In 2007, the Institute for Healthcare Improvement developed the Triple Aim: to simultaneously improve patient experience and population health, while also lowering cost per capita. This influenced the 2010 Affordable Care Act (ACA). In 2015, the Medicare Access and CHIP Reauthorization Act (MACRA) was passed and in October 2016, the Centers for Medicare and Medicaid Services (CMS) issued the final rule to implement MACRA. Its intent is to reduce healthcare spending and overall utilization by incentivizing providers to improve quality and outcomes. Today, our healthcare model is in the process of changing from volume based to value based. In 2018, if you’re designing a product with a fee-for-service model in mind, you may be on very thin ice.

Currently, about 30 percent of all healthcare payments in the U.S. are tied to alternative payment models (APMs), according to an Oct. 30, 2017, report from the Health Care Payment Learning & Action Network. In just over five years, APM payments are expected to be close to 80 percent. MACRA and ACA are driving APMs and value-based care. Starting in 2019, MACRA will pay Medicare reimbursement to clinicians based on performance.

According to an analysis done by Deloitte, “MACRA overhauls Medicare’s payments to clinicians by creating strong incentives for them to participate in APMs that require financial risk-sharing…designed to improve quality. Clinicians who are not counted as participating in these models will need to report and have their performance measured in four categories—quality, resource use, health information technology (HIT) use, and clinical practice improvement.” Resource use, which measures costs associated with clinicians’ practice and referral patterns, will increase in importance over time (0 percent in 2017, 10 percent in 2019, and 30 percent in 2021). Physicians will then be compared to their peers and either have a reimbursement incentive, no adjustment, or a penalty assessed (±4 percent in 2019, ±5 percent in 2020, ±7 percent in 2021, and ±9 percent in 2021).

The ACA as well as numerous health reform initiatives such as Value-Based Purchasing, Accountable Care Organizations, Pay for Performance, Hospital or Physician Bundled Payments, and others have required hospitals and integrated delivery networks (IDNs—a system of providers) to take a more systematic and evidenced-based approach to new product adoption.

Currently, most of the healthcare system works on a fee-for-service model and volume-based purchasing. CMS found from 2013 to 2022, group purchasing organizations are expected to generate volume-based savings of up to $864 billion for the U.S. health system. But volume can only bend the cost curve so far and buying on price can negatively affect outcomes. That’s where value-based models come into play.

Hospitals and IDNs are now wrestling with the problem of value (costs and outcomes), but many device companies continue to focus on new technology and incremental benefits. Pay-per-click revenue models have allowed device-only companies to create a “disposable-like” revenue stream. While it may avoid some capital expense up front, many of these devices are costlier in the long run. Point-of-care microfluidic devices have moved diagnostic tests closer to the patient and decreased time-to-result, but often tests cost more and rapid results are not necessary.

It’s important to understand that hospitals are in a difficult situation, caused by increasing demand and decreasing reimbursement. To make matters worse, the U.S. healthcare system is an outlier, far outspending others but ranked last among high-income countries. As hospitals focus on lowering operating and supply costs, they are not able to cut their way to profitability. At the same time, demand for improved patient outcomes and satisfaction continues. Therefore, new technologies will be evaluated on their impact to the patient and the bottom line. This includes areas of opportunity like increased reimbursement, productivity, workflow, or operational benefits, if linked to significant savings or revenue.

As opposed to the fee-for-service model, APMs include: Bundled Payments for Care Improvement such as paying one fee for a joint replacement, which aligns hospitals, health systems, and physicians; Pay for Performance such as paying a bonus in addition to the fee-for-service once the provider meets certain quality goals (eventually to include financial disincentives); Shared Savings/Risk such as a contract between providers and payers that holds them collectively responsible for the total expense of a given patient population, and Accountable Care Organizations created through the ACA to pay a network of physicians, hospitals, and healthcare providers to share responsibility for coordinating care and meeting quality and cost goals.

It’s important to note that there are many risk-sharing models, some more effective than others, but all are converging on lower cost, improved performance, and better outcomes by sharing financial risk. Implementing IT systems for reporting/analyzing data are an integral part of these new measures and can be expensive to implement, especially for smaller independent or private physician organizations. Therefore, ACA and MACRA are also driving “macro” changes in the healthcare environment.

Macro Healthcare Environment

• Consolidation of healthcare networks and insurance companies
• Hospitals employing private physician practices
• Private physician practices merging with physician hospital organizations
• University medical centers affiliating with clinics, hospitals, and physician associations
• Healthcare provider organizations becoming payers
• Payer-to-employer health insurance models shifting to payer-to-consumer
• Payers looking to shift risk to healthcare providers
• Rapid growth in websites offering hospital rating and benchmarking services
• Physicians having to report personal quality measures
• Larger number of patients covered by Medicare/Medicaid

How does this affect medical device companies and the way they design products? With APMs and other value-based drivers, the rules of the game have changed. Medical device companies must understand the new rules to deliver the right products or appropriate services. Companies should supply real-world evidence to prove out the value of their products. No longer can physicians or nurses make purchasing decisions without involving other departments in their hospitals, practices, or organizations.

