At this time, it would appear that the demands on the Medicare system have reached a point where significant change may be likely.  There may simply be too much pressure from beneficiaries, providers, and other stakeholders for the program to keep pace through incremental adjustments.  As a result, the debate has centered on how to accomplish this reform, both substantively and politically.

Though Medicare's expenditures and operations are vast, many stakeholders argue that the program can improve its overall performance substantially by striving toward three goals: better benefits, better management, and better service.  These same stakeholders maintain that one of the best ways to achieve those goals is to reformulate the fundamental mindset of Medicare:  from a command/control structure, in which Medicare attempts to manage the health delivery system from the top down, to a flexible and innovative architecture that responds to the changing nature of medical care and the changing needs of Medicare patients.  Specifically, as we understand it, these stakeholders recommend the following steps:  

A.                Medicare should offer a modern package of benefits consistent with the need for fiscal restraint.  In some cases, Medicare's benefits package does not reflect today’s medical care and consumer needs.  Stakeholders argue that today's consumers need an up-to-date portfolio of services, from preventive care to telemedicine to prescription drugs, that is competitive with private health plans of non-Medicare patients.  Thus, these stakeholders assert that Medicare should modernize and update its package of services, while maintaining sound fiscal management.  

B.                Medicare should introduce more competition among plans to improve the program’s fiscal management. Over time, consumers are growing accustomed to having many choices in the type of private health services they receive.  Moreover, in many cases consumers search the Internet for health information;  they use out-of-pocket money to purchase alternative medicines; they alter the political landscape in demanding access to new treatments.  Stakeholders argue that Medicare should learn from these consumer trends and preferences and offer beneficiaries new options and choices—in types of health plans, benefits, services, providers, sites of care, and prices.  

Since the end of the Bipartisan Commission in 1999, support has grown for reforming Medicare by expanding the role of private insurance and introducing a more competitive system.  Most Medicare reform plans -- including the one introduced by Senators Breaux and Frist in June 2000 -- assume the continued availability of a government administered fee-for-service Medicare program and encourage competition between that program and plans operated by private companies. By creating a more competitive environment among plans, some stakeholders believe Medicare will introduce a powerful new force that will better ensure the proper fiscal management of the program. 

C.                Medicare should reduce complexity, paperwork, and regulatory burdens.  No one disagrees that a $200 billion annual program should maintain careful procedures and protections.  But some believe Medicare's complexity and regulatory burdens are out of proportion to the task.  These stakeholders urge Medicare to streamline and simplify, to eliminate layers of bureaucracy, and to cut out redundancy.  By becoming more user-friendly, they argue Medicare could better serve patient needs and free resources for more productive uses.   

One area that offers the potential for substantial improvement, according to many, is reform in the national, regional and local coverage processes.  While in recent years there have been some improvements in the national coverage process, many point to major deficiencies that remain in the activities of Medicare’s regional carriers (for example, the Durable Medical Equipment regional Carriers, or “DMERCs”).  This regional process is often slow, excessively demanding, and impossible to predict. Stakeholders argue that regional coverage processes must be more open, must operate within set timeframes, and must avoid "hidden agendas" that change coverage policies without adequate public participation.   

II.      Principles to Improve Access to Medical Technology

The Indiana Medical Device Manufacturers Council, or “IMDMC,” believes that the same kind of detailed attention that the industry is now according the current program – through suggested improvements in coverage, coding, and payment – should also be directed to the deeper, more fundamental changes inherent in Medicare restructuring.  Here, the complexity we noted earlier is on full display, complemented by a current policy direction that needs to be redirected. 

Medicare often fails to recognize fundamental realities of medical technology innovation—that data are often not available early in a product's life-cycle, that devices undergo a lifetime of continuous change, and that well-established technologies possess significantly different characteristics than emerging technologies.  The upshot of these policy shortcomings is a program that often interferes both with innovation and with the patient benefits that innovation can produce. 

It is important to understand that new medical devices are borne of a special brand of innovation – innovation that is continual, incremental, and fueled by the ongoing feedback of health care professionals.  Over time, as basic device platforms mature and become established, they warrant policies different from those suited to novel devices just entering this innovation process. 

Below, we distinguish devices by their stage of evolution as we outline our views on how Medicare reforms can encourage medical technology’s appropriate adoption and use.   

