At about $75 billion annually, U.S. private-sector investment in medical technology is substantial, and a large body of research demonstrates that the economic returns to these investments are enormous. But emerging federal policies are likely to create powerful disincentives for the research and development of medical innovations, in particular, pharmaceuticals and medical devices and equipment.

Two such policies — the emerging process for comparative effectiveness reviews and the new auction design for durable medical equipment implemented by the Medicare program — are not yet front-page news. But new research from the Pacific Research Institute shows that these policies will yield sizeable reductions in R&D and a large resulting decline in benefits for patients.

The 2010 Patient Protection and Affordable Care Act ("ObamacCare") established the Patient-Centered Outcomes Research Institute, charged with "conducting research to provide information about the best available evidence to help patients and their health care providers make more informed decisions."

Such statistical CER analysis may seem straightforward, but the inherent complexities and difficulties are illustrated by a large 1994-2002 analysis of four hypertension drugs and lipid medications on rates of heart attacks, strokes, and early deaths.

Over 42,000 patients were involved in that study, from which emerged substantial disagreement over the design of the trial, the interpretation of the data, the importance of observed side effects, and a number of other parameters.

Subsequent analyses suggested different conclusions, and the ongoing evolution of medical technology - in particular, the statin class of cholesterol drugs - reduced the usefulness of the findings even more. There is little evidence that this large comparative analysis had an appreciable effect on medical practice.

In short, it is far from obvious that the new top-down CER process will yield significant amounts of information useful for physicians and hospitals. But that does not mean that it will have no effects.

The expanding federal involvement in CER creates the obvious possibility that findings, however uncertain, will influence policies on coverage, reimbursement, and incentives in Medicare, Medicaid, and other programs, particularly given powerful incentives for policymakers to find ways to reduce health care outlays.

Firms investing in new medical technologies will find it necessary to conduct their own CER analyses to gain insights about the future reaction of policymakers to the innovations, thus increasing the costs and delays inherent in the process.

Government CER analysis will increase the likelihood that pricing concessions will be required to obtain favorable decisions on coverage and the like. Government CER raises the possibility of nonapproval (a zero price) or limited approval (reduced sales revenues) for government programs.

Source: http://www.investors.com/NewsAndAnalysis/Article.aspx?id=581909&p=2