Medicare's Reimbursement System for Devices


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Shows how Medicare's coding structure for device reimbursement encourages cost inflation.

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  • Medicare's Reimbursement System for Devices

    1. 1. The Medicare Maze Scott Campbell Yiscah Bracha
    2. 2. Medicare’s reimbursement system has implications for… <ul><li>Medical device manufacturers </li></ul><ul><li>Hospitals and physicians </li></ul><ul><li>Health and welfare of the entire U.S. population </li></ul>
    3. 3. Our Agenda: <ul><li>Illuminate Medicare’s reimbursement system </li></ul><ul><li>Show, in theory, how reimbursement system affects medical device industry </li></ul><ul><li>Give example of a device manufacturer attempting to use the system to earn market share and thrive </li></ul><ul><li>Identify perversities in the existing system </li></ul><ul><li>Offer recommendations for change </li></ul>
    4. 4. Our focal point: FFS /MC FFS/MC National FFS/MC FFS/MC “ Local” Where decision is made Reimbursement (How much will CMS pay?) Coverage (will CMS pay for it?) Type of Decision In which part of the maze will we focus our gaze?
    5. 5. Medicare reimbursement policy: Concept…
    6. 6. Location of curve depends on: <ul><li>Condition treated </li></ul><ul><ul><li>Back pain </li></ul></ul><ul><ul><li>Pneumonia </li></ul></ul><ul><ul><li>Heart attack </li></ul></ul><ul><ul><li>Heart failure </li></ul></ul><ul><ul><li>Cancer </li></ul></ul><ul><ul><li>… more </li></ul></ul><ul><li>Treatment site </li></ul><ul><ul><li>Hospital </li></ul></ul><ul><ul><li>Outpatient ambulatory </li></ul></ul><ul><ul><li>Doc office </li></ul></ul><ul><ul><li>Skilled nursing facility </li></ul></ul><ul><ul><li>Laboratory </li></ul></ul><ul><ul><li>Home </li></ul></ul>
    7. 7. Curve location may also be set by: <ul><li>Type of treatment (e.g. procedure used) </li></ul><ul><ul><li>Medical </li></ul></ul><ul><ul><li>Surgical </li></ul></ul>
    8. 8. Line shift depends on: <ul><li>Patient condition </li></ul><ul><ul><li>Co-morbidities </li></ul></ul><ul><ul><li>Complications </li></ul></ul><ul><ul><li>Outlier adjustment </li></ul></ul><ul><li>Treating facility </li></ul><ul><ul><li>Teaching hospital </li></ul></ul><ul><ul><li>Safety net (e.g. serves many uninsured) </li></ul></ul><ul><li>Prevailing wage rate </li></ul><ul><ul><li>Urban + </li></ul></ul><ul><ul><li>Rural - </li></ul></ul>
    9. 9. Source of “estimated cost” <ul><li>Total costs: historical records submitted by multiple providers </li></ul><ul><li>Component costs (if used): </li></ul><ul><ul><li>Obtain average across providers for ratios of components </li></ul></ul><ul><ul><li>Use average ratios to allocate costs to components </li></ul></ul>
    10. 10. New reason to “shift the line”: <ul><li>Add-on Payment for new services and technologies </li></ul><ul><ul><li>Introduced through ’03 Medicare Modernization Act </li></ul></ul><ul><ul><li>Provides additional payment for new medical services and technologies that qualify </li></ul></ul><ul><ul><li>Intended to “fill the gap” – provide addl payment until reimbursement rate adjusted upwards </li></ul></ul>
    11. 11. Is this a free market system? <ul><li>In competitive market systems: </li></ul><ul><ul><li>Goods/services compete on basis of price & quality OR </li></ul></ul><ul><ul><li>Vendors submit competitive bids to win contracts </li></ul></ul>
    12. 12. In the Medicare system… <ul><li>Vendors incur costs; ‘appropriate payment’ means CMS reimburses on basis of incurred cost </li></ul><ul><li>CMS tries to anticipate by setting payment rates in advance. </li></ul><ul><li>“Medicare is a big, dumb price-fixer” </li></ul>
    13. 13. Mechanisms for issuing payment: <ul><li>Fixed prices attached to CODES. </li></ul><ul><li>Coding mechanism starts with: </li></ul><ul><ul><li>Treatment site. Within site, then code for: </li></ul></ul><ul><ul><li>Condition and/or procedure. Within that: </li></ul></ul><ul><ul><li>Make any shifts in the line </li></ul></ul><ul><li>Result: For given site, handling a given condition and/or procedure, adjusted as previously shown, CMS assigns a code with attached reimbursement rate </li></ul>
