5 min reading time

Every medical device promises “Improved Patient Outcomes.” That is, except commodities and less expensive devices claiming parity with the incumbent solutions.

Buried under 8 inches of snow – they consider this a State of Emergency in Seattle – and there’s my Lucas is laughing at my futile attempt to get out of the driveway…

… my idle mind thought, “If each innovation improves patient outcomes, how does the value analysis committee (the provider) and insurance company (payer) decide which “improvement” is worth it?”

I mean, they can’t chase every improvement. Doesn’t it come down to which one saves the most money?

So I asked smarter grown ups.

Gunter Wessels, Beth Brooks, and Nic Anderson (Nic’s teaching a workshop at 10x in May) are my go-to experts on reimbursement and health economics.

This is what they said.

Beth Brooks, PhD • EVP, Global Commercialization Services •
tti-research.com

Payors truly do consider cost-effectiveness in terms of “cost per quality-adjusted life years (QALYs)” and are even willing to pay more for treatments that result in a gain in survival or in quality-adjusted survival.

In that way payors do put a price on improved outcomes – typically agreeing they’ll pay up to an additional $50,000 per QALY gained for a more effective but more expensive technology.

Hospital Value Analysis Committees (VACs) do not consider patient outcomes in the same way, although every facility value analysis tool we develop presents impact on three areas:
(1) Cost of care;
(2) Improved population health;and,
(3) Improved patient experience of care.

Facilities generally weigh much more heavily the impact on cost of care, although in our experience significant improvements in patient health and in the patient experience of care can “tip the scale” in favor of a technology that doesn’t have a clear cost advantage.

With facilities it is FIRST dollars and cents, but significant improvements in patient outcomes or patient satisfaction with care can win the day in a tightly contested situation.

Furthermore, arming hospitals with information on cost-effectiveness in terms of “cost per QALYs gained” can sometimes help facilities negotiate carve-out payments with some private payers.

In short, it’s a mistake to dismiss everything as coming down to dollars and cents. If you can prove that you save a lot of money, obviously that’s best, but there are other paths forward if you can prove the magnitude and impact of the patient outcomes benefits.

Gunter Wessels, PhD, MBA • Practice General Manager • LiquidSMARTS℠

Insurance companies do this as part of medical policy as do the actuaries at CMS. We estimate the total Burden of Disease, based on incidence, prevalence, and normative spending.

A lot of analysis gets done and pulled together; you’ve got to tease out a specific disease state. And then you compare that. That becomes the standard cost.

Pharmaceutical companies come seeking approval and payment coverage by showing that, in the same disease state, they were able to cohort patients in a double blind, randomized, case-controlled clinical trial.

They demonstrate the pathway that involves their drugs — not a placebo, not a control group (these are case-controlled) — so they’re similar in terms of severity and other clinical manifestations — they compare and show the net effect for FDA approval, substantial equivalency, and impact on patient care.

Then that coverage decision involves the economic cost of treating an entire patient population with the intervention and lowering the event rate.

An Example: Statins

Statins reduce the rate of heart attacks. The numbers are something like: Without statins, five heart attacks, with statins, 2-3 heart attacks.

Those avoided heart attacks are in a population basis of probably 100, so a three percent incidence of prevalence — very severe disease in this case. So the pharmaceutical company has to prove is, if we give 100 people this pill, how much does it cost to give these hundred people a pill to swallow versus leave them alone and let the five heart attacks happen.

Is it worth two to three heart attacks on an economic basis to make everybody swallow the pill and risk side effects? That’s health economics.

A less draconian example is the quality for adjusted life year. This is a dollar value.

Hedonistic Repair

Once it reaches $40,000 in terms of the quality of life improvement, which includes things like hedonic repair or anti-depressants, is there a hedonic increase in their life so people can still enjoy themselves?

That is a positive outcome that would be logged, also the subjugation or extinguishment of a disease, a rate of increased healing.

Drugs, devices, same story. How much does it cost to save a heart attack. The health economic world has been doing this for a long time.

Nic Anderson • Scientific Advisor • Mountain Pacific Venture Fund

If you don’t improve patient outcomes, you don’t have much of a product.

Improving patient outcomes is the metric by which insurers are willing to reimburse. It’s the metric for hospital value analysis committees to acquire your technology or adopt your tech into their system.

The caveat is, for example, pacemakers have been around forever, and everyone knows how well they work, whether it’s company X, Y, or Z, pacemaker, insurers and hospitals don’t really care.

They’re going to make an assumption of non-inferiority and they’re going to say, you know what, we assume you’re just as good as every other pacemaker.

Maybe you have a new bell or whistle on yours. By and large, you’re just another pacemaker. You’re asking us to massively disrupt our supply chain.

You say, “Well, their pacemakers are $20,000. Ours is $10,000.

And they go, can you assure us of your non-inferiority – that you’re not improving patient outcomes but not worsening them?

You reply, here’s the literature. We’re just another pacemaker. Then you’re okay.

New technologies? Then you absolutely must improve patient outcomes.

At that point, your price will be part of a health economic assessment. At the end, you improve patient outcomes. If there’s no outcome improvement, there’s no value.

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Yes, these guys are experts. Let me know if you want an introduction.

And to “pay” them (and me) for their time and effort,

please this article on LinkedIn. (Just click and, if you’re logged in to LinkedIn, it will pre-populate everything you need.)

Thank you.

10x Early Pricing Ends February 14

If you’re planning on attending, this is the time to register. See the agenda and speakers.

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We’ll have coffee. We’ll talk. No big whoop.

Do you get the pop culture reference?

• My surgical friend Ikennah is coming to 10x. He asks, “Will FDA changes affect reimbursement?“
• No Brexit looms. Alison warns slow medical device manufacturers about the “impending Brexit catastrophe.”
• Can you recommend a device CRO for small startup? Joel needs one.

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Make it a great week.

Joe Hage
Founding Principal,
Medical Devices Advisory Group

P.S. This 26th edition marks a half year on MedicalDevicesGroup.net. Time flies!