Health Care Reform and the U.S. Medical Technology Industry

1. Health Care Reform and theU.S. Medical Technology Industry Joseph Gatewood Vice President AdvaMed January 20, 2011

2. U.S. Industry In Brief Health Care Reform Impact on Industry Specific HTA/Comparative Effectiveness Programs Future Growth/Challenges Overview 2

3. U.S. Industry In Brief A Key Economic Engine for America • 357,000 employees • $22 billion in salaries • Each med tech job generates 4.5 additional jobs • Med tech jobs pay 30% more than the average U.S. job 3

4. U.S. Industry In Brief A Key Engine of Medical Progress From 1980 to 2000: • Overall life expectancy up by more than 3 years • Mortality from: • heart attacks down 50% • stroke down 30% • breast cancer down 20% • Disability in the elderly down 25% 4

5. Health Care Reform 5

6. AdvaMed’s Plan: Universal coverage Prevention Quality improvement Efficiency Medical innovation Where AdvaMed Started 6

7. Health Care Reform ― Major Provisions • Expanded coverage • Financing • New payment methods 7

8. Health Care Reform ― Expanded Coverage • Individuals/Exchanges • Individuals required to obtain • insurance. • Insurance reforms (guaranteed • issue, no preexisting condition • exclusions, minimum benefits) • Would set up 50 insurance • marketplaces administered by the • states. Small businesses and • individuals could buy insurance. • Employers • Large employers • required to • provide coverage or • pay fines. • Medicare/Medicaid • The gap in Medicare • prescription drug • coverage would be • closed. • Medicaid expanded • to cover everyone • with income less • than 133% of the • federal poverty • level, or $29,327 for • a family of four. 8

9. Health Care Reform ― Who Pays? • Providers (cuts in Medicare payments) • $272 B (hospitals & other providers) • $138 B (private Medicare plans) • The “Rich” (new Medicare taxes) • $210 B • Industry taxes (insurance, pharmaceutical, • medical technology) • $139 B 9

10. Impact on Industry 10

11. Opportunities • Expanded coverage • Emphasis on prevention • HAC reduction provisions • Physician payment disclosure • Comparative effectiveness 11

12. Expanded Coverage • 32 million new beneficiaries • Newly insured less intensive users of medical technology • Significantly increased demand for some discretionary products 12

13. Emphasis on Prevention • Private insurers and Medicare required to cover preventive care and screenings • Waive cost sharing and deductibles • New Medicare annual wellness visit and personalized prevention plan Implications: • New demand for diagnostic tests, imaging studies 13 5

14. HAC Reduction Provisions -Medicare hospital payments reduced by 1% for all DRGs if in highest quartile of HAC rates -HAI quality measure for incentive payment in hospital value-based purchasing program -IPPS FY 2011 proposed rule: two HAI measures (central line associated blood stream infections & surgical site infections) added to quality measurement/data collections for payment determinations in FY 2013 Implications: • New incentives for technology 14

15. Manufacturers must report to HHS any payments over $100 to physicians and teaching hospitals -Delayed disclosure for payments to physicians involved in clinical trials -Pre-empts state law for areas covered by federal law Implications: Federal standards should avoid duplicative state requirements Preserve physician/manufacturer collaboration Physician Payment Disclosure 19

16. COMPARATIVE EFFECTIVENESS 16

17. New, independent, non-profit entity (federally funded + health plan surcharge) - Focus on clinical effectiveness - Transparent process, device rep on board, opportunity for stakeholder input Implications: Greater evidence of product effectiveness required Advantage for technologies demonstrating clear superiority Potential for poorly designed or premature studies to limit coverage Comparative Effectiveness 17

18. Patient-Centered Outcomes Research Institute (PCORI) A private, non-profit entity, overseen by BOG Goal: To assist patients, clinicians, purchasers, and policy makers in making informed health decisions Research to compare health outcomes and clinical effectiveness, risks and benefits of 2 or more medical treatments Must account for differences in effectiveness of treatment among subpopulations, genetic and molecular subtypes, or quality of life preferences Research will be designed to account for different characteristics of treatment modalities, such as the innovation cycle and operator skill Comparative Effectiveness (2) 18

19. PCORI Board of Governors AHRQ and NIH Directors, or designees (2) Patients and HC consumers (3) Private payers (3) Pharma, device and diagnostic manufacturers or developers (3) Physicians and providers (7) comprised of 4 physician reps; 1 nurse; 1 State-licensed integrative HC practitioner; 1 hospital rep. Quality improvement or independent health service researcher (1) Federal or State governments (2) Comparative Effectiveness (3) 19

20. PCORI Requirements Provide for peer-review process for primary research Public comment period (45 – 60) prior to adopting priorities, agenda, methodological standards, peer review process, and after release of draft findings of systemic reviews. Discretionary Appoint permanent or ad hoc expert advisory panels (is required to appoint such panels in performing RCTs and in study of rare disease). Include technical expert of each manufacturer or each medical technology included within the topic, project or category for which the expert panel is established AHRQ to disseminate findings. Comparative Effectiveness (4) 20

