March 30, 2012

Transparency Reports and Reporting of Physician Ownership of Investment Interests

Proposed Rule
Summary

Score: 24 / 60

Additional details
Agency
Department of Health and Human Services
Regulatory Identification Number
0938-AR33
Agency Name
Department of Health and Human Services
Rule Publication Date
12/19/2011
Comment Closing Date
02/17/2012
Dollar Year
2010
Time Horizon (Years)
10

RULE SUMMARY

This proposed rule would require applicable manufacturers of drugs, devices, biologicals, or medical supplies covered by Medicare, Medicaid or the Children’s Health Insurance Program (CHIP) to report annually to the Secretary certain payments or transfers of value provided to physicians or teaching hospitals (‘‘covered recipients’’).

COMMENTARY

HHS expresses no concern that this regulation will lower innovation or any benefits associated with past practices that did not require such disclosure. This thinking is consistent with the implicit framework used by HHS that only estimates reporting costs without regard to benefits stemming from the regulation. Moreover, HHS appears to hope that affected parties will provide the optimal standard when it states, "Nonetheless, we believe that the public comment period offers an excellent opportunity for all stakeholders to consider alternatives and to present quantitative or qualitative information that will enable us to both improve the effectiveness and lower the costs of the final rule. Therefore, we solicit comments on the analysis and assumptions provided throughout this preamble and in the alternatives section of the regulatory impact analysis in particular." The proposed rulemaking is problematic in setting up adverse incentives to report the required information owing to the likely interaction of civil monetary penalties and limited scope for correcting inaccurate information (the recording is more like a registration system than a recording system). In addition, there are very poor cost estimates based on heroic extrapolations and no estimate of the scale of any underlying systemic problem, thought to be conflicts of interest resulting from manufacturer gifting to practitioners.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year
2010
 
Time Horizon (Years)
10
 
Discount Rates
3%
7%
Expected Costs (Annualized)
170 million
171 million
Expected Benefits (Annualized)
Not Reported by Agency
Not Reported by Agency
Expected Costs (Total)
1700 million
1710 million
Expected Benefits (Total)
Not Reported by Agency
Not Reported by Agency
Net Benefits (Annualized)
Not Reported by Agency
Not Reported by Agency
Net Benefits (Total)
Not Reported by Agency
Not Reported by Agency

