GOVERNMENTAL & LEGAL AFFAIRS

In today's healthcare system, both government and private third-party payers are expecting medical device manufacturers to provide more and more data to support reimbursement determinations. But ascertaining the level and type of data required to support a desired determination is anything but simple. As reimbursement policy continues to evolve, medtech leaders must become increasingly involved in ensuring that their products and research protocols are designed to meet ever more stringent requirements.

MX recently called on a panel of industry experts to get their views about how current and future reimbursement trends are likely to affect the medical technology marketplace. In the following roundtable discussion, moderated by MX editor in chief Steve Halasey, panelists consider issues including coverage with evidence development, pay-for-performance initiatives, the new severity-adjusted diagnosis-related grouping system, and other policies and trends that are sure to influence the way in which medtech manufacturers plan for reimbursement.

MX: The Centers for Medicare and Medicaid Services (CMS) has developed a policy that permits medical procedures to receive reimbursement coverage while evidence is being gathered to support a national coverage decision. However, it seems that the policy is getting mixed reviews, and that even CMS isn't especially happy with the way it has been implemented. How has this area of 'coverage with evidence development' changed over the past year, and where does it stand now?

Jo Ellen F. Slurzberg: There used to be three potential outcomes when a manufacturer sought a national coverage decision. There could be no change in coverage, a noncoverage decision, or--most likely--a decision for coverage with some sort of special criteria or conditions. Now, however, CMS has added a fourth possible outcome: coverage with evidence development. This special condition essentially means that coverage is granted, provided that specific data are submitted to demonstrate that the item or service has been provided as specified in the national coverage decision. So in other words, the device or procedure will be covered only when it is being used in a specific evidence-based way. Such evidence could include the results of a required study or a registry.

This new policy has added another level of uncertainty and unpredictability to the coverage process. Despite CMS's assurances to the contrary, it's been very hard to determine the situations in which the new policy would apply. It is intended to be applied in unique situations, but we don't have a good definition of what unique means. Thus, there is concern that the policy could be applied more broadly.

Several speakers at the recent Medical Device Manufacturers Association (MDMA) Coverage, Reimbursement and Health Policy Conference—including Barry M. Straube, MD, chief medical officer at CMS; and Scott Gottlieb, MD, resident fellow at the American Enterprise Institute—made a point of saying that the coverage with evidence development determination would indeed be applied narrowly. Much consideration will be given to ensuring that the required trials and registries truly do answer the questions that need to be answered. But I think the question from industry's perspective is whether it is CMS's role to identify those questions. Perhaps CMS believes it should fill this role, but does the agency have the expertise to put this kind of evidence development process into place?

Have medical device companies begun to think in advance about how they will design and conduct clinical trials to gather the data required as part of this coverage with evidence development process?

Tien T. Bui: Some of the more-experienced device and biotech companies have started to think about these issues during their research and development (R&D) processes. They are considering whether they should conduct studies involving multiple arms and, if so, how many. They are looking at these questions in relation to the way in which they will pursue reimbursement. In well-aligned companies, reimbursement plays a role early in the R&D and clinical research phases. The right people need to come together in the beginning stages of a device to design the appropriate trials, determine the device's target indications and patients, and determine whether the company will produce a second-generation technology or product. Companies shouldn't wait until the commercialization stage to think through reimbursement. So, in short, companies should bring clinical research into the reimbursement process as early as possible.

Ronald Podraza: Most of our clients are companies that have their first products coming to the market to be used in novel procedures. CMS's demanding national coverage process—which encompasses coverage with evidence development—is generally premature for them. They are interested in conducting clinical trials that will support local coverage decisions rather than national coverage decisions. This is usually the correct strategy early in the reimbursement development process.

Kuo Bianchini Tong: Yes, I agree that it's not on the radar screen. But I would also point to the fact that the general paradigm for device companies has been to approach CMS for a national coverage decision only if the company really has to—either because there is overwhelming evidence to support the technology or because the company has a major problem that it feels it must address.

CMS has to be a little more genuine in acknowledging that the outcomes from its national coverage determinations have generally been negative. As a result, there's obvious risk for a manufacturer in taking its medical technologies up to the CMS level. That's why there's some question as to whether the coverage with evidence development category is really a user-friendly and viable option for industry.

