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Reimbursement Challenges for Medical Device Makers

How medical OEMs can best prepare for running the approval gauntlet—and the consequences of falling short.


By Ilene Wolff
Contributing Editor


When medical device entrepreneur Kelvin Ning  started working in Silicon Valley 13 years ago, no one talked very much about reimbursement for new devices. “Just know what they [competitors] are charging for their device—and that’s what you’ll get,” he recalls his colleagues telling him.

Then, three years ago, when the medical device company he worked for was having problems with reimbursement, Ning decided to school himself on the subject. He realized there were deficiencies in the firm’s clinical data, and that the company had to play catch-up to solve the problem.

“At the end it all comes down to the very beginning,” says Ning, who currently is associate director of business and technical development for BioAccel (Phoenix, AZ), a nonprofit that helps commercialize late-stage biomedical research.

In other words, according to Ning and reimbursement and supply chain experts interviewed for this article, manufacturers of the 5000–8000 medical devices in the United States are wise to plot strategies to collect meaningful data while their ideas are still in the research and development stage. They also say that planning early and enlisting the aid of experts, in addition to actually collecting the data, cannot only smooth the road to commercialization for a device newly approved by the Food and Drug Administration (FDA), but also add value to the product.

“The earlier they start in planning for their reimbursement strategy, the more time they will save and the more money they will save,” says Kay Fuller , president of MDRS LLC (Ann Arbor, MI), a global regulatory and clinical research consulting firm.

Robust data will help a medical device maker get his product into the supply chain and, ultimately, into the hands of users for the benefit of patients.

Coverage Not Automatic

Device makers whose products will be used mostly by those 65 and older will want to pursue reimbursement approval from the Centers for Medicare  and Medicaid Services (CMS), the largest purchaser of medical technology in the US. Many technological advances don’t need a new coverage determination, code change and/or payment decision by CMS, but for those that do there are two paths to get this approval—and both processes can take a year or longer.

About 80% of devices are approved for reimbursement through “local” coverage determinations (LCDs) by CMS’ Medicare Administrative Contractors (MACs). There are currently 13 MACs that issue LCDs and process claims for Medicare parts A and B, but CMS wants to consolidate them to 10, according to information supplied by CMS for this article. In addition, there are four durable medical equipment MACs that are responsible for coverage of medical devices used in the home.

This coverage process is flexible enough to provide timely access to new technology, according to CMS. It also supports the continued study of devices, and allows contractors the flexibility to adapt their policies as medicine evolves.

Less flexible is the national coverage determination (NCD) process, which is subject to statutory timeframes and transparency requirements, and also makes the process more resource-intensive.

To help streamline processes, the FDA and CMS started a two-year pilot program implementing parallel review for NCDs in October 2011. “Often, device sponsors focus solely on obtaining FDA approval, only to find that Medicare coverage is not automatically forthcoming,” according to a press release about the program.

The first approval under parallel review came in May 2012, for catheter-based aortic valve replacements. With the decision, devices for the procedure that get pre-market approval from the FDA, among other criteria, will be eligible for CMS reimbursement.

Once CMS develops an NCD on a topic, it often is reluctant to reopen it until the body of evidence on the technology has changed significantly as reflected through peer-reviewed medical publication. Reimbursement consultants often say an NCD is final, and means the future for a device not approved is bleak at best.

But try telling that to the hospitals and imaging centers that use radiopharmaceuticals with positron emission tomography (PET) to diagnose, stage and monitor progress of treatment for people with cancer. Cancer and nuclear medicine specialists at those facilities joined with CMS and several professional medical societies, including ones for oncology, radiology and nuclear medicine, to create the National Oncologic PET registry.

Under a coverage with evidence development (CED) scheme, CMS agreed to cover PET to assess tumor metabolism using F-18 fluorodeoxyglucose (FDG) only for Medicare enrollees who were entered into the registry. The registry started in 2006, and CMS expanded coverage for FDG-PET in 2009. In 2011, CMS agreed to a CED strategy for using PET with another radiopharmaceutical, sodium fluoride F-18 (NaF), which is used to detect bone metastasis. As of June 2012 there were about 300,000 PET scans in the registry.

Gail Rodriguez , executive director of the Medical Imaging  & Technology Alliance, whose 60-plus members manufacture big-ticket devices like PET scanners and medical linear accelerators, cites the oncologic PET registry as a model for getting coverage.

“CMS requires a lot of evidence,” she says. “Sometimes the best, most logical partner for seeking coverage would be a society.” By “society,” Rodriguez means a professional medical organization, such as the American College of Cardiology or the American Academy of Orthopaedic Surgeons.

Unfortunately, CED isn’t currently used with LCDs, says Joseph Rolley , vice president of Global Government Affairs  & Health Policy for ConvaTec Inc. (Skillman, NJ), a spinoff of Bristol-Myers Squibb Company.

