Over recent years hospitals and health systems have developed and improved their practices and procedures for evaluating medical devices, with representation from clinical and administrative functions in formal decision-making structures.
The general trigger for evaluation of a new product/service is that an alternative is identified, for an existing product/protocol, the alternative product would be either an:
- Innovative Product – has some perceived advantage over the existing product, either patient benefit or hospital/caregiver benefit, the product is typically more expensive (may be similarly priced) than the incumbent product
- Equivalent Product (‘me-too’) – has no perceived advantage over the incumbent product, but is cheaper
Companies who innovate tend to focus on clinician advocates, whereas low-cost vendors selling equivalent/ ‘me-too’ products tend to focus on administrative/purchasing stakeholders to act as advocates within the decision-making structure.
Decision-Making – Innovative Products
- The decision is primarily based on a cost/benefit analysis. Where the total cost to the institution is limited (e.g. low volume use) or where the additional cost is the same or marginal per use, decisions can be made qualitatively. In IDR Medical’s experience, as a rule of thumb, when clinicians buy into a value proposition and see a benefit, then administrative functions will concede for single- to low double-digit percentage increase on incumbent product price
- For products and services where there is a significant total expenditure and/or a significant incremental cost, detailed evaluations including business cases are more likely to be undertaken. Well-designed, manufacturer value proposition material can be utilised and – later – facilitate adoption
- However, historically device manufacturers have developed value propositions which show positive cost/benefit, but may fail to resonate due to several factors:
- Cost/benefit relates to indirect costs e.g. out of hospital
- Stakeholders may appreciate positive impacts on other areas of the hospital, but the cost/benefit advantage doesn’t fall within their objectives e.g. device budget expenditure
- Value propositions showing enhanced efficiency e.g. reduction in procedure time may not be realizable due to other bottlenecks on adding cases/volume
- Resistance to business cases which show potential for headcount reduction (except at most senior level)
- Value propositions showing patient satisfaction improvement which are not linked to outcomes and/or satisfaction has not been a monitored metric
- Product trial is also important, particularly where the value proposition focus is on the ease of use/efficiency or patient experience
Decision-Making – Equivalent Products
- Decision based on whether the equivalent product is acceptable and has no or negligible negative impact. The assessment is driven largely by hospital product trial
- The acceptance of ‘equivalence’ by clinicians is driven in large part by maturity of the product category i.e. where the category is mature and innovation has slowed, there is an acceptance of equivalence
Value-Based Payment & Healthcare
Value-Based Healthcare looks at health outcomes of treatment relative to cost. Value-Based Payment ties payments for care delivery to the quality of care provided and rewards providers for both efficiency and effectiveness.
The United States is currently at the forefront of implementing Value-Based Payment, but globally, health systems are increasingly focused on outcome-based healthcare. For example, in the UK NICE’s recommendations are driven by Evidence-Based Guidance, and in Germany reimbursement based on bundling around episodes of care in the form of the DRG system (Diagnosis-Related Groups), which places risk on providers, was introduced way back in 2004.
An analysis of the impact of Value-Based Payment on the decision making and adoption of medical devices within health systems and hospitals in the US can therefore provide a proxy for global healthcare markets.
Likely Impacts of Value-Based Payment System (VBP)
- Reimbursement levels will be under downward pressure
- High cost/high volume treatments will be under the most scrutiny
- Bundled payments will drive evaluation committees’ terms of reference and will create standardisation within and across hospital groups
- Evaluation committees’ influence will continue to increase as individual clinician influence declines
- Evaluation criteria may not always be optimal and evaluation criteria/bundles may constrain true innovation
- The burden of evidence for Innovative, higher cost products will increase and without reliable cost/benefit analysis, the decision-making environment will shift preference towards equivalent lower-cost products
- In addition to the impact of the consolidation of hospitals and purchasing entities, Value-Based Payment will tend to reduce the number of products within a category and, potentially, suppliers
On first review, these shifts appear broadly negative for higher cost device manufacturers. However, manufacturers who understand changes and respond to them can take advantage and increase their share at the cost of weaker suppliers.
CMS – Episode Payment Models
Currently there are 4 ‘bundles’:
- Complete Joint Replacement (“CJR”) Model
- The Surgical Hip and Femur Fracture Treatment Model (SHFFT).
- The Acute Myocardial Infarction Model (AMI)
- The Coronary Artery Bypass Graft Model (CABG)
CMS projects that by 2018 90% of fee for service payments will have a quality component impacting the level of payment.
Below, we review one of these models in detail (the AMI Model), highlight the performance parameters and discuss how device manufacturers can create value propositions which demonstrate to providers how their devices will help to achieve optimum reimbursement levels.
In summary, hospital becomes financially accountable for the quality and cost of Myocardial Infarction episode of care, which shifts the risk to the hospital for complications and the associated costs. The amount reimbursed is impacted by the quality score derived from; mortality, days in acute care and patient satisfaction. Impacts on funding increase significantly over 5 years:
- Hospitals that achieve AMI Model actual spending below the quality-adjusted target price and achieve an acceptable or better composite quality score will be eligible to earn up to 5 percent of their target price in performance years 1, 2 and 3, 10 percent in performance year 4, and 20 percent in performance year 5
- Hospitals with spending that exceeds the target price will be financially responsible for the difference to Medicare up to a specified repayment limit. CMS has finalized stop-loss limits of 5 percent in performance year 2 (for participants that elect voluntary early downside risk), 5 percent in performance year 3, 10 percent in performance year 4 and 20 percent in performance year 5
- The first performance period began on July 1, 2017 and continues for 5 performance years, ending on or about December 31, 2021. Approximately 1,120 hospitals are required to participate in the AMI Model currently.
