Medical Device Link.

REIMBURSEMENT

Sidebar: Speaker Recommended Reading

By now, it’s well accepted that reimbursement is a key driver of commercial success for medical technologies. Medtech company leaders who have come across any primer on reimbursement have probably heard about the need to evaluate coverage, coding, and payment as defined below.

• Coverage is what, where, when, and why the technology is eligible for reimbursement from an insurer or third-party payer.
• Coding allows the technology or service to be identified on claims forms.
• Payment is the dollar amount, typically associated with a code or series of codes, reimbursed by the payer to the provider of the service.

While biotech-device-drug combination products may pose particular challenges and nuances, reimbursement for these innovative products often still comes down to understanding and breaking down these three components.

In spite of the fact that reimbursement is recognized as being on the critical path, many entrepreneurs, investors, and key decision makers still think of reimbursement as an impenetrable black box. Reimbursement experts themselves may be part of the problem. They often overwhelm their audience with an alphabet soup of acronyms ranging from APC, CPT, DRG, HCPCS, to RBRVS and everything in between.

Panel Discussion Information

Thursday, October 4 11:45 A.M.–12:30 P.M.

Chair: Kuo Bianchini Tong President and Founder Quorum Consulting

Another part of the problem is the anecdotal stories that either set unrealistic expectations or frighten the industry with potentially dire outcomes. Following are two examples.

Drug-Eluting Stents. Recognizing the medical value of drug-eluting stents, the Centers for Medicare and Medicaid Services (CMS; Baltimore) moved forward with approval of incremental reimbursement for the new medical device, effective April 1, 2003. This new policy provided a significant increase over the previous reimbursement level for bare-metal stents.

To make this happen, Johnson & Johnson developed a strategy that, from the very beginning, established a close working relationship between its Cordis business unit (Miami Lakes, FL) and CMS. The result was that J&J was able to accomplish what no other device company had been able to do—obtain a favorable Medicare coverage decision before FDA issued marketing authorization for the product.

Although the level of incremental reimbursement that CMS established for the new drug-eluting stent fell short of Cordis’s recommendation, the decision enabled the company to assure hospitals that they would not have to withstand the two- to four-year delay that typically occurs before Medicare coverage decisions on new devices are handed down. By way of contrast, when J&J introduced the first bare-metal coronary stent, in 1994, it took three years and three months before Medicare set a reimbursement rate—a period of strain on both hospitals and product companies.

Artificial Spinal Disks. In May 2007, CMS said it did not intend to pay for artificial spinal disk replacement surgery in patients older than 60, despite the availability of FDA-approved products on the market. The Medicare program, which covers about 43 million people who are disabled or aged 65 and older, said in a draft proposal that it was rejecting coverage of the procedure no matter which disk was used. A final decision is expected in August. Regarding the available data, Medicare officials said, “Many questions remain regarding selection criteria, adverse events, and long-term outcomes for spine surgery in general.”

A 10-Step Solution

But data don’t drive every CMS decision. While turning away coverage for spinal disks, Medicare may still provide reimbursement for some investigational devices and related services.

And just to add to the confusion, private payers may take an entirely different line of thought. J. Armstrong, a regional medical director for Aetna, indicates that FDA approval does not ensure coverage. “We don’t cover everything, even those that have FDA approval.”

What product financiers, entrepreneurs, and marketers really need to understand is that developing reimbursement strategies requires the same due diligence, preparation, critical thinking, evaluation of strategic alternatives, planning, and implementation that are typically applied to regulatory, clinical, marketing, and manufacturing functions.

When manufacturers are evaluating reimbursement barriers and opportunities for new medical technologies, a number of key areas are important to consider. Following are 10 areas that companies should review in order to develop the foundations of a reimbursement strategy.

Settings of Care. The manufacturer should define where the product will be delivered to the patient. Reimbursement policies can vary considerably among hospital, office, and home settings. The manufacturer should also decide which are the best short- and long-term options for rolling out a product throughout its life cycle.

Front-Office versus Back-Office. These terms help differentiate between technologies that are “visible” to third-party payers versus those that are in the back office, and thus not highly visible to payers. For example, some technologies afford operational efficiencies but are not separately identifiable services that can be billed to payers. For such back-office technologies, it may be more important to develop an economic or pricing strategy—one that focuses on the financial and operational benefits of the product—than to work on a reimbursement strategy.

