Follow the Money... Where Healthcare Policy is Headed

Pharmaceutical CommercePharmaceutical Commerce - April 2010

CMS will be changing reimbursement practices regardless of how healthcare reform plays out

Attention on healthcare policy is currently focused on House and Senate lawmakers as they work to reconcile their health care bills. With the recent election of Republican Senator Scott Brown, and calls for “hitting the reboot button” on healthcare reform, many in the industry consider the “sit back and wait” approach a prudent strategy — particularly in light of what happened—or didn’t—in 1993 with the Clinton Administration’s failed attempt to reform the system.

What many in the industry fail to recognize is that achieving Congressional consensus on health care reform is not a prerequisite to instituting far-reaching administrative changes to healthcare policies. As example, with the material support of the former Healthcare Financing Administration (HCFA), now known as Centers for Medicare and Medicaid Services (CMS), Diagnosis Review Groups (DRGs) were first implemented as pilot programs in the New Jersey in 1980. By 1983, HCFA decided to implement DRGs in hospitals nationwide.

It’s hard to imagine a change to healthcare as sweeping as DRGs—all accomplished without Congressional approval. Even if healthcare reform dies in Congress, HHS Secretary Sebelius is unlikely to stand by and pilot CMS into bankruptcy. The focus of federal funding opportunities over the past year is consistent with the multi-pronged approach the administration is taking toward improving quality and reining in cost. Federal grants driving this reform focus have been available since mid-2009. Grants offered have been directly aligned with the administration’s avowed intent to achieve better quality and reduce cost through: aggressively implementing EMRs; conducting comparative clinical effectiveness research (CER) to improve outcomes; and promoting more patient-centered primary healthcare delivery, particularly for disadvantaged populations.

Because of the dollars available (over $1 billion) and current focus on CER as a way to increase quality and reduce cost, the funding schedule for CER related grants has been particularly aggressive. Requests for proposals and funding opportunity announcements for CER related activities from AHRQ and HHS were posted early in 2009. Many new grants were posted in December 2009 with deadlines as short as 30 days. Some in the industry may have failed to realize that collection of data for CER is well underway and is being driven as an integral part of EMR implementation. Almost weekly, HHS and AHRQ issue new RFPs for projects related to achieving the administration’s healthcare reform objectives. Grants routinely exceed $10 million dollars and have tight deadlines and reporting schedules.

If cost control is the destination and CER is the mechanism for getting there, then EMR is the critical infrastructure. EMR will be the mechanism for collecting field, real-life data and ultimately for monitoring and enforcing guidelines that come out of CER. As evidence of intent, AHRQ closed a grant in February for over $44 million to support the advancement of quality, depth and scale of EMR infrastructure as a basis for conducting comparative effectiveness research. The purpose of this grant is stated as “to enhance the nation’s ability and capacity to collect data on CER for pharmaceutical, device and diagnostics.” The infrastructure for conducting CER is being built; it would be folly for the pharmaceutical industry not to prepare for the implications.

Senate and House bills go beyond covering the uninsured

If you pick up and leaf through the Senate healthcare bill—all 2,074 pages—almost half of it is devoted to programs to curb costs and increase quality. The bill explores ways to: link physician payment to high quality care at lower cost; connect payment bonuses to hospitals that improve patient results after cardiac failure, surgery and respiratory illnesses; and impose penalties on institutions with high rates of infections transmitted by healthcare workers. Fee-for-service payment is being openly challenged as bundled payments paid to medical teams and Accountable Care Organizations are explored.

With healthcare delivery focused on bundled payments and value, industry should be very concerned about the economic and clinical value their products bring. By the way, provisions for CER funding continue indefinitely in both bills. Even if the current bills die, it is realistic to expect that CMS will pick up where Congress left off. If they don’t, they face almost certain financial collapse.

Are you ready?

The truth is that reform is already here. The news hitting the media may look as though the jury is still out—but the size and focus of funding and language in the current legislation and historical precedent say otherwise. Leaders in the healthcare industry are already thinking about the impact of these programs on their business, and proactively planning ways to assess risk and strengthen the economic and clinical value of their products in ways that ensure demand and optimal pricing. Questions business leaders should be asking themselves are:

  • Do I have broad representative input (not just committed customers) on the real value of my products?
  • Is there evidence that my product offers significant economic and clinical advantage over alternative approaches — not just other pharmaceuticals, but devices, life style changes or even “watchful waiting”?
  • Will providers buy the product (at a premium — or the same price) if it is only as good as current products?
  • What evidence of improved outcomes or lower treatment costs will payers want in order to accept the product?

Are you ready for life in a post—reform world? PC


> Rita Numerof , PhD, is co-founder and president of Numerof & Associates, Inc. (St. Louis, MO;, a strategic consulting firm that specializes in healthcare and life sciences, and other dynamically changing industries. She has degrees from Syracuse University and Bryn Mawr College, and is an adjunct faculty member of the Olin School of Business at Washington University in St. Louis.

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