Mitchell DeKoven: Pursuing a national coverage determination is a high-risk, high-reward pursuit. Such a pursuit is a great opportunity if the determination goes in a company's favor and there are few restrictions placed on the technology. But a national coverage determination can go the other way too, perhaps limiting access to a product in a way that the company didn't foresee. The larger, more-experienced companies are aware of this process. But a lot of the smaller ones are not familiar with it. So CMS might want to shed a little more light on this process if it's an avenue the agency wants companies to think about pursuing.

Is this a sensible and firmly established policy, or one that is still evolving and subject to a lot of future changes?

Ted R. Mannen: It's still a work in progress. The underlying tenets of the policy go back many years—to the 1980s. To CMS's credit, the agency has been actively trying to implement the concepts. CMS released an initial guidance document on coverage with evidence development, and that document was truly a work in progress. In July 2006, CMS produced a final guidance document, in which the agency's legal authorities were better aligned than in the draft guidance. But, as a practical matter, I think the policy still has a long way to go.

Are there particular areas where changes need to be accomplished sooner rather than later?

Randel E. Richner: More-sophisticated device manufacturers are very aware of the new hurdles and the type and extent of resources that they will have to put into development of their clinical trials. There is also a growing recognition that consolidation among private payers is another national hurdle that the manufacturing community will have to deal with in the coming years.

In terms of CMS policy, there's been a real effort to try to centralize information and make as many decisions as possible at a national level. In fact, Steve Phurrough, MD, director of the CMS coverage and analysis group, and others have expressed that exact sentiment in public forums.

There has been discussion about whether CMS is capable of managing postmarket surveillance and the types of studies that the agency is requesting as evidence for coverage. If you think about it as a Venn diagram describing FDA's role versus CMS's role, there's an obvious overlap between the two now. So there's concern that the kind of information CMS is capturing and monitoring—including data that focus on safety and outcomes that might affect the public at large—should remain on the FDA side.

Slurzberg: All reimbursement decisions are gradually becoming more nationalized. This country is in the midst of contractor reforms. So there are going to be significantly fewer contractors making decisions in the future. In effect, this will mean that decisions made at the local level will become de facto national policy in many cases. Also, if you look at the national coverage decisions that have been made over the last few years—since the new process was introduced—many of those coverage decisions were made at the request of local contractors.

Richner: That's right.

Slurzberg: Manufacturers do not always have the final say in what gets brought before CMS, and the coverage and analysis group continually reminds industry that it accepts all inquiries that come its way. Once the group accepts a national coverage decision request, it will act on it.

This creeping nationalization of all reimbursement decisions is part of the concern of industry, particularly among smaller companies that have fewer products coming to market—and those are often the companies that are developing the more innovative therapeutic products. Those companies are focused on getting through the FDA process. Many of them may also be developing a clinical trial foundation to support future coverage, but they're going to lose opportunities at the local level. If local contractors are going to increasingly use the national coverage process as an opportunity to push a decision upstairs, then manufacturers are going to see the national coverage process become more and more prominent.

Richner: Nothing has changed in all these years; it's still the same old story. A company that has a high-price, high-risk technology—one that could have a long-term impact on the CMS budget for reimbursement—is certain to be subjected to the national coverage decision process. There's no way such a technology will be permitted to fly under the radar long enough to be considered at the local level.

Another major concern for CMS is quality of care. This concern has brought about a variety of initiatives, which CMS has summarized in its Quality Improvement Roadmap. How is this area changing, and what are its key issues?

Mannen: Quality is a word we've been using for a long time, and, for many years, I think it wasn't much more than an industry rallying cry. I'm old enough to remember the Carter administration's cost-containment initiatives and, a few years later, enactment of the diagnosis-related group (DRG) payment system. And in those days, the word quality was simply a rallying cry.

The difference today is that the healthcare system is in the process of operationalizing the concept of quality. There's still a long way to go, but we're in the process of assigning real consequences to the concept of quality in the day-to-day practice of medicine. Operationally speaking, there are a number of different flavors of quality being discussed now. For example, CMS recently released a list of nursing homes that it said had been rated as low quality over a period of time. Such an approach singles out providers involuntarily, based on quality.

The reimbursement system also pays for reporting quality, as is done through the DRG system and through a Medicare demonstration program for physicians.

And then, of course, another flavor of quality is paying for actual performance. That's where substantial attention has been focused in the prospective payment system for inpatient services. There's a set of measures on which hospitals will be evaluated next year. That system essentially lays out line-item consequences for hospitals. In addition, CMS recently sent a new so-called value-based purchasing plan to Congress. It is yet to be seen whether the plan will be enacted, but it uses pay-for-quality as a metric.

