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University%20of%20Minnesota%20The%20Healthcare%20Marketplace%20Medical%20Industry%20Leadership%20Institute%20Course:%20MILI%206990/5990%20Spring%20Semester%20A,%202015

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Title: University%20of%20Minnesota%20The%20Healthcare%20Marketplace%20Medical%20Industry%20Leadership%20Institute%20Course:%20MILI%206990/5990%20Spring%20Semester%20A,%202015


1
University of MinnesotaThe Healthcare
MarketplaceMedical Industry Leadership
InstituteCourse MILI 6990/5990Spring Semester
A, 2015
  • Stephen T. Parente, Ph.D.
  • Carlson School of Management
  • Department of Finance
  • sparente_at_umn.edu

2
Medical Technology Overview
  • History of medical device innovation
  • How medical devices fit in the current system?
  • Case example of a new technology
  • Relevance to the Medtronic Case and IT enablers
  • From bench science to reimbursement schedule
  • The FDA Process
  • Pharmaceutical Market Contrast
  • Developing a Medical Technology Dossier

3
What is a Medical Device?
  • Working definition from the Food and Drug
    Administration
  • A medical device is an instrument, apparatus,
    implement, machine, contrivance, implant, in
    vitro reagent, or other similar or related
    article that is intended for use in the
    diagnosis of disease or other conditions or
    intended to affect the structure or any function
    of the body of man (and woman) or other animals
    and which is not dependent upon being metabolized
    for the achievement of any of its principal
    purposes.

4
How are Devices Different from Drugs?
  • The FDA makes a key distinction
  • Drugs are metabolized and devices are not.
  • Size of markets are quite different
  • Pharma is larger
  • Reimbursement policies are different
  • No DIRECT prescription drug coverage for Medicare
    (It is through private insurers paid by
    Medicare/consumer)
  • Devices are covered by Medicare
  • The consumer is different
  • For devices, marketing more focused to hospitals
    and physicians.

5
History of Medical Device Innovation
  • Pre-1900 Entrepreneurial Tinkerers
  • Physicians/medical tinkerers build/patent a
    device and it is sold unregulated.
  • No insurance reimbursement, no government
    intervention, some University initiatives.
  • 1900-1940 Birth of FDA, NIH Industrial Labs
  • 1906 Start of FDA (Pure Food) in response to
    medical quackery
  • 1910 General Electrics first Industrial
    Research Laboratory Develops X-ray market, at
    first as a loss-leader.
  • 1928 A call for private sector to develop new
    innovations. No real response from industry.
  • 1930 National Institutes of Health Act passes
    Later a huge player, but at first a small
    institution focused on basic public health
    issues.

6
An example of Medial Quackery
7
History of Medical Device Innovation-II
  • 1940s-1966 NIH as catalyst private industry
    takes off
  • Wartime research acts as catalyst and establishes
    template for future
  • Civilian administration
  • Managed in equal partnership by
  • Academics
  • Industrial scientists (e.g., GE)
  • Military
  • Funded by government, but researchers worked in
    their own institutions.
  • NIH funded for medical science research
    dramatically increases
  • Funded medical science research by universities
    creates medical device knowledge industry to
    trigger private sector investment.

8
History of Medical Device Innovation-III
  • 1966-present Medical inflation, Medicare,
    rockets and managed care
  • Medicare programs begins. It acts as rocket
    fuel to the low-tech device industry by
    providing for a new elderly consumer.
  • To begin to control medical cost inflation, the
    1974 Certificate of Need Act led to review of any
    high-priced medical technology device by a local
    health planning agency.
  • NASA (National Aeronautics and Space Agency)
    provides significant resources for basic science
    and specifically materials science research that
    will become essential for medical devices.
  • NIH funded shifts in 1970s away from basic
    science due to budget constraints, leading
    universities to seek more private sector
    partnerships.
  • NIH retools in 1980s to encourage more
    technology transfer from basic science to
    technology development.
  • Reagan administration repeals Certificate of Need
    Act and leaves individual states to determine
    their own medical technology cost inflation
    strategies.
  • Medicare program cracks down on low tech medical
    device fraud and creates stricter reimbursement
    guidelines.
  • Managed care/Medicare start using technology
    assessment committees to determine reimbursement,
    based on the proven cost-effectiveness of a
    device.

