Coverage Decisions: How is Evidence Used?
Why the Variation?

One of the hallmarks of the U.S. health care system is the continuous development of new pharmaceuticals, new devices, and new treatment protocols to treat, cure, and improve quality of life. But, with each new advancement in care comes the inevitable question: should this drug, this device, this treatment protocol be covered by insurance? In just the past month, the Centers for Medicare and Medicaid Services (CMS) has proposed to expand coverage for implantable cardioverter defibrillators for individuals with heart failure. Currently, Medicare and other insurers are also considering coverage for bariatric surgery as an obesity treatment. How are these decisions made, both at the individual level and relative to large populations? What evidence is used to inform coverage decisions? Are there ways to avoid the variation that inevitably occurs in the decision-making process? How does "medical necessity" factor into the decision-making process? HCFO grantees are at the forefront of research in this area.

Technology Assessment

The HCFO work of Peter Neumann and colleagues focuses on the cost-effectiveness, quality, and the future of medical technology assessment. Neumann evaluated the role of health technology assessments-a formal evaluation of a medical technology for evidence of its safety, efficacy, cost and cost-effectiveness-in coverage decisions under the Medicare program. He examined the quality of the evidence available to Medicare for making national coverage decisions, assessed the consistency of Medicare coverage decisions, and explored the factors influencing decisions and review times. Findings from the study show that the quality of the evidence CMS uses when making a coverage decision ranges from good to fair to poor. A surprising and important fact is that most coverage decisions are based on evidence categorized as fair or poor.

Regional Variation in Coverage Policies

Susan Foote's two HCFO grants have explored many facets of Medicare coverage policy. In her first study, Foote explored how variation in coverage decisions affects access to new technologies and equity for Medicare beneficiaries. Decisions about whether to cover new technologies and procedures for Medicare beneficiaries are made not only through national policies but also, more frequently, through local policies. Foote's analysis of the variation that exists among the local coverage policies raises questions about the merits of this system. Rather than discounting Medicare's coverage policy design, Foote hones in on the rationale for, but limitations inherent in maintaining multiple local policies. While those who support a decentralized system argue that local coverage policies promote timely access to new technologies and offer more flexibility to the system, opponents argue that the complex system creates inequitable variation.

In her current HCFO grant, Foote is focusing on eight medical procedures and examining how Medicare coverage policies, under national coverage determinations and local medical review policies, affect claims, access and cost.

Medical Necessity Decision-Making

HCFO grantee Linda Bergthold and colleagues examined the role of medical necessity in the context of managed care decision-making. The researchers surveyed medical directors and state regulators and explored the type of evidence used in evaluating standard and new interventions for coverage, as well as the actual and preferred criteria included in medical necessity contractual standards. The researchers learned that medical directors favor technology assessment reports when evaluating new interventions for coverage. The directors also reported that cost was a factor in the decision-making process. Study findings revealed a striking lack of consistency between how medical directors and regulators define and apply the terms medical necessity and coverage. This lack of consistency inevitably leads to variation in coverage.

Implications for Policy

As long as medical innovation thrives, Medicare and private plans will likely face an increasingly greater number of requests for coverage, perhaps for increasingly more costly procedures or treatments. In order to ensure access to appropriate care without losing control of costs, policymakers might consider:

• Whether systems could be created to ensure that the most reliable evidence available is used to support or deny coverage decisions;
  
• Whether a closer working relationship between the public and private sectors would lead to more consistent criteria used to make coverage decisions;
  
• Whether a consolidation of local review policies would lead to less variation, better access, and greater trust in the system by consumers;
  
• Whether more information should be made available to consumers facing a choice among benefit plans.
  

Hear First-Hand from HCFO Researchers

Peter Neumann and Susan Foote will discuss findings from their HCFO studies on February 2, 2005, at AcademyHealth's National Health Policy Conference. Their session, "Medicare Coverage Decisions: Balancing Competing Demands," will focus on how national and local coverage decisions are made, explore the factors influencing decisions and review times, and discuss how the quality of information available influences the decisions.

HCFO Grants Addressing Coverage Decisions

Title: Cost Effectiveness, Quality and the Future of Medical Technology Assessment
Institution: Harvard School of Public Health
Principal Investigator: Peter J. Neumann, Sc.D.
Time: July 2002 - June 2004

How does Medicare assess and make coverage decisions for new medical technologies? First, the researchers conducted an in-depth descriptive and multi-variate explanatory analysis of 100 CMS coverage decisions over the past 12 years. They then compared Medicare's processes and decisions with those of other health technology assessment (HTA) organizations. Specifically, the researchers examined six key questions: 1) What technologies has Medicare formally assessed in the past decade? 2) What are the key determinants of Medicare coverage decisions? 3) Have coverage decisions been consistent with evidence of societal cost-effectiveness? 4) Have the same technologies been assessed by other HTA organizations? 5) What "best practices" for technology assessment surface from an investigation of key technology assessment organizations in the U.S. and abroad? and 6) What role can cost-effectiveness play in future assessments in the U.S. (given data limitations, multiple societal objectives, and likely political opposition)? The objective of the study was to inform decision makers about HTA processes and to reveal "best practices" about technology assessment as they consider whether to cover new medical technologies.

