Into the Future and Back in Time: Perspectives on the Field of Applied Health Economics and Outcomes Research

September 23, 2014

In August 2014, I had the pleasure and honor of recording a fascinating podcast with Dr. Joe Jackson, Program Director for Applied Economics and Outcomes Research at Jefferson’s School of Population Health located within Thomas Jefferson University in Philadelphia, PA.

This podcast is part of HealthEconomics.Com’s CONNECTED COMMUNITYTM Podcast Series whereby we interview significant thought-leaders who are changing how we implement healthcare value assessment to improve patient care to across the globe.

You may listen to the Podcast “Into the Future and Back in Time: Perspectives on the Field of Applied Health Economics and Outcomes Research“ by clicking here or on the Play button below.  Today’s blog posting summarizes our discussion.


Dr. Joseph Jackson

Dr. Joseph Jackson

In his current role, Dr. Jackson is responsible for the School’s Master of Science degree program in Applied Health Economics and Outcomes Research (MS-AHEOR) and for the AHEOR specialization in the School’s PhD program in Population Health Sciences.  These programs ground students in the fundamentals of AHEOR, with emphasis on applications to everyday work settings.  Joe has also spentJefferson School of Population Health 30+ years in the pharma industry, and was one of the earliest trained PhDs with a specialization in health economics, outcomes research, and applied pharmacoeconomics in the United States.  He’s truly a leader in our field, and shared his views on where the Applied Health Economics and Outcomes Research field is going, both domestically in the United States and elsewhere, in Europe, India, and other emerging markets.

Joe recently published an article entitled “Population Health and the Assessment of Value” in the esteemed peer-reviewed forum for real-world evidence in benefit design journal, American Health & Drug Benefits, focused on audiences such as payers, purchasers, policymakers, and other healthcare stakeholders.  You may view the article online here.

American Health & Drug Benefits

Below is my interview with Joe.  Listen to the original podcast here.

patti-image[Patti Peeples (PP)/HealthEconomics.Com] Please describe how the perspective of value in healthcare has developed in the United States, and how this led to the development of the field of Applied Health Economics and Outcomes Research and Evaluative Clinical Sciences.

Dr. Joseph Jackson[Dr. Jackson] In the United States, our focus on healthcare expenditures has increased substantially over the past fifty years.  Let’s take a look at some health policy history.  When Medicare & Medicaid were signed into law in 1965 under President Lyndon Johnson, the US spent just about 5% of gross domestic product (GDP) on healthcare.

Today, we spend approximately 20% of all goods & services produced by US economy on healthcare.  The intensity of these cost vs. value discussions is growing with each passing decade.



social security act amendments

Click here to read the full document.

But where did it start?  During the 1960s and 70s, the discussion of value and outcomes in healthcare began to percolate, and occurred most notably in the arena of chronic renal disease management.  The medical establishment, the government, and society began grappling with the choices of two efficacious and costly treatments that were also life-saving: kidney transplantation or a lifetime of hemodialysis.   In October 1972, Medicare, which up to this point had been solely providing benefits to elderly individuals aged 65 years or older, was extended to the disabled by the Social Security Amendments. A last-minute provision declared that persons with chronic renal disease and who required either hemodialysis or kidney transplantation “shall be deemed to be disabled” for purposes of Medicare Parts A and B.   These major events ushered in the well-known cost-effectiveness threshold of $50,000 per life year saved which has endured for many decades (although now we use quality-adjusted life years [QALY]).

(Editor’s note:   Peter Neumann has published some interesting work on the $50,000/QALY ratio, and suggests that this figure is somewhat inexact, and may be somewhat of an urban legend (Neumann 2014).  For more on the history of the ESRD, view this article in NEJM and a November 1962 article in LIFE magazine, “They Decide Who Lives, Who Dies, Medical miracle and a moral burden of a small committee; for additional information on ESRD cost-effectiveness approaches, see Winkelmeyer et al 2002 review here. )

