Accountable care organizations will change Medicare and the way medical device OEMs approach reimbursement.
Due to its sheer size and reach, Medicare has dwarfed all other federal and state healthcare programs combined since its formation in 1965. Therefore changes affecting Medicare reimbursement and care delivery structure generally have had an immediate, profound, and transformative effect on Medicare, and also on private sector commercial insurance reimbursement practices. In this sense, Medicare has operated as a government-run incubator for national healthcare reimbursement policies and structural market reforms. To understand how healthcare has evolved to its present state, one also needs to understand how Medicare has and continues to transform the commercial healthcare industry. (see sidebar, “A Short History of Managed Care .”)
The Medicare Shared Savings Program’s Accountable Care Organization (ACO) provisions of the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 (HCERA) are the latest iterations of government intervention in the market place.1,2 The government’s goal in implementing the ACO framework is to reduce healthcare costs through clinically integrating healthcare delivery models that improve patient access and health status, while curtailing inefficient resource utilization. ACOs begin operations in January 2012 and expectations are that ACOs will materially influence the use of resources by Medicare patients. As has been the case with prior Medicare reimbursement innovations, ACOs are expected to expand their contractual purviews to nonMedicare patient populations and begin contracting with Managed Care Organizations (MCOs) to coordinate care for commercially insured patient populations as well. Thus, significant changes are afoot for both Medicare and nonMedicare patient care delivery models. These changes will also profoundly affect the payers who reimburse physicians and hospitals for such care and the life science companies that market products to physicians, hospitals, and patients.
Financial incentives adopted by ACOs to constrain inappropriate use will affect revenue and profitability. To derive maximum benefit in an ACO-dominated market, a patient-centric context for marketing the relative value of medical devices will need to be adopted. In addition, consolidated healthcare structures arising as a result of the impetus to create ACOs may alter the balance of power in managed care markets and shift reimbursement negotiation leverage away from health plans and back to hospitals and physicians. This could cause manufacturers to revisit their managed care contracting priorities to adjust for shifts in which contracted entities will most likely affect the future procurement and use of products. Opportunities to support disease registries and disease management programs operated by ACO sponsors may merit review.
The establishment of a critical mass of ACOs will have an iterative and staggered effect on manufacturers. First, enhanced patient access to primary care physicians may result in more trust and rapport between patients and physicians. This rapport between primary care physicians and their patients will place a greater emphasis on the patient’s perspective of therapeutic value that will need to be critically assessed for any new product launches. Outreach and patient education via social media and traditional in-office print media will likely continue to be essential components of successful product marketing. Second, physicians will be more focused on favorable clinical outcomes, and ACOs will therefore likely demand patient information sharing and more granular data from trading partners, such as MCOs and pharmacy benefit managers (PBMs) that coordinate care for patients. Health plans and PBMs will be asked to fund and report on tests for personalized medicine and patient genome typing, so that interventions administered by ACOs will achieve optimal results.
To thoroughly assess how the ACO framework will affect them and the overall health market, medical device manufacturers need a baseline understanding of how ACOs will function.
An ACO is currently defined as a medical provider panel (e.g., network of primary care and specialty doctors and hospitals) that shares financial responsibility for delivering quality care to patients by coordinating the allocation of service delivery to meet the healthcare needs of a minimum of 5000 Medicare beneficiaries for at least three years. The current requirements for ACOs are as follows:
- A formal legal structure to receive and distribute shared savings.
- A sufficient number of primary care professionals for the number of assigned beneficiaries (5000 at a minimum).
- Participation in the Medicare program for a period not less than three years.
- Sufficient information regarding participating ACO healthcare professionals as the secretary determines necessary to support beneficiary assignment and for the determination of payments for shared savings.
- A leadership and management structure that includes clinical and administrative systems.
- Defined processes to promote evidenced-based medicine.
- Processes to report the necessary data to evaluate quality and cost measures. This could incorporate requirements of other programs, such as the Physician Quality Reporting Initiative (PQRI), Electronic Prescribing (eRx), and Electronic Health Records (EHR).
- Processes to demonstrate that the ACO meets patient-centered criteria, as determined by the secretary of DHHS.
With all the factors above considered, manufacturers are presented with both opportunity and risk in the ACO framework (see Table I). Therefore, in order to understand the extent of the impact, an assessment of the various factors must be conducted.
