Monday, November 9, 2009

Heroic Interventions: Misallocation of Healthcare Resources?

On November 3, Syncardia Systems, Inc. announced a milestone surgery performed in May at the Cleveland Clinic: the first use of a total artificial heart to support a patient to a dual heart and liver transplant. The story is heroic and the technical achievement is striking. The patient, Dr. Michael Zabell, had been admitted to the hospital to wait for a heart transplant on August 18, 2008. By January 8, 2009 (143 days later) his heart was too weak to sustain him, and his liver was failing; doctors needed to implant Syncardia’s temporary total artificial heart to keep him alive until a matching heart and liver could be found. One hundred and thirteen days later, on May 1, 2009, Dr. Zabell received a donor heart and liver in a 14 hour surgery involving two different transplant teams. According to Syncardia, “Today, Zabell is enjoying life at home with his wife and two daughters.”

Is there a problem in this story? One of the leading tertiary care centers in the country used a bed for 256 days (plus unspecified post-transplant time), at a cost certainly well over $1 million, to bridge a patient to a dual-organ transplant. We might reasonably ask “Why?”, and the answer might be troubling. They did it because they could, and because there was something in it for the device company, the medical team, and the clinic. This achievement was about reputation and public perception: being first. It was not in the context of a clinical trial that could lead to further improvements in artificial heart technology or breakthroughs in surgical technique. It did not likely involve “saving” a donor heart that might otherwise have been wasted – there are far more candidates for transplant than there are organs.

Dr. Zabell, of course, appears to have benefitted as well – although we know nothing about his quality of life, medical traumas, course of care, or state of mind during those 8 months of pre-transplant hospitalization and his post-transplant course. Nor do we know anything meaningful about his post-discharge quality of life: there is a wide range of conditions encompassed by “enjoying life at home with ... wife and family.” It may seem small-minded to raise objections. This is, of course, because the patient has been named – he is a real person, quoted in Syncardia's press release with warm words about his doctors ("Dr. Smedira is not only an outstanding surgeon but he’s really a wonderful guy. Cleveland Clinic has an outstanding group of surgeons, physicians and hospital staff, including my cardiologist Dr. Starling. I can’t say enough about the care.". The technical and logistical achievement has been humanized.

But the information that might allow us to make an objective evaluation of the wisdom of the procedure has been withheld. We know very little right now about the details of the case. In addition to the issues I’ve already mentioned, it would be interesting to know why the patient was never a candidate for discharge home with an implantable LVAD, why he was selected as a candidate for the Syncardia heart, why and when his liver function deteriorated so significantly, and how the costs of the case were covered. That information is, of course, personal and sensitive; we can’t demand it now that we know Dr. Zabell’s name, and that is at it should be. But there was a choice: name the patient and withhold the substance; or maintain patient confidentiality and detail the clinical circumstances and decision processes. The decision made reveals a great deal about the motivations of the decision makers.

Some will argue that this case exemplifies what is great in American medicine – the constant striving to do what could not previously be done. Others will see it as the worst – a clear example of our intoxication with the heroic, leading to misallocation of scarce resources. But it should not be seen in isolation. The amounts we spend on end of life care dwarf those of any other country. Some increasingly common practices – chronic hemodialysis, requiring thrice weekly ambulance transport to an outpatient clinic for irreversibly bed-bound and cognitively compromised elders age 85 and over, for example – are indefensible in social policy and/or pharmacoeconomic terms.

A modest proposal for addressing this general problem was broached this summer – Medicare coverage of end of life counseling. The resulting political firestorm – cynical as it may have been – likely took the idea off the action agenda for some years. We just may not be grown up enough to deal in a reasonably rational and humane way with a vexing problem that accounts for a meaningful portion of our excess medical spending.

Thursday, October 8, 2009

Sequenom data debacle will have systemic effects: Dealing with Federal agencies just got harder

The ongoing data integrity scandal at Sequenom is very bad news for anyone seeking FDA clearance or insurer coverage for an innovative medical technology or pharmaceutical. For all the safeguards, system controls and audits that are part of a well-controlled and maintained clinical data system, the entire edifice still relies upon faith – the faith of government agencies, insurers, service providers, physicians and patients – in the essential integrity of the clinical data reported by companies and clinical trial sponsors.

