Full article reprinted from "The Gray Sheet" - January 5, 2008
Find out how as the global economic downturn continues, keeping an eye on device pricing and payment takes on a heightened role for medical technology companies.
"The Gray Sheet" interviewed several experts working on device reimbursement and payment issues about challenges facing the medical device industry in the year ahead.
Weighing in, in separate phone conversations and e-mail responses, are Thomas C. Novelli, director of federal affairs for the Medical Device Manufacturers Association; Michael Gaba, co-chair of the health law and life sciences team at D.C. law firm Holland & Knight; Elizabeth Spurgin, a vice president for B&D Consulting; Randel Richner, president of health economics and policy consultancy Neocure; and Marcia Nusgart, president of Nusgart Consulting.
"The Gray Sheet": What are the biggest reimbursement challenges you see for the year ahead?
Thomas C. Novelli: The continual reimbursement challenge [that] device manufacturers are likely to face in 2009 is conveying to decision makers the long-term benefits brought about by medical technologies. Too often, federal payers focus on short-term cost savings (especially with comparative effectiveness in the debate) without considering the long-term savings medical technologies produce, such as fewer physician visits and overall better outcomes.
Michael Gaba: When we talk about fixing the economy and boosting it, it also highlights the need to address our health care system, and so that remains a very large challenge for not only all health care providers, but particularly the device industry.
The biggest challenge is that as we have a new administration coming into town with an emphasis on producing accessible, affordable care, the pressure will be on the medical device industry to participate more vigorously in the whole debate surrounding value-based purchasing and outcomes-driven decision making.
Many folks watching this debate and participating in it have recognized that cost effectiveness is likely to become a component of comparative effectiveness. The industry has been pushing back on that, in particular saying that it is in favor of comparative effectiveness, but that cost effectiveness should not be part of the analysis.
The Institute of Medicine is now more directly saying that comparative effectiveness should include both comparing clinical outcomes, but also cost of treatment options (1"The Gray Sheet" Dec. 22, 2008, p. 22).
It may very well be that the IOM 2report is going to accelerate the debate about the role of cost effectiveness in establishing coverage and reimbursement for medical technologies.
My own sense is that if we as a nation are going to be serious about reducing the cost of health care, we are going to have to take on the cost-effectiveness component head on, and not simply try to erect a barrier to that component of the debate.
You really have to balance fostering medical technology innovation with insuring improvement of health outcomes at a reasonable cost. [But] if we put too much emphasis on the cost and not the outcome, we can easily convince ourselves that the lowest cost item is good enough from an outcomes perspective.
Elizabeth Spurgin: There is an increasingly higher bar for coverage decisions and an increased level of scrutiny to make those decisions. It's a trend from [2008] that will only intensify.
What medical device manufacturers can do to continue to work in this environment and to work for what's coming up is to start earlier to develop robust reimbursement strategic plans and consider evidence development much earlier in the product planning cycle than they are probably doing to date.
Randel Richner: As budget holders continue to look at immediate ways to control costs, there is going to be a high level of visibility associated with pricing restrictions and transparency globally. The whole issue of technology assessment and value for money on device companies is going to be very important.
There will be an attempt to cut payments for devices because it would be relatively "simple" to do.
[Another thing] I'm sensing is the growing centralization of coverage decisions within Medicare. There will be an attempt to do more national coverage determinations and take new technology out of the more local decision-making process.
All of those are going to happen this year with zeal.
Marcia Nusgart: Currently it's very difficult for medical device companies, especially those that manufacture durable medical equipment, prosthetic and orthotic supplies [DMEPOS], to be able to get unique [Healthcare Common Procedure Coding System] codes for their products. The CMS HCPCS work group has over the years given fewer and fewer new HCPCS codes, and the bar for obtaining these codes has been progressively higher and higher every year.
For coverage purposes, the bar has been raised for various outcomes studies and clinical evidence for medical device manufacturers to be able to prove that their products need to be covered under the Medicare program. Randomized clinical studies are something that medical device manufacturers should aim for, but in many cases, such as those for DMEPOS, it's not always possible, and payers are going to need to realize that the type of clinical evidence for DMEPOS may be very different from those for medical devices that are geared for cardiology.
TGS: What impact will the recession have in the way companies look at reimbursement issues this year?
Novelli: I think the most impact we will see from the recession will come from payers.
I do not believe companies will immediately change the way they do business, but they will likely be more particular when attempting to acquire payments, recognizing the additional strains on already strained federal resources.
The effects are more likely to be seen in the financing of start-up medtech companies.
Richner: It will increase the companies' focus on the importance of reimbursement [to] product success.
Hopefully they will redistribute the priorities within the company's infrastructure to make sure there is enough emphasis on strategic planning associated with the reimbursement process. No one is going to be able to commercialize unless they have that built into their management and product development process.
Nusgart: Companies may need to cut back due to the financial constraints, but reimbursement and payment issues are the bread and butter.
Whether it's for a newly created company or an existing company, you always need to be able to have - even more now than ever before - a payment strategy or reimbursement strategy for your products. How else are you going to get your products to market and be successfully commercialized if you are not thinking through these?
Spurgin: Many others certainly think that health care [reform] has more of a chance this year than it otherwise would have as a result of the recession.
When you look at the health care reform being framed as a necessary part of the economic stimulus, as far as what medical device manufacturers should think about, it's probably twofold at least.
One is hospitals and other providers will likely be increasingly cost-conscious about their purchasing decisions, and their technical assessment committees will likely be given more clout in their decision making and serve as a more strict gatekeeper than perhaps they had in the past.
