Transcript University of Minnesota Medical Technology Evaluation and Market

University of Minnesota
Medical Technology Evaluation and
Market Research
Department of Healthcare Management
Course: MILI/PUBH 6589
Spring Semester, 2012
Stephen T. Parente, Ph.D.$
$Carlson
School of Management, Department of Finance
Class # 2
Government Regulation, Technology
and the Health Care Economy
• The path from idea to reimbursement for
medical technologies
• How are new medical technologies reimbursed?
• Why are we creating evidence?
• Information demand – who is demanding
evidence?
• What is the ‘supply chain’ of information
dissemination?
Government Regulation and Private
Insurance
• The role of government is the most important
difference between marketing non-medical technologies
and medical technologies
• The government agencies determine approval and
payments
• The second most important difference is that the users
of technology generally do not pay for it—their health
insurance company does
Government Regulation and Private
Insurance
• Need to understand the process and the
bureaucratic details in order to plan the tech
assessment
• Technology assessment is the gathering and
analyzing of information on the performance of a
technology
• Once a stage in the development / regulatory
processes has passed, the chance to gather
important information may be lost forever.
• An understanding of the whole process of
development and reimbursement is necessary to
prevent this from occurring
From Idea to Use--How Does A
New Technology Make It to Market?
• For a new medical device/drug, what is the
process by which you take the technology from
idea to the marketplace?
• Four Key Steps -- these will vary from country
to county and even innovation to innovation
Four Important Steps
1.
Obtain a Patent
–
2.
Recall a patent grants exclusive rights to sell the product for 20 years
Regulatory approval from the FDA that the new
device or drug may be marketed
–
A very long, multi-stage and expensive process
3. Payers must agree to cover the drug / device /
procedure
–
–
Differing standards by payers
Medicare-- “reasonable and necessary”
4. Providers must be persuaded to use/proscribe the
innovation
•
Without the providers benefiting in some way, the product will not be
used
Getting a Patent
• It takes from 6 months to 2 years for the patent
office to grant a patent
– “Anyone who invents or discovers any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement
thereof, may obtain a patent”
• The Standard: Novel and non-obvious
• Patent Life is 20 years from application date
• Drugs can get important extensions
– Pediatric testing--6 months
Obtaining FDA Approval-Pharmaceuticals
• There are 4 phases to an FDA approval--The standard
is “safe and effective.”
• Pre-Clinical Phase (3 years) -- Laboratory and animal
testing
– Purpose is to asses safety and biological activity
• At this point file an Investigational New Drug
Application (IND) at FDA
– IND shows results of previous experiments
– The chemical structure of the compound
– How it is thought to work in the body
Obtaining FDA Approval
• Clinical Trial, Phase I (1 year)
– Human trials of those without the disease
– Drug's pharmacokinetics and pharmacological effects obtained
• Clinical Trial, Phase II (2 years)
– Controlled studies of approximately 100 to 300 volunteer patients (people
with the disease) to assess the drug's effectiveness
• Clinical Trial, Phase III (3 years)
– Usually involves 1,000 to 3,000 patients in clinics and hospitals.
– Very Expensive
Obtaining FDA Approval
• New Drug Application (NDA)
– Following the completion of all three phases of clinical trials,
the company analyzes all of the data and files an NDA with
FDA if the data successfully demonstrate safety and
effectiveness.
– The NDA must contain all of the scientific information that
the company has gathered. NDAs typically run 100,000 pages
or more.
– By law, FDA is allowed six months to review an NDA.
FDA Approval
• Once FDA approves the NDA, the new medicine
becomes available for physicians to prescribe
• The company must continue to submit periodic reports
to FDA, including any cases of adverse reactions and
appropriate quality-control records
• For some medicines, FDA requires additional studies
(Phase IV) to evaluate long-term effects
Effective Patent Length
• Patents given protection from direct competition for 20
years
• FDA approval process can take 8 to 10 years
• The effective patent life is then 12 to 10 years
• After the patent expires, generics can enter
– Hatch-Waxman Act
– Abbreviated New Drug Applications (ANDA)
• Need to be strategically aware of this time line
Post-Market Approval
• FDA does not have clear policies for addressing post-market
drug safety
• In response to the Vioxx case, the FDA has recently created the
Drug Safety Oversight Board
• However, there no systematic tracking of ongoing safety issues -reporting of adverse events is voluntary
• Legislation is likely to change this post-market monitoring by the
FDA-- potential use of claims data
– Does this mean that once FDA approval is secured it is easy street?