Another event really increased the focus on the costs of medical care, and this was the passage of TEFRA (Tax Equity and Fiscal Responsibility Act) in 1982, during the Reagan administration.  This new payment scheme was intended to control Medicare expenditures, which had been rising an average of 19% each year for inpatient care, since 1979. TEFRA was a significant change in both the way hospitals were reimbursed, and thus it resulted in drastic changes toward patient treatment approaches.   TEFRA moved the entire Medicare system away from a “cost plus” reimbursement, toward a “case-based” prospective payment system involving Diagnosis Related Group (DRG).  DRGs were based on a particular diagnosis, and the hospital received a specified rate of reimbursement for the DRG upon the patient’s discharge, regardless of how much the individual’s care cost the hospital

(Editor’s Note:  This article provides some history on the development of outcomes research and the US governmental agencies responsible for health technology assessment, particularly during the 1980s and 1990s.)

Now that we understand major health policy and value initiatives, let’s look at the development of health economics and outcomes research and the term “evaluative clinical sciences”.  There were a a few events that sparked this changing.  Firstly, Avedis Donabedian published the 1973 book, Aspects of Medical Care Administration: Specifying Requirements for Health Care (Commonwealth Fund Publications) in which he characterized the US healthcare system as a conceptual model that provided a framework as structure, process, outcome. This provided a systematic way to evaluate healthcare in the United States and was monumental in how we looked at the interrelationship between inputs and outputs in healthcare, encompassing many pivotal areas including interventions, costs, and clinical/patient outcomes.

quality improvement donabedian model

Figure derived from Chelluri 2008, open access copyright. Click the image for a larger view.


Then in 1994, two Professors of Medicine at Harvard Medical School in Massachusetts named Howard Hiatt and Lee Goldman, published a one page commentary in the journal Nature, entitled “Making Medicine More Scientific”, calling for new type of medical training to improve the quality of medical care and scientific advances.   This short but crucial commentary was extremely significant and both of these events helped bring in an era of the evaluation of clinical science and informed our scientific assessment of value.

(Editor’s note: For more on the career of Dr. Howard Hiatt, view here.)

[PP] So many disciplines and areas of study fall under the “big tent” of healthcare value assessment. How do evidence-based medicine and health technology assessment play a role in healthcare value assessment?

[Dr. Jackson] We need a bit history here, too. In 1938, the United States Federal Food, Drug, and Cosmetic Act was passed by the United States Congress, giving the authority to the US Food and Drug Administration (FDA) to oversee the safety of food, drugs, and cosmetics. Note that efficacy or effectiveness of drugs was not part of the area of oversight. It wasn’t until 1962 that the FDA was given regulatory authority over the efficacy of drug products, as a result of the Kefauver-Harris Amendment.

The Kefauver-Harris Amendment was revolutionary from a regulatory perspective, as it gave FDA the authority to demand sufficient proof of a drug product’s safety and efficacy prior to receiving approval to market the item in the United State. The history of the establishment of the FDA may be viewed here.

It was during this time of the Kefauver-Harris Amendment that the notion of randomized clinical trials for efficacy was introduced, and the discussions centered around how to generate sufficient evidence for decision-making. David Sackett and others were instrumental in getting medical people to pay attention to the evidence, and they coined the term Evidence-Based Medicine. A current-day example of the use of evidence-based medicine would be the American College of Cardiology (ACC) and American Heart Association (AHA) clinical practice guidelines (CPG). We do not yet have a good track record of letting evidence guide our healthcare decision-making, however. A recent analysis found that of the 52 guidelines published by the ACC/AHA, only 20% of the recommendations were supported by multiple randomized controlled trials and demonstrate very effective treatment. Clearly, we have a lot of work to do in the demonstration and use of evidence in our decision-making for healthcare in the area of cardiac interventions and beyond.

However, evidence assessment is not without its challenges. Problems often exist in evidence evaluation when one has to rely on surrogate markers, rather than more definitive endpoints like mortality. This was observed in the area of anti-arrhythmics, as well as the use of niacin for managing dyslipidemia. As we go forward in relying more on well-designed evidence assessments, we should remember three very important lessons:

  1. Association does not equal causation;
  2. Be careful of surrogate endpoints;
  3. We should learn from our mistakes.

[PP] How you think the Affordable Care Act will affect how we conduct evidence assessments and what effect is the ACA having on the field of health economics and outcomes research?

