Top Ten Ways Health Care Reform Benefits Packages Will Affect Innovation in the Life Sciences Sector

Health care reform work in Washington will soon begin in earnest, and there's likely to be a blizzard of political and technical details that threaten to distract life sciences companies from the issues that truly matter to them. Our tip: Keep an eye on the benefits package—health care reform's center of gravity for the forces affecting innovation in pharmaceuticals, medical devices, and biologics.

Establishing the Benefits

1. Patient-Care Services. Innovation creates the content of health care, while benefits define the parameters within which insurers will pay. Ultimately, health care is about the substance of technological and professional patient-care services. If a service is not recognized as being within an insurance benefit, patients are less likely to have access to it. For example, women did not have broad access to advanced cervical cancer screening technology until insurers decided to recognize this technology as falling within a benefit category.

2. Static Framework/Classification. Organizing benefits into a package establishes a framework that can limit the fruits of innovation. A benefits package that defines which services are included/excluded helps purchasers of insurance understand what they're buying. But, as a fundamentally static means of classification, it can also have the effect of locking in levels of care that consumers view as inadequate. For example, based on feedback from their constituents, Congress in October enacted legislation requiring that the mental health benefit packages offered by certain types of employer group health insurance plans achieve "parity" with the surgical and medical benefit packages those plans offer.

3. Medicare Benefits. Because innovations have long collided with the Medicare benefits package, similar collisions could occur in the context of health care reform. For example, certain insulin-delivery technologies failed to qualify for Medicare Part B reimbursement because CMS found they lacked the "durability" needed to qualify for the benefit category for durable medical equipment. Similarly, Medicare's benefits structure has generally excluded screening tests, requiring Congress to legislate on behalf of individual modalities. In 2008, a statutorily defined screening benefits pathway was created, but it comes with its own set of hurdles.

4. Content Judgments. Reform plans' expansion of health insurance necessarily entails judgments about the content of the available benefits. Much of health care reform planning is directed toward providing health insurance to uninsured or underinsured populations. In establishing this broadened coverage, all the major proposals define, with various degrees of specificity, the levels, types, and categories of benefits that must be offered for an insurance plan to qualify under the new system. President Obama's campaign proposal, for example, would establish a public insurance program that offers "essential" health care benefits, with employer-sponsored plans required to provide benefits at least "equivalent" to those in the public plan. Determining which benefits are "essential," and which are "equivalent," will necessarily require judgments about the content of the benefits themselves.

Managing the Package

5. Benefits-Management Hierarchy. Reform plans' establishment of a new benefits-management hierarchy could reduce the number of entities that decide payment for innovations. Historically, innovation has been most likely to thrive in pluralistic decision-making environments. However, health care reform implies greater centralization in benefits administration. For example, HHS Secretary-designate Tom Daschle (who is also slated to be White House health policy czar) proposes establishing a national health board to make benefits and other system decisions. While this Board would have a direct say over federal health programs (representing a significant consolidation), the former Senate Majority Leader notes that Congress could choose to require that the qualification for the federal tax exclusion for employer-provided insurance be linked to Board decisions—an approach that would effectively bring private health insurance benefits under federal aegis.

6. Cost of Spreading Insurance. In defining the value of benefits packages, health care reform may start from an inadequate base. A risk to innovation is that the substantial price tag of spreading insurance more broadly, to underserved populations, will leave only enough funding to finance a shallow or very basic set of benefits. Even in the first month of the new Congress, there were indications that plans for expanding the politically popular children's health insurance program might need to be scaled back. A similar fiscally driven political reorientation could affect the "depth" of the benefits that health care reform ultimately makes available.

7. Growth Rate of Benefits' Value. Health care reform may assume an inadequate rate of growth in the value of the benefits package. This rate of growth will be a key sensitivity indicator for innovation, with fiscal pressures on Congress playing an important role. For example, the Congressional Budget Office was able to render a "budget neutral" judgment on one major reform proposal, the "Healthy Americans Act," only after its sponsors, Senators Ron Wyden (D-OR) and Robert Bennett (R-UT), changed their bill's assumed rate of increase in average minimum covered benefits from the rate of growth in health costs to the slower-rising rate of growth in gross GDP per capita.

Implementing the Package

8. Coverage Criteria/Decisions. While the overall contours of a benefits package can be established by reference to actuarial values, the package must be implemented through coverage decisions—detailed clinical reviews—that apply to actual health care items and services. For many services, new coverage criteria could exert a restrictive effect that affects access to drugs, devices, and biologics. For example, the Dartmouth Institute for Health Policy and Clinical Practice recommended late last year that health care reform include a new, more restrictive standard for determining the medical necessity of services.

9. Evidentiary Requirements. Coverage decisions may depend on more exacting evidentiary requirements. Even types of studies intended to be faster and less onerous, such as "practical" clinical trials, could prove burdensome to the life sciences sector as a whole by being applied to technologies more frequently and routinely.

10. Comparative Effectiveness Research. Coverage decisions could rely on the results of comparative effectiveness research. Senate Finance Committee Chairman Max Baucus (D-MT), the Institute of Medicine, and most other key health care reform participants have called for establishment of an independent entity to conduct comparative effectiveness research on drugs, devices, biologics, and other interventions. In January, Congress was poised to take the intermediate step of substantially boosting funding for current federal comparative effectiveness reviews. While comparative effectiveness could help implement benefit packages, the results of the research would not be available for several years. In the meantime, Congress might be tempted to sanction and expand other, more immediately deployable comparative methodologies, such as Medicare's "least costly alternative" policy.