Developing Medical Device Technologies
Payers and End Users Will Adopt
MEDICAL DEVICE TECHNOLOGIES
OF YESTERYEAR
Medical devices evolve as technology progresses
and, today, we’re making advancements faster
than ever. Basic devices such as scalpels and
microscopes have been used for hundreds
of years, while devices like probes and
thermometers were used in 19th century Europe,
all leading to the onset of the “modern” age of
medicine. In 1816, for example, the ubiquitous
and iconic stethoscope was invented. The first
electrical machines (for electrotherapy) also
came about in the 1800s. The discovery of
X-rays in 1895 radically changed the way doctors
diagnosed and treated disease by enabling
noninvasive visualization inside the body.
By the start of the 20th century,
a slew of new devices were used
to study, diagnose and treat
disease. Furthermore, the rise
of assistive technologies (e.g.,
hearing aids, artificial limbs,
ventilators, pacemakers) began
to improve the lives of many patients. Starting
in the 1950s, computers began to revolutionize
medicine, arguably producing the most important
technological advances in 20th century medicine.
Computerized monitoring and diagnostic tests
became mainstays in hospitals as patient data
could now be recorded, stored and analyzed
on a massive scale. Computer-driven imaging
modalities such as computed tomography
(CT), positron emission tomography (PET) and
magnetic resonance imaging (MRI) transformed
medical practice.1
Despite the tremendous contributions they
have made to the practice of medicine, medical
devices weren’t always well received by the
medical community. Historically, doctors viewed
devices with suspicion, wary of machine-produced
information and the threat of technology replacing
their expertise. In addition, many technologies
have been deemed impractical or raised
concerns of cost and safety that ultimately
restricted their use.1
Today, medical devices continue
to improve and drive the
specialization of medicine.
The medical device industry in
the United States has become
the largest in the world with
a market size of around $110
billion and is expected to reach $133 billion by
2016.2 Despite the massive industry expansion,
many of the challenges medical devices faced
in the past continue to affect modern-day
markets. While new technologies are developed
at a rapid pace, providers and payers may
remain slow to adopt them for a number of
reasons. Key to adoption of new devices is
sufficient data demonstrating effectiveness,
safety and value. For health care providers,
devices should be practical and meet clinical
needs. For payers, a clear picture of the
device’s combined clinical and economic value
must be painted before coverage is provided.
Because there are many factors to consider,
catering to the needs and concerns of payers
and end users can be challenging. Fortunately,
quality research and a well-formulated market
strategy can lead to earlier market adoption
and widespread usage of new devices.
Clinical need, practicality and value
are all vital for market adoption.
SEEING VALUE THROUGH THE EYES
OF PAYERS
Payers are primarily insurance
companies or providers of
insurance, such as the Centers
for Medicare & Medicaid
Services (CMS) or the Blue
Cross Blue Shield Association.
Increasingly, hospitals, as
purchasers of medical devices, act as payers,
too. The expanding role of hospitals as payers is
being spurred by health care reform, the creation
of health insurance exchanges and a shift in
emphasis from individual to population health.3
Payers in hospitals collectively are becoming
group purchasing organizations (GPOs), and
these organizations can save hospitals money
— up to 18 percent on purchasing costs that
can add up to billions of dollars each year.4,5 For
innovative medical device adoption and success,
it’s critical that device companies first identify
their potential target payers (i.e., insurers and/or
facility purchasers) and then formulate a market
strategy that revolves around those payers’
perspectives and primary concerns.
Device companies must first identify
their potential target payers and
then formulate a market strategy that
revolves around those payers’
perspectives and primary concerns.
One challenge device companies
face is addressing the way
payers view products. Companies
must acknowledge that payer
perception may not align with
consumer or end-user perception.
For example, while many
consumers view contact lenses and hearing
aids as medically necessary, Medicare generally
does not cover them, presumably because they
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can be deemed cosmetic luxuries as opposed
to medical necessities.6 Medicaid pays for
basic hearing aids, but the smaller and more
advanced ones that patients may prefer are not
covered.7 Thus, in situations like these it becomes
important for companies to appeal to the payer
separately and recognize that payer policy can
ultimately impact usage regardless of consumer
opinion.
Payer perception may not align with
consumer perception — payer
policy can ultimately impact usage
regardless of consumer opinion.
