Trends In Health Care R&D And Technology Innovation

Transcription

1 Trends In Health Care R&D And Technology Innovation The pace of innovation shows no sign of slowing, but more funding is now drawn from private-sector coffers. b y P e t e r J. N e um a n n a n d E i l e e n A. S a n d b e rg Sp e n d i n g o n h e a l t h -r e l a t e d research and development (R&D) has increased steadily in recent years, both in absolute terms and as a percentage of total R&D and of total health care spending. The question raised by these trends is not so much whether health care innovation will continue, but who will absorb the expense. This paper updates earlier work on funding for biomedical research and the pace of innovation in the pharmaceutical, medical device, and biotechnology industries. 1 Drawing on data we focus on trends in three areas: (1) national investment in health-related research; (2) approvals of new products by the U.S. Food and Drug Administration (FDA); and (3) new products in the pipeline. The final section discusses policy issues. Spending on health R&D, which reached $35.8 billion in fiscal year 1995, increased as a percentage of total health expenditures from 3.2 percent in FY 1986 to 3.5 percent in FY 1995 (Exhibit 1). During the same period health R&D spending as a fraction of total R&D spending rose from 12.5 percent to 20.3 percent. The share of total health R&D conducted within the industry has risen as well, from 42 percent in FY 1986 to 52 percent in FY 1995 (Exhibit 2). Industry R&D spending as a percentage of U.S. pharmaceutical sales also has increased over time, rising from percent in the 1970s to 21 percent in FDA PRODUCT APPROVALS FDA mean approval times have declined since the enactment of the Prescription Drug User Fee Act (PDUFA) of 1992, which mandated that user fees from the pharmaceutical industry be used to hire additional FDA review staff (Exhibit 3). 3 Average approval times for new molecular entities (NMEs) fell from 30.6 months in to 19.2 months in When only those applications submitted after the 1992 law are considered, the 1996 and 1997 mean approval times are 15.2 and 15.4 months, respectively. In 1997 the FDA approved thirty-nine NMEs, defined as active substances not previously approved for marketing in the United States, and ten new biologics (biological products used in medicine), as well as several new indications for existing drugs. The number of NMEs approved was down from the fifty-three approved in 1996, but the number of approvals was higher than average over the previous ten years. At the same time, the total number of applications considered by the FDA rose sharply (Exhibit 4). Approvals have occurred much more rapidly for priority drugs, so designated because of their potential for significant benefits over currently available therapies for serious or life-threatening illnesses, than for nonpriority drugs. Examples include new therapies for human immunodeficiency virus 111 Peter Neumann is an assistant professor of policy and decision sciences in the Department of Health Policy and Management, and deputy director of the Program on the Economic Evaluation of Medical Technology, at the Harvard School of Public Health in Boston. Eileen Sandberg is a research associate in that program The People-to-People Downloaded from HealthAffairs.org Health Foundation, on March Inc. 06, 2018.

