Serious and costly performance problems riddle U.S. health care. Because of overuse, under use, and misuse of health care, researchers at the Juran Institute and elsewhere estimate that about 30 percent of health care costs are generated by poor quality. Therefore, poor quality medical care will cost about $720 billion in 2008 (30% of $2.4 trillion).

Poor quality also reduces productivity. For every dollar of health care spending caused by poor quality, poor care costs an estimated 50 cents in lost productivity. When applied to the $822 billion in care provided through employer-sponsored insurance, this translates to an additional $123 billion in costs.

A recent study by the Health Research Institute at PricewaterhouseCoopers estimates that wasteful health care spending costs $1.2 trillion annually. Analyzing findings from a wealth of published studies, the PwC researchers looked at the cost of waste from clinically inappropriate care and overt errors, individual behaviors leading to costly health problems, and antiquated operational processes that add costs without providing any value.

Making matters worse, research on the care patients receive from physicians, hospitals, and other providers paints a frustrating, even scary picture. For example, studies conducted by the respected RAND Corporation show that Americans receive clinically inadequate or inappropriate care at shockingly high rates.

Specifically, RAND's research shows that acute care for insured adults is appropriate only 53.5 percent of the time on average. In other words, about 46 percent of acute care is clinically incorrect. Similarly, about 43.9 percent of chronic care and 45.1 percent of preventive care is inappropriate according to accepted medical standards. Children receive 68 percent of recommended care for acute medical problems, 53 percent of recommended care for chronic medical conditions, and 41 percent of recommended preventive care.

The bottom line is health care - whether for adults or children - is inappropriate or unnecessary about half the time. Basically, it's a coin flip.

Root Causes of Poor Quality, High Costs:

Ultimately, three immutable laws of economics explain the underlying causes of this poor performance:

1. Price is what you pay but value is what you get:

Taking a page from Warren Buffet's playbook, buyers of health benefits must focus on value, not price. Price is an important part of the equation but meaningless if you don't know the value of what you are receiving for that price. Unfortunately, in health care we obsess on unit prices. In no other marketplace or domain of life do Americans - corporations, consumers, federal and state policymakers, news media - pay so much attention to price and so little to value.

2. You get what you pay for:

Today, we pay for quantity, not quality. Poor performers are sustained and rewarded. The best performers are financially penalized and professionally demoralized. The consequences are all too obvious.

3. You can't fix what you can't see:

In sharp contrast to virtually every other industry, health care is highly opaque. American health care is full of decision makers - consumers, physicians, and other providers, health plans, public officials - who lack the information needed to make decisions.

Five Steps to Higher Performance:

The problems are daunting but solvable. To improve the quality and cost effectiveness of health care delivery, purchasers and payors must tightly focus on strategies to expect, measure, disclose, reward, and support results:

1. Expect Results:

2. Measure Results:

3. Disclose Results:

4. Reward Results:

5. Support Results:

Support the infrastructure and processes essential to results-driven health care. These include:

The latest issue of the American Journal of Managed Care has several interesting articles on diabetes, demonstrating several opportunities to improve outcomes and reduce costs:

How Managed Care Organizations Contribute to Improved Diabetes Outcomes: Patricia Salber, MD, chief medical officer and SVP at Universal American, a large Medicare health and drug plan, outlines how MCOs are improving outcomes for patients with diabetes.

Diabetes Complications Severity Index and Risk of Mortality, Hospitalization, and Healthcare Utilization: This study show that the Diabetes Complications Severity Index (DCSI) performs better than complication counts and is a useful tool to predict mortality and hospitalization risk.

Lower Severe Hypoglycemia Risk: Insulin Glargine Versus NPH Insulin in Type 2 Diabetes: Findings shows cost savings and lower incidence of hypoglycemia with insulin glargine.

Diabetes Diagnosis, Resource Utilization, and Health Outcomes: Article highlights the clinical and economic case for much earlier detection of hyperglycemia.

Do Diabetes Group Visits Lead to Lower Medical Care Charges?: Findings show that group visits (shared medical appointments) significantly reduce outpatient costs of diabetes care, primarily by substituting group visits for more expensive individual specialty care visits.

To read or download all the articles in the January 2008 issue of AJMC, click here.

The journal Medical Care has published series of outstanding articles on emerging methods and tools to compare the effectiveness of medical therapies, prescription drugs, and devices. The peer-reviewed articles are an outgrowth from a symposium on comparative effectiveness research sponsored by the Agency for Healthcare Research and Quality (AHRQ).

