Stephen T. Parente, Ph.D. $ $ Carlson School of Management, Department of Finance

1. University of MinnesotaMedical Technology Evaluation and Market Research Department of Healthcare ManagementCourse: MILI/PUBH 5589/6589Spring Semester, 2013 Stephen T. Parente, Ph.D.$ $Carlson School of Management, Department of Finance

2. Class # 1 Medical Technology Evaluation Overview • Why a Course in Med Tech? • Course Objectives • Med Tech Evaluation Overview • Med Tech Evaluation Clients • Logistics: Readings, Labs, Exams & WWW

3. Who is this course designed for? • Future managers • Provider • Insurer • Manufacturing • Clinicians intending to develop or evaluate new medical technologies • Entrepreneurs seeking a skill set to identify prospective technologies to achieve return on investment. • Financial analysts assessing the value of new medical innovations.

4. New Market Forces in Medical Technology Development • Emphasis on getting maximum return on investment in healthcare. • Double digit cost increases (again). • New technology’s double blade sword • It works better than status quo • It can be more expensive than status quo • Informed consumers demand own innovation • Highly regulated marketplace

6. How Real is this Type of Research?How Real are the Consequences of Doing (or not) Doing Market Research?

7. If you were Merck of Pfizer, would you pay Ingenix for a national study identifying health risk factors?

9. Who cares about Medical Technology Evaluation? • Fortune 500 Businesses • Venture Capitalists • Managed care & insurers • Providers • Government • Researchers • Consumers (future patients)

10. Why a Course in Medical Technology Evaluation? • New technology development has high risk. • But the payoff can be huge. • Many eyes on these analyses. • Used for: • FDA approval • Pricing • Insurance reimbursement coverage • Medical specialization • Disease management to reign in costs

11. <90% Income Federal Government Congress Main Street Biotechnology Big Business Physicians 99% Income 91-99% Income Courts Insurers Hospitals

12. Wouldn’t a General Marketing & Strategy Course Do? • Isn’t it just another application of new product pricing exercise? • Can’t I just set up a focus group, assess willingness to pay, calculate a price and go. • Aren’t there people I can just hire to do this stuff?

13. No, No, Yes (but it will cost you) • Medical technology evaluation and pharmacoeconomics are interdisciplinary products combining several fields: • Molecular Biology • Pharmacy • Physics • Computer Science • Electrical Engineering • Medicine, Nursing and Allied Health • Management & finance • Risk and insurance • Economics, Epidemiology & Statistics

14. How Many New Product Development Conditions are Subject to: • National and international regulatory agencies that demand, separate molecular, animal, human, economic and safety analyses. • Revenue generation dependent upon the approval for payment demanding on a handful of firms commanding a ~18% of GDP. • Exclusive patent time window includes a period where more than half of the period is for research & development. • Constant Federal oversight for safety with a high degree of surveillance.

15. Additional Marketplace Issues • Clients (patients) without full information about what they want to buy, why they want it and how they will pay for it. • Production adoption dependent upon individual providers at the top of the social and political spectrum able to ‘craft’ products specific to each client.

17. So You Want to Contract out Your Medical Technology Assessment, Eh? • How do you know what your buying? • How will you know whether your consultant is using the ‘right’ data to assess the question at hand? • What FDA issues will you need to consider to avoid delay of product launch and once launched, avoidance of a warning letter from the FDA? • What ‘products’ do you want from the evaluation at the end of the day?

18. Fundamental Aims of Course • Know the Players in Game: Who Needs to Sanction the Product and Who Will Provide Revenue? • Be Data Driven: Know how to estimate the demand for your product. • Make Cost/Effectiveness Drive Pricing Decisions: If you can’t ‘trust’ your estimate of the value of the innovation, inevitably you will have a market position waiting to be exploiting by a competitor.

19. Primary Course Topics – 1 • COMPARATIVE EFFECTIVENESS • Who Demands Cost-effectiveness Studies? • Market Research with Claims Data • Estimating Costs • Estimating Effectiveness

20. Primary Course Topics – 2 • Insurance Payment & Reimbursement • Accounting for Time & Preferences • Anatomy of a Cost-effectiveness Study • Pricing New Products • Marketing the New Technology

21. Skill Set Provided by Course -1 • Identify a population to be served by a medical technology. • Use existing health care data to evaluate a medical technology. • Inventory the costs of using a new medical technology and its alternative(s). • Complete a meta-analysis of an emerging medical technology.