Companies should not assume
that a positive reception by
the media and general public
translates to a positive reception
on behalf of payers. When a
pill-shaped video camera called
the M2A™ Capsule Endoscope
— which enables a noninvasive procedure
allowing physicians to examine a patient’s
gastrointestinal lining — was approved for
use by the U.S. Food and Drug Administration
(FDA) in 2001, there was initial excitement
surrounding the breakthrough technology. 8-10
Unfortunately, adoption was nowhere near
expected, largely due to the company’s failure
to effectively sell the device to payers. The
main disadvantage of the camera pill was its
inability to take a tissue biopsy or perform any
therapeutic action.10 Payers foresaw a double
pay scenario in which they would have to cover
the cost of the camera pill in addition to the
cost of a tissue biopsy or additional procedure
in the event that the camera pill recorded a
problem. Luckily, a lesson was learned from this
scenario, and the newest camera pill technology
is now poised for success as it appeals to both
consumers and payers. The PillCam® COLON
2, approved by the FDA in January 2014, has
demonstrated safety and efficacy in clinical
trials and compares favorably with alternatives
while remaining cost-effective. While it does not
eliminate the concerns of double pay, the cost of
this technology is lower than it’s ever been.11
Payers are also interested in knowing that
technology will be utilized as directed. If end
users do not use a medical device as directed,
it will have little to no impact and may not
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provide value. For example,
Xilas Medical developed the
TempTouch® home infrared
temperature probe. It detects
temperature changes in
feet indicative of potential
ulceration and can reduce the
incidence of diabetic foot ulcers among high-risk
patients when used correctly.12 Clinical studies
demonstrated the device efficacy and benefits
for patients using the device.13,14 But the company
was faced with the challenge of addressing
patient compliance. Many payers chose not to
cover TempTouch® primarily because its use
was patient-dependent and they wanted to
see larger studies proving long-term benefit.
Although clinical value was demonstrated,
payer perception was not sufficiently taken into
account.15 Thus, depending on the nature of the
device, companies may need to find a way to
address compliance issues, as payers will not
cover a device they think may not be used.
In scenarios where users (such as
hospitals) become payers, device
companies need to weigh payer
and user values in tandem.
Medical device companies may need to consider
how hospitals value a device as well because
hospitals often make purchasing decisions for
devices. Consider hospital-acquired infections
(HAIs), which are a primary concern in hospitals
as they affect hundreds of thousands of patients
each year and result in billions of dollars of
excess health care costs.16,17 Additionally, payers
will generally not reimburse for treatment of
HAIs, imposing financial incentives for hospitals
to improve quality and outcomes. To address
this issue, medical device companies developed
antimicrobial catheters that demonstrated
efficacy in reducing rates of catheter-associated
urinary tract infections (CAUTI)17 and are now
recommended to prevent CAUTI by the Centers
for Disease Control and Prevention (CDC).18
These catheters thus represent a technology
both paid for and used by hospitals, and one
in which the device was clearly designed with
combined clinical and economic value in mind.
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Generally, payers don’t want
investigational products; they
want hard and fast evidence of
medical necessity and, implicitly,
of cost-effectiveness.
It is also critical for medical
device manufacturers to
remember that payers are
not interested in covering
investigational devices and
are not traditionally in the
business of proving effectiveness
or safety. Payers want to see a strong body of
evidence demonstrating real-world effectiveness
and safety, as well as evidence for why an
innovative device is better than the currently
available alternatives. In rulings rejecting
coverage of a device, payers may say the
device is not medically necessary or that there
is a lack of evidence (e.g., clinical studies) in
actual use.19
Cost considerations, while often not explicitly
stated, are implicit when it comes to payer
decisions. Longer term costs are an especially
important consideration.20 Additionally, in the
case of devices traditionally paid for by thirdparty payers, payers and providers are moving
together toward value-based reimbursement,
where payers offer financial incentives to providers
for improvements in population health. However,
because value-based reimbursement is not yet
the norm, medical device companies must design
studies to collect sufficient short- and long-term
data to demonstrate device safety, real-world
effectiveness and economic impact from the
traditional volume-based payer perspective as
well as the myriad value-based reimbursement
perspectives that are still evolving.
While never stated explicitly, cost —
especially longer term — is a factor
for payers when determining
whether to cover a device.
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LEARNING FROM COMMON STRATEGIC
DEVELOPMENT ERRORS
Medical device developers must learn from
past device development errors that led to
sub-optimal coverage and utilization. Common
mistakes include the failure to focus on clinical
needs and/or combined clinical and economic
value. Another trapping involves over-designing
the device and/or under-collecting clinical and
economic data. Cardiac monitoring provides an
excellent example.
Mobile cardiac outpatient
telemetry (MCOT) technology
was developed to challenge
the gold standard Holter
monitor for detection of cardiac
arrhythmias. Unlike 24- to
48-hour Holter monitoring,
MCOT collects data over the course of several
weeks and provides immediate responses when
abnormalities are detected. However, while the
additional features of MCOT may be valuable
in certain high-risk patients, they ultimately
come at a great cost compared to standard
technology and are unnecessary for the vast
majority of patients.21 Thus, utilization of MCOT
has been lower than its developers expected
because it does not address a large enough
clinical need, and the high cost isn’t justifiable
for the majority of patients.
Viewing this as an opportune time to enter
the market, iRhythm Technologies developed
the ZIO® Service, comprised of the ZIO Patch,
proprietary algorithms and the ZIO Report.
