Two-part payments for the reimbursement of investments in health technologies (original) (raw)
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Technological Adoption in Health Care – The Role of Payment Systems
The B.E. Journal of Economic Analysis & Policy, 2015
This paper examines the incentive to adopt a new technology resulting from common payment systems, namely mixed cost reimbursement and DRG reimbursement. Adoption is based on a cost–benefit criterion. We find that retrospective payment systems require a large enough patient benefit to yield adoption, while under DRG-linked payment, adoption may arise in the absence of patients benefits when the differential reimbursement for the old vs new technology is large enough. Also, mixed cost reimbursement leads to higher adoption under conditions on the differential reimbursement levels and patient benefits. In policy terms, mixed cost reimbursement system may be more effective than a DRG payment system to induce technology adoption. Our analysis also shows that current economic evaluation criteria for new technologies do not capture the different ways payment systems influence technology adoption. This gives a new dimension to the discussion of prospective vs retrospective payment systems ...
The challenge of implementing high-cost innovative technologies in health care systems operating under significant budgetary pressure has led to a radical shift in the health technology reimbursement landscape. New reimbursement strategies attempt to reduce the risk of making the wrong decision, that is, paying for a technology that is not good value for the health care system, while promoting the adoption of innovative technologies into clinical practice. The remaining risk, however, is not shared between the manufacturer and the health care payer at the individual purchase level; it continues to be passed from the manufacturer to the payer at the time of purchase. In this article, we propose a health technology payment strategy-technology leasing reimbursement scheme-that allows the sharing of risk between the manufacturer and the payer: the replacing of up-front payments with a stream of payments spread over the expected duration of benefit from the technology, subject to the technology delivering the claimed health benefit. Using trastuzumab (Herceptin) in early breast cancer as an exemplar technology, we show how a technology leasing reimbursement scheme not only reduces the total budgetary impact of the innovative technology but also truly shares risk between the manufacturer and the health care system, while reducing the value of further research and thus promoting the rapid adoption of innovative technologies into clinical practice.
The Impact of Reimbursement Policies and Practices on Healthcare Technology Innovation
2015
Effects due to decision-making processes are unclear, although specific components or outcomes of these processes, such as payment, product categorization, and cost sharing, may have more discernable effects (described below). In theory, decisionmaking processes that are transparent and evidence-based are more likely to foster innovation that enhances consumer welfare by sending clearer signals to developers about the types of products that payers place more value on, and how they assess that value. Timeliness and consistency in decision-making processes may also help by reducing developers' and investors' level of uncertainty about the likelihood of payers reimbursing a new product. Product categorization or differentiation Empirical evidence is limited concerning the effects on ROI or innovation from the approaches to product categorization or differentiation used by payers. In theory, approaches that distinguish products based on value are more likely than administrative approaches to promote investment in and development of products that are clinically and cost-effective and address areas of unmet need. Method of payment With per-unit payments, effects on innovation largely depend on the method used to determine payment amounts, as discussed in the next panel of this table. With bundled payment, effects on innovation are uncertain. Radical innovations are unlikely to be affected by bundled payments because of the level of benefits they provide and the likelihood that they will be paid as an add-on to the bundle. At the same time, there may be significant disincentives for incremental innovations, unless they are cost-reducing. Effects of bundled payment on substantial innovations, which fall between radical and incremental innovations, are unclear. Method of defining payment amount External benchmarking, a process of defining a payment level based on the sales price in the market or markets in which the product is sold, or an estimate of the provider's acquisition cost, is likely to increase ROI and incentives to innovate, compared to other approaches used to define payment amounts. The effects of internal benchmarking, or defining a payment level based on what is paid for comparable covered products for which the payer has already established a payment amount, are largely unclear, but it is most likely that this approach will reduce ROI and incentives to innovate. Valuebased approaches are the most promising for yielding effects on ROI that reflect products' benefits relative to their costs (judged from consumer, payer, and/or societal perspective). Effects of lowest possible price strategies are unclear, but this approach may over-incentivize investment in incremental innovations and underincentivize investment in radical innovations. Patient cost sharing Although there is substantial evidence that cost sharing affects utilization, cost sharing seems unlikely to have substantial effects on ROI or incentives to develop or invest in innovative products. Patient demand for innovative products is likely to be relatively inelastic, especially for radical innovations. Coinsurance may lead to greater effects compared to fixed copayments, especially for high-cost products, but it still seems unlikely to have significant effects on innovation. Manufacturers' programs that help patients with their cost sharing further limit potential effects.
