Lindsay Bockstedt , Ph.D. Director, Global Health Policy, Reimbursement & Health Economics

1. Health Economics and Policy Overview April 2013 Lindsay Bockstedt, Ph.D. Director, Global Health Policy, Reimbursement & Health Economics

2. AGENDA • Medtronic’s role in health policy • Coverage of Medical Devices • Medicare coverage • Emerging trends • Health technology assessment • Cost-effectiveness analysis • Medicare Payment Systems • Fee for service systems (FFS) • How new technology is accounted for in FFS • Emerging trends/Payment reform • Economic Value

3. Medtronic’s Role In Public Policy Consistent with our Mission, Medtronic maintains active Government Affairs & Health Policy teams dedicated to improving issues related to our: Industry Patients Therapies Customers Businesses • Goal of Public Policy Efforts • Ensure regulatory, payment, tax, and trade policies support medical innovation and provide optimal patient access to care • Focus on Congress, the Administration, key Federal agencies • HHS (CMS, FDA, NIH, AHRQ), USTR, State and Commerce Departments • Collaborative Approach • Work with industry, AdvaMed, physicians, patient organizations, hospital groups, professional societies • Identify and address issues critical to patient access and medical innovation

4. MEDTRONIC’S PUBLIC POLICY ORGANIZATION Government Affairs Health Care Public Policy Health Policy & Payment Regulatory Medtronic Business Units • Cardiac & Vascular Group • Restorative Therapies Group • Diabetes Group

5. Coverage of Medical Devices

6. Benefit category determination (Congress) Regulatory approval (FDA) Coverage (CMS) Coding (CMS) Payment (CMS) What is coverage? A key step towards Medicare reimbursement Adapted from Phurrough, 2005

7. Payer coverage is based on evidence • Work with the clinical team early on to identify endpoints and study design that are meaningful to payers and demonstrate the product value • If Medicare patients are part of the target patient population, always include Medicare patients in the trial • Even if Medicare is not the primary payer, it is still important • Largest payer in the U.S. (and growing) • Very influential to private payer coverage decisions • Global coverage often requires additional evidence • Country specific data • Explicit economic evidence requirements

8. Medicare’s evaluation of evidence relies on a variety of inputs • To determine “reasonable and necessary”, CMS broadly focuses on: • methodological considerations • relevance of chosen outcomes and clinical endpoints • generalizability of study results to the Medicare population • qualitative assessment of net risks and benefits • CMS does not formally consider economic information in the coverage process, but there is rising pressure to do so • Medicare carrier medical directors also consider the expert opinion of clinicians in their area when developing LCDs

9. Most Coverage is Local National 10% Local National Local 90% Adapted from Phurrough, 2005

10. Determine the appropriate Medicare coverage approach Local National • Coverage is determined by local contractor Medical Director • Decentralized decision-making as policies vary from contractor to contractor (however transitioning to MAC structure may change this) • Responsive to community care standards • May allow prompt initial diffusion of innovations • Provides regional flexibility/variation in policy • Limited capacity (historically less than 12 NCDs/year) and is lengthy (however, MMA provides tighter timeframes) • Coverage determinations must be adopted by all Medicare Carriers and Intermediaries • Appeal opportunities for negative coverage determinations are limited • Can be external or internal request • CED requires additional data collection in exchange for Medicare coverage

11. Medicare NCD NICE Appraisal CRDM ICD CRT Pacemakers CardioVascular DES Diabetes Insulin Pump Neuromodulation DBS SCS InterStim (Urinary) Spine & Biologics BMP BKP Cervical Disc Lumbar Fusion Some of Our Therapies Have Withstood Rigorous Coverage Review = Positive coverage = Local covg/funds = Local/Potential risk = No coverage

12. High Quality Clinical Evidence Is Essential Strength of Evidence Source: Tufts Medicare NCD Database

13. Emerging trends in Medicare’s national coverage process 1 2 3 4 Increasing Application of CED CMS-FDA Collaboration Role of Professional Societies Evidence Standards and Stakeholder Engagement CMS is increasingly applying CED in its NCDs CMS is opening NCDs earlier, sometimes before FDA approval, encouraging enhanced coordination between the two agencies (e.g. on data-sharing) Professional societies are beginning to take a larger role in coverage decisions, requesting NCDs and informing its implementation CMS is demanding more rigor in trial design; stakeholders will need clear rationale to negotiate with CMS on appropriate trial standards in CED

14. The Increasing Demand for EvidenceThe Rise of Health Technology Assessments Increasing HTA agencies: @ national level and within one healthcare system, with more resources & power, working in powerful global networks Increasing evidence demands: clinical need, efficacy/safety, cost-effectiveness, budget impact Increasing sophistication: in HTA evaluations and HTA decisions

15. HTAs of Medtronic Therapies Globally DES, CABG, EVAR, TEVAR, TCV, PERIPHERAL ICDs, CRTs, IPG, ILR, RPM DBS, ITB, SCS BMP, BKP, CF

16. The Cost-Effectiveness Paradigm (Intervention is less effective and more costly) $100,000/QALY $20,000/QALY Decrease in QALYs Increase in QALYs (Intervention is more effective and less costly) Decreases Costs $ Laupacis A. et al., Can Med Assoc J 1992;146:475

17. Comparing the Cost-Effectiveness of a Variety of Treatments/Interventions Common Threshold - $50k-$100k/QALY Source: Cost-Effectiveness Analysis Registry, Tufts University

18. Technologies rejected by NICE on grounds of poor cost-effectiveness * Final Guidance on DES recommends for use in percutaneous coronary intervention for the treatment of coronary artery disease, within their instructions for use, only if: • the target artery to be treated has less than a 3-mm calibre or the lesion is longer than 15 mm, and • the price difference between drug-eluting stents and bare-metal stents is no more than £300. Source: Neumann, 2008; NICE Final Guidance, 2008.