Here are links to the individual articles in PDF format:

Normally, $15 million a year doesn't buy you much in the federal government. A notable exception is the Effective Health Care Program at the Agency for Healthcare Research and Quality (AHRQ). Drug manufacturers, device makers, health plans, state Medicaid agencies, Wall Street analysts, physicians, and patient groups should all follow it closely.

The Medicare Modernization Act of 2003 (MMA) authorized AHRQ to conduct and support research on outcomes, comparative clinical effectiveness, and appropriateness of pharmaceuticals, devices, and health care services. With a modest budget, a tiny but dedicated staff, and partnerships with top research institutions, AHRQ's Effective Health Care Program involves three approaches to research the comparative effectiveness of different medical treatments, drug therapies, and clinical practices:

1. Review and Synthesize Knowledge: AHRQ's network of 12 Evidence-based Practice Centers systematically review published and unpublished scientific evidence on what is known. Given the huge volume of studies and journal articles produced every year, it is next to impossible for providers, payors, and other key decision makers to keep up and even harder for them to thoughtfully weigh the evidence. AHRQ and its research partners synthesize the science and build a meaningful evidence base.

2. Promote and Generate New Knowledge: The DEcIDE Research Network studies new scientific evidence and analytic tools in an accelerated and practical format. DEcIDE stands for "Developing Evidence to Inform Decisions about Effectiveness." Comprised of 13 university research centers and think tanks, the DEcIDE network conducts accelerated practical studies about the comparative clinical effectiveness, safety, and appropriateness of specific health care services, drugs, and devices. In other words, what works best for patients.

3. Compile Findings and Translate and Disseminate Knowledge to Decision Makers: AHRQ's John M. Eisenberg Clinical Decisions and Communications Science Center takes the research results and transform them into into a variety of useful, actionable formats for stakeholders (e.g., providers, payors, purchasers, patients, manufacturers). Specifically, these include (a) consumer guides (short summaries of health care research that can help with decisions about treatments), (b) clinician guides (brief evidence summaries to assist clinical decision making), (c) policymaker guides (short reports of research evidence for use in health care policy making), and (d) white papers on state-of-the-art concepts in health communication.

The past couple years, the initiative has focused on ten priority health care conditions, selected because of their high impact on Medicare, Medicaid, SCHIP, and other federal health programs:

Later this year, AHRQ will entertain nominations for other priority conditions.

Here's a sampling of the excellent work already generated. For a directory of these reports, with free access in PDF format, click here:

The Effective Health Care Program has 40 other reports in the works, covering a wide range of topics. These include more comparative effectiveness reviews of specific drugs as well as tools to measure quality, reduce errors, and monitor therapies. To get notified when new research becomes available, sign up for AHRQ's email list.

The Enhancing Drug Safety and Innovation Act of 2007 (reintroduced as Senate Bill 484), sponsored by Senator Mike Enzi (R-WY) and co-sponsored by Senator Ted Kennedy (D-MA), is worth watching as the new Congress contemplates pharmaceutical industry legislation.

As proposed, The Enhancing Drug Safety and Innovation Act of 2007 has five components:

1. Amends the Federal Food, Drug, and Cosmetic Act to require an application for approval for a new drug or biological product to include a proposed Risk Evaluation and Mitigation Strategy (REMS). Designed to be an integrated, flexible mechanism to acquire and adapt to new safety information about a drug, REMS would require (a) labeling for the drug for use by health care providers; (b) submission of reports for the drug; and (c) a statement as to whether the analysis and surveillance are sufficient to assess the serious risks of the drug. REMS is modeled after the risk management approach taken by the European Union.

2. Establishes a Drug Safety Oversight Board.

3. Requires the Secretary of Health and Human Services to establish the Reagan-Udall Institute for Applied Biomedical Research as a nonprofit corporation to advance the Critical Path Initiative to modernize medical product development, accelerate innovation, and enhance product safety. Requires the Institute to have a Board of Directors. Allows the Board to coordinate and collaborate with other entities to conduct research, education, and outreach and to modernize the sciences of developing, manufacturing, and evaluating the safety and effectiveness of diagnostics, devices, biologics, and drugs.

4. Amends the Public Health Service Act to require the Secretary, acting through the Director of the National Institutes of Health (NIH), to establish and administer a clinical trial registry database and a clinical trial results database. Requires a responsible party for a clinical trial to submit clinical trial information to the NIH Director for inclusion in the databases.

5. Requires each individual under consideration for a term on an FDA advisory committee providing advice or recommendations to the Secretary regarding FDA activities to disclose industry financial interests.

