ARLINGTON, Virginia – Medicare reimbursement, foreign trade and government regulation all could result in stifling new product development within the medical technology industry. That is especially true for the innovative small- and mid-sized medical device companies that are the core of the Medical Device Manufacturers Association (MDMA; Washington) membership.

Of primary concern at the fifth annual meeting of MDMA, held here in early June, was the issue of the Medicare prospective payment system (PPS). MDMA believes that the Health Care Financing Administration (HCFA; Baltimore, Maryland) needs to revise its new payment system for hospital outpatient services. MDMA feels that this is the only way to ensure that Medicare beneficiaries will have access to the latest technologies in what it termed "the most appropriate settings."

MDMA members made it obvious at the meeting that they do not share HCFA's enthusiasm for the new PPS system, many of them expressing anger that they were not consulted when the new codes and software systems were being put together. And many members are concerned that they will be left out of the initial coverage – scheduled to be implemented after the first of August – because their products will not fit into any of the new payment code categories. The fear is that they will not be able to effect any changes to the system for another quarter, which could spell disaster for many fledgling companies.

The final rule, utter confusion

This heavy dose of consternation is attributable to HCFA's pending implementation of the Medicare PPS final rule for hospital outpatient departments, that new system mandated by the Balanced Budget Act of 1997 and further revised by the Balanced Budget Refinement Act of 1999 (BBRA 1999).

Just prior to its annual meeting, held at the Key Bridge Marriott, MDMA issued a letter to HCFA identifying three major points of contention concerning the final rule:

That HCFA – by establishing additional criteria neither mandated nor supported by BBRA 1999 – is unduly limiting the number and types of new and innovative devices eligible for transitional pass-through payments.

That while the expansion of HCFA's list of new technologies eligible for special payment is helpful, the agency should have listed these devices by product or service category – not by the brand name of specific manufacturers' devices.

That the association cannot determine what formula HCFA is using to assign new technology services to appropriate ambulatory payment classifications (APCs). As a result, MDMA is concerned that some technologies, in the absence of a formula, will be assigned to APCs that do not provide adequate reimbursement.

Stephen Northrup, executive director of MDMA, issued a statement saying, "While we appreciate the tremendous workload that HCFA officials are facing in implementing the new outpatient PPS, we are afraid that the way in which the outpatient PPS is being implemented will not encourage the provision of appropriate reimbursement."

A kinder, gentler HCFA?

As always, there are at least two sides to a story, and Mike Hash, deputy administrator for HCFA and a first-day keynote speaker at the MDMA meeting, painted a rosier picture of both PPS problems and regulatory issues in general.

"What we have set about now is a decision-making process that is open, clear, and accountable," Hash said. "We certainly want a coverage system that is responsive to advancements in health care and bringing them to our beneficiaries as soon as possible. We now have outlines on how we'll deal with decisions that we've been asked to reconsider, based on new scientific evidence or medical information."

Hash called HCFA's new process much more egalitarian than the bureaucracy of old. "Our advisory meetings are much more open and public now, not the 'black box' system of old." And he added, "In the past we have made our coverage decisions on a case-by-case basis, using the reasonable-and-necessary standard. We realize that we need a much more standardized set of criteria, and as we expand into the review of new technologies, I think it is very important that we're clear about how we're going to evaluate these new devices."

Hash characterized the design of the new PPS system as "very complex," but said it will still streamline the payment process, since it replaces 13 separate payment systems. He was obviously pleased that the new PPS system would make quarterly updates, rather than the traditional process of yearly updates. While this still will leave many companies out in the cold for the initial period, Hash offered hope on this point: Some changes in the list might be made, "so long as they can be incorporated into the existing software."

He stressed that probably not all of these issues will be resolved in the initial phase, and he warned that the idea of creating categories, a proposal made by both the industry in general and MDMA in particular, might backfire. "Creating categories could very well exclude all items in a category, even if just one of the items was available in 1996 – because of the Balanced Budget Act of 1997 – or prior to it."

Clinical trials to be covered

Not all of the discussion of HCFA at the MDMA gathering was critical, however. During the three-day meeting, President Bill Clinton released a statement ordering Medicare to begin covering the costs of clinical trials for new drugs and medical technology-driven treatments for the elderly and disabled, a decision that MDMA and its members clearly favor.

Northrup praised the policy, saying that coverage of the costs of clinical trials "will enable Medicare beneficiaries to benefit from promising new technologies much earlier than currently possible."

