Healthcare Reform in Europe – Can Medical Device Companies Gauge Related Business Impact?
Author: Dr Akmal Bhatti – Director Strategy Consulting
In the third quarter of 2002 Johnson and Johnson announced the final results for SIRIUS, the U.S. study investigating the effectiveness of the CYPHER Sirolimus-eluting Stent. The findings of the study confirmed the stent's excellent performance in significantly reducing re-blockage of de novo coronary artery lesions in patients with coronary artery disease. Even prior to release of the final results the U.S. Department of Health and Human Services (HHS) made a decision, in July 2002, to provide accelerated incremental reimbursement to hospitals for this technology commencing April 1, 2003, under newly established Diagnostic Related Groups (DRGs). In order to ensure access to this technology for patients as rapidly as possible, HHS has taken the unprecedented step of assigning it to new DRGs prior to FDA approval. This landmark decision on reimbursement is the stuff of dreams for medical device companies, although it would be fairly accurate to see this as a special case where device efficacy has been extremely well-documented and correlates with use in a Government targeted area of cardiovascular diseases where the burden and costs of treatment are high.
The favourable environment in the USA in terms of diffusion of innovative technology into medical practice is a well-known and well-established phenomenon and is a positive environment within which medical device companies operate. The point to be made here is that companies in Europe tend to believe that, in general, the path to reimbursement is much more rocky and uncertain within the region. The disparity in healthcare structures and the lack of a common European reimbursement policy is the main sticking point. Companies in Germany are now increasingly concerned about the impact that the implementation of the German Diagnostic Related Group (DRG) system will have on revenues of existing products on the market. Additionally, concerns are raised as to the impact that the DRGs might have on adoption and reimbursement of new products entering the market. Although the use of DRGs in the USA does not seem to have had a negative impact in this regard in that country, the fear is that in Germany what seems to be an over-riding concern to drastically cut healthcare costs will damage the medical device industry there. Given the recent introduction of the DRG system in Germany it is extremely difficult, at this point in time to gauge the direction that the industry will take.
There are a number of ways that companies may be able to assess the impact that hospital reform in Germany will have on their businesses. One method will be to investigate the impact that DRG implementation has had on medical device businesses in countries like the USA and Australia where the DRG system is well-established. Comparing how particular product sales have fared in those countries and assessing the role played by purchasers and opinion leaders in shaping market development can provide valuable insight into how markets may be similarly affected in Germany. This sort of study can also be conducted in other European countries where the DRG system is in use (see Figure 1)
Figure 1 – Utilization of DRGs in Europe
Couple to this an assessment on strategies employed by each of the key industry participants during the early stages of the DRG implementation. What strategies were forced upon the companies in the particular market under study and when mistakes were made what were the consequences for the companies involved? These are just some of the basic questions that would need to be addressed. Government plans for further reform in the hospital sector would need to be assessed. For example there is a notion in Germany that hospital numbers will be reduced and of course this will mean a reduction in bed numbers necessitating a shift in treatment from the acute care setting to ambulatory and home care. It is interesting to note the scenario painted by a study conducted for an insurance company in Germany which looks at the possible switch from the public sector to private sector by 2015 (Figure 2).
Figure 2. - Prognosis for development of number of hospitals and hospital beds in Germany
The shift to such a scenario would require significant re-assessment of medical device businesses and alteration in positioning of companies and product targeting. It is essential to understand now how government thinking is in this regard. Is the emphasis on hospital reform moving in this direction. In March 2003 the UK government put forward the idea that within five years, they want all NHS hospitals to be out of government control and become independent not-for-profit organisations. This idea faced rebellion from Labour members of parliament who saw this development as a clear indication that the future for hospitals in Britain was a transfer of power to the private sector.
Would this be such a bad thing for companies selling to the hospital sector? A benchmark to how medical device technology might be accepted and how it might
command higher prices in such a setting might be possible through observing the developments in the Netherlands.
The Netherlands DBC system
On January 1st 2003 the Ministry of Health, Welfare and Sport in the Netherlands introduced the Diagnosis Behandeling Combinatie (DBC, Diagnosis Treatment Combinations) system as an alternative to existing methods of reimbursement of hospital services. The overall aim of the system is to shift emphasis from supply to demand, placing patient needs centre stage. The idea is that from the moment a patient sees a specialist in hospital from referral by a GP that the specialist will set up a DBC for the patient.
The DBC records every step in the patient’s treatment, starting with the first consultation or examination and finishing with the additional and all final activities. This will constitute the complete care path of that patient. The care profile includes all hospital activities and the time effort of the physician. Cost prices and standard time respectively are then linked to this care profile.
The use of the DBC financing system is anticipated to result in hospital departments negotiating with hospital management about production in those departments and leading to management negotiations with health insurers comparing costs and benefits of treatment, resulting in what is envisaged to be a greater transparency between quality of care and the costs of care. The government wants to see the DBS system stimulate innovation and modernisation of care with the transparency of the process supporting the use of new technology leading to new DBCs with remuneration or reimbursement at higher prices reflecting the contribution that the technology makes to better patient care.
What is important here is that it leads on to another key development in the European market which is the increasing use of health technology assessments in evaluation of medical devices and the impact that positive assessments are expected to have on device reimbursement. The establishment of NICE (National Institute for Clinical Excellence) in the UK is seen overall as a positive development for drug and device companies. HTAs (Health Technology Assessments) carried out by NICE which display clear cost effectiveness compared to existing products are likely to receive favourable reimbursement decisions based on NICE guidelines supporting their introduction or expanded use. The introduction or planned introduction of bodies such as NICE in other countries and the expanding role of HTA in policy decisions will increase. The effect of this can be seen to be a clear competitive advantage for those companies which initiate, at an early stage, the development of cost-benefit, cost- utility and cost-effectiveness studies for their products In an increasingly cost-conscious background the possibility to display this can reduce the bureaucratic and time obstacles to market introduction.