Neumann, P.J. "Why don't Americans use cost-effectiveness analyses?" American Journal of Managed Care, Vol. 10, No. 5, May 2004.

Title: Impact of Medicare
Institution: University of Minnesota
Principal Investigator: Susan Bartlett Foote, J.D.
Time: November 2003 - October 2005

How do Medicare coverage policies, under national coverage determinations (NCDs) and local medical review policies (LMRPs), affect claims, access, and cost? The researchers are examining eight procedures that fall into three policy categories: new technology, extension of existing technology, and utilization management. The study includes an examination of changes in the use of the eight procedures over the period 1999-2001 to answer the following research questions: 1) Do LMPRs or NCDs affect local practice patterns in Medicare? 2) Are there different effects for distinct categories of policies? 3) If an NCD applies to all providers and beneficiaries, can we expect consistency in utilization patterns in Medicare following the implementation of a national policy? 4) If LMRPs are consistent across local contracts, should we see consistency in utilization post-policy implementation? 5) To the extent that LMRPs applicable to the same procedures vary from region to region, should we expect to see variations in practice that reflect these policy differences? and 6) If variations in utilization persist in light of similar policies, how can those variations in practice patterns be explained? The objective of this study is to provide insights to policymakers on the effectiveness of coverage policies, the appropriate balance between national and local decisions, and implications for efforts to enact contractor reform.

Foote, S.B. et al. "Resolving the Tug-of-War Between Medicare's National and Local Coverage," Health Affairs, Vol. 23, No. 4, July/August 2004.

Title: Evaluation of Medicare's Local Medical Review Policies for New Medical Technologies
Institution: University of Minnesota
Principal Investigator: Susan Bartlett Foote, J.D.
Time: May 2001 - December 2003

How does variation in coverage decisions affect access to new technologies and equity for beneficiaries in the Medicare program? Are Medicare's Local Medical Review Policies (LMRPs) in need of reform? LMRPs are one of two ways that HCFA evaluates new technologies and procedures in order to make coverage determinations. According to the researchers, a small number of technologies are reviewed through HCFA's national process, where decisions are made uniformly across the country. However, the majority of such coverage decisions are made by local carriers and intermediaries under contract to HCFA, with the LMRPs binding only in the local jurisdiction. The researchers evaluated variations in LMRPs by analyzing: 1) the players-who participates in and influence decisions; 2) the process-how decision-making procedures differ; 3) the evidence-how evidence of value is solicited and measured; and 4) the outcomes-measuring and mapping timing and content patterns. The objective of the study was to provide policymakers considering the virtues of a more uniform national coverage policy, relative to a more flexible local policy, with better information about the extent of LMRP variation, the sources of variation, and the implications for flexible decision-making, beneficiary access, and Medicare equity.

Foote, S.B. "Focus on Locus: Evolution of Medicare's Local Coverage Policy," Health Affairs, Vol. 22, No. 4, July/August 2003.

Foote, S.B. "Why Medicare Cannot Promulgate a National Coverage Rule: A Case of Regula Mortis", Journal of Health Politics, Policy, and Law, Vol. 27, No. 5, October 2002.

Title: Understanding Medical Necessity Decision Making
Institution: Stanford University
Principal Investigator: Linda Bergthold, Ph.D.
Time: June 2000 - October 2001

How do policies regulating medical necessity decision-making influence national health plans? Researchers from Stanford University attempted to answer the following questions: 1) Who are the medical necessity decision makers? 2) How are the terms defined and what information do decision makers use in making their decisions, including what type of evidence and cost-effectiveness information is considered? 3) What procedures do health plans use to communicate with physicians and patients throughout the decision-making process and to track and use coverage decisions for quality improvement? 4) How can variation in terminology and application of guidelines be reduced? 5) What is the role of accreditation, regulation, legislation, and organizational policies and procedures in promoting clearer definitions and more consistent decision making? and 6) How do the answers to the first five questions vary by the size of the health plan, its tax status, degree of management of care, or geographic region? The objective of this project was to test the findings of a similar project recently completed in California and provide a better understanding of medical necessity decision-making to state and national policymakers.

HCFO Findings Brief: March 2003, How Do MCOs Decide Whether an Intervention is Medically Necessary?