What Sen. Bernie Sanders’ “Medicare-for-all,” former Pres. Obama’s Affordable Care Act and former House Speaker Paul Ryan’s Medicare “premium support” model all have in common is an overemphasis on health insurance coverage — who needs it, who is eligible for it, at what level and who should pay for it (private sector versus state governments versus federal government).
Yet insurance coverage and healthcare are two different things. A focus on the first one has resulted in an endless debate over which third party pays for people’s healthcare bills. Whether your preference is the government or private insurers, both end up creating massive distortions and moral hazards, which then results in higher costs and poorer-quality healthcare.
My colleague Dr. Robert Graboyes encourages us to instead think about how to produce better health (not health insurance — not even healthcare) for more people at a lower cost, year after year. This requires allowing and fostering the kind of revolutionary innovation in the healthcare industry that we’ve seen in other fields, like information technology. It requires allowing consumers to choose treatments, even high-risk ones. But it also requires innovation in the provision and payment of healthcare.
For instance, advancements in gene therapy and personalized treatments could one day offer a cure for cancer or disorders currently considered incurable, sometimes with only a single injection. In 2017, the Food and Drug Administration approved its first gene therapy treatment, Kymriah, for acute lymphoblastic leukemia. The FDA expects 10 to 20 cell and gene therapy approvals annually by 2025.
Kymriah is a marvel of modern science that reengineers a person’s cells so that they attack cancer cells, but a one-time treatment for children costs an eye-popping $475,000. When considered against the costs of a lifetime of treatments, even a very expensive cure can be a bargain, though the exact savings are difficult to calculate because they’re spread between patients, providers, insurers and governments. That, along with a high upfront cost, poses a challenge within the standard fee-for-service payment model.
This is where the need to allow innovation beyond the development of new treatments is apparent. Enabling sufficient experimentation for this process to deliver its full (and difficult-to-measure) potential in new delivery and payment systems is key.
For instance, some providers and insurers may want to experiment with outcomes-based pricing. Agreements between manufacturers and payers could allow prices to adjust according to the outcome as measured by a variety of possible health metrics. A treatment that fails to work within a certain time could result in no payment owed.
Such agreements already exist, but government regulations and requirements prevent a larger number of people potentially interested in experimenting with them to even try. Some manufacturers are required to offer Medicaid the “best,” or lowest, price that they negotiate with any other buyer. However, in an outcomes-based system, the lowest price could be $0. Medicaid rules would force all payments down to $0, which is obviously untenable.
Even anti-corruption efforts pose a problem. The Anti-Kickback Statute seeks to prevent exchanges of value between manufacturers and other parties that might influence drug purchases, but it doesn’t allow for payment models that rely on measures of value instead of volume. As Duke University researchers explain, an “arrangement between a device manufacturer and a provider wherein the manufacturer would agree to reimburse the provider’s costs associated with hospitalization (or other medical services) resulting from a defective device ... implicates the AKS because OIG” — the Department of Health and Human Services Office of the Inspector General — “considers the reimbursement of potential ancillary costs to be ‘remuneration’ that can influence providers to purchase the device.”
Outcome-based payment models aren’t likely to be a panacea for a vast and complicated healthcare system. Innovators, however, can come up with new delivery and payment systems to meet the industry’s need. As more gene therapy and other high-cost, one-shot treatments are developed, finding creative ways to make them accessible to the public could prove for many to be the difference between life and death.
Laws and regulations designed for the healthcare system of the past need to be updated and flexible enough to deliver emerging treatments to consumers. Politicians should ideally reduce the government’s role in the healthcare market overall so that as-yet-unknown innovations are not similarly constrained in the future. Succeeding in that endeavor would make the need for health coverage much less important.
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University in Fairfax, Virginia.
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