In recent years, reimbursement by insurers has trumped FDA regulatory approval as the medical device industry’s biggest concern and remains at the forefront of
stakeholders’ minds. To prevent reimbursement issues from impacting financing goals, device manufacturers must develop a well-planned reimbursement strategy in parallel with their regulatory and clinical strategies in the early phases of product development. In this era of health care reform, medical device manufacturers are under intense pressure to develop products that demonstrate real value (i.e., lower costs and improved patient outcomes) in order to secure coverage and attract investors. If coverage is uncertain, it is difficult for the manufacturer to predict whether an investment in a new medical device will provide sufficient return of investment. This lack of predictability is also an obvious barrier to securing venture capitalist funding, which nowadays is the number one issue on investors’ minds and relies heavily on your presenting to them a realistic reimbursement strategy to ultimately gain coverage. In a nutshell, a payer’s decision to cover and pay for a medical device and/or its associated procedure can make or break a medical device company.
Outside of the development process, reimbursement and pricing are two of the most difficult challenges faced by medical device manufacturers. Unfortunately,
many companies are not able to allocate resources to either issue until they are faced with a sales crisis. And often, that crisis can be traced back to their lack of
developing reimbursement or pricing strategies. Nevertheless, the development of a consistent, coordinated reimbursement and pricing strategy is one of the key
factors in achieving long-term success in the medical device marketplace.
Many manufacturers do not adequately address potential reimbursement issues prior to product launch. As part of the sales process, healthcare providers must
be assured that reimbursement will be available. However, if manufacturers do not follow through on solving reimbursement problems with payers, the end result
will be a flurry of phone calls from field sales representatives trying to respond to providers that have purchased the device but can't get reimbursed. Nobody likes to be on the receiving end of these phone calls, and it is difficult to be in a position of trying to negotiate with payers after the fact. Developing a reimbursement strategy that covers each of the relevant markets (e.g., Medicare, Medicaid, and commercial payers) before product launch and in tandem with pricing strategies is not a luxury. Rather, it is a must.
Why is it so important? Reimbursement is the critical variable that is factored into a provider’s algorithm when it is deciding whether to purchase a device.
Providers understand the economics of their practice and the need to ensure that every patient visit produces revenue. A device that translates into a reimbursable
procedure, with minimum hassle factor, has an excellent chance of reaching its sales target. Conversely, a device that results in payment denials greatly impedes usage by providers. Healthcare providers will consider the amount of time involved and the associated opportunity cost if they could be seeing other patients, the sales price, the burden of resubmitting claims and appeals, and the relative ease with which the procedure can be incorporated into their practice. One of the primary variables they consider is the price of the device relative to the financial return they can expect to make on the procedure.
Payers, on the other hand, have a separate set of criteria they use to evaluate new devices. At the top of the list is how much the device will cost the payer in
terms of direct claims expense. Ideally, manufacturers should provide payers with evidence that a device will result in an overall decrease in medical costs by one of the following methods:
- substituting for more-costly but equally- or less- effective technology;
- reducing overall healthcare costs by reducing or eliminating hospital stays or other services;
- roving that usage of a medical will result in a decrease in medication cost;
- reducing future healthcare costs through early detection.
It is incumbent upon manufacturers to provide payers with the clinical trial data needed to make the economic and clinical arguments. The data should support a
positive coverage and reimbursement decision.