When makers of drugs, medical devices or tests launch new products, the top questions for analysts and investors are whether the product will find popularity in the market and how much of the costs will be covered by medical insurance plans.
When Ohio-based Midmark Connect launched a portable sleep monitor for home sleep testing last year, the company faced several challenges in obtaining coverage from insurers for its device, SleepView.
SleepView is used by physicians to diagnose obstructive sleep apnea, a breathing disorder, in the patient’s home instead of bringing them in to a hospital or lab environment. The compact monitor is worn by the patient when asleep, and the data is uploaded via a secure computer to a Web portal where the test is reviewed, scored and saved for a sleep doctor to review before providing diagnosis to the referring physician.
Device makers jump through different hoops
According to Midmark, the monitor is 70 percent cheaper than having patients come in for a polysomnography test, it’s convenient and can be done immediately after a doctor’s visit, with no delays for scheduling.
Insurers typically want to know if a new technology will reduce costs, and whether it will change treatment decisions and outcomes.
For Midmark, the challenge of obtaining reimbursement from payers began in earnest after the current procedural terminology, or CPT codes, were approved for SleepView, not before, said its medical director, Dr. Thomas Schweiterman.
“Medicare has 13 local care determination facilities across the country, and all 13 had different rules. Today, 12 of them approve home sleep testing by primary care doctors. So even though the CPT code exists, even Medicare has varied rules. This makes any national launch very complicated as you must tailor your message for every region,” Schweiterman said.
He explained how private payers are all across the map, with many reluctant to approve a new CPT for fear of opening the floodgates to previously controlled testing methods.
“They worry that a new pile of cash for physicians will result in over-prescribing, so many delay it as long as possible till approval,” Schweiterman said.
This makes it a trial and error process, so distributors are concerned because they cannot accurately and confidently assure their customers that their investment will indeed yield a positive return on investment, which is a huge problem.
Midmark has invested heavily in researching the payer market and carefully observing how its device is used in the field. Schweiterman said there is no shortcut through the uncertainty, and he worries that customers in the same area could have completely different responses when it comes to coverage.
He advises new companies to study the reimbursement landscape as part of primary research, not later on in the process.
It would not be prudent to base an entire business model on just one CPT code, as this would place the company’s livelihood at great risk for “uncontrollable negative events,” Schweiterman said.
One other note of caution he offered: “When entering a nascent market where a new CPT code is assigned, never assume that means uniformity in reimbursement, even within CMS (Center for Medicare and Medicaid Services) itself. Assume the market will take its time adopting new technology, out of fear of over-utilization and unbudgeted cost escalations in a market segment.”
Crucial question to consider
The top question when it comes to reimbursement is whether the medical device, test or drug will be administered by physicians or the patients themselves, according to Mick Kolassa, chairman of Medical Marketing Economics in Oxford, Miss.
If administered by a doctor, it’s a medical benefit, but if it’s self-administered, it’s a pharmacy benefit.
“This is a subtle difference that even industry insiders are not aware of. Physician-administered treatments are usually going to be covered, but for self-administered, there’s some costs associated such as co-pay, etc.,” said Kolassa, who has been involved in pharmacy pricing for 30 years, having worked at Sandoz, taught pharmaceutical marketing, consulted and written two books on the topic.
Big drug companies typically have separate reimbursement and market access departments staffed by experienced people who know the right questions to ask of Medicaid and Medicare, which represent a big portion of the insurance plans.
The process begins as early as Stage 1 at some firms, while others begin at Stage 2 in the development process. Reimbursement specialists look at challenges, likelihood, pricing and coverage and are called in to advise if the company should continue to invest in research or scuttle the product.
“My firm interviews a little over 1,000 payers each year for our clients, about what’s new in the research process, what’s changing. We’ll bring in a group of payers for market research sessions, work on finding out what’s needed for higher levels of reimbursement,” Kolassa said.
Roger Hawley, CEO of Zogenix, a San Diego-based specialty pharmaceutical company that launched Sumavel DosePro -- a needle-free migraine injection -- emphasized that it’s never too early to start researching coverage.
He advised that biotech firms begin the formal process at least 18 months prior to launch.
“Big companies can integrate the feedback from payers into trials, but we focus on incorporating it into pricing and coverage efforts. We collect value proposition data, we do competitive analysis and find our niche, then comes pricing, contracting and negotiating discount rebates with commercial payers,” Hawley said.
Medicaid requires a set minimum rebate of 23.1 percent, while Medicare Part D, which covers drugs, has no set minimum or maximum -- which makes it resemble commercial insurers with whom companies negotiate separately for each plan sponsor.
“For many states there’s a gatekeeper with whom you have to negotiate supplemental rebates, this depends on the competitive market,” Hawley said.
He also pointed out that when patients who take a long-term drug go over certain reimbursement levels, they get exposed to more of the drug’s costs, which is when manufacturers become liable for the expenses.
“That donut hole has cost companies, because you don’t know what the actual liability will be,” Hawley said.
Who is the real target?
Matthew McCarville, senior director of managed markets with Zogenix, said that companies need to focus on the payers too, not just the patients' or physicians’ needs.
“Having a great product is not enough if payers won’t cover it. Make sure you do your work on pricing and rebates so that at launch the doctors can write prescriptions and patients can afford it,” McCarville said.
Zogenix had expected to get coverage from three-quarters of insurance plans, but later discovered it is possible to obtain more coverage -- although that takes a couple of years after launch.
Hawley raised an important point, saying biotech firms need to look at the real target market — in the case of its migraine treatment, while women aged 18 to 55 are the primary targets, the real payers are employers who suffer loss of productivity.
“So our ally and our target is employers, and it’s more commercial reimbursement for Sumavel. Much of ‘Obamacare’ is all about making employers more concerned about wellness in connection to productivity. You just have to look at who your allies are,” Hawley said.
Despite all the efforts that begin early on, typically coverage is extended slowly while payers watch to see how the technology performs in the market.
Hawley pointed out that the less drug costs they incur, the happier insurers are. McCarville said if it’s a novel treatment, payers will hold off on coverage because of safety concerns.
Kolassa explained how scientists tend to completely believe in their technology -- which they need to -- but it becomes a double-edged sword.
“Everyone believes their babies are wonderful, but some babies are homely but grow into attractive children and vice-versa,” Kolassa said.
He gave the example of Exubera, an inhalable insulin drug from Pfizer Inc. (NYSE: PFE) that was to be taken before meals.
“Never heard of it? Well, it came and went in a hurry because the company was so convinced diabetics won’t want to inject themselves daily and would switch to inhaling.”
However, smokers couldn’t inhale the insulin deeply enough to get the proper dose, and the device had a very long tube -- so if someone were at a restaurant or work, they couldn’t use the device inconspicuously.
The experts emphasized that companies need to focus on the value proposition, not on the science of their technology, which represents only the foundation of the house.
Once reimbursement requirements have been ascertained, companies should find out what needs to be demonstrated during clinical trials.
If HMOs and government insurance plans require prior authorization, Kolassa recommends companies write the authorization protocol and have it handy ahead of time.
He also cautioned against giving too much money away in rebates.
“Otherwise it’s dying the death of a 1,000 price cuts,” he said.