Health Affairs BlogConsidering Health Spending
Medical Device Price Differentials In The U.S. And Europe – Rethinking Price Regulation?
Recently, there has been a robust discussion of an October Trump administration proposal that Medicare pay for certain prescription drugs based on an “international pricing index” determined by prices in Europe. This proposal followed a government study showing that Medicare was paying 80 percent more for many physician-administered drugs than other advanced industrialized countries. A recent fascinating article in Health Affairs by Martin Wenzl and Elias Mossialos notes that price differentials between the US and other advanced industrialized countries are much steeper for cardiac implant devices than even for drugs – prices are two to six times higher in the US than in Germany.
The US – one of the largest markets for pharmaceuticals and medical devices in the world – is also one of the few industrialized countries that does not regulate device prices. According to the Medicare Payment Advisory Commission, medical devices are a major contributor to rising health care expenditures, and spending on devices has been increasing twice as fast annually as expenditures on drugs (4 to 5 percent versus 2 percent).
In both Europe and the US, policymakers are increasingly relying on medical device regulatory policies such as market approval mechanisms, post-market surveillance systems, reference pricing and, health technology assessments. At the same time, consumers are becoming increasingly aware of the harm that devices can cause, as powerfully documented by the International Consortium of Investigative Journalists in multiple examples of medical device failures worldwide in the recently released Implant Files. However, purchase prices of devices have received little public attention.
In this post, we discuss reasons for medical device price differentials that might arise from countries’ diverging regulatory frameworks, focusing especially on the case of drug-eluting stents. Additionally, we discuss new regulatory approaches that account for the value of devices in coverage and reimbursement decisions and could help improve device safety.
An Innovative Look At Medical Device Prices
It is difficult to measure total expenditures on medical devices for a variety of reasons. Many devices are reimbursed through bundled payment mechanisms such as diagnosis-related groups (DRGs), and the device price is not listed. Also, purchase prices of devices by hospitals are part of proprietary negotiations in many countries, including the US and Germany. Early evidence from Navathe and colleagues on the recent bundled payment system introduced in the US for joint replacements shows that bundled payments reduce spending on joint implants. However, medical devices range from scalpels, to PET scans, to medical software, and are used in all sectors of the health care system, and precise quantification of device expenditures remains elusive.
Wenzl and Mossialos provide an innovative investigation of medical device price differences between the US and Europe. They analyze hospital surveys conducted by the Millennium Research Group that provide quarterly country-specific data on prices of devices. They find large variation in prices between the US and Germany for different cardiovascular technologies. For example, prices for bare-metal stents and some types of pacemakers in 2014 were five times higher in the US compared to Germany. They also find price differences for bare-metal stents, drug-eluting stents, and single-chamber and dual-chamber pacemakers between, and even within, EU countries.
To improve the efficiency of health care systems, it is important for stakeholders to better understand factors that might impact these large differences in medical device prices. Such an understanding would enable policymakers and payers to implement measures that control prices while accounting for the value of the device.
Regulating Coverage And Reimbursement Of Medical Devices
There are many reasons for higher prices for medical devices in the US, similar to prescription drug pricing. Many European countries have advisory bodies and health authorities to help evaluate and determine which technologies are covered by publicly financed health care systems. Importantly, they negotiate or set reimbursement levels or prices for drugs and devices in order to operate within a budget, which does not occur on a national level at all in the US. The willingness to negotiate prices in Europe is likely related to the existence of publicly financed national health care systems and universal coverage in many EU countries, which, again, differs from the US. In France, England, and Germany, centralized bodies make coverage and reimbursement decisions after assessing the efficacy and/or clinical effectiveness of certain devices or broad device types or procedures. In Italy, coverage and reimbursement decisions are made by regional authorities. All four countries use prospective payment systems. For particularly innovative and expensive technologies, these countries also use supplementary payments, as DRGs might not actually reflect the costs of the device.
A detailed review of Italian coverage and reimbursement decisions for drug-eluting stents shows that prices for these devices were included in a national price regulation list for maximum reimbursement in 2007. Cappellaro and colleagues showed that some regional authorities involved in the purchase process (for example, the Emilia Romagna Region) were able to negotiate significantly lower purchase prices compared to other regions.
In the UK, the National Institute for Health and Care Excellence (NICE) evaluates new high-risk, and/or costly devices, such as drug-eluting stents. Besides limiting their use to a subgroup of patients meeting specific clinical criteria, NICE recommended that the devices should be covered only when the additional cost of the drug-eluting stent over a bare-metal stent is £300 or less - a policy which seems to be effective in slowing price increases.