Before getting into the details of the purchasing process within a hospital, let’s consider how a product gets developed. Once a company has a medical device concept in mind and marketing requirements on paper, the value proposition should embrace the Triple Aim, not just device features and benefits. In the best case, a clinical solution should ultimately lower cost, improve performance, and provide better patient outcomes. Innovation is no longer an end in itself and clinician preference no longer drives sales.

The larger the overall impact and the more dramatic the clinical outcomes, the better the value proposition is. To be compelling, the value proposition has to address the goals of the provider. It should link the product or service to measurable outcomes and clear financial impact.

Value Proposition Considerations

• Increase revenue for hospital
• Maximize reimbursement
• Lower overall costs
• Increase survivability for patients
• Increase outcomes over existing products
• Reduce infection rates or hospital-acquired conditions
• Increase patient satisfaction
• Improve patient health or quality of life
• Reduce length of stay (LOS)
• Reduce complications or increase predictable outcomes
• Reduce readmission rates
• Reduce admission or discharge costs
• Increase patient throughput
• Increase productivity or standardization
• Provide actionable data

Some medical devices require clinical trials for FDA approval while others do not. Without clinical trials, a medical device company may have a quicker path to commercialization and look more attractive to investors. This may be counter-productive to a value analysis, however. Without clinical trials or real-world evidence, a new technology may not be evaluated by providers.
New products should answer the questions in Figure 1. If any answer is no, reevaluation is warranted.


Figure 1: A new medical device product should generate a positive response for each of the questions. If any answer results in a negative response, a reevaluation should be conducted.

Consider a single-use diagnostic cystoscope, designed to visually assess the female urethra and urinary bladder for suspected pathology or dysfunction. The device is a self-contained, single-use diagnostic scope. It’s lightweight, portable, and battery powered with a disposable cannula and a reusable handle, which includes a display.

After the company completed a clinical study, the group of 12 providers in the study made the decision to adopt. They found significant advantages clinically and economically over reusable scopes with single-use sheaths: safer for patient, less discomfort, easier to use, overall decreased cost to provider, faster turnover of procedure room, better visualization, less risk of scope malfunction or infection, and ability to show findings in real time to patients. This product meets the Triple Aim, allowing the provider and perhaps the payer to share financial savings.

But sometimes value can be more difficult to prove. Consider the bariatric balloon, designed for weight reduction. Most patients see great results, losing about 30 percent of their excess weight in six months (when the balloon is removed). As with many weight reduction plans, the key is to keep the weight off afterwards. Bariatric-surgery-source.com states that “Unless you establish and maintain a proper diet and exercise program or transition to a more involved bariatric surgery, you will regain all of your weight when your balloon is removed.”

As opposed to the cystoscope, gastric balloons are not for everyone. Therefore, the number needed to treat (NNT) or the number of patients that need to be treated for one of them to benefit (over a control group), is higher. For arguments sake, let’s say the number is two. Therefore, for every two people treated, one receives the desired weight loss. Payers will not reimburse for a procedure or product if the NNT is too high. Benefit has to outweigh cost.

If you add in the number of patients who regain their weight despite nutritional and fitness counseling afterwards, the NNT continues to rise. The procedure itself is certainly less invasive than other forms of bariatric surgery so there should be improved patient experience. In this example, however, the outcomes are unclear.

If this is not complicated enough, consider back pain. Ignoring issues with excessive imaging and opioids, a retrospective paper completed after the late 1990s run-up in spine fusion surgery noted that, “Although spine fusion surgery has a well-established role…its benefit is more limited when treating degenerative discs with back pain alone…Multiple randomized trials suggest that adding surgical implants to bone grafting slightly improves rates of solid bone fusion, but may not improve pain or function…Instead of measuring only technical success, studies should clarify a treatment’s safety and its effects on pain, function, and return to work.”

A great example of spine surgery improvement was the introduction of the K-wire, cannulated screws, and the minimally invasive surgery it enabled. Reducing cost and improving outcomes should be the new design goal, while safety and efficacy are the new baseline.

It’s imperative for medical device companies to clearly articulate the problem that the hospital is facing, and develop a strong value proposition supported by clinical and economic data. If there is an opportunity to work with physician societies and key opinion leaders to help update or create clinical guidelines, this will also positively support use of the product or service. Companies that have an excellent understanding of the value analysis committee (VAC) process can respond to the needs of individual hospital or hospital system committees.

While earlier value analysis efforts focused more on cost-cutting measures and standardization of product use within the hospital, there is now emphasis on measuring and attaining improved quality of delivery and clinical outcomes. Formalized internal hospital teams—often called a value analysis committee, new product committee, or technology assessment committee—now have even greater impact on the evaluation of a new technology or product.