20. Payment of Medical Devices

21. Reimbursement Process for Medical Devices Submits Claim Customer/ Provider IPPS --DRG OPPS -- APC Sells Product Hospital/ ASC Patient Manufacturer Medicare/ Insurer MPFS Physician • Is it covered? • Does it have appropriate codes? • Payment (facility and physician)

22. Medicare payment systems

23. Hospital Payment Has Been Stable for Many of Key Therapies *Volume-weighted average base payment across the main MS-DRGs involving the therapy, excluding teaching, disproportionate share, wage, and outlier adjustments to individual hospitals

24. Physician Payment Has Been More Turbulent But Still Relatively Stable for Medtronic Therapies

25. Why are additional payments options important for new technologies? • Prospective payment systems often do not adequately account for new technologies • Hospitals are provided a fixed, prospectively determined payment • Typically, technologies are introduced without any changes to the PPS classifications or payments, leaving hospitals at risk for higher costs associated with new technologies • Annual PPS updates are generally based on claims data from two years prior • Creates a two to three-year delay between market introduction of a new technology and recalibration of PPS payment rates • Recalibration delays could impact patient access to new technologies New technologies encounter unique challenges under prospective payment systems

26. Eligibility for new technology payments focuses on three general themes

27. New Technology Add-on Payment Awardees

28. Aggregate Hospital Payment-to-Cost Ratios for Private Payers, Medicare, and Medicaid

29. Health Care Reform Provisions with Significant Implications to Device Industry

30. Emerging Payment Methods in the U.S. Shifting Risk & Increasing Accountability

31. Average Risk-Adjusted Spending for Medicare Admissions Plus 30 days Post Discharge Congestive Heart Failure Comparing Hospitals in the Low and High Resource Use Quartiles Note: Spending for each service is based on standardized Medicare amount excluding IME, DSH, Wage Index Source: MedPAC, June 2008

32. Payment & Delivery System reformCMS is Pushing Growth in ACOs & Bundled Payment ACO Growth • Total # of Medicare ACOS: 259 • >4 M Medicare Beneficiaries Source: The Advisory Board Company Bundled Payments for Care Improvement Initiative • Total # of Participants: >500 • 4 Care Models • The largest voluntary Medicare payment innovation program

33. Bundled Payments Will Have to Be Designed Carefully to Account for the Benefits of Technology *CY 2009 Medicare inpatient and carrier standard analytical files. Cohort includes patients implanted within the first quarter of CY 2007; all cardiac-related physician, inpatient, and outpatient hospital utilization included in analysis.

34. Average Per-Person Medicare Spending by High Expenditure DRGs 30 Day Episode 365 Day Episode • Non-device intensive procedures use substantially more post-acute care over time suggesting a greater opportunity for care coordination and bundled payment methodologies • Over time device intensive procedures cost less on a per-person expenditure basis, making longer episodes of care more favorable Medicare 5% SAFs, 2009; costs not yet risk-adjusted

35. Medtronic is Adapting to The Changing Health Care landscape

36. Transforming to Deliver Economic Value Universal Healthcare Needs ECONOMIC VALUE IMPERATIVE IMPROVEOUTCOMES • Key Medtronic offerings must: EXPAND ACCESS Deliver a quantifiable financial benefit to the target customer Specifically address one or more of the Universal Healthcare Needs 1 2 + OPTIMIZE COST and EFFICIENCIES BROADENED CUSTOMER SET: PHYSICIANS l ADMINISTRATORS l PAYERS l PATIENTS

37. Claims Data Is Essential Component For Health Economics Analyses • Health Outcomes • Mortality • Readmissions • Constructed Outcomes (treatment/procedure migration, etc.) • Health Outcomes • Readmissions • Constructed Outcomes (treatment/procedure migration, etc.) • Patient ID • Race • Sex • Age • Location • Mortality • Patient ID • Facility & Physician ID • Procedures • Diagnoses • Length of Stay • Payments • Charges • Discharge Location/Status • Dates/Qtrs • Hospital ID • Cost to Charge Ratios • Quality Metrics • Ownership • Patient ID • Sex • Age • Location • Mortality • Patient ID • Facility & Physician ID • Procedures • Diagnoses • Length of Stay • Payments • Charges • Discharge Location/Status • Dates • Drug Dispensed • Quantity • Strength • Days Supplied • Dollar Amounts • Work Days Missed • Lab results (Hba1c, etc) • Smoking • Blood pressure • Weight Individual Characteristics Physician And Facility Claims Facility Characteristics Individual Characteristics Physician And Facility Claims Pharmacy Claims Productivity Lab Health Risks Entire Medicare Population (>65 yrs, disabled) N = 46 million Sample of Commercially Insured (working age & dependents) N = 40 million Medicare Claims Data Commercial Claims Data

38. Claims Data Used to Generate Evidence & Develop Data-Driven Policy Positions • Payment accuracy and reform • Sustain payment amounts for products and procedures • Shape payment reform policies to ensure value is recognized • Estimate affects of payment policies • Comparative research • Compare various treatment effects on available outcomes • Cost and utilization analysis • Longitudinal cost and utilization of patients with diagnoses and procedures of interest • Incidence and prevalence • Inputs for cost-effectiveness models • Pricing analysis • Estimate market dynamics • Linking account characteristics to internal pricing data

39. Questions/Answers Thank You!