The ZIO Patch is a noninvasive, water-resistant
monitor that is easy to use and discrete to wear
for up to two weeks. The ZIO Service provides
a high-value arrhythmia monitor with the
longer term beat-to-beat monitoring needed
to improve detection of cardiac arrhythmias,
but it spares the additional features that are
unnecessary for most patients. Developing
devices from the perspective of clinical need
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was the strategy of iRhythm Technologies
and what its founder calls “value-driven
engineering.” 21 Such an approach to device
development is critical to achieving widespread
market adoption. Proving this point, since its
commercial launch in 2011, the ZIO Service has
been prescribed to more than 300,000 patients
at more than 1,000 institutions nationwide and
is covered for most Medicare patients and by
leading private payers nationwide.
In addition to developing clinical value, it is
crucial to develop economic value, and data
collection is an important element of strategic
product development. The dearth of clinical
data typically available to third-party payers
and to medical device review committees in
hospitals is largely attributable to the fact that
the FDA’s application process for most medical
devices does not require such information.
Because these data are frequently not required
by regulators, manufacturers have traditionally
had little incentive to conduct studies to answer
relevant clinical and economic questions.22
However, while this information may not be
necessary for the FDA, it plays a critical role
in selling the device to payers. More data can
enable device developers to portray a more
favorable economic story that will appeal to
payers. Ultimately, this is the crucial factor;
without payers, there are very few end users.
Common pitfalls: The failure to
focus on clinical needs and/or on
combined clinical and economic
value; over-designing the device;
under-collecting clinical data; a lack
of proof that the technology will
be used as directed by end users.
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PAVING THE ROAD AHEAD
The bottom line is that demonstration of
long-term clinical and economic value from
the payers’ perspective is necessary to gain
coverage and drive utilization. Medical device
companies must adapt to the group or groups
to whom they are selling in order to identify
and appeal to their needs. Negotiation can
play a central role in the dynamic between
manufacturers and payers. One opportunity for
negotiation is joint data collection among the
manufacturers who produce the technology,
the payers who pay for it and the facilities who
use it. Risk sharing is important in negotiation
because all parties are joined in their mutual
desire to see success. Regardless of how
negotiations take place, it’s vital for the device
to meet both clinical and economic needs. The
right data can turn issues into nonissues in the
eyes of payers.
When payers have issues and offer feedback,
it’s also important to take their advice into
consideration. There are reasons behind every
decision and it may be beneficial to leverage
their input early in the development process and
implement their recommendations in order to
get devices covered in the future. Every step of
development should take place with the value
story in mind. The right research and a wellformulated market access strategy can save
substantial time and money and lead to earlier
market adoption and widespread usage of
medical devices and technologies.
ABOUT DECISION DRIVER ANALYTICS
Founded in 2006, Decision Driver Analytics provides a suite of services that covers the full range of
health economics and outcomes research (HEOR) as well as the materials needed to reach investors,
health care providers, payers and the public. Utilizing veteran health economists, epidemiologists,
biostatisticians, medical writers and reimbursement experts, Decision Driver’s services include complete
product life cycle value analysis, strategy and planning, clinical economic study services, predictive
modeling analytics, definitive analysis studies, communication and sales training.
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REFERENCES
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3.Tocknell MD. HealthLeaders Media. 1 in 5 Health Systems to Become Payers by 2018. 2013; http://www.
healthleadersmedia.com/page-1/HEP-295415/1-in-5-Health-Systems-to-Become-Payers-by-2018. Accessed
November 25, 2014.
4.Health Care Supply Chain Association. Frequently Asked Questions. 2011; http://www.supplychainassociation.
org/?page=FAQ. Accessed November 25, 2014.
5.Shinkman R. Fierce Health Finance. Group purchasing organizations cut hospital costs up to 18 percent.
2014; http://www.fiercehealthfinance.com/story/group-purchasing-organizations-cut-hospital-costs-18percent/2014-07-10. Accessed November 25, 2014.
6.Medicare. Eyeglasses/contact lenses. 2014; http://www.medicare.gov/coverage/eyeglasses-contact-lenses.
html. Accessed November 25, 2014.
7.Gandel C. AARP Bulletin. Paying for Your Hearing Aid. 2014; http://www.aarp.org/health/conditionstreatments/info-05-2011/paying-for-hearing-aids.print.html. Accessed November 25, 2014.
8.American Society for Gastrointestinal Endoscopy. Understanding Capsule Endoscopy. 2014; http://www.asge.
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Diabetes Care. 2004;27(11):2642-2647.
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15.Neergaard L. Hot Spots Warn of Diabetic Foot Ulcers. 2008; http://www.foxnews.com/printer_friendly_
wires/2008Jan15/0,4675,HealthBeatHotFeet,00.html. Accessed November 26, 2014.
16.Centers for Disease Control and Prevention. Healthcare-associated Infections (HAIs): Data and Statistics.
2014; http://www.cdc.gov/HAI/surveillance/index.html. Accessed November 25, 2014.
17.Drekonja DM, Kuskowski MA, Wilt TJ, Johnson JR. Antimicrobial urinary catheters: a systematic review.
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