2. Medicare’s reimbursement system
has implications for…
Medical device manufacturers
Hospitals and physicians
Health and welfare of the entire U.S.
population
3. Our Agenda:
Illuminate Medicare’s reimbursement system
Show, in theory, how reimbursement system
affects medical device industry
Give example of a device manufacturer
attempting to use the system to earn market
share and thrive
Identify perversities in the existing system
Offer recommendations for change
4. Our focal point:
Type of Decision
In which part of
the maze will we Coverage Reimbursement
focus our gaze? (will CMS (How much
pay for it?) will CMS pay?)
Where “Local” FFS/MC FFS/MC
decision
is made National FFS/MC FFS/MC
6. Location of curve depends on:
Treatment site Condition treated
Hospital Back pain
Outpatient ambulatory Pneumonia
Doc office Heart attack
Skilled nursing facility Heart failure
Laboratory Cancer
Home … more
7. Curve location may also be set by:
Type of treatment
(e.g. procedure used)
Medical
Surgical
8. Line shift depends on:
Patient condition
Co-morbidities
Complications
Outlier adjustment
Treating facility Prevailing wage rate
Teaching hospital Urban +
Safety net (e.g. serves Rural -
many uninsured)
9. Source of “estimated cost”
Total costs: historical records submitted
by multiple providers
Component costs (if used):
Obtainaverage across providers for ratios of
components
Use average ratios to allocate costs to
components
10. New reason to “shift the line”:
Add-on Payment for new services and
technologies
Introduced through ’03 Medicare Modernization Act
Provides additional payment for new medical services
and technologies that qualify
Intended to “fill the gap” – provide addl payment until
reimbursement rate adjusted upwards
www.cms.hhs.gov/acuteeinpatientpps/downloads/1428f_i.pdf
11. Is this a free market system?
In competitive market systems:
Goods/services compete on basis of price &
quality OR
Vendors submit competitive bids to win
contracts
12. In the Medicare system…
Vendors incur costs; ‘appropriate
payment’ means CMS reimburses on
basis of incurred cost
CMS tries to anticipate by setting payment
rates in advance.
“Medicare is a big, dumb price-fixer”
13. Mechanisms for issuing payment:
Fixed prices attached to CODES.
Coding mechanism starts with:
Treatment site. Within site, then code for:
Condition and/or procedure. Within that:
Make any shifts in the line
Result: For given site, handling a given
condition and/or procedure, adjusted as
previously shown, CMS assigns a code with
attached reimbursement rate
14. Sites that all have own codes:
Hospital inpatient (DRG)
Hospital outpatient (APC)
Physician service (CPT)
Skilled nursing facility (per diem rate
based on RUG)
15. Hospital inpatient coding system:
Distribution of Financial Risk
Source Incurred by Assumed by
Ptt condition Patient Hospital & CMS
Treatment
Physician Hospital & CMS
choice
Complications Physician &
CMS
& discharge stat hospital
16. Hospital outpatient coding system:
Distribution of Financial Risk
Source Incurred by Assumed by
Hospital, patient
Ptt condition Patient
& CMS
Treatment Hospital, patient
Physician
choice & CMS
17. Physician service coding system:
Distribution of Financial Risk
Source Incurred by Assumed by
Ptt condition Patient CMS
Type of Physician & Physician &
treatment Patient CMS
How much Physician &
CMS
treatment patient
18. Nursing home coding system:
Distribution of Financial Risk
Source Incurred by Assumed by
Ptt condition Patient CMS & SNF
Type of
Physician SNF
treatment
How much
Physician SNF
treatment
20. Medical device industry:
Medicare should pay for whatever we produce
and it should pay us our production costs.
Quote from Advamed: “Next-generation technologies
are often paid at the same level as the older
technology. Breakthrough technologies must undergo
a time-consuming process in order to obtain
appropriate coding and payment.”
21. Public policy*:
What does ‘appropriate’ mean?
If the device produces greater benefit at same
cost, or produces same benefit at lower cost,
the device will gain market share. No need to
adjust anything.
