print logo

Prescriptions for a Better HHS

Monday, April 20, 2009

The world of biomedical innovation faces numerous challenges, especially cost and uncertainty.

The Department of Health and Human Service is integrally involved throughout the process of creating and bringing to market new pharmaceutical and biomedical innovations—from research to approval, coverage decisions, and, increasingly, post-market evaluation of existing products. It faces enormous challenges in the months ahead as an ambitious new administration pushes to overhaul the nation’s healthcare system.

The role of HHS in the process begins with the research it funds through the National Institutes of Health (NIH). From there, it moves on to the role of regulator during the Food and Drug Administration (FDA) review process. Once a product has been approved, someone must then pay for it in order for the product to be used. The Centers for Medicare & Medicaid Services (CMS) determines which products will be covered and thus paid for by Medicare. As a leader in the industry, CMS’s decisions often help to determine which products will eventually be covered by private insurance companies. Next, the Agency for Healthcare Research and Quality (AHRQ) may conduct post-market evaluations of a product, a role that will likely increase as the new stimulus package has provided for $1.1 billion in comparative effectiveness funding, including a tenfold increase to AHRQ alone.

As deputy secretary of the HHS in the previous administration, I hosted a series of conferences last fall on HHS’s role in the biomedical and device development process. Senior officials, investors, and executives participated. These conferences gave investors and executives a chance to hear directly from the research funders, regulators, and evaluators about the efforts HHS was making to help bring innovative products to market, and government officials heard about the many concerns industry folks had about the current system.

The nation’s ability to translate new discoveries into clinically viable products is severely hampered.

Industry representatives presented a number of serious concerns, including cost, uncertainty, and the difficulty of working with different HHS agencies, which are too often uncoordinated in their approach to dealing with new products. At the conclusion of the last conference, we were left with a clear and sobering snapshot of the numerous challenges and opportunities we face in the world of biomedical innovation. The key difficulties that participants mentioned, over and over again, were cost and uncertainty.


Cost is the obvious and best-known difficulty. Just bringing a product to market is tremendously expensive. It can take up to 15 years and $1.3 billion to develop a new pharmaceutical product. This is almost double the per-product cost of R&D compared to just five years ago. The escalating cost of biomedical innovation naturally results in higher prices for products, which in turn decreases patient access to important medications and devices. These high costs also can deter innovators and companies from pursuing new technologies altogether.

Despite enormous breakthroughs in scientific research—such as sequencing the human genome—the nation’s ability to translate new discoveries into clinically viable products is severely hampered. Many factors contribute to this “translational gap.” Private capital for the translational portion of the biomedical innovation process has become difficult to obtain. Some conference attendees felt that there is an increasingly expensive and failure-prone regulatory landscape for clinical trials. And both innovators and regulators encounter difficulties in accurately assessing and predicting the safety and efficacy of biomedical innovations in the early stages of product development. Addressing the translational gap is particularly difficult because it involves so many different factors, and the economic incentives to develop tools to facilitate translational research are not always present.


Cost is something that can be dealt with, as manufacturers and investors factor expected costs into a product’s bottom line. But uncertainty is far harder to calculate. As Russell J. Ivanhoe, the chief medical officer of Paracor Medical, said after a conference, “Uncertainty is the most expensive part of the development process.” The government creates uncertainty in the process in a variety of ways, and conference participants indicated that this uncertainty makes securing investment extremely difficult, especially in these troubling times.

Obviously, biomedical innovation is fraught with uncertainty, risk, and a high probability of failure. Innovators understand that. But many of the most promising new technologies—genomics, nanotechnology, advanced imaging, and bioinformatics—face the most risk and uncertainty in the regulatory and payment pathways. Each of these new technologies raises questions about the safety, efficacy, and clinical use of products derived from these technologies. In many cases, the new technologies also challenge existing notions of how a biomedical innovation should be treated if it does not fall into a traditional regulatory or payment pathway. As a result, there may be a long lag between the emergence of a new technology and the issuance of regulatory guidance clarifying the pathway for product approval. Uncertainty can contribute to delays in the development and diffusion of new innovations and can diminish investors’ willingness to invest in new technologies.

Many of the most promising new technologies—genomics, nanotechnology, advanced imaging, and bioinformatics—face the most risk and uncertainty in the regulatory and payment pathways.

A related problem stems from the great interest among the media in the exploration of new scientific advances and the role of the HHS agencies involved in funding and regulating biomedical innovation. Although this attention has led to a greater level of accountability and transparency, some have raised the concern that the media has helped to create unrealistic expectations about the speed at which biomedical innovations can be developed and made available to patients. Moreover, imbalanced media and congressional attention have contributed to a public misperception of the risks of new medical technology. Widely publicized safety recalls have focused on the drug review process and have generated enormous attention, but the countless people who are helped by a new therapy are not mentioned as often. Sometimes, media stories that focus only on risk spark congressional hearings, which in turn create more media coverage.