Manufacturer Finances and Contracting Predictions
The push for accountability in delivering higher quality care at lower costs will drive significant market changes to healthcare players downstream from manufacturers. Through the implementation of governance structure, organizational structure, infrastructure, and incentives, hospitals and physicians are exploring the best ways to work together to improve U.S. healthcare delivery through Medicare and private insurance programs. Some predictions and tips on how to do so are as follows:
- ACOs will likely further reduce suppliers’ access to primary care physicians as they join larger, busier group practices or hospital-based organizations.
- Manufacturer access to ACO physicians will likely be governed by restricted access, as the ACO model implies that physicians will spend more time with each patient and less time with sales reps.
- As with Medicaid Drug Rebate Program preferred drug lists, manufacturers may wish to consider demonstrating value to an ACO’s pharmacy and therapeutics (P&T) committee in the areas of efficacy, safety, and cost.
- Manufacturers will wish to influence ACO prescribing patterns and engage ACO medical leadership early on. The ACO model implies formalized clinical protocols and treatment guidelines. Therefore the average ACO physician may experience less clinical autonomy in how they prescribe medical devices for patients, aand all physicians will be incentivized to prescribe cost-effective treatments that comply with formularies and follow treatment guidelines based on comparative effectiveness research (CER).
- Because electronic medical records (EMRs) will provide ACO P&T committees with relatively easy-to-analyze CER data on outcomes and costs, manufacturers will need to have compelling data results on-hand to demonstrate value to influence the inclusion of their products on formularies and in treatment guidelines.
- Manufacturers that can demonstrate improvements in clinical outcomes (better than alternative treatment options) or reductions in overall healthcare costs will find ACOs receptive.
- ACOs may perceive opportunities to partner with manufacturers to achieve improved quality of care and reduced costs. Manufacturers can help educate ACO physicians about the appropriate use of their products and should be prepared to assist in implementing patient compliance and education programs.
- Manufacturers should perform a cost-benefit analysis on the expected clinical outcomes against the volume of ACO sales and utilization expected, which will require data in regard to how the manufacturer’s products are performing (clinical outcomes vs. cost savings) within an ACO.
Additionally, extrapolating the above areas of consideration further to the overall healthcare industry, the subsequent observations and Appendix A can be drawn in regard to the likely effects of ACOs on the market.
Observations and Recommendations
Medicare Spillover. MCOs and PBMs will seek to make coverage decisions for commercially insured business such that benefit designs will have a greater emphasis on disease detection, prevention, symptom onset delay, and medical management.
Full Spectrum Offerings. Manufacturers that offer a full range of products and services, in particular, at earlier stages of disease treatment, will become market leaders.
Outcome Measures and CER. Manufacturers seeking traction with new products will need to demonstrate superior outcomes to justify increases in costs and pricing.
Fewer But Larger Formularies. Because formulary tiers will become increasingly important with fewer medical service providers in the marketplace, manufacturers should look to secure higher formulary tiers in such a way that more volume is administered through fewer contracts. A more focused marketing campaign to ACOs, for example, with the message of promoting disease prevention and early treatment may result in more optimal contracts.
Data Sales. ACO management companies or MCOs and PBMs may attempt to generate revenue from medical device manufacturers by selling deidentified ACO, MCO, or PBM claims data. Manufacturers should seek to have ACOs use disease registries. Kaiser Permanente, the Group Health Cooperative, and other integrated-care organizations have achieved measurable quality improvements using disease registries, which identify whether the evidence-based needs of patients are being met, and track the physicians’ and the organization’s performance on quality measures. The data exchange should automatically populate the disease registries with data from physician billing, EHRs, medical claims, encounter data, hospitalization, laboratory test results, and pharmacy claims or e-prescribing to pinpoint any unmet needs, gaps in data, or gaps in service delivery.
ACO P&T Committees. Manufacturers will wish to target ACO P&T committees with relevant CER specific to patient populations to ensure that Medicare prescribing pattern spillover is appropriate for other healthcare programs and patient populations.
Manufacturer Involvement at the State Level. States can design and promote new payment methods and accountability measures based on access to state employee, Medicaid, state assistance programs, and state insurance programs claims data. Manufacturers can start by influencing the clinical leaders and managing clinicians in the state Medicaid P&T Committees to better understand the value proposition of utilizing CER that is relevant to specific patient populations and prevalent conditions and comorbidities. (see sidebar, “Accountable Care at the State Level .”)
