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Monthly Archives: March 2017

An Opportunity for Demand Side Innovation

Rebecca S. Eisenberg & W. Nicholson Price II, Promoting Healthcare Innovation on the Demand Side, Oxford Academic J.L. & Biosciences (2017).

The intersection of healthcare information goods, resulting products, and the legal system is frequently reduced to unhelpful binary generalizations such as “regulation (particularly drug safety and data laws) impedes innovation.” Eisenberg and Price helpfully consign such caricatures to the past, substituting far more nuanced (and a lot more interesting) reflections on healthcare and innovation.

Their primary contribution is to describe a different idea of innovation; one based on the demand side rather than the supply side. This is to be contrasted with the “Innovation Law Beyond Intellectual Property (IP)” literature which has examined non-IP mechanisms such as grants, prizes, or insurance to incentivize innovation without utilizing exclusionary patent rights. Those approaches, while they may have been shaped on the demand side, are executed on the supply side (such as a government subsidy paid to a drug company to encourage production of an unprofitable drug). In contrast, Eisenberg and Price are interested in true demand-side innovation based on the data accessible to payers; providers or insurers and, optimally, vertically integrated stakeholders such as large HMOs. These payers, the authors argue, could leverage the enormous clinical and prescribing data sets they can access “to develop new information about drug toxicity, comparative effectiveness, precision medicine, and to perform other forms of innovation.” If successful, “[t]he incentives of payers to cut costs… could be a corrective counterweight to the incentives of product sellers to maximize their own patent-protected profits.”

This counterbalancing idea is a smart one given the poorly functioning marketplace that is healthcare’s fate. Currently, supply-side pharmaceutical companies can transfer their information goods into IP-protected profit centers. Thereafter, even major payers such as private insurance companies have difficulty negotiating down drug prices while federal law embarrassingly prohibits price negotiation for Medicare Part D drugs. Essentially, Eisenberg and Price are encouraging payers to undertake roles such as “new technology assessment” (NTA) that in other healthcare systems are undertaken by regulatory or independent agencies. For example, the UK’s National Institute for Health and Care Excellence and the German Institute for Quality and Efficiency in Health Care evaluate new drugs on the basis of their comparative or cost effectiveness. Their findings determine whether such drugs are included in the national formulary (UK) or subject to reference pricing (Germany). There are few regulatory analogs in the U.S. and the closest one, the Patient-Centered Outcomes Research Institute (PCORI), is expressly prohibited from using the classic NTA outcome measure, the quality-adjusted life year.

The authors recognize that the opportunity for demand-side innovation faces practical barriers. The data required is often hopelessly fragmented; payers may have the opportunity to innovate but, the vertically integrated aside, few will have the incentive; and (because no paper on innovation is complete without a criticism of dear HIPAA) they argue that data laws may hinder access to or use of clinical data. Equally, the examples the authors give of government programs that could help demand-side innovation (Meaningful Use, the FDA Sentinel System, and PCORI) are hardly shining examples of regulatory home runs. However, maybe some of the provisions of the recently enacted 21st Century Cures Act will turn those around. That legislation also raises the interesting question whether those on the supply side increasingly will be interested in demand-side data given the increasing role of patient experience and clinical data in the drug approval process.

The decline in the number of breakthrough drugs suggests supply-side innovation is slowing, and the authors also note the pharmaceutical industry’s ambivalence to a successful precision medicine initiative. Equally, we may not yet have reached the inflection point for data-driven analysis on the demand side, and we are a long way from realizing the benefits of patient access to useful information built on such data. However, although the balance of innovation power remains on the supply side, Eisenberg and Price provocatively suggest that should change. If the authors’ predictions play out it will be interesting to see whether the result will be demand-led safer and cheaper products, or whether the supply side will demand increased IP and other rewards to reassert the supply-side imbalance.

Cite as: Nicolas Terry, An Opportunity for Demand Side Innovation, JOTWELL (March 28, 2017) (reviewing Rebecca S. Eisenberg & W. Nicholson Price II, Promoting Healthcare Innovation on the Demand Side, Oxford Academic J.L. & Biosciences (2017)),

Targeted, Concise Treatments for the American Health Care System

  • David Orentlicher, Controlling Health Care Spending: More Patient “Skin in the Game?", 13 Indiana Health L. Rev. 348 (2016), available at SSRN.
  • Barbara A. Noah, The (Ir)rationality of (Un)informed Consent, 34 Quinnipiac L. Rev. 691 (2016), available at SSRN.

From a health law and policy perspective, the recent presidential election results have undoubtedly ushered in a new period of tremendous uncertainty. With President-elect Trump ascending to the office this year, it is likely that the health care delivery and financing system—to say nothing of the numerous health law syllabi in health care law courses across the country—will look radically different in the years to come. As I write, policymakers and prognosticators are debating which—and how many—pieces of the Affordable Care Act will survive. Nevertheless, no matter the makeup of American health care system in the future, many challenges the system currently faces will endure—and likely intensify. Chief among those concerns revolves around the strangling cost of American health care.

