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  /  Part I.3 – Investigational and New Cardiovascular Devices: Strategy and Decision-Making for Reimbursement in the Post-Reform Era



Investigational and New Cardiovascular Devices: Strategy and Decision-Making for Reimbursement in the Post-Reform Era

John C Lewin MD, Janna Crittendon,
Louis Garrison PhD and Larry McNeely

A. Introduction

The United States (U.S.) has been the world leader in research and development of new cardiovascular devices and related technology across the entire modern era of medicine. Despite this research and development dominance, the early deployment of new medical device technology typically occurs in other developed nations. This is commonly thought to be due to a combination of factors including increased federal regulatory scrutiny, growing public concern about patient safety and greater medical liability risk in this country. The aforementioned pressures have also promoted greater offshore device-related research and development in Europe, Asia, Israel and elsewhere, while potentially threatening the future of the device industry in America.

Aware of these concerning trends, the U.S. Federal Drug Administration (FDA) recently has begun to consider how to transform its policies and perceived regulatory overreach to enable expedited regulatory approval processes and more flexibility in U.S. device innovation and domestic implementation. This change in regulatory policy, if it succeeds, will be due in significant part to parallel progress in the ability of health information technologies (IT) to track device performance across the entire population of patient recipients through registries and real world data (RWD). The FDA aspires to apply these IT technologies to dramatically increase the sophistication and sensitivity of post- approval studies to monitor both patient safety and device clinical performance. Thus, the perceived regulatory quagmire for device introduction in the U.S., while nonetheless daunting and expensive, may finally be refocusing on a new path to streamline device approval that does not compromise patient safety.

At the same time, necessary and imminent changes are coming to the financing of U.S. health care in order to avert the crippling effects of rising health costs on the economy at-large. These changes also will affect future regulatory scrutiny and reimbursement viability for new devices—on economic rather than patient safety bases alone. Of course, the most profound initial impacts of health reform related payment methodologies will impact the reimbursement of clinicians, hospitals and insurers; but impacts on pharmaceutical and device development and introduction will be substantial as well. In fact, the need to reduce health spending through payment reforms poses a set of new threats to research and development of devices—to their market introduction—and to translate data and evidence to best-practice patient care.

Along with regulatory reform, public and private payers have their own access and affordability pressures as they work to ensure that quality health care can be made available to all at the best possible cost. Shrinking reimbursement at the Federal level, coupled with the growing trend to allow access to new technology only when information about the outcomes to specified patients has been demonstrated, bring additional pressures for innovators and the delivery system alike.

This chapter is focused on understanding the kinds of device reimbursement changes that are in process and with suggestions about how to turn perceived threats into opportunities, thus promoting ongoing and robust innovation in this space.

B. Impacts of Health Care Reform on the Cardiovascular Device Marketplace

Health care spending will exceed $40 trillion over the next 10 years. Up to half of that spending is likely to be wasteful and unnecessary, producing no measurable improvement in the health of the nation or for millions of individual patients. A percentage of care provided will be inappropriate. Prices of procedures in the U.S. are three-to-five times higher than for comparable procedures or services in other OECD developed nations, without affording better outcomes.

Health care costs are increasingly unaffordable for individuals, families, businesses that insure their employees, as well as for state and federal governments. It is estimated that health care costs for an average family have risen from about 18% of family income in 2002 to over 35% in 2013. Without a major intervention, average family health care costs will exceed 50% within a decade. Clearly, this is unsustainable, as has been widely documented by the National Coalition on Health Care, the Brookings Institution, the Commonwealth Foundation, the Bipartisan Policy Center, The Robert Wood Johnson Foundation (RWJF) Partnership for Sustainable Healthcare, the Urban Institute, the Congressional Budget Office (CBO) via numerous widely publicized reports and many others.

Beyond health care affordability and sustainability, the incessant rise in employer-based health insurance costs are vampirizing the abilities of employers to increase employee wages or invest in new business development, causing destabilizing ripples across the entire economy. Rising Federal and state health care costs threaten investments in education, transportation, telecommunication, the environment, community development, public safety and research.