To learn more, check out the Senate Committee on Health, Education, Labor, and Pensions' hearing on the bill.

In health care, states serve as the nation's laboratories of reform - able to test innovations in financing, coverage, regulation, and care delivery. In 2007, states are leading the way on health insurance coverage expansion, leveraging a mix of policies including universal coverage, individual mandates, tax credits and Section 125 plans, and insurance "exchanges" or "connectors" to facilitate buying of affordable health plans.

Because so much is going on and since I do a fair amount of workin this area, several readers of the Piper Report asked me to post some resources on what's going on in the states. So here you go.

State Health Reform Commissions:

Several states have created task forces or study committees to examine options for coverage expansion and make recommendations. Most are appointed by the governor or governor and legislative leaders. A few are special committees of the legislature. Here are states with health reform commissions:

Governors' Health Care Reform Initiatives:

Several governors have announced detailed health reform proposals. Most focus largely or entirely on coverage expansion but several also thankfully include initiatives to improve quality of care, combat medical errors, and/or increase transparency of provider prices and performance.

More Resources on State-Based Health Reform:

Massachusetts, of course, started the ball rolling with its groundbreaking, bipartisan reform initiative in 2006. To learn more, here's an excellent article from BNA's Health Policy Report on the impact of Massachusetts health reform on coverage expansion efforts in others states (PDF).

The National Conference of State Legislatures (NCSL) maintains a helpful list of legislative bills on universal coverage proposed in states.

For the best books on health reform, Medicaid, and other hot topics in health care, please visit my book recommendations.

For latest state-specific data on health care coverage and spending, check out the free, easy-to-use tools on StateHealthFacts.org.

Questions on State Health Reform:

Feel free to contact me if you have questions on what's going on in the states.

There's a lot of truth in the old joke about the problem with Republicans and Democrats: Republicans need a heart and Democrats need a brain. As Democrats prepare to take control of Congress, they appear eager to prove the joke by pursuing legislation to require government "negotiations" on prescription drug prices in Medicare Part D.

The idea has emotional appeal, so let's see if there is any evidence to support the idea. (If you come from the Bumper Sticker School of Health Policy, stop here. The facts will only confuse you and don't easily make for emotive talking points.)

Non-Interference Requirement in MMA:

In the Medicare Moderation Act, the massive 2003 legislation that created the Medicare Part D drug benefit among other Medicare reforms, Congress prohibited the Centers for Medicare and Medicaid Services (CMS) from interfering with drug pricing in the competitive market. Part D prescription drug plans - Medicare Advantage drug plans (MA-PDs) and prescription drug plans (PDPs) - would battle among themselves to cut the best deals with pharmaceutical manufacturers and pharmacies and openly compete for enrollees.

The statute at controversy, found at section 1860D-11(i) of the Social Security Act, is short and sweet:

(i) NONINTERFERENCE. In order to promote competition under this part and in carrying out this part, the Secretary:

(1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and

(2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.

Estimated Savings of Federal Drug Price Negotiations:

Supporters of federal staff negotiating drug prices argue that it would generate billions of dollars in savings for taxpayers and seniors. However, the Congressional Budget Office (CBO) - the highly respected, non-partisan fiscal advisor to both houses of Congress and the agency that officially scores the cost and savings of all legislative proposals - agrees with top health economists and Medicare experts that federal price negotiations will save precisely zip.

Following passage of MMA, Senate leaders asked CBO to examine the effect of striking the 'noninterference' provision. CBO reported:

We estimate that striking that provision would have a negligible effect on federal spending because CBO estimates that substantial savings will be obtained by the private plans and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree. Because they will be at substantial financial risk, private plans will have strong incentives to negotiate price discounts, both to control their own costs in providing the drug benefit and to attract enrollees with low premiums and cost-sharing requirements.

CBO was then asked if the federal government could save anything if CMS centrally negotiated prices with makers of single-source drugs. (Single-source prescription drugs are brand-name drugs that have no generic equivalent on the market and are generally available from only one manufacturer.) Again, CBO concluded that savings are unlikely, unless of course federal officials are willing to play hardball and restrict patient access to therapeutically unique drugs until the manufacturers agree to government price demands:

Most single-source drugs face competition from other drugs that are therapeutic alternatives. CBO believes that there is little, if any, potential savings from negotiations involving those single-source drugs. We expect that risk-bearing private plans will have strong incentives to negotiate price discounts for such drugs and that the Secretary would not be able to negotiate prices that further reduce federal spending to a significant degree.