Here is the unfolding story. Sequenom is a publicly-traded San Diego based genetic diagnostics company that had been a stock market darling on account of its late first trimester maternal blood test for Trisomy (Downs Syndrome). The appeal of the test rests in its ability to provide a definitive diagnosis of Downs Syndrome earlier in the pregnancy than is otherwise possible and without the need for amniocentesis (with its attendant risks). Sequenom’s shares were being watched closely by the analyst community, and it share price peaked at @ $25 on a January 28, 2009 Press Release and Investors’ Teleconference that trumpeted new clinical data demonstrating a 100% positive predictive value and a 99.9% negative predictive value for the Downs Syndrome test.

An April 29, 2009 Sequenom press release announced a delay in the expected June launch of the test, on account of “discovery by company officials of employee mishandling of R&D test data and results.” The share price plummeted to < $3.00. On September 28, the company released the results of an investigation by independent members of the Board, which concluded that none of the previously released data on the test could be relied upon, and announced the firing of the CEO/President, the Senior VP for Research and Development, the CFO, one other officer, and three other employees. An October 5 regulatory filing disclosed that Sequenom’s management had met with representatives of the U.S. Attorney's Office, the Securities and Exchange Commission, and the Federal Bureau of Investigations. Shares are trading at @ $3.37 as I write.

We don’t as yet know exactly what happened inside Sequenom, whether there was intent to deceive or simply a breakdown in controls, and if there was intent whether it originated from the top, or how and by whom the data errors were discovered. We do know that corrupt data were disseminated to the public and to regulatory agencies, that a lot of money was lost by investors, and that the test was close to launch. Had the company not stepped forward (and there is as yet no information as to how the problem was discovered and by whom) when it did, the test would have been covered by most insurers and widely and rapidly adopted – all on the basis of flawed or falsified data.

The medical device industry has for years urged CMS to consider “external data” – data from sources other than the agency’s own data files, in calculating payment rates and/or in making coverage determinations for various services. After all, some new technologies are used earlier in non-Medicare patients, and there can be substantial and relevant data from external sources that can illuminate service costs and impacts before there is a large body of Medicare data. Openness to all data sources would, the argument goes, yield better and faster decisions than reliance solely on Medicare data. CMS has generally responded that it is not sure it can rely upon data that are externally generated and controlled – it simply doesn’t trust such data. In recent years there has been a bit more openness – but the Sequenom debacle can only heighten distrust and set back recent progress.

Tuesday, September 8, 2009

Waiting for Obama ... and the Return of Common Sense and Political Civility

I'm writing on Tuesday night, a bit less than 24 hours before President Obama's apparently critical speech to Congress - and the nation - on healthcare reform, and I'm wondering what bizarre new disease has infected the body politic and brought us to the present sad state of affairs. I refer, of course, to the poverty of our political debate.

Healthcare is front and center, but it is only one of many examples. The uproar over "death panels" wasn't really about healthcare at all, but a deep and fundamental antipathy toward the institutions of government. Elected members of the
Congress refuse, in surprising numbers, to squelch the "birthers" bizarre claim that the President wasn't born were he was born. Most recently, the President of the United States has been excoriated for having the temerity to use the start of the school year as the occasion for an educational pep talk to students. It appears that if you disagree with someone today, it is perfectly okay - even de rigeur - to use any unpleasant label you like (nazi, socialist, communist, fascist) to characterize the other side. And this is going on not just in the internet and cable fringes of respectability, but also in the institution that laughably calls itself "the world's greatest deliberative body." That claim was proved false years ago, and no one is doing much to improve things.

The fact that I've identified primarily right of center and Republican miscreants shouldn't be taken as a partisan position. The Democrats are in the majority, so they are the targets right now. I'm perfectly convinced that Democrats and left-wing bloggers would be just as embarrassingly irrational and rhetorically excessive if they were on the outs and on the attack.

Returning to healthcare: Listening to the debate, such as it is, a visitor would never see that there is a broad consensus on the nature of the underlying problems in our health care system, and pretty fundamental agreement on about 85% of the content of the proposals generated by the various Congressional committees. Our institutions are designed, among other things, to prevent significant action when there is no clear majority sentiment. But if the Congress cannot translate the current level of health policy agreement into legislation, it is is terminally disfunctional. and if Obama can't cut through the silliness, he is less politically astute than I ever thought.

So I'm waiting - to see how the speech will go; to see if there is anything like a return to reason and responsibility; to see if in a little while I can go back to puzzling through interesting questions of reimbursement and business strategy.

Tuesday, August 18, 2009

Healthcare Reform: What's Missing

It is the middle of August, the Public Option is on life support, and it won't be getting End of Life Counseling. Comparative Effectiveness Research is alive but may have to operate with one hand tied behind its back. But the healthcare reform effort continues to move forward, bloody and only slightly bowed by a combination of special interests and irrational fears. And there are a good number of important and constructive changes that are likely to be enacted and which will contribute to better quality and control of costs: near universal coverage; more insurance sector competition (likely in the form of not for profit cooperatives); elimination of pre-existing condition exclusions; mandated minimum coverage requirements including preventive services; electronic health records; etc.

The politics of healthcare reform in 2009 have confirmed, not for the first time and certainly not for the last, something I used to stress to my political science students 30 years ago: the U.S. political system isn't designed to do major programmatic reform; we do incremental change, usually in small steps. That is often a good thing, keeping both conflict and risk dampened. It can be a problem in crises that can only be respolved by major and rapid directional change. Time will tell whether we are doing enough fast enough to correct the faults that are increasingly apparent in our healthcare delivery and financing systems.

I can, however, point to at least two possible reforms that are consistent with the expressed goals of the reform effort, that could make a substantial contribution to quality improvement and cost control, but that are not being considered: payment for clinical decision support systems; and capitation to implement pay-for-performance principles. In different ways, each of these measures would address flaws in the dominant fee-for-service healthcare payment system. In diferent ways, their challenge to the fee-for-service model makes them politically difficult. I'll address each separately.

Clinical decision support systems. Every day our store of data linking linking personal physical and/or genetic characteristics and diagnostic test results to the appropriateness and effectiveness of therapeutic options grows. In the near future, with widespread use of electronic health recorda and broadened funding for comparative effectiveness research, the rate of accretion of new dat will increase dramatically. There is more to know, more information to process and incorporate into clinical practice, than any one can relly keep up with. One solution to this information overload is the ongoing development and implementation of sophisticated clinical decision support systems - computerized models that provide practitioners with the data management and processing tools they need to find the right therapy for the right patient at the right time - the fundamental goal of the emerging personalized medicine movement, the necessary mantra for giving evey patient the best care we know how to provide. Well designed and maintained clinical decision support systems will assure that therapy prescription is not one size fits all, that comparative effectiveness findings will not be used to dictate the same treatment for everyone, and that every clinician has effective and efficient access to the most recent research and clinical practice findings that bear on the patient before them.

Broadly implemented, such systems would yield enormous quality improvement and cost reduction. But they will also be quite expensive to develop, distribute and maintain. The investment would yield a very high payback to society ... but the investment needs to be made, and the tragic fact is that our current healthcare financing system provides no obvious mechanism for a payback to a private investor (or group). There is currently no way to get paid for using a decision support system, and therefore no way for a physician or group or hospital to recoup the capital and maintenance costs associated with using it. In the context of a fee-for-service system, the upfront cost of installation for a non-revenue-producing tool would be prohibitive; and that means that the upfront cost of development would also be prohibitive. Maybe some extraordinarily wealthy foundation would step up to the development cost; still no implementation funding. The government could afford to fund development, and perhaps some implementation - but if end of life counseling raised fears of mandatory euthenasia, what would be the response to government-developed treatment protocols imbedded in a computerized decision (support) system? The political hurdle is daunting.

Here is an idea. Any physician, group or institutional provider acquiring, implementing and using a "certified" clinical decision support system would receive 105% (I don't know if that is the right number, but you get the idea) of the established fee-for-service payment amount for every service billed. The end user has a rationale for buying the system; the potential develop has a customer base willing to pay .... The system savings would be fa greater than the 5%, and quality would be greatly enhanced. Do it all in the private sector. It might just work.

Capitation. Sceptics say we tried capitation in the eighties and it failed; the people rejected the capitated HMO model. The unconvinced say that the capitation model was shanghaied by the HMOs' cost accountants, who found it easier to make money by squeezing resources out than by actually managing care. Now we talk about pay-for-performance, and implement it by imposing penalties for failure to achieve quantitative quality targets - a step in the right direction, but a mixed message at best.