“While many developers of innovations covered under NCDs dislike coverage with evidence development because it is seen as burdensome and slowing the coverage process, it could add more predictability and earlier patient access to technologies covered under LCDs,” says Rolley. “It actually could provide a clearer path to coding, coverage and payment for innovations covered under LCDs than is currently the case.”

CMS is working on revisions to its CED program, and was in the process of collecting public comments earlier this year.

The timing of an NCD is critical. A review initiated prematurely, before the manufacturer has been able to build a sufficient body of data for CMS’ review, could result in a noncoverage determination that denies patients access to the technology and discourages further investment in research on that technology. In addition, because other payers often look to Medicare’s NCDs when weighing their own coverage decisions, a negative NCD could result in restricted access for non-Medicare patients as well.

Save Me the Money

Ning, of the Arizona-based medical device accelerator, says that when aiming for private insurance reimbursement, it often pays to keep the number of procedures done with a new disruptive device (where you might need a new code review) low—1000 or fewer a year for a couple of years—while collecting patient data. It’s also crucial to obtain consent that satisfies requirements of the federal patient privacy law (the Health Insurance Portability and Accountability Act, or HIPAA) from the patients undergoing those procedures.

In addition, Ning says for most devices it’s necessary to do time studies or use other techniques to demonstrate that not only does the new widget improve patient outcomes, it also saves time, and time equals money.

Collecting data to show CMS or a private insurer is not enough, though. The next step is to publish the data; the gold standard is a peer-reviewed medical journal, whose reviewers will scrutinize everything from whose data is being collected to analysis of the results.

Even the publication phase requires thought and analysis, Ning says. It may seem intuitive to go for the major publications such as the New England Journal of Medicine or the Journal of the American Medical Association. They’re prestigious and have large staffs who can consider manuscripts quickly, but they also get a large number of submissions. So, even if a manuscript is accepted for publication, it may have to sit in a queue for months before print or online publication.

A publication strategy may take up to 2 ½ years to implement, Ning says.

Published evidence regarding better patient outcomes and money saved will also add value when the entrepreneur who’s started a small medical device company wants to deploy his exit strategy in four to five years and sell the company. Small companies—with less than 50 employees—represent 80% of all device makers, and there’s not been a successful IPO for such concerns in many years, Ning says.

Robust data will also help a medical device maker get his product into the supply chain and, ultimately, into the hands of users for the benefit of patients.

To GPO or not to GPO

Companies with blockbuster, proprietary devices such as the Charite artificial intervertebral disk or the SoftVue ultrasound device for breast cancer screening may not have to worry about getting into the supply chain. But the story is different for commodity, or “me-too” devices, that may result in incremental improvements in patient outcomes or time saved.

Historically, the strategy has been to recruit a physician champion who’s keen on your device. Maybe you recruited him as an adviser during the FDA approval process. Or he may have become interested after seeing an ad in his professional journal, or stopped by a demonstration table at a medical conference, or heard about it from a patient. He may even be your business partner. But his influence is diminishing.

That is because increasing numbers of physicians are signing employment contracts with hospitals. Where it may have once been easy to find an orthopedic surgeon or an interventional radiologist who could champion one’s new device with little thought about cost (vs. better patient outcomes), those specialists are now more likely to ally themselves with the decisions of their hospital employer and pinch pennies, says Lynn Everard , a Florida-based health care supply chain strategist.

Unless your device is first-in-class, like the new bioabsorbable blood vessel stent, with no obvious substitutes, it may have only one way to get into the users’ hands, through a group purchasing organization (GPO). GPOs emerged when groups of hospitals began consolidating their purchasing operations in order to realize cost savings through economies of scale. Through the years, GPOs have grown to become giant purchasers wielding a great deal of power, and with a significant advantage.

Their advantage stems from collecting fees from members that would be viewed as illegal kickbacks were it not for protection via a safe-harbor law. This paradigm came under Congressional and investigative journalists’ scrutiny about 10 years ago, but little changed and GPOs are a fact of life for now.

“The fact that it’s protected legally doesn’t change the implications,” Everard says. The supply chain expert maintains that it’s possible for a hospital to avoid joining a GPO, but most have more work than people to do it and want to contract out for purchasing.

However, GPO contracts with hospitals are a tradeoff: they may be very restrictive and thwart easy adoption of new devices from independent sources in exchange for outsourced purchasing and distribution.

“Hospitals have to adhere to very strict thresholds to be in compliance with GPO contracts,” says Kelli Hallas of Emerson Consultants (Minneapolis).

The Affordable Care Act also created another player that device manufacturers will have to consider: The Patient-Centered Outcomes Research Institute, a non-governmental institute that will conduct and contract with external organizations to conduct comparative research, or what treatments work best for which populations.

The real opportunities today are for medical device manufacturers who can figure out a way to do more with less. Those who can demonstrate their device’s clearly identified clinical improvement with a value proposition to save money are in the best position, Everard says.


This article was first published in the 2013 edition of the Medical Manufacturing Yearbook. 

Published Date : 12/3/2013

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