Competition. In some cases, truly innovative technologies don’t have existing competitors or counterparts. In order to identify what reimbursement principles have been established in the marketplace, however, it is still important that manufacturers identify how patients are currently being managed.

Standards of Care. This is where technology assessments, treatment guidelines, and other evidence-based reviews come into play. Manufacturers should determine whether standards of care have already been defined. In some cases, the standard of care may not be well documented and may instead be based on community practices. It’s important for manufacturers to review what’s been established so that the positioning of newer technologies clarifies how the technology will affect the standard of care.

FDA Approval. Approval does not ensure reimbursement from third-party payers. Manufacturers should repeat this to themselves over and over again . . . every day!

Evidence. Evidence-based medicine has been promoted in healthcare for some time. Along those same lines, CMS and other payers are engaged in developing evidence-based reimbursement policies. As in the case of artificial disks, Medicare officials frequently take the attitude that “many questions remain regarding selection criteria, adverse events, and long-term outcomes.”

Evidence to answer such questions would help resolve reimbursement barriers. A sound reimbursement strategy is harmonized with the evidence that already exists about the pertinent disease, as well as expectations regarding the types of evidence that will need to be generated about the use of a new technology.

Eligibility. Manufacturers should work to understand not only the target patient populations, but also the medical plans and health insurance entities that insure these patients. It is important for the company to determine whether the technology or service provided is eligible for insurance reimbursement.

For example, Medicare does not routinely cover preventive services, unless Congress has specifically authorized the agency to do so. Consequently, coverage for genetic tests and services that might be considered preventive may not be granted under Medicare. Eligibility for services may also differ between settings of care.

Reimbursement Policies. Manufacturers should determine whether reimbursement policies already exist for the pertinent disease or for predicate technologies, and whether those policies can be applied to the new technology. Companies should identify relevant case studies involving coverage, coding, and payment levels that may provide valuable lessons and insights into how payers will evaluate a new technology.

Clinical Utility. Third-party payers typically ask the following questions, which manufacturers should be prepared to answer with appropriate evidence.

• What are the benefits of the new technology, and to whom do they accrue?
• Does the new technology im­prove patient survival?
• Does the new technology im-prove patient quality of life?

As an example, many new diagnostic technologies identify biomarkers or other surrogate predictors of disease. Payers want to know how identification can be translated into improvements in net health outcomes.

Economic Value. Some technologies enhance the delivery of healthcare by improving provider operations and efficiency. Other technologies may greatly reduce the burden on caregivers, and thus provide indirect value to caregivers, families, and their productivity. Most entrepreneurs, investors, and marketers would like their new technology to be supported by a message that demonstrates its economic value. Deciding how to prove that value is a different story.

Conclusion

All too often, reimbursement is thought of as a stand-alone, independent process that holds the secret of commercial success. For example, medtech companies often want to know the extent to which they need to provide clinical trial data in support of reimbursement. However, answering that question requires an understanding of whether the product will be positioned as a me-too product or represents something revolutionary that requires significant changes in reimbursement policy.

Another commonly asked question is when companies should evaluate reimbursement barriers and opportunities. All well-trained consultants will answer, “early and often.” If clear reimbursement pathways have already been established, however, then reimbursement planning may be a rather straightforward exercise. It would be safe to say, for example, that a device with the following characteristics has a really clear reimbursement strategy.

• A second-generation device.
• Well-established predicates that are widely and adequately reimbursed by payers.
• Existing billing codes can be used.
• Pricing similar to or lower than those for existing technologies.

But the more disruptive the technology, the more complex the reimbursement scenarios. And technologies that represent the convergence of biotechnology, medical devices, and pharma certainly have the potential to represent positive paradigm shifts.

Reimbursement strategies should not be thought of solely in terms of coverage, coding, and payment. Instead, reimbursement is a strategic exercise that requires iterative thinking and integrated planning with other key product development, R&D, regulatory, and marketing functions.

If companies address each of the 10 areas outlined above, digging into coverage, coding, and payment will start to make a lot more sense and provide a lot more value.

Kuo Bianchini Tong is founder and president of Quorum Consulting Inc., a medical technology reimbursement consultancy with offices in San Francisco and Washington, DC.