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Roundtable:2008 Reimbursement Update

Article-Roundtable:2008 Reimbursement Update

Industry experts examine the ongoing evolution of reimbursement policy—and the areas where it's still coming up short.


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.

Illustration by JUPITERIMAGES

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 (see sidebar).

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.

Kuo Bianchini Tong: 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?

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: 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.

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. 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 diagnosis-related group (DRG) payment 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 this 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. 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.

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.

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

Tien T. 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.

Ronald 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.


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.

DeKoven: 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.

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.

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.

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. CMS is 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.

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. 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.

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. 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.

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.


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.

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.

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.

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.

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.

Copyright ©2008 MX
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