Countervailing Strategies Toward Early Adoption of a Medical Device in a Limiting Reimbursement Environment

Angeline M. Carlson,* Data Intelligence Consultants; PO Box 44993, Eden Prairie MN 55344; Tel: 612.944.1823; Fax: 612.942.5919; email: angie@dataiq.com; Stanley E. Williams, Data Intelligence Consultants; PO Box 44993, Eden Prairie MN 55344; Tel: 612.625.3265; Fax: 612.942.5919; email: willi004@tc.umn.edu; Robert J. Carlson Data Intelligence Consultants; PO Box 44993, Eden Prairie MN 55344; Tel: 612.944.1823; Fax: 612.942.5919; email: bob@dataiq.com.

BACKGROUND: Cost control underlying DRGs, and increasingly commercial insurance, result in limits on access to medical treatments and devices according to a judgment of their efficacy and affordability under prospective payment limits. For medical devices that require initial surgical procedures, the costs of the device must be subsumed into the surgical DRG reimbursement. Newly approved device technologies may be at a disadvantage in such circumstances because device costs alone can consume the largest portion of the prospective reimbursement, resulting in an unfavorable distribution of the expense to the hospital. In some cases reimbursement may result in hospitals limiting or denying admissions for the therapy, unless alternate means of payment are available. As a result physicians and hospitals are confronted with treatments whose high costs, but low reimbursement rates result in disproportional financial risk sharing that could result in inequitable access for patients. At the extreme, could promising medical technologies disappear from the market place due to reimbursement issues? We hypothesize that early adoption of new, high-end medical device technologies may be dependent on strategic negotiations that will result in reciprocal leveraging toward a best net-cost picture for all concerned. Each party's stance would initially be determined by its nearness to optimal reimbursement. Physicians with large practices may use the importance of their patient volumes to leverage the hospital to admit a patient with marginal resources. The hospital, on the other hand, might propose that the physicians, in cases in which they use competing hospitals, mortgage some portion of future business in exchange for admitting less marginally profitable cases now. Both parties can place the burden directly on the patient, who is left to assume the costs. OBJECTIVE: To determine if market place strategies that develop around early adoption of high-end, therapeutic devices in a reimbursement-conscious health care environment can be identified. METHODS: A small, pilot, qualitative study using a purposive sample of specialist physicians identified as using a new, high-cost device technology for the treatment of a neurological disorder was executed. Focused interviews of approximately 30 minutes were conducted with probe questions designed to engage office contacts in a discussion of reimbursement problems. RESULTS: Eleven neurosurgical offices participated in telephone interviews. Content analysis of responses to probe questions provided evidence of the potential for strategic negotiations, from the physician perspective, that could take place in the event a hospital would limit or deny admissions for implantation of a device deemed an appropriate therapy option for patients. Office representatives identified several viable strategies for ensuring patient access to a technology in the face of hospital hesitancy or resistance. Leveraging of patient volume, as we conjectured, was one option. Other strategies included leveraging of physicians' professional reputations as leaders in the treatment of neurological conditions, directing patients to specific hospitals known as sites for treatment of neurological conditions (i.e. directing patients to a niched market), and identifying alternate sources of funding available to the physician to help subsidize hospital borne losses. Most frequently identified were research and charitable funding. Every participating office noted that if all strategies failed responsibility for finances would revert to the patient. CONCLUSION: Strategic negotiations around reimbursement take place in the health care market. Four potential physician-initiated strategies were identified. FUTURE RESEARCH: This pilot study focused on a small, purposive sample of specialist physician offices; a larger sample and samples of other physician specialty and non-specialty offices may reveal more details of these and other strategies. While we conjecture about one likely response by hospitals to physician negotiations, these must be enumerated. The role of manufacturers of devices must also be identified. In the case of Medicare patients, since the hospital usually purchases the device for placement by the physicians, the level of reimbursement from the DRG determines the margin above initial cost that the hospital has available for negotiation with the physician. That margin is the simple difference between the manufacturer's price and the DRG reimbursement level. This fact places the manufacturer and product marketing practices at the center, rather than at the periphery, of the issue. While the manufacturer's stake in these negotiations depends on the market it chooses to target, it can safely be assumed that the target markets are broader than the community of affluent patients who would be able to defray residual costs out of personal resources. The strategies identified occurred during early adoption of a new therapeutic device; different marketing phases may have other strategies.