Unlike other developed nations, the U.S. provides generous tax subsidies well over $240 billion annually for employer-based health insurance. This is much larger than what is granted for the average home mortgage, philanthropic and church, or any other category of tax subsidy. As a result the under-65 employed population and their physicians are actually encouraged to demand the best technology, since its cost is hugely discounted. Once people turn 65 and enroll in Medicare, we have thus trained them to expect the best technology. However, these expectations about the use and cost of technology could radically change toward cost-savings as patients’ co-payments are driven higher and as their physicians are incentivized to move to value-based payment, where cost-effectiveness of a given technology is becoming essential.

Countering the disturbing trends in rising health care costs is the increasing utilization of both high deductible and Value Based Insurance Design (VBID) products by private health plans, both attempting to reduce the rates of health spending. VBID describes insurance coverage for which data tracking of higher quality and patient satisfaction of care provided is compared against parallel tracking of the plans’ ability to reduce unnecessary costs. Michael E. Porter, PhD, of Harvard Business School, has described value as the health outcomes achieved per dollar spent. Expressed another way, value is the degree to which we are achieving the higher or the best possible measurable outcomes, divided by the most efficient cost of producing them. While higher outcomes at lower cost then equals higher value, one could also increase value according to Porter’s definition by improving outcomes without increasing costs, or by keeping outcomes constant while lowering costs. Use and reimbursement of new devices will soon become value-based.

Porter also emphasizes that value should always be defined around the customer/patient and in a well-functioning health care system, the creation of value for patients should determine the rewards for all other actors in the system, including doctors, hospitals, insurers and industry. Because care activities across the inpatient and post-acute space among multiple providers are interdependent, value for patients often is revealed only over time as longer-term outcomes such as sustainable recovery, ongoing interventions, or occurrences of treatment-induced illnesses are tracked and understood.

As Porter and others have widely recommended, policies for VBID will require a parallel application of new information technologies to track and transform both the clinical practice and the business of medicine to enable monitoring and production of higher value in health care. Simultaneously payment policies should accurately allocate incentive payments to those components of the delivery system that create added value. Finally, payment reforms that reward value, rather than volume, are most essential to achieve these ends. Despite how confounding and anxiety inducing these processes are for clinicians and hospitals, payment reform processes are in development all across America. The CBO, Brookings, the RWJF Partnership for Sustainable Healthcare and others have estimated that approximately 25% of health care already is deeply engaged in developing value-based care delivery and payment models. Similar efforts are expected to grow over the next five to 10 years.

In contrast, high-deductible health plans were not created to focus on promoting value, as they tend to shift costs of medical care to the consumer under out-of-pocket deductibles that can be as high as $4,000 to $5,000 annually. The high deductible allows for reduced insurance premiums, which is the attraction of these plans for employers or self-insured individuals, as insurance costs rise to unaffordable levels. These plans attract healthier people who are gambling that they won’t need to spend their deductible, reserving their insurance coverage for catastrophic cost events. In theory, high-deductible plans also should encourage the consumer-turned-patient to want to shop around for less costly care options when they are spending their own money in the deductible range. This could conceivably reduce patient interest in pursuing medical care that involves devices when under the limits of their deductible. But there is little data to know if this assumption is true in practice with respect to cardiovascular procedures involving devices.

VBID, arguably a more enlightened insurance approach, attempts to reduce unnecessary spending by promoting financial incentives for doctors and hospitals to choose less costly services that produce better outcomes. This will include promoting less expensive drugs and devices. VBID also implies that research and development costs of new drugs and devices need to be factored into their typically higher introductory reimbursement levels to subsidize ongoing American scientific innovation. However, if a measurable return on investment (ROI) is not achieved over a period of time after introduction, reimbursement levels for those new products/devices should rightly fall to “reference pricing.” Accordingly, if a new device that cannot demonstrate measurable patient care benefits or other value over a reasonable length of time on the market, i.e., reduced health care costs, lesser re-admissions or needs for additional interventions, it should rightly be reduced to reimbursement levels of comparable products on the market.

