How to build a business case for medical devices awaiting reimbursement

In 2015, Houston Methodist Hospital made the decision to invest in a medical technology that had not yet been approved by the US Food & Drug Administration.

The procedure, called High Intensity Focused Ultrasound (HIFU), was prevalent and in demand in Europe and parts of Asia, but new to the U.S. and largely unknown by urologists across the country.

HIFU is an outpatient procedure that uses concentrated sound waves to destroy targeted tissue in the prostate. Using advanced ultrasound imagery to guide a rectal probe during the procedure, urologists are able to avoid damaging the healthy tissue and nerve bundles that control sexual function and urinary continence, making it an appealing option for eligible patients.

But because HIFU was only cleared by the FDA for the ablation of prostate tissue in November 2015, it was not covered by private insurance or Medicare.[1] Patients had to pay for the procedure in cash.

Houston Methodist, one of the largest medical centers in the US, comprising an academic medical center and six community hospitals, had to weigh the anticipated benefits for patients with the return on investment for the organization.

The Clinical Vetting Process

Every year Houston Methodist’s Physician and Executive leaders meet to discuss medical devices and authorize capital expenditures for new equipment. Part of the discussion focuses on new procedures and/or new technology that may not be FDA approved or reimbursed yet.

Likewise, specialists pushing for new procedures must convince and win approval from the Medical Center’s Physician department chairs. Each proposal must show how a new procedure will benefit patients, how it differs from competitors and contributes to hospital growth, as well as provide information on whether the FDA pre-market approval or Medicare and insurance reimbursement filing process is underway. They must also report on any medical technologies that have been purchased for their specific department over the last several years.

Other questions under consideration from department chairs and the hospital executive team include: Is the procedure a novel idea or the latest technology of the moment? How does it compare to other procedures and is it a better alternative to what the hospital currently offers? Does it align with Houston Methodist’s mission to lead in medicine? And is there any conflict of interest for the physician requesting the device? Is this a new procedure or technology that is supported by other physicians practicing in the Houston Methodist Hospital system?

For prostate cancer, the standard of care at Houston Methodist has been the radical prostatectomy, in which the entire prostate gland is removed. Looking at the number of prostatectomies hospital surgeons performed over the long term, decision-makers wanted to know if HIFU was a feasible alternative for eligible patients.

In evaluating HIFU vendors, physicians reviewed the manufacturer’s training and technical support, follow-up, and marketing material available to market the procedure to referring physicians and chose a HIFU device from EDAP Technomed called Ablatherm® Robotic HIFU.

The Business Vetting Process

Once the physician chairs approved the HIFU procedure, Houston Methodist’s business development and finance team went through an extensive vetting process to estimate the potential number of procedures and the breakeven point. If patients have to pay out of pocket for the procedure how many cases would it take to cover direct costs? How many patients, among the greater Houston male population would be suitable for HIFU and have the means to pay for the procedure? And who else was offering HIFU in Houston? (Houston Methodist was the second medical facility in the area to acquire HIFU; the first was a urology practice.)

Through extensive research, the business development team determined the number of cases per year and charges per patient needed to cover the costs of the equipment, the surgeon’s fees, anesthesia fees and hospital admission fees to break even and realize a profit.

After two years the medical center showed a return on its HIFU investment.

Hospitals shouldn’t shy away from investing in non-reimbursable medical technologies, as long as they go through a thorough vetting process on the clinical end working closely with the physicians and build a solid business case to show a return on investment on the administrative end.

Michael Garcia is Senior Vice President, Operations at Houston Methodist Hospital. His primary responsibilities include recommending and driving strategic business and quality priorities for the Houston Methodist JC Walter Jr. Transplant Center and Houston Methodist DeBakey Heart and Vascular Center.

In addition, Michael works collaboratively with three Direct Report Vice Presidents and a number of Directors who oversee the Houston Methodist Neurological Institute and the Houston Methodist Men’s Health Center. Additional department oversight includes Cardiology and Cardiovascular Services, Peri-Operative Services, Endoscopy, Laboratory Services, Pharmacy, Radiology, Critical Care and the Quality / Process Improvement Department.

[1] Since Houston Methodist purchased HIFU shortly after it had been cleared by the FDA for prostate tissue ablation, the Centers for Medicare and Medicaid Services (CMS) issued a C-code for partial reimbursement for patients covered under Medicare but those patients are still responsible for 20 percent of the cost.

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