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INTRODUCTION CHARLES E. SCHNEIDER, Vice President of Reimbursement US healthcare finance reform received significant focus in 2008. Politicians espoused their desire for universal health care coverage and use of tax credits to encourage enrollment with health insurance plans. President-elect Obama’s plan called for greater information technology investment and the use of the electronic medical record, require the use of disease management programs for chronic conditions, provide physician incentives through use of pay-for-performance programs, and establish an independent institute that would conduct comparative effectiveness research. For health plans, Obama campaigned on a promise to require health insurance plan disclosure on the value of premium monies used for program administration. While addressing pharmaceutical companies specifically, all medical technology companies should take note of the Democratic platform that will allow patients to purchase pharmaceuticals outside of the United States, and expand the power of the Secretary to negotiate rates with certain companies. In this newsletter, MCRA Reimbursement experts review some of the legislation pending from 2008. While bills must be re-introduced in the 111th congress, they echo the President-elect’s platform and are likely to receive a great deal of attention next year. Topics included within this bi-monthly newsletter include a review of comparative effectiveness legislation (S.3408), repeal of the Supreme Court decision in Riegel (H.R. 6381) as well as a review of the Sunshine Act (H.R. 5605) that prohibits certain payments to physicians. 2009 Medicare inpatient and outpatient rules are discussed, MCRA Director of Reimbursement Tim Hunter provides an analysis describing the broader implications associated with value-based purchasing. Given Medicare’s recent announcement regarding the adoption of the ICD-10-PCS coding system, this newsletter will provide a brief introduction and raise questions of interest to medical technology companies. Product Positioning & Reimbursement: An Update On Comparative Effectiveness CHARLES E. SCHNEIDER, Vice President of Reimbursement1 Comparative effectiveness research examines clinical outcomes, or the “clinical effectiveness” of alternative therapies for the same condition. For purposes of medical technology development, such studies could dramatically affect the way in which future treatment options receive coverage, coding and payment within the United States. Industry stakeholders are keenly interested in the outcome of federal legislation, and would do well to consider comparison studies which best position their product for long-term success. AHRQs Leadership in Comparative Effectiveness Research A Federal Reaction to Health Care Cost The Institute can contract with federal agencies, AHRQ and appropriate private entities to conduct the research, which will include systematic reviews, observational studies, clinical trials, and randomized controlled trials. Research findings will be peer-reviewed and publicly disseminated in ways patients and healthcare providers can easily understand. The Institute will be governed by a multi-stakeholder Board of Governors, including the Secretary of Health and Human Services (HHS), the Directors of AHRQ and the National Institutes of Health (NIH), and 18 additional members representing diverse public and private sector expertise and interests. These members will be appointed by the Comptroller General of the United States. Comparative effectiveness research will likely be used by payors in the future to establish more specific coverage decisions, or perhaps to base future benefit levels on the selection of certain technologies or treatment options. Such activities are consistent with recent trends in physician incentives introduced through Medicare’s pay-for-performance program under §501b of the Medicare Modernization Act (MMA; Pub. L. 108–173), state legislative mandates for hospital reporting, and NCQA outcomes reporting by health plans as a condition of accreditation clearly signal the need for medical technology innovators to ensure quality training programs are administered, and outcomes reporting that show technologies are as good as, or better than, alternative treatment options. Creating Reimbursement Barriers to Entry Industry Considerations CMS to Encourage Further Care Coordination and Quality Reporting in 2009 and Beyond by Tim Hunter, Director of Reimbursement The Centers for Medicare and Medicaid Services (CMS) recently released hospital inpatient, hospital outpatient, and physician final rules outlining payment for services in 2009. While each rule contains important programmatic information, an intra-rule analysis provides a broader description of CMS’s intentions with respect to value-based purchasing and developing incentives for coordination of patient care among providers and hospitals. This article examines programmatic changes implemented across settings of care by CMS to advance quality improvement and performance-based payment initiatives and identifies actions manufacturers can take to improve brand loyalty. 