NCPA - National Center for Policy Analysis

Should U.S. Import U.K. Model for Medicare and Medicaid?

October 6, 2010

So-called "automatic" Medicare cuts recommended by the newly created Independent Payment Advisory Board (IPAB) may sound good, but in this case they're a mixed blessing, says Tomas J. Philipson, chairman of the Manhattan Institute's Project FDA.  

  • One likely IPAB recommendation will be for Medicare to create a new "cost effectiveness" standard for covering medical products.
  • Technologies that don't pass this test will receive less generous Medicare reimbursement.

In the United Kingdom, the National Institute for Health and Clinical Excellence (NICE) is charged with the difficult task of assessing new and existing medical technologies, and making recommendations that guide the coverage decisions of the national health care service (NHS).  Indeed, NICE is often held up as a model for IPAB to follow.

How has NICE performed in practice?  Its decisions are routinely mired in controversy, says Philipson.  

  • Avastin, a powerful drug for metastatic colon cancer, was recently rejected by NICE, deeming it too expensive for the benefits it offers patients.
  • The U.K. government quickly came under fire from patient groups and physicians for denying approval for a cancer drug widely available in the United States and elsewhere in Europe.
  • In July the U.K. government effectively revoked NICE's recommendations, announcing a new 50 million pound fund to buy "too expensive" cancer drugs for patients.

Lessons learned from examining NICE are instructive for U.S. policymakers:

  • First, economists have long recognized that what looks like efficiency today may undercut innovation tomorrow.
  • Second, reimbursement debates often focus on whether or not a new drug offers a therapeutic advance over existing treatments, which is too short sighted.
  • Third, limiting cost-effectiveness tests to clinical benefits for patients or explicit costs to the Medicare budget may fail to reflect the social costs of diseases.

Controlling costs in the short run is a vital part of efforts to reform the U.S. health care system.  But it shouldn't come at the expense of future innovations.

Source: Tomas J. Philipson, "Should U.S. Import U.K. Model for Medicare and Medicaid?" Forbes, October 5, 2010.

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