professor james c. robinson university of california, berkeley insurance coverage and payment for...
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Professor James C. Robinson
University of California, Berkeley
Insurance Coverage and Payment for Insurance Coverage and Payment for Biotechnology and Medical DevicesBiotechnology and Medical Devices
Academy HealthAcademy HealthJune 4, 2007June 4, 2007
Innovation as virtue and challenge Coverage and conditional coverage policy Distribution and physician payment methods Consumer benefit design and coinsurance Reimbursement, pricing, and purchasing
OVERVIEWOVERVIEW
Innovation in drugs, devices and other forms of medical technology are responsible for major gains in clinical quality and patient outcomes
There is wide variation in patterns of effectiveness, cost-effectiveness, and use
Rapid innovation implies major gaps in understanding of safety, effectiveness, cost, comparative efficacy, long-term outcomes
Biomedical and Clinical Innovation: Biomedical and Clinical Innovation: The Most Important Dynamic in MedicineThe Most Important Dynamic in Medicine
Technology is the major driver of medical costs Medical cost growth is major driver of un-insurance While growth in medical expenditures have been
“worth it” overall, the marginal benefit of many technologies is low, esp. relative to cost
If America cannot manage innovation (cost growth) its efforts to ensure coverage will be in vain
Biomedical and Clinical Innovation: Biomedical and Clinical Innovation: The Challenge to AffordabilityThe Challenge to Affordability
Insurers are society’s agent for purchasing medical products and services, and hence are first line for covering, reimbursing, and managing technology
“Agency failure” is endemic in insurance, including public (Medicare), nonprofits, for-profit carriers
Nevertheless, insurer strategies and policies will have significant impacts and deserve study
They are evolving rapidly
The Role of Insurers in Managing The Role of Insurers in Managing Biomedical Innovation AdoptionBiomedical Innovation Adoption
Insurers cover “medically necessary” drugs and devices Cost is only implicit in coverage policy
– Cost effectiveness banned for Medicare, covert for private carriers
Comparative efficacy can be important component– Contrast with FDA safety and effectiveness reviews– Manufacturers selective over which comp efficacy trials to support
Coverage may be conditional
1. Coverage Policy1. Coverage Policy
Limit by indication or disease severity– Enforced via prior authorization (esp. biotechnology)
Limit by role in standard course of treatment– Step therapy for biologics
Limit by imposing conditions for data collection– Coverage with evidence development (CED)– Registry participation: biologics v. devices
Conditional CoverageConditional Coverage
Physicians choose drugs, devices, and course of treatment based on clinical evidence, experience
Financial incentives matter Biotech and device manufacturers have developed
very sophisticated distribution mechanisms, which reward physicians for using most costly inputs
The lowest hanging fruit, from insurer perspective, is modifying physician incentives
2. Distribution and Physician Payment2. Distribution and Physician Payment
Many biologics are administered in the office and hence are considered incidental to the practice of medicine
– Contrast with outpatient drugs and pharmacy– Medicare Part B rather than Part D– Especially important for oncology, renal dialysis, auto-immune drugs
Physicians purchase drugs from distributors and then bill insurers, often at substantial mark-up
These mark-ups motivate choice of expensive drugs
Distribution and Incentives:Distribution and Incentives:Biotechnology “Buy and Bill”Biotechnology “Buy and Bill”
Insurers seek to displace MD as distributor “Specialty pharmacy” (SP) retains ownership of
drug, drop/ships to MD office, provides ancillary services such as patient education, safe handling– Concern over SP as PBM, SP as agent of manufacturer
Alternative is to preserve “buy and bill” but reimburse physician at cost (ASP), following CMS
Concern over driving biologics into hospital OPD
Distribution and Incentives:Distribution and Incentives:Biotechnology Specialty PharmacyBiotechnology Specialty Pharmacy
Medtech distribution based on highly trained reps who are present in OR, paid on commission
Widespread financial relations with surgeons– Consulting, product development
Physicians own distribution firms in some cases– Spine surgery components
Insurers concerned over MD incentives to choose costly implants or, at minimum, not cooperate with hospital efforts to control supply costs (gainsharing, etc.)