Once again, Massachusetts may lead the way on an important healthcare reform dimension. It is unlikely to be by implementing a major systemic change, but Mass. has already developed one feasible model for implementing near-universal capitation without major disruption to the insurance coverage system. The work was done by the Special Commission on the Healthcare Payment System, a body created by the General Court in Section 44 of Chapter 305 of the Acts of 2008, and is described in the Commission's Recommendations issued July 16, 2009. The report was referenced in news articles when issued, and has receded from view as the national reform debate heated up. Whether it will surface again as a serious proposal remains to be seen.

The Special Commission's proposal, based primarily on work done by social policy research firm Mathematica, calls for insurers to make capitated payments, risk-adjusted in order to prevent selection bias, to Accountable Care Organizations (ACOs). ACOs, which could take any number of forms, would then be responsible for providing all of the necessary care enrollees require, either directly or through contracts with providers. The critical aspect of the plan is that there would be a strong incentive to provide preventive care and early intervention in order to avoid the high cost associated with unnecessary acute episodes of care, equally strong incentives to design and implement more cost-effective and less waseful or duplicative, models for the delivery of care. Patients would retain choice, but might have to pay a premium for "out of network" providers.

There are problems with the Special Commission's recommendations. For one thing, the system would need to encompass both public and private payers, and that would require a statewide Medicare waiver. For another, reconciling a major state model change with the substantial national reforms likely to be enacted will be an enormous challenge in cordination. But Massachusetts has at the very least generated a creative and plausible model for changing the perverse incentives of the fee-for-service health payment system without destroying the underlying structure of our health insurance system. It is a viable model for achieving many of the goals of healthcare reform that are well recognized but poorly addressed in the proposals under review by the Congress.

Tuesday, August 4, 2009

Medicare's Inpatient New Technology Add-on: The Trials of InfraReDx, the Triumph of Spiration

The problem of adequate payment for innovative new technologies has from the beginning been a difficult one for the Medicare Inpatient Prospective Payment System (IPPS) for acute care hospitals. Since cases are assigned to DRGs on the basis of diagnosis and/or surgical procedure, and payment for each DRG is based primarily upon historical cost data, the system from the outset had no mechanism to properly recognize the cost of newly introduced technologies that improved outcomes but entailed incremental spending.

Effective FY 2002, Medicare implemented a mechanism - the Inpatient New Technology Add-on - designed to address this issue (see 66 CFR 46917). Under the new program, if a qualifying new technology added substantial cost, Medicare payment to the hospital would be the applicable DRG payment plus 50% of the cost attributable to the new technology. The Program held, over hospital and medtech industry protest, that 50% payment struck a good balance between a financial impediment to technology adoption and a blank check. Besides, the add-on was simply a temporary mechanism, allowing reasonable adoption until the cost of the technology could be reflected in the standard calculation of payment for the DRG. The most notable observations from 9 years of experience with the add-on (including decisions just announced for FY 2010) are the surprisingly small number of technologies that have applied for the extra payment, how few of the applications have been successful, and how minor an impediment the 50% limit on incremental payment has been. We'll use two applicants for FY 2010 - InfraReDx's Lipiscan vulnerable plaque diagnostic and Spiration's IBV intrabronchial valve system - to document the process and the problem.

CMS has clearly articulated 3 standards that must be met for new tech add-on qualification:
  1. Newness - the first commercial distribution of the technology must be sufficiently recent so that cost of the technology is not reflected in the data used to calculate DRG relative weights; effectively, this means first commercial introduction less than 2 years prior to application; commercial introduction is the FDA clearance date, unless there is some reason distribution was delayed;
  2. Cost - the incremental cost attributable to the new technology must bring the charge per case above the lesser of a) 1.75 times the mean standardized charge (MSC) for the DRG or b) the MSC for the DRG + 75% of one standard deviation above the MSC; CMS annually publishes the threshold amount for each DRG; if a technology would be used for patients in multiple DRGs a volume-weighted MSC is calculated; and
  3. Substantial clinical improvement - there must be evidence that the new technology provides real clinical benefits as compared to existing technologies or services.
Only one technology qualified for the new technology add-on for FY 2009 - the Syncardia CardioWest temporary total artificial heart. On its face, the CardioWest device is anything but new: a direct descendant of the Jarvik 7 heart, CardioWest has been used as a bridge to transplant with FDA approval since October 2004 (after use in clinical trials for many years). But because artificial hearts were denied Medicare coverage until a coverage policy revision in May 2008, data on the cost of the CardioWest has never found its way into calculation of DRG payment rates. Consequently, Syncardia's application for an add-on was accepted for FY 2009, and has now been extended to FY 2010. It will likely qualify for a third and final year of add-on payments in 2011. The case for meeting the cost threshold was ironclad, and the CardioWest does inarguably succssfully bridge some patients to transplant who have no other therapeutic option.

