Does investing in demonstrating value help with reimbursement for new medical technologies?

  • Posted on 10.04.2013

Does investing in demonstrating value help with reimbursement for new medical technologies?


Mark Charny

Managing Director, Translucency Ltd.

Cost cutting

The tool most commonly used to demonstrate the value of a new medical technology is the business case. Typical business cases can be thought of as falling into one of four categories. Compared with current care, the technology:

  1. costs less in the current year and you get what you get from current care (‘save money now’).
  2. costs the same and you get more than you get from current care (‘more value for current spend’).
  3. costs more in the current year but cost less when future savings are taken into account and you get what you get from current care (‘spend now to save later’).
  4. costs more but you get more (‘spend more for better quality’).

We are used to the idea of weighing the additional (incremental) costs (the economic value of resources) for a pathway incurred by the payer or the service provider against patient benefits in terms of such things as quality and quantity of life or activities of daily living. However, costs can be non-financial (such as the effort of implementing and managing change, managing the stress of finding additional resources within a cash-limited budget, moving budgets between department, institutions or sectors and so on). And non-financial benefits can fall to the clinicians and other decision-makers as well as the patient: meeting a target, avoiding negative publicity, improving a hospital’s reputation or a doctor’s academic standing…

One of the many problems with healthcare financing is that you are dealing with three customers whose aims and perspective are different but may also be opposing. The doctor (and it is typically a doctor) may act as the patient’s agent or advocate, but has interests of his or her own as well which may be important; the payer, too, is supposed to respond to the needs of patients but must often balance satisfying the needs of one patient with failing to meet the needs of others. And as patients we are typically self-centred rather than utilitarian: want our needs met rather than those of others because our own symptoms impinge on us in a way which is quite different from our experience of the suffering of others. Nothing like the simplicity of a typical business-to-consumer (B2C) transaction where the customer resolves conflicts (do I want this more than that, can I afford this etc) internally, for themselves.

The art of developing a persuasive business case is to frame the evidence in such a way as to define the stakeholders and their perspective so that the performance of a device is—and is seen to be—of value sufficient to justify the proposed cost. However the product is framed, you have to demonstrate to the stakeholders who will influence the decision to use your product that the benefit to them (including the vicarious benefit of improving the patient’s quality and quantity of life) is worth the cost to them (including any non-financial costs). In that sense, this is like a complex B2C transaction.

Why do we hear more about the trade-offs between costs and benefits than we did even ten, never mind 20 or 30 years ago? Because of the multiple whammy:

  • people live longer but they live long with chronic diseases, so that an average person has steadily more years of consuming healthcare resources than before (in the UK an increase of about two years in life expectancy per decade);
  • the ratio of retired to working people is rising, making it more difficult to fund the rising costs of healthcare from social insurance or taxes;
  • the avalanche of new technologies, many of which cost more (albeit offering benefits), particularly those which meet a previously unmet need;
  • increasing expectations of the public and healthcare professionals about what should be available and general standards of care;
  • a healthcare sector-specific inflation rate that is higher than average for the economy as a whole because it is labour-intensive, relatively non-automated, and like other services not open to global competition in the way that goods are.

The 2008 financial crisis and its aftermath may make it seem that we are going through a temporary blip as far as budgets are concerned, but a look back over the last 50 years suggests that it would be foolish to hope that financial pressures will go away as the world economy recovers. The increasing pressures for higher spending are meeting increasing counter-pressures on funding that make tougher choices inescapable. Quantifying the relationship between incremental cost and incremental value, however, it is defined, is essential to making defensible decisions among worthwhile alternatives. Data which just clears the regulatory hurdle is inadequate for building a business case for reimbursement.

Eucomed has clearly stated the industry’s commitment to demonstrating value. Other things being equal, this means that:

  • studies have to be of high methodological quality (ideally comparative, prospective, randomised, and blinded to the extent the intervention or technology permit);
  • outcome measures need to include measures of value (short-term proxy measures, such as radiological or histological findings, or technical success, are usually insufficient);
  • the comparator has to be relevant in the market(s) of interest;
  • information on resource use and unit cost must be specified to each market of interest;
  • follow-up is generally longer;
  • evidence is needed from ‘typical’ rather than ‘trial’ settings.

Healthcare systems must recognise the commercial realities of investors taking the risk that technologies fail to deliver their early promise and as a result fail in the market. This potentially adds up to a mixture of increased costs to obtain the evidence expected by healthcare decision-makers, postponed revenue generation, and a shorter time between accessing reimbursement and being overtaken by a competitor product or the next generation model. If we do not address the shortcomings of the current system, enterprise will be less rewarding and we will miss opportunities to improve outcomes.