[Dr. Jackson] I cover much of this in my recently published article entitled “Population Health and the Assessment of Value”, in the August 2014 issue of the American Health & Drug Benefits journal.   The Affordable Care Act (ACA) represents a philosophical shift from component care (goods/services delivered in healthcare but are separate from outcomes patients experience), and will encourage us to focus even more strongly on patient care, outcomes, and costs associated with achieving a better health status. This kind of movement is built upon the Triple Aim, developed by Berwick and colleagues. The Triple Aim includes some key measurements: define the population, collect data over time, distinguish between outcomes and processes, and distinguish between population and project measures. In other words, the intent is to make our system more one focused on health, rather than health care. The ACA has already led to a quite a rethinking on how we are organized for healthcare.

Let’s look at an example of this, with a story of Jeffrey Brenner, an internist, working at Cooper Medical Center in Camden, New Jersey in a busy university practice, seeing 30-40 patients /day and very little time to spend with a patient or to learn how disease developed or how it should be managed in his patients. Brenner struck out on his own and formed the Camden Coalition of Healthcare Providers. This work was so revolutionary that he was awarded a MacArthur Fellowship for $625,000 and he has provided some key learnings from his approach:

  1. Real-Time Data: Data must be collected and disseminated contemporaneously (e.g., real-time analytics) with patient care, so that it can facilitate guidance and affect how the individual patient is treated and managed.
  2. Redesign: Healthcare must be redesigned, taking ideas from the industrial manufacturers. Brenner borrowed an example from Toyota, whereby engineers actually work on the floor with the assembly line workers, so that they can better understand the process and automate what they can. Brenner believes this approach is needed in healthcare.
  3. Engagement: Providers must talk with the patient and facilitate the patient communicating back to the providers. Brenner’s team works as a unit, talking to the patent. They employ patient navigators who listen to patient to explain their problem, then they communicate a care plan to the patient in a way that can be understood to improve health status.

A video of Dr. Jeffrey Brenner describing his approach can be viewed here:

[PP] Can you contrast how technology assessment (HTA) is undertaken in the US versus other major industrialized countries?

[Dr. Jackson] HTA in the United States is still somewhat of a cottage industry. The Agency for Healthcare Research and Quality (AHRQ) does majority of official government research activity in the US. This organization used to be called the Agency for Health Care Policy and Research (AHCPR) until the end of fiscal year 2005, when there was a pushback in Congress about whether this Agency determines healthcare policy (and so “policy” was removed from their name). AHRQ conducts outcomes research, because Congress keeps them from including cost in the equation. Therefore, in the US, cost-effectiveness and health technology assessment activities take place at a local (i.e., a non-national) level, such as at a health plan level. This is in sharp contrast to the rest of the industrialized world where the government plays a pivotal role in HTA. For example, the National Health Service (NHS) in the United Kingdom started around time of World War II, delivering health services as part of a government-provided activity. About 15 years ago, the NHS started NICE (the National Institute for Health and Clinical Excellence), and they conduct HTA on an industrial scale, including formal cost-effectiveness analysis of interventions. I want to emphasize “effectiveness”, because NICE starts with evidence, then based on the evidence they run a cost analysis. NICE has done many of these cost-effectiveness analyses, and it figures into what interventions they recommend or don’t recommend.

(Editor’s note: NICE develops four types of products, including clinical guidelines; technology assessments for interventions (drugs, devices) and diagnostic tests; guidance on safety and efficacy of surgical and diagnostic procedures; and public health guidance for health promotion and disease prevention). 

There are numerous HTA groups operating at the national level, including Germany, France, Australia, Canada, and most industrialized countries.

(Editor’s note: For a country- and region-specific decision-making processes for market access, visit the International Society for Pharmacoeconomics and Outcomes Research Global Health Care Systems Road Map database.)

[PP] With respect to the United States assessment of new medical interventions that are – on face value – a high cost, can you discuss the drug, Sovaldi, for Hepatitis C and how this intervention is being viewed from a cost-effectiveness standpoint?