Only two new add-on applications were pursued to the end of the process for FY 2010 (four applications referenced in the NPRM for FY 2010 were withdrawn for various reasons - different forms of "inevitable rejection" - before the Final Rule was completed). In the case of the InfraReDx Lipiscan, CMS had in the NPRM questioned whether the device met any of the three qualifying criteria, and requested public comment on all three. The challenge re: the "newness" criterion was most interesting. The Lipiscan was cleared for marketing in 2008 under the 510k route, referencing as predicate an earlier InfraReDx technology first cleared, for a different indication, in 2006. How, CMS asked, could a device be claimed to be "substantially equivalent" to existing technology in an application to one agency but new and innovative in an application to another. Further, CMS quoted FDA's 510k approval letter to make its point:

“The LipiScan Coronary Imaging System utilizes the same basic catheter design as the predicate, the InfraReDx NIR Imaging System (June 23, 2006). These devices have a similar intended use, use the same operating principal, incorporate the same basic catheter design, have the same shelf life, and are packaged using the same materials and processes. The modifications from the lnfraReDx NIR Imaging System to the LipiScan Coronary Imaging System are the improved
catheter design, improved user interface (including PBR and console), and the additional
testing required to support an expanded indication for use.”

Was the new indication for use sufficient to establish Lipiscan as "new" for add-on payment purposes? The answer seemed to be "no", but the question was left open for public comment. And InfraReDx ultimately had a compelling comment to make - the predicate device had never been distributed because it had commercially unacceptable operating problems - i.e. it didn't work. No one had ever bought one, so no cost for it had ever been reflected in DRG weights. An interesting inversion: if the predicate device had been clinically and operationally acceptable, the Lipiscan would have failed the newness criterion.

This one victory was not sufficient to carry the day. Nor was CMS' eventual agreement, after much parsing of numbers, that LipiScan met the cost criterion. The sticking point became substantial clinical improvement. InfraReDx relied on the fact that it had demonstrated a diagnostic capability - the identification of vlulnerable plaque - that was wholly original, and that the use of that diagnostic capability would allow better identification of risks and targeting of therapeutic interventions. It even submitted an opinion from counsel arguing (in essence) that under the applicable statute "better diagnosis" constituted "clinical benefit". This may have been a tactical error. CMS acknowledged the unique diagnostic capability of Lipiscan, but concluded that there was no documented clinical evidence to demonstrate, or any consensus among clinicians, that the diagnostic - whatever its virtues - produced improved outcomes. That, the agency insisted, was their standard: application denied.

On the newness criterion, the Spiration IBV valve system confronted a problem opposite to that of both the Lipiscan and the CardioWest heart. The IBV was approved by FDA under the Humanitarian Device Exemption (HDE) mechanism in 2008. There was now comparable prior product on the market. But use under an HDE requires approval by each user hosital's IRB, and at publication of the NPRM no IRB approvals had yet been received. As a device cannot be new until it receives final regulatory approval, qualification for the add-on depended upon receipt of IRB approval before publication of the Final Rule for FY 2010. Happily, Spiration was able to document initial IRB approval on March 12, 2009, and that was recognized by CMS as the initial commercial distribution date for the IBV System.

Spiration's challenge with regard to substantial clinical benefit was closely related to the IBV's HDE approval route. An HDE requires demonstration of "safety and potential benefit", far less than the demonstration of safety and effectiveness required by the PMA process. HDEs are typically granted based on very limited clinical trials - in Spiration's case, fewer than 10 patients. There was no randomized clinical trial required for HDE approval, and no data from a randomized trial available for review. The NPRM questioned whether there was evidence of cliical benefit and requested public comment.

The comment received was universally positive. Every commenter made essentially the same case from personl experience: postoperative air leaks from pulmonary surgery are extremely dificult to treat, clinically problemmatic, and expensive; the experience with the IBV was positive; the system appeared to close air leaks effectively. CMS, impressed by the consistency of comments from the clinical community, accepted the propositio being argued. The final rule makes it clear that the agency isn't fully and finally convinced, but that the argument is strong enough to carry the day: application approved.