    14. 14. Sites that all have own codes: <ul><li>Hospital inpatient (DRG) </li></ul><ul><li>Hospital outpatient (APC) </li></ul><ul><li>Physician service (CPT) </li></ul><ul><li>Skilled nursing facility (per diem rate based on RUG) </li></ul>
    15. 15. Hospital inpatient coding system: Distribution of Financial Risk CMS Physician & hospital Complications & discharge stat Hospital & CMS Physician Treatment choice Hospital & CMS Patient Ptt condition Assumed by Incurred by Source
    16. 16. Hospital outpatient coding system: Distribution of Financial Risk Hospital, patient & CMS Physician Treatment choice Hospital, patient & CMS Patient Ptt condition Assumed by Incurred by Source
    17. 17. Physician service coding system: Distribution of Financial Risk CMS Physician & patient How much treatment Physician & CMS Physician & Patient Type of treatment CMS Patient Ptt condition Assumed by Incurred by Source
    18. 18. Nursing home coding system: Distribution of Financial Risk SNF Physician How much treatment SNF Physician Type of treatment CMS & SNF Patient Ptt condition Assumed by Incurred by Source
    19. 19. Perspectives:
    20. 20. Medical device industry: <ul><li>Medicare should pay for whatever we produce and it should pay us our production costs. </li></ul><ul><ul><li>Quote from Advamed: “Next-generation technologies are often paid at the same level as the older technology. Breakthrough technologies must undergo a time-consuming process in order to obtain appropriate coding and payment.” </li></ul></ul>
    21. 21. Public policy*: <ul><li>What does ‘appropriate’ mean? </li></ul><ul><ul><li>If the device produces greater benefit at same cost, or produces same benefit at lower cost, the device will gain market share. No need to adjust anything. </li></ul></ul><ul><ul><li>If the device produces greater benefit at increased cost, we must determine whether the addl benefit is worth the addl cost. </li></ul></ul>* The “pure” view, before political wrangling gets in the way.
    22. 22. Patients/beneficiaries: <ul><li>I want the best that’s out there, at no risk, even if I don’t know how to judge what “best” means. </li></ul><ul><li>Somebody else should pay for it. </li></ul>
    23. 23. Physicians: <ul><li>I want the authority and autonomy to prescribe or perform any procedure I think is appropriate. </li></ul><ul><li>It’s unseemly for a doctor to consider money when life is at stake. </li></ul><ul><li>Because I wield the power of life and death, I should be paid an enormous amount of money and nobody should ever question me. </li></ul><ul><li>I should not have to face any risk. </li></ul>
    24. 24. Hospitals: <ul><li>Sheesh. Now what? </li></ul>
    25. 25. How system plays in the field:
    26. 26. Medical device manufacturers negotiate with CMS for: <ul><li>Treatment codes that place their products in classes with more expensive competitors </li></ul><ul><li>Treatment codes that bring add-on payments </li></ul><ul><li>Codes that specifically require use of their product (unbundles payments to providers) </li></ul>
    27. 27. Mfc’s attempt to persuade CMS: <ul><li>Demonstrate that using device is more costly than existing practice </li></ul><ul><li>Once in use, monitor (high) costs of using device to build case to CMS to recode it to a more costly class </li></ul><ul><li>Show that by using (new) device, service will be more costly, thus justifying an add-on payment </li></ul>
    28. 28. Medical device manufacturers also negotiate with providers to: <ul><li>Use their products rather than products of competitors </li></ul><ul><li>Ways to persuade providers: </li></ul><ul><ul><li>Demonstrate that product saves them $$ </li></ul></ul><ul><ul><li>Negotiate over price </li></ul></ul>
    29. 29. Perversities: <ul><li>Device manufacturers must simultaneously persuade: </li></ul><ul><ul><li>Providers that device saves them money </li></ul></ul><ul><ul><li>CMS that device should be recoded to a more expensive class because it costs so much money to use. </li></ul></ul>
    30. 30. Example: CHF Solutions, Inc. <ul><li>Manufactures a sophisticated, yet easy to use, mechanical pump/filter system to remove excess fluid from patients with fluid overload </li></ul><ul><li>FDA market cleared; marked for use in inpatient hospital and out-patient clinic </li></ul><ul><li>Currently marketed in US with a direct sales force </li></ul>
