Pricing and Reimbursement Strategies for Diagnostics: Overcoming Reimbursement Issues and Navigating the Regulatory Environment
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The reimbursement for diagnostics is the key requirement for both the diagnostic providers and the payers because while 5-7% of the hospital cost is incurred on diagnostics, they are used for around 70% of the healthcare decisions. Developing an optimum price especially with respect to emerging diagnostic technologies such as molecular diagnostics has been very challenging as evidence-based pricing does not suffice for such technologies. This complicates the scenario for early movers in diagnostics. However, there has been an on-going issue even with respect to existing technologies, as the companies have an immense need to re-consider their pricing strategies to deal with cost and demand versus reimbursement issues. Hence, it is very crucial to identify novel pricing strategies to maintain a fair plane among all the stakeholders.
Key features of this report
• Regulatory structure for U.S. and Europe
• Existing pricing strategies for healthcare diagnostic equipments
• Novel pricing strategies for healthcare diagnostic equipments
• Strategic recommendations for existing and first mover healthcare diagnostic equipments
• Indicative prices and reimbursement amounts for healthcare diagnostic equipments
Scope of this report
•Understand the existing structure for reimbursements for healthcare diagnostic equipments developed markets
• Understand the existing pricing for healthcare diagnostic equipments for developed markets
• Understand the role of various factors impacting price of the healthcare diagnostic equipments
• Understand the evolution of pricing strategies in recent times within healthcare diagnostic equipments
• Helps in determining the complete understanding of changing times within pricing with respect to reimbursements
Key Market Issues
• The healthcare diagnostic industry is currently facing the issue of lack of reimbursements for various procedures which are extremely critical to patient diagnosis
• This lack of reimbursements has started to affect the market negatively and the major markets in developed economies are seeing a negative to flat growth rate
• Various end users are using this opportunity to push the prices of the healthcare diagnostic products further down, which can lead to decrease in the size of the industry
• Various countries in Europe have their own reimbursement structure and policies with respect to various procedures. This is creating lot of bureaucratic and pricing hurdles for the Original Equipment Manufacturers (OEMs) of these products.
• Various governments in Europe are changing their reimbursement policies with respect to new products launched within the healthcare diagnostic industry.
Key findings from this report
• A procedure might have a higher chance of getting insurance coverage, if it reduces the overall healthcare cost.
• The recent reduction made by the CMS in the reimbursement amount for non-facility units is expected to impact the diagnostic devices market especially in the form of lack of innovation.
• The reimbursement structure is restraining the growth of innovative technologies such as molecular diagnostics.
• An OEM's pricing is fundamentally based on its desired Return-on-Investment and the overall cost of manufacturing its equipment.
• Fair Value Pricing and Risk Sharing Pricing are the new methods of pricing within healthcare diagnostics
Key questions answered
• What is the existing reimbursement structure within the major markets in healthcare diagnostics?
• What are existing pricing strategies employed by healthcare diagnostic Original Equipment Manufacturers (OEMs)?
• What is the impact of current reimbursement policies over the pricing of healthcare diagnostic equipment pricing?
• How do the OEMs of healthcare diagnostic equipments price their products considering reimbursement policies across the world?
• What are the possible drawbacks of recent changes in reimbursement policies across the globe?
Table of Contents
Pricing and reimbursement strategies for diagnostics
Executive Summary 10
Market overview 10
Key findings 11
Analyzing best-fit strategies for novel pricing and reimbursement 13
Strategic recommendations 14
Chapter 1 Introduction 16
Summary 16
Key take aways 16
Report description 16
Stakeholders 17
Chapter 2 Market overview 20
Summary 20
US regulations for medical devices & diagnostics 21
United States Department of Health and Human Services (HHS) 22
United States Public Health Services (PHS) 22
National Institutes of Health (NIH) 22
Agency for Healthcare Research and Quality 22
Indian Health Services 22
Substance Abuse and Mental Health Administration 23
Centre for Disease Control and Prevention 23
Food and Drug Administration 23
US reimbursement structure 28
US reimbursement payors 29
Public health insurance 29
Medicare 29
Medicaid 29
Other public systems 30
Private health insurance 30
Employer-sponsored insurance 30
Administration 31
Financing 31
Private non-group (individual market) 31
Overview 31
Administration 31
Financing 31
US reimbursement procedures 32
Benefit eligibility 32
Billing process 34
Coding systems 34
Pricing processes 35
Guidelines for coverage decision-making 36
US diagnostic imaging reimbursement structure 37
Medicare perspective 37