2009 Medicare Hospital Inpatient Final Rule Never Events – CMS has identified a set of events that should never happen during the course of care in a hospital. CMS has initiated a National Coverage Analysis for “never events” to identify methods to ensure that patients receive all necessary care associated with treatment without paying the surgeon and hospital for an erroneous surgery and related care4. Examples of never events identified by CMS include5: Quality Reporting Measures6 – Hospitals are subject to a 2 percentage point decrease in payments if they do not submit qualifying quality data related to specific measures. For FY 2008, only 186 out of 3,538 eligible hospitals failed to submit qualifying data. CMS increased the number of reportable measures in 2009 to 42. Hospital Acquired Conditions (HAC) – CMS has identified several conditions that it considers to be reasonably preventable, costly, and/or common. Of particular interest to orthopedic device manufacturers are the following conditions following certain orthopedic procedures: Beginning October 1, 2008, CMS no longer will pay hospitals at a higher rate specifically for the increased costs associated with listed HACs. CMS estimates that this policy will result in annual savings of $21 million in Medicare payments to hospitals and also that it will lead hospitals and surgeons to more properly document conditions present upon admission. 2009 Medicare Hospital Outpatient Final Rule Quality Reporting Measures – After successfully requiring hospitals to report quality data for specified measures, CMS has expanded the mandatory reporting to the hospital outpatient setting. Hospitals failing to report on these measures for 2009 also will be subject to a 2 percentage point reduction in the 2010 payment update, effectively linking quality data reporting across both settings. Episode of Care and Composite Payments – CMS is actively considering and implementing efforts to consolidate outpatient payments into larger, more comprehensive, payments. For 2009, CMS has created new composite codes for multiple imaging procedures performed during the same during the same outpatient episode. Hospital Acquired Conditions – CMS is actively considering when and how to incorporate the HAC concept in the hospital outpatient setting as well as in other settings such as Ambulatory Surgical Centers and physician offices. Ongoing CMS Demonstration Programs and Other Initiatives Coordination of Care Demonstrations – A patient is likely to receive medical care from a number of physicians as well as from hospital staff when a surgical procedure is performed. CMS often notes that physicians (or surgeons) and facilities do not always have financial incentives that align in treating the patient. For example, a surgeon is paid independently by Medicare regardless of where the surgery is performed (setting), how long the patient is hospitalized, or whether the patient suffers a hospital-acquired condition (outcome). Coordination of care demonstration programs seek to align financial incentives among providers and facilities, often by pooling payments for all treating providers under an episode of care designation. For example, CMS currently is developing the Medicare Acute Care Episode (ACE) demonstration that bundles services (both hospital and physician) into a single episode of care with a negotiated payment amount. The demonstration allows select hospitals and providers in four states to share cost savings achieved through integrated care delivery for hip and knee replacement surgeries. Implications for the Future • More reportable measures – CMS has increased the number of hospital inpatient measures to 42 for 2009. • New uses of the data – CMS has created Hospital Compare, which provides information to the public regarding the quality of care provided by hospitals and includes data from the quality reporting initiative. In the future, CMS may also consider a fourth use: • Integrate physician quality data – It is possible that CMS can link physician and hospital quality reporting initiatives to more closely analyze continuum of care for selected procedures. Information from the demonstrations aimed at aligning incentives to physicians and hospitals could be used to drastically change, or even, link future payments for services. In addition, these initiatives, as well as the implementation of a streamlined claims processing system under Medicare Administrative Contractors (MACs), could be used to restrict payments to surgeons that are associated with never events and/or hospital-acquired conditions. Finally, it is likely that the number of quality data measures required for full payment in all settings will increase, allowing CMS to become a more prudent and selective payor of Medicare services. Manufacturers’ Role Medical Device Safety Act of 2008: Implications for Industry by Jeffrey D. Zigler, JD, Associate8 Both the Food and Drug Administration (FDA) and the medical device industry continue to battle the would-be champions of healthcare consumer protectionism in Congress. House Resolution 6381, dubbed the “Medical Device Safety Act of 2008,”9 represents the most current, as well as one of the most sweeping, legislative changes to the regulatory environment for the industry today. As consultants to leading innovators of the medical device industry, acting as catalysts for their regulatory activity, and advocating before regulatory bodies tasked with enforcing Congress’ will, firms like Musculoskeletal Clinical Regulatory Advisers (MCRA) in Washington, DC view this ongoing fight as one which industry professionals, manufacturers, and regulatory attorneys alike should all take notice. Legislative History and Recent Supreme Court Decisions Following this decision, states cannot maintain requirements that are more stringent than federal standards. But the Medical Device Safety Act, if passed, would directly negate the Riegel