• Off-Label Use
– FDA approval is for treatment of a specific condition/disease
– MDs can proscribe the drug for other conditions/populations
– The case of Gabapentin
In-Class Exercise
• During the concept, patent, pre-clinical and clinical trial
and FDA NDA approval process what non-clinical trial
information might you want to collect at each stage of
the process in order to make a “go/no go” decision?
– Hypothetical drugs: 1) new treatment for bi-polar disorder; 2)
a new weight-loss drug; 3) a new hypertension treatment; 4) a
new treatment for Alzheimer's; 5) a new drug to treat heart
attacks.
FDA Approval -- Medical Devices
• Two common methods to be able to get clearance to
market a device
– Pre-market approval applications (PMAs) for breakthrough
technologies
– Pre-market notifications (also known as 510(k)s) for more
established products
• FDA receives about 50 to 70 PMAs and over 4,000
510(k)s per year
• The agency in the FDA responsible for approval of
devices is Center for Devices and Radiological Health
• One or Two step process--Initial Report
What is a Medical Device?
• “An instrument, apparatus, implement, machine, contrivance,
implant, in vitro reagent, or other similar or related article,
including a component part, or accessory which is:
– Recognized in the official National Formulary, or the United States
Pharmacopoeia, or any supplement to them,
– Intended for use in the diagnosis of disease or other conditions, or in the
cure, mitigation, treatment, or prevention of disease, in man or other
animals, or
– Intended to affect the structure or any function of the body of man or
other animals, and which does not achieve any of it's primary intended
purposes through chemical action within or on the body of man or other
animals and which is not dependent upon being metabolized for the
achievement of any of its primary intended purposes.”
Medical Device Classes
• Class I (General Controls) products are the lowest
risk and most are not subject to pre-market review.
– Still need to meet other regulations of listing, registering,
labeling and “Good Manufacturing Practices”
• Class II (Special Controls) products pose either a low
or moderate risk
– Usually are cleared via 510(k)
• Class III (Pre-Market Approval) technologies
generally are higher risk, breakthrough products that are
not similar to currently marketed products
– These technologies require a PMA application
Medical Device Classes
• The agency examines extensive data on all but the very
simplest medical products, like tongue depressors and
adhesive strips, before allowing them on the market.
• Approximately 30% of all medical device types are
placed in Class I, 60% in Class II and 10% in Class III
• All devices are subject to “General Controls” -marketing, proper labeling and monitoring its
performance once the device is on the market.
• Radiation emitting devices face additional standards
501(k) Submissions
• A 510(k) submission must show that the product is
"substantially equivalent" to an existing, legally
marketed medical technology.
– These technologies have a proven track record in the
marketplace and usually represent incremental improvements
to existing devices.
• The many products covered by the 510(k) process
include surgical instruments, patient monitors,
catheters, oxygen concentrators, and diagnostic imaging
equipment like ultrasound and x-ray machines.
• Typically approval is less than 90 days.
Class III Approval
• FDA Pre-market requirements for Class III medical
technologies cover every aspect of product
development
– Design, bench testing to clinical trials
• These breakthrough technologies are often first-of-akind devices that provide new treatment options for the
most serious disease conditions
• These products must be supported by extensive clinical
and preclinical data that takes years and millions of
dollars to gather.
• The time to perform the clinical and preclinical data is
similar to a drug
Class III Approval
• FDA reviews this data, as well as other information on
labeling and manufacturing processes, as part of a PMA
to determine the safety and effectiveness of the
technology
• Products subject to PMA review include artificial heart
valves, coronary stents, novel diagnostic tests, bioartificial skin, and spinal implants.
• It typically takes the agency over a year to complete a
review of a PMA
• More Info at: http://www.fda.gov/cdrh/devadvice/
Quick Tour of Some Devices
• http://www.fda.gov/cdrh/devadvice/3131.html
– Blood pressure cuff v. pacemaker
So Your Technology is Approved -- Now What?
The Case of Drugs
•
•
•
Two key interrelated steps:
1. Get Insurers to pay for them
2. Get Physicians to prescribe them
• How do drug companies influence MD proscribing
behavior?
• What about ‘lifestyle’ drugs?