Both the Lipiscan and the IBV System ultimately were judged to qualify under the cost criterion, but in bolth cases the process was laborious. One reason was that both technologies could be used on patient swho fell into a large number of different DRGs, and the method for calculating a weighted standardized cost across mltiple DRGs is convoluted. Furthermore, there is a lot of moving back and forth between costs and charges required in the calculation; every time charge data must be converted to costs, or cost data must be converted to charges, there are statistical manipulations that are clear to CMS but not to many outside the agency. Professional help is essential here. But a further interesting problem was that both InfraReDx and Spiration refused to provide information on the selling price of their devices - even though that information would have simplified the calculations enormously and (in both of these cases) guaranteed meeting the criterion. Spiration went even further to protect proprietary data: it would not give CMS data on the number of valves used in each procedure (the number can vary depending on patient-specific needs), necessitating an enormously convoluted and potentially misleading process of inference.

Wednesday, July 15, 2009

CardioNet: Reimbursement at the heart of the matter

It has not been a good year for investors in CardioNet (NASDAQ: BEAT), the once high-flying Pennsylvania-based cardiac monitoring company touted by many as the best pure play in wireless patient monitoring and diagnostics. CardioNet stock closed on July 14 at $6.20, down 83% from it 52 week high of $35.89. For the second half of 2009, the company’s share price mirrored the broader market. In Q1 of 2009 it outperformed the market, returning by late April to the level it had enjoyed in mid-July 2008. But the trend turned in May; CardioNet shares have plummeted in the last 2 ½ months. For those seeking an explanation, the answer seems simple and comes in one word - reimbursement. The company would express it more vigorously – arbitrary and unwarranted reimbursement reductions. But, as is often the case, the story is somewhat more complicated. CardioNet made specific corporate strategy decisions that increased its exposure to reimbursement risk.

Let’s look at the background and review some pertinent history. CardioNet provides Mobile Cardiac Outpatient Telemetry (MCOT) using an internally developed proprietary technology platform. MCOT allows continuous cardiac monitoring for up to 30 days, with the capability for real-time review and querying from a monitoring center. The technology allows for the identification of heart rhythm irregularities that elude the commonly used shorter-term monitoring technologies (e.g. holter monitoring), and many insurers, including Medicare, cover MCOT for defined subsets of patients who experience serious but unpredictable arrhythmias that have not been adequately evaluated by those other techniques.

Diagnostic tests like MCOT are represented by two CPT codes. One code identifies the Professional Component (PC) of the test – the physician’s interpretation of the test result as it relates to the individual patient; the second code identifies the Technical Component (TC) of the test – in this case the resources required to provide and conduct the test and generate a test report (the MCOT equipment, the monitoring center with its technology and staff, the computerized analysis of data, the generation of a report to the physician, etc.) CardioNet operates as a physiological testing laboratory – monitoring patients nationwide from its base in Pennsylvania and billing insurers for the TC of the test; the referring physician bills for the PC, which is small compared to the TC.

MCOT was approved for commercial use in 2002, and CardioNet set up its testing center that same year. As a Pennsylvania-based facility, the center did all of its Medicare billing to a single regional Medicare Part B carrier, Highmark Medicare Services. The test was provided under a temporary Category III CPT code through the end of 2008. In October of that year, however, CardioNet announced approval of permanent codes for MCOT – CPT 93228 for the PC and CPT 93229 for the TC – effective January, 2009, and a carrier-determined reimbursement rate for the TC of $1,123.07.

CardioNet had gone public earlier in 2008, and the analyst community is extremely sensitive to reimbursement issues, particularly for single product companies where one reimbursement decision can be make-or-break. That sensitivity can sometimes take the form of rumor-fed speculation, often resulting in share price instability. CardioNet was not immune to this phenomenon, and on April 28, 2009 the company issued a press release to refute analyst speculation about an imminent Highmark payment reduction for the MCOT TC. On May 18, a further press release solidified the situation, announcing formal Highmark posting of the $1,123.07 rate originally announced in October of the previous year. Things were looking good on the reimbursement front.