C. Accountable Care Organizations & Other New Payment Frameworks

Accountable Care Organizations (ACOs) were included among the provisions of the U.S. Patient Protection and Affordable Care Act (ACA) as a vehicle for promoting VBID. Hundreds of ACOs already have been formed since the narrow and shaky passage of the ACA. While their long-term viability and value is far from clear, the ACO movement is demonstrating modest progress in improving care coordination, quality and cost reduction. To date, little has been published about whether ACOs are limiting availability of new drugs and devices that could improve value on the basis of downward pressure on introductory reimbursement, but it would stand to reason that their shared savings incentives to reduce overall costs of care could move in that direction. It is also unclear about who will make formulary and access decisions in ACOs about introduction of new devices or procedures as a result of VBID or value-based purchasing. While the governance and business priorities of ACOs by physician groups, hospitals or health plans may differ; each will exert a greater degree of scrutiny and demand for clinical evidence and expected cost to be evaluated against existing therapeutic options.

ACOs are already evolving into a diverse set of models that will pay physicians and hospitals with different methods, including traditional fee-for-service, but also with bundled payments, shared savings models, capitation, or combinations of these. How reimbursement for devices and new technology will fare in this expanding future is yet to be determined. However, economic modeling around a positive societal ROI or value will be front and center to successful development and deployment of new devices.

In addition, device marketing and addition to hospital formularies will require different strategies in ACOs and other emerging risk-sharing VBID models. Manufacturers need to be seriously considering these market changes. Success will require new strategies and insights to promote the introduction and use of new devices.

D. Economic Evaluation Takes Center Stage

Economic evaluation of new drugs and devices, either via direct comparison to existing treatment options or predictive modeling for truly novel technology, is essential to demonstrate why more money should be spent on new treatment options. Making the case for “societal ROI” to warrant higher reimbursement than comparable (reference or existing) products is a growing phenomenon and, with it, comes a new and challenging burden for industry. When such evidence is available, it becomes an opportunity and a tangible advantage in the minds of decision-makers. More and more, this translates to the need for manufacturers to hypothesize and then actually measure improved value over months or years made possible by new devices.

Even though industry-sponsored research has its critics, scientists and others working with independent, credible third parties can help to create a valued and objective position for payer considerations about reimbursement of new devices. Since government is unable to sponsor more than a small fraction the research needs around cardiovascular device development, industry-sponsored economic modeling and value-based return on investment studies are expected to become increasingly important in FDA considerations, as well as those of U.S. Centers for Medicare and Medicaid (CMS) and private insurers as they consider regulatory approvals and reimbursement/payment terms. If the introductory unit reimbursement levels, typically in part accounting for research and development costs, are to remain at profitable levels for new drugs or devices, then the relevant stakeholders, e.g., manufacturers and clinical end-users (physicians and hospitals and health plans) need to demonstrate higher quality outcomes at equal or lower costs over time.

Most likely, health reform pressures will err on the side of choosing technology that comes at a lower cost. Even when clinical trials suggest lower morbidity and/or mortality at the time of introduction of new drugs or devices, if there is no concomitant measured reduction in costs in either in the acute-care phase, or in the post-acute phase related to reducing adverse events or re-admissions, the changing marketplace could make it less likely for those new products or devices to be reimbursed sufficiently, or to be included frequently enough on hospital formularies, to be financially viable for the manufacturer.

Fears about the unintended consequences of these coming payment reforms on scientific innovation in health care are legitimate. With the sizeable amount of clinical trials being commissioned outside the U.S., there are additional impacts affecting competitiveness, talent recruitment and retention and industry jobs in general. And, with the estimated two-thirds of global market share for devices typically captured by the U.S., the effects of these new polices to potentially drive reimbursement levels toward non-viability cannot be dismissed. In theory, the VBID model attempts to counter that fear by continuing to allow higher introductory prices for new products that incorporate research development and economic evaluation costs, but only for perhaps three-to-five years, or until a reliable measurement of value can be obtained. If higher value can, in fact, be demonstrated, higher reimbursement could justifiably persist. If not, reimbursement will likely fall to ‘reference pricing,’ meaning pricing equivalent to other similar existing products on the market.

In addition, the other insurance model worth considering is the very large U.S. market segment of self-insured employers who use traditional insurance companies only as third-party administrators (TPAs) and claims payers. Some observers think the ACA eventually will incentivize employers to move away from health care and transition their employees to the new ACA exchanges. Employers are concerned about rising costs, but they are not focused solely on cheaper coverage either, as a number of surveys among employers of 300 or more have shown. These companies want to establish and retain healthy and dedicated workforces. However, self-insured corporations, working though enormous business coalitions such as the Pacific Business Group on Health or through other private exchanges, also need to be engaged in how we promote innovation and how investigational and new device reimbursement will be determined. While these large employers and their coalitions strongly promote VBID in Congress, many also hopefully appreciate the business case for not driving the American device industry offshore.