In the private sector, there are many plans that pay for quality performance. For manufacturers, these types of plans present an opportunity. Quality is a good rallying cry in terms of policy, but in terms of day-to-day reimbursement, it also gives manufacturers the opportunity to hitch a ride on the quality measurement. If manufacturers can position their products in a way that helps customers satisfy a quality metric that leads to additional payment, the manufacturers are going to make those sales much more easily.

So, in short, quality has moved from being just a rallying cry to being an actual metric, and this presents an opportunity for some types of medical devices.

Tong: Another quality measurement that has reimbursement implications—on the negative side—is preventable errors. CMS has said that it is not going to reimburse in cases where errors from a quality standpoint could have been avoided. That's another trend to watch.

I agree that quality has traditionally been a rallying cry. Although that's changing, we're still only chipping away at the periphery. The system has not yet come to grips with a holistic way to both measure quality and incentivize it.

Richner: There are certainly opportunities for companies that are developing technologies that can make a difference in quality measures used in the inpatient environment. Products that offer benefits in areas such as infection control, wound control, and wound healing may have an opportunity to demonstrate benefit to hospitals that could be wedded to quality measures, benefiting both the manufacturer and the provider.

Information technologies and real-time monitoring also factor into quality measures. There are going to be a lot of data that demonstrate which medical technologies truly make a difference. It's important that all such data be effectively captured in a fair way. Decisions based on those data need to consider the effect of the individual practitioner, the variability associated with a medical technology, and the ability to track outcomes over time beyond hospital walls.

One would hope that policymakers will consider all of those factors when making decisions about how to incentivize—or not—in terms of quality and performance measures.

Are companies developing ideas that are specifically intended to address opportunities in the area of quality, such as the IT-based systems Randel described?

Bui: CMS is not yet doing enough to incentivize new technologies and devices. But a lot of small, emerging companies can push in that direction with their novel products and technologies. Companies today are thinking through the issues of product differentiation and outcomes. They are designing trials and developing products to meet some of those quality and performance needs that are not being met medically and clinically. There's a lot of room for improvement, but companies are beginning to capitalize on those differentiations through their patents.

Podraza: Pay-for-performance systems create an opportunity for products that contribute to achieving quality care. So it's actually a good thing for certain manufacturers. Previously, some of their products may have gotten lost in the lump-sum payments that hospitals or physicians were receiving. But now, there is an opportunity for companies to translate what their products are doing into important measures that are receiving attention from providers.

Richner: The focus is on getting the patient out of the hospital sooner—that's still the whole idea. So technologies promoting faster wound-healing—or any kind of reduction in adverse events associated with procedures--are poised to benefit. And all these metrics point to minimally invasive approaches. Technologies in that realm marry very nicely with quality and performance measures. The trick is ensuring that the payment systems reflect that enhanced quality and performance. That's where we're stuck at the moment.

Slurzberg: We're seeing new conferences spring up now that we never saw a few years ago, such as those focused on the operating rooms of the future. The rooms showcased are smaller and provide much more information to surgeons while they're performing procedures. There's a small company here in Boxborough, MA, that has developed an interface that enables everything in an intensive care unit—all the equipment and machines that provide patient monitoring—to speak into one device and output a single report. These are not the kinds of devices that are individually reimbursed or even recognized by payers, but they can make a tremendous difference from a quality perspective. Hospital payments have to recognize the inclusion of these devices in their overall cost of providing quality care.

Coding

This year, the CMS rule for the inpatient prospective payment system incorporates an entirely new coding system called Medicare severity diagnosis-related groups (MS-DRGs). How does this new system work, and what does it mean for medtech manufacturers?

Slurzberg: Essentially, CMS has reconfigured the DRG system from the traditional, Medicare-based DRGs to what it's calling MS-DRGs, which are severity-adjusted diagnosis-related groups. As a result, the system has gone from about 538 DRGs to 745. The goal was to better recognize the severity of a patient's illness. Part of what CMS has done is to capture resource utilization by dividing up the larger of the previous DRGs into categories. One of the previous DRGs might now be divided to include a category for patients with no comorbidities or complications, one for patients with some comorbidities or complications, and one for patients with major comorbidities or complications.

