Presenting Data to Show Product Cost Effectiveness

Numerous shifts in the healthcare marketplace are driving a need for new forms of data for the commercialization of orthopaedic technologies. Companies need to adapt their clinical assessments to incorporate patient-reported data about the impact of their treatments in order to support the launch and future sales of new technologies and products in a competitive market. Clinical data has evolved from a nice to have tool to a need to have corporate asset.

Two Cautionary Tales
The DePuy ASR XL Acetabular Cup System hip implant received 510(k) clearance from FDA in July 2008 without a pre-approval dedicated clinical study. In September 2008, the Australian Orthopaedic Association National Joint Replacement Registry reported a high rate of revision surgeries for this device. In 2010, the National Joint Registry for England, Wales and Northern Ireland reported a revision rate that was more than four times higher than expected. DePuy voluntarily recalled the implant in late 2010. Tens of thousands of patients received this faulty implant, and to date more than 10,000 lawsuits are pending across the country. The ASR story illustrates the clinical and the product liability risks of bringing devices to market without sufficient clinical data on safety and efficacy. It also shows the growing influence of patient data registries in regulatory and health policy decisions.

A second example from oncology offers additional lessons for the orthopaedic sector. By law, Medicare must cover every FDA-approved cancer drug at the price charged by the manufacturer. The cost of cancer drugs has risen precipitously from an average of $4,500 per month a decade ago to around $10,000 per month today. The burden of this cost is increasingly borne by patients. A new drug, ZALTRAP, was approved last August for colorectal cancer. It was shown to offer the same survival benefit as Avastin, the current care standard. However, ZALTRAP was to be sold at twice the cost. The side effects of the two drugs are roughly equal. With Medicare’s 20 percent copay, this would mean $2,200 per month in out-of-pocket cost— more than the monthly income of more than half of Medicare recipients.

Memorial Sloan-Kettering Cancer Center, one of the premier cancer hospitals in the country, decided not to offer this new drug on its formulary purely based on cost considerations (since the efficacy was the same). The fact that a decision impacting hundreds of patients would be made on the basis of cost alone generated controversy. Sloan Kettering’s medical directors published an op-ed in The New York Times expressing their surprise that this seemingly straightforward decision received such attention, noting that, “In most industries something that offers no advantage over its competitors and yet sells for twice the price would never even get on the market.”

The lesson for the orthopaedic sector is that there is growing price sensitivity, even in specialty hospitals that want to offer cutting-edge therapies. Unless you can show the added value for the additional cost of a new therapy, you may be shut out of hospital formularies or passed over by increasingly price-sensitive patients.

Changes in the Marketplace Impact the Need for Data
Several shifts in the marketplace are driving the need for additional data to support new products. The first of these is the Affordable Care Act that goes into full effect in 2014. Some of the Act’s provisions include increased competition among insurers through healthcare exchanges. There will also be greater Federal oversight of premium increases, as well as payment reform that will bundle payments for episodes of care. Finally, healthcare reform also provides ongoing funding for comparative effectiveness research that compares the efficacy and safety of different treatments for the same condition.

The upshot of these changes under the Affordable Care Act is that there will be stronger limits on healthcare spending overall, as well as for individual procedures. With bundled payments, hospitals will be less willing to carve out payments for costly new implants. This hesitancy will be especially strong if these newer products are not shown to provide better outcomes through comparative effectiveness studies.

How do you Show Cost Effectiveness for Your Product?
Cost effectiveness is an economic calculation that compares the relative costs and outcomes of two different courses of action. Cost effectiveness calculations are done informally all the time in daily life. For example, when choosing between a name brand versus a generic product at the grocery store, each consumer must decide whether the additional “benefit” of the name brand in terms of quality, taste, etc. is worth the extra cost. In healthcare, because most costs are borne by insurers and only indirectly by the patient, such calculations have not been commonplace. Now, as patients bear a greater share of the cost burden through co-pays and tiered pricing, they will expect proof of additional benefit to justify any incremental costs for new technologies.

Cost effectiveness analyses reflect the difference in cost between two approaches to achieve incremental benefit, such as higher fusion rate, less pain, revision surgery avoided, etc. However, in the context of a fixed budget to cover a defined patient population’s total healthcare costs, interventions have to be compared using a common benefit unit. It is impossible to compare cost effectiveness of a new drug that slows the progress of Alzheimer’s disease with, say, a new implant that improves spinal fusions unless the benefits for each are measured on a common scale.

The scale used by healthcare economists is the Quality Adjusted Life Year, or QALY. The QALY is a measure of disease burden that takes into account the additional quality and quantity of life added by a treatment. QALYs are used to allocate healthcare resources in most developed countries with national healthcare budgets such as the United Kingdom, Australia and Western European nations.

Cost effectiveness analyses have not been commonplace in orthopaedics, but some health systems, such as the Mayo Clinic and Dartmouth Hitchcock Medical Center, and payers, including Kaiser Permanente, are collecting the patient outcome data needed to measure QALYs for various medical treatments and procedures. This domestic data buttressed with a flood of cost effectiveness data from overseers (currently the National Health Service (NHS) collects data on QALYs for all NHS patients undergoing total joint replacements, for example) means that a cost effectiveness yardstick will increasingly be applied to assess the value of new technologies coming to market. As hospitals rely more on gain sharing to sway surgeons toward less costly implants, it will be imperative for newer generations of products to justify additional cost by measuring additional benefits.

For some established orthopaedic procedures such as total joint replacement, the cost per QALY falls into the $10,000 to $20,000 per QALY range, which is comparable to other common non-orthopaedic procedures such as coronary artery bypass surgery. For spine surgery procedures, however, the data are much murkier. A 2012 review of the cost effectiveness literature in spine surgery found cost per QALY values all over the map with methodologies varying widely in the studies (Kepler Spine J. 2012 Aug;12(8):676-90).

How can this Data be Collected?
Fortunately, the data to measure the impact of a treatment on quality of life can be collected more readily now from patients due to recent improvements in data collection systems. With the Federal push toward patient-centered outcomes enshrined in the Affordable Care Act, a number of new technologies can help with asking patients directly about the effects of treatments. A number of companies now focus on the orthopaedic sector, and a plethora of new startup companies offer mobile solutions to collect outcomes more easily and cheaply from patients.

Moving forward, medical device manufacturers need to adopt the following points to successfully commercialize new technologies.

  • Several changes in the healthcare market are coalescing, resulting in an increased demand for data to show cost benefit of orthopaedic technologies.
  • To compare cost effectiveness of treatments across diseases, a common metric to measure the benefits of the intervention must be used. The Quality Adjusted Life Year, or QALY, has emerged as the standard common unit.
  • QALYs are being collected widely around the world, and cost per QALY is used in many countries for healthcare utilization decision making.
  • Companies need to incorporate patient-reported outcomes into their safety and efficacy assessments so that treatment benefits and cost effectiveness of new products can be communicated to payers, physicians and patients.
  • Quality of life impact can be more easily measured today thanks to a variety of new companies and technologies in this space.

Isabella Sledge, M.D., is an internist with 15 years of experience in health outcomes research. She is Vice President of Data Services at Tides Medical, a manufacturer and distributor of orthopaedic implants and biologics. She has experience creating patient registries and clinical studies for pharmaceutical and medical device companies. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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