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MEDTRONIC INC.

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Health Economics and Policy OverviewApril 2013

Lindsay Bockstedt, Ph.D. Lindsay Bockstedt, Ph.D. Director, Global Health Policy, Reimbursement & Health EconomicsDirector, Global Health Policy, Reimbursement & Health Economics

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AGENDAAGENDA

• Medtronic’s role in health policy• Coverage of Medical Devices

– Medicare coverage– Emerging trends– Health technology assessment– Cost-effectiveness analysis

• Medicare Payment Systems– Fee for service systems (FFS)– How new technology is accounted for in FFS– Emerging trends/Payment reform

• Economic Value

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Collaborative Approach– Work with industry, AdvaMed, physicians,

patient organizations, hospital groups, professional societies

– Identify and address issues critical to patient access and medical innovation

MEDTRONIC’S ROLE IN PUBLIC POLICYMEDTRONIC’S ROLE IN PUBLIC POLICY

Therapies

Businesses

Industry

Customers

Patients

Consistent with our Mission, Medtronic maintains active Government Affairs & Health Policy teams dedicated to improving issues related to our:

Goal of Public Policy Efforts– Ensure regulatory, payment, tax, and trade

policies support medical innovation and provide optimal patient access to care

– Focus on Congress, the Administration, key Federal agencies

• HHS (CMS, FDA, NIH, AHRQ), USTR, State and Commerce Departments

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MEDTRONIC’S PUBLIC POLICY ORGANIZATIONMEDTRONIC’S PUBLIC POLICY ORGANIZATION

Health Policy & Payment

Health Care

Public Policy

Government Affairs

Regulatory

Medtronic Business UnitsMedtronic Business Units

Cardiac & Vascular Group

Restorative Therapies Group

Diabetes Group

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COVERAGE OF MEDICAL COVERAGE OF MEDICAL DEVICESDEVICES

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WHAT IS COVERAGE? A KEY STEP TOWARDS WHAT IS COVERAGE? A KEY STEP TOWARDS MEDICARE REIMBURSEMENTMEDICARE REIMBURSEMENT

Adapted from Phurrough, 2005

Regulatory approval

(FDA)

Benefit category

determination

(Congress)

Coding (CMS)

Payment (CMS)

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PAYER COVERAGE IS BASED ON EVIDENCE PAYER COVERAGE IS BASED ON EVIDENCE

• Work with the clinical team early on to identify endpoints and study design that are meaningful to payers and demonstrate the product value

• If Medicare patients are part of the target patient population, always include Medicare patients in the trial

• Even if Medicare is not the primary payer, it is still important

– Largest payer in the U.S. (and growing)

– Very influential to private payer coverage decisions

• Global coverage often requires additional evidence

– Country specific data– Explicit economic evidence

requirements

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MEDICARE’S EVALUATION OF EVIDENCE RELIES MEDICARE’S EVALUATION OF EVIDENCE RELIES ON A VARIETY OF INPUTSON A VARIETY OF INPUTS

• To determine “reasonable and necessary”, CMS broadly focuses on:

– methodological considerations

– relevance of chosen outcomes and clinical endpoints

– generalizability of study results to the Medicare population

– qualitative assessment of net risks and benefits

• CMS does not formally consider economic information in the coverage process, but there is rising pressure to do so

• Medicare carrier medical directors also consider the expert opinion of clinicians in their area when developing LCDs

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MOST COVERAGE IS LOCALMOST COVERAGE IS LOCAL

Local90%

National10%

Local

National

Adapted from Phurrough, 2005

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DETERMINE THE APPROPRIATE MEDICARE DETERMINE THE APPROPRIATE MEDICARE COVERAGE APPROACHCOVERAGE APPROACH

National

• Limited capacity (historically less than 12 NCDs/year) and is lengthy (however, MMA provides tighter timeframes)

• Coverage determinations must be adopted by all Medicare Carriers and Intermediaries

• Appeal opportunities for negative coverage determinations are limited

• Can be external or internal request• CED requires additional data

collection in exchange for Medicare coverage

Local

• Coverage is determined by local contractor Medical Director

• Decentralized decision-making as policies vary from contractor to contractor (however transitioning to MAC structure may change this)

• Responsive to community care standards

• May allow prompt initial diffusion of innovations

• Provides regional flexibility/variation in policy

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Cervical Disc

BKP

BMP

Spine & Biologics

InterStim (Urinary)