Another example is the Institute for the Hospital Remuneration System in Germany, which determines technologies’ eligibility for supplementary payments in addition to DRG payments. Calculated by this Institute and listed in the appendix of the DRG classification, the supplementary payment for drug eluting stents decreased continuously from 693.11 Euro in 2009 to 235.94 Euro in 2014. Hospitals receiving these supplementary payments have an incentive to negotiate prices for drug-eluting stents that are similar to, or below, the reimbursement price. Therefore, a decrease in purchase prices might be expected. And indeed, Wenzl and Mossialos show that purchase prices in Germany are similar to prices of supplementary payments shown above.
Value Frameworks For Coverage And Reimbursement Decisions
Some level of regulatory review is a prerequisite before medical devices can be marketed; decisions on coverage, pricing, and reimbursement then follow. However, in most of Europe and for most devices in the United States, market approval is not predicated on evidence of effectiveness (either alone, or in comparison to existing devices). The widely used 510k Food and Drug Administration clearance process for devices in the US only requires that they are “substantially equivalent” to other devices, but safety and effectiveness are not criteria in this pathway and cannot be assured, as noted in an report by the Institute of Medicine (now the National Academy of Medicine). The EU plans to strengthen market approval by 2020 with, for example, stricter clinical evaluation requirements, especially for high-risk medical devices. However, market approval does notindicate that the device provides a meaningful, therapeutic benefit to most patients under real world conditions. Ideally, this benefit is examined during post-market assessments in comparison to existing alternatives. Linking these post-market results to coverage and reimbursement mechanisms might have a direct or indirect impact on prices set by manufacturers.
This type of linkage is more common within a publicly-financed health care system, although could be used in privately financed systems as well. For example, Germany has increasingly focused on linking coverage and reimbursement decisions to assessments of patient-related end points, such as mortality, morbidity, or quality of life, relative to comparator interventions. Since 2016, the German Federal Joint Committee has been using this type of assessment as the basis for allowing additional innovation payments for certain new diagnostic and therapeutic methods involving high-risk medical devices. Only a proven benefit entitles hospitals to enter into price negotiations with insurers for these new devices. Technologies only showing a potential benefit but needing more evidence fall under a policy similar to the “coverage with evidence development“ policy that Medicare and other insurers have used in the past decade. In these cases, further evidence is gathered in post-market clinical trials while the treatment is temporarily covered by payers.
Another example is the legislative proposal issued by the European Commission to the European Council and Parliament in January 2018. The proposal would implement European-wide clinical assessment for technologies, including certain medical devices, while authority for coverage and reimbursement decisions would remain at the country level. The 28 member states may also consider other domains relevant for coverage and pricing decision-making in each country (for example, legal, ethical, socio-cultural, and organizational consequences).
Compared to health care systems in Europe, the U.S. has a pluralistic system of many public and private plans, which provides opportunities but also presents challenges for coordinated value assessment. Every insurer has the opportunity to decide differently how medical devices are covered and reimbursed. Nevertheless, stakeholders are making some progress in normalizing the use of value assessment in coverage decisions about devices. For example, the Institute for Clinical and Economic Review (ICER) – an independent research organization founded in 2006 – assesses the clinical and economic value of technologies and health care delivery innovations, convening stakeholders such as physicians, insurers and, the government to translate gathered evidence into a value framework. However, ICER primarily focuses on drugs, rather than medical devices. The National Evaluation System for Health Technology Coordinating Center (NESTcc) is a public-private partnership that aims to advance regulatory science for medical devices. It focuses on the establishment of a foundation for “timely, reliable, and cost-effective development of real-world evidence” to enhance decision-making of regulatory bodies and clinical stakeholders. However, it is in early stages, and its work and the impact on value based decisions for devices remains to be determined.
Wenzl and Mossialos provide strong evidence that medical device prices and expenditures should be considered under proposals to promote high value care. Transparency and price negotiations should be key elements of strategies to improve the value of care. In addition, current US efforts such as Medicare’s “coverage with evidence development” and multiple public and private value based purchasing strategies can help move the US toward more evidence based and value based payments. Such approaches must be evaluated to determine effects on patient care and on new development of beneficial therapies by manufacturers. There is a need for ongoing data collection regarding the effects of reimbursement and pricing decisions on patient access, expenditures, and affordability, as well as on safety and effectiveness of devices to promote access to high value health care.
Support for the research of Cornelia Henschke was provided by The Commonwealth Fund. The views presented here are those of the authors and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.