But there has been nothing but bad news since. On June 30, a press release announced a downward revision of guidance for 2009 based on lower than expected commercial reimbursement rates. Analyst concern over Medicare reimbursement was heightened by this news, and confirmed in a July 12 CardioNet announcement of a revised Highmark TC payment rate effective September 1 – a more than 30% reduction to $754. On the following day, the company announced termination of its agreement to make what had been positioned as a key strategic acquisition to strengthen its position in the wireless telemetry ; a failure by the target to comply with conditions of the agreement were cited as the reason. The jilted acquisition target, BioTel, Inc., disagreed vehemently and is weighing its legal options. It is difficult to dismiss the reimbursement catastrophe as an underlying cause.
We cannot yet know whether CardioNet did the best possible job of reimbursement advocacy, why it didn’t prevail, or why it was apparently blindsided by Highmark’s action. So we can’t, from outside the company, determine which of the following three possible scenarios best describes this case:
  1. Weak or ineffective advocacy for a case that ought to have prevailed on its objective merits;
  2. An objectively weak case that could not prevail on its merits; or
  3. A payer decision that was in fact arbitrary, or based on factors other than objective analysis of costs.
What we can know is that CardioNet made a number of conscious business strategy decisions that, whether or not they were dictated by compelling business reasons, increased its reimbursement jeopardy.

First, by maintaining all of its operations in a single location, CardioNet put its entire Medicare business into the hands of a single local Medicare contractor. Had operations been regionalized, there would have been a different contractor for each region. A single contractor would then have impacted only a portion of the Medicare business, not all of it. There is a trade-off at work: a single carrier increases jeopardy by putting all of the eggs in a single basket; multiple carriers spread the risk, but require commensurately broadened advocacy communications and reimbursement support. CardioNet opted for operational consolidation (which may also have carried substantial operating cost advantages), valuing business simplification over reimbursement risk mitigation.

If multiple carriers were handling CardioNet’s claims, Medicare would have had an incentive to set reimbursement at a single nationally-determined level, especially if there were regional disparities that could not be supported by differential costs. But a single explicitly national rate established centrally is greatly preferable to an effectively national rate set by a single regional carrier. At the national level, there are procedural rules, formal opportunities for comment on proposals, and public notification of the basis upon which a decision is made. Local carriers are not bound by any of these requirements. Furthermore, local carriers do not have substantial payment policy staffs wide broad experience in understanding cost profiles and operating requirements across many different types of provider organization; the sophistication of their decision processes varies widely and cannot be relied on.

Second, CardioNet chose to operate as a physiological testing laboratory rather than selling its technology to independent laboratories. Had it done the latter, the company would have been free to sell the technology at a price of its own choosing. This would transfer primary reimbursement risk to CardioNet’s customers, but it would also provide those customers with unequivocal documentation of an important cost element required for the test – the technology cost. Under the scenario CardioNet chose, there is no such documentation, as there is no arms-length transaction between technology supplier and testing facility. Under these circumstances, Medicare invokes special accounting rules applicable to “related party transactions”; the relevant aspect of those rules is that transfers between related parties occur at the cost of manufacture or acquisition – no margin (markup) is recognized. Thus, to the extent CardioNet wants to provide real cost data, Medicare will calculate the cost of providing the TC without allowing a markup on cost of manufacture.

I suspect that CardioNet made the choice it did in order to capture a larger share of the total TC revenue stream – not an unreasonable goal. But again, there was a tradeoff: control of the total revenue stream increased direct exposure to reimbursement risk. And there was a more conservative choice available: sell the technology to testing facilities until reimbursement was clearly established, and then expand into the testing business once reimbursement risk was minimized.

That conservative strategy may not have been aggressive enough for the investment community. And therein lies the third risk-increasing strategic decision CardioNet made: the decision to go public before solidifying its business position and before removing reimbursement risk from the equation. Perhaps an IPO was the only way to raise enough money to build the business. An IPO was certainly the way for early investors to cash out and take profits, and for management to realize substantial capital gains. But IPOs increase all sorts of exposure, create enormous pressure to accept risk in order to grow quickly, and expose companies to extraordinary volatility when best-case scenarios are not realized. When things were going well, it seemed as if CardioNet management was on top of the key issues; when they went sour, management appeared to be caught unaware and unprepared, having oversold financial growth and understated risk.

Thursday, June 25, 2009

Will Comparative Effectiveness Research lead to Rationing?