SCS

DBS

Neuromodulation

DESCardioVascular

Pacemakers

CRT

ICDCRDM

NICE Appraisal

Medicare NCD

Insulin PumpDiabetes

Lumbar Fusion

SOME OF OUR THERAPIES HAVE WITHSTOOD RIGOROUS SOME OF OUR THERAPIES HAVE WITHSTOOD RIGOROUS COVERAGE REVIEW COVERAGE REVIEW

= Positive coverage

= Local covg/funds

= Local/Potential risk

= No coverage

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HIGH QUALITY CLINICAL EVIDENCE IS ESSENTIALHIGH QUALITY CLINICAL EVIDENCE IS ESSENTIAL

Strength of Evidence

Source: Tufts Medicare NCD Database

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EMERGING TRENDS IN MEDICARE’S NATIONAL EMERGING TRENDS IN MEDICARE’S NATIONAL COVERAGE PROCESSCOVERAGE PROCESS

1Increasing Application of

CEDCMS is increasingly applying CED in its NCDs

2 CMS-FDA CollaborationCMS is opening NCDs earlier, sometimes before FDA

approval, encouraging enhanced coordination between the two agencies (e.g. on data-sharing)

3Role of Professional

Societies

Professional societies are beginning to take a larger role in coverage decisions, requesting NCDs and

informing its implementation

4Evidence Standards and Stakeholder Engagement

CMS is demanding more rigor in trial design; stakeholders will need clear rationale to negotiate

with CMS on appropriate trial standards in CED

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THE INCREASING DEMAND FOR EVIDENCETHE INCREASING DEMAND FOR EVIDENCETHE RISE OF HEALTH TECHNOLOGY ASSESSMENTSTHE RISE OF HEALTH TECHNOLOGY ASSESSMENTS

Increasing HTA agencies: @ national level and within one healthcare system, with more resources & power, working in powerful global networks

Increasing evidence demands: clinical need, efficacy/safety, cost-effectiveness, budget impact

Increasing sophistication: in HTA evaluations and HTA decisions

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HTAS OF MEDTRONIC THERAPIES GLOBALLYHTAS OF MEDTRONIC THERAPIES GLOBALLY

BMP, BKP, CF

DBS, ITB, SCS

ICDs, CRTs, IPG, ILR, RPM

DES, CABG, EVAR, TEVAR, TCV, PERIPHERAL

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(Intervention is less effective and more costly)

Decrease in QALYs

Decreases Costs

Increase in QALYs

(Intervention ismore effective and less costly)

$20,000/QALY

$100

,000/

QALY

$

THE COST-EFFECTIVENESS PARADIGMTHE COST-EFFECTIVENESS PARADIGM

Laupacis A. et al., Can Med Assoc J 1992;146:475

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COMPARING THE COST-EFFECTIVENESS OF A COMPARING THE COST-EFFECTIVENESS OF A VARIETY OF TREATMENTS/INTERVENTIONSVARIETY OF TREATMENTS/INTERVENTIONS

Source: Cost-Effectiveness Analysis Registry, Tufts University

Common Threshold - $50k-$100k/QALY

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TECHNOLOGIES REJECTED BY NICE ON GROUNDS OF POOR TECHNOLOGIES REJECTED BY NICE ON GROUNDS OF POOR COST-EFFECTIVENESS COST-EFFECTIVENESS

Cost-effectiveness ratio Date of NICE decision

Gemcitabine for metastatic breast cancer £38,699-58,876 2007

Cinacalcet for secondary hyperparathyroidism in ESRD £39,000-92,000 2007

Pemetrexed for non-small-cell lung cancer £458,000-1.8 million 2007

Pegaptanib for age-related macular degeneration £163,603/QALY 2008

Drug-eluting stents for coronary artery disease* £183,000-562,000 2008

Bevacizumab for first-line treatment of metastatic breast cancer Lacking evidence of cost-effectiveness

2008

Cetuximab for metastatic colorectal cancer post-failure of oxaliplatin Lacking evidence of cost-effectiveness

2008

* Final Guidance on DES recommends for use in percutaneous coronary intervention for the treatment of coronary artery disease, within their instructions for use, only if:• the target artery to be treated has less than a 3-mm calibre or the lesion is longer than 15 mm, and• the price difference between drug-eluting stents and bare-metal stents is no more than £300.

Source: Neumann, 2008; NICE Final Guidance, 2008.