Pricing Policies When Patients are Heterogeneous: A Welfare Analysis
SSRN Electronic Journal, 2016
We use a simple theoretical model to compare alternative regulation regimes for the reimbursement of medical innovations when responses to a new treatment (effectiveness) are heterogeneous within the eligible population. We study two dimensions: i) efficiency in selecting subgroups of patients for which the new technology is reimbursed, ii) distribution of the rent between firm and payer. We show that, when rational behaviour of profit maximizing firms is taken into account, stratified cost-effectiveness analysis and marginal valuebased prices lead to the same equilibrium, which is efficient only if the population is sufficiently homogeneous. Inefficiency arises because some patients that should be treated are not. On the other hand, prices based on the average value may allow for an efficient solution even when heterogeneity is large. With this pricing policy, efficiency may be achieved even when part of the rent is retained by the payer, provided that the degree of heterogeneity is sufficiently small. * We are grateful to the participants to the 17th European Health Economics Workshop, and in particular to the discussant, Lars Schwettmann, for helpful comments. The usual disclaimer applies.
The impact of reimbursement policies and practices on healthcare technology innovation. Final report
2015
Effects due to decision-making processes are unclear, although specific components or outcomes of these processes, such as payment, product categorization, and cost sharing, may have more discernable effects (described below). In theory, decisionmaking processes that are transparent and evidence-based are more likely to foster innovation that enhances consumer welfare by sending clearer signals to developers about the types of products that payers place more value on, and how they assess that value. Timeliness and consistency in decision-making processes may also help by reducing developers' and investors' level of uncertainty about the likelihood of payers reimbursing a new product. Product categorization or differentiation Empirical evidence is limited concerning the effects on ROI or innovation from the approaches to product categorization or differentiation used by payers. In theory, approaches that distinguish products based on value are more likely than administrative approaches to promote investment in and development of products that are clinically and cost-effective and address areas of unmet need. Method of payment With per-unit payments, effects on innovation largely depend on the method used to determine payment amounts, as discussed in the next panel of this table. With bundled payment, effects on innovation are uncertain. Radical innovations are unlikely to be affected by bundled payments because of the level of benefits they provide and the likelihood that they will be paid as an add-on to the bundle. At the same time, there may be significant disincentives for incremental innovations, unless they are cost-reducing. Effects of bundled payment on substantial innovations, which fall between radical and incremental innovations, are unclear. Method of defining payment amount External benchmarking, a process of defining a payment level based on the sales price in the market or markets in which the product is sold, or an estimate of the provider's acquisition cost, is likely to increase ROI and incentives to innovate, compared to other approaches used to define payment amounts. The effects of internal benchmarking, or defining a payment level based on what is paid for comparable covered products for which the payer has already established a payment amount, are largely unclear, but it is most likely that this approach will reduce ROI and incentives to innovate. Valuebased approaches are the most promising for yielding effects on ROI that reflect products' benefits relative to their costs (judged from consumer, payer, and/or societal perspective). Effects of lowest possible price strategies are unclear, but this approach may over-incentivize investment in incremental innovations and underincentivize investment in radical innovations. Patient cost sharing Although there is substantial evidence that cost sharing affects utilization, cost sharing seems unlikely to have substantial effects on ROI or incentives to develop or invest in innovative products. Patient demand for innovative products is likely to be relatively inelastic, especially for radical innovations. Coinsurance may lead to greater effects compared to fixed copayments, especially for high-cost products, but it still seems unlikely to have significant effects on innovation. Manufacturers' programs that help patients with their cost sharing further limit potential effects.
Reimbursement of pharmaceuticals: reference pricing versus health technology assessment
The European Journal of Health Economics, 2011
Reference pricing and health technology assessment are policies commonly applied in order to obtain more value for money from pharmaceuticals. This study focussed on decisions about the initial price and reimbursement status of innovative drugs and discussed the consequences for market access and cost. Four countries were studied: Germany, The Netherlands, Sweden and the United Kingdom. These countries have operated one, or both, of the two policies at certain points in time, sometimes in parallel. Drugs in four groups were considered: cholesterol-lowering agents, insulin analogues, biologic drugs for rheumatoid arthritis and ''atypical'' drugs for schizophrenia. Compared with HTA, reference pricing is a relatively blunt instrument for obtaining value for money from pharmaceuticals. Thus, its role in making reimbursement decisions should be limited to drugs which are therapeutically equivalent. HTA is a superior strategy for obtaining value for money because it addresses not only price but also the appropriate indications for the use of the drug and the relation between additional value and additional costs. However, given the relatively higher costs of conducting HTAs, the most efficient approach might be a combination of both policies.
