David Leonhardt (h/t @IncidentalEcon) has a nice article up in Economix blog about the degree to which comparative effectiveness research (CER) can be used to control Medicare coverage decisions and payment rates. CER cannot be the sole reason that a treatment is covered or not, but this article talks of using such research primarily to set the fee. For example, if a more expensive treatment has not been proven to be better in terms of outcome, Medicare might still cover it, but pay the same rate as the least expensive treatment.
Discussions of this sort will have to become open, honest and common if we will ever get a handle on health care cost inflation. We are not so good at talking about this as a country.
As an aside, Leonhardt quotes Mark McClellan as saying that perhaps private insurers should lead the way in the use of CER to make coverage and payment determinations because seeking to cut costs in Medicare is so politically difficult. Obviously Mark McClellan (former head of CMS under the second President Bush) is an expert, but it seems to me to be exactly the opposite. Medicare is the only payer that can lead the way in implementing the use of CER. While it seems a paradox to most, Medicare has lead the way in most insurance innovations the past 30 years or so--Prospective Payment, DRGs, RBRVS, the creation of the Medicare hospice benefit. Private insurance has almost always followed Medicare.
Taking the Medicare hospice benefit as an example, if private insurance would have tried to lead the way in beginning such a benefit I don't think people would have bought it; they would have assumed the insurance companies were just trying to increase their profits. Medicare beginning to fund hospice mainstreamed this care and today over 4 in 10 Medicare decedents use hospice before they die. It wouldn't have happened if Medicare had not lead the way.
If we ever get serious about applying CER in making coverage and payment decisions, it will likely be Medicare that leads the way.