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Evaluating a Biomedical Business Concept

April 14, 2011

Edward E. Berger, Ph.D.

REIMBURSEMENT BASICSFOR LIFE SCIENCE INVESTORS

AND ENTREPRENEURS

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THE REIMBURSEMENT CHALLENGE

• Critically important element in– Business plan development– Investor due diligence– Commercial success

• Requires early and careful analysis and planning

• May require resource-intensive advocacy before and after market entry

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THE GOOD NEWS

• Medical technologies or therapeutics that effectively address unmet clinical needs, or that clearly improve outcomes, always get reimbursed in the U.S. …– Counter-examples?

• …If the case is made effectively– Understanding of payers’ wants/needs– Effective execution of a well constructed plan– Compelling empirical demonstration of value

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THE FIRST CRITICAL DIMENSION: BILLABLE SERVICE OR EXPENSE LINE

• Will the user (physician, hospital, patient) be submitting a bill for your technology or service? – Procedural requirements apply

• Is it simply a component of a billable service (e.g. surgical tool, office equipment, analyzer, etc.)?– Cost justification is crucial

• Answer(s) may be specific to site-of-service4

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THE SECOND CRITICAL DIMENSION:WHO PAYS?

• Self pay– Market sets price and demand– No significant procedural requirements

• Private third party payer– Highly decentralized and unpredictable– Highly variable in eligibility, methodology and amount

• Public third party payer (Medicare/Medicaid)– Relatively centralized and predictable– Extremely inflexible

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THIRD PARTY PAYMENT: THREE DISTINCT BUT RELATED ELEMENTS

• Coding– A unique and objective identification of the

service or item provided

• Coverage– The determination of whether and under what

circumstances to pay for the service or item

• Reimbursement– The specification of a payment methodology

and amount

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CODING IS THE MOST COMPLEX OF THE THREE – AND THE LEAST IMPORTANT

• Multiple coding systems mandated for different purposes– CPT, ICD-9, ICD-10, HCPCS– Each controlled by a different organization

• Overlapping but not always synched

– Each with distinct application processes, requirements, review cycles and implementation schedules

• But system provides options during code acquisition / optimization process

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NEED A WELL DESIGNED AND EXECUTED CODING STRATEGY

• Identify and evaluate existing codes– “fit” and “adequacy of payment”

• If new code is needed …– Understand requirements and timelines– Execute plan to optimize outcomes

• Use “unlisted procedure” code in interim– Administrative burden on company and

customers

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COORDINATE PHYSICIAN AND FACILITY CODING (AND PAYMENT) STRATEGIES

• Utilization affected by adequacy of payment to both physician and facility– Different coding systems may not align

• Market forces operate– Physicians allocate time to procedures /

activities with highest return on time and effort– Hospitals likewise will allocate space, time and

capital to procedures with good returns

• Extreme disparities will lead to exclusions by either party

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COVERAGE POSES MORE DIFFICULT CHALLENGES (1)

• Payers do not have common standards– CMS constrained by statute, regulations, and

prescribed policy processes• Screenings and preventive services defined in law• Cost excluded as a factor if any benefit beyond

existing clinical alternatives

– Private payers far less constrained• Different insurance → different benefits• Free to apply any lawful standard the market will

bear

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COVERAGE POSES MORE DIFFICULT CHALLENGES (2)

• Clinical utility is the touchstone, but there is no common operating definition– “Reasonable and necessary” standard is not

the same as FDA’s “safe and effective”

• Incremental clinical benefit is key– Reinforced by recent CER initiatives

• Cost does enter the equation– Overtly or covertly

• More rigorous analysis for high cost technologies?

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COVERAGE DECISIONS ARE DATA DRIVEN

• Health technology assessment (HTA)– Do it themselves or by external contract– Sources include: CMS Coverage Analysis

Group, BCBSA Technology Evaluation Center; ECRI; Hayes, Inc.; HealthTech

• Medicare and major private payers provide online databases of coverage policies and analyses– Rich resource for understanding what you will

need to demonstrate

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PLAN TO MEET DATA REQIREMENTS FOR COVERAGE

• Evaluate what insurers will want/need to know

• Integrate your regulatory and reimbursement strategies– Integrated data effort is cost and time efficient– Clinical trial staff can monitor and control to

establish data validity– Include cost data capture

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COORDINATE CMS / FDA PROCESSES

• Meet with CMS as soon as you have a clear sense of FDA requirements– Both coverage and coding staff– Educate about your product and plan

