Devicemakers challenged on resistance to value-based payment

Last year, medical-device maker Medtronic introduced a new feature for certain cardiac resynchronization therapy devices to improve quality of life for congestive heart failure patients.

But when the Minneapolis-based devicemaker saw data from a study it sponsored showing that the AdaptivCRT feature also could help prevent hospital readmissions for those patients, it used those data to pitch the medical device to hospitals as a tool to help them avoid Medicare readmissions penalties.

“We could make an economic argument for hospitals that this is also good for them,” said Dr. David Steinhaus, vice president and general manager of Medtronic's heart failure therapy business.

As the healthcare industry moves away from fee-for-service and toward value-based payments, hospitals and insurers are demanding more evidence that the medical-device industry's new, more expensive products actually improve clinical care and offer economic value.

They increasingly question products that offer only incremental benefits but at much higher cost. As Steinhaus' statement shows, some devicemakers get that.

But last week it became clear there is lingering resistance in the broader device industry.

The Advanced Medical Technology Association released a white paper at its annual conference in Chicago that it said demonstrated the risks to patient care of insurers becoming more selective about approving coverage for new medical technologies as risk-based contracts proliferate.

“We have to ensure these new payment models include safeguards to protect patients from unintended consequences,” AdvaMed CEO Stephen Ubl said. Too many contracts put the emphasis on cost targets rather than quality benchmarks, he added.

Insurers “run the risk of really tipping too far, so physicians have incentive not to adopt things that really benefit patients,” warned David Nexon, AdvaMed's senior vice president.

Some experts were taken aback by AdvaMed's apparent resistance to market and regulatory pressures for greater accountability.

“We are in an accountable world now,” said Chip Kahn, CEO of the Federation of American Hospitals, a trade group that represents for-profit hospitals. “If the device industry is trying to fight that message, they have a problem, because accountability is job one now in healthcare delivery.”

With the U.S. healthcare system undergoing major transformation, the $110 billion medical-device industry is facing unprecedented pressure from cost-conscious insurers, hospitals, physicians and group purchasing organizations to reduce prices or prove that their expensive new technologies deliver value for patients and providers.

Despite the challenging reimbursement climate and tougher purchasing policies, medical technology manufacturers are holding financially steady. The net income for U.S. medical manufacturers rose 32% to $11.4 billion in 2013, according to a new report from Ernst & Young.

Even so, the medical-device industry has made aggressive moves to protect its position. AdvaMed has been an outlier among healthcare industry groups in resisting market pressures and policy changes, even as some of its members move to embrace the focus on evidence-based product development and marketing.

On the policy front, it is continuing its powerful lobbying push to repeal the 2.3% medical-device excise tax included in the Patient Protection and Affordable Care Act, which provides an estimated $29.1 billion in funding for consumers' insurance premium subsidies. AdvaMed spent $1.2 million on lobbying last year, while Medtronic alone spent nearly $5.5 million on lobbying.

In addition, the industry has been on the defensive about other regulatory changes underway, including the use of device registries, which can help identify problems with new technology sooner. That's despite mounting criticism that many moderate- to high-risk devices approved by the Food and Drug Administration under an expedited process lack publicly available evidence to demonstrate their safety and effectiveness, even though federal law requires such evidence.

There are a number of examples of pricey new technologies that have come on the market but have not been shown to improve outcomes or lower costs, such as proton-beam therapy. Robotic-assisted surgery is another big question mark. A recent Robert Wood Johnson Foundation report called medical technology the “dominant driver” of long-term costs, saying there are few requirements that effectiveness be demonstrated before technologies are widely adopted.

At last week's conference, insurers, group purchasing officials and health economists challenged AdvaMed's position on value-based payment models. “We don't want to squelch innovation,” said Dr. Scott Josephs, national medical officer for health insurer Cigna Corp. “But tell me what I'm getting for my healthcare costs. ... show me that these new technologies are superior.” If a costly new device is no more effective than something that's already on the market, he added, “then frankly, it's just adding costs to the system.”

Many experts say AdvaMed's warnings are unjustified because insurers and providers participating in population-health payment and delivery models have no incentive to turn away medical products that improve patient outcomes and reduce future costs.

If a new intervention is proven to lead to better clinical outcomes, that option will be explored, said Susan DeVore, CEO of Premier, a group purchasing and quality- improvement company.

She urged devicemakers to do more to advance value-based care. “Bring your evidence and data, and bring a willingness to collaborate and take risks,” she said.

Hillary Rodham Clinton, who spoke at the conference, also chided devicemakers, albeit diplomatically. “Your industry is bearing some of the burden alongside other stakeholders,” Clinton said. “But you're also ... positioned to reap the benefits of those millions of newly insured consumers. ... My view is that we need to keep working towards win-win solutions.”

This is not the first time that the medical-device industry has raised sharp questions about the impact of new payment models on medical innovation and product adoption. AdvaMed's 2011 comment letter on the Medicare Shared Savings Program to test the accountable care model, which offers providers financial incentives for meeting cost and quality targets, recommended that the CMS make adjustments to ensure that providers are not penalized for being early adopters of new technology.

Despite AdvaMed's warnings, a number of manufacturers, including Medtronic and St. Jude Medical, have shifted their product development and marketing strategies and made acquisitions to add products they say will help providers in the new value-based environment.

“The bottom line is that the device manufacturers have to be able to show their products and new technologies will add value to their customers,” said Diana Lee, an analyst for Moody's Investors Service.

Purchasers fear the message isn't being heard. “There is concern about protecting the goose that is laying the golden egg,” said Blair Childs, Premier's senior vice president of public affairs.

Follow Jaimy Lee on Twitter: @MHjlee

Follow Sabriya Rice on Twitter: @sabriyarice