2 EXHIBIT 1 Estimated National Expenditures For Health Care, Total Research And Development (R&D), And Health R&D, Billions Of Dollars, Fiscal Years Expenditure category Total health care Total R&D Health R&D $ $ $ $ $ $ $ $ $ $ $1, Health R&D as percent of total R&D 12.0% 12.5% 13.5% 14.2% 14.8% 15.8% 16.2% 17.8% 18.8% 19.8% 20.3% Health R&D as percent of total health care SOURCE: National Institutes of Health, (HIV) and acquired immunodeficiency syndrome (AIDS), for which approval times ranged from 1.4 months to 8.6 months in Rapid approvals in 1997 also were made for Prandin and Rezulin, new drugs for type II diabetes; Evista, for the prevention of osteoporosis in postmenopausal women; and Plavix, for atherosclerotic events. All of these drugs were approved within seven months. 4 The number of premarket approvals (PMAs) for new medical devices increased in 1996 and 1997 over the average level achieved between 1992 and 1995 (Exhibit 5). However, approvals and submissions have declined somewhat overall in the 1990s relative to , in part as a result of the reclassification of daily-wear contact lenses, which removed the need for a formal premarket approval requirement for these devices. The backlog for PMAs awaiting decisions for more than 180 days fell from forty-five in FY 1993 to seventeen in FY The mean time for approval of PMAs declined from 14.6 months to 11.4 months over the same period. H E A L T H A F F A I R S ~ V o l u m e 1 7, N u m b e r 6

3 EX HIBIT 3 Mean FDA Approval Times And Number Of New Molecular Entities Approved, Number of months Number of approvals a SOURCE: U.S. Food and Drug Administration (FDA), (1997); and Pharmaceutical Research and Manufacturers of America (PhRMA), nda97.pdf. a Prescription Drug User Fee Act implemented 113 PRODUCTS IN THE PIPELINE One way of illustrating the pace of development for new pharmaceutical products is to look at the number and types of diseases with drugs in clinical trials. According to a 1997 pharmaceutical industry survey, the most active clinical categories for new drugs are cancer, with 316 new medications in development; AIDS, 124 new medications and vaccines; and heart disease and stroke, ninetysix new medications. 5 Other active areas of research are diabetes, osteoporosis, Alzheimer s disease, rheumatoid arthritis, and Parkinson s disease. The rapid pace of innovation is evident in the development of combination therapies for HIV/AIDS (Exhibit 6). Encouraged by federal and private investment in AIDS research and subsidies for reimbursement under the AIDS Drug Assistance Programs (ADAPs), the growth in development and use of new drugs for HIV/AIDS has been dramatic. The development and use of combination therapies for HIV and AIDS, including three new protease inhibitors and two new nonnucleoside reverse transcriptase inhibitors, have considerably lowered morbidity and mortality for patients with HIV. 6 The 1997 midyear HIV surveillance report noted that for the first time since the start of the epidemic, both the number of opportunistic infections and the number of deaths have declined, even while the number of AIDS cases continues to rise. 7 An important trend in product development is the continued growth of the biotechnology industry. Although biologics still account for a small number of total new drug approvals (five in 1996 and ten in 1997), the potential for innovation associated with biotechnology is expanding, particularly with the development of genomics research. More than 30,000 human genes have been mapped, and genes associated with various diseases are being sequenced at a rapid pace. New companies have been formed to harness the technology of genomics for developing treatments based on the characteristics of a particular

4 Number of applications Original NDA submissions NDA resubmissions Efficacy supplements SOURCE: U.S. Food and Drug Administration (FDA), Almanac (Rockville, Md.: FDA, 1997). NOTE: NDA is new drug application gene and its protein product. Genomics has the potential to dramatically change both drug development and medical care, by speeding the process of new drug design and by aiding in the prediction, diagnosis, and treatment of a host of inherited diseases. 8 POLICY ISSUES In recent years many analysts have expressed concern about the fate of R&D and innovation in the more competitive managed care environment. 9 Their fear has been that plans H E A L T H A F F A I R S ~ V o l u m e 1 7, N u m b e r 6