Currently, patients, insurance companies, and drug or device companies must share the cost of clinical research, with a resultant large degree of uncertainty concerning who will pay and how much must be covered by individuals. This discourages many elderly subjects from participating in trials, according to the MDMA, and fails to serve the country's rapidly aging population. This is supported by the Clinton administration, which reports only 1% of the elderly now participating in clinical trials, although a disproportionate number of them are afflicted with diseases.

The current Medicare rules are widely perceived as barring reimbursement for what should be considered routine medical care, reimbursement that beneficiaries need when they participate in clinical trials. Also, many private insurers will not cover these trials, referring to them as "experimental" or "investigational."

The new Clinton administration policy is significant because Medicare covers more than 39 million people, and because many private insurers follow its lead when deciding their coverages. Sponsors still will continue to pay for the analysis of data and other expenses beyond the costs of routine care.

New outcomes hoped for

The rationale behind the forthcoming policy was explained in a White House statement: "Too few seniors participate in clinical trials. Current Medicare reimbursement policies often discourage seniors from participating. Coverage of all clinical trials, not just those for cancer, is critically important to ensure new breakthroughs in diagnostics, treatments, and cures for many of the most devastating diseases afflicting millions of Americans of all ages."

The MDMA said it sees several important outcomes from this Medicare policy revision. These include: guidance to explicitly authorize payment for routine patient care costs associated with clinical trials; establishment of a tracking system for Medicare payments to cover these costs; and ensuring that information gathered from these clinical trials is used to make future coverage decisions.

HCFA also will be reviewing the feasibility of taking additional action to promote research on issues of importance to the Medicare population within 90 days. This, according to MDMA, will provide another opportunity to make further policy changes.

Medical devices globally ....

On the important issue of foreign trade, Ellis Mottur, deputy assistant secretary for technology and aerospace industries for the Department of Commerce, addressed the MDMA membership on the department's role and the support it offers to the medical device industry.

"The global market for medical devices was $153 billion in 1999, and products made by U.S. firms account for 40% of this total," Mottur said. "U.S. exports have continued to grow, increasing from $7.6 billion in 1992 to $13 billion in 1999. Japan is our largest single market, accounting for over 16% of U.S. exports, and the EU [European Union] is our largest regional market, accounting for 47% of U.S. exports."

While almost two-thirds of all U.S. exports are sold to Japan and the EU, Mottur said that these markets have relatively low growth rates. And he predicted that the greatest future global growth for the nation will be in Asia and Latin America. Further out, China, with its 1.3 billion population, is expected to be one of the two largest single markets for U.S. exports at some point in the future.

In order to capitalize on increasing medical device consumption, globally, the Commerce Department must focus on reducing regulatory barriers, he said. "If a medical device manufacturer cannot get its product into a country because of regulatory barriers or market access restrictions, then the company's products cannot be sold in that country," Mottur said. "Similarly, if the medical device cannot be sold into a foreign market at a price above the company's production and distribution costs, the firm cannot afford to sell its product in that country."

But regulation was only one of two Rs Mottur defined as important to foreign trade. On the reimbursement side, he said, "the problem is much more difficult to control, since each country has its own unique reimbursement issues and there are no safe havens."

... and the dream of global harmonization

From the realm of Utopian dreams, Mottur discussed the Global Harmonization Task Force (GHTF), an organization comprised of government regulators and regulated industry representatives from the member countries – the U.S., Canada, the EU, Japan and Australia – with other countries participating on a non-voting basis. This non-voting block is comprised of two working groups, one for Latin America and the other for Asian countries.

The hope is that one day the U.S. medical device standard of an "approved once, accepted everywhere" policy will prevail in global trade. Unfortunately this gold standard is still a long way from implementation, according to Mottur.

Besides working to revise their medical systems, many countries are emphasizing greater privatization. And Mottur noted that with increasing restrictions within the EU countries, Latin America may become the new research and proving ground for many pharmaceutical and medical technology products. Thus, he stressed the importance of the Latin American market, strongly encouraging the device companies to attend an export seminar sponsored by the Commerce Department, MDMA, and other organizations, to be held Oct. 2 in Orlando, Florida.

Mottur also encouraged MDMA companies to take advantage of the many programs his department offers. He noted the importance of trade missions and reverse trade missions with foreign countries, many of which offer one-to-one meetings tailored to a firm's specific needs.

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