Nevertheless, there is potential for some savings if the Secretary were to have the authority to negotiate prices with manufacturers of single-source drugs that do not face competition from therapeutic alternatives. Private plans offering a prescription drug benefit to Medicare beneficiaries will have less leverage in negotiating discounts for drugs without therapeutic alternatives than they have in price negotiations for drugs that do face such competition. (In that regard, the Medicare plans will be no different than private health plans that offer prescription drug coverage to other populations.)

Under current law, there already are significant pressures that limit the prices that manufacturers charge for drugs - whether those drugs face competition from therapeutic alternatives or not. Those pressures include the prospects that plans will not cover a drug (or will substantially limit the amount they pay for a drug) and that manufacturers will provoke a backlash (potentially including legislation) if they set prices too high. Moreover, the creation of the Medicare drug benefit has given federal officials greater opportunity and incentive than under prior law to bring pressure on manufacturers - for example, by influencing public opinion and policy makers--if the prices that manufacturers set for single-source drugs that are not subject to competition from therapeutic alternatives are perceived as being too high. Giving the Secretary an additional tool--the authority to negotiate prices with manufacturers of such drugs - would put greater pressure on those manufacturers and could produce some additional savings.

Ample Evidence Against Federal Drug Price Negotiations:

Not only would federal price negotiations save little or nothing compared to the increasingly competitive private marketplace, there are host of other arguments against the idea.

In a fascinating new study - The Human Cost of Federal Price Negotiations: The Medicare Prescription Drug Benefit and Pharmaceutical Innovation - Benjamin Zycher, Ph.D., an economist and senior fellow at the Manhattan Institute's Center for Medical Progress, carefully "estimates the impact that federal negotiation of prescription drug prices would have on pharmaceutical research and development (R & D) investment through 2025."

Dr. Zycher concludes that, while federal price negotiations could save some Medicare dollars, "the longer-term human costs of government price-negotiation...are likely to be large and adverse." Most notably, the data show government mandated negotiations would dramatically reduce the development of new, life-saving drugs (about a dozen annually), resulting in "...a loss of 5 million expected life-years annually, an adverse effect that can be valued conservatively at about $500 billion per year, an amount far in excess of total annual U.S. spending on pharmaceuticals."

In Compromising Quality: The High Cost of Government Drug Purchasing, Edmund F. Haislmaier provides a crisp, devastating critique of the idea of federal drug price negotiations. He disects the core myths and outlines how it would only serve to threaten quality and access.

Proponents of government price negotiations assume that Medicare has more bargaining leverage than the private sector. In Why the New Congress Should Not Fix Drug Prices, researcher Greg D'Angelo does a nice job dismantling this faulty assumption.

Wait, It Gets Worse:

Many advocates of federal negotiations point to the VA's prescription drug program as an example of how to reduce drug prices. As I have explained to many audiences, comparing the VA approach to Medicare Part D is not even an apples to oranges comparison. It's more like comparing apples and poodles - and makes as much sense.

A groundbreaking study, by Frank R. Lichtenberg, Ph.D. of the Columbia School of Business, should put such comparisons to rest. In Older Drugs, Shorter Lives? An Examination of the Health Effects of the Veterans Health Administration Formulary, Dr. Lichtenberg shows the VH approach is not about prices or genuine negotiations. With the VA's tight budget, it is all about restricting veterans' access to new (and many old) medications to save dollars and hit budget targets.

The VA's highly restrictive national formulary excludes 62% of drugs approved by the FDA during the 1990's and 81% of new medications approved since 2000. Even worse, the drug benefit designed for our nation's veterans does not pay for a staggering 78% of new, high-priority prescription drugs approved by the FDA on an expedited basis since 1997 because of their life-saving impact. By comparison, commercial health plans, Medicare Part D drug plans, and state Medicaid programs cover the vast majority of new drugs and move quick to add coverage for most drugs given fast-track by the FDA.

Dr. Lichtenberg's 2005 study shows that the VA's prescription drug system - seen by many as the "model" for Medicare Part D - reduced the life span and survival rates of vets since its 1997 introduction. Note to Congress: Death is always cheaper than life but rarely preferable.

Recap:

So, let's recap. Even putting aside the dangers of a massive increase in government power, fact it would dramatically reduce consumer and physician decision making, fact it would shift costs to other payors, and fact it would inevitably lead to economically disastrous price controls, the federal government negotiating drug prices will likely save little or nothing - unless Congress wants to severely restrict patient access to new and existing medications, thereby shortening lives, reducing quality of life, and increasing costs well beyond any savings. And that's if it's even feasible for CMS to do it. Trust me, it's not.