Implications for Device Manufacturers
- Given that the episode payment must include all costs associated with the episode of care (e.g. inpatient hospital services & readmissions, inpatient psychiatric care, long-term care, patient rehabilitation, skilled nursing facility, home health agency, hospital outpatient, DME, etc.). This will motivate hospitals to focus with laser-like precision on the care pathway from admission to the 90 days post discharge
- Any complication for any patient will have significant potential to damage the hospital’s income. As such any product or service which can demonstrate tangible risk reduction will be of increasing interest and value
- Conversely, any devices or service solutions currently being utilised on the care pathway which are perceived as relatively expensive and where the expense cannot be justified will be under threat of replacement by equivalent products
- Given the breadth of the episode, a vast array of medical devices will have the potential to impact, way beyond the devices used in the primary intervention of PCI & stenting
- The final element in the AMI Model section, regarding best practice (highlighted below), should lead to greater levels of standardisation around the use of products and services, which again, could be an opportunity or a threat to device vendors
CMS provides additional tools to improve the effectiveness of care coordination by participant hospitals in selected MSAs. These tools include: 1) providing hospitals with relevant spending and utilization data; 2) waiving certain Medicare requirements to encourage flexibility in the delivery of care; and 3) facilitating the sharing of best practices between participant hospitals through a learning and diffusion program.
Value Propositions – Strategies for Success
- As mentioned previously (Decision-Making Section), value propositions which demonstrate cost/benefit advantage have not always resonated for the reasons given. The value-based bundle payment concentrates the hospital stakeholders’ view on the complete patient episode, and will therefore address many of the issues highlighted and create significant opportunities for future value proposition development
- Device manufacturers have 3 potential value proposition routes:
- Enhanced patient outcomes (decreased morbidity/(mortality), fewer complications, shortened acute stay/shortened stay/fewer out of hospital interventions/outpatient visits etc.)
- Enhanced patient experience
- Enhanced efficiency – Improvements in addition to patient outcomes & experience e.g. volume of devices used /cost of ownership, efficiency, workflow, staff costs etc.)
Enhanced Patient Outcomes
Historically, the most potent category in terms of convincing decision makers. However, in terms of the primary goal of a device, it is often very difficult to prove differential outcomes from one device to another. In the AMI model for example, the need for emergent coronary bypass surgery, a complication of PCI is well below 1% and the cost of multi centre randomised trials to show significance is generally prohibitive in medical device markets.
However, value-based payment models create opportunities by extending the breadth of the episode and including metrics from sub-acute and post discharge environments. This creates opportunities for value propositions which previously would have had little impact on hospital decision makers.
Product ‘equivalence’ is driven by the idea that products are the essentially the same, bundled payments take a similar approach to patients, they assume that patients undergoing a procedure will respond in the same way. Providers clearly understand that this is not the case, that there are patients who are higher risk/have comorbidities and who may end up costing them significantly more. Therefore, there is a major opportunity for value positions demonstrating enhanced outcomes for specific patient types and sub-indications.
In the AMI example severe complications are rare, but more significant for certain patients who will experience markedly different outcomes due to demographics and clinical circumstances including comorbidities, such as peripheral artery disease.
Manufacturers who identify patient categories or sub indications which do not follow the reference model i.e. perform less well can create specific value propositions around outcomes and justify usage of other devices at higher prices.
Enhanced Patient Experience
Value propositions which demonstrate how a device creates a better patient experience are among the easiest to develop and can show significance with relatively small patient trials. However, justifying higher prices is difficult, unless there is a clear link to patient compliance/adherence which in turn impacts patient outcomes.
Again, the advent of the bundled payment models increases the focus on the patient experience through the HCAHPS Patient Survey. Although this doesn’t focus on devices, it does include questions on communication and responsiveness of clinicians, pain management, and general satisfaction with the hospital, which can be influenced by the patient’s experience with medical devices and the support and training manufacturers provide to caregivers.
As stated, value propositions that demonstrate enhanced efficiency have not always resonated, since purchasing decision makers tend to work in silos and may see potential up-scopes in efficiency as irrelevant or even a threat, the introduction of value-based payment models means that value propositions which explore efficiencies across departmental silos and extend outside the hospital across the episode of care will now have significant value.
- As Value Based Payment initiatives extend globally, the need to demonstrate how devices create real customer value will increase exponentially
- IDR Medical works with the world’s leading medical device manufacturers to develop value propositions and cost/benefit models, which demonstrate improved patient outcomes, patient satisfaction and efficiency
- IDR’s extensive experience in value proposition development means we can help our customers demonstrate cost/benefit advantage backed up by evidence, without the need for large scale clinical trials
- IDR Medical applies rigorous market research techniques to test and refine value propositions and provide guidance and sales tools to drive customer success
- IDR Medical’s value proposition work has focused on new product launch. The paradigm shift presented by value based payment models will impact legacy products and creates an opportunity to evaluate and improve existing value proposition material