Medicaid/Medicare Public Policy

Should the U.S. get NICE?

All health services researches know that comparative-effectiveness research is a vital link towards improving quality and decreasing cost.  Comparative effectiveness examines different medical treatments and evaluates which are the most cost effective.  The UK’s NICE (National Institute for Health and Clinical Excellence) publishes clinical appraisals regarding which treatments the NHS should cover.

Should the U.S. create a NICE-style government agency to conduct comparative effectiveness research?  Few researchers doubt that comparative effectiveness research is needed.  The question is whether it should be provided by the government.


Comparative effectiveness research is a public good.  Information is a non-rivalrous good (when I learn something that does not stop you from learning it).  Once the best treatment for each disease is established, it is difficult (but possible) to exclude individuals.  Because comparative effectiveness research is a public good the government would seem to have a large role to play.  Further, the government may be a more unbiased researcher than would be the case if private insurance companies conducted comparative effectiveness research.

Even if the government decided to continue funding a comparative effectiveness agency such as AHRQ, this does not preclude the private sector or academia from conducting their own research.


Michael Cannon makes a strong argument against a centralized NICE-style government body.  Most convincingly, he states that  “If a government agency produces unwelcome research, those groups will spend vast sums on lobbying campaigns and political contributions to discredit or defund the agency.”  If AHCPR’s history (now AHRQ) is any indication, it will be difficult for a government-funded body to publish controversial findings.  Health Affairs reports that when AHCPR found limited health benefits to back surgery, back surgeons “found sympathetic ears among House Republicans.” AHCPR’s funding was cut by 21% due to lobbying by back surgeons and medical device manufacturer Sofamor Danek.

If the government does not do a good job, could the private sector?  The answer is likely yes.  Cannon suggests that prepaid group plans (PGPs) such as Kaiser Permanente would be in the best position to conduct the comparative effectiveness analysis.  “PGPs therefore boost the production of a nonexcludable good (comparative effectiveness information) by bundling it with an excludable good (reputation).”

Although expanding AHRQ’s role does not preclude private sector health plans from conducting their own research, spending on AHRQ will likely crowd-out private health plan comparative-effectiveness research.


Should there be an agency similar to NICE in the U.S. Michael Cannon makes a compelling argument that the answer is no, but he does this in a fantasy world where he forms American institutions from scratch.  Private sector insurance companies would be more likely to conduct comparative effectiveness research if:

  1. Medicare was eliminated.  Seniors could instead receive vouchers to purchase their own private health care.  When people shop for their own insurance and pay for the marginal insurance premium dollar out of their own pocket, this will increase demand for cost effectiveness research.
  2. Medical licensing (but not certification) standards were eliminated.  This way, insurance companies could take advantage of using more cost-effective labor such as nurse practitioners and physicians assistants.  “According to professor of health policy Jonathan Weiner, nonphysician  clinicians comprise 14 percent of primary  care providers nationally, but 17 percent at Kaiser Permanente and 25 percent at Group Health.”

If these two changes were instituted, then I agree that a government-run comparative effectiveness organization would be unnecessary.  However, this is not the world we live in.   Medicare’s budget for 2009 was $420 billion.  In this world, I believe that there should be a government cost-effectiveness agency in order to monitor Medicare’s the cost-effectiveness of Medicare spending.   Further, government funding for medical research is needed whether or not Medicare exists.

Thus, I see two feasible options: (1) Eliminate Medicare, subsidize health insurance through vouchers, and leave the cost-effectiveness research to private health plans; and (2) Keep Medicare and expand funding of a government-run comparative-effectiveness body (such as AHRQ).


  1. I wouldn’t say that I’m out to “form institutions from scratch.” More like, “break the chains that bind us.”

    Also, eliminating or reforming licensing would promote CER, but not because elimination/repeal would enable plans to use labor more cost-effectively. Elimination/repeal would promote CER because licensing particularly inhibits those plans that are most likely to conduct CER. (As it happens, they are most likely to conduct CER for the same reason they use labor more cost-effectively: prepayment & integration.)

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