decision, allowing product liability lawsuits to be pursued at the state level by individuals seeking damages for injuries alleged to have resulted from inadequate warnings as to medical devices provided by device manufacturers, even though such products had been reviewed by the FDA and met the agency’s approval standards. Indeed, the bill’s provision that the federal Food, Drug, and Cosmetic Act would have “No Effect on Liability Under State Law” leaves little ambiguity or room for interpretation; the bill, if passed, would effectively overturn the Supreme Court’s decision against this same attack on the FDA’s authority in Riegel. In Riegel, decided in February 2008, the Court determined “whether the pre-emption clause enacted in the Medical Device Amendments of 1976, 21 U.S.C. § 360(k), bars common-law claims challenging the safety and effectiveness of a medical device given premarket approval by the . . . [FDA].”14 The device manufacturer’s arguments in Riegel were based on the particular language in the Medical Device Amendments’ built-in pre-emption clause, which was created to dispense with such arguments in the first place.15 In other words, the Riegel Court was unwilling to undo what it believed to be Congress’ original intent in construing this clause in favor of the federal Amendments. The Court held that the federal law creating the FDA’s review-and-approval mechanisms under the Medical Device Amendments of 1976 “pre-empted,” or overrode, all state law claims.16 This was due largely to the fact that the FDA’s formal Premarket Approval (PMA) processes were found to already be stringent enough, and sufficiently protected consumers across the nation.17 Riegel was not the first time the Court has visited this issue. In 1996, twelve years before Riegel was decided, the Court heard arguments in Medtronic v. Lohr that a Florida state statute similarly pre-empted federal law establishing the § 510(k) process.18 The Lohr Court determined that since the § 510(k) process “is focused on equivalence, not safety, substantial equivalence determinations provide little protection to the public.” Whereas the Riegel Court based its decision on the PMA process, the Lohr decision was based on the FDA’s review of a medical device for substantial equivalency under the § 510(k) process. In clarifying the Lohr decision, the Riegel Court noted that PMA approval 1) was specific to individual devices, 2) was focused on safety, and 3) could only be achieved if the applicant sufficiently demonstrated to the FDA that the device in question offered “a reasonable assurance of safety and effectiveness.”19 Framing the Issue for the Industry To this point, The Wall Street Journal raised an interesting argument in a recent op-ed article, the notion that subjecting medical device manufacturers to both federal and state law claims amounts to a sort of “double-jeopardy,” wherein manufacturers would ostensibly have to answer for their designs, claims, and warnings at both the federal and the state level. The author opined that this would have a chilling, and no doubt a crippling, effect on industry.21 The issue of states’ rights and federalism is one that has been debated for many years, and today strikes at the very heart of the medical device industry: its members’ freedom to innovate. If the Medical Device Safety Act of 2008 exits committee, and if its exposure in the House continues to increase, Senators Edward Kennedy (D-MA) and Patrick Leahy (D-VT) plan to introduce companion legislation in the Senate. If the bill does not die in committee, key members of the medical device industry need not only take notice, but perhaps active measures to re-frame the issue as one of federalism trumping states’ rights, emphasizing the industry’s (not to mention the economy’s) need for uninhibited growth of small-to-midsize manufacturers’ technological innovation. The Physician Payments Sunshine Act Of 2008 (H.r. 5605) by Robert J. Hoehn, Senior Associate22 The Physician Payments Sunshine Act of 2008 (H.R. 5605) was introduced by Rep. Peter DeFazio (D-OR.) on March 13th, 2008. The intended purpose of this bill is to provide for transparency in the relationship between physicians and manufacturers of drugs, devices, or medical supplies for which payment is made under Medicare, Medicaid, or other federal healthcare programs. The bill has garnered support from both government and industry. In fact, many manufacturers have taken it upon themselves to voluntarily implement programs disclosing their financial relationships with doctors. Most agree that a move toward transparency is one in the right direction; however the passage of this legislation may leave many members of industry unprepared for its impact. H.R. 5605 would require quarterly and annual reporting to the Secretary of Health and Human Services (HHS) of any payment or transfer of value made to physicians over $25. These payments or items of value include compensation, food, entertainment, gifts, travel, product rebates, consulting fees, stock and option grants, anything provided for less than fair market value, as well as a laundry list of other items and services valued above $25 provided by drug, device and medical supply companies to physicians.23 Companies must report the name and address of the physician, as well as other details such as the value and purpose of the payment. The Secretary of HHS would then make this information publicly available through an Internet website.24 Knowingly failing to submit this information would result in civil monetary penalties of no