Senators Ron Kyl (R-AZ) and Mitch McConnell (R-KY) recently introduced the ''Preserving Access to Targeted, Individualized, and Effective New Treatments and Services Act of 2009" (S1259), a legislative proposal that Sen. Kyl's office said was designed to prevent comparative effectiveness research (CER) from being used to ration healthcare. The economic stimulus package passed earlier this year contained $1.1 Billion for such research; the House Democrats' draft health reform plan now being debated provides an additional $100 Million per year for the next three years for CER; the research is a fundamental building block of the President's approach to health reform. Are we inviting rationing of health care when we support the reform effort?

A few Republican Senators aren't the only ones nervous about CER. AdvaMed, the leading medical device industry trade association, is cautiously supportive, so long as CER is not "used by Medicare, insurance companies, or other public or private payers to deny coverage". PhRMA is worried that CER could take treatment decisionmaking out of the hands of physicians and patients. BIO "is concerned that comparative effectiveness information may be used strictly as a means to contain costs, rather than deliver health care value by improving patient health outcomes". None of these associations uses the dreaded R word, but their concern is clear - in the wrong hands (i.e. the government's hands), CER could be used to justify insurers' decisions not to pay for services and technologies doctors want to prescribe and companies want to sell. And isn't that rationing?

Well ... No, not by any rational use of the term. Formally, rationing is the limitation of the amount of some scarce commodity that is available to an individual, family or community - think about food or gas rationing during WW II. Rationing can be overt and explicit policy in response to unavoidable supply limitations, as in those examples, or it can be indirect, through the purposeful limitation of supply - think about planned limitations on kidney dialysis treatment capacity in Britain until just a few years ago, or waiting lists for artificial hip procedures in Canada on account of conscious budget allocation decisions. Any purposeful management of a supply deficit for a good or service that people want and need can fairly be characterized as rationing. We've typically not done anything like that in healthcare in the United States, and CER doesn't open the door to it. CER won't artificially limit the supply of technologies or services; CER won't limit the amount of healthcare, either segmentally or in toto, available to individuals; CER won't arbitrarily impose fixed budget ceilings that translate into service shortages.

What CER does promise to do is to gather reliable information about the relative merits of different treatment options for particular classes of patients under defined circumstances. The information would be used in different ways by different health system stakeholders. It is pretty universally agreed that:

doctors would and should use CER findings to make better therapy choices or recommendations to patients; and
patients would and should use CER findings to more effectively evaluate physicians' advice and to be better informed participants in decisionmaking about their healthcare.

What seems to be in dispute is whether health insurers should be allowed to use CER findings to define the circumstances under which they will or will not pay for specified technologies or services. Let's look at the language of S1259:

Purpose:Notwithstanding any other provision of law, the Secretary of Health and Human Services--
(1) shall not use data obtained from the conduct of comparative effectiveness research, including such research that is conducted or supported using funds appropriated under the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), to deny coverage of an item or service under a Federal health care program (as defined in section 1128B(f) of the Social Security Act (42 U.S.C. 1320a-7b(f)))

This is pretty remarkable. Medicare and Medicaid, faced with data from a CER study indicating that Treatment A is clearly superior to Treatment B for a particular clinical problem for all patient groups under all conditions studied, would be prohibited from denying coverage to the clearly inferior treatment. I'll say it again differently: Medicare would be required by law to cover and pay for a treatment option known to be inferior because the data establishing inferiority were collected in a CER study.

This is nonsense. We want insurers, including Medicare and Medicaid, to use the best available data to cover what works and not cover what doesn't. And that is exactly what Medicare and every private insurer has been doing for years. The coverage analyses and decisions, often with detailed documentation of the determinants of the decision, are available online for anyone to review: when and where Medicare will pay for an implantable left ventricular assist device; under what circumstances Aetna will or will not pay for continuous mobile cardiac monitoring to help diagnose cardiac rhythm disorders; etc. Making these decisions is what insurers do, and they would be irresponsible - with our well-being as well as with our tax monies or premium payments - if they didn't use the best available information to make them.

Stakeholders potentially adversely (financially) affected by insurance coverage decisions have historically had recourse to two arguments: that the insurers are "interfering with the practice of medicine" (sometimes transposed into "interfering with the sanctity of the physician-patient relationship"); or that they are rationing care. As we've come to understand that docors are as human, fallible and self-interested as the rest of us, the first argument has lost its bite. Now, those who see wide dissemination of better information as a threat are left to play the rationing card. Get below the surface, and it is absurd - but we'll see whether it retains any power.