If the device produces greater benefit at
increased cost, we must determine whether
the addl benefit is worth the addl cost.
* The “pure” view, before political wrangling gets in the way.
22. Patients/beneficiaries:
I want the best that’s out there, at no risk,
even if I don’t know how to judge what
“best” means.
Somebody else should pay for it.
23. Physicians:
I want the authority and autonomy to prescribe
or perform any procedure I think is appropriate.
It’s unseemly for a doctor to consider money
when life is at stake.
Because I wield the power of life and death, I
should be paid an enormous amount of money
and nobody should ever question me.
I should not have to face any risk.
26. Medical device manufacturers
negotiate with CMS for:
Treatment codes that place their products
in classes with more expensive
competitors
Treatment codes that bring add-on
payments
Codes that specifically require use of their
product (unbundles payments to
providers)
27. Mfc’s attempt to persuade CMS:
Demonstrate that using device is more
costly than existing practice
Once in use, monitor (high) costs of using
device to build case to CMS to recode it to
a more costly class
Show that by using (new) device, service
will be more costly, thus justifying an add-
on payment
28. Medical device manufacturers also
negotiate with providers to:
Use their products rather than products of
competitors
Ways to persuade providers:
Demonstrate that product saves them $$
Negotiate over price
29. Perversities:
Device manufacturers must
simultaneously persuade:
Providersthat device saves them money
CMS that device should be recoded to a more
expensive class because it costs so much
money to use.
30. Example: CHF Solutions, Inc.
Manufactures a sophisticated, yet easy to
use, mechanical pump/filter system to
remove excess fluid from patients with
fluid overload
FDA market cleared; marked for use in
inpatient hospital and out-patient clinic
Currently marketed in US with a direct
sales force
31. Aquadex FlexFlow Console
• Simple operator interface - two user settings
• rate of withdrawal, 10 to 40ml/minute, in
5ml increments
• the desired rate of fluid removal, 10 to
500ml/hour in 10ml increments
• Treatment is tailored to the individual patient by
prescribing a specific rate of fluid removal
• Peripheral venous access and a transportable
console (with battery) allows the patient to
move about during treatment
32. Congestion and Fluid Overload:
Heart Failure
CHF DRG most
prevalent in U.S
(1,000,000 yearly
hospitalizations)
Re-admission rate of
21% within 30 days
(cms.gov)
550,000 new
diagnoses each year
33. Sales force:
Attempts to demonstrate to hospitals that
using device will save them $$ b.c
Reimbursement rate for CHF DRG assumes
certain length of stay
Using device may reduce:
Length of stay
Costly admissions
Hospital collects same reimbursement, but
incurs fewer costs
34. Reimbursement: Add-on payment
Attempt to demonstrate to CMS that
device should qualify for new add-on
payment because:
Device meets ‘newness’ criterion
Using charge data for 51 patients, device
meets the ‘high cost’ criterion
Better for patients - Dr. testimonials, small
outcome data
35. Result of request for add-on:
Claim denied. Reason:
Insufficient evidence of clinical improvement
36. CHF Solutions conducts:
UNLOAD Trial
Compares UF device to aggressive use of
diuretics in 200 patients at multiple sites
Clinical endpoints:
Saltand water removal in the first 48 hours
Safety endpoints (including renal function)
Readmissions for CHF: Frequency, absolute
number, hospitalized days
Visits to ED and clinic
37. UNLOAD Results (1)
At 48 hours into treatment the
ultrafiltration group demonstrated:
38% greater weight loss over standard care
28% greater net fluid loss over standard
care
38. UNLOAD Results (2)
At 90 days following hospital discharge for HF
episode, compared to Standard Care, the Ultra-
Filtration group showed:
43% reduction in re-hospitalization for heart failure
50% reduction in total number of re-hospitalizations
52% reduction in ED and clinic visits
63% reduction in days re-hospitalized
39. UNLOAD Results (3)
The benefits in weight loss and reductions
of re-hospitalizations were seen all sub-
groups analyzed
40. Effect of trial results on company’s
bid to get add-on payment:
By the time the trial was complete, time had
expired for add-on payment eligibility
Next step:
Re-approach CMS to request special CPT code …
docs more likely to prescribe device if they can bill for
prescription under separate CPT
Approach hospitals with UNLOAD results to
demonstrate cost savings
41. This example shows (1)
Fixed payment for HF DRG encourages
hospitals to find cost-effective ways to
treat HF:
Gives a company like CHF Solutions, Inc.