9
Todays Medical Device Players
  • Private Industry
  • Industrial laboratories
  • Manufacturer, market and distribute
  • Medical Providers
  • Private Insurers
  • Universities
  • Public Insurers (Medicare, Medicaid, DOD, VA)
  • NIH
  • FDA

10
How Medical Devices Fit in the Current
Healthcare Delivery System
  • Ordered by Medical Providers almost exclusively
  • Used for diagnostic as well as therapeutic
    benefit
  • Often complements to other medical therapies (for
    ex.)
  • Surgery
  • Home care
  • Pharmaceuticals
  • Reimbursed by both public and private insurers
  • Innovated by government, university and industry
    teams
  • Heavily regulated by government
  • Yet, heavily subsidized government

11
An Example from Industry
12
Relevance to the Medtronic Case and Health IT
Enablers
  • Vision 2010 Transforming For the 21st Century
  • Medtronic illustrates the typical post-war
    medical technology firm.
  • Started in 1949 by a U of M engineer
  • Garage firm generated revenue and started to
    acquire other firms and innovate.
  • Became a 11 billion highly diversified firm by
    2005.
  • Wants to be more then an technology company
  • Help patients manage chronic disease.
  • Wants to be an information technology and
    information services company

13
Medtronic Market Research
14
Key elements to strategy
  • Partner with providers
  • Clinical pathways
  • Fund studies with providers to demonstrate
    outcomes
  • Provide physicians monitoring tools to make
    tracking patients easier
  • Create direct patient demand for products
  • Leverage existing web sites
  • Symptom-based direct advertising
  • Continue to profile patient stories
  • Provide physicians a tool for self research
    patients
  • Give physicians web-based management practice
    tools
  • Link physicians to central Medtronic information

15
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18
The Healthcare Landscape
Congress
Main Street
Medial Technology
Federal Government
lt90 Income
Big Business
Physicians
99 Income
91-99 Income
Courts
Insurers
Hospitals
19
Integrated Delivery SystemIT Network
Decision Support
Life Support
Data
Hardware
20
Data Available to the Average Medical Provider
About a Patients Care
10 of Care
25 of Care
15 of Care
15 of Care
35 of Care
21
Actual eLinks
To Build
Congress
Main Street
Medical Technology
Federal Government
lt90 Income
Big Business
Physicians
99 Income
91-99 Income
Courts
Insurers
Hospitals
22
Medtronic Critique
  • Direct to consumer advertising is effective but
    it requires a massive cash outlay which
    shareholders may not authorize.
  • IT enablement requires an existing infrastructure
    that has yet to emerge. Medtronics participation
    will support the development of this
    infrastructure, but it is unlikely to serve as
    the catalyst.
  • Bursting of e-commerce bubble undermines much
    of the information and communication strategies
    proposed. Though we are still 1 year away

23
From Idea to Use--How Does A New Technology Make
Money?
  • Suppose you have a new molecule or medical device
    that has you believe provides significant health
    benefits
  • What is the process by which you bring in revenue
    from payers?
  • Four Key Steps -- these will vary from country to
    county and even innovation to innovation

24
Four Important Steps
  • Obtain a Patent
  • Recall a patent grants exclusive rights to sell
    the product for 20 years
  • Regulatory approval from the FDA that the new
    device or drug may be marketed
  • A very long, multi-stage and expensive process

25
Four Important Steps
  • 3. Payers must agree to cover the procedure.
  • Differing standards by payers
  • Medicare-- reasonable and necessary
  • 4. Providers must be persuaded to use/proscribe
    the innovation
  • Without the providers benefiting in some way, the
    product will not be used.

26
Getting a Patent
  • It takes from 6 months to 2 years for the patent
    office to grant a patent
  • Anyone who invents or discovers any new and
    useful process, machine, manufacture, or
    composition of matter, or any new and useful
    improvement thereof, may obtain a patent
  • The Standard Novel and non-obvious
  • Patent Life is 20 years
  • Drugs can get important extensions
  • Pediatric testing--6 months

27
Obtaining FDA ApprovalPharmaceuticals
  • There are 4 phases to an FDA approval--The
    standard is safe and effective.
  • Pre-Clinical Phase (3 years) -- Laboratory and
    animal testing
  • Purpose is to asses safety and biological
    activity
  • At this point file an Investigational New Drug
    Application (IND) at FDA
  • IND shows results of previous experiments
  • The chemical structure of the compound
  • How it is thought to work in the body
  • Any toxic effects found in the animal studies and
    how the compound is manufactured.