In addition to these new insurance models, the new kinds of market competition and delivery system changes we have touched on will significantly affect reimbursement of devices in the future. In most market sectors, competition among participating entities spurs higher quality goods at lower costs, where supply-side and demand-side forces typically interact such that increased market share becomes largely dependent upon improving perceived customer value. As business leaders and those who study and report on health and health care delivery have shown, these theories and standards do not reliably occur in health care.

Examples of delivery systems capable of producing clinical outcomes and improved health care reflecting both high quality and cost efficiency certainly exist in the U.S. Utah’s Intermountain Health Care, as one example, has focused on improving delivery effectiveness even where they dominate the market. They have sought to produce “the best clinical outcomes at the lowest necessary cost.” Nonetheless, market domination by hospitals and/or physicians typically drives up costs without improving outcomes or patient satisfaction. While anti-trust enforcement through the U.S. Department of Justice is intended to counter such anti-consumer effects, it has not been vigorously applied.

E. Medicare and Physician Payment

Medicare has an enormous influence on the entire U.S. health care marketplace. Its influence on device pricing also is enormous. Medicare has historically attempted to control costs by focusing on rate setting of providers, which has been largely ineffective given the ability of doctors, hospitals and industry to increase volume of services or to shift toward more expensive services. The problem is not only related to self-interest agendas, as the incentives are dysfunctional. Despite rate controls such as the flawed Sustainable Growth Rate Medicare physician payment formula (SGR) and Medicare’s parallel attempts to cap hospital, pharmaceutical and device spending, costs have not been controlled. In fact, the system has channeled providers into increasing volume and intensity of services.

As an example, Medicare’s miscalculation five years ago in drastically cutting and capping diagnostic office-based services in cardiology practices, including echocardiography, stress testing and nuclear scans, had the unintended and perverse effect, (about which they were forewarned by the American College of Cardiology {ACC} and others) of causing the majority of cardiologists to abandon private practice and become employees of hospitals. This was economically advantageous because similar diagnostic services in hospitals are paid under the Medicare HOPPS hospital outpatient schedule, which reimburses at rates three-to- four-times higher than the reduced CV office-based schedules. The differential payments between HOPPS and office-based services allowed hospitals to afford hiring cardiologists to do the same work they performed in their former offices at much higher reimbursement and profit levels for hospitals. Unfortunately, this shift of cardiology practice to hospital employment has not only increased related Medicare CV costs, but also has increased the cost of patient co-payments for these procedures, making essential care unaffordable to some lower income or otherwise disadvantaged patients.

Medicare’s SGR physician payment formula appears on the verge of being eliminated by Congress by 2015 or soon thereafter. While Congress hasn’t agreed on how to pay off the $150 billion in accrued SGR deficit for deferring 20-30 percent cuts to physician payment in Medicare FFS practice, they have agreed on what the replacement formula will look like. Their replacement solution leaves FFS payments to doctors flat until 2023, but allows for payment bonuses and incentives along a VBID model that involves shared risk for physicians who voluntarily engage in risk sharing or alternative payment models. When the SGR formula is replaced with the new model, Medicare’s influence over public and private care will greatly accelerate payment reforms across all of health care, as the Medicare Payment Advisory Commission, or MedPAC, has noted.

In addition to hiring additional specialists on medical staffs, Medicare payment policies encourage hospitals to increase investments in technology. This has led to increasing volumes of expensive services tied to advancing technology along with higher rates of inappropriate use. Indirectly, these payment policies encourage hospital consolidation and eventual market domination, which enables higher rates to be charged. Hospital credit ratings and therefore their abilities to invest in new technologies depend significantly on their market share.

To date, Medicare policy has encouraged cost shifting by hospitals to private insurance and their beneficiaries to offset lower Medicare payments, causing another unintended consequence of Medicare’s untoward cost-cutting approaches. Where hospitals have achieved market domination or become part of regional integrated systems, this type of cost shifting can be exaggerated enough to attract attention and scrutiny of the U.S. Department of Justice as it monitors anti-trust behavior.

