Can Comparative Effectiveness Research Help Reduce Health Care Costs? The U.S. and other developed countries are struggling with rising health care costs that absorb an ever-larger fraction of government and private budgets, threatening their ability to maintain spending on other goods and services. What is the "right" amount of money to spend on health care, and how should this money be allocated across different type of health care services to generate the greatest health benefits? While there are no easy answers to these big questions, there may be tools that can help policy makers and health researchers delve into them. In "The Pragmatist's Guide to Comparative Effectiveness Research" (NBER Working Paper 16990), researchers Amitabh Chandra, Anupam Jena, and Jonathan Skinner discuss the merits of comparative effectiveness research and its cousin, cost-effectiveness analysis. Comparative effectiveness research is defined by the Institute of Medicine as "the generation and synthesis of evidence that compares the benefits and harms of alternative methods to prevent, diagnose, treat, and monitor a clinical condition or improve the delivery of care." One commonly used measure of health benefits is "quality-adjusted life years" or QALYs, a measure of life-years saved that discounts the value of the year if the individual is in less-than-perfect health. Cost-effectiveness analysis goes a step further, examining both the benefits and costs of different medical treatments. An example may help to illustrate the difference between the two methods. Percutaneous coronary intervention (PCI) is a technique in which narrowed or blocked blood vessels of the heart are opened by inserting an inflatable balloon and may then be kept open by introducing a coronary stent. PCI dramatically improves survival after a heart attack and compares favorably with drug therapy on both a comparative and cost effectiveness basis. When PCI is used for patients with stable angina, however, the health benefits are only slightly better than with drug therapy, while the costs are much greater. For this group, PCI passes the comparative effectiveness test but fails the cost effectiveness test because the modest health gains (when valued at standard levels, for example $100,000 per QALY) are dwarfed by the costs. Economists are naturally inclined towards cost effectiveness because of its consideration of costs as well as benefits. Using cost effectiveness to determine our level of health spending would ensure that we would spend just to the point where our resources would generate greater value if expended elsewhere. However, the application of this criterion would mean that some services with positive health benefits, like PCI for patients with angina, would not be covered by insurance. While sympathetic to the economist's point of view, the authors argue that comparative effectiveness research "still holds promise." First, it sidesteps objections from policy makers and voters to the idea of rationing access to health services based on cost effectiveness. Indeed, when rationing was tried in the Medicaid program in Oregon in the 1990s, it was met with resistance and the experiment ultimately failed. In the 2010 health care law, Congress prohibited the use of "a dollars-per-quality adjusted life year (or similar measure...) as a threshold to establish what type of health care is cost effective or recommended." Second, there is little or no evidence of the comparative effectiveness of treatments for many conditions, since most studies compare a given treatment to a placebo rather than head-to-head with competing treatments. Even in the absence of any explicit consideration of costs, comparative effectiveness studies add to the public knowledge base about what works in health care and what does not, and may lead to cost savings. For example, a recent study found that patients with terminal lung cancer who were randomly assigned to receive early palliative care rather than standard chemotherapy had better quality of life, longer survival, and lower costs. Critics of comparative effectiveness research point to several challenges. The first is patient heterogeneity. While a study may establish that treatment A yields greater health benefits than treatment B for the typical patient, there may be subpopulations who fare better with treatment B. In theory this problem can be overcome by conducting studies of relevant subpopulations, but cost and difficulties in identifying which groups to study may be difficult obstacles in practice. As an alternative, information from comparative effectiveness studies could be used to "nudge" patients away from less effective therapies (for example, by imposing higher co-payments) while maintaining access for those who truly need it. A related issue is heterogeneity in provider skill. The results of a study conducted at a teaching hospital may not apply to all providers, for example if there are economies of scale, learning by doing, or spillovers to other therapies. A final concern is the cost of comparative effectiveness research. Randomized controlled trials are the gold standard for establishing the health benefits of medical treatments, but they can be extremely expensive - for example, the final phase of testing by pharmaceutical companies seeking approval for a new drug can cost up-wards of $100 Million. However, "given that the United States now spends close to 18 percent of GDP on healthcare, it seems reasonable to pay a small fraction of this cost towards figuring out what works and what does not." If the research "bends the cost curve trajectory, it could be considered a potential investment." No individual insurer will reap all the benefits of such research, indicating that it will be underprovided and that there is "a powerful role for federal funding of these trials." Can comparative and cost effectiveness research help to moderate the growth of health care costs? The authors' answer is "a guarded yes: the research provides necessary but not sufficient information to change the behavior of patients and providers." They caution that "the inability or unwillingness of providers and policymakers to use the information gleaned from comparative effectiveness research to make actual changes in reimbursement or patient cost-sharing" may be as big an obstacle as the current paucity of research. They suggest that insurers might pay providers more for treatments shown to produce better outcomes rather than covering some treatments and not others, easing concerns about rationing. Finally, the authors note that studies of the relative efficiency of different health care delivery systems may offer a particularly fertile area for study, given long-standing concerns about the excess costs of the U.S.'s complex and fragmented health care system. The authors conclude "comparative effectiveness research and its half-sibling cost effectiveness research will provide a solid foundation for reform, once politicians and voters understand how dismal is the alternative." The authors gratefully acknowledge funding from the National Institute on Aging (P01 AG19783).