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
Notice (which includes NPRM) immediately found on regulations.gov. Some supplementary materials less evident.
4/5
2. How verifiable are the data used in the analysis?
Rudimentary cost estimates, but clearly spelled out. Data on numbers of manufacturers, doctors, and others directly affected by record-keeping requirements reasonably clearly sourced.
3/5
3. How verifiable are the models and assumptions used in the analysis?
Calculations are clearly laid out, but data are based on assumptions that HHS readily acknowledges may be as much as 25% off in either direction. The 25% figure does not appear to be based on any analysis. No relevant studies cited or discussed. Asserts that conflicts of interest (COI) will become known following registration, which is largely unverifiable; estimates of number of provider organizations (e.g., GPOs) heroic although clear.
2/5
4. Was the analysis comprehensible to an informed layperson?
Analysis that is easy to follow, but probably this is due to simplistic nature of analysis. Danger of reader not realizing heroic nature of the estimates.
4/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
2/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Benefits are better informed consumers of health care that are hypothesized to lead to lower healthcare costs. Recognizes that reporting does not imply ever identifying the COIs. Implies that any deterrence of COIs will result in more appropriate or cheaper medical treatment.
3/5
Does the analysis identify how these outcomes are to be measured?
No attempt to measure benefits, but discussion assumes better informed consumers will lead to lower costs and better heath decisions.
1/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
Argues that collaboration among physicians, teaching hospitals, and industry manufacturers may contribute to the design and delivery of lifesaving drugs and devices, although payments from manufacturers to physicians and teaching hospitals can also introduce conflicts of interests (COIs) that may influence decision-making and compromise clinical integrity, leading to increased healthcare costs. Optimistic that registration will somehow affect COIs or allow unspecified appropriate bureau action to follow. Recognizes that no clear link established between registration of transfers, and commercial interests, and COIs (78764).
2/5
Does the analysis present credible empirical support for the theory?
No direct evidence is presented that there is substantial conflict of interest that has led to misinformed citizens that ultimately leads to higher healthcare costs. Recognizes no established link. Evidence is mostly given that there is concern over the supposed problem by experts.
1/5
Does the analysis adequately assess uncertainty about the outcomes?
HHS admits: "We have no empirical basis for estimating the frequency of such problems, the likelihood that transparent reporting will reduce them, or the likely resulting effects on reducing the costs of medical care." Disclosure alone is insufficient to differentiate beneficial financial relationships from those that create COIs. HHS solicited stakeholder feedback that can be found on the regulatory docket on Regulations.gov, but the NPRM does not go into detail about how the feedback affected analysis.
1/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
2/5
Does the analysis identify a market failure or other systemic problem?
Market failure is not mentioned, but conflicts of interests are assumed to lead to uninformed citizens and higher health care costs. Problem is believed to be relieved by better reporting.
3/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
Proceeds at loose and anecdotal level. No theory is developed or discussed that explains what the optimal amount of disclosure might be or why information asymmetries might exist between consumers and producers within noncompetitive healthcare markets.
1/5
Does the analysis present credible empirical support for the theory?
No proper empirical support is provided for the theory. HHS cites MedPac suggestions that more transparent disclosures would lead to improved healthcare costs and outcomes but does not provide specifics.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
Notes uncertainty over physician involvement. No analysis is provided that attempts to deal with the existence or size of the problem. "We have no empirical basis" (78764).
1/5
7. How well does the analysis assess the effectiveness of alternative approaches?
1/5
Does the analysis enumerate other alternatives to address the problem?
Not in terms of dealing with COIs, but some variation permitted over information provision. HHS explains that section 1128G of the Act limits the policy options available, but encourages transparency of financial relationships between physicians and teaching hospitals and the pharmaceutical and device industry. Public reporting and publication is the only identified option for obtaining this transparency. HHS argues it "tried to minimize the burden on reporting entities by trying to simplify the reporting requirements as much as possible within the statutory requirements." This is apparently their effort at providing alternatives.
2/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
Extremely narrow to nonexistent. Some de minimis exemptions and scope for discretion in designing categories.
1/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
No quantitative analysis provided; some qualitative assessment.
1/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
No baseline clearly presented because no estimate of link between gifting/commercial involvement and COIs. However, not requiring regulation might suggest estimated costs of complying with the regulation would not be borne by any party or are so small that they are virtually insignificant.
1/5
8. How well does the analysis assess costs and benefits?
2/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
IDs only and then in narrow sense of procedural variation. No true alternatives considered.
2/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Compliance costs are estimated for all parties subject to disclosure requirements. However, no discussion of possible costs borne by affected parties that might attempt to circumvent regulations either through legal or illegal channels. Analysis does not clearly identify or estimate costs of various organizations required to comply with regulations.
3/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
Analysis argues that compliance costs are trivial for most businesses and will not be passed on. Ignores implication of assumption by HHS that healthcare markets are somewhat noncompetitive such that businesses might succeed in shifting some portion of costs onto patients.
1/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
Analysis assumes that costs are so trivial that human behavior is unlikely to change in response to the regulation. No evidence given to support this assertion, which is curious given the uncertainty that HHS itself admits for its own cost estimates and the fact that this is an economically significant regulation.
1/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
"HHS estimates reporting requirements will cost about $224 million for the first year of reporting, and $163 million for the second year and annually thereafter. It admits ""these are rough estimates and subject to considerable uncertainty. Better estimates might well be 25 percent higher or lower."" It is unclear how HHS came up with the 25 percent figure. HHS admits these data are highly uncertain. "
1/5
Does the analysis identify the alternative that maximizes net benefits?
Net benefits are not estimated, and no alternatives are identified. Purely qualitative analysis of benefits that are believed to be associated with estimated compliance costs.
0/5
Does the analysis identify the cost-effectiveness of each alternative considered?
No true alternatives are presented. Limited qualitative discussion for what is essentially a singular proposal.
1/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Analysis provides rudimentary comparison of large versus small and urban versus rural costs amongst doctors, dentists, and other parties meeting disclosure requirements.
3/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Just hints at benefits. Consumers are identified in general, but no detailed estimates are made for parties that might be better off. Taxpayers funding public healthcare costs are not identified as possible beneficiaries. HHS suggests there could be cost-savings to businesses through elimination of duplicative reporting, and while these may be substantial, it doesn’t measure these benefits.
2/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
Justifies disclosure requirements established by prior legislation in broad terms. HHS explains throughout its analysis that it is still in the process of clearly defining the requirements.
2/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
HHS simply estimates disclosure costs, and it appears it is primarily interested in making sure those costs are "low" since it has not estimated benefits. Does not even get at securing minimum costs of disclosure requirements.
1/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
There is no discussion of connecting estimated costs of annual reporting and any benefits that might follow from the regulation itself, consistent with analysis that does not estimate benefits.
0/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
HHS is gathering some data that might be relevant, but it has no plans to use the data for evaluation and the RIA isn't good enough to serve as a guide to evaluating results.
1/5
 
Total 24 / 60