A.                Medicare should encourage appropriate utilization of established medical technologies. 

Medicare's focus on fiscal restraint is appropriate.  But its perspective on utilization of medical care is often too narrow, aimed primarily at cutting short-term costs by limiting utilization of existing products.  We urge Medicare to adopt a more holistic view of medical technology.  For technology often offers Medicare unique opportunities to realize system-wide economies, increase beneficiary well-being, and improve outcomes.  This is especially true of well-established technologies that have benefits more visible and easily measured.  By taking this more informed view of the value of existing products, Medicare can design smarter and more effective policies on when and for whom such products should be used. 

1.                  Medicare should make preventive care one of its primary tools in improving utilization.  Preventive care saves not only lives but money.  Screening technologies, such as mammography and colonoscopy, detect disease early, when it is usually easier and less costly to treat.  Wellness and outreach campaigns can help patients comply with treatment regimens, and improves their quality of life.  At the same time, information technologies can keep patients and physicians more closely linked, improving the ability to manage illnesses and avoid costly complications.   

2.                  Medicare judgments on utilization should be based on evidence standards that are genuinely suitable for medical technologies.  Thoughtful national utilization policies on well-established device-related services serve an important purpose, but unfortunately the program does not always base its policies on the most suitable standard. We describe the proper standards in greater depth in the next section concerning new technologies. 

3.                  Medicare ought to make better use of the evidence it already possesses and other databases available to it, when determining the proper utilization of existing technologies. Medicare has one of the most important and powerful databases in health care—its own MedPar data—but unfortunately the program does not use these data to their fullest potential. The program should make better use of all types of databases—including the MedPar data—in making utilization judgments. 

4.                  Evidence-based medicine should be used to aid – but not control -- health care practitioners in making patient-care decisions.  Physicians and other providers need the best insight and analysis from systematic review of outcomes and effectiveness data.  This will aid them in making decisions.  On the other hand, such data should not be used to micro-manage treatment decisions or inappropriately narrow treatment options.   

5.                  Medicare should avoid trying to force medical care into settings of its choosing.  For too long, Medicare has attempted to force utilization into care settings that it preferred, using rigid payment rules that preclude payment for specific services in certain settings. In doing so, the program has impeded the matching of care with the delivery setting where it makes the most clinical and economic sense.  The upshot is that Medicare has attempted to prevent or limit care in beneficial new settings, such as in the home.  With the emergence of advances in such fields as information technology, genomics, cell therapy, and telemetry, new avenues of care and new delivery settings will emerge even more rapidly.  Medicare should be flexible to accommodate these kinds of changes, and allow payment in the settings that medicine moves toward. 

6.                  Medicare should allow for appropriate financial risk-sharing, at the option of the participants, as a means of improving utilization.  Financial risk-sharing has many dimensions, and includes such techniques as supply risk contracting between providers and suppliers.[1] The central feature of this financial risk-sharing is the use of contractual or other means to spread the “risk” (used in its technical insurance sense) among two or more parties to the delivery of health care. Unfortunately, however, Medicare's rigid payment methodologies prevent providers, device makers, and patients from entering innovative arrangements for apportioning the financial risks of delivering care even though such arrangements could easily improve utilization.  For example, coordinated systems of care and "centers of excellence" are examples of how financial risk and better utilization can go hand-in-hand.  We should note that financial risk-sharing does not include such things as competitive bidding, which does not spread the insurance risk but rather in practice most often simply perverts the market forces in setting the price. 

In all cases, the entities or individuals bearing the financial risk of a technology’s utilization should make the decision on whether that technology should be utilized. 

7.                  Every level of the Medicare system—including the trust fund and individual plans—should make annual decisions on the level of investment in Medicare, and these decisions should recognize changes in medical practice. Identifying the appropriate level of financial investment in Medicare is, at root, a “political” decision -- in the best sense of the term -- for it represents society’s judgment on the relative importance of providing health care to elderly and disabled Americans.  Decisions of this importance should reflect the views of the American public, acting through their elected Congress and President.  Medical practice is continually changing, sometimes resulting in a lowering of the costs of health care, sometimes resulting in the raising of those costs.  In the current Medicare program, Congress and CMS make scheduled spending adjustments for key types of providers and professionals, using these adjustments to try to account for (among other factors) evolutions in technology and medical practice.  For example, the Secretary of HHS annually adjusts the “weights” used to compute inpatient DRG payments to reflect “changes in treatment patterns, technology . . . and other factors which may change the relative use of hospital resources.”  Similarly, the relative value units that underlie physician payments are periodically adjusted for changes in practice expenses and duration of physician procedures – areas that can be directly affected by evolutions in technology. While adjustments like these do not always fully meet the goal of keeping Medicare current with medical practice, technological adjustments are important steps toward this objective – and should be retained and improved in a restructured Medicare. 