Examining the issue in two separate manifestations and focusing on patient decision-making in two separate contexts, David Orentlicher and Barbara Noah provide practical and succinct suggestions in well-written, recently-published essays, Controlling Health Care Spending: More Patient “Skin in the Game?” and The (Ir)rationality of (Un)informed Consent, respectively. Both tackle problems that contribute to the nagging challenge of cost—Orentlicher largely with an eye on influencing patient decision-making through coverage incentives and penalties, and Noah with an eye on improving patient clinical decision-making at the end-of-life. As overutilization and cost are a focus of much of my scholarship, I was delighted to discover both pieces and to engage with their insights as we overlook a new period of yawning uncertainty in health law and policy.

First, in his insightful essay, Professor David Orentlicher paints a dark picture of American health care cost and quality before diving into a few suggested policy changes. Orentlicher focuses on two main solutions: (1) recalibrating patient cost-sharing, and (2) using employer wellness programs to address inefficiencies and incentives. On improving patient cost-sharing, Orentlicher rightly observes the main challenge: if the insurance’s cost-sharing amount is too high, patients are deterred from seeking care (especially those of lower economic means), and if the cost-sharing is too low, patients will seek too much health care and waste resources.

After identifying this challenge, Professor Orentlicher presents targeted solutions. First, he notes that aggressive cost-sharing must be reserved for lower-value care; this way, patients are appropriately steered to the doctor when it is most efficient for them to visit. Second, Orentlicher notes the importance of reference pricing to standardize the cost of a given procedure or product, pushing patients to lower-cost providers. And third, he highlights “scaled” cost-sharing, in which he suggests that deductibles and other cost-sharing mechanisms be scaled to one’s familial income, and not a raw dollar amount. This would address the problem of those without disposable income avoiding the doctor too much, and those with more disposable income visiting the doctor too often.

Finally, Professor Orentlicher highlights the upside of employer wellness programs in cutting the cost of health care. Within this section, after describing some of the limitations and threats facing wellness programs, he encourages program designers to think about three main features for incentives: first, programs should reward short-term progress; second, programs should structure incentives indefinitely; and finally, programs must carefully consider the benefits and downsides of a system with either built-in rewards or penalties (Professor Orentlicher seems to suggest that rewards may work better).

Second, in her artfully titled essay, Professor Barbara Noah tackles the inadequacies of informed consent. She starts by highlighting the size and scope of the problems raised by dying in America—most notably that we overutilize certain care and that we underutilize other types of care—and forecasts that it is likely to worsen due to shifts in population. Referencing everyone’s different conception of, and approaches to, end-of-life decision-making, Professor Noah notes that a substantial amount of end-of-life care provides no measurable benefit. She laments the “default model” that pushes doctors to continue to provide care unless the patient undertakes a burdensome effort to opt out of often needless treatment.

Professor Noah does a masterful job of describing the difficulty facing patients at the end-of-life. After highlighting a number of other complicating factors, including cultural challenges (both of physicians’ concerns about liability and of society’s conception of death) and payment incentives, Noah attacks as impossible the idea of a “perfect” decision at the end-of-life in the face of a number of unconquerable obstacles. To explain this complication, Professor Noah effectively relies on recent work by philosophers to observe that clinical decision-making at the end-of-life is characterized by “necessary fallibility,” and is defined by unknowable and unpredictable variables. Sneakily, “unknown unknowns” may impact the real likelihood of survival, but cannot be fully understood during the clinical decision-making process. As a result, Noah argues, there is no “best” approach or treatment for a patient who may be facing the end of his or her life. This uncertainty swamps the abilities of both the provider and patient to come to a rational “best” clinical decision.

Noah finishes by pointing out a number of pressures that impact the decision-making process—from optimism bias, to a false belief that patients can achieve a perfect and rational end-of-life decision, to an inability to convey the hard edges of what can be known. She notes that we must continue to strive for informed consent, but must recognize that the doctrine is limited and imperfect. In the end, it comes down to patients being able to face the situation with as much knowledge as possible while understanding this imperfection of the decision-making process, and, above all perhaps, the fragility of life.

Both Orentlicher and Noah provide clear and focused works geared toward improving the delivery of American health care with an eye toward building a more just and efficient system. Their pieces remind all Americans—during this time of remarkable uncertainty—that some of the same old challenges will remain in need of adequate legal and policy-based solutions.

David Orentlicher, Controlling Health Care Spending: More Patient “Skin in the Game?", 13 Indiana Health L. Rev. 348 (2016); Barbara A. Noah, The (Ir)rationality of (Un)informed Consent, 34 Quinnipiac L. Rev. 691 (2016).