new medical technology - lockton companies · biosimilars. orphan drugs. medical devices surgical...

New medical technologyConsiderations for employer-sponsored medical plans

May 2019

Executive summary

New medical technologies, including specialty medicines and medical devices, are the fastest-growing drivers of high medical costs. The explosion of new capabilities is transforming how employers should think about cost management for their health and pharmacy plans. National studies and international comparisons of the United States with other advanced economies observe that healthcare inflation is driven more by an increase in treatment prices than by treatment utilization. Nowhere are price increases more apparent than the high costs of specialty medicines, new medical and surgical devices, and other diagnostic capabilities for a select group of conditions that meet clinical criteria.

Over time, we are seeing a greater percentage of employer plan dollars concentrated in fewer plan members, many of whom have claims for these new technologies. High-cost claims are unique and require different approaches from traditional population health solutions. Unlike more traditional approaches that focus on failures in chronic disease treatment, such as gaps in care, the major drivers of employer healthcare costs are often found elsewhere. High-cost claimants are dominated by expensive new medical technologies used in the diagnosis and treatment of costly conditions, such as cancer treatments, back surgeries, trauma, premature births, and complications of hospitalization and surgeries.

Author

Ron Leopold, M.D., MPHChief Medical Officer

Lockton Benefit Group816.751.2208

[email protected]

New medical technology | May 2019

2

The new medical cost paradigm

We are in the throes of an age of medical miracles. New medical technologies are enabling remarkable advances in diagnostic and therapeutic treatments, life-saving procedures, and treatment methodologies. But these miracles come at a considerable cost. The cost of these technologies has already started tipping the scales of how and where employers’ medical costs are deployed. According to the Hastings Center, new and increased use of medical technology is responsible for 40%-50% of annual healthcare cost increases.1 Further, the potential for inappropriate use of these new technologies creates additional cost challenges.

The current boom in new medical technology is driving the following capabilities:

� Development of treatments for previously untreatable conditions.

� Advances in the clinical ability to treat previously untreatable acute conditions.

� Development of new procedures for discovering and treating secondary diseases within a disease.

� Expansion of the indications for a treatment by increasing the patient population to which the treatment is applied.

� Ongoing improvements in existing capabilities, which may improve quality.2

Healthcare experts point

to new medical technology

accounting for about one-

half or more of real long-

term spending growth.3

Lockton Companies


3

New medical technology: Today and the coming decade

New technology pipeline

In recent years, we have seen the FDA drug and device pipeline indicate how next year’s cost picture might differ from the current year. Coupled with the Affordable Care Act’s removal of limits on plan member lifetime spend and preexisting conditions, the influx of high-cost technologies has created budget pressure and volatility for employer health plans.

New technologies have also added complexity to high-cost member management with an increasing focus on pediatrics, rare conditions, cancer genomics and targeted therapies. While still important, chronic disease prevention as a singular strategy is outdated, given that many of the emerging high-cost conditions are not preventable through lifestyle and behavior interventions. Therefore, employers will need to widen their view of the horizon and change their plan management approaches as more categories of new medical technologies come to market.

PharmaceuticalsFDA pipeline.

New drug development.

Marketing strategies.

Biosimilars.

Orphan drugs.

Medical devices

Surgical procedures.

Diagnostic equipment.

Diabetic monitoring.

3D printing.

Surgical devices.

Durable medical equipment.

Genomics and gene therapy

Precision medicine.

Pharmaco-genomics.

Cancer genomics.

Gene therapy.

Microbiome.

Radiation emitting

Proton beam therapy.

3D visualization diagnostics.

Mammography.

Laser therapy.

Vaccines and blood biologics

Immunizations.

Liquid biopsies for cancer.

Cancer vaccine.