5 drive for efficiency would hinder their desire and ability to pay for expensive drugs and other medical technologies. Despite these fears, the nation s overall commitment to R&D and innovation has remained quite strong. By virtually any measure, the pace of R&D in the private and public sectors has been robust. In the private sector this investment is evident in the continued rise in industry R&D spending and in the sheer number and diversity of medical innovations in the pipeline. Moreover, sales of pharmaceuticals continue to increase steadily. U.S. sales of pharmaceuticals from research-based pharmaceutical companies increased more than 30 percent between 1994 and 1997, despite fears that managed care would stifle the development and use of new drugs. 10 Governmental support of health-related R&D also has been strong. The National Institutes of Health (NIH) has generally fared well regardless of the political climate and currently enjoys strong bipartisan support, reflected in an 8.4 percent boost in the president s latest budget and proposals from Republican legislators to double the amount spent on basic science and medical research over the next ten years. 11 The favorable climate also can be seen in the increase in FDA drug approvals, in FDA reforms aimed at reducing approval times for medical devices, and in the passage of the Food and Drug Administration Modernization Act (FDAMA) of 1997, which reauthorizes user fees for FDA submissions and provides several reforms to expedite the study and approval of fast-track drugs. 12 Despite the favorable climate for R&D and innovation, health care policymakers and researchers face several important challenges in the years ahead. n SHIFTING R&D TO THE PRIVATE SECTOR. The data reveal an ongoing and marked shift in the relative amount of R&D conducted in the private sector. Government s share of total spending on health research fell from 53.2 percent in FY 1986 to 44.2 percent in FY 1995 (see Exhibit 2). Even with the aforementioned boost in NIH funding, the trend toward private-sector support may accelerate in the future with ever-rising R&D spending in the pharmaceutical industry and strong growth in biotechnology firms, which tend to invest heavily in R&D. 13 Whether this trend on the whole is positive, negative, or neither is unclear. There is no reason to expect or desire a high or constant ratio of public-to-private spending. Moreover, 115

6 116 as government-funded biomedical research creates opportunities for commercially exploitable ideas, we might expect the high costs of product development to shift the ratio in favor of private spending. But the relative decline in publicly sponsored research raises questions about whether enough basic science research is being funded. There also may be questions about the close relationship between private industry and academic researchers. David Blumenthal has noted that the historical separation between academic and industry scientists was altered in the 1970s and 1980s when the combination of budget constraints and the availability of new medical technology led universities to consider the practical applications of their research. 14 Recently, there has been an increase in the amount of university-based research conducted for interested biomedical industries, and many large academic institutions now maintain programs to launch the successful product commercialization of university-originated technologies. 15 n ACADEMIC MEDICAL CENTERS AND CLINICAL RESEARCH. Another area of concern is the ability of academic medical centers (AMCs) to subsidize clinical research in the increasingly competitive health care environment. 16 Observers worry that even if direct sources of research support hold steady, the ability of AMCs (in which much of the nation s clinical research is conducted) to subsidize such research will suffer under the new system. 17 Specific areas of concern are that (1) aggressive payment negotiations with managed care plans may curtail AMCs ability to crosssubsidize research-related activities; (2) closed provider networks may restrict investigators access to research subjects; (3) managed care plans may be more likely to deny coverage for experimental therapies or may reduce the flow of patients into clinical trials; The diffusion of new medical technology may overwhelm managed care s attempt to moderate health care costs. (4) pressures on faculty to raise research funds may limit their available time for research; and (5) managed care plans may be concerned only with research that involves their populations. 18 AMCs also may be vulnerable to a host of other factors, including competition from private contract research organizations for the management of industry-sponsored studies; an expanding medical student debt load, which makes a career as a clinical researcher less attractive; greater competition for NIH dollars; and a tendency for the NIH to favor basic science over clinical research. 