Frontiers in Pharmacology, 2016
Background: Assessment and appraisal of new medical technologies require a balance between the interests of different stakeholders. Final decision should take into account the societal value of new therapies. Objective: This perspective paper discusses the socioeconomic burden of disease as a specific reimbursement decision-making criterion and calls for the inclusion of it as a counterbalance to the cost-effectiveness and budget impact criteria. Results/Conclusions: Socioeconomic burden is a decision-making criterion, accounting for diseases, for which the assessed medical technology is indicated. This indicator is usually researched through cost-of-illness studies that systematically quantify the socioeconomic burden of diseases on the individual and on the society. This is a very important consideration as it illustrates direct budgetary consequences of diseases in the health system and indirect costs associated with patient or carer productivity losses. By measuring and comparing the socioeconomic burden of different diseases to society, health authorities and payers could benefit in optimizing priority setting and resource allocation. New medical technologies, especially innovative therapies, present an excellent case study for the inclusion of socioeconomic burden in reimbursement decision-making. Assessment and appraisal have been greatly concentrated so far on cost-effectiveness and budget impact, marginalizing all other considerations. In this context, data on disease burden and inclusion of explicit criterion of socioeconomic burden in reimbursement decision-making may be highly beneficial. Realizing the magnitude of the lost socioeconomic contribution resulting from diseases in question could be a reasonable way for policy makers to accept a higher valuation of innovative therapies.
Health Affairs, 2013
Rising health care costs are an international concern, particularly in the United States, where spending on health care outpaces that of other industrialized countries. Consequently, there is growing desire in the United States and Europe to take a more value-based approach to health care, particularly with respect to the adoption and use of new health technology. This article examines medical device reimbursement and pricing policies in the United States and Europe, with a particular focus on value. Compared to the United States, Europe more formally and consistently considers value to determine which technologies to cover and at what price, especially for complex, costly devices. Both the United States and Europe have introduced policies to provide temporary coverage and reimbursement for promising technologies while additional evidence of value is generated. But additional actions are needed in both the United States and Europe to ensure wise value-based reimbursement and pricing policies for all devices, including the generation of better pre-and postmarket evidence and the development of new methods to evaluate value and link evidence of value to reimbursement.
Journal of Health Economics, 2012
The paper studies the incentive for providers to invest in new health care technologies under alternative payment systems, when the patients' benefits are uncertain. If the reimbursement by the purchaser includes both a variable (per patient) and a lump-sum component, efficiency can be ensured both in the timing of adoption (dynamic) and the intensity of use of the technology (static). If the second instrument is unavailable, a trade-off may emerge between static and dynamic efficiency. In this context, we also discuss how the regulator could use control of the level of uncertainty faced by the provider as an instrument to mitigate the trade-off between static and dynamic efficiency. Finally, we calibrate the model to study a specific technology and estimate the cost of a regulatory failure.
Health Affairs, 2015
Medicare pioneered add-on payments to facilitate the adoption of innovative technologies under its hospital prospective payment system. US policy makers are now experimenting with broader value-based payment initiatives, but these have not been adjusted for innovation. This article examines the structure, processes, and experience with Medicare's hospital new technology add-on payment program since its inception in 2001 and compares it with analogous payment systems in Germany, France, and Japan. Between 2001 and 2015 CMS approved nineteen of fifty-three applications for the new technology add-on payment program. We found that the program resulted in $201.7 million in Medicare payments in fiscal years 2002-13-less than half the level anticipated by Congress and only 34 percent of the amount projected by CMS. The US program approved considerably fewer innovative technologies, compared to analogous technology payment mechanisms in Germany, France and Japan. We conclude that it is important to adjust payments for new medical innovations within prospective and valuebased payment systems explicitly as well as implicitly. The most straightforward method to use in adjusting value-based payments is for the insurer to retrospectively adjust spending targets to account for the cost of new technologies. If CMS made such retrospective adjustments, it would not financially penalize hospitals for adopting beneficial innovations. M edicare pioneered new technology add-on payments to facilitate the adoption of innovative technologies under its hospital prospective payment system (PPS). Most developed nations have adopted their own supplementary payment mechanisms for new technology, which represent modifications of the version used by the Centers for Medicare and Medicaid Services (CMS). As required by provisions of the Affordable Care Act (ACA), US policy makers are experimenting with bundled and prospective value-based payment methods to improve the efficiency, quality, and outcomes of health care. These payment methods base future rates on past costs, trended forward using changes in easily measured input prices such as wages. The life sciences industry invests in the development of devices, drugs, diagnostic tests, and other inputs to improve quality and outcomes. Some new technologies reduce the cost of care, such as when less invasive treatments shorten hospital stays, enable patients to be treated in less intensive settings of care, and reduce patient recovery times. Hospitals are given financial incentives by the PPS to adopt these cost-reducing innovations. Indeed, this adoption is an explicit