Manufacturers of technologies that are routinely provided in more elective procedures may actually see a decreased demand, [especially] as consumers lose insurance coverage or become more sensitive to increased cost-sharing levels required under their benefits plans. As corporations are feeling the pinch, the benefits plans in many cases are being slimmed down a bit and pushing more cost-sharing back to consumers.
TGS: Are you hopeful or wary about the possibility for health care reform under the incoming administration?
Spurgin: Both. I think that the companies that are going to be the winners under health care reform are those who can demonstrate the value of their technologies, and it has to be both from a clinical perspective and an economic perspective, as both federal and private health insurers continue to seek to decrease the rate of cost increase.
And one mechanism for doing that will be comparative effectiveness of some sort or another.
Coverage without these sorts of data is going to be very challenging; coverage advocacy using stakeholder advocates and so forth is really going to be less effective in such an environment in the absence of compelling outcomes data.
Novelli: It is difficult to say at this point. I believe we will see a few items of legislation likely move forward that will impact the device industry directly - the Physician Payments Sunshine Act and possibly the Medical Device Safety Act.
Health reform is going to be a very incremental process over the next five to 10 years, and it may be hard to gauge the impact on devices.
Nusgart: It's always optimistic whenever there is a new administration coming in because it always gives you the opportunity to be able to educate the incoming team on your issues, and hopefully you're going to be given a fair shot and treated fairly with them.
With any company, you're always wary about the unknown, and you never know how things are going to shake up. Again, the key is getting in front of the people who are involved in health care reform and being able to educate them on your issues.
Gaba: The natural tendency of industry will be some wariness about health care reform, but I think it turns on whether industry views reform as a positive or a negative from a bottom-line financial perspective.
If health care is done properly, it can expand access to care, reduce costs, and medical devices can still benefit in the end financially if the system is designed well.
On the side of being optimistic and hopeful about health reform, the medical device industry would likely see access to its technologies improve as more people move from being uninsured or underinsured to covered by public or private health insurance.
The potential for lower reimbursements in a reformed health care delivery system could be made up by the uptick in volume resulting from improved access and affordability.
Richner: I am cautiously optimistic. I think [nominated HHS head Tom] Daschle's idea of a health reserve board, a similar type entity to our federal reserve board, might be exactly what will have to happen, because of the nature of the misaligned health care entities.
It really is going to require an unpopular change in paying for the overall delivery of Medicare services, and everyone is going to have to sacrifice a certain degree in order to efficiently deliver services to shift some of our focus from acute care to preventative health care. That is really going to require an independent entity to make that happen.
This is beyond the unique problem of how to pay for devices. This is about changing how Medicare pays for services.
If the economic worries and concerns and that focus doesn't completely overshadow what we need to do in health care, I am optimistic that they will be able to do some of this pretty dramatic reform.
TGS: How much of a device company's focus should be geared to Medicare versus other payers?
Spurgin: The easy answer is the focus should always be driven by the payer mix for each technology, but medical device manufacturers even who are selling outside the Medicare market are going to need to better understand how changes to the Medicare program could potentially impact them.
Those kinds of changes could be value-based purchasing and other kinds of changes to Medicare reimbursement, such as bundled payments, quality payment incentives, payment penalties for hospital-acquired conditions and preventable errors, and changes to DRG [diagnosis-related group] calculations.
They need to understand how those kinds of mechanisms can be fairly easily adopted by private payers and impact payment providers in areas where they didn't even consider that to be a Medicare product.
When you think about some really potentially large changes to the reimbursement system that CMS may be considering this year, it's a fair guess that that's going to be influential to private payers.
Richner: Medicare continues to be the direction that all payers follow. Even if the technology that is being developed is not necessarily for a Medicare- based population, everyone still looks to the government for guidance as to what the pathway should be for the technology.
Novelli: I think we will continue to see a balanced strategy in attempting to secure private and public reimbursement. Both segments will likely become more stringent in their coverage decisions.
TGS: Do you expect Medicaid to surface as a bigger player for industry to pay attention to in 2009?
Novelli: Anything is possible.
We are seeing state governments curb spending at all levels, and government may go after areas with higher price tags. So, in a sense, Medicaid may be a bigger player in limiting coverage rather than expanding it.
Spurgin: Medicaid, depending on what groups a manufacturer is targeting, will certainly remain an important focus.
How it may increase in importance is if efforts at the national level to expand eligibility are successful, then that [translates to the] expansion of Medicaid eligibility, continuation and expansion of the SCHIP [State Children's Health Insurance Program] programs and other programs for dually eligible patients.
It may be a positive in that there may be an increase in the demand side if eligibility expansions are successful. That's the hope and potential silver lining, for manufacturers, to health care reform: that health care reform does result in program expansion and even something approaching universal coverage.
You could potentially have more demand and certainly, fiscally more healthy providers who aren't shouldering the burden of uncompensated care.
Richner: There are going to be a lot more people who are Medicaid eligible. The Medicaid plans are often more strategically focused and almost have a more comprehensive way of managing patients through the Medicaid system that I think Medicare could probably learn from. They tend to generally have a more disease-management-based approach to the patient in a lot of the states.
And the worry is that as their budgets are all squeezed, they are going to cut back on various services that are pretty important for Medicaid [patients]. Hopefully that won't happen; they will look at the overall continuum of care for that patient within their Medicaid plans.
Medicaid is definitely going to take on a more important role. It just becomes ever more complex, because you'll have the variation in plans by the 50 states.
- Monica Hogan
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