Reimbursement: A Medical Device Company's Worst Nightmare?

Are you losing sleep over the ACA's value-based reimbursement model, too?

In 2014, reimbursement trumped regulatory as the industry's biggest concern.

1. As we move further into 2015, it remains at the forefront of stakeholders' minds. In its 2015 Medical Device Industry Survey, Emergo asked 636 presidents, CEOs and managing directors of medical device companies what issues were keeping them up at night, and reimbursement challenges ranked in the top three.
2. In this era of health care reform, device makers are under intense pressure to develop products that demonstrate not only clinical efficacy, but also real value (i.e., lower costs and better outcomes) in order to secure coverage and attract risk-averse investors. In this post, we'll examine some of the most common reimbursement policy challenges and discuss strategies for putting them to rest.

Reimbursement Can Make or Break a Device

Reimbursement, as it applies to medical devices, is defined as the payment a third party public or private insurer pays a health care provider for costs or payments the provider incurred while using a medical device or performing a procedure. Whether a device or procedure is covered as reimbursable, and at what amount, can have a significant impact on a provider's ability to access a particular technology, as well a manufacturer's ability (or willingness) to provide it. If coverage is uncertain, it is difficult for the manufacturer to predict whether an investment in a new technology will provide sufficient returns. This lack of predictability is an obvious barrier to securing venture funding. Moreover, it compromises innovation and limits patient access to advanced technologies and solutions. In a nutshell, reimbursement and payer's coverage can make or break a device.

“Reimbursement is the number one issue on investors' minds, and one of the first things companies think about when developing new products,” said Robert Packard, a regulatory consultant and trainer with two decades of experience in the medical device industry. “Ten years ago, investors didn't know—or probably care—what CPT [current procedural terminology] codes were, but today they are far more savvy. In some ways, it's stifling innovation, and it's definitely increasing the cost of product development by forcing more companies to conduct clinical trials.”

Top Reimbursement Policy Challenges

Reimbursement challenges vary by country, so it is important for device companies to investigate the reimbursement environment of a particular market before investing in product development. Still, there are some common challenges many countries share.

One major reimbursement challenge is the misalignment of reimbursement rates and the value of medical technologies. In most countries, reimbursement rates are set based on standing formulas (i.e., cost-based) that are applied to device or procedure types, rather than individual manufacturer's technology or features (i.e., value-based).3 This often prevents companies from developing (and consequently patients from accessing) more advanced technologies which can actually lower costs and improve outcomes in the long run. The future of medical innovation depends on governments adopting reimbursement policies that are value-based rather than cost-based.

As the aging population continues to expand, governments worldwide are trying to contain health care costs by cutting reimbursement amounts. Some governments have cut back on reimbursement for medical devices, which typically account for six to seven percent of overall health care spending, according to the Global Medical Technology Alliance (GMTA).4 In the U.S., Congress has cut medical imaging reimbursement 13 times since 2005, resulting in a 35 percent decline in revenue for the industry—despite evidence that shows the economic and clinical value of medical imaging. For example, a study in the journal Radiology found that every $1 spent on imaging decreases hospital stays by one day, contributing to a cost savings of $1,172 a day.5

Another challenge is the increased burden to provide evidence of both the clinical and economic effectiveness (i.e., the value) of a device as part of the coverage decision. While more stringent coverage requirements are understandable in this age of health care reform, the increased burden may deter companies from investing in new technologies that could lead to better health outcomes. 

Planning for Reimbursement Success

Although reimbursement was once considered the sole responsibility of the provider, times have changed. Today, manufacturers must participate in—or even lead—the reimbursement process to achieve sales success. Too often, reimbursement questions such as “who will pay for this new device?” and “how much?” are considered too late in the development process. To prevent reimbursement issues from impacting financing goals or stalling innovation, device makers must develop a well-planned reimbursement strategy in parallel with their regulatory and clinical strategies. This may prove difficult for device makers that have become accustomed to focusing on achieving 501k clearance as the end-all goal. Given the time and effort it takes to obtain approval to market a device, some level of tunnel vision is understandable. However, in the current climate, reimbursement approval is just as important as regulatory approval.

