rev1 engineering and filmecc- medical device design and manufacturing logo

The Implications of Alternative Payment Methods on Medical Device Development

Table of Contents
Upcoming Events

Part One in a Series Exploring Medical Device Development Strategies Under Alternative Payment Methods

With the inauguration of a new administration in Washington, D.C., I thought it was a good time to revisit the operational and financial infrastructure reforms of the Accountable Care Act. Not the health insurance aspects, but the underlying initiatives designed to migrate our health care delivery system from fee-for-service reimbursement to value-based payments. Let’s start by taking a look at where we are today as this transition begins, as several drivers are coming together to deliver an inflection point of change.

Financial & Operational Impact of the Pandemic

The upheaval to the nation’s health care delivery systems over the past ten months has been just this side of catastrophic. Collectively, hospital systems lost more than $200 billion in revenue during the first four months of the pandemic (primarily due to the shut down of “elective” procedures). As a result, many of us in medical device have rolled through multiple contingencies as we continue to navigate the sudden shock and subsequent changes to our day-to-day business brought on by the pandemic.

In response to the crisis of capacity many of our hospital systems have experienced, CMS introduced a program last year that was intended to alleviate these constraints. The “Hospitals Without Walls” rules change provided waivers to qualifying hospitals to treat patients outside of the traditional acute care setting. This program was expanded in early January, to the “Acute Hospital Care At Home” program, expanding hospital and ambulatory care center flexibility. Moving patients to lower cost-of-care environments will greatly depend on medical technologies that ensure safety and efficacy, aligning innovation with cost containment.

Current Status of Accountable Care Organizations

Over the past four years, the underpinning reforms of the Accountable Care Act, involving MACRA (Medicare Access and CHIP Reauthorization Act of 2015), The Quadruple Aim, and Alternative Payment Methods (APMs), were slipped to the back burner. For example, the number of Accountable Care Organizations (ACOs) operating in the U.S., the lead framework for implementing foundational APMs (through the Shared Savings Program), have fallen to their lowest levels since 2016. Data released this week from CMS shows 477 ACOs are currently participating in the Shared Savings Program, down from 517 in 2020 (the high-water mark was 561 in 2018). This, despite the fact ACOs were saving money (ACOs lowered expenditures by $3.53 billion from 2013 to 2017, with a net savings to taxpayers of $755 million after paying shared savings).

In the grand scheme of things, this may not sound like much, but keep in mind, ACOs were just beginning to move through the risk-assumption/reward models of the program (upside versus downside risk management). It appears some of the initial momentum was lost when CMS changed the rules in 2018 with the “Pathways To Success” initiative. This decreased the amount of time ACOs could participate in upside-only financial risk tracks and cut into the shared savings most ACOs depended on to initially make the APM model work. This initiative, while trying to accelerate ACOs to the next phase, may have disincentivized participation.

Pandemic’s Impact on The Quadruple Aim

The pandemic has also had an unprecedented effect on our nation’s ability to deliver on the overarching goals of the ACA, The Quadruple Aim:

  • Equitably improve population health.
  • Flatten the total-cost-of-care growth curve.
  • Improve the heath care experience for beneficiaries.
  • Improve the well-being of care teams.

Not one of these objectives is any closer to our grasp today than prior to the pandemic. It’s easy to see how several of these objectives may have spun nearly out of control (e.g., the well being of care teams, the highly disproportionate impact the pandemic has had on minority and native communities). The fact of the matter is, these broad objectives may be unattainable until the country gets the pandemic under control, adding another layer of complexity to achieving these goals.

The Medicare Trust Fund

Speaking of untenable, we come to the 800 pound gorilla in the room…under the current fee-for-service system, the Medicare Trust Fund will be insolvent by 2026. Even prior to the devastating impact of the pandemic, the historical fee-for-service model was financially unsustainable. The federal government is now responsible for ≈ 51% of payments to providers, illustrating how critical this issue may be to nearly one fifth of our national economy.

Initial Takeaways & Some Questions to Ask

The current reimbursement system is unsustainable in the short run and four years is very little time to effect substantial change. How does your medical device fit into this emerging payment landscape?

Going forward, more acute care will be delivered in the home. Medical devices originally designed for hospital use will need to revisit the shift in device risk from clinical user to patient user, which, depending on the device, may be fairly significant. This will also impact the future design of user interfaces. Also, how does your device integrate into this new setting and new work flow?

How are you going to get paid for your medical device in a Value-Based reimbursement environment? Can your device be integrated into clinical decision support systems or with remote monitoring (home care)? Will you need to bundle your device with other products/services to fit the new landscape?

Demonstrating delivered value and cost savings will continue to be significant drivers to market adoption. How will you design your clinical studies to capture critical financial data to support your claims?