It's useful to categorize patients in a way that recognizes the fact that some patients enter the hospital at a more severe level than other patients. What such a system of categorization fails to do, from a medical device industry perspective, is to recognize that there is often also a complexity level related specifically to the treatment that the patient is going to be receiving in the hospital. For example, the DRG system sometimes may not capture the severity level associated with a patient who is being implanted with a complex medical device. Over time, the system will continue to be refined with respect to issues such as this.

From an industry perspective, the MS-DRG system is very palatable compared with some of the other options that were on the table. It's fairly transparent. The system is already in use, and it's not so different from the previous system that hospitals aren't able to use it efficiently.

DeKoven: The new payment system launched in October, which is an unusual time for such a launch. Often they occur on a calendar year. But regardless, it seems as though the new system has provided the impetus for a lot of manufacturers to reassess their reimbursement strategy. This is particularly true among companies with products early in the pipeline that have come to a fork in the road.

The presence of this new payment system is causing a lot of device manufacturers to consider which setting of care—inpatient or outpatient—would be the most favorable for their product. For some manufacturers, there's an opportunity for their products to move toward either setting, depending on various rulings from FDA. For example, their product may need to be monitored for side effects, which would warrant an inpatient stay. There's also the further refinement of add-on outlier payments in the inpatient setting, so companies need to evaluate whether their product would qualify above and beyond the standard MS-DRG payment. If not, in some cases the outpatient setting would be more favorable for their product. In short, a lot of thought is being put into how companies position their products as they move through the product development cycle.

Does the new coding system offer manufacturers a clearer set of available reimbursement pathways when it comes to developing and marketing their products for specific applications?

Podraza: No, it doesn't. Actually, the new system lowers the hospital payment for the average patient and makes it more challenging to obtain the higher-paying related DRGs. It's challenging in the sense that the appropriate coding and chart documentation has got to be available in order to get into the higher DRGs. In a sense, it puts the hospital at the mercy of the physician's dictation.

Slurzberg: I agree. It's nearly impossible in some cases for a patient to be escalated into a higher-paying severity-based DRG—not that a hospital would try to do that artificially. But the three severity-based categories are very prescriptive in terms of what would qualify a patient into the major comorbidity and complication category. For example, in the area of morbid obesity, when a patient comes in for bariatric surgery, that person is highly compromised on every level. But most of the patients who come in for these surgeries are classified in the no comorbidity and complication segment of that DRG category.

If the patient comes into the hospital with morbid obesity, that person might also have diabetes, high blood pressure, or osteoarthritis—and often has all of the above. But none of those conditions at face value would escalate the patient into a complication and comorbidity category. In fact, the only diabetes indication that would escalate the patient into that category would be a diabetic coma, in which case the patient wouldn't be qualified to have bariatric surgery.

Interestingly, having a comorbidity such as diabetes, osteoarthritis, or high blood pressure enables a patient to get bariatric surgery under the national coverage policy. Those conditions are classified as comorbidities and complications in the coverage decision. However, that disagrees with the payment categorization under the new system. If you look at a procedure such as carotid stenting, it's a very similar situation.

Obviously, there's still some work to be done with regard to the new payment system. And I also think that device manufacturers need to be seeking advice as to whether they should conduct a trial focused on an inpatient setting or an outpatient setting as far in advance as possible.

What about the CMS rule changes for the outpatient setting, which include a couple of new categories for pass-through payments?

DeKoven: There are two new device categories that will continue for pass-through payment in 2008: interspinous process distraction devices (implantable) and auditory osseointegrated devices. Pass-through payment lasts for at least two but no more than three years. However, in a recent Federal Register notice, there were several comments from the public requesting additional time for a pass-through payment.

As new products come down the pipeline, pass-through payment status in the outpatient setting is certainly something manufacturers desire. That provides them with an additional two- to three-year window of payment while they acquire market data related to costs and reimbursement.

The application for pass-through payment status needs to be followed closely to demonstrate that a product is different from and clinically superior to devices currently on the market.

Overall, have the coding changes of the past year made it easier to get approval and proper reimbursement for new medical technologies, or are there still big problems to be dealt with?

Mannen: There are still major issues to be resolved. It seems like every time the manufacturing community scores a win in the reimbursement system, it is also dealt a loss. On the outpatient side, there's talk about increased packaging of ambulatory payment classifications (APCs) and changes to the size and dimension of the bundles. Depending on the medical device, that could have a negative effect.