Some elements of the ongoing consolidation and system integration will have beneficial effects in terms of improving the efficiency of coordination of care, diverting patients from emergency rooms to 24-hour clinics and organizing hospital and physician participation in ACOs and other integrated system arrangements, where care can presumably be better organized and more efficient. Five percent of the patients with the most serious multiple chronic conditions cost our non-system in this country nearly 50% of total spending. These most expensive patients are disproportionately Medicare beneficiaries. Government policy, including the recently introduced tenets of the ACA, has focused on securing better care at lower costs for these patients. Specifically, reducing unnecessary hospital procedures, hospitalizations and re-admissions for this five percent of patients with the most serious multiple chronic conditions. Considerable evidence suggests that this type of market consolidation does not typically improve efficiency or lower cost. Thus, additional payment reforms will be necessary to achieve higher value in care delivered and sustainability of health care spending in general. With a few exceptions, these new care delivery models and payment reforms are not yet in place. Virtually all policy pundits expect payment reforms shifting away from FFS to sweep the country in the next five to 10 years.

As these needed reforms proceed in the U.S. marketplace, both in the delivery system and the in development of new medical payment methodologies, cardiovascular device access and reimbursement will be forced into its own transition. Delivery system reforms will continue to promote hospital consolidation, increasing physician employment, new team practice models, information technology innovation and incentives for patients. Market consolidation and payment reforms will change how decisions about whether or not to include new devices on hospital formularies are made. Physician employment by hospitals also will likely change how such decisions are made. There are uncertainties about how all of this will proceed. But, what is certain is that reimbursement for investigational and new cardiovascular devices will become more complex and uncertain during the transitions ahead in the quest of achieving health care cost sustainability in this country.

F. The Current Device Reimbursement Environment

Over the past three decades in particular, new medical technologies and devices have revolutionized clinical practice and patient care. No specialty has been more transformed in these regards than cardiovascular medicine, with the advent of percutaneous interventions (PCIs) that include angioplasty and stents, along with valve replacements, ventricular assist devices, congenital heart disease remedies and an array of electrophysiological and endovascular therapeutic tools. The combination of these new tools has radically changed practice and improved the outcomes of cardiovascular and endovascular care, both from interventional and surgical vantage points.

With the improvements in morbidity and mortality, cardiovascular care costs have risen sharply. Cardiovascular disease remains the highest cause of preventable morbidity and mortality and for the patients over 65 years of age; related cardiovascular spending is the greatest of all specialty areas. Thus, cardiovascular costs in Medicare become an ongoing and conspicuous target for cost containment efforts post-reform. Because policymakers and payers are concerned about the overall impact of new technology on spending trends, devices are targets in cost-containment discussions. Consensus estimates among economists, payers and policy experts is that as much as 30% of health care cost increases in the past two decades have been directly tied to new technology costs, including devices. There is little hope that such costs might soon be stabilized. The pipeline of new products and innovations is extremely promising and ambitious, including bio-absorbable stents, transcatheter mitral and pulmonary valve replacement devices and cell therapy delivery applications, representing only a few of the products coming to market soon. Questions abound regarding how clinicians and hospitals could be incentivized to be more discerning in their usage of new and often expensive technology and devices. Not only will clinical appropriateness be scrutinized but also cost justification. The payer mentality regarding evaluation of new technology, comes down to answering questions such as:

  • “What does this [device] replace in our current list of approved devices?”
  • “What do we save by permitting use of this device?”
  • “How does the approval of this [device] affect patient outcomes?”
  • “What opportunities do we have short- and longer-term to offset other costs?”

In the past, and at some hospitals today, individual members of the cardiovascular staff have traditionally been granted a great deal of flexibility by hospitals to use whatever FDA-approved devices they desired to use, often regardless of the costs. Those practicing in academic health centers could participate in investigational trials when they so desired. Flexibility in reimbursement up to now meant that most of the related costs were covered. In such clinical trials, the goals were to evaluate safety and efficacy to gain FDA approval. Attempts to measure appropriateness of use, which are now the object of great attention and focus in order to receive payment, were not typically part of historic clinical trial considerations.