Distribution and Incentives:Distribution and Incentives:Medical DevicesMedical Devices
Insurers do not directly purchase or distribute devices nor pay physicians for devices
They have no direct distribution strategy But they are very concerned with MD incentives
– Pay MD for procedure and device? (case rate)– “Demand matching” through utilization review?
Distribution and Incentives:Distribution and Incentives:Medical DevicesMedical Devices
Most biologics and devices have not been directly subject to consumer cost sharing– Biologics are above the deductible, OOP max– Devices are purchased by hospital, not patient– Cost sharing assumes consumer understands choices
But biggest insurer cost control success in recent years has been through benefit re-design– Tiered pharmacy formulary; CDHP designs
3. Consumer Benefit Design3. Consumer Benefit Design
Costly biologics are being placed in fourth tier– Coinsurance (50%?) rather than copayment
They quickly hit annual out-of-pocket maximum– Separate OOP Max for pharmacy and medical benefits?– No OOP Max for pharmacy?
Biotech firms subsidize copayments for insured patients and for uninsured (based on income)
Consumer Benefit Design: Consumer Benefit Design: Biotechnology in Tiered FormularyBiotechnology in Tiered Formulary
“Value Based” (VB) benefit principles argue relative copays should be based not on cost but on value– Low copays for expensive drugs that are very effective
This would imply low copays for biologics that have no alternatives and are highly effective– Burden of proof is much higher for new biologics than for
older drugs and procedures
Debate over cost sharing rages on
Consumer Benefit Design: Consumer Benefit Design: Biotechnology and VB Benefit DesignBiotechnology and VB Benefit Design
Insurers considering formulary approach to devices– Response to DTC advertising (e.g., knee implants)– This is burdensome, as surgeons prefer to use one
vendor for all patients, regardless of insurance Contrast with outpatient pharmacy and generic substitution
Coinsurance and episode pricing will highlight device prices to consumers– Device is major % of cost of procedure
Consumer Benefit Design: Consumer Benefit Design: Medical DevicesMedical Devices
Biologics and devices are rapidly evolving and often lack direct therapeutic alternatives
This permits “value-based pricing” In contrast to managed care’s traditional focus on utilization,
here the focus is on unit prices Appropriateness (over-use) is major concern in spine
surgery, modest concern in cardiac stent. For ortho and CRM, under-utilization (not over-use) is major social issue.
4. Reimbursement and Pricing4. Reimbursement and Pricing
Insurers seek (modest) discounts thru specialty pharmacy and volume rebates
Strong interest in follow-on biologics, but this is unlikely to be major factor in ST (outside epoetin)
Emergence of classes with multiple (branded) biologics (auto-immune, blood products, growth hormone) may facilitate selective contracting and volume discounting (tiered formulary)
Reimbursement and Pricing:Reimbursement and Pricing:BiotechnologyBiotechnology
Devices are purchased by hospitals, not insurers Hospitals are “carving out” devices from case rates
and per diem payments and billing insurers based on invoice (cost) or chargemaster (mark-up)– Salience of stop-loss provision in per diem contracts– The continued erosion of prospective payment
This drives interest in case rate (episode of care) payment, but hospitals generally are opposed
Reimbursement and Pricing:Reimbursement and Pricing:Medical DevicesMedical Devices
Insurer strategy for managing tech is nascent Imperative for better data (comparative efficacy, cost) Short term emphasis: payment incentives for MD and cost
sharing for patients Coverage policy will be driven by Medicare Reimbursement and pricing will depend on follow-on
biologics, therapeutic equivalents, and manufacturer concern for social backlash and price regulation (Part D)
ConclusionConclusion