The inpatient prospective payment system involves a very detailed set of laws. By contrast, the statute gives CMS substantial discretion in its handling of the outpatient prospective payment system. Because the outpatient side is relatively open-ended, CMS is increasingly using its discretion to package APCs in a way that industry hasn't seen before.

Podraza: Pass-through classifications require demonstration that a specified procedure represents a substantial clinical improvement. CMS is essentially raising the bar on what that means and how manufacturers go about demonstrating it. At the recent MDMA conference, we heard that CMS was calling for published papers to prove substantial clinical improvement. And frankly, by the time a company has published papers, its device likely isn't new anymore, so the manufacturer may fail to meet the newness requirement for a pass-through payment.

Occasionally a product qualifies for a pass-through payment, and it's good news when it does. But the vast majority of devices out there don't qualify.

Slurzberg: There's always an upside and a downside to every iteration of the inpatient and outpatient systems. For example, the new rule for inpatient new-technology add-on payments provides greater transparency into the process. It's very public, there are timelines, and it's much more predictable. But on the outpatient side, it's a moving target. Companies never know when their application goes in, how long it's going to be considered, or how long it will take for a determination. It can take well over a year just to get a reply about a pass-through application.

As CMS's definitions of APC bundles get bigger and bigger, in some categories it is becoming difficult to meet the financial thresholds to even qualify for additional payment. And most often, if a device doesn't qualify and its application for a pass-through payment is denied, manufacturers don't have a lot of recourse. The process is much less public. Companies don't receive information regarding what was denied and why.

The outpatient process doesn't really seem to be working as well as it could. The system doesn't provide companies with a lot of information, and this makes it difficult for them to enter into the process. For many companies, a negative response from this process constitutes a material event, so not having more information about the process and its decisions can be quite problematic. The current system isn't really a remedy.

What kinds of difficulties are companies having with current coding for new technologies?

Podraza: There's not much question that the bar is going up for getting a category I current procedural terminology (CPT) code. And the consequence of that is that manufacturers of new technologies will have to deal with something other than a category I code when the technology first comes to market. The other two possibilities are the so-called category III CPT codes and the infamous unlisted codes. Both of those alternatives are problematic in different ways, and it's challenging for a company developing its initial reimbursement strategy to determine whether it makes more sense to work with a category III code or an unlisted code.

Earlier this year there was a move in Congress to impose a deadline for implementation of the long-awaited international classification of diseases-10 (ICD-10) coding system. What has become of that legislative effort?

Slurzberg: The industry has been a proponent of implementing the ICD-10 system.

Just recently, CMS made a request to Congress for about $40 million in funding to initiate the transition to ICD-10 beginning in 2009. So it's still on the burner, but it's probably going to happen sometime between 2009 and 2010, and it may still take additional time for it to be fully implemented. For the most part, most stakeholders—with the possible exception of some hospitals and private payers—know that ICD-10 needs to happen. It would provide a superior coding system compared with what's available today and would fill in some of the gaps that we're seeing in the inpatient system in terms of refining coding and DRG placement. But ICD-10 has faced and likely still faces a lot of roadblocks from payers like the Blues. They want to push back implementation until other transaction standards are implemented. We will need to see what happens.

Would implementing the ICD-10 system eliminate the need for a lot of the fiddling that is now going on to make current coding systems workable?

DeKoven: Everyone eagerly awaits the implementation of ICD-10. While ICD-9 currently offers approximately 20,000 diagnosis codes, ICD-10 features about 70,000, so you can envision the level of specificity that it offers.

Implementation of ICD-10 needs to be carefully considered as it is the hospital staff, the owners of the charge master, the providers, and the coders who would be heavily involved in the implementation of the new system. A lot of training and associated costs would have to go into that. The 2008 CPT books from the American Medical Association included a nice introduction booklet on ICD-10 that describes some of the concepts within the system. But the training and the implementation of the system is going to be a huge undertaking. It's difficult to determine where the required resources are going to come from within hospitals that are already strapped trying to manage their day-to-day operations.

Slurzberg: Still, it's going to have to happen at some point. The United States is essentially out of new codes under its current system. And, sadly, we are the only country in the G8 that is not on the same diagnosis coding system as the others. That is a little bit shameful, quite honestly. I do work globally and have an opportunity to work with ICD-10 diagnosis codes on an international basis. It's far superior in terms of allocating patients to the correct diagnosis-related group. It's much more refined, and it appears there is much less error. Of course, there is going to be an upfront cost associated with implementing the system. Somehow it's going to have to be factored in.