G. Comparative Clinical Effectiveness

Times have indeed changed. Today, many hospitals decide what devices are approved for us by asking a carefully selected technology assessment committee to consider therapeutic value and the impact of costs to be of equal importance. Pressures in this regard are increasing with each passing day. In most hospitals, the perceived autonomy and degree of influence of the medical staff is changing dramatically or, is a thing of the past. In venues where most of the medical staff is employed, administrators are increasingly involved in decisions related to device usage and for which types of patients.

In this new environment, comparative effectiveness research and evaluations also will help not only differentiate therapeutic options based on evidence and outcomes, but also by considering costs as compared to existing options. Peter Orszag, former director of the Congressional Budget Office (CBO), opined in a 2007 CBO Senate testimony that “Better information about the costs and benefits of different treatment options, combined with new incentive structures reflecting the information…is essential to putting the country on a sounder long-term fiscal path.”

In response, appropriations in the U.S. American Recovery and Reinvestment Act (ARRA) of 2009, followed by requirements in the ACA of 2010, created the Patient-Centered Outcomes Reporting Institute (PCORI). Ten billion dollars of ACA funding was appropriated to attempt through clinical trials and other real-world data analytics to answer the most pressing and promising questions about comparative effectiveness across health care. Pressure for such an effort reflects a therapeutic environment in which 50 percent of more than 3,000 treatments reported in the clinical trials that were selected, evaluated and reported by the British Medical Journal’s Clinical Effectiveness 2013 report were described as having unknown clinical effectiveness.

Since its inception, PCORI has been politicized by some elected officials and business leaders as potentially being yet another force for inhibiting innovation and the introduction of new products. This is because it is believed that eventually such comparisons of clinical effectiveness of new products to existing therapeutics must be compared in parallel and with perhaps even greater emphasis to cost effectiveness determinations, such as sometimes occurs in the United Kingdom’s National Institute on Clinical Effectiveness (NICE). NICE has actually been seen by most practicing physicians there as a reasonably balanced regulatory body in these regards. But, in the U.S., focusing on cost effectiveness has been as considered such a political taboo that Congress explicitly prohibited PCORI from engaging in it. The American society’s tolerance for having its health care pre-determined or, in some cases, limited by a governmental body—particularly one that replaces decisions made by the individual patient and his/her physician—is extremely low. Regardless, it is widely considered certain that comparative clinical effectiveness determinations will gain wider acceptance over time. As such, comparative clinical effectiveness’ influence on new product use and reimbursement rates in hospitals and other clinical settings has the potential to significantly impact the introduction, use and pricing of new technology, including devices.

Even in the absence of comparative and cost-effectiveness data, where new payment models including ACOs, shared savings, bundles or episodes of care, or capitation gain market share, physicians may be financially incentivized to work with a more limited choice of approved devices, or see their reimbursement driven downward to levels that undermine device viability.

However, when economic modeling data forecasts a high probability for post-acute savings in terms of reduced mortality, re-admissions and/or complications, higher introductory costs of new devices and procedures may become acceptable in these new payment models, where the majority of cost savings and improved outcomes will increasingly be dependent upon 30-day to three-, six-, twelve-month or longer bundles of care that extend well beyond acute admissions.

Where capitation is employed as the central payment mechanism (and a good deal of evidence and trends suggest that capitation and global budgets could become more common going forward), post-acute care outcomes and related cost savings will be equally critical. In the 1990s, the general use of capitation was ushered in with the proliferation of health maintenance organizations (HMOs). The dramatic demise of capitation in most geographies in that era came when consumer backlash developed based on fears that care could being rationed or withheld because their doctors were incented to be paid more for providing less care.

Today in the U.S., unlike in the early 1990s, there is widespread agreement that quality measures and patient satisfaction can be more effectively measured to protect against perverse capitation payment incentives. And, the focus is shifting toward aspiring to measure outcomes rather than process. New standardized sets of metrics and measures associated with evaluating outcomes are in development across a diverse group of health care stakeholders. Achieving consensus around how to measure risk-adjusted outcomes is essential for risk-based payment models. Certain outcomes such as hypertension control, lipid management and HgA1c diabetes management are readily available. Cardiovascular medicine leads other specialties in its ability to measure a significant number of additional outcomes in acute care settings. In this new post-reform era, device reimbursement will be far less dependent on effective industry marketing to physicians and hospitals and become more focused on comparative effectiveness and cost effectiveness metrics to estimate value and societal ROI. As measurement of outcomes improves in terms of the trust and reliability of the data and methods employed, it’s becoming a new world!