leverage with hospital buyers
Encourages healthy competition to produce
cost-effective treatment
42. This example shows (2):
Existence of add-on payment encourages
company like CHF Solutions to invest
resources in obtaining add-on.
To obtain add-on, company must
demonstrate to CMS that product is:
New
More effective than existing practice
More costly than existing practice
43. To qualify for add-on payment:
Manufacturer must demonstrate all of above
within a small window of time
Small manufacturers seldom have such
resources. Large manufacturers do, can move
new products in the pipeline to head of the line
Both large & small manufacturers given
incentives to show how much more costly their
product is compared to standard care
44. This example shows (3):
Physicians more likely to use product if
they can bill separately for its use
Encourages manufacturer to invest
resources in securing unique CPT code
45. Policy conclusions (1)
Prospective payment & bundled payment
systems push financial risk from CMS to
providers. They encourage:
Docs & hospitals to adopt cost-effective
strategies
Competition among device manufacturers on
basis of price AND effectiveness at level of
hospital
46. Policy conclusions (2)
When CMS abandons PPS and unbundles
payments, it encourages:
Docs & hospitals to lobby CMS to unbundle more
Device manufacturers to lobby CMS for special codes
Manufacturer’s resources diverted away from
competition on the basis of low price for
effectiveness, towards lobbying CMS for special
treatment, on the basis of high price
47. Policy recommendation (1)
CMS: Hold fast!
Add-on payment law an example of not
holding fast.
Public health policy view: Repeal the law
Manufacturers’ view: Retain the law – “It fills a
necessary gap”
48. What else does this example
show?
Reimbursement system seems
bewildering b.c of many different codes,
inconsistency in payment structure from
one coding system to the next
To secure competitive advantage,
manufacturers must invest resources in
learning how to navigate the coding
system
49. Policy recommendation (2)
CMS should drastically simplify its coding
system:
Procedure codes used only for information,
not to set payment rates
Payment based strictly on diagnosis, adjusted
by patient condition (case-mix).
Use same set of diagnostic codes across
delivery sites and for all practitioners (ICD-10)
50. Policy recommendation (3):
Congress should set budget limits for
Medicare
Absence of limits encourages social spending
in this sector, without having to consider
opportunity costs of same social resources
spent elsewhere
Inequitable: Medical spending for the 65+
population the only such medical spending in
the U.S. NOT subjected to budget constraints
52. Recommendation (4a):
CMS should base all coverage decisions
on demonstrated cost-effectiveness:
Use coverage-with-evidence-development for
ALL goods & services, not just new ones
Withhold coverage from dominated goods &
services
Withdraw coverage if, over time, good/service
becomes dominated by others
53. Recommendation (4b)
CMS should set case-mix adjusted
reimbursement rates for each diagnosis code,
based on politically-determined societal
willingness-to-pay:
Any entity with demonstrated capacity to treat
diagnosis is eligible for payment;
Monitor & publicize patient outcomes from different
providers; encourage patients to use publicized
reports to choose providers
Withdraw eligibility if necessary
54. Consequences to device industry:
Device manufacturers forced to
demonstrate both cost savings AND
effectiveness.
Difference between recommendations 4a
and 4b is the entity to whom
demonstration must be made:
Option 4a: Demonstrate to CMS
Option 4b: Demonstrate to docs & hospitals
How are fluid overloaded patients treated currently? What is the current treatment path of an overloaded patient? How would each change if System 100 were available?