[Dr. Jackson] Sovaldi is a remarkable new drug, truly a breakthrough therapy for hepatitis C. So much so, Judy Woodruff of PBS focused on an examination of this drug in a program in April 2014 (listen here). She profiled a women who had been battling Hepatitis C for ten years, and her mother had died of the disease as well. This woman was taking interferon and Ribavirin, both of which had significant side effects and were somewhat ineffective. This individual was able to be enrolled in a trial and received treatment with Sovaldi. Not only was she able to eliminate the disease but she was free of the side effects and administration challenges associated with the other treatments. Her whole life was changed.

The question for society, health economists, payers, and patients is: “How much is that worth?” The pricing of Sovaldi comes to around $84,000 per patient, for a 12-week Hepatitis Drugcourse of treatment. In prisons and other arenas where Hepatitis C is prevalent, the total costs associated with treating this disease will be extraordinarily high. Yet, we see very good outcomes, perhaps unprecedented outcomes, with Sovaldi. The effectiveness is fantastic, approaching 90% cure rate. And one doesn’t need any concomitant therapies with Sovaldi. Clearly it is effective, but is it cost-effective? I guess that depends upon your perspective.

The media has been filled with various views on the near-term and long-term cost impact of Sovaldi. We do indeed know that budgets will need to expand to accommodate for Sovaldi’s costs. The pricing of this drug and its competitors will be extremely interesting to watch. Moreover, it is fascinating to observe the pricing of Sovaldi around the world. It was recently announced that Gilead will offer Sovaldi for Hepatitis C in India for $900/patient a news report just came out from Gilead that they were making it available for $900/entire course in India as well as Egypt. This is in an effort to address criticisms of selling life-saving medications in poor countries, often where these types of diseases are extremely prevalent. It’s extremely interesting to watch, and one most also consider that even though the drug in India is priced at about 10% of the US pricing, it still may be similarly unattainable when viewed through the lens of purchasing power parity. Stay tuned.

[PP] How have patient registries and real world evidence changed our healthcare evidence landscape, and where do you see the field of health economics and outcomes research going?

[Dr. Jackson] Real-world evidence and registries will likely be at the core of how our system will be redesigned. The best example of the effective use of registries for real-world effectiveness examination is by Kaiser Permanente. It is such a pivotal part of their mission that the CEO of Kaiser Permanente has been quoted that they sell care by the package, not the piece. A case in point is how the run their registries. I heard a talk by Sharon Levine, MD, Associate Executive Medical Director of The Permanente Medical Group, whereby she described their dozen or more patient registries spanning spine disease, myocardial infarction, among others. What is interesting is how they use this process and these data to examine the whole patient and improve patient care. The patient will have a particular condition which is their “entry pass”, so to speak, into the registry, but patient observation is not limited to that “entry condition”. Instead, patient observation and data collection spans the entire or whole person. This is really quite revolutionary and I believe where will should be and are going with healthcare.

(Editor’s note: Congressional testimony report on the use of The Permanente Medical Group’s databases for drug safety may be searched on the internet, and a presentation by Dr. Levine on The Kaiser Permanente Experience on Comparative Effectiveness Research in an Integrated System may be accessed here.)

The ACA coupled with required computer and information technology provisions associated with collecting patient data are making it clear that our providers, payers, and patients want electronic medical records as a tool and we want to be able to follow people over time, and across providers. I think that if you look at many of the things I’ve addressed in today’s podcast, including the Triple Aim, Jeffrey Brenner’s experience, the Kaiser Permanente approach, and more as alluded to in my article, then you will see that these are all examples that we need to follow to get to a better healthcare state. These are all incredible – and credible – ways to attain a better health system, and get away from a system focused on sick care.

For those of you who would like more opportunity to interact with Dr. Jackson, visit the Master of Science degree program in Applied Health Economics and Outcomes Research (MS-AHEOR) or the PhD program in Population Health Sciences at the Jefferson School for Population Health, located at Thomas Jefferson University in Philadelphia, PA, or email him at

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