Introduction: The Case for Transformation
In the world of fee-for-service health care, most medical devices were sold to hospitals or other health care providers for use in the diagnosis or treatment of patients. Except in the case of durable medical equipment, health insurers rarely paid for the devices separately. Historically, the principal aim of the medical device maker was to provide a quality product at a price point that would still allow the purchaser to derive a profit in connection with the procedure in which the device was used. The device maker had little need to concern itself with the other costs of the procedure, or with whether the procedure improved the patient's quality of life. Those were the concerns of the physician, the hospital, and the post-acute care providers, such as inpatient and outpatient rehabilitation facilities.
The increasing focus on Value-Based Health Care (VBC) creates a paradigm shift for medical device companies as VBC aims to make providers increasingly accountable for positive patient outcomes by conditioning some part of the providers' payments on such outcomes. The initial and more straightforward VBC parameters have included reduced rate of infection or re-hospitalization for complications from the surgical implantation of a cardiac or orthopaedic device. Increasingly, however, VBC goes well beyond these parameters and seeks to measure the longer-term effects of a patient's recovery, including whether the intervention leads to an enhanced quality of life.
For example, the Medicare Shared Savings Program (MSSP) is a voluntary program that encompasses four tracks in which gainsharing is available for each track, and two-sided risk-sharing and prospective payments are phased in depending on the track .1 Health care providers, principally hospitals and physicians, join an accountable care organization (ACO) where they agree to share in a single payment for qualifying procedures. ACO participating providers are paid on a fee-for-service basis during the performance year and are eligible for gain (or risk) sharing based on the ACO's overall performance against cost and quality metrics. MSSP quality has two elements – successful reporting and actual performance; during year 1 of an ACO, the reporting thresholds are minimal, and require only complete and accurate reporting across all required measures, with performance against specific benchmarks phased in over subsequent years2 For the 2017 performance year CMS specified 31 measures across four domains: patient/caregiver experience, care coordination/patient safety, preventive health and at-risk population3.
Similarly, Medicare's voluntary Bundled Payment for Care Improvement initiative offers four potential care models to health care providers that enter into payment arrangements in which the provider is accountable for financial and performance outcomes for Medicare beneficiaries.4
During the Obama administration, the Center for Medicare and Medicaid Innovation (CMMI) created several more far-reaching programs in which participation was to be mandatory for providers treating specified conditions.5 The fate of mandatory programs through CMMI is somewhat uncertain due to President Trump's antipathy towards the Affordable Care Act6, as well as the stated opposition of Secretary of Health and Human Services Tom Price to mandatory programs of this kind7. However, while Secretary Price has delayed the start date of new mandatory bundled payment programs, as yet none have been terminated and in his congressional hearings spoke favorably about limited scope pilot and voluntary programs. Moreover, there is broad consensus among industry stakeholders that both public and private VBC initiatives should continue8.
Faced with this new reality, medical device makers confront new challenges and new opportunities. As payers impose financial risk on providers for delivering better long-term outcomes, device makers will be faced with cost pressures making profitability from device sales alone more difficult to achieve. The winners in this environment must learn to work with customers to control costs and improve patient outcomes. Answering this challenge presents new opportunities, as companies increasingly are sharing downside risk with their customers in connection with the performance of their products, acquiring or creating consulting or management capabilities in order to offer customers a complete solution to the procedures in which their devices are used, and even vertically integrating by investing in the health care delivery system. This is unchartered waters for many if not most device companies, requiring the development of new expertise and also navigating new legal and regulatory hurdles.
Data will play a key role in the transition to VBC, particularly data aggregation and de-identification services, the use of predictive analytics, and the sharing of data to improve quality of care and clinical outcomes. Those medical device companies that are already in a position to offer valuable data expertise and analytic capability to providers will benefit the most. Of course, the increased reliance on data presents a number of challenges – under HIPAA, under state laws regarding personal information, and under pre-existing contractual restrictions. Device makers must...