The Medicare Payment Advisory Commission (MedPAC) has linked issues related to the reform of diagnosis-related groups, specialty hospitals, and gainsharing. How have these issues come to be strung together, and what changes are being recommended or implemented?

Slurzberg: MedPAC is doing an important job in terms of looking at ways for CMS and the payment systems to become more efficient—helping them to better recognize what they should pay for, and how to avoid paying for inefficient care. The commission has done a good job of recognizing the problems, and now we're all grappling with what the solutions need to be.

A lot of the diagnosis grouping reform happened as a result of issues within specialty hospitals. These organizations were accused of preselecting healthier patients, yet gaining the same reimbursement rates for those healthier patients. By doing so, a specialty hospital would show better margins than a traditional hospital that takes all comers. Traditional hospitals would end up with more-complex patients who, in the previous DRG system, were revenue losers as opposed to winners. That's how these things got strung together.

However, rather than target specialty hospitals specifically, the new MS-DRG system was developed to try to offset this phenomenon. The downside for hospitals is that more patients now qualify for the lower-paying DRG. So hospitals are no longer winning thanks to the law of averages. It used to be that if a hospital had a mix of complex and noncomplex patients, the reimbursement side of things came out as a wash. Hospitals had reached a point where, in many cases, they were meeting their goals. But that's going to become harder and harder now. And I don't think the new system will necessarily create a disincentive for specialty hospitals to handpick less-complex patients. But time will tell.

In regard to gainsharing—a concept designed to provide incentives for physicians and hospitals to make more-efficient use of technologies—it seems that the hospitals themselves have made decisions about whether this is the right remedy or not. Interest in it seems to have leveled a bit. It seems that physicians still want to maintain a level of choice with regard to their medical technologies. They recognize that there are patients that fall off the bell curve, and not every device is appropriate for every patient. Practitioners need to maintain a level of choice so that patients get the technology that's right for them, not the one that's going to lead to some financial incentive for the hospital or physician. Quality care for patients must remain the focus.

Enrollment for a gainsharing demonstration project is in progress now, but it's going fairly slowly. It's unclear whether gainsharing offers the right path to creating the more-efficient care that everyone is trying to achieve.

Has interest in gainsharing waned in recent months?

Slurzberg: Many of the companies that were previously working with hospitals through gainsharing arrangements have fallen off. And many hospitals have determined on their own that gainsharing didn't have the results they were hoping for in the way of incentives. So we shall see.

Payment

As CMS increases its demands for clinical data, companies are experiencing a new phenomenon called protocol risk—the possibility that a study will produce the expected results, but that payers still won't assign appropriate payment. How does this happen, and how can companies address this problem?

Podraza: Conscientious manufacturers do their best to design studies that they believe will support coverage, and many take CMS up on its invitation to come visit in Baltimore. They will visit a number of medical directors from private plans, and they will do their best to design studies based on what they learn in those interactions. The studies are then conducted at great expense—both in terms of time and money—and often the results are in line with what the manufacturer had hoped for based on what payers told them they would need. However, sometimes they still don't pass the test when they go back to the payers and request coverage.

This issue is still a moving target. We still need a consensus methodology for determining coverage. The more that healthcare economics are brought into the picture, the more likely it is that a consensus will build. But right now, coverage determinations seem to be anybody's guess.

My two-word answer would be comparative evidence. Manufacturers need to ensure that they are comparing their devices to the accepted gold standard, both in terms of clinical outcomes and costs. But beyond that, there's still a risk.

Bui: Having come out of industry just a few months ago, I agree that there's no uniform process or consensus methodology in this area. A lot of companies struggle with the concept of comparative studies. And they are even more uncertain if their product involves a novel technology. They're unsure what they should compare their product to, or how to use a benchmarking strategy.

Benchmarking is a decent strategy to get the reimbursement process moving. But it's not rewarding when the company encounters substantial changes in quality or performance outcomes. So companies struggle with this a lot.

I agree that there needs to be a big overhaul in thinking through payment for these new technologies.

Both pharma companies and device manufacturers are displaying intense interest in developing combination products. In some cases, companies may have a choice about whether their products are reviewed by FDA's device center or its drug center. How does CMS treat products that fall into this area?