Pharmaceuticals

Infolock®, Lockton’s proprietary client database, which reflects over 2 million member claims, shows 41% of pharmacy drug spend is on specialty drugs, despite fewer than 2% of patients taking specialty drugs and medical injectables. The leading category of specialty drugs is for inflammatory conditions, followed by oncology, multiple sclerosis, HIV and hepatitis C. Drugs for blood disorders, cancer and autoimmune conditions are dominating the injectable space. One in three new FDA-approved drugs are for rare conditions and this pipeline is growing every year. Six specialty classes are maturing, including HIV, multiple sclerosis and psoriasis, while there is a $25 billion market opportunity through 2022 as 64 drugs come off patent protection. Likewise, there is a similar opportunity in biosimilars, as 71 patents lose protection through 2021, creating a $54.4 billion market.4

Medical devices

Medical devices range from scalpels to scans and medical software. Devices are used in all sectors of the healthcare system, and precise quantification of device expenditures remains elusive. Medical devices are a major contributor to rising healthcare expenditures in the US; spending on devices has been increasing twice as fast (4% to 5%) annually as expenditures on drugs (2%).5

Some examples of medical device categories include:

� Endoscopy.

� Laparoscopy.

� Artificial joints.

� Monitoring devices.

� Heart valves.

� Durable medical equipment.

� Implants and prosthetics.

� Lab tests.

� Computer-assisted surgical devices.

� Stents and shunts.

� Surgical instruments.

� Spinal implants.

� 3D printing of medical devices.

The leading category of

specialty drugs are for inflammatory conditions, followed by oncology, multiple sclerosis, HIV and hepatitis C. Drugs for blood disorders, cancer and autoimmune conditions are dominating the injectable space.

Lockton Companies

5

Genetic testing

Genetic testing is expanding into several key areas, including personalized medicine and cancer genomics. Personalized medicine includes testing for predispositions to certain medical conditions and is gaining increasing public attention. Cancer genomics includes a full genome sequencing of tumor cells to determine the best treatment strategies.

A relatively new field, pharmacogenomics studies how genes affect a person’s response to drugs. By combining pharmacology and genomics, doctors can now tailor effective and safe medications and doses to a patient’s genetic makeup. While its use is currently limited, pharmacogenomics will allow the development of drugs to treat a wide range of health problems, including Alzheimer’s disease, HIV/AIDS and cancer.9

Radiation emitting

One of the most pervasive new medical technology cost categories involves advances in medical imaging. The field is burgeoning with new capabilities around ultrasound imaging, magnetic resonance imaging (MRI), computed tomography (CT), fluoroscopy and mammography.

However, the economics remain a challenge for both healthcare delivery and healthcare financing. Investment in facilities costs requires cost-benefit analysis based on the prevalence of disease and cost of the procedure. Proton beam therapy and 3D mammography, for example, have contrasting economics.

3D mammography

� Treatment costs around $350 (versus $250 for 2D mammography).

� Facilities cost from $250,000 to $450,000.

� Benefits and indications are still being studied.

� Forty million mammograms are performed each year.

� 3D mammography is slightly better at detecting cancer, especially for the 40% of women with dense breast tissue.

Proton beam therapy

� Treatment costs around $25,000.

� Facilities cost from $20 million to $100+ million.

� Medically proven for cranial and hepatocellular tumors.

� Possibly applicable for a much larger group of cancers, but not yet medically proven for prostate, cervical, breast, pancreatic or cervical cancers.

� No randomized clinical trials to date; the numbers may not support it.


6

Blood and biologics

Blood and blood products in development include the manufacture of synthetic and semisynthetic blood components as well as new technologies in blood bank devices. Cellular and gene therapy products monitored by the FDA include gene-based treatments and cell-based treatments.

Promising advances in synthetic and semisynthetic tissue and tissue products are currently in development for a wide variety of tissue types, including bone skin, corneas, ligaments and tendons, stem cells, sperm and heart valves.

The FDA is tracking new vaccines in development for:

� HIV.

� Universal flu.

� Ebola virus.

� Heroin addiction.

� Malaria.

� Zika.

� Gonorrhea.

New varieties of drugs and devices in the FDA’s technology pipeline mean employers may need to reevaluate their plan management approaches to adjust for the cost of new technologies.

Lockton Companies


7

Medical necessity and clinical policy

As employers struggle with the cost of health plans, they remain resolute in providing high-quality medical care for their employees and their employees’ families. Employers rely on plan administrators to make fair decisions on what services will be provided.

