When I think about the current landscape of the healthcare marketplace, I think that a slight title change from the song, “Money Makes the World Go Round”, sung by Joel Grey and Liza Minnelli in the 1972 movie adaptation of Cabaret, is apropos. “Money makes your health tech sell”. Here’s why.
Today, health providers require healthcare product manufacturers to demonstrate cost effectiveness evidence in addition to clinical benefits. Not only do many products need to be safe and effective, they also need to lower treatment cost, prevent unreimbursed care expenses or enhance revenue. This cost focus is supported by health insurers who factor economic savings into their reimbursement and coverage decisions. As a result, manufacturers must economically justify their product to payers too. Payer and provider adoption rates for technologies with strong economic justification is significantly higher than for those without. Economically proven products also tend to command a higher price. Truly, money makes your health tech sell.
Health economic studies
The most common type of economic study is the Cost-Effectiveness Analysis. On its simplest level, this study approach involves the comparative analysis of the cost of a new treatment compared to the current standard of care. This analysis allows the calculation of the new treatment’s cost effectiveness. It helps decision makers understand the implications and benefits of switching the status quo to new technology.
- An impactful health economic study usually contains:
- Demonstration of out-of-pocket savings, usually supply cost. Administrative and overhead costs are not considered
- Total cost is comprised of the product quantity of each resource item used and the unit cost of each item
- Cost of direct medical care (including the intervention itself), treatment of any side effects or complications, and follow-up care
- Alternative comparisons may be “do nothing,” or a competitive product
However, a simple comparison of costs often does not fully demonstrate a product’s economic value. Products that help improve care quality as measured by many payers, especially CMS, can have a huge positive economic impact. Some typical parameters include reduction in length of stay, faster transfer from high-cost care units like the ICU or the OR, and prevention of hospital readmissions. For example, if a product can demonstrate an ability to reduce hospital readmissions within 30 days, the hospital is able to avoid the unreimbursed cost of care for those readmissions. According to the latest hospital statistics from the American Hospital Association, the average cost for a stay in the hospital is approximately $34,150. With readmission rates within 30 days hovering at approximately 2.9%, the average hospital spends $5.7M for unreimbursed readmissions costs. A product that reduces readmissions can lower this figure. Capturing these types of costs can be critically important to manufacturer value propositions.
The labor savings conundrum
Some manufacturers try to develop a labor savings economic argument. Often these studies take a simplistic approach by tracking the number of minutes their procedure saves. This unjustifiable approach suggests that procedure savings 15 of minutes, especially if incurred several times over the day, drives economic value to the purchaser.
But in most instances, this is a weak approach and savvy financial managers are unlikely to accept the argument because most hospital staff costs are fixed. Labor savings mostly occur by reducing headcount. And since the largest labor segment is nursing, labor shortages mean that providers are unwilling and unable to reduce nursing headcount. Further, most nurses are so busy, that any time savings usually just allows another patient care activity to be performed, or perhaps they can eke out a needed coffee break from patient care.
This is not to say labor savings cannot be used. Labor savings is justifiable through a different rationale. Since many providers are forced to hire contract nurses, often at a significantly higher hourly rate, its is possible that significant labor savings could result in lower contract nursing expenses. By the same logic, labor savings could result in lower overtime hours for staff. However, in order to justify these types of savings they need to be tracked in the health economic study.
When to collect your health economic data
Timing for the economic study is an often-debated topic. Some organizations prefer to set up studies to collect this information after the pivotal trial for regulatory approval has been completed. This approach is based on the concern that collecting economic data could extend the length of the trial, thus delaying the submission. There are also concerns that collecting economic data during the pivotal trial could create questions that hamper regulatory approval.
Other organizations collect economic data during the pivotal trial. Conducting economic evaluations alongside randomized control trials provide an early opportunity to produce reliable cost effectiveness justification at a lower cost to the manufacturer. Cost savings are driven by eliminating duplicate time, resources, and money down the road because the pivotal study has effectively gathered all necessary economic data. Investing in economic studies during the pivotal trial has been estimated to save hundreds of thousands of dollars and accelerate time for reimbursement approval by 2 years.
Marketing role in forming the health economic message
An economic message is critical in the formation of the product’s value proposition. It’s Marketing’s goal to develop an economic case that supports the company’s product sales. Generating this positioning requires Marketing to start preparations well before launch. Marketing needs to proactively work with the Clinical Affairs team to insert economic parameters into the study design. In that way, the company generates peer-reviewed data of economic value, which can drive the economic message, a key part of the marketing campaign.
Marketing should also develop a Budget Impact Analysis. This economic study is designed to help the provider assess whether the adoption of a new health technology is affordable, given the resource and budget constraints of the budget-holding department. It provides an estimate of the likely change in expenditure of the new technology from the current practice of care. The Budget Impact Analysis can be given directly to the customer for self-review or delivered through the sales team.
In summary, today’s sophisticated hospital purchasing environment requires manufacturers to submit economic justification in addition to clinical data. Absence of these data usually prevent the manufacturer’s product from serious consideration. Economic data makes the world go round.