In the Deficit Reduction Act (DRA), Congress authorized the new $150 million Medicaid Transformation Grant Program to help states design and implement reforms to increase quality and efficiency of Medicaid. This is a unique opportunity to help states restructure and modernize Medicaid, save taxpayer dollars, and improve services. But states must act fast to take advantage.

State Medicaid agencies may submit grant proposals to CMS by September 15, 2006. For grants, CMS has a total budget of $75 million in FFY 2007 and another $75 million in FFY 2008. The amount of each grant will vary and will depend on the number of applications received. State matching funds are not required.

While states have wide discretion in proposing projects and may propose multiple projects in a single grant application, CMS is encouraging states to look at ways to improve Medicaid program operations and efficiency.

In the area of improving Medicaid program efficiency, CMS is particularly interested in grant projects to:

CMS is also interested in projects to improve the effectiveness of Medicaid. Examples include projects on:

In the arena of improved care delivery, CMS is particularly interested in grant proposals to:

This is a unique, one-time opportunity for states but, with grant applications due in six weeks, the timeline is tight. States needing help or advice in writing an application may contact me or my friends at Sellers Feinberg for assistance.

Patient-centered care - one of the new buzz phrases in health care - is all about aligning the delivery of medical care with the needs and preferences of patients. Research shows that the practices and tools of patient-centered care result in:

Unfortunately, despite overwhelming support of the medical community and patient advocates, only 22 percent of physicians practice patient-centered care.

Patient-Centered Care Defined:

Patient-centered care is one of the six essential components of high quality medical care, according to the Institute of Medicine (IOM), the respected healthcare arm of the National Academy of Sciences. The IOM defines patient-centered care as:

Health care that establishes a partnership among practitioners, patients, and their families (when appropriate) to ensure that decisions respect patients' wants, needs, and preferences and that patients have the education and support they need to make decisions and participate in their own care.

Key Components of Patent-Centered Care:

At its core, patient-centered care is all about improved patient-provider communication, where patients and providers collaborate for the benefit of the patient. Ideally, patient-centered care delivery involves an array of tools and practices, including:

To learn more, check out these resources:

The Commonwealth Fund's excellent initiatives on patient-centered care.

Report from the Economic and Social Research Institute on the key components of patient-centered care that are unique to underserved populations.

Tools from the HHS Agency for Healthcare Research and Quality (AHRQ).

The world's leading guru of competitive strategy, Michael Porter, Ph.D., has turned his sights on explaining the fundamental cause of high costs, poor quality, consumer dissatisfaction, uneven access, and skyrocketing premiums in American health care.

In Redefining Health Care, Porter and innovation expert Elizabeth Teisberg, Ph.D. provide a thoughtful, groundbreaking framework to use competition to drive dramatic increases in quality and efficiency.

Unlike many wonks who foolishly believe that health care is not a market, Drs. Porter and Teisberg see competition " of a sort " in operation. They show us that the current competitive environment in health care is designed to "shift costs, accumulate bargaining power, and restrict services." That is, what we have now is dysfunctional, zero-sum competition serving to limit, even reduce value for patients. And they see all this taking place "...at the wrong level-among health plans, networks, and hospitals " rather than where it matters most, in the diagnosis, treatment, and prevention of specific health conditions."

Focusing on how to move American health care to positive-sum competition based on economic and clinical value for patients, Redefining Health Care provides a series of specific recommendations for the key players " including physicians, hospitals, health plans, employers, Medicare, and Medicaid.

Medical errors are rampant in American health care, particularly in physician and hospitals services. The human and economic costs are extraordinary. And because these mistakes are virtually 100 percent avoidable, so are the deaths, injuries, pain, and cost.

A diverse range of players - policy makers, thought leaders, researchers, consumer groups, purchasers, and clinicians - are working to reduce error rates and promote the use of safer systems and practices. However, reformers continue to hit the great blue wall of medical secrecy. Physicians, hospital administrators, and other health professionals are extremely reluctant to disclose or discuss a harm-causing mistake.

This is not surprising, of course. No one likes to talk about his or her mistakes, especially mistakes that result in injury or death. These conversations are awkward and painful for all concerned. What's more, disclosuring the truth can lead to lawsuits, disciplinary action, embarrassment, self-doubt, and diminished status in society and among peers. But ethically, all this is beside the point. Patients and their surviving family have a right to the unvarnished truth, something they rarely get absent costly and protracted lawsuits. And the health care system cannot fix what it cannot see.

