Managing Healthcare Costs: medical device company

Today’s Managing Health Care Costs Indicator is 95%

That’s the portion of patients at University Medical Center in Las Vegas who received pacemakers made by Biotronik, a small German firm that has only 5% of the market nationally. The New York Times reported yesterday that a Biotronik salesman who had left Boston Scientific began hiring physicians from UMC as consultants, and pretty soon a leading cardiologist was pushing the CEO to junk an existing group purchasing contract and to purchase cardiac implantable devices independently.

The price? One cardiologist who was paid “up to $5000 per month” implanted a quarter million dollars of Biotronik devices in patients each month. Some of the cardiologists were paid $2000 per month – which couldn’t have had much impact on their income. Still, the UMC cardiologists moved in lockstep from the top brands of pacemakers to Biotronik’s offerings.

This isn’t the first we’ve heard of this problem with high-margin medical devices. Every major orthopedic medical device manufacturer entered into a consent decree with the FDA prohibiting future inappropriate marketing to orthopedists. New York Times Academic Reference

The factors that make this kind of inappropriate ‘consulting’ payment likely include

- High margin devices

- Nontransparency about industry payment

- Physicians who make choices on behalf of their patients

- Lack of incentive for anyone in the supply chain to try to lower overall resource cost

What can we do about this going forward?

Making industry payment to physicians public is a first step. In general, these payments drop dramatically when they are made public. There are some legitimate payments from the medical device industry to practicing physicians who help the industry innovate – but patients should know if their physician has taken such payments. Making payments public in fully-identifiable searchable databases is the best approach. The Wall Street Journal has been doing a great job using data mining to identify likely fraud in Medicare, but has needed to sue using the Freedom of Information Act, and is only able to mention physicians by name if they are foolish enough to consent to being interviewed.

Payment reform can make hospitals responsible for overall cost of a procedure. This means that there would be an agent who cared about overall resource cost use, which would push down the price (and margin) of these implantable devices.

Increased Medicare scrutiny and pursuit of kickback allegations against participating physicians and pharmaceutical and medical device companies can help – but don’t address the underlying problem. These payments and the resultant changes in device purchase are result in higher cost to Medicare and to other purchasers. They are not an exception – they are an expectable result of the current payment system.

This week’s Journal of the American Medical Association (JAMA) has a study showing that Medicare patients have had (we might say suffered) a more than 15-fold rise in spinal fusion surgery in the last eight years. Simple laminectomies have declined slightly. Complications are substantially higher with the more complex surgery; life-threatening complications increase from 2.3% (decompression alone) to 5.6% (complex fusions). Rehospitalizations were higher in the complex surgery groups, and hospital charges were over $80,000 per patient (compared to under $24,000 for simple decompression laminectomies. It’s unfortunate the authors used hospital charges, rather than actual Medicare payments.)

The authors and an accompanying editorial note that it’s unlikely the proportion of Medicare beneficiaries with the severe pathology requiring complex fusion increased over this time. There is no evidence that the complex surgery has better outcomes for those with less severe disease; the rate of complications suggests that it is frankly worse.

So – why did neurosurgeons do so much more complex fusion?

1) Techniques and tools have improved – so complications are not as high as they once were

2) Payment is higher

3) Medical device makers see substantial profits from implanted hardware from the complicated surgery – and they market very effectively. The major orthopedic device makers have entered into consent decrees and paid fines over recent years for their marketing to physicians

4) Patients are not in a good position to demand the less invasive surgery when they are in agony and their surgeon suggests what he or she feels is best

What’s the answer to this?

Like most problems in health care cost, there are probably multiple answers – and no single one will magically make everything better.

è More price transparency with patients bearing incremental cost: If patients knew they would face a $50,000 personal bill for the complex fusion, they would pressure their surgeons for less invasive therapy. Of course, they might pressure their surgeons for less invasive surgery even in the instances where the more complex surgery is genuinely beneficial. Further, most plans would (and should) have far lower out-of-pocket maximums

è Better provider reporting. What is the complication rate for each surgeon? This could discourage surgeons from performing more risky surgery where it wasn’t absolutely necessary

è Disclosure (or frank prohibition) of medical device company payments to surgeons. Minnesota, Vermont Massachusetts and other states have passed laws mandating this type of disclosure. The embarrassment factor alone should change some behavior. Surgeons don’t believe that pharmaceutical or medical device company lunches, junkets, and honoraria have any impact on their clinical practice, but there is substantial evidence that this marketing expense does change provider behavior

è Decrease in the fee schedule for more complicated surgery. Higher margin procedures generally are overutilized – so decreasing the margin for this surgery could help. Japan has an interesting approach – when a procedure’s utilization jumps, payment is slashed. That’s why Japan has $100 MRIs – presumably,

Japan

would also have less of a reimbursement difference from simple laminectomy to complex fusion.

è Bundled payment or capitation – which would leave groups of providers to decide whether to fund the more expensive surgery themselves. The provider community is often not arrayed to accept these types of payment methodology – but in general bundling payment leads to much lower utilization of higher cost procedures.

This JAMA study caused one day of headlines; we’ll see if this will lead to genuine change.