19 Whether and to what extent cross-subsidies for clinical research are desirable will continue to be debated. The impact of managed care on AMCs ability to sustain their research (and teaching) mission remains unclear, although some investigators suggest that a trend may be beginning. 20 Ernest Moy and colleagues, for example, found that from 1990 to 1995 medical schools in markets with high managed care penetration had slower growth in NIH awards granted than did schools in markets with low or medium penetration. 21 Eric Campbell and colleagues found that clinical researchers in more-competitive markets published fewer scientific articles than did those in less-competitive markets and that young faculty in more-competitive markets had more patient care responsibilities. 22 n MANAGED CARE AND NEW MEDICAL TECHNOLOGY. Observers have long worried that cost-conscious managed care plans would stifle the use of new drugs and other advances, but there seems to be little empirical evidence of such an adverse impact thus far. Overall sales of pharmaceuticals and other medical technology continue to increase steadily. Moreover, there is little evidence that technology diffusion differs between managed care and fee-for-service settings. 23 n MEDICA L TECHNOLOGY AND H E A L T H A F F A I R S ~ V o l u m e 1 7, N u m b e r 6

7 HEALTH CARE COSTS. The diffusion of new medical technology may ultimately overwhelm managed care s attempt to moderate health care costs. 24 Studies generally have concluded that medical technology contributes to health care inflation, with estimates in the range of 15 to 50 percent. 25 New technology adds to costs because it increases the intensity of care that is, it expands the opportunities for providing services to patients. Even where new technology can reduce unit costs for particular patients, it often increases net health expenditures by increasing overall volume that is, it is used by patients with mildly symptomatic disease or those who were previously too ill for treatment. 26 Drug costs have increased faster than general health care inflation in recent years. For example, annual growth rates of health spending declined from 11.0 percent in 1990 to 4.4 percent in Although the average annual growth rate for prescription drugs declined from 12.1 percent in 1990 to 6.2 percent in 1994, it increased to 9.2 percent in Massachusetts-based Harvard Pilgrim Health Care, whose drug costs rose 46 percent between 1994 and 1997, recently projected that if current trends continue, its drug spending will surpass its hospital spending by 2002 to become the second most expensive part of health care, next to physician care. 28 To some extent, the increase in drug spending reflects plans attempts to use medications to reduce spending on other medical services; it also reflects the introduction and use of expensive new therapies, particularly for chronically ill populations. n EXPERIMENTAL TECHNOLOGY. The issue of who should have access to and who should pay for experimental or emerging treatments is complicated by the fact that many standard therapies can be reapplied in new ways and thereby become experimental. 29 Debate on clinical trials has centered on whether and to what extent the NIH, Medicare, and private insurers should foot the bill. 30 Studies show that access to emerging treatments differs depending on a patient s insurance coverage. 31 One way to help to address the situation is to improve technology assessment. n PHARMACOECONOMICS AND OUT- COMES RESEARCH. The manner in which medical technology is evaluated is one of the most important developments in health care in the past two decades. As payers have demanded evidence that expensive prescription drugs and other technologies provide value for money, the fields of pharmacoeconomics and outcomes research have blossomed. Drug companies now routinely undertake pharmacoeconomic analyses, and some managed care plans are now requiring economic evidence for new formulary submissions. 32 The number of economic evaluations conducted alongside randomized clinical trials increased from sixty-seven in 1992 to 353 in Unlike in nations such as Sweden, the Netherlands, and Canada, which have centralized technology assessment agencies, evaluations in the United States are conducted predominantly in the private sector. 