The farmer and the cowman should be friends.
Oh, the farmer and the cowman should be friends.
One man likes to push a plough, the other likes to chase a cow,
But that’s no reason why they cain’t be friends.
Territory folks should stick together,
Territory folks should all be pals.
Cowboys dance with farmer’s daughters,
Farmers dance with the ranchers’ gals.
-from the Farmer and the Cowman Song, Oklahoma
As someone who has worked in both the areas of medical technology (“medtech”) and health insurance, here is one thing I know to be true: the people who lead these two healthcare sectors rarely talk to one another except through clenched teeth. They talk ABOUT one another, usually lamenting how incapable the other group is of understanding their needs or how insensitive they are to each others’ business model imperatives. But talk to each other or even collaborate? You have got to be kidding. Friends? Never!
Sadly, these two essential stakeholders in the healthcare universe have a propensity to look upon each other as adversaries or hurdles to financial achievement and, in some cases, this hasn’t been so far off. Medtech innovators tend to view the payers as those who stand on their wallets to block the door to reimbursement, robbing patients of good health in the process.
Payers tend to view the medtech companies as those who wish to pick their pockets to pay for suboptimal products that just add cost and don’t add quality. Of course, both of these are extreme characterizations (albeit sometimes accurate), but the truth is that medtech companies and payers tend to spend time together only when forced. One rarely hears about these entities as collaborators in the effort to achieve the Triple Aim. “The insurance world and the medtech world think they know how each other work, but the truth is they have no idea,” said Dr. Alan Russell, Chief Innovation Officer and Executive VP of Allegheny Health Network.
And because these negative situations are the ones that often get discussed at healthcare conferences, the stereotypes (and actual types) persist. Rarely does one see a medtech company CEO hanging out seeking partnerships at a health insurance industry conference. Rarer yet would be an insurance company executive hanging out at a medical device conference looking for new things to reimburse. I’ll pause here for the knowing smirking that I know is occurring.
But wait! I have discovered a meaningful exception, and I had the pleasure of highlighting it on the program at the recent Wilson Sonsini Medical Device Conference a few weeks ago. As common as a Bigfoot sighting, somewhere out there in the healthcare marketplace (Pittsburgh) there is actually a payer organization that actively seeks out new medical technology companies in a quest to pay for new things that bring significant value to their members. And as word has spread of the sighting of this mythical being, medtech innovators are finding their way to this payer in search of early stage collaborations that bring them proof of concept and payment. I am surprised that the National Enquirer hasn’t covered this already.
And, by the way, this is no small upstart payer player. It’s Highmark Health, a payer/provider/Integrated Delivery system that serves 35 million people. Highmark, working together with its wholly owned provider system, Allegheny Health Network (7 hospitals, 1700 physicians), is taking a holistic view of healthcare, this enterprise has created a program called VITAL which is intended to do the following, according to them:
The VITAL innovation program (Verification of Innovation by Testing, Analysis and Learning) is a formal, rapid and competitive review and funding process, open to innovators and potential partners, who wish to test new ideas. It provides a platform to effectively and efficiently advance an idea from concept to clinical application and consideration for reimbursement. The VITAL innovation program is essentially a test bed designed to facilitate early use of technologies that have received regulatory approval and are being used for their intended purpose within the approved patient population but are not yet covered by most commercial insurers. VITAL is designed to provide the missing link between FDA approval of an innovative technology and its full reimbursement.
Here’s what they do at VITAL:
- They encourage medtech innovators to come meet with them when they are conceiving and designing products to help them understand what it would take for Highmark to consider reimbursing for those products in the future.
- They invite in medical technology innovators, especially startups but also established companies, to present their thesis for quality, outcome and value after receiving FDA approval, without regard to status of a reimbursement code;
- They throw open their claims data set for mutual research to validate the scope of the problem (or not) and determine if it is important enough to overall Highmark strategy to warrant attention;
- If the problem is validated based on actual data, they help scope and completely fund a clinical study to help the medtech innovator prove the value proposition;
- Once they have determined the partnership is one they have interest in pursuing, they collaborate along the way to help the product be adopted and reimbursed by their very large system.
And here’s another wild concept: once they have committed to do a study, Highmark and Allegheny are actually writing to patients who might benefit from the study and offering them this experimental treatment at no cost. Yes, you read that right: they are recruiting their own members at their own expense to participate in using the payer/provider’s money to help them get better. Now that’s a drop the mic moment. I am pretty sure the last time my insurance company called me and offered to pay for an experimental treatment that might benefit me was never.
Ready for another mind blower: the VITAL program is open to consumers/patients who are NOT part of the Highmark system and Highmark will pay for their inclusion in the studies. They would welcome other payers’ members to participate if those payers would be willing to share their data openly as Highmark is doing under the program. No takers yet. Shocking. Not.