European healthcare reimbursement structure 38
European healthcare regulatory structure 38
German healthcare system 40
Impact of regulations on pricing and reimbursement 43
French healthcare system 44
Impact of regulations on pricing and reimbursement 48
UK healthcare system 49
Impact of regulations on pricing and reimbursement 52
Italian healthcare system 53
Impact of regulations on pricing and reimbursement 55
Spanish healthcare system 55
Impact of regulations on pricing and reimbursement 58
European diagnostic imaging reimbursement structure 58
Pricing and reimbursement: pharmaceutical vs. diagnostics 58
Level of pricing transparency for diagnostic devices 60
Chapter 3 Key findings 64
Summary 64
Introduction 65
Impact analysis: role of pricing in risk minimization 65
Payor's (health insurance companies) perspective 68
Diagnostic provider's perspective 69
Identifying critical issues in the pricing and reimbursement of diagnostics 71
Decline in the reimbursement for non-facility units in US 71
Evolving molecular diagnostics causing further complications 72
Factors affecting price of healthcare diagnostic products 73
Competition: 75
Company Profile in the local market: 78
Government: 79
Reimbursements 80
Chapter 4 Analyzing best-fit strategies for novel P&R issues 84
Summary 84
Introduction 85
Pricing strategy 85
Price management and reassessment of pricing throughout the product lifecycle 87
Existing product technologies 89
New product (first mover diagnostic) technologies 90
Payor engagement strategy 90
Introduction of separate business unit for pricing and reimbursement 92
Novel pricing for existing and first mover diagnostic technologies to overcome reimbursement issues 93
Fair value pricing 94
Risk based pricing 94
Outsourcing pricing & reimbursement strategies 96
Universal pricing 97
Free pricing 97
Strategic recommendations 98
Innovations to demand a price premium 98
Case study – Average selling price of mammography units 98
Reduced time to market to generate faster ROI 100
Technologies addressing unmet clinical needs to benefit diagnostics providers 100
Chapter 5 Appendix 104
Index 125
List of Figures
Figure 2.1: US healthcare regulatory organizational chart 21
Figure 2.2: US FDA organizational chart 24
Figure 2.3: CDRH Organization Chart 25
Figure 2.4: US healthcare reimbursement and financing structure 28
Figure 2.5: Healthcare structure in Germany 40
Figure 2.6: Healthcare structure in France 44
Figure 2.7: Healthcare structure in the UK 49
Figure 2.8: Healthcare structure in Italy 53
Figure 2.9: Healthcare structure in Spain 55
Figure 3.10: Reimbursement mechanism 67
Figure 3.11: Different cases for reimbursement approvals 69
Figure 3.12: Factors affecting pricing in a healthcare diagnostic OEM 73
Figure 3.13: Pricing work flow in a healthcare diagnostic OEM 74
Figure 3.14: Pricing equation 75
Figure 3.15: Product lifecycle for a diagnostic product 76
Figure 4.16: Value-based pricing & reimbursement 86
Figure 4.17: Product lifecycle (PLC) for a diagnostic product 88
Figure 4.18: Price recommendations at Product Lifecycle (PLC) stages 89
Figure 5.19: Mammography: Average selling price ($)for U.S., 2005-10 99
List of Tables
Table 2.1: Payment & coverage in pharma 59
Table 3.2: Reduction in US. medical procedure reimbursement 71
Table 6.3: Indicative prices for in vitro diagnostic equipment – US 104
Table 6.4: Indicative reimbursement for in vitro diagnostic tests – US 105
Table 6.5: Indicative reimbursement for in vitro diagnostic tests – US (contd. 1) 106
Table 6.6: Indicative reimbursement for in vitro diagnostic tests – US (contd. 2) 107
Table 6.7: Indicative reimbursement for in vitro diagnostic tests – US (contd. 3) 108
Table 6.8: Indicative reimbursement for in vitro diagnostic tests – US (contd. 4) 109
Table 6.9: Indicative reimbursement for in vitro diagnostic tests – US (contd. 5) 110
Table 6.10: Indicative reimbursement for in vitro diagnostic tests – US (contd. 6) 111
Table 6.11: Indicative reimbursement for in vitro diagnostic tests – US (contd. 7) 112
Table 6.12: Indicative reimbursement for in vitro diagnostic tests – US (contd. 8) 113
Table 6.13: Indicative reimbursement for toxicology/DAU (Drugs of Abuse) tests 114
Table 6.14: Indicative reimbursement for toxicology/DAU (Drugs of Abuse) tests 115
Table 6.15: Indicative reimbursement for toxicology/DAU (Drugs of Abuse) tests 116
Table 6.16: Indicative reimbursement for toxicology/DAU (Drugs of Abuse) tests 117
Table 6.17: Indicative reimbursement for point of care tests 118
Table 6.18: Indicative reimbursement for Microalbumin and Creatinine tests 119
Table 6.19: Indicative Reimbursement for various kind of Hemoglobin tests 120
Table 6.20: Indicative prices for in vivo diagnostic equipment ($) – US 120
Table 6.21: Indicative reimbursement for in-vivo diagnostic tests – US 121
Table 6.22: Medicare reimbursement for mammography services 122
Table 6.23: Medicare reimbursement for mammography services 123
Table 6.24: 2005 Medicare payment for magnetic resonance imaging of the joints of the extremities 123
Table 6.25: 2007 Medicare reimbursement for SPECT/CT for selected tumor imaging and localization 124
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Diagnostics Industry: Pricing and Reimbursement Strategies for Diagnostics: Overcoming reimbursement issues and navigating the regulatory environment
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