine, will increase costs.  As treatment and drugs become more targeted, they will be sold in smaller quantities for focused populations.  While these new advances will produce a lot of value, they will also drive cost growth. 

As the size of the older population continues to expand, the age distribution pyramid (where the bottom is the youngest age group and the top is the oldest) will be shaped more like a cylinder. “When you look 20 years from now, this cylinder is going to have a great big hat on,” says Dr. Phelps.  “The widest group on this cylinder… is going to be the oldest group at the top”. 

This has important implication for healthcare costs, because the current way we are financing Medicare is through the payroll tax.  The ratio of workers (who pay the payroll tax) to retired individuals (who use Medicare) is shrinking.  “At the beginning of Medicare, this ratio was 4.5,” says Dr. Phelps.  “In a couple of decades, this ratio is going to be 2 workers per retiree.  The payroll tax mechanism of paying for Medicare has to change”.

How would the Medicare Advantage-for-All Plan address these cost drivers?

In a single payer system, usually one agency (e.g. CMS in Medicare) makes the determination about which new technology to introduce into the system.  “They can make mistakes both by being too generous, letting too many things in the door, or being too stingy,” said Dr. Phelps.  According to Dr. Phelps, the current US Medicare system is too generous, as it has not built in any cost constraints, while the British National Health Service has very tight cost-effective criteria for approval of new technologies.

The Medicare-Advantage-for-All plan would allow different plans to make cost-effectiveness evaluations.  The exact details of the plan still need to be decided, but Dr. Phelps said that technologies that are very cost-effective, ICER between $50,000 to $75,000/quality-adjusted life year (QALY) gained, will be mandatory in the basic plan, and others will be left to the discretion of the insurance plan to cover it.  “People will buy insurance plans to fit their needs, just like they buy different cars with different degrees of safety and pizzazz.”

What is the potential cost impact of Medicare Advantage for all?   How is this cost impact compared to Medicare for All?

“Medicare-for-All is ghastly expensive, not because it offers universal health coverage, but because it eliminates all co-pays.”  The RAND Health Insurance experiment and the Oregon Health Insurance experiment have demonstrated that medical use will increase when there is no co-pay or deductible.  Dr. Phelps worried that the lack of co-pays will “unleash the monster in the evolution of new technologies,” referring to how moral hazard— the price sensitivity of demand for health care – may incentivize the use of low value care and technologies.  He was concerned that healthcare costs will continue to rise unless there is a very tight constraint on new technologies. 

In a way, Medicare-Advantage-for-All is similar to Medicare-for-All if everyone’s health saving account is filled up.  When determining how much should be in the health saving accounts, Dr. Phelps said that “it will be an experiment through time to trade off the risk bearing and cost control,”  adding that essential medicines and services, such as birth control or insulin for diabetes, can completely bypass the deductibles and co-pays. 

Right now, Dr. Phelps said it is unclear how the different program parameters should be set in order to balance costs, new technology introduction, and equity considerations, but he is trying to devise an instrument that would allow users the flexibility to tweak parameters over time.

How about administrative costs?  Dr. Phelps said that single payer plans, like Medicare-for-All, definitely reduce administrative costs. He argued that this administrative cost, although pricey, is giving us choice, and is controlling the costs by negotiating with providers about how much to pay for things instead of having fixed fee schedules.  “Our society really values choice,” Dr. Phelps added.  A one-size-fits-all plan takes away choice.  Using an analogy in car shopping, Dr. Phelps said having just one healthcare plan is like saying: “You can buy any car you want, as long as it is a Honda Accord.”

Instead of simply comparing the administrative costs between a single-payer government-funded plan and Medicare-Advantage-for-All plans, Dr. Phelps emphasized the importance of taking into account the welfare loss and tax distortions that arise from the increase of taxation in a single-payer government plan. “Every dollar of tax we collect distorts the economy in some fashion…If you raise income tax, you change the labor supply.”