Assuming this is not the result society wants, we have to find a more incremental approach to reimbursement than the typical binary yes/no decisions. In return for expecting more rigorous evidence-based cases for reimbursement, healthcare systems need to work in partnership with manufacturers once a product has shown robust evidence of (cost-)effectiveness but before definitive proof is available or before the subgroup or circumstances in which it is most cost-effective have been established.

One approach which seems useful is coverage with evidence development (CED). In CED, reimbursement is available provisionally pending further evidence generation. When further evidence is available, the original decision can be confirmed or reversed, and/or a new price (which might be higher or lower) might be negotiated.

CED is starting to develop:

  • France has introduced STIC (soutien aux techniques innovantes couteuses). Under this programme funding is provided for CE-marked devices for studies to collect clinical and economic data to establish the incremental value of innovative products compared to current care. Only a few, around ten, technologies are funded through this programme each year: selection is by a tender process;
  • Germany has recently introduced a new system under which an application can be made for a partially funded (typically 50% of the costs) “trial study” (“Erprobungsstudie”), which is conducted with the German reimbursement authority, the Joint Federal Committee (G-BA). This system gives technologies with the potential to become a better and/or more cost-effective alternative to existing standard treatment access to the market while data are being collected.

Other approaches being adopted include a requirement for less comprehensive evidence than a classic cost-effectiveness case would require. An example here is the Medical Technology Evaluation Programme of NICE in the UK which uses a cost-consequences analysis (CCA). CCA compares alternative pathways in which the components of incremental costs and consequences are quantified and listed, without aggregating the results into a cost-effectiveness or cost-utility ratio. This approach is interesting because it takes a broad view of costs to the NHS so that if the acquisition costs of a new technology are higher than the comparator but required fewer other resources (for example less procedure time, shorter length of stay, or fewer readmissions) it can be adopted as being cost-effective for the NHS as a whole. This is assisted in the UK by the budgetary arrangements which give a single payer control over (and responsibility for) healthcare expenditures of all types, wherever and however they may be incurred.

The UK does not have a formal system for funding innovation. However, hospital staff are encouraged adopt innovations that will improve the efficiency of healthcare. The NHS takes a broad view of innovation and typically focuses on new patient care pathways (which may or may not involve new technologies) rather than the use of technologies simply because they are new. Hospitals wishing to fund an innovation are encouraged to submit to the payer a service development proposal containing both a clinical and a financial case.

Healthcare systems also have an opportunity at low cost to make it quicker, easier, and cheaper to collect evidence in everyday practice by encouraging or requiring staff to use the record keeping involved in normal patient care and making facilities available at cost as part of the CED package.

Society needs also to address the issue of funding innovation. Although some people in the industry seem to believe that health services should fund innovation for its own sake, it is arguable that health service budgets are intended to provide care and not to sponsor enterprise if this adds cost. Given the constraints on budgets, most systems actually mean by innovation “new ways of working (which may or may not involve new technology) which generate more benefits for current spend or spend less for the same benefits”. But innovation is essential to continued wealth creation in developed economies. Adequately funded programmes for supporting innovative technologies should be available for R&D activities which show promise, including innovations in healthcare.

Despite the public impression that those working are altruistic, health services are in the usual grip of vested interests: insurance funds, governments, professional groups, employees, unions, patient organisations, media, politicians, patients, carers. As a result, and particularly because of the autonomy frontline staff have in health care, health systems are highly inertial. I have seen many good ideas suffocate because of inertia. Health services will have to be faster on their feet, disinvesting from ineffective activity and making effective activity more efficient. This would help to implement ‘save money now’ and ‘more value for current spend’ proposals.

Society needs to resolve the perennial conflict between worthwhileness and affordability, the collision between health economics and budgets. A decision-maker with a cash-limited budget will find it difficult to accept any proposal that involves an increase in spend, even if it has a high ROI. One obvious way of resolving this, particularly for those proposals to ‘spend now to save later, is to make loans available to payers or providers at normal public interest rates and require them to repay the loans from future years’ budgets.

This leaves the ‘spend more for better quality’ proposals. Ultimately, this depends on what proportion of the GDP societies are willing to devote to health. A rational approach would be to compare the costs and benefits of different sorts of public spending (health vs transport vs defence vs education etc) but we are in practice a long way from being able to do this. Meanwhile, however, many studies suggest that there is much waste in healthcare systems and if this were addressed considerable resources could be made available for adopting new technologies for some time yet.

We know that we have to demonstrate value. The industry wants to do. Healthcare systems should reciprocate by working with industry to develop reimbursement mechanisms which steer a path between methodological purity and commercial reality.

– Mark Charny, Managing Director of Translucency Limited

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