Thought Leadership. Manufacturers should establish themselves as thought leaders in the ACO, P&T committee, state medicaid agency, and state legislature space through the presentation of meaningful and actionable CER data analyses.
Education. The strategy group responsible for ACO business development should educate staff and stakeholders on likely ACO operations and the competitive advantages that manufacturers can derive from working with ACOs.
Goal Setting. To derive maximum value from ACO engagements, manufacturers must understand the market size and potential for products based on disease classifications and target those ACOs specifically aligned to treat such patient populations.
Resource Identification. Once the right direction is set from a strategic perspective, ensure that the appropriate resources are identified—including sales and marketing full-time equivalents, value metric calculations, and connections with external stakeholders (e.g., established credibility with the Brookings Institute and the Dartmouth Institute).
Sales and Marketing Efforts. A targeted sales, marketing, and communication effort needs to be provided to the ACO to sell the manufacturer’s products on the value of improving patient outcomes and thereby avoiding healthcare costs for patients while maintaining or improving patient health status. This effort needs to take into account all stakeholders, including payers, MCOs, PBMs, hospital administration, doctors, and patients.
Coordination Among Stakeholders. Similar to the education and resource identification actions previously discussed, the manufacturer needs to ensure that on an ongoing basis, the right stakeholders are internally coordinating their actions together in the right ways. This includes a review of the engagement process with an ACO, the revenue streams from the ACO, the customer relationship management for the ACO, ACO cash flow management, and the ongoing reinforcement of the message to the ACO that the manufacturer is committed to curtailing the rate of inflation for patient care costs and improving the quality of measurable patient outcomes.
Technical Capabilities. ACOs need to have the proper technical considerations that enable real-time access to encounter data and longitudinal patient histories, so that health status can be effectively benchmarked and managed prospectively. Manufacturers will wish to inform ACOs on which metrics are most relevant for which patients with a certain disease classification. Manufacturers will also wish to engage colleges of specialists to ensure that clinical pathways are relevant to a specific patient population and not too general to be of value to ACOs. Personalized clinical pathways and medicine will require more attention to detail and local market conditions.
Currently, CMS and DHHS are synthesizing stakeholder feedback on how to optimally implement the Medicare Shared Savings Program. And although it is relatively certain that the final rule will not fully resemble the proposed one, the extent of such changes is as yet unknown. Likewise, the FTC and DOJ are synthesizing stakeholder feedback in regard to the Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program. The extent to which, if any, the FTC and DOJ will modify the proposed statement is unknown. However, it is known that should the perceived need to exercise fiscal restraint in Medicare expenditures overcome political resistance to change through the implementation of PPACA/HCERA reforms, the structure of certain customer markets for medical device companies will change correspondingly. Manufacturers should therefore plan to alter their contracting models from primarily market share and formulary placement-driven rebating to outcome and risk-sharing contracting.
Although there are polarized viewpoints on the merits of recent healthcare reform legislation, fiscal considerations will ultimately force a majority of political stakeholders to embrace compromise on value-based market reforms in order to curtail the rate of medical inflation and improve clinical outcomes for the Medicare program. Such reforms will operate not just on Medicare but will spill over to other government programs and commercial insurance programs as well. While the pace and scope of such changes are as yet uncertain, competitive advantage will flow to medical device companies that study the market issues in order to optimally market products in one to three years. One such new reality may be that manufacturers will have to demonstrate superior patient outcomes and ACO-wide savings in order to garner favorable ACO formulary treatment. Market transformation will happen quickly, and those manufacturers that embrace and prepare for the coming changes in product contracting methodologies will realize immediate strategic benefit and quickly become market leaders.
|Table I. ACO effects on the medical device market offer both risks and opportunities for OEMs.|
1. Public Law, 111–148. Available from Internet: www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf 
2. Public Law, 111–152. Available from Internet: www.gpo.gov/fdsys/pkg/PLAW-111publ152/pdf/PLAW-111publ152.pdf 
Tony Chen is associate director of government pricing for Alliance Life Sciences (Bridgewater, NJ) and Robert Fellman is a senior healthcare consultant.