Physician demand will often lead to formulary admittance
The key to is to show effectiveness and better yet cost
effectiveness through published articles
– Role of published studies -- this is marketing!
– US v. World
Prescription Drugs and Health
Insurance
• Non-Medicare enrollees--most have some form of
prescription drug coverage (roughly 80%)
• Need to be mindful of who is paying
– Drugs for the elderly -- Medicare Part D
– Drugs for the under-65 -- Employer Sponsored Insurance
– Drugs for Pediatrics -- Medicaid and Employer Sponsored
Insurance
– Co-pays and inclusion of formularies are relevant for both
Medicare Part D and employer based insurance
– Anti-psychotics (and other drugs to treat Mental Illness) -Medicaid
• Special rules for Medicaid payments for drugs
So Your Technology is Approved -- Now What?
The Case of Devices
• More complicated than drugs
• Devices are used in many different settings and the
flow of payments are
How do hospitals get paid?
• There are two classes of hospital
procedures/treatments
– Inpatient
– Outpatient or Ambulatory
• Medicare and most private payers treat them differently
• They use different types of payments for the different
settings
• It is important to recognize the setting in which a
medical technology will be used as the reimbursement
strategy will be different
Medicare Part A—Inpatient Services for
Hospitals
• Hospitals get a fixed payment from Medicare for each
admission independent of the Length of Stay or other
costs incurred by the hospital
• The payment is determined by the diagnosis
• Over 500 different Diagnostic Related Groups (DRGs)
• DRG payments roughly increase in the complexity and
cost of the treatment
• Payment covers all of the hospital expenses including
implanted or used devices
• Why should the DRG payment be of interest to device
manufacturers?
DRGs
• To get paid, the hospital submits a form that lists the diagnoses
and procedures.
• The diagnoses and procedures are in the form of a code –
International Classification of Disease—9th edition (ICD-9)
– Acute Myocardial Infarction is 410.1
– Heart Transplant is 37.51
• Different sets of codes for diagnoses and procedures
• Software takes these codes and groups them into DRGs (“DRG
groupers”)
• Upcoding
Outpatient Services Hospitals
• Paid according to the Ambulatory Payment
Classification (APC) system
– This is a Prospective Payment System (PPS)
• Divides all outpatient services included in the new
payment schedule into 451 groups.
• The services within each group are clinically similar and
require comparable resources
Outpatient Services Hospitals
• A hospital may furnish a number of services to a
beneficiary on the same day and receive an APC
payment for each service
• Beneficiary is responsible for 20% of the costs
• Technology Pass-through
• Private Health Insurance either relies on the Medicare
or a percent of changes structure
• Why Does this matter for Device Manufacturers?
Medicare Claims Processing
• Mostly claims are processed electronically
• CMS (Center for Medicare and Medicaid Services)
contracts out with different organizations to do the
claims processing
• Carriers – handle claims of physicians
• Financial Intermediaries (FI)– handles claims of
hospitals, skilled nursing facilities, home health
agencies, renal dialysis facilities and hospices
• The Carriers/FI determine if a bill should be paid
Medicare Coverage Decisions
• Medicare decides what to cover
• Usually specify that a procedure is covered if
certain conditions are present
• Standard is “Reasonable and Necessary” but
recent evidence suggests that the cost effective
standard might be relevant
• Discussions occur at the National or FI level
• More about this later
Private Insurance – Providers Payments
• Employers (and ultimately the workers) pay for health care –
Self-insured v. non-self-insured
• Rates are negotiated with providers
• Payment schedules vary but they can include:
– Capitation – a single payment regardless of treatment
– Carve outs
– Payment based on DRGs, HCPCS, Visits, or Inpatient Days
• Insurers have Coverage Committees that reviews the evidence
and decides on what to pay for
– Often follow Medicare’s decisions
– Cost Effective evidence is very helpful
• Negotiation with medical device suppliers re-selling the
equipment to providers or insurers.
Where does Tech Assessment fit into all
of this?
• Technology Assessment is the collection, analysis and
dissemination of information
• Relevant at almost every stage
• Need to collect the right information at the Clinical trail level
• Payers will likely need to see evidence of effectiveness or cost
effectiveness before they agree to pay for it
• Physicians must be convinced to use/proscribe the technology
or none of this will matter
– There needs to be something in it for them—either their patients are
going to be better served or it will allow the MD to bill more or it will
need to allow them to reduce costs