• Get informal feedback on agency perspective

– Shorten total decision timeframe by giving CMS access to data submitted to FDA

– Evaluate new parallel review option

• Provide periodic progress updates to build relationship and agency knowledge base

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PRIVATE INSURER PERSPECTIVES

• Continuum of policies from traditional fee for service to fully capitated managed care– Competition within each class of policy– Competition between types of coverage

• Diverse principal competitive drivers– Cost control for lower premiums– Quality and/or access superiority– Coordination of care for quality and efficiency

• Effective, cost-efficient technologies create competitive leverage for insurers

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COVERAGE DECISION MAY TAKE TIME

• Coverage policy approval timeline is a function of– Clinical impact of the service– Quality of the supportive data– Support from opinion leaders– Visibility to public– Competitive pressure (private insurers)

• Need to advocate case by case, insurer by insurer, until policies emerge

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COVERAGE POLICIES ARE INCREASINGLY REFINED

• Diagnostic tools allow identification of subgroups likely to benefit from specific treatments– Companion diagnostics model for drug testing

trades off between market size and success probability; Device analogs are emerging

• High cost therapies getting placed into a sequential hierarchy of interventions…– … for patients who fail a trial of …

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COVERED SERVICES GET REIMBURSED BUT HOW MUCH?

• Private insurers have many different ways of setting payment levels– Rate schedule – Negotiated rate w/ provider– Prevailing charge– Inclusion in capitated rate– Disease-management contract

• With or without carve-out

• Each method creates distinct incentives

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PROVIDERS CAN NEGOTIATE WITH PRIVATE INSURERS

• Need clinical and financial data to support highest attainable payment level– Efficacy and safety relative to therapeutic

alternatives– Cost relative to therapeutic alternatives– Impact on total cost of care

• Complication rates, follow-up care

• Insurers will pay to incent adoption of cost-saving technology

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MEDICARE PAYS UNDER FIXED RULES

• Hospital Inpatient Prospective Payment System– Diagnosis Related Groups (DRGs)

• Hospital Outpatient Prospective Payment System– Ambulatory Payment Classifications (APCs)

• Physician Fee Schedule– Resource Based Relative Value Scale (RBRVS)

• AWP + 6% for physician-administered drugs

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MEDICARE PAYMENT SYSTEMS CHARACTERISTICS

• Each system is based on averaging payment for clinically coherent groupings of codes– A reasonably efficient provider, with a

representative case load, will break even

• Each is separately calculated based on prior year cost and projected utilization– A (very) soft cap on spending– No consideration of impact on other systems

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HOSPITALS AND PHYSICIAN GROUPS KNOW THE FINANCIAL SCORE

• Medicare and total operating margins– For each department– For each DRG, APC, or visit type– For each identifiable diagnosis, service,

surgical procedure, etc.

• They invest in winners, disinvest in losers

• Successful companies create new winners for hospitals and medical groups

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DIRECT ECONOMIC IMPACT DOESN’T EXPLAIN EVERYTHING

• Hospitals and large physician groups may have broader long term goals– Reputation for clinical and/or technological

leadership– Specific areas of national or regional

excellence– Comprehensiveness of service offerings– Community/regional/national visibility

• Visibility/reputation lead to referrals

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INFORMATION IS THE KEY TO OPTIMIZING REIMBURSEMENT

• Understand the clinical, regulatory and institutional environment

• Demonstrate command of all the available information

• Collect the best and most comprehensive possible data

• Perform or commission the needed analyses

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BUILD A ROBUST RESEARCH CAPABILITY

• Get your results out as early as possible– Peer-reviewed papers carry the most weight– Conference presentations have some worth– Data collected in monitored trial or study can

be useful• But control and validation will be questioned

– Sponsor-conducted retrospective or ad hoc studies can be dismissed

• But not if you’ve made yourself an unimpeachable source

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AGGRESSIVELY PLAN AND MANAGE YOUR REIMBURSEMENT STRATEGY

• Identify your empirical data requirements• Map the timelines for coding and coverage

decision processes• Find the shortest path that doesn’t

compromise your chances of success• Manage the process like any project• Research performed for reimbursement

planning has far broader business strategy applications… USE IT.

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Edward E. Berger, Ph.D.Larchmont Strategic Advisors2400 Beacon St., #203Chestnut Hill, MA 02467Tel: 617-645-8452Email:eberger@larchmontstrategic.com

Thank You

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