B.                Medicare should adopt administrative and operational reforms to create an environment that facilitates future access to innovation. 

Though much innovation in medical technology occurs prior to market entry, a significant amount occurs as devices are used in real-world practice settings.  In this sense, devices are unique.  Unlike drugs, they evolve in a continuous pattern of incremental refinement and change—a kind of "dialogue of innovation" that occurs between the practitioners who use the technologies and the innovators who develop them.  The dialogue begins as health practitioners use new devices in everyday practice and begin to see the possibility of new uses, new indications, and new features.  From this, device manufacturers introduce refinements and incremental advances, which once again undergo real-world use by practitioners, who start the "dialogue" of innovation once more.   

This unique process yields important lessons concerning the development and evolution of medical devices:  

·                    Real-world utilization of medical devices is a central part of the device innovation process.  Therefore, devices need to enter the delivery system to evolve and improve.   

·                    Because devices change so rapidly, it is difficult to predict their ultimate form, application, and value during their early stages of evolution.  Policies that try to make this sort of up-front forecasting often will be wrong. 

Given these realities, Medicare policies should recognize the special needs of evolving technologies through the following steps: 

1.                  Medicare payment levels, as well as the structure of Medicare's payment systems, should encourage patient access to innovation.  That is, payment rates must be sufficient to encourage the capital markets to provide the investment necessary to fuel innovation.  Likewise, the design and structure of the payment systems must treat new technologies fairly and avoid incentives that discourage appropriate use. These important reforms must be made throughout the program, including in the pools of funding made available for particular types of provider reimbursement, and in the funds allocated to privately managed health plans that serve Medicare beneficiaries. 

The federal government, through the National Institutes of Health, invests billions of dollars annually for basic biomedical research.  This same federal government, through Medicare, should have in place payment regimes that allow the fruits of this research to be adopted and enter medical practice. 

2.                  Medicare should adopt administrative procedures that create certainty and predictability for innovators and the patients they serve. Whether a company is financing development of new product through outside investments or through internal funding, clarity and predictability are critical elements in product development.  They aid companies in securing the talent and investment for innovation, planning product development and release, and investing in future R&D.  

3.                  Decisions should be made in a timely manner to allow innovations to reach patients promptly.   Timeliness is critical for two reasons.  First, and more importantly, patients need access to new device-related treatments and diagnostics in order to improve their health. This is especially troubling because many products have been delayed for years by Medicare's confusing, slow-moving review mechanisms. And second, timeliness creates an environment that spurs innovators, investors, and manufacturers to engage in next-generation product development that is so critical for future patients. 

Delays in needed decision-making are especially harmful to patient access to device innovation because that innovation ordinarily occurs rapidly and constantly — one study found that new device models appear, on average, every nine to 12 months.   Thus, even the slightest delay in Medicare decision-making can deter innovation, and longer delays can effectively stifle access to innovation completely.  Small companies, which are the source of many of our greatest advancements in patient care, often simply cannot endure Medicare’s present timelines, and their life-saving or sustaining technology dies with them. 

4.                  Evidence standards for coverage decisions should be carefully designed to fit the nature of the medical technology under review.  Medicare’s evidentiary standards are insensitive to the fact that the most useful information on new devices will often be produced as those devices are actually used in the day-to-day practice of medicine.  Medicare often asks for data on a technology’s outcomes and value before the technology has diffused, thus short-circuiting the technology’s ability to enter the environment most likely to yield the information the program needs.   

In addition, Medicare sometimes demands inappropriately high levels of evidence -- such as that produced by randomized controlled clinical trials -- when other types of evidence may provide a clearer understanding of the clinical utility of the item in clinical practice.  We believe that the nature of the evidence demanded by coverage decision-makers must follow the nature of the technology under consideration.  For some technologies, RCTs are appropriate.  For others, however, a different type of evidence may be more suitable.  Medicare should draw from a range of evidence types, including, in some cases, judgments of individual physicians and opinions of medical specialty societies.  

5.                  Medicare should take into account more than the short term benefits of medical technologies, and should consider such factors as greater productivity by providers and enhanced quality of life for patients.  Medicare decisions about proper utilization often appear to be focused on short-term cost control.  Yet medical technologies often aid patients and providers in ways that are hard to calculate in a short-term cost/benefit analyses—artificial hips help patients live independently, intraocular lenses allow patients to enjoy freedom of movement, endoscopic surgery, by being less invasive, allows patients to return to a healthy state more quickly.  These important benefits must be factored into any Medicare decisions affecting utilization even if it requires some work to determine how these endpoints may best be measured. Over time, these benefits of technologies return fiscal rewards to the federal government.  At the same time, these technologies deliver to patients the kinds of care for which the government created Medicare in the first place. 