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PAYMENT OF MEDICAL PAYMENT OF MEDICAL DEVICESDEVICES

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REIMBURSEMENT PROCESS FOR MEDICAL DEVICESREIMBURSEMENT PROCESS FOR MEDICAL DEVICES

Manufacturer

Customer/Provider

Hospital/ASC

PhysicianMedicare/

InsurerPatient

IPPS --DRGOPPS -- APC

MPFS

Submits Claim

Sells Product

1. Is it covered?2. Does it have appropriate codes?3. Payment (facility and physician)

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MEDICARE PAYMENT SYSTEMSMEDICARE PAYMENT SYSTEMS

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HOSPITAL PAYMENT HAS BEEN STABLE FOR MANY OF KEY HOSPITAL PAYMENT HAS BEEN STABLE FOR MANY OF KEY THERAPIESTHERAPIES

Average Medicare DRG Base Payments for

Significant Medtronic Therapies*Therapy FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY07-13

ICDs $29,811 $30,010 $31,094 $32,439 $32,630 $33,058 $33,901 + 13.72%

Pacemakers $12,898 $13,152 $13,561 $14,083 $14,366 $14,606 $15,220 + 18.00%

DES $12,519 $12,068 $11,528 $11,928 $12,191 $12,470 $12,960 + 3.52%

AAA $19,091 $19,704 $20,239 $21,060 $21,400 $21,336 $22,271 + 16.66%

Lumbar Fusion $18,466 $19,329 $20,614 $21,891 $22,475 $22,562 $23,311 + 26.24%

Cervical Fusion

$11,164 $11,732 $12,450 $13,438 $13,652 $13,733 $14,732 + 31.96%

Kinetra/DBS $23,092 $23,825 $24,904 $24,783 $25,928 $27,541 $27,465 + 18.94%

Heart Valves $36,570 $37,302 $37,877 $39,404 $39,096 $38,593 $39,088 + 6.89%

*Volume-weighted average base payment across the main MS-DRGs involving the therapy, excluding teaching, disproportionate share, wage, and outlier adjustments to individual hospitals

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National Average Medicare Physician Payment Rates for

Significant Medtronic Therapies

Therapy/CPT Code CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY07-12

ICDs (33249) $878 $886 $919 $962 $963 $963 + 9.68%

Pacemakers (33208) $485 $512 $532 $554 $556 $556 + 14.64%

DES (92980) $796 $806 $848 $818 $873 $873 + 9.67%

AAA (34802) $1,252 $1,226 $1,261 $1,318 $1,338 $1,311 + 4.50%

Lumbar Fusion (22630) $1,433 $1,413 $1,433 $1,459 $1,536 $1,549 +8.09%

Cervical Fusion (22554) $1,221 $1,196 $1,200 $1,205 $1,270 $1,281 + 5.78%

Kinetra/DBS (61886) $670 $685 $720 $764 $825 $848 + 26.57%

Diabetes/CGM (95251) $38 $38 $40 $41 $42 $42 + 10.53%

Heart Valves (33405) $2,272 $2,221 $2,282 $2,363 $2,409 $2,369 + 4.27%

PHYSICIAN PAYMENT HAS BEEN MORE TURBULENT BUT PHYSICIAN PAYMENT HAS BEEN MORE TURBULENT BUT STILL RELATIVELY STABLE FOR MEDTRONIC THERAPIESSTILL RELATIVELY STABLE FOR MEDTRONIC THERAPIES

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WHY ARE ADDITIONAL PAYMENTS OPTIONS WHY ARE ADDITIONAL PAYMENTS OPTIONS IMPORTANT FOR NEW TECHNOLOGIES?IMPORTANT FOR NEW TECHNOLOGIES?

• Prospective payment systems often do not adequately account for new technologies

– Hospitals are provided a fixed, prospectively determined payment

– Typically, technologies are introduced without any changes to the PPS classifications or payments, leaving hospitals at risk for higher costs associated with new technologies

• Annual PPS updates are generally based on claims data from two years prior

– Creates a two to three-year delay between market introduction of a new technology and recalibration of PPS payment rates

– Recalibration delays could impact patient access to new technologies

New technologi

es encounter

unique challenges

under prospective payment systems

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ELIGIBILITY FOR NEW TECHNOLOGY PAYMENTS ELIGIBILITY FOR NEW TECHNOLOGY PAYMENTS FOCUSES ON THREE GENERAL THEMESFOCUSES ON THREE GENERAL THEMES

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NEW TECHNOLOGY ADD-ON PAYMENT AWARDEESNEW TECHNOLOGY ADD-ON PAYMENT AWARDEESTechnology Indication N Years Eligible Max NTAP

Drotrecogin alpha proteins Severe sepsis 9,803 FY 2003, FY2004 $3,400

Bone morphogenetic proteins (BMP)

Spinal fusion 7,724

FY 2004 $8,900

FY 2005 $1,900

Cardiac resynchronization therapy (CRT-D)