Some attendees expressed concern that such circumstances distract the FDA from its core mission. While it is vitally important for the FDA to be transparent and accountable to the public at all times, inaccurate risk communication or portrayals of normal scientific discourse as political controversy could cause the agency itself to become excessively risk averse. They fear that this could ultimately result in overly cautious decisions by FDA reviewers and leadership that deny patients access to new and potentially lifesaving therapies.

The department must also work harder on avoiding traffic jams within the agency. Innovators at the conferences noted significant challenges in navigating the HHS system due to the differing mandates of the individual agencies. For example, new drugs or devices must demonstrate that they are “safe and effective” to receive market clearance from the FDA, in accordance with the Federal Food, Drug, and Cosmetic Act. FDA approval does not guarantee payment from CMS, which in most cases must judge the products to be “reasonable and necessary” in accordance with the statutory requirements of the Social Security Act.

The Obama Administration

The Obama administration has made it clear that healthcare is going to be a top priority. In addressing the hugely complex and costly questions involved in major healthcare reform, the administration needs to take great care that they do not exacerbate the uncertainly problem. One of the biggest dangers is in the area of comparative effectiveness.

In the most basic sense, comparative effectiveness refers to an evaluation of the impact of different options that are available for treating a particular medical condition. This sounds harmless enough, because practitioners should be aware of how effective different treatments are. But it could also be used to cut costs and therefore limit treatments, as is happening in many European countries. Comparative effectiveness is still in its infancy, and many questions remain regarding its use. Greater emphasis on comparative effectiveness, such as the $1.1 billion in the recent stimulus package for it, could present new dangers to the incentives to innovate. With the stimulus legislation, Congress included report language stipulating that this research should not be used as a cost-cutting tool. This is a good development, but not necessarily permanent. Innovators will need to continue watching this area carefully.

In order to address these concerns, HHS needs to take a comprehensive, strategic look at the government’s role, in contrast to the current approach where agency decisions too often take place in a vacuum. HHS leadership, and particularly incoming secretary Kathleen Sebelius, must orchestrate the actions of the various agencies involved into a cohesive health innovation policy.

At the same time, the agencies themselves need to look at some new solutions, and several good ideas emerged from our conferences. One way to encourage a better funding process is to require some NIH funds be set aside for purely basic research and other NIH grants go to basic and translation research that has a demonstrated or probable connection to an improved healthcare outcome.

In the early 1990s, the FDA was willing to take some more risks, and there was a spike of drug approvals.

As for the FDA, a useful approach could be to move away from a binary model of safety versus effectiveness and have the FDA give consumers information about the risks and benefits of every drug, biologic, and device—and how these risks and benefits may vary from person to person. Another good idea is for the FDA to approve applications based on inferences from known biomedical effects, rather than always requiring clinical trial data on sizeable populations, a cumbersome and expensive approach.

CMS could benefit from implementing value-based purchasing across different parts of Medicare, so that Medicare pays providers for value or outcomes provided to a beneficiary rather than for each service or good. And finally, bringing AHRQ’s insights and resources to bear on earlier stages of the innovation process, such as deciding what research to fund or pay for, rather than focusing on post-market evaluation, could be a little less frightening to investors than the current approach.

Of course, these are not simple tasks. But there is a precedent for new approaches leading to better results. In the early 1990s, as the nation searched for drugs to combat diseases such as HIV/AIDS, the FDA was willing to take some more risks, and there was a spike of drug approvals as it looked more towards effectiveness rather than risk aversion. In this decade, however, the public, Congress, and the media have become more risk averse. In the coming years, we need to determine how to balance maximizing safety without stifling lifesaving innovation.

Coming up with appropriate answers to these types of questions will be essential if we want to ensure that the United States remains the world’s leader in fostering new medical technologies. 

Tevi Troy, the former deputy secretary of the Department of Health and Human Services, is a visiting senior fellow at the Hudson Institute. From 2005 to 2007, Troy served as deputy assistant to President Bush for domestic policy.

FURTHER READING: The American Enterprise Institute recently held events on health system reform, innovation-driven transformation of the health industry, and how health IT can improve medical care.

Image by Darren Wamboldt/The Bergman Group.

Most Viewed Articles

Chinese Check: Forging New Identities in Hong Kong and Taiwan By Michael Mazza 10/14/2014
In both Hong Kong and Taiwan, residents are identifying less and less as Chinese, a trend that ...
Why Privilege Nonprofits? By Arnold Kling 10/17/2014
People on the right view nonprofits as a civil-society bulwark against big government. People on ...
Do the Locomotive By Vaclav Smil 10/04/2014
Fifty years after the first rapid train began its scheduled service, this comfortable, safe, and ...
The Origins and Traditions of Columbus Day By Amy Kass and Leon Kass 10/10/2014
Columbus Day is a most unusual American holiday and has become a day 'to celebrate not only an ...
How Green Is Europe? By Vaclav Smil 09/30/2014
A superficial look might indicate great achievements. Yet a closer view reveals how far European ...