Copyright 1999 Star Tribune
Star Tribune
(Minneapolis, MN)
November 1, 1999, Monday, Metro Edition
SECTION: BUSINESS; Pg. 3D
LENGTH: 1462 words
HEADLINE:
Reimbursement woes;
Will cost-cutting hobble advancements in medical
technology? Some say it's already happening
BYLINE:
Judith Hickey
BODY:
As baby boomers begin to join
the ranks of retired seniors, the Medicare-eligible population
will increase exponentially. Never before will so many people
reach senior citizen status at the same time. And most health care is delivered
during those years.
At the same time, we
witness advances in medical technology, progress with genetic research and new
devices and drugs available to treat diseases more effectively or those that
previously had no treatment options.
These
advances cost money, and they take time to prove themselves.
Enter the Balanced Budget Act (BBA) of
1997, which aims to reduce the cost of Medicare through a
series of phased-in cuts designed to allow the Medicare Trust
Fund to remain solvent until 2007.
The
hope is that another solution to this difficult issue will come along before
that date. So far, only one-third of these cuts have been implemented, with the
remaining two-thirds to begin next year.
Health care cost-containment is not
new. HMOs were born out of a need to rein in costs.
Managed-care organizations have evolved with the primary objective of
determining the best ways to manage health care costs. Now with
Medicare also involved in this goal, the issue gains increased
urgency.
Strong bureaucratic barriers to
acceptance of medical advances are occurring within the health care
system. Medical advances often are unable to gain reimbursement
without proving that they are more cost-effective than current therapy.
In short, demographic and bureaucratic
forces are threatening to retard health care advances in ways that will be
harmful to patients and to profits.
Why should
this be important to Minnesota? As home to more than 800 medical
device and equipment companies, many of which focus on conditions
affecting an aging population, Minnesota's economic health will be affected if
these companies are unable to sell their products because
Medicare or HMOs won't pay for them.
Currently the medical
device industry comprises many thriving businesses that employ
thousands and improve the health and quality of life of millions. As a state, we
can be proud that we are known as a leader in this field.
Medtronic Inc. is one of our finest
examples. For 50 years, it has been developing technologies and
products designed to alleviate pain, restore health and extend life. According
to Medtronic's annual report, "every 30 seconds around the world, one person's
life is saved or enhanced with one of our therapies."
However, many people don't realize
that the Balanced Budget Act has the potential to dramatically affect medical
product companies, particularly smaller companies without diverse product lines.
Between 1998 and 2002, the BBA is projected to cut $71 billion
in Medicare payments to hospitals _ or 10.5 percent of pre-BBA
cost estimates.
These cuts will have a
dramatic impact on a variety of services provided by hospitals affecting
in-patient stays, outpatient services and home health care provided through
hospitals.
Medical products companies will
be affected because Medicare reimbursement formulas bundle
services and average prices, a process that results in a composite payment coded
by procedure. These codes are all-encompassing and include the devices and
equipment used during the procedure. When services are cut,
hospitals will be forced to look at all areas of expense that comprise diagnosis
or procedures.
When you factor in European
Union countries that are dealing with the same demographic shift that's
occurring in the United States, you can see that reimbursement is a global issue
for medical products companies, particularly when each country has its own set
of rules.
Indeed, reimbursement issues
have become every bit as important as regulatory approval of the device, therapy
or drug.
.
Little understood
One reason this issue has not received
more attention is that many of the changes have yet to be phased in.
So far, in-hospital charges and skilled
nursing facilities have been affected by the reductions. Cuts
in outpatient services and hospital-provided home health will be phased in
starting in 2000. One notable change yet to occur will be to cardiac pacemakers
and coronary stents, which will be covered only in an in-patient setting.
Many medical device
companies believe there's little they can do to influence reimbursement
decisions, especially those by Medicare. However, there are
steps that can be taken to learn what information is most important to the
Health Care Financing Administration (HCFA), and place products in a more
favorable position during evaluation.
These steps include collecting adequate
clinical results that compare the new technology with the current standard of
care, determining appropriate patient selection criteria and providing patient
follow-up data and outcomes.
In the final
analysis, compelling reasons for patient access to technology must be explained,
including cost-effectiveness.
When
this information is not provided, the risk is great that coverage will be
denied. Bio-Vascular Inc., a St. Paul medical device maker,
knows this scenario first-hand. In January 1996, HCFA decided
not to cover Medicare patients undergoing lung volume-reduction
surgeries. This affected Bio-Vascular's Peri-Strip product because it was used
in the procedure. Adequate data were not available at the time to convince HCFA
that the cost of this surgery would benefit patients long-term. Consequently,
Bio-Vascular's growth has suffered during the past several years, largely as a
result of this decision.
Medical
device companies that invest heavily in new areas of treatment must
carefully assess the market situation.
A new product that costs more
than current therapies will be met with skepticism at best and outright
rejection at worst if the costs cannot be quickly
recovered. Difficult questions will be asked of these companies
by private as well as government insurers. Private insurers often make coverage
decisions comparable to those made by the government.
.
Finding
allies
Still, companies can find influential
allies to help them make their cases. An often-overlooked source of support can
come from organizations that serve patients with chronic conditions.
The Diabetes Association is an example of a very
active organization that provides continual educational information to patients
and is involved in reviewing new technologies designed to help control the
long-term effects of diabetes.
Clinical studies have shown that
more aggressive monitoring of blood glucose levels can help to reduce the
debilitating complications of the disease. Recently Medicare
has authorized coverage of glucose monitoring equipment and supplies.
There are many examples of companies that
didn't consider reimbursement until it was too late and, after languishing for
some time, eventually went out of business.
Reimbursement issues must now be at the
top of the list for strategic assessment and business growth. Wise corporate
management will include managers responsible for reimbursement in decisions made
early during product development.
The need and demand for medical technology
will continue to grow, but only for those products that can demonstrate the
ability to more effectively treat patients and reduce
costs. For companies to be successful, they must focus on the
direct impact the Balanced Budget Act will have on their businesses.
.
The author
Judith Hickey is the founder and president of
Princeton Reimbursement Group in Bloomington, which provides strategic
assessment and reimbursement services to medical device
companies.
.
.
The Balanced Budget Act axe
.
The Balanced Budget Act of 1997 (BBA) began slicing into
Medicare costs in 1998. For the five-year period 1998-2002,
$71.2 billion in cuts are scheduled, or 10.5 percent of the
pre-BBA Medicare budget. The cuts are being phased in and some
of the deepest ones have yet to begin.
.
Major cost-cutting
categories
Inpatient costs $40.7 billion
Outpatient costs $11.2 billion
Hospital-based
home health $5.5 billion
Other cuts
$13.8 billion
.
Hemorrhaging hospitals
BBA cuts affect hospitals differently, depending on how much of their
revenue comes from Medicare payments. By 2002 (and assuming
modest price increases), 70 percent of U.S. hospitals won't receive enough in
Medicare revenues to cover the costs their
Medicare patients incur, according to the American Hospital
Association.
.
Sources: American Hospital Association; Lewin
Group.
GRAPHIC: CHART; ILLUSTRATION; PHOTO
LOAD-DATE: November 2, 1999 
