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MassChallenge
September 29, 2010
Edward E. Berger
REIMBURSEMENT BASICS
FOR LIFE SCIENCE ENTREPRENEURS
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THE REIMBURSEMENT CHALLENGE
Critically important element in
Investor due diligence
Commercial success Obstacles are over-hyped
Path to success is well marked
Careful analysis, planning and execution
guarantee success, if the technology is
worthy
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THE GOOD NEWS
Medical technologies or therapeutics that
effectively address unmet clinical needs,
or that clearly improve outcomes, alwaysget reimbursed in the U.S.
Counter-examples?
If the case is made effectively
Understanding 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-service
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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
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THIRD PARTY PAYMENT: THREE DISTINCT
BUT RELATED ELEMENTS
Coding
A unique and objective identification of theservice 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, ICD9, ICD10, HCPCS Each controlled by a different organization
Overlapping but not always synched
Each with distinct application processes,
requirements, review cycles andimplementation 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
Utilize unspecified procedure code ininterim
Does impose administrative burden on
company and customers8
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COORDINATE MD AND FACILITY
CODING (AND PAYMENT) STRATEGIES
Utilization affected by adequacy of paymentto both physician and facility
Market forces operate
Physicians allocate time to procedures /activities with highest return on time and effort
Hospitals likewise will allocate space, time andcapital to procedures with good returns
Extreme disparities will lead to exclusionsby either party
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COVERAGE POSES MORE DIFFICULT
CHALLENGES (1)
Payers do not have common standards
CMS constrained by statute, regulations, andprescribed 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 notthe same as FDAs 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 provideonline 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 reimbursementstrategies
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 aclear 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 givingCMS access to data submitted to FDA
Evaluate new parallel review option
Provide periodic progress updates to buildrelationship 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 afunction 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 asequential 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 waysof 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 supporthighest attainable payment level
Efficacy and safety relative to therapeuticalternatives
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 ProspectivePayment 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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EACH MEDICARE PAYMENT SYSTEM IS
A MANAGED FIXED-SUM GAME
A total system spending target is set
Independently for MDs, Outpatient, Inpatient
Volume projections for each servicecategory are established
Relative value of each service is adjusted
Based on analysis of prior year costs
Payment for each service is derived
As if target were a hard spending cap
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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 DOESNT
EXPLAIN EVERYTHING
Hospitals and large physician groups mayhave 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 availableinformation
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 hocstudies can be dismissed
But not if youve 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 doesnt
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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