H. Strategies and Decision-Making to Promote Ongoing Innovation and Viable Reimbursement of New Cardiovascular Devices

Reimbursement determinants for cardiovascular and other devices are changing rapidly. As stated, adoption of VBID and other value-based payment models will accelerate payment reforms affecting how hospitals and integrated systems, academic health centers and physician organizations make decisions about which devices to offer their patients and based on data that demonstrates both clinical effectiveness and cost-effectiveness. Over time, hospitals and physicians who remain in volume-based or FFS payment models may be more constrained in their ability adopt new technologies and devices. Those in new delivery and payment systems that engage in risk-sharing contracts and offer additional incentives for improved outcomes and lower acute and post-acute costs could conceivably have greater flexibility in these regards.

Reimbursement price points will likely still reflect compensation for device research and development costs in VBID models, but as was described earlier, reimbursement will fall to reference pricing over time if value cannot be reliably demonstrated. Therefore, successful introduction and market adoption of new devices and technologies will be accelerated based on the following threats and opportunities:

  1. Comparative Clinical Effectiveness: Forecasts and estimates of the comparative clinical effectiveness of new devices as compared to existing therapeutics for acute diagnoses, chronic conditions and related comorbidities will become more important for reimbursement viability and particularly for capturing market share.
  2. Cost-Effectiveness Analysis & Budget Impact Modeling: Forecasts and estimates regarding cost-effectiveness when comparing to existing therapeutic options will become even more important for achieving new device reimbursement and increased market share. The conventional wisdom that cost effectiveness will be a threat to innovation and new device introduction must be reconsidered, as it is an essential focus of the post-reform reality.
  3. New Ways to Define Value: Comparative clinical effectiveness and cost-effectiveness analysis are helping to create the new definition of value in health care, (expressed as outcomes achieved per dollars spent). Value will predict success or failure in terms of reimbursement and market adoption in the marketplace.
  4. Economic Evaluation: Sophisticated economic modeling of new device ROI during early stages of their development process, in parallel to Phase II and III clinical trials, will become an essential element of new device development and successful FDA and CMS regulatory approval for manufacturers.
  5. Different Types of Outcomes Measures: Post-acute care (PAC) outcomes coupled with costs extending over months and even years beyond acute admissions will become important in considering the measurement of value and ROI in the new future.
  6. Marketing for Multi-Stakeholder Priorities: Formulary decision-making regarding availability and use of new devices in hospitals, integrated systems, Medicare Advantage (MA) plans and ACOs has already shifted from individual physician and surgeon preference to increasing scrutiny by data-supported formulary committees and specialized administrative oversight who require greater evidence than before. Accordingly, marketing of new devices must be tailored to different kinds of provider and payer-based models and decision-making processes that will test the manufacturer’s ability to address many new parameters and considerations in the post-reform era. Understanding the roles and responsibilities of key decision-makers in diverse and evolving payer settings will be critical to successful introduction, use and pricing of new devices.
  7. New Payment Models: It will be critical to pay close attention to how new payment reform models will affect new device introduction and reimbursement. Ironically, the best means of overcoming cost-reduction pressures in emerging models (that could undermine device introduction) may be to embrace VBID and value-based purchasing, as well as understanding how bundled payment and risk-sharing models, including capitation, could allow more flexibility to fairly reimburse new devices that have higher prospects of increasing value. Fig. 2 below reflects an example of how the current CMS physician-directed pilot program could positively affect the incomes of cardiologists and hospital or payer partners who together effectively manage the 90-day post-acute care of inpatients treated acutely for coronary artery disease, heart failure, arrhythmias, or valvular disease with stents, atherectomy devices, EP devices and defibrillators, LVADs, or transcatheter valve replacements. The $30,000 bundle cost is a ballpark figure that will vary by diagnosis, procedure and patient; and in the program Medicare takes 3% as their guaranteed savings off the top for every patient. The acute care portion of the bundle will be largely unchanged from conventional care and will likely consume 60% of the bundle amount. Deciding on choice of device based on cost could affect that portion. However, if a 20% reduction in post-acute costs is achieved by preventing complications and readmissions, the cardiologists and the hospital or payer partner will each receive an additional $2,640 per patient incentive beyond payment for the acute care portion of the bundle by reducing the frequency of adverse events in the post-acute 90-day space. Similar constructs can be created in other shared savings and capitation models. Device introduction in this brave new world needs to understand the potential benefits of payment reform incentives against the background of flat payment models. An example of a potential shared bundle structure is shown in Fig. 3.
  8. Better Data Through Registries: Traditional FDA post-approval studies to monitor patient safety and outcomes performance increasingly will be replaced with more comprehensive registry and/or multi-electronic health record (EHR) tracking of all patients who receive new devices through information technology innovations on the immediate horizon. Such comprehensive post-approval patient tracking mechanisms will allow the FDA to expedite regulatory approvals and track device effectiveness and patient safety with precision and effectiveness that were impossible before. Likewise, CMS can track utilization to determine what therapeutic approaches are also the most cost-effective.
Figure 1. U.S. Medical Device Reviews: Key Stages & Considerations. (JC Consulting Group, Inc. 2014)