Part 2 – On choices and health technology assessment (HTA):

If there are many Medicare-Advantage-for-All health plans and each plan uses a different threshold, how do consumers make informed decisions about which plans to choose?

“Advisors will emerge,” said Dr. Phelps. Like the advisors for buying automobiles or financial advisors for the stock market, Dr. Phelps believed that a service for advising people on healthcare insurance and utilization will develop, and so would competition.  These advisors could be independent or affiliated with big health plans.  The emergence of these advisors, he added, will “depend on having access to electronic medical records that people can share.”

What role will HTA play?  What role would an organization like the Institute for Clinical and Economic Review (ICER) play? 

 Dr. Phelps felt that the current way of conducting cost-effectiveness analyses is incomplete.  Individuals who want to maximize their own utility do not necessarily think about everything that the society thinks about.  While the QALY is a very important component of the overall value index, Phelps argued that the value index should include other things that are not necessarily built into a single individual’s utility, such as the fear of contagion and equitable distribution of health services.  “Policies about Ebola, Zika, and now the coronavirus, are not made on the cost-effectiveness of vaccines.  People would pay anything to get a coronavirus vaccine right now.  The fear of contagion dominates public discourse and public policies.  That is not captured in cost-effectiveness analysis.” 

Ideally, Dr. Phelps says, there will be competition among HTA organizations to produce estimates with quality control by the government, similar to how the FDA has control over the new drugs that come on to the market.  “I can see different insurance plans, [especially] some of the large ones, creating their own HTA shops.  ICER would continue and offer [assessments] to smaller insurance plans.” 

Part 3 – On equity:

Under Medicare-Advantage-for-All, multiple plans with varying premiums and deductibles mean that people who are better at navigating the system (e.g. more able to afford an advisor) or can afford the higher premiums may get more comprehensive care, potentially creating a situation where there is differential access and differential outcomes across the population based on education or wealth.  How should we think about this?

“A plan that has absolutely equal access to health care…is imaginary”.  Dr. Phelps argued that as long as people have different incomes, there would be differential care.  Even under the British National Health System, those who can pay more can seek additional or better care with private insurance.  In Ontario, Canada, where there is universal health coverage, some Canadians opt to purchase insurance to buy medical care in the U.S.  One thing that the Medicare-Advantage-for-All plan can guarantee, Dr. Phelps added, is minimal level of access to quality care for everyone.  The minimal plan could include an independent advisor.

How will international students be included in the plan?

International students are often in the U.S. for a few years.  They are not permanent residents, but they are also not temporary visitors.  It will be important that there are ways for these individuals to get access to the health plans.  Some suggestions that Dr. Phelps had were to charge individuals an actuarially-based fee to join the plans, or to negotiate bilateral exchanges with different nations. 

Part 4 — On political economy: 

What are some of the potential political pushbacks related to this proposal?

The country is very heavily divided between those who want a single-payer plan (e.g. Medicare-for-All) and those who want to continue with private insurance.  Those who are proponents of single-payer plans will not like Medicare-Advantage-for-All because it continues to use, as a central feature, and quite deliberately, private insurance plans.  In this political climate, Dr. Phelps said, “My forecast would be…that there is zero probability that a Medicare-for-All plan would pass through the congress.”

“The high deductible health plan creates some anxiety among some people…for two reasons”, he continued.  “One is that they say it discriminates against the poor.”  Dr. Phelps said he can completely eliminate this concern by filling up the health savings accounts on an income-related basis.  Another concern is that people in the high deductible plans will stop using the care that they need.  A short run fix, Dr. Phelps explained, is that all highly-valued services and medicines, like diabetes medications, bypass any deductible and copayment.   

“The long run fix is to vastly repair our vulnerable K-12 education system,” said Dr. Phelps. Higher education helps people navigate the highly complex health care system.  There is also a very steep education gradient on lifestyle choices that are bad for your health, like tobacco smoking and binge drinking.