Medical insurance carriers offer a variety of plans that differ based on what is and isn’t covered. Coverage of certain ancillary care, like chiropractic, acupuncture, bariatric surgery, infertility treatment and temporomandibular joint (TMJ) disorders, are usually considered optional coverages.

Beyond issues of optional coverage, however, is an entire area of clinical decision-making that must be considered. What is covered and what is not must be determined by the process of clinical policy development. Further, if covered, clinical criteria that determine appropriateness of coverage also need to be developed.

Medical carriers develop or subscribe to clinical policies that determine what medical treatments are covered and delineate for what conditions and clinical criteria those conditions are medically indicated.

Criteria that are considered in evaluating a medical technology:

� Medical necessity: Based upon a foundation of evidence-based medicine, medical necessity is the process for determining benefit coverage and/or provider payment for services, tests or procedures that are medically appropriate and cost-effective for the individual member.

� In accordance with generally accepted standards of medical practice.

� Clinically appropriate and effective.

� Not primarily for convenience.

� Not costlier than an equivalent alternative service.

� Must have final approval from the appropriate governmental regulatory bodies, when required.7

How do medical insurance carriers evaluate what criteria to use?

Most carriers employ medical

professionals or subscribe to

organizations that publish criteria

to evaluate the qualifications of

a claim; a panel or committee

usually reviews these criteria.

As new coverage challenges

emerge, the committees or

panels meet regularly to review

the research and make policy

recommendations.

These panels perform searches

in databases for peer-reviewed

medical literature for relevant

studies. Likewise, reviews of

evidence-based clinical practice

guidelines in AHRQ’s National

Guideline Clearinghouse

database are performed. For

pharmaceuticals, policies consider

the indications accepted by

the USP DI and AHFS Drug

Information. Opinions of relevant

medical and clinical experts may

be solicited where necessary.

FDA approval, where applicable,

is necessary but not sufficient to

meet coverage criteria. Medicare’s

policies are considered, but

carriers are not obligated to

follow Medicare policy or criteria

for their commercial members.


8

High-cost claimants and new medical technology

There is increasing evidence that the traditional Pareto Principle perspective (20% of health plan members drive 80% of medical costs) defines the problem too broadly. A mere 3% of an employer plan’s population typically accounts for 56% of the plan’s costs. It is critical for employers who are looking to manage their healthcare costs to understand the clinical and treatment drivers of their specific small population of high-cost claimants. Understanding the makeup of this relatively small group of claimants will provide important insight into what solutions will be most effective.

New medical technologies are impacting the cost of claims in each of the major diagnostic categories.

Acute, trauma and miscellaneous: This category makes up nearly a quarter of high-cost claims. New surgical techniques and procedures, new treatments for burn victims and new capabilities for modalities in hospital monitoring are being developed and can add cost to employers.

Cancer: New technologies in cancer genomics will allow medical professionals to tailor treatment for certain cancers. Additional development of new radiation treatment, such as proton beam therapy, as well as new pharmaceuticals that reduce side effects of chemotherapeutic treatment for certain cancers, will also impact healthcare costs.

Chronic conditions: Accounting for a quarter of medical and pharmacy claims over $50,000, chronic conditions continue to be a cost concern for employers. The introduction of new minimally invasive treatments for heart disorders, pharmaceutical treatments for diabetes and specialty medicines for diseases that impact women and men in their 40s and 50s, like multiple sclerosis, could continue to raise costs for those with chronic conditions.

Maternity, neonatal and congenital: Neonatal intensive care technology continues to evolve, improving survival rates in premature newborns but prolonging lengths of stay in the neonatal intensive care unit. There has also been an uptick in the development of new medical technologies for surgical correction of newborn congenital conditions and anomalies. Neonatal claims are one of the most common types of claims that exceed $1 million.

Neuromusculoskeletal: Accounting for almost a quarter of high-cost claims, neuromusculoskeletal problems in the workplace continue to grow. New technologies for surgical repair of the back and major joints, artificial joint and synthetic bone and soft tissue products, and durable home medical equipment for rehabilitation will add cost to an already increasing diagnostic category.

Psychiatric: While this diagnostic category hosts less than 2% of high-cost claims, new cognitive treatments for autism and other behavioral disorders as well as new treatments for substance abuse could raise costs for employers.