34 A relatively small amount of public funding is spent on outcomes research (for example, the budget for the Agency for Health Care Policy and Research is less than $200 million, compared with more than $15 billion for the NIH), and substantial increases in the U.S. effort do not appear to be forthcoming. Indeed, one of the few agencies abolished by the conservative Congress elected in 1994 was the Office of Technology Assessment. But an environment of rapidly changing technology means that much technology assessment is required. Key questions include who will conduct future evaluations, what methods will be used, and what will be the impact of new federal legislation that gives pharmaceutical companies greater flexibility in the way they communicate about the pharmacoeconomic advantages of their products. 35 Me d i ca l te ch n o lo g y innovation does not follow a linear model (directly flowing from basic laboratory science to applied clinical research to clinical practice improvement), but rather is a dynamic and interactive process with feedback 117

8 118 loops, upstream changes, and inherent uncertainties. 36 The unpredictability of the process can make it difficult for policymakers to understand and foresee the return on investment in R&D and for analysts to evaluate the value of new medical technology. But it is important to push ahead on both of these fronts. U.S. health care policy has sometimes been cast as an enduring struggle between the nation s commitment to controlling costs versus its commitment to innovation. 37 Despite recent dramatic changes in the health care system, and a moderation in health care inflation, the pace of R&D spending and innovation appears strong. Predicted adverse impacts of managed care on innovation have yet to materialize. Indeed, if the public s willingness to pay for medical advances is reflected in NIH research budgets and sales of new pharmaceuticals and other products, it would appear that Americans appetite for new medical technology is as strong as ever. The biggest challenge in the years ahead remains determining who has access to the innovations and how we, as a society, should pay for them. The authors are grateful to Sally Araki, Gregg Meyer, Louis Morris, and two anonymous reviewers for helpful comments. NOTES 1. M.R. Pollard and G.S. Persinger, Investment in Health Care Innovation, Health Affairs (Summer 1987): ; J.L. Read and P.M. Campbell, Health Care Innovation: A Progress Report, Health Affairs (Summer 1988): ; J.L. Read and K.B. Lee Jr., Health Care Innovation: Progress Report and Focus on Biotechnology, Health Affairs (Summer 1994): ; and C.L. Littell, Innovation in Medical Technology: Reading the Indicators, Health Affairs (Summer 1994): See profile97/figures97/2-2.html. 3. Prescription Drug User Fee Act of 1992, P.L See 5. Pharmaceutical Research and Manufacturers of America, 1997 Industry Profile (Washington: PhRMA, 1997). 6. F.J. Palella et al., Declining Morbidity and Mortality among Patients with Advanced Human Immunodeficiency Virus Infection, New England Journal of Medicine 338, no. 13 (1998): Centers for Disease Control and Prevention, HIV/AIDS Surveillance Report 9, no. 1 (1997): Also see hivsur91.pdf. 8. J. Cohen, The Genomics Gamble, Science 275, no (1997): ; and National Institutes of Health, Press Release for the NIH Budget, FY 1999 (Washington: U.S. Department of Health and Human Services, 1998). Also see gov/od/ofm/budget/emphasis.htm. 9. R.E. Mechanic and A. Dobson, The Impact of Managed Care on Clinical Research: A Preliminary Investigation, Health Affairs (Fall 1996): 72 89; E. Moy et al., Relationship between National Institutes of Health Research Awards to U.S. Medical Schools and Managed Care Market Penetration, Journal of the American Medical Association 278, no. 3 (1997): ; and J.N. Thompson and J. Moskowitz, Preventing the Extinction of the Clinical Research Ecosystem, Journal of the American Medical Association 278, no. 3 (1997): PhRMA, 1997 Industry Profile. 11. D. Blumenthal, Growing Pains for New Academic/Industry Relationships, Health Affairs (Summer 1994): ; H.E. Varmus, The View from the National Institutes of Health, in The Future of Biomedical Research, ed. C.E. Barfield and B.L.R. Smith (Washington: American Enterprise Institute and Brookings Institution, 1997), 9 15; NIH, The NIH Budget, FY 1999; and The National Research Investment Act of 1998, S. 1305, 105th Cong., 2d sess. (1998). 12. D.A. Kessler et al., Approval of New Drugs in the United States: Comparison with the United Kingdom, Germany, and Japan, Journal of the American Medical Association 276, no. 22 (1996): ; U.S. Department of Health and Human Services, FY 1999 Budget (Washington: DHHS, 1998); and FDA Modernization Act of 1997, S. 830, 105th Cong., 1st sess. (1997). 13. Read and Lee, Health Care Innovation; and Ernst and Young, Biotech 97 Alignment (Palo Alto, Calif.: Ernst and Young, 1996). 14. Blumenthal, Growing Pains. 15. D. Blumenthal and G.S. Meyer, Academic Health Centers in a Changing Environment, Health Affairs (Summer 1996): ; and S.H. Atkinson, University-Affiliated Venture Capital Funds, Health Affairs (Summer 1994): E. Ahrens, The Crisis in Clinical Research: Overcoming Institutional Obstacles (New York: Oxford University Press, 1992), 51 53; Institute of Medicine, Careers in Clinical Research: Obstacles and Opportunities (Washington: National Academy Press, 1994); NIH, Executive Summary NIH Director s Panel on Clinical Research Report 12/97 (Washington: DHHS, 1998), H E A L T H A F F A I R S ~ V o l u m e 1 7, N u m b e r 6