Figure 2. Extrapolation developed by National Coalition on Health Care 2014 based on CBO and various other predictors about how fast the transition from FFS to value based payment (VBP) once the Medicare SGR formula is changed to incentivize alternative payment models with FFS held flat.

Figure 3. An example of a potential shared saving bundle structure that could apply to PCI, TAVR, atherectomy, CRT or defibrillator, LVAD, or other CV device admission plus 90 day follow up.

Fair and appropriate device reimbursement methodologies are essential to promoting ongoing innovation and new research, clinical progress and expeditious translation of new scientific discovery to the point of care. This is critically important for continuing progress in reducing morbidity and mortality and for improving outcomes across the spectrum of acute and post-acute cardiovascular disease. As health reform and specifically delivery system and payment reforms progress, understanding of how these processes will positively and negatively affect new CV device research, development and clinical introduction will be essential to promoting ongoing CV innovation and clinical advances.


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  9. Robert Wood Johnson Foundation. Partnership for Sustainable Health Care: Strengthening Affordability and Quality in America’s Health Care System. 2013 April [cited 2013 May 28]. Available from: http://rwjf.org/content/dam/farm/reports/reports/2013/rwjf405432
  10. Urban Institute. Can Medicare Be Preserved While Reducing the Deficit? 2013 March [cited 2013 May 28]. Available from: http://www.urban.org/UploadedPDF/412759-Can-Medicare-Be-Preserved-While-Reducing-the-Deficit.pdf
  11. Porter ME, Teisberg EO. Redefining health care: creating value-based competition on results. Boston: Harvard Business School Press, 2006.
  12. Louis Garrison Jr, Brian Bresnahan, Mitchell Higashi, William Hollingworth, Jeffrey Jarvik, “Assessing the Potential for Value-based Reimbursement,” Academic Radiology, April 2011
  13. Brent James and Lucy Savitz, “ How Intermountain Trimmed Costs Through Robust Quality Improvement Efforts, “ Health Affairs, May 2011
  14. Medicare Payment Advisory Commission. Updated Letter RE: Moving Forward from The Sustainable Growth Rate System. Washington (DC): MedPAC; 2013 April 10 [cited 2013 May 28]. Available from: http://www.medpac.gov/documents/04102013_MedPAC_
  15. Leemore Dafney, “Hospital Industry Consolidation — Still More to Come?” New England Journal of Medicine, December 2013
  16. William Cleverly and Paul Nutt, “The Decision Process Used for Hospital Bond Ratings—and Its Implications,” Health Services Research (December 1984): 623
  17. James Robinson, “Hospitals Respond to Medicare Payment Shortfalls by Both Shifting Costs and Cutting Them, Depending on Market Concentration, “ Health Affairs (July 2011)
  18. Claudia Williams, Robert Vogt, and Robert Town, “How Has Hospital Consolidation Affected the Price and Quality of Care?” Policy Brief Number 9 Robert Wood Johnson Foundation (February 2006)
  19. Steven Schroeder, and William Frist, “Phasing Out Fee-for-Service Payment,” New England Journal of Medicine, 368;21, May 23, 2013

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