Better health care at lower cost. That's what comparative effectiveness research promises, but can it deliver? A new study argues that federal comparative effectiveness research won't generate cheaper, better medical care to the American public. Instead, it will force cuts in pharmaceutical and medical device research and development, resulting in 32 million lost years of life and economic losses totaling $1.7 trillion.

Among lots of different possible treatments for a disease, comparative effectiveness research (CER) aims at figuring out the relative effectiveness of different medical interventions. As President Barack Obama explained, "If there's a blue pill and a red pill, and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that's going to make you well?" Sounds very sensible, right?

A provision tacked onto the $787 billion stimulus package passed by Congress in 2009 aims to help find those half-price blue pills. Various federal health bureaucracies received $1.1 billion to spend on comparative effectiveness research. Opponents worried, however, that federal CER is the first step toward rationing treatment based on cost-effectiveness determinations made by bureaucrats. 

Asked if CER might result in rationing health care, Centers for Medicare and Medicaid Services Administrator Donald Berwick stoked this concern. “We can make a sensible social decision and say, ‘Well, at this point, to have access to a particular additional benefit [new drug or medical intervention] is so expensive that our taxpayers have better use for those funds,’” replied Berwick. “We make those decisions all the time. The decision is not whether or not we will ration care—the decision is whether we will ration with our eyes open.”

In a passionate 2009 editorial in The New England Journal of Medicine, Harvard medical professor Jerry Avorn, denounced the conservative “backlash” against CER. He praised Congress for not letting “warnings of a dystopian scientific police state undercut the nation’s need to learn what works best in medicine.” 

Yet, even Avorn acknowledged CER raises important issues such as the question, “What is the moral responsibility of the physician to care for a patient for whom the best therapy may not meet conventional standards of cost-effectiveness?” Berwick suggests that one way to confront this dilemma is “at some point we might say nationally, regionally, or locally that we wish we could afford it, but we can’t.”

But will CER achieve its goal of improving health care while simultaneously lowering costs? A new econometric study [download here] by University of North Carolina health care economist John Vernon and Robert Goldberg, president of the non-profit Center for Medicine in the Public Interest, argues instead that CER will likely increase costs and worsen health outcomes. 

This deleterious outcome is primarily the result of how CER would affect pharmaceutical and medical device research and development. Vernon and Goldberg argue that pharmaceutical and medical device researchers would have to respond to CER regulations by increasing the size and, thus, the costs of clinical trials. Consequently, CER would delay the arrival of new treatments on the market and slow the rate of technology diffusion among clinicians. Ultimately, CER increases the risk of investing in research on new treatments.

Clinical trials account for nearly 30 percent of the cost of developing a new drug. Vernon and Goldberg calculate what various increases in the costs of clinical trials would do to investment in new drugs. In their most conservative scenario, they assume that the CER boosts such costs by 50 percent, which they estimate would reduce R&D spending by about $32 billion over ten years. Earlier research suggests that every $1,345 invested in pharmaceutical R&D produces an additional life year in the U.S. Conservatively assuming that people value an additional year of life at $50,000, they reckon that reducing R&D by roughly $32 billion will result in roughly 34 million lost years of additional life amounting to about $1.7 trillion in losses. Less conservative estimates push up the losses to $4 trillion.

Vernon and Goldberg correctly note, “Healthcare costs are the focus of most policy considerations because this demand is heavily subsidized by taxpayers. This subsidy, rather than the value of what is spent on healthcare is the main concern of legislators.” The more we centralize health care decisions into government bureaucracies the fiercer the political battles over that subsidy will become.

The reason we need federal CER, Avorn argues, is that while “of course, many new interventions clearly are better...we have no systematic way of collecting or disseminating such information.” Of course, in other areas of our economy we do have a way of disseminating information about the costs and benefits various products and services: markets.

In a February 2010 New England of Journal of Medicine perspective, Harvard University health care policy professor Milton Weinstein and Dartmouth College health care economist Jonathan Skinner suggested how markets could resolve the cost-effectiveness conundrum. They note that other countries are also confronting the problem determining the cost-effectiveness of various treatments. In the United Kingdom’s centralized health care system, the cost-effectiveness of treatments is determined by the National Institute for Health and Clinical Excellence (NICE). That agency, in general, will authorize a treatment if it costs less than about $50,000 per added year of life.

So why not turn the new Federal Coordinating Council for Comparative Effectiveness Research into something like NICE? “Americans have less tolerance for command-and-control regulation than those in many other countries, so it is unlikely that a NICE-style structure of explicit rationing will be acceptable to Congress and the American people,” observe Weinstein and Skinner. They add, “On the other hand, Americans appear to be more accepting than Europeans of the role of price in allocating health care.”

Markets are brilliantly effective mechanisms for collecting and disseminating information about the costs and benefits of products and services through prices. Weinstein and Skinner suggest that people be allowed to choose among various insurance policies, some of which will be cheaper because they will pay initially for inexpensive drugs and only switch them to expensive ones if necessary. On the other hand, other people might purchase a more expensive policy that gives immediate access to higher cost treatments.

Weinstein and Skinner do caution, “Any incentive schemes, whether linked to payments for individual services or to bundles of services through insurance packages, are subject to the caveat that patients may make unwise or irrational decisions.” Yes, but I suspect that Americans will be happier making their own trade-off decisions (unwise as they be may), instead of being subjected to those made by supposedly wiser and more rational federal bureaucrats.

Until now, government health care subsidies in the form of Medicare, Medicaid, and SCHIP have been effectively unlimited. Something like Rep. Paul Ryan’s (R-Wisc.) proposal to turn Medicare into a voucher program in which seniors would purchase private health insurance would introduce competition. Ryan’s proposal would shift making health care tradeoffs from bureaucrats concerned about public budgets to consumers concerned about their own budgets. This would put downward pressure on prices and tend to rein in health care costs. Price competition might even reduce the amount invested in pharmaceutical and medical device R&D. In any case, consumers, not bureaucrats, should be the ones making comparative effectiveness decisions about health care.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.