22. Skill Set Provided by Course -2 • Understand the core components of a cost-effectiveness evaluation. • Complete an industry-wide ‘sponsored’ analysis of a core medical technology issue. • Describe the strategy for medical technology results dissemination and marketing.

23. Skill Set Provided by Course -3 • Understand reimbursement systems financing medical technology use. • Understand the role of government and regulatory agencies in the development and use of new medical technologies.

24. The Medical Technology Evaluation Short Course • Know your technology/compound • Identify opportunities for economic data from a clinical trial. • Know when you need primary data. • Know how to use secondary data to approximate demand based on disease prevalence and use of possible substitute and complement products. • Obtain input prices and production process. • Estimate costs • Estimate outcomes and effectiveness • Build flexible economic model for publication and pricing decisions • Disseminate findings and start again.

25. Meet the Medical Technology Clients –1 • Providers: Physicians, hospitals, nurses and allied health professionals who be your primary customer and technology adopter. • Manufacturers: Pharmaceutical, biotechnology and medical device manufacturers who need will fund clinical trials and cost-effectiveness evaluations to develop a revenue stream for their new innivation.

26. Meet the Medical Technology Clients –2 • Insurers & health plans: Public and private insurers who ultimately be considered the ‘purse’ you need to persuade to open based on cost-effectiveness evaluations in peer-reviewed literature. • Government, researchers & consultants: The labor force that reviews and creates the science of technology assessment, often swapping roles throughout their careers. • Consumers: The purchaser, usually at least two to three parties removed.

28. A Quick Overview of the Sector

29. Health Care Expenditures • Understanding Medical Technology is important • Healthcare is a huge part of the economy • In 2012, US health care expenditures were $2.8 trillion, or $9,015 per person • Growing fast ~5.0% growth in 2012 • 2006: 8.5% • 2002: 8.8% • Accounts for 18.0% of GDP in 2012 • In 2000, health care was 13.3% of GDP

30. What Do We Spend it on?

31. What Accounts for the Growth in Health Care Expenditures?

32. Who Pays for Health Care?

33. Health Policy under President Obama • Expansion of health insurance coverage by subsidizing health insurance for those with low income • IT Investments • Medicare payment reforms • Comparative Effectiveness Institute

34. The Impact of Medical Technology on Health Care Expenditures • Is investment in medical technology cost-saving? • Is investment in medical technology worth it? • Examples: Birth Technology, Heart Attacks

35. Causes and Consequences of Increasing Health Care Expenditures • Increases in Health Care costs are mostly driven by changes in technology • A bit more complicated than that, really • Higher uninsurance rates • 17% of Americans are uninsured • Why is that relevant to medical technology? • Value Based Insurance Design • Insurance pays for cost-effective treatments • Private and Medicare initiatives

36. Birth Technology • Examples of changes in technology that increase costs but also affect health • Lifetime spending on low birth weight babies increased by $40,000 per birth between 1950 and 1990. • Infant mortality rates fell by 72 percent • Considering both length and quality of life, the rate of return for care of low birth weight infants at over 500 percent

37. Heart Attacks • Between 1984 and 1991, life expectancy after a heart attack rose by eight months • The cost of treating heart attack patients rose from about $11,000 to about $15,000 • We spend $4,000 for eight extra months of life!

38. US versus the World • Most Medical devices/pharmaceuticals are sold overseas • How do other counties organize and purchase health care? • How are coverage decisions made there?

39. Method of Evaluation • In class Final exam: 30% • Final project: 40% • In class mid-term exam: 20% • Class participation: 10%

40. Final Assignment • Teams of no more than four students will choose a medical technology/disease for evaluation before the midterm. • The topic choices will be suggested by consultation with three of Minnesota’s Healthcare Market National Players: United Healthcare, Medtronic and the Mayo Clinic. • Teams will develop a written report regarding the new products in the pipeline to be produced from this compound of technology. • Teams will include in their report a market research plan using a patient-level de-identified health insurance data warehouse provided by the course instructors. • Team presentation will conclude the course.

41. Office Hours • Parente: Room 3-279, CSOM, Wednesday AM and by appointment • e-mail info: • sparente@umn.edu

42. The Course Readings • Three sources for readings: • The course web site: • http://ehealthecon.hsinetwork.com/medtech_um_2013.html • Links to online articles are provided. • Handouts • Readings are vital to discussion and exams.

43. Course Notes • Available from the course web site: • http://ehealthecon.hsinetwork.com/medtech_um_2013.html • Click on lecture to download PDF of notes • We will try to make notes available one day before lecture and will be somewhat abridged to keep file size down.