Lockton Companies


9

EMPLOYER-SPONSORED MEDICAL PLANS: THIS ISN’T MEDICARE

It is critical for employers to recognize that their covered population (the working-age family population) has a very different clinical profile than we see in a Medicare population. This is important because national priorities and a majority of national health data research focuses on, or is heavily skewed by, a population age over 65 years.

Examples of healthcare cost statistics regarding US medical costs that are skewed by Medicare data:

� Per capita lifetime expenditure is $316,600.

� Nearly half of lifetime expenditures are incurred after age 65.

� 14.5% of the US population is over 65 years of age. That population spends 43% of medical costs in this country. 9

A working

population has higher costs in:

Trauma.

Back disorders.

Psychiatric/behavioral disorders.

Maternal and childbirth.

Cancer.

A Medicare

population has higher costs in:

Heart and cardiovascular disease.

Diabetes and renal disease.

Osteoarthritis.

Catastrophic claims conditions.


10

What can employers do?

New medical technologies pose two main challenges for employers:

1. Are my members receiving appropriate, quality, best-in-class medical care?

2. Are my plan expenditures receiving reasonable cost-control measures for these new technologies?

Increasingly, this will require carrier and third-party vendor partners who recognize these challenges and bring solutions to employer payers to assure both challenges are met.

There are four areas that employers should consider as they seek to meet those challenges:

Clinical management

Cost management

Claims analytics

Clinical expertise

Lockton Companies


11

Clinical management

Your most complex and highest-cost claims can benefit from targeted, specialized clinical handling.

These claims are where your dollars are concentrated.

Your members can benefit from best-in-class clinical solutions that optimize new medical technologies.

A targeted claims management approach can help assure that when expensive new medical technologies become available, they are medically indicated, appropriately priced and covered by the employer’s plan design. This requires appropriate specialty clinical guidance by individuals with the right medical background, like oncology, orthopedic surgery, neonatology, etc. There are several frontiers in the marketplace where employers are increasingly utilizing third-party solutions for targeted clinical management.

� Second or expert medical opinion: The right medical experts are assembled based on the member’s clinical condition and are assigned to review the member’s case.

� Carrier-based or carve-out case management: Carve-out solutions in the marketplace that work independently or in coordination with carrier and TPA management and administration of medical claims are becoming a more common part of the vendor ecosphere.

� Condition-specific case management: Third-party vendor solutions exist for conditions such as diabetes, cardiac disease, musculoskeletal conditions, maternity and infertility, and mental health conditions.

� Centers of excellence: Designated facilities, often with bundled payment arrangements, are becoming increasingly available for bariatric surgery, infertility treatment, orthopedic and back surgery and other elective surgeries, such as total hysterectomies.

Cost management

High-cost claimants have higher rates of billing errors, leading to overpayments.

Self-insured employers can be proactive in carving out more cost-effective solutions for key (costly) services.

Place of service can make a significant difference on the price tag, especially for certain new medical technologies.

Claims submissions that involve new medical technologies are often complex and may go beyond the usual measures included in routine cost measurement bill reviews. These claims require greater technical specificity and keener recognition of coding nuances and variabilities. Continual review of high-dollar claims may result in sizable cost savings.

KE

Y H

IGH

LIG

HTS

KE

Y H

IGH

LIG

HTS


12

Cost management and medical bill auditing can uncover billing errors in the following ways:

� Treatment appropriateness: Does the medical treatment or procedure match the actual diagnosis submitted? Although this is generally easily discernable for routine treatment, medical and pharmacy claims for newer medical technologies may be subject to costly discrepancies.

� Medical necessity: For many new medical technologies, specific clinical criteria must be met for these treatments (or diagnostics) to be approved.

� Site of care: For many treatments, the cost differential for the same service can vary widely depending on whether the delivery is inpatient, outpatient but hospital-based, doctor’s office or delivered at home.

� Coding errors: Duplicate billing is one example of costly medical billing errors. Upcharging, or billing for a similar but more costly procedure code, also requires monitoring.

� Network status: With new medical technologies, it is more common to see treatments delivered out of network, as these treatments are often much less common.

