Thomas C. Novelli03.14.08
Political and Regulatory Dynamics Could Change the Landscape for Device Reimbursement
By Thomas C. Novelli
With a growing demand on budgetary resources at all levels, attempting to expand any federal entitlement program will be challenging. Legislators and regulators concurrently are examining methods to achieve costs savings by slimming down programs. Medial device companies that receive reimbursement under either the Medicare or Medicaid programs are not immune to the prevailing winds of change. Increasing standards are being required for products to be covered either by private insurers or through federal health programs.
Ultimately, both Congress and the current administration hope to see a greater return on allocating resources than what they believe they are currently receiving. Nonetheless, the actions each entity is taking to preserve and maximize precious federal dollars are bringing—and will continue to bring—potentially adverse consequences for the medical device industry.
Reimbursement Initiatives Bring Challenges
Congressional leaders have moved forward with several initiatives to improve cost savings in the Medicare program, and it is likely that these will affect the reimbursement of devices in the foreseeable future. Several years ago, Congress made an effort to bring greater “value” to the Medicare program by implementing several quality initiatives. At the core of this movement, Congress is attempting to reward hospitals and other providers with increased payments for reporting quality information. It is the belief that by providing a financial incentive for reporting quality information, providers will be more diligent in their care of beneficiaries. For instance, Congress directed the Centers for Medicare and Medicaid Services (CMS) to reward hospitals with an increased payment update by reducing the number of hospital-acquired conditions (HACs). If a hospital had a decreased yearly average of HACs that was achieved by proactive steps to achieve this result, the CMS/ Medicare would reward the hospital with more resources. The underlying principle driving this mentality is that long-term costs will be reduced if preventable errors are reduced and quality is improved.
In recent years, Congress also has looked to high-utilization benefit categories within the Medicare program for cost savings. Items and supplies that traditionally were paid on a fee schedule, such as durable medical equipment (DME), have been the target of lawmakers due to their high-utilization rates in Medicare. Lawmakers saw DME ripe for review during the Medicare Modernization Act of 2003 and changed the payment methodology from a fee-schedule structure to a competitive bidding process. Instead of simply paying for a product based on the charges associated with the fee schedule, medical product manufacturers will have to competitively bid against other manufacturers to obtain Medicare payment. These collective bids are then aggregated, and an average price becomes the rate at which Medicare pays. While the program has substantial Congressional support, the question remains on whether beneficiary access will improve.
Quality reporting and competitive bidding are only a couple of the ways that federal legislators are looking for cost savings in the Medicare program. While the verdict is still out on whether these programs will result in actual cost savings, the potential exists for serious adverse implications for medical device manufacturers. The DME program, for example, was crafted by Congress to reduce both utilization rates and Medicare payments. Foreseeing a potential backlash from the device industry, the final law included several conciliatory provisions, such as ensuring that a certain percentage of included bids be from small manufacturers.
Despite these efforts, programs such as DME competitive bidding still will negatively impact small companies attempting to gain access to this critical marketplace. The competitive bidding process is likely to result in a reduction in the quality of products afforded to beneficiaries. Lawmakers unfortunately assumed that less-expensive products were essentially superior without taking into consideration that many-times-more expensive, innovative products often result in better long-term outcomes for patients.
The “cheaper is better” mentality is not limited to the Congressional mindset. Federal regulators are considering several coverage and reimbursement cost-saving methods that are likely to restrict beneficiary access to innovative and lifesaving products. One such avenue being pursued is comparative effectiveness. In short, comparative effectiveness is a process by which coverage is determined by the clinical treatment that is determined to be most “effective.” Problematic in this specific process is that a medical device may be unfairly compared to a drug when determining effectiveness. This method, while heralded by decision makers, fails to take into consideration that medical technology development is a process of continual improvement. While a specific technology currently may be advanced and effective, the possibility exists that an incremental clinical improvement could be made in the future—thereby making the product even more effective. An incomparable and unfair effectiveness assessment will result when comparing the seamlessly unending ability of a device to be incrementally improved to a pharmaceutical drug’s constant effectiveness.
Congress has focused its attention to the comparative effectiveness issue with several proposed bills offered in the past few sessions. Most recently, Sen. Max Baucus (D-MT), chairman of the US Senate Committee on Finance, hinted that a comparative effectiveness provision would be included in a forthcoming Medicare legislative package. Most in the industry speculate that any legislation likely would lead to the creation of a comparative effectiveness study center to determine the extent to which comparative effectiveness should be implemented.
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The concert of cost-saving regulations and legislation is likely to be on the table in the coming years. The CMS recently reported that Medicare spending increased to 7.2% for 2006, outpacing the rate of inflation and exceeding the previous year’s Medicare growth rate. Given the very public and burgeoning budgetary constraints, Congress and the current administration are very likely to move forward with measures to reduce increased costs. Increased federal oversight of the medical device industry, such as the recent orthopedic industry settlement, also could provide Congress an impetuous for legislation to direct Medicare and Medicaid to increase coverage standards or to implement payments reductions in high-utilization areas of the program. Nonetheless, the medical device industry should be aware of the political and regulatory dynamics well underway in Washington.