Purchasing Medical Innovation: The Implications for the Medical Device Industry

Purchasing Medical Innovation: The Implications for the Medical Device Industry

Purchasing Medical Innovation: The Implications for the Medical Device Industry 150 150 Avalon Health Economics LLC

In an earlier blog, we reviewed the recent book by one of Avalon’s directors, James Robinson. Robinson’s book, entitled “Purchasing Medical Innovation: The Right Technology, for the Right Patient, at the Right Price” seeks to unpack the often precarious relationships among medical device makers, the purchasers of those devices, the insurers, who are often the ultimate payers for medical care innovation, and the end-users, or beneficiaries—the patients. In this blog, we recap the main points of Chapter 7 of Professor Robinson’s book, which reviews the implications for the medical device industry.

In Robinson’s estimation, value-based purchasing, which is a program administered by the Centers for Medicare & Medicaid Services (CMS) that rewards acute-care hospitals with incentive payments for the quality of care they provide to people with Medicare coverage, will change the future of the medical technology industry. There will be an emphasis on comparative clinical effectiveness studies to support the cost of a technology. Hospitals and their staff will need to work more closely with manufacturers and distributors of the new technologies in order to promote more efficient use of the technologies. Patients will be more informed via consumer cost sharing, and therefore economic costs in addition to clinical benefit will have to be taken into serious consideration.

In the past, the FDA was viewed as a minor hurdle by the manufacturers of medical technology and drugs, but the landscape has clearly changed. The FDA’s focus is shifting to post-launch surveillance for devices and drugs, especially ones that underwent accelerated review. Instead of relying on off-label use of a drug to promote broader and more frequent use, drug companies must now expand their products’ labels to new clinical indications. Growing increasingly important is the need for head-to-head product comparisons, and subsequent network meta-analyses necessary to make sense of multiple head-to-head and placebo trials within therapeutic areas. Comparative effectiveness research offers one tool that can help physicians select the most appropriate technologies for patients, given the coverage restraints of purchasers and insurers.

In general, insurers and producers both want the most appropriate and best technologies for patients. In the real world, however, both parties want what is best for them. Insurers retain more money if patients do not use expensive tests and treatments, whereas producers of the technologies make more money when their products are being used; device makers want the broadest available use of their products. Herein lays the conflict, a tension that can impact innovation and impact the availability of new products and treatments.

Ideally, new products that prove to be better than their competitors should obtain full and prompt coverage, and when there are many therapeutically equivalent products, insurers can contract selectively with a smaller number of vendors to leverage purchasing power. Technology firms need to accept that comparative effectiveness research (e.g., cost impact models, budget impact models, cost-effectiveness analyses, etc.) will be the “foundation for insurance coverage.” Moreover, insurers need to pay well for new breakthrough technologies when those technologies are accompanied by robust and compelling evidence. They need to recognize that innovations involve risk-taking and high expenses on behalf of the innovators for research and development. The manufacturers also have a responsibility to charge prices proportional to their overall value and in alignment with reasonably close alternatives.

Another important area of alignment is between physicians and hospitals– critical pieces of the health care value chain that, in the U.S., bill separately for their services and for the most part face divergent economic incentives. The more closely aligned physicians and hospitals are, in general, the better it is for medical technologies with good evidence of effectiveness. For many medical technologies, the integrated delivery system is now the manufacturer’s main customer, and manufacturers are not just vendors whose commodities can be purchased in bulk based on cozy relationships. Evidence-based committee discussions need to happen. Creating a relationship with manufacturers will benefit both parties, and it will lead to better innovations. Hospitals can help the innovators improve their product designs, with physicians giving input on how to make devices overall better. Both parties will profit greatly from a tight, collaborative engagement.

Underlying these economic relationships are patients, who have their own preferences and their own incentives—both of which are playing an increasingly vital role in the 21st century health industry. The effectiveness of a new test or treatment depends on the patient’s understanding of his/her options, adherence of the patient to the chosen care path, and the decision to change behavior to encourage good outcomes. As the pressure builds on the innovators to demonstrate their value, real-world use of the technology will become increasingly important. Many manufacturers already aid in the patients’ financial access to their products by covering copayments, and in some cases manufacturers will cover the cost for the uninsured. Innovation needs to consider the needs, preferences, and budgets of consumers. Products cannot cost more than the value placed on them by users. The future of medical technology industry will consist of cost-effective products that are within constrained budgets. As Robinson concludes, “Innovation is the bond between the present and the future, a transfer of resources from today’s society that finances research to tomorrow’s society that benefits from new treatments.”

-Cara M. Scheibling & John E. Schneider, PhD