Practice Management News

Costs, Reimbursement Impede Hospital Medical Device Adoption

Hospital medical device adoption is a significant supply chain challenge exacerbated by high product costs and a lack of adequate claims reimbursement.

Costs, Reimbursement Impede Hospital Medical Device Adoption

Source: Thinkstock

By Jacqueline LaPointe

- High costs coupled with a lack of adequate claims reimbursement is challenging the adoption of innovative medical devices and creating tension between providers, supply chain leaders, and revenue cycle managers, a recent paper from Vizient shows.

The healthcare performance improvement company and group purchasing organization found that, on average, the prices of several recent innovative cardiovascular medical devices were 273.3 percent greater than the costs of corresponding predicate medical device.

Innovative medical devices promise to improve clinical outcomes. Yet, Medicare takes an average of six months to create claims reimbursement codes for the devices, and temporary technology add-on codes that were designed to reduce the financial burden on providers still leave large gaps between reimbursement and device costs.

For innovative cardiovascular medical devices, the average cost of the device ranges from 17 to 88 percent of the overall claims reimbursement amount for the procedure, the paper reveals.

“Existing reimbursement models take into consideration that medical devices, unlike pharmaceuticals, represent a portion of the total cost of a procedure,” Craig Lukowski, director of physician preference sourcing at Vizient, states in the report. “However, in the past few years we have seen several new medical devices that are taking a much greater portion of that reimbursement, with some coming close to 100 percent based on an analysis from Vizient of the average reimbursement received versus device cost paid by hospitals across the country.”

“This leaves little to cover the extensive costs that come with device implantation, such as hospital stays, surgery and anesthesia,” he stresses.

The financial challenges of innovative medical device adoption are calling into question when hospitals purchase and use new technologies.

Medical device manufacturers have set their sights on healthcare innovation, and the FDA is helping get their novel devices on the market. The federal agency increased the number of first-time premarket approvals by 28 percent from 2016 to 2017, the report states.

The federal agency also recently announced that it approved 106 novel medical devices in 2018, surpassing the previous record of 99 device approvals in 2017.

Novel devices approved by the FDA have the potential to improve quality of life and longevity for patients, causing providers to demand innovative medical devices for their patients.

However, supply chain leaders are considering the high price tag of innovative medical devices, as well as the device’s availability, while revenue cycle managers are concerned payers will not reimburse the hospital for using the novel device.

The tension between providers, supply chain leaders, and revenue cycle managers can make it hard to decide when to adopt an innovative medical device.

Early adopters run the risk of losing significant amounts of revenue with each procedure performed, especially in Medicare cases. But late adopters do not benefit from novel devices and advanced treatment options, which may harm their brand overall.

Hospitals need to retool how they assess medical device value to determine the appropriate time to adopt innovative medical devices, Vizient states in the paper.

“In short, hospitals need a systematic process for evaluating both clinical and financial outcomes associated with the technology—in this case, value is a product of weighing cost against outcomes,” the paper says.

Technology value should be plotted as the relationship between outcomes, found from published clinical evidence, and the total cost of care, determined from financial analysis, the paper continues.

Innovative medical devices will fall into four quadrants divided by a positive linear decision threshold line. Hospitals should consider adopting innovative medical devices that fall to the bottom right of the linear decision threshold line because they have lower costs of care and better outcomes.

However, most innovative technologies will fall on the upper right quadrant because of their good outcomes and higher cost. For example, transcatheter aortic valve replacement (TAVR), drug-coated balloons, and left atrial appendage occlusions fall in the upper right quadrant.

“When they are above the decision threshold line, often defined by an incremental cost-effectiveness ratio of greater than $50,000 to $100,000 per quality-adjusted life year, the price of the technology may be too high and present a barrier to adoption,” the paper states.

Hospitals should also view new technology adoption as a “service differentiator to separate themselves from their competition,” the paper advises. The decision should also consider physician recruitment, research and teaching missions, and the development of core clinical services.