    31. 31. Aquadex FlexFlow Console <ul><li>Simple operator interface - two user settings </li></ul><ul><ul><li>rate of withdrawal, 10 to 40ml/minute, in 5ml increments </li></ul></ul><ul><ul><li>the desired rate of fluid removal, 10 to 500ml/hour in 10ml increments </li></ul></ul><ul><li>Treatment is tailored to the individual patient by prescribing a specific rate of fluid removal </li></ul><ul><li>Peripheral venous access and a transportable console (with battery) allows the patient to move about during treatment </li></ul>
    32. 32. Congestion and Fluid Overload: Heart Failure <ul><li>CHF DRG most prevalent in U.S (1,000,000 yearly hospitalizations) </li></ul><ul><li>Re-admission rate of 21% within 30 days ( </li></ul><ul><li>550,000 new diagnoses each year </li></ul>
    33. 33. Sales force: <ul><li>Attempts to demonstrate to hospitals that using device will save them $$ b.c </li></ul><ul><ul><li>Reimbursement rate for CHF DRG assumes certain length of stay </li></ul></ul><ul><ul><li>Using device may reduce: </li></ul></ul><ul><ul><ul><li>Length of stay </li></ul></ul></ul><ul><ul><ul><li>Costly admissions </li></ul></ul></ul><ul><ul><li>Hospital collects same reimbursement, but incurs fewer costs </li></ul></ul>
    34. 34. Reimbursement: Add-on payment <ul><li>Attempt to demonstrate to CMS that device should qualify for new add-on payment because: </li></ul><ul><ul><li>Device meets ‘newness’ criterion </li></ul></ul><ul><ul><li>Using charge data for 51 patients, device meets the ‘high cost’ criterion </li></ul></ul><ul><ul><li>Better for patients - Dr. testimonials, small outcome data </li></ul></ul>
    35. 35. Result of request for add-on: <ul><li>Claim denied. Reason: </li></ul><ul><ul><li>Insufficient evidence of clinical improvement </li></ul></ul>
    36. 36. CHF Solutions conducts: UNLOAD Trial <ul><li>Compares UF device to aggressive use of diuretics in 200 patients at multiple sites </li></ul><ul><li>Clinical endpoints: </li></ul><ul><ul><li>Salt and water removal in the first 48 hours </li></ul></ul><ul><ul><li>Safety endpoints (including renal function) </li></ul></ul><ul><ul><li>Readmissions for CHF: Frequency, absolute number, hospitalized days </li></ul></ul><ul><ul><li>Visits to ED and clinic </li></ul></ul>
    37. 37. UNLOAD Results (1) <ul><li>At 48 hours into treatment the ultrafiltration group demonstrated: </li></ul><ul><ul><li>38% greater weight loss over standard care </li></ul></ul><ul><ul><li>28% greater net fluid loss over standard care </li></ul></ul>
    38. 38. UNLOAD Results (2) <ul><li>At 90 days following hospital discharge for HF episode, compared to Standard Care, the Ultra-Filtration group showed: </li></ul><ul><ul><li>43% reduction in re-hospitalization for heart failure </li></ul></ul><ul><ul><li>50% reduction in total number of re-hospitalizations </li></ul></ul><ul><ul><li>52% reduction in ED and clinic visits </li></ul></ul><ul><ul><li>63% reduction in days re-hospitalized </li></ul></ul>
    39. 39. UNLOAD Results (3) <ul><li>The benefits in weight loss and reductions of re-hospitalizations were seen all sub-groups analyzed </li></ul>
    40. 40. Effect of trial results on company’s bid to get add-on payment: <ul><li>By the time the trial was complete, time had expired for add-on payment eligibility </li></ul><ul><li>Next step: </li></ul><ul><ul><li>Re-approach CMS to request special CPT code … docs more likely to prescribe device if they can bill for prescription under separate CPT </li></ul></ul><ul><ul><li>Approach hospitals with UNLOAD results to demonstrate cost savings </li></ul></ul>
    41. 41. This example shows (1) <ul><li>Fixed payment for HF DRG encourages hospitals to find cost-effective ways to treat HF: </li></ul><ul><ul><li>Gives a company like CHF Solutions, Inc. leverage with hospital buyers </li></ul></ul><ul><ul><li>Encourages healthy competition to produce cost-effective treatment </li></ul></ul>
    42. 42. This example shows (2): <ul><li>Existence of add-on payment encourages company like CHF Solutions to invest resources in obtaining add-on. </li></ul><ul><li>To obtain add-on, company must demonstrate to CMS that product is: </li></ul><ul><ul><li>New </li></ul></ul><ul><ul><li>More effective than existing practice </li></ul></ul><ul><ul><li>More costly than existing practice </li></ul></ul>