6.                  Medicare should avoid national coverage decisions on new medical technologies.  Medicare coverage decision-makers at all levels should understand (as noted above) that reliable information on a device technology may not be available early in the device’s life-cycle.  As such, national coverage decisions on new technologies should be avoided.  It is especially inappropriate to issue a national non-coverage decision, for this will curtail a technology’s diffusion, short-circuiting Medicare’s ability to learn how the technology will perform in actual clinical practice.  This, in turn, will inhibit the development of a thoughtful coverage policy for the longer term.   

New device technologies should instead be subject to decentralized, pluralistic coverage decisions at the local level.  This approach would enable practitioners to gain prompt access to new device-related treatments and diagnostics and generate critical information on the value and outcomes of the interventions, thus nurturing patient access to innovation.  Only after such experience and information are available should Medicare consider national coverage decisions. 

We think that local coverage provides the best opportunity to explore the optimal use of a new technology.  Local coverage allows physicians greater flexibility to tailor treatment to the needs of the patient.   While this results in the situation in which beneficiaries with similar conditions may receive different care in different parts of the country when new and evolving technology is involved, local coverage, with its greater flexibility, is the proper approach early in the development of potentially new and exciting technology. During those incubation periods, it is best to leave care decisions as close to the patient as possible.  Furthermore, this flexibility mirrors the historical mechanism for medical advancement -- discovery through exploration with incremental changes based on the patient's clinical condition.  

7.                  In determining which new devices are eligible for payment, Medicare should cover any item or service involving a new device that falls into a benefit category if the device may be lawfully used under the Federal Food, Drug and Cosmetic Act.

Current proposals typically contain no explicit provisions concerning how a benefits package should be implemented in the day-to-day delivery of health care.  Some proposals simply incorporate, by reference, Medicare’s current regime of “coverage.” 

Distilled to its essence, under the current Medicare FFS system, the “coverage process” serves three basic functions. Without getting into a discussion of what it properly should be used for, the coverage process, and in particular the test of what is reasonable and necessary, has been used: 

·        to allow Medicare to state its view of whether the item or service falls into a covered benefit category;

·        as a fiscal brake designed to prevent over-utilization; and

·        to serve a public health function by protecting the Medicare beneficiary from what are in the eyes of the program staff unsafe or ineffective items and services. 

We think the coverage process, in any Medicare reform, needs to be substantially re-calibrated.  In a reformed Medicare system, we believe the coverage and payment processes ought to work something like the following:

(a) Coverage

(i)  Benefit categories. Benefit categories should be re-defined to focus more clearly on medical needs (e.g., items and services used to treat cancer) and services (e.g. medical imaging services), and should be updated to include the items and services like preventive care recommended above.  This is different from the approach taken in the existing statute, which merely sets forth a very broad standard (and a whole slew of very specific items and services) and asks the program to decide what is “reasonable and necessary.”

After those revisions to the benefit categories, when confronted with a new technology, the program or plan should offer its view of whether the technology at issue falls within a covered benefit category.[2]

The program or plan would do this by answering the following question: Based on the labeled uses (which FDA assesses) and on the actual uses of a technology, does the use of the technology fit within a benefit category?  Thus, the coverage decision becomes a matter of a legal contract interpretation—rather than a scientific or medical judgement of need or effectiveness.  Individual medical necessity judgments would still need to be exercised at the claim administration level.

(ii)  Public Health Protection.  The public health function should be fulfilled by relying on the principle that those items or services that are lawfully used under the Federal Food, Drug and Cosmetic Act are safe and effective and thus eligible for payment under the Medicare system.  The FDA, which administers the FFDCA, is the Federal agency charged with responsibility for evaluating the safety and effectiveness of medical devices for all U.S. citizens, and the Medicare program should not duplicate that function.

If those two conditions are met (i.e., the item or service falls into a benefit category and the device may be lawfully used under the FFDCA), the item or service is covered under Medicare.

(b) Payment 

Determining the proper payment level for the technology is the next step.  The payment level should be set with reference to the market prices for the technology at issue.  In that way, the market is responsible for assessing the relative value of the technology.  The market data should be translated into payment levels through an open public process.