Medical Errors and Medical Narcissism - a groundbreaking book by John Banja, PhD, assistant director of health services and clinical ethics at Emory University - examines the concept of "medical narcissism." Specifically, Dr. Banja explains why a health professional's need to preserve his or her self-esteem often robs patients and their families of the truth and perpetuates high-error medicine. He describes the "common psychological reactions of healthcare professionals to the commission of a serious harm-causing error and the variety of obstacles that can compromise ethically sound, truthful disclosure."

In Medical Errors and Medical Narcissism, Dr. Banja explains how and why talented, hard working medical professionals often fall into narcissistic traps. Living in a world of intense stress, long hours, and high, often unfair expectations, the "medical narcissist" works hard to maintain the respect of patients and colleagues. As Dr. Banja says:

When a medical error occurs, that world of competence, adequacy, and ability is turned upside-down. It is no wonder that even when such persons want to do the right thing and disclose error, they might do it clumsily and make an already bad situation worse.

This fascinating, thoughtfully researched book includes detailed recommendations, including advice on how to:

Rube Goldberg believed there were two ways to do things - the simple way and the hard way. And that, for some inexplicable reason, many people preferred doing things the hard way. His famous cartoons illustrated the tendency of human beings to exert maximum effort to achieve minimal results.

Notwithstanding the best of intentions, an influx of a mountain of taxpayer cash, the savings available to many low-income seniors, and the hard work of unfairly maligned federal staff, the Medicare drug benefit has become a Rube Goldberg cartoon.

Since passage of the Medicare Modernization Act (MMA) in December 2003, I have been warning about predicable surprises and inevitable consequences. The good news is I am batting 1000 on predictions. The bad news is I am batting 1000 on predictions. If it were not for the fact real people are affected, I'd be happy to sit back and gloat about my prescience. Or perhaps hire a skywriter to paint "I Told You So" high above Security Boulevard.

But truth is, this was easy to see and I was far from alone. While there are many flaws in the design of MMA and lost opportunities in the implementation, the most troubling problems revolve around the chaos and risks of transferring over six million vulnerable dual eligibles from Medicaid drug coverage to Medicare Part D. Virtually all of the other problems of Part D implementation can be ironed out with some more time, experience, and legislative tinkering.

After an avalanche of federal money the past ten years, the National Institutes of Health (NIH) is under pressure to show results. This is no small feat given the enormous scientific challenges of cancer, heart disease, HIV, and other killers and disablers. And even though NIH's budget more than doubled in recent years, less than five percent of government health spending goes to research into causes, treatments, and cures.

In areas where NIH and the private research community is successful, we face another challenge - getting the results or evidence into practice. According to the Institute of Medicine, it takes an average of 17 years before a proven best practice is in wide spread use for the benefit of patients. In other words, patient care in 2005 is more often based on the best science as of 1988.

Our nation's investment in health services research - which covers how to get evidence to practice and improve access, quality, and cost effectiveness of our $1.8 trillion health system - is worse. It hovers around one percent of what we spend on NIH. Medicare and Medicaid waste more in a single day than what we spend in a year on trying to improve program performance for patients and taxpayers.

As the NIH works to demonstrate results for the taxpayers, we all need to recognize the symbiotic relationship between (a) basic and clinical research that creates new evidence and (b) health services research that shows us how to bring the evidence to the physician and patient. Right now our research system is like a auto manufacturer who spends all its money on engineering and testing new vehicles and virtually nothing on design, quality control, financing, cost management, distribution, training, sales, or marketing.

Of course, the researchers must deliver. To do this, NIH and ARHQ in particular should support more actionable research. To be actionable, research must be:

1. Timely: Better to have a good answer today than a perfect answer in a few years. All too often we allow analysis to be the enemy of action.

2. Decision Relevant: Enough of preaching to the choir and hunting for tenure. Researchers must connect with real-world decision makers and answer their questions. Other than the Nobel Prize, virtually all other forms of recognition for research have little or nothing to do with work that is actionable.

3. Translated: It's all about reaching decision makers and unfortunately most researchers are horrible communicators. What do you think, what do you know, what can you prove, what do you suspect? Say it in the context of decision makers and their challenges.

4. Disseminated: Peer reviewed journals are great. I enjoy reading many of them. But most decision makers do not. You're lucky if they read the abstract. Disseminate findings in new ways to reach decision makers. Multiple mediums must be used and, if necessary, created.

NIH's new Institutional Clinical and Translational Science Awards program is a great start in the right direction.

Sophisticated health care purchasers and health plans know the value of prescription drug data. When analyzed with paid claims data from physicians and hospitals, data from pharmacy claims can be used to identify, understand, and track a wide range of issues.

Starting January 2006, when the 6.5 million dual eligibles move from Medicaid to Medicare for their prescription drug benefits, state Medicaid agencies will no longer have access to data on drug use by these extremely expensive, at-risk beneficiaries - patients who drive over 40 percent of Medicaid costs. As a result, Medicaid managers will lose an invaluable source of information, severely handicapping the ability of states to monitor quality, access, and costs and catch waste, fraud, and abuse.

The Centers for Medicare and Medicaid Services (CMS) lacks the legal authority to require Medicare prescription drug plans (PDPs and MA-PDs) share data with Medicaid. However, nothing precludes voluntary Rx data sharing between Medicare drug plans and states.

Voluntary data sharing would be an easy, inexpensive way for Medicare drug plans to gain goodwill among states and advocates, generate positive publicity, and differentiate themselves from the mass of competitor plans. In addition, because dual eligibles may switch plans any time and multiple times each year, two-way data exchanges with states would aide drug therapy transitions, utilization review, and medication therapy management. Stand-alone PDPs, which are at risk only for drug costs and therefore will not have access to any non-drug data, could greatly benefit from data from state Medicaid programs (e.g., diagnoses, prescription history, providers seen)

To help make this happen:

- A major pharmaceutical manufacturer should offer to fund a national initiative to show the business and clinical case for information exchange, develop data sharing agreements, iron out any technical obstacles (e.g., data safeguards), and cover the modest start-up costs (e.g., systems changes). In addition to generating goodwill, this would help minimize disruption in drug therapy, quality problems, and errors - and reduce lost revenue and bad publicity that will inevitably result if duals have problems accessing vital medications.

- In their standards for a Medicare drug plan to be designated as a preferred plan for low-income beneficiaries, State Pharmaceutical Assistance Programs (SPAPs) should require that preferred drug plans to exchange duals' Rx data with states.

Medicare Advantage is the new name for voluntary managed care options in Medicare (also know as Medicare Part C and formerly "Medicare+Choice"). Medicare Advantage plans are now available in nearly every area of the country. Beneficiaries who select a MA plan elect to receive all Medicare benefits through the health plan (HMO or PPO). This includes all Part A and Part B services, plus the new Part D drug benefit as an optional add-on.

The Medicare Modernization Act (MMA) created a Medicare Advantage option called "specialized MA plans for special needs individuals" ("special needs plans" or "SNPs"). These Medicare health plans limit their enrollment to special needs beneficiaries (or disproportionate percentage of special needs beneficiaries). The idea is to encourage greater access to Medicare Advantage plans for special needs individuals and allow plans to tailor programs to meet unique needs. MMA also created risk adjustment, removing a major disincentive to serve high-cost populations. Two groups of special needs individuals are specified in MMA: (1) beneficiaries who are institutionalized and (2) dual eligibles. CMS may also establish other "special needs" groups among beneficiaries with severe or disabling chronic conditions. Like other Medicare Advantage plans, special needs plans have the ability to lower beneficiary cost sharing and cover services not available to beneficiaries in fee-for-service Medicare.

This creates a new opportunity for state Medicaid programs to extend the benefits of managed care to dual eligibles, who nationwide account for over 40 percent of Medicaid costs. Because of a labyrinth of conflicts between federal Medicare and Medicaid laws, it has been very hard for states to implement large-scale programs to improve care delivery for their highest cost, most vulnerable beneficiaries. The result has been high costs, extraordinary inefficiency, frustration for patients and their families, and higher risk for poor quality.

Working with CMS and Medicare Advantage special needs plans (MA-SNPs) operating in the state, a state Medicaid agency could offer to capitate all Medicaid services to any MA-SNP with dual eligible enrollees. The MA-SNP would then be responsible for all Medicare and Medicaid benefits, including all long-term care and prescription drug benefits. To ensure appropriate payment and oversight, the state would risk adjust the Medicaid side of the capitation and MA-SNPs would have one set of quality standards and grievance procedures (presumably based on the more stringent Medicaid protections). Enrollment would remain voluntary like it is for other Medicare beneficiaries, but states could create powerful incentives for duals to enroll in MA-SNPs. For example, the state could limit coverage of home- and community-based services (HCBS) to MA-SNP enrollees when two or more MA-SNPs are available.

