REIMBURSEMENT

MX: The Centers for Medicare and Medicaid Services (CMS; Baltimore) has traditionally been charged with evaluating coverage and payment for medical practices according to whether they meet the statutory criteria of being reasonable and necessary. But in recent years, the medical community has become increasingly supportive of a shift toward the use of evidence-based medicine in the criteria for reimbursement. How do you expect this shift to change the ways that medical technology companies—including bio­tech, medical device, and pharma companies—conduct studies of their products?

John W. Peabody: As an aspiration, evidence-based practice is absolutely the way we should be going. This approach provides us with much more rigorous evidence about the right treatments to perform.

One of the most difficult problems we face is the fact that there’s a paucity of useful evidence. There’s just not nearly enough information on which to base treatment decisions. And frequently, the reason for this is simply that it’s just too difficult to generate meaningful evidence. This is particularly true of the evidence base for medical technologies, where we have the least amount of information.

One reason for this is that the marketplace doesn’t encourage the generation of such evidence—even for drug products. Another reason is that it is very hard to conduct studies that reveal the risks of relatively rare events, because doing so requires long-term trials involving lots of patients. The costs that biotech and pharma companies face make some studies very costly or even infeasible. And if that’s the case for drug development, where we have the most stringent requirements, it’s easy to see what the problem is going to be when the studies involve medical devices.

Current regulatory and reimbursement structures and policies were not designed to facilitate the development of cross-sector healthcare technologies. Will efforts of this type require significant changes in the methods that CMS uses to operate Medicare and Medicaid?

Particularly because of the political party changes in Washington, DC, CMS is going to be under enormous pressure to change its rules. I think that pressure can be readily seen in three areas.

The first is at the state level, where strong payer reform initiatives have emerged in Massachusetts, California, and Hawaii. Payer changes are emanating from a variety of sources—from state governments, large employer groups, and patients—all unhappy with the current inability of the healthcare system to provide coverage and control costs. These are pretty dramatic initiatives, and I think other states and other payers will follow suit.

The second form of pressure comes from the clear fact that, in the long run, we can’t continue as we are. We’ve already squeezed hard on the providers—the hospitals and the doctors—but the cost of drugs and devices is accelerating as a percentage of the overall cost of care. Consequently, drugs and devices represent one of the most vulnerable targets for those seeking ways to control healthcare costs. In the Deficit Reduction Act of 2005, for example, cost-cutting measures have already been imposed on the imaging sector. Changes to drug reimbursement have already unfolded, so now people are only willing to pay the average selling price, and they don’t want to pay the average wholesale price. There isn’t any place right now that’s not in quite a bit of turmoil around cost control.

The third form of pressure is that healthcare agencies in the rest of the world are demanding that manufacturers demonstrate some value before they will purchase and pay for new products. Until that’s done, they’re not going to approve the products.

Now, we don’t have that process in the United States. But I can very easily see policy changes ahead that would permit CMS, the Agency for Healthcare Research and Quality, or some other agency working with FDA to insist that there be a demonstration of value, and that without such a demonstration, the agency would not approve reimbursement for the drugs or devices.

So I think there are going to be some significant changes. But I would guess that we will not see a lot of them emerge until after the next presidential election—perhaps even a couple years after a new administration is in place.