Getting a product through a value analysis committee typically takes three to six months. Having the sales representative understand how the process works within each of their accounts is crucial as they differ from hospital to hospital.

Responsibilities of committee members on VAC teams vary greatly, but generally, there are both clinical leaders on the team to provide input on clinical and product use and administrative leaders on the team, which may include representatives from supply chain, finance, quality, risk management, and/or infection control. There can be vast differences between hospitals and IDNs on number of members, roles of committee members, meeting frequency, and level of involvement expected from its members.

Initiating the VAC process typically starts with submitting a New Product Request Form to the hospital or IDN. These forms are always required, but the specific forms and information requested vary from place to place, except in the case of forms that might be standardized within a hospital system. These are typically submitted to the hospital by a product champion (doctor or nurse) that is interested in using the new product. Common information expected is:

• Vendor information
• Implementation/training plans
• Product information (packaging, ordering details, disposal or reprocessing requirements)
• Supporting clinical resources
• Data

Company representatives are rarely allowed to participate in VAC meetings, so the company needs to prepare someone from the hospital to represent their product. It’s imperative to select a person with the power, influence, and available time to promote the product well. Companies will need to coach the product champion to best represent them and ensure they know how to deal with common objections. Make sure they fully understand the information and can effectively communicate it to others.

The sales representative should know all of the participants in the VAC process within an account. If possible and allowed by the hospital, sales should meet with them prior to the committee meeting to provide information and answer any questions.

Committees consist of a variety of people with different interests who evaluate potential new products. Delivering a large volume of information with no guide or instructions may be even worse than providing too little information. What has worked well in the past is providing one physical product folder and one USB drive for each VAC member. Detailed information within the folder will be directed to the individual committee members (e.g., clinical, financial, safety related) so they can access the most relevant materials for their specific area of interest.

A tool kit can be developed for the product specifically designed to support the VAC process. It should include an overview of the clinical problem and an explanation of how the product is a solution. Cost calculators, 510(k) clearance, ordering and use information, product brochure, educational materials, pricing information, product warranty information, reimbursement/coding/billing information, videos, key clinical papers and posters, product implementation/training support details, and information on clinical trials and other real-world data relating to the product should be included. Further, ensure the product champion knows what is included so they can direct team members to the relevant information.

Remember, VAC members are interested in innovative concepts that improve care and outcomes at less cost. How will it be implemented into the hospital setting, information systems, electronic health records, emergency department, or lab information systems? Could the device transform care delivery or significantly reduce financial risk? Once implemented, will the efficiencies be self-evident or require additional data and analysis?

Consider how the product could collaborate with another to improve efficiencies. Can the technology interface with a wearable device or smart phone? Can it be connected to cloud computing or be remotely monitored? Does the device improve CMS metrics, such as hospital-acquired infections, lengths of stay, or readmission rates? Can it transform inpatient procedures to outpatient? Does the technology provide independence for the elderly, prevent injuries, or delay onset of disease?

Design Considerations

• Lower cost and improve the standard of care
• Decrease complications, infections, readmissions, or hospital-acquired conditions
• Reduce skill required or provide earlier point of intervention
• Introduce a new care delivery platform
• Increase efficiency or throughput with minimal operational costs
• Provide a less invasive, less intensive, less complicated procedure to reduce LOS
• Improve quality of data, data analysis, or data reporting to the hospital information system, electronic health record, emergency department, laboratory information system, etc.
• Solve a regulatory or reporting issue and reduce risk or liability

Hospitals and integrated delivery networks, by necessity, are focusing more on economics, patient satisfaction, information technology, transparency, and preventive and primary care. Although alternative payment models, like bundled payments, should move providers away from fee-for-service, it may not work well for high-risk patients. Therefore, expect models to evolve. But, it’s clear that value-based care is the new direction in healthcare. As the hurdle gets higher and higher for medical device companies, those willing to design with the end in mind and provide value-based products should find numerous opportunities, not least among them being the opportunity to improve patient’s lives. As the healthcare ecosystem works to improve outcomes and lower costs, all will benefit. 

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Steve Maylish has been part of the medical device community for more than 30 years. He is currently chief commercial officer for Fusion Biotec, an Orange, Calif.-based contract engineering firm that brings together art, science, and engineering to create medical devices. Early in his career, Maylish held positions at Fortune 100 corporations such as Johnson & Johnson, Shiley, Sorin Group, Baxter Healthcare, and Edwards Lifesciences.

Vicki Caiati has extensive experience with developing and executing strategy for medical devices in mature markets as well as for new clinical therapies. She has held sales, marketing, and training leadership positions with ClearFlow, Alsius/Zoll, B. Braun, Smiths Medical, Shiley Cardiovascular, and AACN (American Association of Critical Care Nurses). She currently supports both large and small companies with consulting/contract work on a variety of marketing and sales projects.