� Alternative treatment methods: Overutilization and unnecessary use of new medical technologies can occur, and they need to be regularly examined.

Claims analytics

High-cost claimants are the largest driver of year-to-year differences in overall spend for employers.

Medical and pharmacy claims analytics can help employers prioritize clinical and cost containment strategies.

Pipeline analytics for new technologies can alert employers to potential high-cost risks.

In order to tackle some of the challenges of new medical technologies, employers are leveraging data analytics in new ways. These measures include risk and cost stratification of a member population, incident and prevalence of key clinical conditions, disease profiles (diabetes, cardiovascular, cancer, maternity and neonatal) and utilization trends.

High-cost claimant analytics: Understanding what clinical conditions drive high-cost claims can help inform preventive measures, gaps in care and network strategies to directly impact individual claimants, as well as members at higher risk for those diagnoses.

Predictive analytics: Allow employers to understand:

� How many of this year’s high-cost claimants will remain high-cost claimants next year?

� What are the projected costs for high-cost claimants in the following year?

� Who are at risk this year to become HCC next year?

KE

Y H

IGH

LIG

HTS

Lockton Companies


13

Pipeline analyses: As new medical technologies progress through the FDA pipeline, it is becoming increasingly important to understand what your risk exposure for these technologies is. This is especially true for specialty medicines that target particular conditions or rare diseases.

Clinical expertise

Clinical and pharmaceutical expertise is becoming critical for employers who want to do right by their employees and their employees’ families while containing costs.

Navigating what you cover and what you don’t increasingly benefits from sound clinical advice.

Watching the pipeline and understanding marketplace solutions has become increasingly technical.

Since medical technology is an ever-changing landscape, clinical expertise provides clarity to an otherwise confusing field. Providing case reviews for denials, appeals and coverage consideration can help carriers and employers adapt their plans to fit the population. Additional responsibilities for clinical expertise include promoting understanding on carrier policy in a specific issue or situation, helping apply clinical guidelines appropriately, explaining new and emerging treatments and their implications and participating in multidisciplinary efforts on behalf of a client.

KE

Y H

IGH

LIG

HTS


14

ConclusionNew medical technology is broadening with innovation and new capabilities being introduced with increased frequency. New waves of technologies are bringing new diagnostic, life-saving and life-extending therapies to the forefront of medical treatment. But these technological advances come at a cost. Employers need to have the right type of support around administering and managing these new technologies.

The medical cost affordability challenge is not going away. But for many employers, it is quickly shifting to new, higher-cost medical technologies that will require innovative solutions for business success.

1https://www.thehastingscenter.org/briefingbook/health-care-costs-and-medical-technology/#. 2https://www.kff.org/health-costs/issue-brief/snapshots-how-changes-in-medical-technology-affect/. 3https://www.kff.org/health-costs/issue-brief/snapshots-how-changes-in-medical-technology-affect/. 4https://www.ajmc.com/conferences/amcp-2018/specialty-drug-pipeline-review-focuses-on-competition-cancer-drugs. 5https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2017.1367. 6https://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/default.htm. 7The Third Annual Medical Device Regulatory, Reimbursement and Compliance Congress. James D. Cross, M.D.; National Head; Medical Policy and Program Administration; Aetna, Inc. 8The Lifetime Distribution of Health Care Costs; Berhanu Alemayehu and Kenneth E Warner; Health Serv Res. 2004 Jun; 39(3): 627–642. 9The Concentration of Health Care Expenditures and Related Expenses for Costly Medical Conditions, 2012; Steven B. Cohen, PhD; AHRQ; Statistical Brief # 455; October 2014.

Lockton Companies


15

https://www.thehastingscenter.org/briefingbook/health-care-costs-and-medical-technology/

https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2017.1367

https://www.ncbi.nlm.nih.gov/pubmed/?term=Alemayehu B%5bAuthor%5d&cauthor=true&cauthor_uid=15149482



https://www.ncbi.nlm.nih.gov/pubmed/?term=Warner KE%5bAuthor%5d&cauthor=true&cauthor_uid=15149482

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/



new medical technology - lockton companies · biosimilars. orphan drugs. medical devices surgical...

Documents