DeKoven: CMS and FDA are catching up to this issue. The Office of Combination Products represents a collaboration between CMS and FDA that encourages manufacturers to devise their development plans for these types of products early on. The office is designed to provide answers to key questions about protocol and to help manufacturers determine what kind of evidence is needed, where the value of a product lies, and how they can demonstrate that value.

A lot of companies—especially small, emerging companies that rely on venture capital—have a desire and need to come to the market as quickly as possible. Thus, in working with FDA, they may pursue the 510(k) path because it's usually a quicker way to market that presents fewer hurdles.

However, once a company enters that track, its product is subject to the various device payment methodologies we've been talking about. Taking that path typically precludes the reimbursement possibilities related to a product that is recognized as a drug, which some might consider easier to navigate.

There are some exceptions. In the past, FDA has recognized some products as devices, but CMS has reimbursed them as drugs. For example the hyaluronic acid class of products like Hyalgan and Synvisc, tissue biologics such as Apligraf and Dermagraft, and echocardiography contrast agents.

On top of all this is the company's concern about which regulatory and reimbursement paths would be better from a commercial standpoint, how to calculate the time required to get to market via each potential pathway, and how to present this information in a way that attracts and retains shareholders. So there are a lot of dynamics at work here.

Business and Agency Implications

Medtech investors have become increasingly aware that reimbursement is a key issue for their companies. What kind of pressures does the investment community bring to bear on companies to deal with this area?

Podraza: Investors are certainly putting a lot of pressure on companies to deal with reimbursement. But what they sometimes fail to appreciate is that reimbursement development is oftentimes not a single pathway.

What a company may need to do at the time of product launch may be very different from what it must do in order to get maximum access to its target markets and to optimize its reimbursement over a three- to five-year period. Some investors don't appreciate that the best reimbursement strategy often requires a company to develop not just a single direct route, but parallel paths.

Mannen: At one level, companies need to focus on discrete issues in the areas that we know as coverage, coding, and payment. But increasingly, the payers in the market are operating in bigger units.

Payers have begun to delegate substantial chunks of their operations and decision making to so-called benefits managers. Initially, we observed the emergence of pharmacy benefits managers (PBMs). Now we're seeing radiology benefit managers and durable medical equipment (DME) benefits managers. And, at an even more macro level, we're witnessing the emergence of organizations that manage pharmacy benefits relative to DME benefits.

The priority for manufacturers and their potential investors is to develop a comprehensive plan for reaching the market effectively. An understanding of the precise amount of reimbursement may come later. But first, companies have to do a lot of things right just to position their products optimally within the payers' benefit structure.

DeKoven: Investors are aware of reimbursement because it is always mentioned in company 10K filings. But it's very important that companies clarify the difference between the level of reimbursement needed to support a product launch and the effort needed to capture optimal reimbursement over a longer period of time. Those are two very different things, and companies should make sure to orient their various stakeholders about the nature of their efforts on each level as they move closer to launch.

On the horizon—certainly on the pharma side—is the use of health technology assessments. In Europe, that's standard practice. It hasn't caught on in the United States yet, but it's starting. CMS and other payers are beginning to think about the type of entity and structure that should be put together to undertake health technology assessments—for instance, whether the group should be a public entity, a private concern, or some sort of hybrid. These issues were brought up at a recent conference sponsored by the ECRI Institute.

Slurzberg: In spite of how much progress we have made over the years, it's still a challenge for many companies to understand that they shouldn't have just a reimbursement plan, they should have a business plan that includes reimbursement objectives. It is important that the plan include short-term, go-to-market strategies—plans for how the company intends to enter the market and get its initial reimbursement. But the plan should also describe the company's strategy for maximizing reimbursement over time.

Reimbursement isn't just one thing that needs to happen, or one decision that needs to be made. It's an umbrella that covers a wide range of things that have to happen. And it requires a continuous effort, because the systems change over time.

Since reimbursement is a moving target, it's important that companies address it in both their short-term and long-term business plans. This way, the company can adequately inform investors who are looking on a short-term basis, while also developing long-range planning for what the company can accomplish on a long-term basis. Companies that plan for all of this in their research and development phase will avoid doing something in the short term that makes it impossible for them to reach their long-term goals.

Bui: In order to develop those short-term and long-term business reimbursement strategies, companies have to consider the issues of coverage, payment, withholdings, and so on all at the same time. A lot of companies think of them and implement them sequentially, so that in the end they aren't able to maximize their reimbursement payments.

