Pursuing Value for Medical Devices

1. Academy Health | February 4, 2008 James C. Robinson, Editor-in-Chief, Health Affairs Pursuing Value for Medical Devices

2. Taken from the headlines… Boston Scientific and Consultant Settle a Lawsuit New York Times, November 17, 2007 Fewer Stents Implanted in June, Signaling Impact of New StudiesWall Street Journal, July 20, 2007 Medtronic, Again Questioned Over Payments to Doctors, Is Subject of Senator’s InquiryNew York Times, September 27, 2007 Orthopedic-Device Firms Show Millions Paid to ConsultantsWall Street Journal, November 1, 2007

3. OVERVIEW • Medtech challenges to value based healthcare • Current policy initiatives • Data improvement • Physician conflicts of interest • Price transparency • Medicare payment • Stakeholder opportunities • Hospitals • Health plans • Medical device firms

4. Medtech Challenges to Value based Healthcare • MedTech is dynamic, innovative sector faced with fragmented purchasers, cost-unconscious demand • Inadequate data • Misaligned incentives and payment methods • Organizational fragmentation

5. Policy Initiatives for Data Improvement • Comparative effectiveness funding, new center? • Broad or narrow view of comparative effectiveness? • What role, if any, for comparative cost and efficiency? • Medicare: Coverage with evidence development (CED) • Encourage further development of registries? • FDA: heightened attention to safety, long term risks • Defibrillators, drug-eluting stents

6. Policy Initiatives for managingConflicts of Interest • Major settlement with ortho firms over consulting ties • How will this affect other high-cost medical devices? • Response from professional societies • American College of Orthopaedic Surgeons (AAOS) • Model of full disclosure from state pharmacy rules • Continued attention to self-referral in specialty hospitals

7. Policy Initiatives for promotingPrice Transparency Device firm’s invoice statement: • Transparency in Medical Device Pricing Act of 2007 • Senator Grassley (IA), October 2007 • Gingrich et al. attention to Guidant, ECRI litigation Acceptance of this invoice and all information contained in this invoice by the recipient and its employees reflects agreement to treat this invoice and all information contained in this invoice as confidential, use only for the purposes of payment, and not release to any third party without written consent. Orthopedic Network News, October 2007.

8. Policy Initiatives for improvingMedicare Payment • Continuing debate over splitting the Sustainable Growth Rate (SRG) • DRG updates for tech-intensive admissions • Charge compression; new technology add-ons • Holding the line against carving out devices from DRGs

9. Stakeholder Opportunities forHospitals • Price negotiations with vendors • These require ability to move market share, in turn requiring cooperation by physicians • Difficulty negotiating off list price for new devices • Technology assessment committees in hospitals • Divisions and conflicts between physicians and hospitals • Continued major variation in prices paid I. Supply Chain Management:

10. Stakeholder Opportunities forHospitals II. Physician relationships • Hospitals and physicians compete over ambulatory surgery, diagnostic, and testing facilities and equipment • Specialty hospitals and physician-owned general hospital • Renewed proof of value of medical groups, employment • Seek transparency and/or limits on conflicts of interest

11. Stakeholder Opportunities forHospitals III. Service lines (ortho, spine, cardiac) • Restructure hospital according to how patients experience them • Data collected on service line level allows analysis • Analysis permits improvement in quality and efficiency • Cooperation of MDs is essential • Cooperation with device firms would be helpful

12. Stakeholder Opportunities forHealth Plans • Plans currently emphasize benefit design • Neither HMO nor CDHP structures influence devices • Discussion of tiered formulary approach • “Value-based insurance design” (VBID) • First dollar coverage of preventive services in CDHP • Reference pricing approach to medical device choice? • Incentives for appropriate, informed choice of procedure?

13. Stakeholder Opportunities forHealth Plans • Neither FFS nor capitation addresses challenges posed by medical devices • Episode pricing faces challenges: • How to bundle the MD with the hospital? • Base package price on average costs or evidence-based guidelines? Costs v. prices. • Hospitals are moving in the opposite direction, unbundling (carving out) devices from per diems, case rates, and emphasizing stop loss, discounted charges

14. Stakeholder Opportunities for Device Firms Short term opportunities • Embrace comparative effectiveness • Registries, comparative trials, cooperative studies • Retrench from aggressive sales directed at surgeons? • Attitude towards price transparency ?

15. Stakeholder Opportunities for Device Firms Longer term opportunities: Will device firms come to see hospitals and health plans as customers, in addition to surgeons and patients? • Partner with hospitals on service lines • Partner with insurers on dealing with appropriate use, benefit design, episode pricing methods

16. Conclusion • When used appropriately, medical devices offer breathtaking value to patients and to society • There exists considerable controversy over appropriate utilization, pricing, conflicts-of-interest • This is a major arena for either conflict or cooperation among hospitals, physicians, health plans, and medical device firms • Public policy is in ferment; future directions unclear