US policymakers need to urgently find new ways to incentivise pharmaceutical companies and device makers to develop products that produce more value, to help rein in massive healthcare spending, says a new report.

To help reduce invention costs, the National Institutes of Health (NIH) – the major US funder of basic biomedical health – should encourage more creativity and risk-taking to promote major scientific breakthroughs, adds the study, from policy research group RAND Health.

Drugs and devices that could help decrease spending should receive expedited, but still rigorous, review by the Food and Drug Administration (FDA), and the wider use of such products should be encouraged, with limits placed on the use of drugs and devices that increase spending without commensurate health improvements, say the researchers.

“We spend more than $2 trillion a year on healthcare in the US, more per capita than any other nation, and the financial incentives for innovators, investors, physicians, hospitals and patients often lead to decisions that increase spending with little payback in terms of health improvement,” said Steven Garber, lead author of the study and a senior economist at RAND.

Currently, legislation prohibits the Centers for Medicare & Medicaid Services (CMS) are from considering costs in Medicare coverage policies, but changing this law could open up opportunities to save money in the short run and improve innovators’ incentives longer-term, the authors suggest.

For example, processes to determine Medicare coverage and payment rates could be changed to favour technologies that help save money, while CMS could expand its “coverage with evidence” process, requiring stronger evidence of a product’s effectiveness as a condition for its continued coverage.

Medicare could also stop covering off-label use of expensive cancer drugs in clinical circumstances where there is little or no evidence of effectiveness, they add.

Rewards for useful inventions could be increased by offering prizes, buying out patents and creating a public-interest investment fund, the study suggests. Shared savings from the Medicare programme, which spends over $500 billion each year, could provide much of the required money and induce leading private investors to participate in the public-interest fund to help select the most promising ideas to back, it says.

There is urgency in making tough choices, because failing to do so simply delays establishment of stronger incentives for investors to find ways to save money, and delay means that more money will be spent on healthcare that is not worth its costs – and it will take even longer to rein in US healthcare spending, the study warns.