DRG’s and their effect on Medical Device Introduction, Reimbursement and the increasing medical professional resistance to new devices. This is the first blog in the series that identifies and discusses new obstacles in the marketing of Medical Devices, new hurdles, shifting roles and changing weights.
Over 30 years ago Medicare in the US, adopted the system of “Diagnosis Related Groups (DRG’s)” as part of their Prospective Payment System; primarily to control the rapid rising costs of healthcare and as an initial effort to retain the solvency of the Nation’s Medicare Hospital Insurance Trust Fund.
It took until 1988 for the first country outside the USA and until 1995 for the first European country to adopt the system of DRG’s. The last country to introduce the system was Switzerland on the 1st of January 2012.
Where it took the US originators until 2007 to introduce version 25 of the CMS (Centers for Medicare & Medicaid Services), DRS that ends with the “Ungroupable” at position number 999 (versus the original 470) and change the name to MS-DRG, in the tradition of Europe (Never make it simple!!) there are individual countries that were able to get the total number of DRG’s up to between 30.000 and 40.000
Despite the fact that DRG’s have been adopted in an increasingly large number of countries in Europe for a decent amount of time, the industry knowledge about the effects and consequences of hospital payment systems that are based on DRG’s remains surprisingly limited.
If there is a decent amount of knowledge, most companies are struggling to develop strategies on technology and product development, evaluation and introduction as well as an appropriate strategic business process.
Some countries used DRG’s over an extended time just for measuring activity and increasing insight and transparency (10 years in England!) in order to become acquainted with the DRG grouping logic before they started paying hospitals on the basis of DRG’s. Only some were able to introduce DRG’s after a short period of conversion (e.g. in Ireland, DRG’s were introduced in 2002 and first used for budget allocation in 1993).
Now, in 2015, most countries have gone through or are going through substantial tweaks and changes, both in levels and system, as well as in methods and means to allow the introduction of new medical practices and medical devices.
In this blog, we are heading for the more practical result of understanding the effects and dealing with the consequences, without going into too many detail …
The questions that relate to reimbursement are two fold:
- Regarding Innovation the questions are: If the technology addresses a relevant health (care) question, how does it work? What are the costs and do we have or can we generate the evidence that it works?
- Regarding Existing technologies the question is: Can we can improve, promote and/or incentivize productivity in healthcare delivery.
Contrary to the ancient system of approval and reimbursement, it is essential to understand that the DRG system is the paramount tool to optimize the delivery of healthcare and contain costs and expected increases in healthcare expenses mid- and long-term. Changes in the DRG system occur either on the basis of historical data (up and down), the slow way, or a faster adoption (change) through new DRG’s or the regrouping of procedures.
In France, Going through the LPPR ( List of Products and Prestations) to gain reimbursement implies both a clinical and budget impact evaluation. In Germany In addition to DRGs there is the option to apply for innovation funding, called NUB new diagnostic and treatment methods). For certain specific procedures and treatments there may be an established supplementary payment called “Zusatz entgelt (ZE )” or additional finances. In most countries DRG’s are updated on an annual basis.
Relevant DRG’s do not necessary assure a “break even” with every individual medical intervention, but in general, the total of DRG payments covers the total expenses of medical care.
Nota Bene, pricing of products is determined by negotiation between hospital and medical device companies in the majority of cases.
- Changing DRG’s and negotiating prices has turned into a much more complicated, multi faceted process. The observation is that reduction of DRG levels is happening more rapidly than a few years ago.
- Changes in medical procedures with a (financially) unfavorable effect to the hospital – stops progress and slows down change.
- Like we see in the US, the change from in-patient operations to ambulatory interventions, the use of new Medical Devices, and a substantial reduction of cost runs more frequently into the resistance of Medical Professionals. A good example of this are new ambulatory procedures in Orthopedics (spinal).
- The number of DRG’s is slowly finding a balance. Too few DRG’s seem to create unfair payments to some hospitals.
- The number of DRG’s in Europe are balancing out between 500 (Poland) and 2300 (France) after The Netherlands reduced the number of DRG’s (DBC’s) down from around 35.000).
- Private healthcare is (slowly) gaining ground, increasing their share at the expense of academic hospitals that offer a full range of specialties and services/facilities. Public hospitals adopting “private healthcare behavior”.
- It is essential to look at Medical Devices as the hospital’s “means of production” in the current DRG environment. The way that they are (meant) to be used is critical, at least as important as the price (cost of ownership).
About Helgert Van Raamt
Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond).
After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War.
He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation.
Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.