Beneficiaries would benefit from higher quality, better access (in real terms), modern care coordination, less paperwork, closer oversight of their rights, and likely more services. States would win from a range of benefit and administrative savings, plus more predictable spending.

For a fact sheet on Medicare Advantage, click here. To learn about plans, enrollment, and other key issues, click here.

Once the Food and Drug Administration (FDA) approves a new prescription drug for one medical indication, physicians are free to prescribe it for virtually any condition. While there are downsides of prescribing drugs "off-label," it allows patients and payors to benefit as physicians test drugs under real-world conditions and identify new applications.

Because formal clinical trials and the FDA review process can take years, valuable new uses of a drug may be validated by studies in peer-reviewed medical journals years before the new indication becomes officially approved. And because of research and regulatory costs, drug makers cannot justify pursuing FDA approval for new indications, even when a new indication is highly cost-effective for purchasers, plans, and patients. Indeed, some diagnoses have no "on-label" drugs and are treated entirely on an off-label basis.

With the new Medicare drug benefit (Medicare Part D), the federal government will become the world's largest buyer of prescription drugs. In Part D, a prescription drug is coverable by a Medicare drug plan (PDP or MA-PD) only if it is prescribed for a medically accepted indication as defined under federal Medicaid law. This includes uses that are approved by the FDA or supported by a citation in one of four drug compendia:

· American Medical Association Drug Evaluations
· American Hospital Formulary Service Drug Information
· DRUGDEX Information System
· United States Pharmacopeia Drug Information

Because of this restriction in the Medicare Modernization Act, indications that are supported in peer-reviewed medical literature but not yet approved by the FDA or accepted in one of the compendia are not "medically accepted" by Medicare. In such cases, the Medicare drug plans may not pay for the drug.

While this helps Medicare drug plans manage their financial exposure and allows them to crack down on inappropriate drug therapy, it also means that it'll be harder for physicians to identify valuable new uses of medications. As we loose this critically important path to expanding our evidence base, patients and the economy will suffer.

This is yet another reason why we need a comprehensive approach to post-market surveillance and assessment of prescription drugs, continuous improvement of the evidence base of what works, and more effective ways to bring that evidence to day-to-day clinical practice.

Inside the FDA: The Business and Politics Behind the Drugs We Take and the Food We Eat is a thoughtful, balanced, and well-researched look inside controversial and troubled Food and Drug Administration.

Author Fran Hawthorne is an experienced business journalist and her skills are evident here. Digging into the FDA�s complex and conflicting world, the book provides an informative picture of FDA�s bureaucratic, political, and scientific drivers. Ms. Hawthorne does a nice job of laying out what the FDA is suppose to do, what is really does, and where and why it fails.

Inside the FDA helps us understand the recent raft of problems surrounding the over- and mis-regulation of prescription drugs. It makes for a great read. To read a excerpt, click here.

States continue to serve as laboratories for health care reform. In recent years, many of these state-based efforts have focused on:

1. Leveraging Employer-Based Coverage: With the goal of making health insurance coverage more affordable to small businesses and their employees, state tools include (a) premium assistance, (b) reinsurance to moderate high-risk cases, (c) state negotiated health plan options, and (d) hybrids mixing taxpayer and employer-sponsored models.

2. Pharmaceutical Purchasing: To improve the cost-effectiveness of prescription drug benefits, state-based reforms include (a) intra-state and multi-state purchasing pools, (b) negotiated discounts for low-income populations, and (c) evidence-based coverage combining preferred drug lists (PDLs) and supplemental rebates from pharmaceutical manufacturers.

3. Care Management for High-Cost Patients: With over 75 percent of Medicaid costs driven by a small proportion of patients, states are developing new programs based on the latest care and disease management techniques.

4. Modernizing Uncompensated Care Programs: While taxpayers invest billions of dollars each year to help compensate hospitals for serving uninsured patients, most of these efforts are blunt, highly inefficient programs with misaligned incentives. Therefore, some states are exploring alternatives designed to leverage these funds to promote primary care.

To learn more about state-based reforms, including lessons learned, check out the work of our friends at the Economic and Social Research Institute (ESRI). ESRI�s excellent team, with support from the Commonwealth Fund, has a series of informative reports.

Quality of care in the federal Medicare program remains poor. New evidence shows a wide range of serious, often worsening problems in the physician and hospital care received by America’s 41 million Medicare beneficiaries.

The bad news includes (1) increases in preventable medical mistakes; (2) inadequate screening and treatment of c