    43. 43. To qualify for add-on payment: <ul><li>Manufacturer must demonstrate all of above within a small window of time </li></ul><ul><li>Small manufacturers seldom have such resources. Large manufacturers do, can move new products in the pipeline to head of the line </li></ul><ul><li>Both large & small manufacturers given incentives to show how much more costly their product is compared to standard care </li></ul>
    44. 44. This example shows (3): <ul><li>Physicians more likely to use product if they can bill separately for its use </li></ul><ul><li>Encourages manufacturer to invest resources in securing unique CPT code </li></ul>
    45. 45. Policy conclusions (1) <ul><li>Prospective payment & bundled payment systems push financial risk from CMS to providers. They encourage: </li></ul><ul><ul><li>Docs & hospitals to adopt cost-effective strategies </li></ul></ul><ul><ul><li>Competition among device manufacturers on basis of price AND effectiveness at level of hospital </li></ul></ul>
    46. 46. Policy conclusions (2) <ul><li>When CMS abandons PPS and unbundles payments, it encourages: </li></ul><ul><ul><li>Docs & hospitals to lobby CMS to unbundle more </li></ul></ul><ul><ul><li>Device manufacturers to lobby CMS for special codes </li></ul></ul><ul><li>Manufacturer’s resources diverted away from competition on the basis of low price for effectiveness, towards lobbying CMS for special treatment, on the basis of high price </li></ul>
    47. 47. Policy recommendation (1) <ul><li>CMS: Hold fast! </li></ul><ul><ul><li>Add-on payment law an example of not holding fast. </li></ul></ul><ul><ul><ul><li>Public health policy view: Repeal the law </li></ul></ul></ul><ul><ul><ul><li>Manufacturers’ view: Retain the law – “It fills a necessary gap” </li></ul></ul></ul>
    48. 48. What else does this example show? <ul><li>Reimbursement system seems bewildering b.c of many different codes, inconsistency in payment structure from one coding system to the next </li></ul><ul><li>To secure competitive advantage, manufacturers must invest resources in learning how to navigate the coding system </li></ul>
    49. 49. Policy recommendation (2) <ul><li>CMS should drastically simplify its coding system: </li></ul><ul><ul><li>Procedure codes used only for information, not to set payment rates </li></ul></ul><ul><ul><li>Payment based strictly on diagnosis, adjusted by patient condition (case-mix). </li></ul></ul><ul><ul><li>Use same set of diagnostic codes across delivery sites and for all practitioners (ICD-10) </li></ul></ul>
    50. 50. Policy recommendation (3): <ul><li>Congress should set budget limits for Medicare </li></ul><ul><ul><li>Absence of limits encourages social spending in this sector, without having to consider opportunity costs of same social resources spent elsewhere </li></ul></ul><ul><ul><li>Inequitable: Medical spending for the 65+ population the only such medical spending in the U.S. NOT subjected to budget constraints </li></ul></ul>
    51. 51. Recommendation 4a - OR - Recommendation 4b
    52. 52. Recommendation (4a): <ul><li>CMS should base all coverage decisions on demonstrated cost-effectiveness: </li></ul><ul><ul><li>Use coverage-with-evidence-development for ALL goods & services, not just new ones </li></ul></ul><ul><ul><li>Withhold coverage from dominated goods & services </li></ul></ul><ul><ul><li>Withdraw coverage if, over time, good/service becomes dominated by others </li></ul></ul>
    53. 53. Recommendation (4b) <ul><li>CMS should set case-mix adjusted reimbursement rates for each diagnosis code, based on politically-determined societal willingness-to-pay: </li></ul><ul><ul><li>Any entity with demonstrated capacity to treat diagnosis is eligible for payment; </li></ul></ul><ul><ul><li>Monitor & publicize patient outcomes from different providers; encourage patients to use publicized reports to choose providers </li></ul></ul><ul><ul><li>Withdraw eligibility if necessary </li></ul></ul>
    54. 54. Consequences to device industry: <ul><li>Device manufacturers forced to demonstrate both cost savings AND effectiveness. </li></ul><ul><li>Difference between recommendations 4a and 4b is the entity to whom demonstration must be made: </li></ul><ul><ul><li>Option 4a: Demonstrate to CMS </li></ul></ul><ul><ul><li>Option 4b: Demonstrate to docs & hospitals </li></ul></ul>
    55. 55. Stakeholder analysis: