When Developing Medical Devices, Don’t Forget the Economic Advantages Compared to Expensive Drug Alternatives
Recent news stories about the high cost of two new drugs targeting Hepatitis C, Gilead’s Sovaldi (sofosbuvir) and Janssen’s Olysio (simeprevir), have raised the question of whether the U.S. healthcare system is on an irreversible track toward ever higher drug costs. But what role can the medical devices industry play in this debate? When drug and device treatments are compared head-to-head, often one of the most compelling reasons for choosing the device-enabled alternative is cost savings. As drug costs continue to escalate, the economic advantages of those treatment alternatives using medical devices will be even more important criteria driving their adoption. This has implications for medical device developers not only in determining what clinical end-goals they are striving toward, but also how medical technology companies communicate the value of their products compared to available alternatives. U.S. providers and payors will be taking an increasingly rigorous approach to evaluating the economic impact of the treatment protocols they use. This presents significant opportunity for those medical devices which have a convincing economic case to make, however, untangling that story often requires effort.
A recent project of mine presents an example of how a device-based alternative can show compelling cost savings over an aggressively marketed competing drug. Earlier this year I conducted research with anesthesiologists and pharmacy directors at U.S. hospitals which had experience with two different types of post-operative pain management products: I-Flow’s ON-Q, which infuses local anesthetic using a catheter and elastomeric pump, and Pacira Pharmaceuticals’ EXPAREL which is a liposomal formulation of bupivicaine, intended for a single-dose application to a surgical wound. EXPAREL has been marketed as a more cost-effective alternative to post-operative pain pumps like ON-Q, but the actual economics in a clinical setting suggest otherwise.
Frost & Sullivan believes the best way to evaluate the economic value of a post-operative pain management approach is to divide the total costs associated with it by the number of hours of effective pain relief it provides. This same type of logic can be applied to other medical technologies looking at total net costs divided by disability-adjusted life years (DALY) or some equivalent clinical measurement.
The duration of actual pain relief the two products provide is the most significant difference between ON-Q and EXPAREL. EXPAREL supports a claim of providing “up to 72 hours of pain control,” however, my research with anesthesiologists and pharmacists using the drug indicates the amount of pain relief they experienced in clinical practice was much lower. On average, anesthesiologists reported the duration of pain relief for EXPAREL without adjunctive drugs was 25 hours, but responses varied widely from 5 to 60 hours. This variability across patients was a common complaint among both anesthesiologists and pharmacy managers interviewed. The average of 25 hours of pain relief was only 14 hours more than the amount of pain relief reported from standard, non-liposomal bupivacaine priced at a fraction of the price of EXPAREL.
Respondents reported paying $251 per 20 ml vial of EXPAREL, compared to the $13 amount clinicians reported paying for a dose of non-liposomal bupivacaine. One-third of survey respondents said their facilities paid $10 or less for a dose, with reports that some hospitals pay significantly less than that. In addition, clinicians reported another $67 in costs for adjunctive drugs used with EXPAREL. Respondents reported an average use of 1.5 vials of EXPAREL used per patient, equaling $374 in total drug costs during the first four days of recovery. When divided by the 37 hours of effective pain relief these 1.5 doses provide, not considering the additional costs of adjunctive medication, the cost per hour of pain relief is approximately $10.04.
In comparison, the equivalent cost for the ON-Q system and related supplies was $4.60. Use of ON-Q does require some additional staff time, but these are overhead costs for which the facility has already accounted. Since anesthesiologists can bill for the procedure, their costs are not incurred by the facility either. The significantly lower price of ON-Q is primarily due to the longer duration of pain relief the system can provide, which spreads costs over 72 hours on average.
Widespread use of EXPAREL has implications for payors as well. Frost & Sullivan obtained a patient bill from a large Southeastern academic hospital detailing charges for billing related to EXPAREL and other related costs administered in early 2014. The bill shows the facility charging the payor $2,679 for a 20 ml vial of EXPAREL making it the single most expensive charge for any product or service during the hospital stay, including anesthesia and surgical fees themselves. Immediately above the EXPAREL line item is a $16.58 charge for a 30 ml vial of 0.25% bupivacaine solution, further contrasting the price differences between the two products.
As the professionals ultimately responsible for managing drug-related costs at their facility, pharmacy managers are significantly more attune to the expenses that accrue as clinicians expand their use of EXPAREL beyond evidence-based applications. While only 4% of anesthesiologists believed continued use of EXPAREL would have a negative impact on their hospital’s financial health, 37% of pharmacy managers saw a negative impact.
Hospitals should be careful about adopting any drugs or technologies without first looking at the risks and rewards at an enterprise level and what is in the best interest of all parties. When bringing new medical technologies to market, developers should also ensure there is a clear economic argument for providers at an enterprise level and the healthcare system as a whole.
Key tips for medical device designers to consider when building their own economic arguments include:
- Look at the REAL clinical experience and patient pathway, not just what may be reported in the literature, whether independent or sponsored.
- Understand reimbursement dynamics and how different treatment trade-offs results in different income streams for providers.
- Evaluate costs across the entire care continuum. Providers and payors are shifting toward bundled payments and incentives that can completely change the economic rationale for different treatment methods.
- Tap into new stakeholders to get their opinions. Administration and support staff, and not clinicians, are usually the ones most interested in the economic burden of different treatment decisions on the provider. Ensure you are speaking to them along with clinicians.
- Spot the hidden costs associated with different treatments – longer hospital length of stay, additional drugs and interventions, higher complication rates, extra staff time, etc.
- Predictability and evidence is everything – Providers and payors do not want to adopt treatments that MIGHT be cost-effective, they want treatments that are PROVEN to be cost-effective.
Click here to get a copy of the Frost & Sullivan white paper that examines this topic more closely.