(c) Utilization

Once there has been a determination that the use of an item or service falls within a covered benefit and that use is lawful under the FFDCA and consequently the item or service is covered by Medicare, and after the program begins paying for the technology and has some experience with it, the final Medicare determination would be to establish any appropriate utilization controls. This determination would be expressed in utilization guidelines that identify appropriate conditions addressing where, when and how often the item or service may be safely and effectively used, if FDA has not addressed those issues in clearing labeling for the technology.  These guidelines would not be adopted until the program has sufficient experience with the technology for the guidelines to be well-supported, and would be based solely on clinical and/or scientific data examined through an open public process.  By “solely,” we mean that economics should play no role in this determination, but rather that the determination should focus on the circumstances in which the technology works best. 

It is important to note that these utilization guidelines may not, in effect, prohibit a covered use of the technology or override labeling that is lawful under the FFDCA.  In other words, utilization guidelines should not be so restrictive that they result in non-coverage for patients that need access to the technology. 

Who carries out these functions 

We do not express any view regarding who ought to carry out these functions because at this point in the debate, it is not clear which parties may be available to perform them.  We only note that if Congress chooses to adopt a pluralistic program, many of these functions could be performed at the plan level. 

Ensuring Fiscal Responsibility 

In examining this proposal, we all must be sure that it produces a program that is fiscally responsible.  As a result, it is worth recapping the elements that help achieve that assurance.  As administered by the staff of the program or plan, in this new coverage and payment process: 

·        Congress defines what benefit categories the program covers.

·        Scientific and clinical data determine how new technology is utilized.

·        The marketplace decides what the program will pay for new technology. 

Thus, new technology will only be used if it: 

·        Serves a function (e.g. benefit category) that Congress has said ought to be covered.

·        Is safe and effective as determined by FDA.

·        Is used in compliance with utilization guidelines that spell out the clinically appropriate limitations. 

In those instances, the technology will be paid for based on objective market data. 

Those features all prevent over-utilization and over-payment of new technology.  If the trust fund still is simply spending too much money notwithstanding the fact that the technology is not being over-utilized or paid, it is up to the Congress to redefine the benefit categories to bring spending in line with resources.

So why is this better? 

First, this proposal dis-aggregates the current coverage process into its various parts to add clarity and predictability to the process, and brings out into the open any rationales that might currently be behind a decision.  As noted above, this facilitates patient access to medical innovations. 

Second, it avoids duplicating the public health function, and leaves that function with the agency that Congress has tasked with it—the FDA.  As a result, it focuses the Medicare program on insurance issues, as the program was originally intended to do. 

Third, it ensures that people are asked to do what they are good at.  In the current system, the coverage staff is struggling to figure out the role of economic factors without having the requisite background. 

Fourth, when society is forced to make tough decisions regarding allocation of scarce resources, this proposal ensures that the allocation decisions will be made in the market place as competing technologies are evaluated by users and ultimately in Congress as it defines the covered benefits, rather than by un-elected government officials.  Currently, decisions involving the allocation of scare resources are made by insulated government employees who use virtually boundless discretion to pick winners and losers in each category of technology—deciding what the Medicare program will and will not pay for among competing products.  In our model, Congress sets the broad parameters of what medical needs the program will satisfy, and the marketplace decides the relative allocations among competing technologies and products.  As already noted, Congress has the power to modify the covered benefits in response to the overall fiscal strength of the trust fund. 

In summary, this proposal more neatly separates: (1) the issues of allocation of scare resources, which Congress and the marketplace will decide—(2) from issues of safety and effectiveness, which FDA will decide—(3) from the issues involved in establishing utilization controls, which good science will decide.  Moreover, the program and the plans will administer those processes and apply those decisions within the confines of more limited discretion. 

C.                Medicare should make changes that ensure fundamental fairness in how the program operates and the decisions it makes.  Medicare's history is marked by closed-door decision-making and lack of clarity in rules and program expectations.  In recent years, the program has made improvements by making more information public, permitting opportunities for public participation, and introducing new options for reconsideration of previous decisions.  We welcome these changes, but we urge Medicare to apply them more broadly.   In particular, much policy is made through regional carriers making de facto national decisions outside the public eye. That needs to change.  Moreover, CMS needs to embrace true dialogue—where there is a give and take discussion—as a mode of interacting with stakeholders, as opposed to the situation in which CMS is in a listening mode” where stakeholders present, and then CMS makes a decision. 

Conclusion

As Congress considers various models for broad Medicare reform, we think it is imperative that the impact of such reform on the access of beneficiaries to innovative medical technology be considered and assured.   The President has stated the need to address such issues as the timeliness of such access, but the solutions to these issues will require careful thought.  Our goal is to help that deliberative process by outlining in this paper some general principles that will advance the goal of ensuring access to needed technology.  We hope these principles can serve as useful points to consider as specific Medicare reform proposals are analyzed.

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