21. Statutory Limits on PCORI Authority May not mandate coverage, reimbursement, or other policies for any public or private payer. May not include practice guidelines, coverage recommendations, payment or policy recommendations in its reports or research findings. Prohibited from developing or using a dollars-per-quality-adjusted life year or other similar methodology. May not allow subsequent use of data from original research by individuals, entities or instrumentalities that have a financial interest in the results unless approved under a data use agreement. Comparative Effectiveness (5) 21

22. PCORI – Specific Medicare restrictions may limit influence HHS can’t deny Medicare coverage based solely on a study; HHS may only use evidence and findings to make a coverage decision if it is done through an iterative, transparent process which includes public comment and accounts for effect on patient subpopulations HHS prohibited from using PCORI research in determining coverage, or creating reimbursement/incentive programs for treatment that 1) treat extending the life of an elderly, disabled or terminally ill patient as lower value; 2) discourage an individual from choosing treatment based on how the individual values the tradeoff between extending life and the risk of disability Research can be used to determine coverage, reimbursement, or incentive programs by comparing differences in efficacy of alternative treatments in extending patient’s life due to patient’s age, disability, or terminal illness. Comparative Effectiveness (6) 22

23. PCORI Financing – Administered via PCORI Trust Fund HHS Appropriations $10 million in 2010 $50 million for 2011 $150 million in 2010 – 2019 Medicare Trust Funds, private health insurers and self-insured plans Expenditures per capita (Medicare) in the following FYs $1 in FY 2013 $2 in FY 2014 Indexed by percentage increase in per capita NHE from 2015 – 2019 One estimate -- annual sustained funding peaking at $650 million Comparative Effectiveness (8) 23

24. Effective Health Care Program Authorized in 2003 under MMA Initial appropriation of $15 million in 2005 Increased to $30 million in 2008 Administered by AHRQ Not FACA compliant/transparent Flexible Number of Members American Recovery and Investment Act of 2009 – CE Funding $1.1 billion for CE research AHRQ: $300 Million (some will go to EHC) NIH: $400 Million HHS OS: $400 Million Additional CE Entities 24

25. Program Components – Line up for Dollars Stakeholder Group Scientific Resource Center (OHSU) Evidence-Based Practice Centers (EPCs) Developing Evidence to Inform Decisions about Effectiveness Centers (DEcIDEs) Centers for Education and Research on Therapeutics John M. Eisenberg Clinical Decisions and Communications Science Center (Baylor COM) Topics may be nominated by anyone at any time Nominations should clearly frame questions and need for research. “Priority” Conditions – such as arthritis, cancer, etc. EHC Program 25

26. ARRA funds for AHRQ - $300 Million $9.5 million for horizon scanning $50 million for evidence synthesis $172 million for evidence generation $34.5 million for evidence translation and dissemination $20 million for training and career development $10 million for citizens’ forum (stakeholder input and involvement) ARRA Program 26

27. Challenges • Innovation tax • Cuts to customers • Independent Payment Advisory Board 27

28. Cuts to Customers Health Care Reform Revenue Sources (in $ Billions) • Greater pricing pressure • Slower purchases of expensive equipment • Most impact before 2014 when expanded coverage kicks in Total = $496 B 28

29. Independent Payment Advisory Board Charged with developing proposals to reduce Medicare spending by targeted amounts compared to current law • Hospitals exempt until 2019 • Doctors lobbying for exemption Implications: • Further arbitrary Medicare cuts likely • Potential for disproportionate impact on med tech industry 14

30. Redesigned incentives: reward quality and efficiency Value-Based Purchasing Payments for quality and efficiency layered on DRG/fee-for-service system (1% withhold in FY 2013, 2% by FY 2017) Bundling Combines physician, hospital and post-acute treatment into a single payment Accountable Care Organizations Integrated or partially integrated care organizations Responsible for total cost and quality of care for specific patients At risk for some portion of payment New Payment Paradigms 30

31. Challenges Quality standards could freeze medical practice in place Bundling or efficiency standards could lead to “cheapest is best” approach to medicine or penalize early adopters Physician & patient choice of most appropriate therapy threatened Opportunity Quality standards could drive diffusion of technology Enhanced market for technologies that reduce costs across episode of care or more effectively manage chronic illnesses Strategic Implications Build cost and comparative effectiveness data into product development Engage with quality-defining organizations New Payment Paradigms 31

32. Demographics ― World Projected 65+ Population ― Selected Countries 32

33. Chronic Disease Projected Rise of Select Chronic Diseases, 2003-2023 62% 54% 53% 41% 39% 31% 29% Mental Disorders Heart Disease Pulmonary Conditions 33

34. U.S. Quality Gap Proportion not Receiving Recommended Care Source: McGlynn et al “The Quality of Health Care Delivered to Adults in the United States” NEJM June 26, 2003 34

35. Thank you! Joseph Gatewood Vice President AdvaMed January 20, 2011