less than $10,000, but no more than $100,000 for each occurrence.25 Any company found to be non-compliant would also forfeit all tax deductions otherwise available for expenditures relating to advertising, promoting, or marketing of any covered drug, device, or medical supply.26 This House bill applies to all companies with annual revenues over $1 million. A similar bill proposed by Sen. Charles Grassley (R-IA) would apply only to those companies whose annual revenues exceed $100 million.27 The House bill has been referred to the Subcommittee on Health and still requires approval by the House, Senate, and presentment to the President before having the effect of law. In an effort to establish uniform rules and regulations that pre-empt state sunshine laws, several pharmaceutical and medical device manufacturers have endorsed these bills including Medtronic, Zimmer Holdings, Eli Lilly and Co., Merck, Astra Zeneca, and Johnson & Johnson. Several trade associations have also endorsed the Senate bill including PhRMA and AdvaMed.28 The Consumers Union, the American Medical Student Association and the Medicare Rights Center have endorsed the House bill. While many larger companies have the resources and expertise to quickly comply with this legislation, many smaller companies may not. Regardless of the outcome of this particular legislation, there seems to be a well supported move toward transparency. In order to prepare for such a move, it is critical that manufactures and doctors are well educated with regard to what will be required of them. Proactively implementing a healthcare compliance program may be the best possible way to ensure manufacturers are conforming to all governmental regulations, and are conducting business with unquestionable ethics. Many companies may find this undertaking quite costly and burdensome. Depending on a given company’s scale of operations and financial resources available to rely on consultants with expertise in healthcare, present compliance may be a fiscally sound alternative. ICD-10 and Its Effects on New Technology by Machelle Morningstar, CPC, CPC-H, CPC-E/M, PCS Along with the Department of Health and Human Services’ recent announcement on August 22, 2008, signaling proposed implementation of ICD-10-CM and ICD-10-PCS coding systems on October 1, 2011, comes grave concern as to how such a transition will affect both physicians and hospitals alike.30 Concerns range from the cost of training for coders, to the cost of implementation due to required software and hardware upgrades, as well as the possibility of experiencing sub-par healthcare services as providers and facilities work through the learning curve. However, the fear and uncertainty surrounding this announcement may not necessarily be justified. Implementation of the ICD-10 system may not represent as big a hurdle as some believe, as the mere fact that coders will now have a greater number of codes does not necessarily mean that the system will be any more complex. After all, noted problems with the outgoing ICD-9 system have included inconsistency, a lack of clear definitions, not enough specificity, and ambiguity. Codes have found themselves in the wrong chapter. Also, under the ICD-9 system, coders have a varying level of detail and an overuse of “not elsewhere classified” (NEC) and “not otherwise specified (NOS), which do not always give a clear picture of the actual procedure performed, along with nonstandard code elements. And above all else, there is a general (but quite serious) capacity issue—simply put, ICD-9 may run out of space by 2009. A New Code Structure
Utilizing the above algorithm, an example of an ICD-10 code would be: 027004Z Dilation of coronary artery, one site with drug-eluting intra-luminal device, open approach Impact on Reimbursement An example of GEM is: ICD-10-PCS: 00.66 (PTCA) or coronary atherectomy Based on the above illustration, one ICD-10 code can be the equivalent of several ICD-9 codes, exacting greater specificity. In light of changes from the DRG system to the MS-DRG system, 3M is also implementing processes for GEMs of ICD-10 codes to the MS-DRG codes. Presently, Major Diagnostic Category (MDC) 6—gastrointestinal diseases—is completed, and the rest of the MDCs will be converted to GEM by late 2009. Initially, ICD-10 will not create any major increases (or decreases) in the MS-DRG values. According to CMS, the first year or two following its implementation will not see any major monetary changes. After that time period, CMS will begin evaluating the effect of ICD-10 on MS-DRGs and may make adjustments at such time. New Technology and the New Code Creation Process Conclusion Technology-driven companies must consider available coding options now. If a new code is warranted, or an adjustment is needed for a current code, there is still time to get this implemented, prior to ICD-10. Also, there is still a possibility that ICD-10’s implementation will be delayed until 2014. While there may not be the much-feared disruption during the ICD-10 transition process, it is nevertheless critical that manufacturers and industry stakeholders have a comprehensive plan and strategies in place to successfully maneuver new coding environments. Providers and facilities must also begin the preparation process by evaluating their respective needs as they relate to coder training, software and hardware upgrades, as well as how they will handle any down-time caused by the transfer, so as to avoid unnecessary cash flow interruptions.
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