Payment is the reward for the hard work and effort it took to get the device cleared for commercial sale. Generating revenue sooner rather than later is often critical for start-ups and small device companies after a lengthy regulatory approval process. Again, proper planning is the key to jumpstarting sales growth and market adoption efforts. Collecting both Class 1 (RCTs—random control trials) and Class 2 (prospective registries, longitudinal studies, case-control studies) post-approval data is essential, and can provide valuable information that can be used to create a compelling sales and marketing message. Equally important, yet often overlooked, is having a publication plan for disseminating the compelling outcomes data, ideally in peer-reviewed journal publications or at medical conferences. Again, this requires strategic planning and should be considered early in the development process.  

The Sunshine Act/Open Payments Program

Regardless of reimbursement, a device will not sell unless it is supported by physicians and accepted by the medical community at large. While doctors are not allowed to be paid for authorship or to act as a speaker on a device company's behalf, companies can pay expenses for meeting attendance, development work, and other advisory activities. The  relationship between physicians and device companies is necessary to advance innovation and patient care, but it can create bias or conflicts of interests. It also creates regulatory concerns.

In February 2013, the U.S. Centers for Medicare & Medicaid Services (CMS) released final regulations to implement the Physicians Payments Sunshine Act, which was part of the health care reform bill, adopted in March 2010. The Sunshine Act (now called Open Payments) requires all manufacturers that obtain reimbursement for their products through Medicare to report how much they spend annually on physician and continuing education activities. Its enactment has direct implications for medical communications and clinical data collection activities that are necessary to ensure sales. Companies that fail to comply with the program risk incurring stiff financial penalties (up to $1,150,000), legal conflicts and brand damage from consumers who are demanding more transparency in life science companies' business and clinical operations.  

The French Sunshine Act (“FSA”), also known as Loi Bertrand, was adopted on December 29, 2011, and the final decree was issued on May 21, 2013. Though strides were made to repeal the law, in March 2015, RAPS reported that France has plans to expand the scope of the reporting requirements to include any non-service payments made to health care professionals in excess of €10 ($11). If adopted, these changes will bring France more in line with the European Federation of Pharmaceutical Industries and Associations (EFPIA) Disclosure Code, which requires members to publicly disclose, i.e., self-report, their financial interactions with health care professionals (HCPs) and health care organizations (HCOs).

The Shift Toward Value-based Reimbursement

It is no longer sufficient to demonstrate medical need or marginal product benefits for new product launches. Even having a superior product or pioneering a new technology will not guarantee reimbursement success. Health care reform efforts such as The Affordable Care Act (ACA) are transitioning the industry from a volume-based to value-based care model, which links reimbursement to quality, better care, and cost containment. As part of this transition, medical device companies will be required to provide evidence of real-world value and positive outcomes. Products that fail to provide such evidence will struggle to generate investor support or attain reimbursement. 

The bar for demonstrating value is high—and will continue to rise throughout 2015. Crafting a reimbursement strategy early in the product development process will ensure that great technology is not only available, but also accessible to the patients who need it most. And then we can all rest easier.

References:

(1) “Reimbursement Trumps Regulatory as the No. 1 Concern for Medtech,” (http://www.mddionline.com/article/reimbursement-trumps-regulatory-no-1-concern-medtech#comment-9272) Accessed May 5, 2015.

(2) “Global Medical Device Industry Outlook for 2015,” Emergo, Published January 2015, http://www.emergogroup.com/resources/research/annual-medical-device-industry-survey

(3) “The Impact of Medical Device Reimbursement on Cost, Innovation and Health Outcomes,” (http://files.publicaffairs.geblogs.com/files/2014/08/The-Impact-of-Medical-Device-Reimbursement-on-Cost-Innovation-and-Health-Outcomes.pdf) Accessed April 13, 2015.

(4) Ibid

(5) Beinfeld et al., “Diagnostic Imaging Costs: Are They Driving Up the Costs of Hospital Care?” Radiology. 2005 June; 235(3):934-9.

(6) Taylor, Nick Paul, “European Regulatory Roundup: France Wants More Sunshine for Industry Payments,” March 5, 2015. (http://www.raps.org/Regulatory-Focus/News/2015/03/05/21655/European-Regulatory-Roundup-France-Wants-More-Sunshine-for-Industry-Payments-5-March-2015/0)