28
Obtaining FDA Approval
  • Clinical Trial, Phase I (1 year)
  • 20 to 80 health volunteers
  • The tests study a drug's safety profile,
    including the safe dosage range.
  • The studies also determine how a drug is
    absorbed, distributed, metabolized and excreted,
    and the duration of its activity
  • Clinical Trial, Phase II (2 years)
  • Controlled studies of approximately 100 to 300
    volunteer patients (people with the disease) to
    assess the drug's effectiveness

29
Obtaining FDA Approval
  • Clinical Trial, Phase III (3 years)
  • Usually involves 1,000 to 3,000 patients in
    clinics and hospitals. Physicians monitor
    patients closely to determine efficacy and
    identify adverse reactions.
  • Very Expensive

30
Obtaining FDA Approval
  • New Drug Application (NDA)
  • Following the completion of all three phases of
    clinical trials, the company analyzes all of the
    data and files an NDA with FDA if the data
    successfully demonstrate safety and
    effectiveness.
  • The NDA must contain all of the scientific
    information that the company has gathered. NDAs
    typically run 100,000 pages or more.
  • By law, FDA is allowed six months to review an
    NDA. In almost all cases, the period between the
    first submission of an NDA and final FDA approval
    exceeds that limit the average NDA review time
    is about 30 months.

31
FDA Approval
  • Once FDA approves the NDA, the new medicine
    becomes available for physicians to prescribe.
  • The company must continue to submit periodic
    reports to FDA, including any cases of adverse
    reactions and appropriate quality-control
    records.
  • For some medicines, FDA requires additional
    studies (Phase IV) to evaluate long-term effects.

32
FDA Approval -- Medical Devices
  • Two common methods to be able to get clearance to
    market a device
  • Pre-market approval applications (PMAs) for
    breakthrough technologies
  • Pre-market notifications (also known as 510(k)s)
    for more established products
  • FDA receives about 50 to 70 PMAs and over 4,000
    510(k)s per year
  • The agency in the FDA responsible for approval of
    devices is Center for Devices and Radiological
    Health
  • One or Two step process--Initial Report

33
Medical Device Classes
  • Class I products are the lowest risk and most are
    not subject to pre-market review.
  • Class II products pose either a low or moderate
    risk
  • Usually are cleared via 510(k).
  • Class III technologies generally are higher risk,
    breakthrough products that are not similar to
    currently marketed products.
  • These technologies require a PMA application.

34
Medical Device Classes
  • The agency examines extensive data on all but the
    very simplest medical products, like tongue
    depressors and adhesive strips, before allowing
    them on the market.
  • Approximately 30 of all medical device types are
    placed in Class I, 60 in Class II and 10 in
    Class III
  • All devices are subject to General Controls
    --marketing, proper labeling and monitoring its
    performance once the device is on the market.
  • Radiation emitting devices face additional
    standards

35
Summary From Bench Science to Reimbursement
Schedule
  • NIH/Industry support basic science research
  • Basic science yields an innovative material or
    missing link for therapeutic or diagnostic value
  • New product development within a firm.
  • Prototype developed
  • Prototype used for clinical trials
  • If prototype proceeds to human trials,
    cost-effectiveness analysis commissioned.
  • Successful human trials leading to FDA approval
    combined with positive cost-effectiveness
    analysis are used to solicit reimbursement from
    public and private insurers.
  • Technology added to reimbursement schedule after
    medical technology review by internal insurer
    auditors. Medicare reimbursement often a signal
    of positive reimbursement decision.

36
Is Technological Change Worth It?
  • How much would you be willing to pay everyday
    from this day forward for a better than 50
    chance you will live five more years than without
    such an the investment?