It's difficult to link all of these elements together, while at the same time trying to get CMS to consider coverage and reimbursement for a new technology. But the whole process would go a lot more smoothly if we could get all those elements linked up.

What are the macro level trends that are going to affect reimbursement for healthcare technologies over the next three to five years?

Bui: We've spoken about devices, technologies, and drugs independently. But I think the biggest trend is the shift in favor of convergent technologies, and companion diagnostics and therapeutics, that will support the emergence of personalized medicine. Wherever a device or technology can be shown to have a direct relationship to drug selection or patient selection, or a positive impact on patient outcomes, that's where the trend is headed.

DeKoven: I think the biggest trend affecting reimbursement is value- or evidence-based medicine. That's where companies need to invest their money so that they can define the value of their product, demonstrate achievement of that value, and differentiate the product from others.

A device that is competing against another device or pharma product needs to demonstrate cost-offset or additional months of patient survival. These kinds of metrics can be used to demonstrate the value of a product, but the achievement has to be substantial. Payers don't like to pay for just one or two additional months of life.

With those kinds of measurements in place, the challenge then is for companies to communicate the value of their product to its various stakeholders, whether they are investors, payer entities, or the emerging community of health technology assessment regulators. I think these efforts to demonstrate value will be the main trend and focus for a lot of device companies over the next couple of years.

Mannen: I would nominate data convergence as a major trend. For example, FDA is now entering into contracts that will permit the agency to mine the data files of insurance companies. This trend is creating an analytic commons where a number of entities will be able to graze, and this is fueling such developments as the integration and consolidation of the new Medicare administrative contractors (MACs).

The idea underlying MACs is to enable beneficiaries to learn about their benefits—drugs available under Part D, hospital benefits under Part A, and so on—with a single phone call. Being able to do this requires great effort and sophisticated data convergence, which has the by-product of telling payers a lot about technology and how it's being used.

The growing technological sophistication and the emergence of large databases are making payers and consumers increasingly informed about the totality of care. And it's the totality of care that's the key context that everyone in the device industry should keep in mind as they go forward.

Podraza: I think we're going to see more and more policy based on evidence-based medicine and on the ways that comparative cost-effectiveness information is communicated. We know that CMS and other payers are expressing a preference for peer-reviewed articles as the primary method for communicating such information. Some payer interpretations of this requirement, however, represent a misuse of evidence-based medicine concepts. Industry needs to embrace this area and lead an effort to ensure that evidence-based medicine is applied rationally.

Slurzberg: I'm also going to nominate evidence-based medicine as a key trend. But I'm going to give it a shot of steroids to take it to an even higher level: globalization.

In terms of reimbursement, the world is becoming smaller very quickly. Manufacturers will need to be watchful over not just technology assessments that are conducted in the United States, but over any and all such technology assessments worldwide. Consolidation of that effort is already happening across Europe, and there's also been talk about it happening here in the United States, enabling payers to make use of technology assessments that are being conducted outside the country. Local Medicare coverage decisions often reflect the use of NICE (UK) technology assessments in their sources.

We're also going to see a trend toward the globalization of pricing. An effort to bring transparency of pricing to the forefront is already under way in the U.S. Senate, where the Transparency in Medical Device Pricing Act (S 2221) was introduced in October by Senators Charles Grassley (R–IA) and Arlen Specter (R–PA). And this is a trend that's been going on in Europe for some time.

Individual companies need to keep these trends toward globalization in mind. In the future, most companies won't be able to get by with having reimbursement and pricing strategies designed only for the U.S. market. If they want their products to be accessible throughout the world, they'll have to keep an eye on all of the trends affecting the global market.

If companies attempt to maintain their U.S. pricing in the face of those kinds of pressures, is it possible that we might see medical products being imported from abroad the way prescription drugs are being imported from Canada?

Slurzberg: More and more, medtech companies develop products with the world in mind—not just the United States. And they're not necessarily looking at the United States as their launch market. So the technology assessments and pricing strategies that affect a company's products are most likely to take place somewhere outside the United States, but will influence U.S. assessments and strategies, and vice versa.

So medtech companies may not experience this as an import or export issue in the same way that pharma companies have experienced it. Instead, it is more likely to be framed as how the information a company develops to demonstrate the clinical utility and value of its product plays out on a worldwide basis. In this regard, I think we're going to see European countries take the lead on such information sharing, but certainly the United States will follow suit. To make their case for reimbursement pricing, companies are going to need a global presentation of evidence.

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