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Do We Need To Apply For Reimbursement? (Part 1)

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Reimbursement can be either a key success or failure factor for any medical technology. Specifically, reimbursement reflects the relevant business model involving providers, medical professionals and payers, and how specific procedures trigger payments.

For such payments to occur, we need codes known as the “language” between those paying for healthcare (i.e. Health Insurance Funds) and those providing healthcare (i.e. Hospitals). A public English hospital, for example, will receive payment for code EA14Z, which literally means Coronary Artery Bypass Graft treatment from admission to discharge.

Also, investment firms and corporate business development groups focused on medical technologies typically include reimbursement analyses in their due diligences to understand how potential investments can be covered.

Considering the strategic importance of reimbursement, it is not uncommon that many companies launching medical technologies want to obtain new reimbursement codes for their products. But is it that necessary?

To help with this question, we share our Reimbursement Framework, one of the methodologies we apply at ValueConnected, to assess the general risks and benefits of applying for reimbursement.

From best to worst

Let’s consider two variables: dedicated reimbursement and level of payment.

Dedicated reimbursement is a specific code that applies to one medical technology or to a very specific product group; while a non-dedicated (generic) reimbursement applies to different product brands or even alternatives with similar mechanisms of action.

Likewise, the level of payment may provide sufficient tariffs to cover the costs of the medical technology. Otherwise, reimbursement is insufficient.

By plotting these two variables we build the Reimbursement Framework, as seen in the image below. Note the four possible scenarios, or quadrants, which we will review in detail in Part 2 of this article.

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Image credit: ValueConnected, Reimbursement Framework

Although the level of payment is more important, there are companies that focus on obtaining specific codes, mainly with the goal to protect their business from competitors. Let’s see how, in many cases, this protective strategy can hurt sales and market access.

The best situation for any medical technology is to have sufficient reimbursement. This means providers will get properly funded to use your technology since the product price is fully covered by the reimbursement tariff.

Surprisingly, the second-best scenario is a lack of dedicated reimbursement. This means providers must use generic codes or rely on additional funding mechanisms (i.e. hospital budgets) to use your technology. While the lack of dedicated reimbursement obviously implies a challenge for negotiations, providers that see the value of your technology and are convinced about it will certainly find creative mechanisms to obtain the required funding.

The worst situation occurs when a product has dedicated reimbursement but with insufficient funds. If that happens, you are basically trapped, because alternative payment mechanisms may not be applicable anymore, forcing providers to work with insufficient tariffs. This means they will lose money every time they use your product; not good at all.

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Image credit: Dr. Paul Drouin

Payers want to reimburse your product

While you certainly want payers to reimburse your technology, they also want to provide reimbursement for you; albeit for different reasons.

For payers, reimbursement means control of costs, because, as we explained above, each reimbursement mechanism has a code that eventually allows them to manage the usage and adoption of medical technologies.

As soon as a code is assigned to a medical technology, payers can calculate the actual costs related to it and count the number of procedures performed. They will always have the upper hand in the adoption of the reimbursed medical technologies and will deploy measures if a certain new procedure is generating higher costs than expected to a healthcare system.

Here is an example of a practical situation: Consider a new medical technology that has proven benefits and for which the company is reinforcing its evidence base. If the company decides to apply for reimbursement too quickly, payers may consider the current evidence as insufficient and establish a low reimbursement tariff that will limit sales. In contrast, the company may realize it can use existing generic codes and work with hospitals to obtain additional funding while growing the evidence base, so a future reimbursement application will likely lead to a better tariff.

Bottom line: when you receive dedicated reimbursement, there is little you can do to change it, especially if the reimbursement tariff is low. So, before applying for reimbursement, have you checked if existing codes could be used?

Part 2 of this article will focus on each of the Reimbursement Framework quadrants and their strategic implications. Also, we will discuss mechanisms to understand when and how to move from quadrant to another. See you then!

Are you planning to launch a medical technology and are not sure how it will be funded? You can save a lot of time and resources by checking if there are existing and applicable reimbursement codes. Alternatively, get in touch with ValueConnected today contact@valueconnected.com and we will be happy to review your specific situation and recommend next steps.