37
The Drive Towards Cost-Effectiveness
  • Increasingly, health care systems are insisting
    on manufacturers presenting a cost-effectiveness
    case for a product to justify unit pricing and
    affordability within health care systems
  • Evidentiary and analytical standards are
    demanding and few pharmaceutical and
    biotechnology companies have staff skilled in
    meeting these standards

38
Cost-Effectiveness Analysis Standards
  • National Institute for Clinical Excellence (UK)
    Guide to the Methods of Technology Appraisal
    (2004) (www.NICE.org.uk)
  • Pharmaceutical Benefits Advisory Committee
    (PBAC) Guidelines for the Pharmaceutical
    Industry on Preparation of Submissions to the
    Pharmaceutical Benefits Advisory Committee (2002)
  • WellPoint Pharmacy Management, Health Technology
    Assessment Guidelines, Drug Submission Guidelines
    for New Products, New Indications and New
    Formulations (2004) (www.Wellpointrx.com)
  • WellPoint Pharmacy Management, Health Technology
    Assessment Guidelines Drug Submission Guidelines
    for Re-Evaluation of Products, Indications and
    Formulations (2004) (www.Wellpointrx.com)

39
The Pharmaceutical MarketWhere Health Economics
Gets Real
  • The principal role of the health economist in the
    pharmaceutical industry is to develop and
    recommend a sustainable global unit pricing
    strategy
  • A sustainable pricing strategy is one that is
    consistent with achieving and maintaining
    reimbursement in key global markets and market
    segments at a unit price that is consistent with
    an acceptable market share and rate of return on
    research and development expenditures

40
Health Economists and their Jamborees
41
Preparing a Global Health Technology Dossier
  • To underscore the role of the health economist
    and the importance of health economics activities
    in the life cycle of a drug
  • To emphasize the importance of meeting health
    technology assessment evidentiary and analytical
    standards
  • To detail the role of a dossier in supporting a
    global reimbursement strategy
  • To consider the contents and scope of a global
    technology dossier

42
The Need for Consistency and Transparency
  • The commitment to a health technology dossier at
    pre-Phase I in product development and the
    support for that dossier over the life cycle of a
    drug ensures
  • Validation of assumptions driving business
    opportunity decisions to support product
    development
  • Validation of the epidemiology and market
    opportunities in a disease state
  • A coherent and consistent assessment of
    comparative clinical performance
  • Core models to support cost-effectiveness and
    system impact claims
  • A framework for assessing the impact of a
    changing competitive environment
  • A basis for preparing for disease area and
    therapeutic class reviews

43
Dossier Structure
  • Target Disease Classification
  • Epidemiology
  • Treatment patterns, resource utilization and
    costs
  • Product description
  • Comparator product/procedure description(s)
  • Clinical summaries and meta-analyses
  • Modeled cost-effectiveness case
  • Modeled system impact case
  • Product claims, monitoring and verification

44
Dossier Scope
  • Dossier must identify and report on all key
    markets and market segments for content
    description and analysis
  • US (managed care, VA, Medicaid, Medicare)
  • European Union (UK, France, Italy, Germany Spain)
  • Canada
  • Australia
  • Japan
  • Developing countries (Mexico, Brazil, India,
    China)

45
How Apples to Apples Comparisons of Products are
Made
  • All product claims must be presented in terms
    that make them empirically evaluable
  • Claims which are not empirically evaluable would
    be rejected
  • Manufacturers must present (and get agreement) as
    to which claims are evaluable to support both
    cost-effectiveness and system impact impacts,
    which must be detailed in the dossier
  • Manufacturers must agree to the process by which
    claims are monitored and validated, which must be
    detailed in the dossier

46
Also, Dont Stay STATIC
  • Over the balance of the product life cycle the
    dossier must be updated to reflect not only the
    results of product claims monitoring and
    validation but also changes in the competitive
    environment for the manufacturers product
  • The dossier should support ongoing disease area
    and therapeutic class reviews
  • Update of clinical summaries and meta-analyses
  • Review of comparator choice
  • Re-evaluation of modeled cost-effectiveness and
    system impact case for the product
  • Revisions to empirically evaluable product impact
    claims

47
Summary
  • There large market opportunities from medical
    technology.
  • But with opportunity, there is risk..
  • The increasingly prescriptive requirements that
    manufacturers meet gold standard evidentiary
    and analytical criteria in formulary submissions
    and product re-evaluations have profound
    implications for the process of product
    development and assessments of comparative
    treatment effects.
  • Manufacturers must recognize that all claims are
    potentially discoverable and that a consistent
    global approach to clinical assessment will
    minimize adverse assessments of false or
    misleading claims.
  • As future consumers, none of us would want
    anything less.
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