9 crp/97report/execsum.htm; and Thompson and Moskowitz, Preventing the Extinction of the Clinical Research Ecosystem. 17. Mechanic and Dobson, The Impact of Managed Care on Clinical Research. 18. Ibid.; and D.A. Burnett, Evolving Market Will Change Clinical Research, Health Affairs (Fall 1996): IOM, Careers in Clinical Research; Thompson and Moskowitz, Preventing the Extinction of the Clinical Research Ecosystem; J. Reuter and D. Gaskin, Academic Health Centers in Competitive Markets, Health Affairs (July/August 1997): ; Burnett, Evolving Market Will Change Clinical Research; K.I. Shine, Some Imperatives for Clinical Research, Journal of the American Medical Association 278, no. 3 (1997): ; and G.H. Williams et al., Funding for Patient-Oriented Research, Journal of the American Medical Association 278, no. 3 (1997): Blumenthal and Meyer, Academic Health Centers in a Changing Environment; and Mechanic and Dobson, The Impact of Managed Care on Clinical Research. 21. Moy et al., Relationship between National Institutes of Health Research Awards. 22. E. G. Campbell, J.S. Weissman, and D. Blumenthal, Relationship between Market Competition and the Activities and Attitudes of Medical School Faculty, Journal of the American Medical Association 278, no. 3 (1997): J.P. Newhouse, An Iconoclastic View of Health Cost Containment, Health Affairs (Supplement 1993): ; and M. Chernew, A.M. Fendrick, and R.A. Hirth, Managed Care and Medical Technology: Implications for Cost Growth, Health Affairs (March/April 1997): A. Pham, Drug Costs Put Strain on Health Insurers, May Force Change for Managed Care, Boston Globe, 18 March 1998, A P.J. Neumann and M.C. Weinstein, Diffusion of New Technology: Costs and Benefits to Health Care, in The Changing Economics of Technological Innovation in Medicine, ed. A.C. Gelijns and E.A. Holm (Washington: National Academy Press, 1991), 21 34; and Newhouse, An Iconoclastic View of Health Cost Containment. 26. W.B. Schwartz, In the Pipeline: A Wave of Valuable Medical Technology, Health Affairs (Summer 1994): 70 79; and J. Goldsmith, The Impact of New Technology on Health Costs, Health Affairs (Summer 1994): K.R. Levit, H.C. Lazenby, and B.R. Braden, National Health Spending Trends in 1996, Health Affairs ( January/February 1998): Pham, Drug Costs Put Strain on Insurers. 29. K.A. Buto, How Can Medicare Keep Pace with Cutting-Edge Technology? Health Affairs (Summer 1994): ; and S.J. Reiser, Criteria for Standard versus Experimental Therapy, Health Affairs (Summer 1994): Buto, How Can Medicare Keep Pace? 31. W.P. Peters and M.C. Rogers, Variation in Approval by Insurance Companies of Coverage for Autologous Bone Marrow Transplantation for Breast Cancer, New England Journal of Medicine 330, no. 7 (1994): ; and B.S. Finkestein et al., Insurance Coverage, Physician Recommendations, and Access to Emerging Treatments, Journal of the American Medical Association 279, no. 9 (1998): Guidelines for Formulary Submissions (Rancho Cordova, Calif.: Integrated Pharmaceutical Services and Foundation Health Corp., 1996); and Guidelines for Submission of Clinical and Economic Data Supporting Formulary Considerations, Version 1.2 (Seattle: Regence Washington Health Pharmacy Service, University of Washington, September 1997). 33. C. Pritchard, Trends in Economic Evaluation, Office of Health Economics Pub. no. 36 (London: Office of Health Economics, 1997). 34. U.S. Congress Office of Technology Assessment, Identifying Health Technologies That Work: Searching for Evidence (Washington: OTA, 1994); and R.A. Rettig, Health Care in Transition: Technology Assessment in the Private Sector (Santa Monica, Calif.: RAND, 1997). 35. Prescription Drug User Fee Act of 1997, H.R. 1141, S. 830, 105th Cong., 1st sess. (1997). 36. A. Gelijns and N. Rosenberg, The Dynamics of Technological Change in Medicine, Health Affairs (Summer 1994): 28 46; G.D. Nelson. Preserving the Milieu for Medical Innovation, Health Affairs (Summer 1994): ; and R.A. Rettig, Medical Innovation Duels Cost Containment, Health Affairs (Summer 1994): Rettig, Medical Innovation Duels Cost Containment. 119