Expect medical device companies to feel the squeeze from the advent of reference pricing, whereby patients must bear procedures' expenses that exceed a predetermined threshold.
The California Public Employees' Retirement System (CalPERs) pioneered this cost-saving technique more than three years ago, setting a reference price of $30,000 for elective hip and knee surgeries. Patients must pay the full cost for charges beyond that limit, and the charges don't count toward their annual maximum out-of-pocket limit, Kaiser Health News reports.
Cataract surgery, colonoscopies and arthroscopic surgery now have reference prices too, at least for the 1.4 million CalPERs members. And others are following suit. Among employers with more than 10,000 employees, the percentage using reference pricing increased from 10% to 15% between 2012 and 2013, says Kaiser Health News.
One sector particularly vulnerable to this shift is spine. Reference pricing increases the pressure on hospitals to demand lower payments from suppliers of implants. And Becker's Spine Review says spine implants make up 90% of the cost of spinal surgery, compared to 50% to 70% for joint replacements, such as of the hip and knee. It's not a surprise then that Becker's reports that doctors are opting for less expensive but still effective spinal implants.
That's bad news for a category that's already under fire from insurance companies. Becker's previously reported that Cigna ($CI) restricted its coverage of spinal fusion surgery after finding that 15% of spinal fusion patients needed a subsequent surgery, compared to 8 to 10% for nonfusion spinal decompression surgery.
Indeed, reference pricing is just one example of a larger phenomena. The payer crackdown isn't limited to tougher Medicare reimbursement.
As Ann Boynton, deputy executive officer for CalPERs put it in the Kaiser Health News article, "We're not worried about people not getting the care they need. They have access to good hospitals, they're just getting it at a reasonable price." To avoid concerns about exceeding reference price requirements, CalPERs member can use one of the 52 hospitals that charge less than the $30,000 threshold for hip or knee surgery.
In addition to reference pricing, price transparency tools like Castlight are being deployed by companies to encourage good behavior for employees. Consumers who used the online pricing platform experienced a 13% drop in imaging and 14% drop in laboratory test costs, according to a study in the Journal of the American Medical Association.
Industry is worried by the shifting reimbursement sands. At the annual AdvaMed conference in Chicago, many panelists said their concerns about receiving payment for innovation were equal to those about gnarly FDA regulations. During the conference AdvaMed publicized a study in the Journal of Medical Economics, based on interviews with 9 private insurers responsible for covering about 110 million Americans.
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| AdvaMed's Stephen J. Ubl |
"This study highlights that patient access to innovative medical devices and diagnostics is facing a double hit. Insurers are adopting new payment models that emphasize cost reduction and raising evidence requirements for coverage," said AdvaMed CEO Stephen J. Ubl in a release. "The most troubling finding in the new study was that more than 40 percent of respondents admitted that it will be more difficult for clinically appropriate but costly technologies to gain coverage."
- read the article in Kaiser Health News
- here's the article in Becker's Spine Review
- MedCity News on Castlight
- read the release