Pretty much every major insurance enterprise has a medical technology review committee that determines whether new products will be adopted, but I have to see one that actively works with startups and others to figure it out together. As far as I know, this approach is unique, particularly the willingness of the payer/provider to open up their data to validate the assumptions made by product manufacturers and their commitment to underwrite the cost of the studies that have promise. I spoke just this week with another large payer—a household name—on behalf of a medtech client and the first question the payer asked was whether the medtech company would be paying for the proposed pilot. Oh, and by the way, Highmark/Allegheny take no equity in the company they are helping. They view that as a conflict of interest and say that, “they don’t want to compromise that…it’s really about delivering better care and getting great technology to the people it can help,” per the program’s leader, Dr. Russell.
To be sure, not every new medtech innovation is interesting to VITAL. It has to affect a meaningful patient population as defined by size. The product has to create a serious propensity to cure the problem, not just improve symptoms and it is preferred when the product is addressing a problem that is hard to diagnose and thus addresses an even larger medical need by eliminating medical guesswork. And in the end, the technology must demonstrate it is of high quality, simple, accessible and affordable. Yes, this is an exercise in reducing costs to the payer/provider system, but not at the expense of doing the right thing. While they are willing to consider reviewing products that add expense to the system such a product would have to jump over a pretty high bar, they say.
So far just a few companies have even applied for this program, as it is the industry’s best kept secret (until the room of 200 or so at the conference all came running for Dr. Russell’s business cards at the end of the session). Two small companies—Torax Medical and Freespira, have been accepted in (there may be others) and their trials, mutually scoped and paid for by VITAL, are underway. In talking about their decision to study Freespira, a medical device to treat panic disorder, Dr. Russell admitted that he himself was very surprised to see the high incidence of panic disorder and the high cost associated with it in the Highmark system when they undertook a review of claims to find out how much this diagnostic category was costing them. In other words, the startup has helped him understand and potentially address a problem he didn’t even realize he had. “Data is gold and it shouldn’t be left in the mine,” Russell added.
The Torax study includes 200 patients and the Freespira study 100 patients, including control groups. The value transfer from payer to manufacturer as a result of Highmark/Allegheny funding these studies is in the millions of dollars. Yes, the stakes are high: if the studies fail it isn’t going to help anybody, consumer, payer or manufacturer. But if they succeed, the rewards will be significant. Torax and Freespira small companies report that just the imprimatur of being selected has helped them attract venture capital attention and that having access to the payer and provider data is like finding a unicorn.
And what do you know? Large companies are coming around too, seeking to solve the reimbursement challenges they also experience when developing products without enough market feedback. Boston Scientific is one of the companies working with VITAL and others you would know have approached them as well.
All this comes at a pretty important time for the medtech world which, whether it likes it or not, is getting dragged into the world of understanding payer imperatives more than ever. Medtech companies used to be able to keep themselves somewhat insulated, as their clients were the doctors and hospitals that were one step removed from the reimbursement morass, in many cases. “Hey, we can slip our device in under the DRG,” is a refrain that is not working much anymore; neither is the belief that they can get their favorite provider to go to bat if using the product might cut into his or her own savings share. As provider organizations become de facto or actual payers, taking on more and more financial risk and becoming subject to straight up value-based payments, medtech companies have to become far more savvy about building products for which the new world order will pay.
Witness CMS’ announcement last week that they will “experiment” with bundled payments for hip and knee replacement surgeries; I think this is an experiment that will be rapidly followed by a plan to do this for many procedures across the board, and will be even more rapidly followed by commercial payers emulating this plan. Remember that our current and likely long-term CMS lead is Andy Slavitt, who hails from United Healthcare. If you think the private payers aren’t watching what he is doing, you are mistaken. And what he is doing is driving CMS deep into the value-based reimbursement world, seeking to align incentives among payers and providers in an effort to reduce unnecessary medical expenses that are growing yet again after several years of decline.
So what made Highmark step out and start VITAL? David Hall, VP Enterprise Strategy at Highmark Health says, “We are trying to take a truly integrated lens to the challenges of cost, quality and especially consumerism. There is big competition in the insurance markets and we need to commit to innovation to prove our value to ourselves and our customers.”
That competition thing is for real and the smart insurance companies know it. That’s why they are investing in becoming integrated delivery systems and aligning themselves with providers, products and processes that make them stand out in a world where branding and consumer choice matter. I don’t usually use this blog space to point out individual companies for attention, but this is a program that merits it. I hope we see the walls between medtech and the payer world break down even further. Maybe someday they will even attend each others’ conferences.
FYI, if you want to contact the VITAL program, the info is HERE.
And because I can’t help myself: