Balancing Promotion and Inhibition in Distribution

The present government policy toward distribution can promote or inhibit the flow of medical devices. As we saw in chapter 4, the advent of Medicare and Medicaid in the mid-1960s ushered in a period of expansion of health care services to large groups previously excluded from the system. The motivating social value behind these programs was a belief that there should be widespread access to the health care. The data indicate that medical technology sales soared following the advent of these government programs.

The policies of the 1970s and 1980s tried to contain or control costs associated with these federal and state programs. For some products, cost containment has not controlled market forces that encourage overdiffusion. When a policy works, however, cost containment protects the value of access by squeezing out unnecessary and wasteful expenditures incurred under the old cost-plus reimbursement system, expenditures that can lead to dangerous and unnecessary medical interventions. More cynical observers of HCFA's cost controls have argued that cost containment limits access and lowers the quality of care. The challenge has been to design a cost-efficient system that protects access without compromising quality. Results of the government's efforts to create a balance between the two have been mixed.

Thus, there was a new reality for medical device producers. There was the possibility of either a highly supportive or a very restrictive federal policy. When planning a new product introduction,

the industry has had to learn how to manage given extreme market uncertainty. As politicians and bureaucrats tinker with reimbursement rules, device company managers have had to adapt rapidly to the idiosyncrasies of the regulated marketplace.

The impact on medical device technologies varies. Relevant factors include the costs of acquiring the technology, the costs of using the technology, the alternative treatments available, the location in which the device is used, and the effect of the device on outcomes (an increasingly important factor given the growing trend toward outcomes measures).

As indicated in figure 30, the most significant negative impact has been on cost-raising technologies. Technologies that increase quality while lowering costs (upper left quadrant) tend to survive, while those products that raise costs without increasing quality or reducing quality (lower right quadrant) would have a harder time in the present policy environment. Technologies that increase both quality and cost, however, face a very uncertain future. Ideally, if the incremental costs are worth the incremental benefits, the product should succeed. The challenge is to design policies that accomplish these goals. Our present policy environment does not always do so.

Both providers and producers have pointed out that assessing the costs of a technology before introduction and diffusion is problematic. Some have argued that if traditional cost-effectiveness analysis has been applied, the CT scan would never have been approved. Ultimately, CTs have been a cost-saving diagnostic technology that has dramatically increased the quality of medical care. At the very least, firms must now gather data to justify the costs of their products and would be well served by presenting information on the impact of their products on health outcomes as well. The need for research on the effectiveness of new technologies remains high. Policymakers have made only modest commitments to technology assessment.