Heart failure 33,700 FY 2005 $16,262.50

Bilateral deep brain stimulation (b-DBS)

Parkinson’s disease 483 FY 2005, FY 2006 $8,285

Rechargeable spinal cord stimulation (r-SCS)

Chronic pain 381 FY 2006, FY 2007 $9,320

Endovascular graft repair (EVG) Thoracic aortic aneurysm 3,613 FY 2006, FY 2007 $10,599

Interspinous decompression system (IDS)*

Lumbar spinal stenosis 4,093 FY 2007, FY 2008 $4,400

Temporary total artificial heart system

Heart transplant NA

FY 2009, FY 2010 $53,000

IBV Valve System Prolonged air leaks following lung surgery

NAFY 2010, FY 2011 $3,437.50

Autolaser Interstitial Thermal Therapy

MRI-guided catheter for brain tumors

NAFY 2011, FY 2012 $5,300

DFICD Clostridium-difficle chronic diarrhea

NAFY 2013 $868

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AGGREGATE HOSPITAL PAYMENT-TO-COST RATIOS AGGREGATE HOSPITAL PAYMENT-TO-COST RATIOS FOR PRIVATE PAYERS, MEDICARE, AND MEDICAID FOR PRIVATE PAYERS, MEDICARE, AND MEDICAID

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HEALTH CARE REFORM PROVISIONS WITH SIGNIFICANT HEALTH CARE REFORM PROVISIONS WITH SIGNIFICANT IMPLICATIONS TO DEVICE INDUSTRYIMPLICATIONS TO DEVICE INDUSTRY

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EMERGING PAYMENT METHODS IN THE U.S. EMERGING PAYMENT METHODS IN THE U.S. SHIFTING RISK & INCREASING ACCOUNTABILITYSHIFTING RISK & INCREASING ACCOUNTABILITY

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AVERAGE RISK-ADJUSTED SPENDING FOR MEDICARE AVERAGE RISK-ADJUSTED SPENDING FOR MEDICARE ADMISSIONS PLUS 30 DAYS POST DISCHARGEADMISSIONS PLUS 30 DAYS POST DISCHARGE

Service LowAverag

eHigh Percent Dollars

Total Episode $7,757 $9,278 $11,019 42.0% $3,262

Hospital $4,837 $4,826 $4,824 0.0% ($13)

Physician $612 $647 $650 6.9% $38

Readmission $1,102 $1,986 $2,965 169.0% $1,863

Post-Acute $842 $1,378 $2,041 142.0% $1,199

Other $363 $441 $539 48.5% $176

Congestive Heart FailureComparing Hospitals in the Low and High Resource Use Quartiles

Note: Spending for each service is based on standardized Medicare amount excluding IME, DSH, Wage IndexSource: MedPAC, June 2008

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PAYMENT & DELIVERY SYSTEM REFORMPAYMENT & DELIVERY SYSTEM REFORMCMS IS PUSHING GROWTH IN ACOS & BUNDLED PAYMENTCMS IS PUSHING GROWTH IN ACOS & BUNDLED PAYMENT

ACO Growth

Bundled Payments for

Care Improvement

Initiative

• Total # of Medicare ACOS: 259

• >4 M Medicare Beneficiaries

• Total # of Participants: >500

• 4 Care Models• The largest voluntary

Medicare payment innovation program

Source: The Advisory Board Company

33*CY 2009 Medicare inpatient and carrier standard analytical files. Cohort includes patients implanted within the first quarter of CY 2007; all cardiac-related physician, inpatient, and outpatient hospital utilization included in analysis.

BUNDLED PAYMENTS WILL HAVE TO BE DESIGNED CAREFULLY BUNDLED PAYMENTS WILL HAVE TO BE DESIGNED CAREFULLY TO ACCOUNT FOR THE BENEFITS OF TECHNOLOGYTO ACCOUNT FOR THE BENEFITS OF TECHNOLOGY

Therapy NAverage Annual Spend

Inpatient (%)

Physician (%)

Outpatient (%)

Home Health

(%)

DME(%)

SNF (%)

Hospice (%)

CRT-D 2,232 $65,515 77.2% 12.2% 3.7% 2.0% 1.3% 3.2% 0.5%

ICDs 3,024 $66,978 75.7% 12.3% 5.0% 1.9% 1.0% 3.7% 0.4%

DES 16,654 $34,706 66.1% 18.1% 8.7% 1.9% 1.4% 3.4% 0.4%

BMS 8,194 $40,697 62.9% 18.6% 8.8% 2.5% 1.3% 5.3% 0.6%

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AVERAGE PER-PERSON MEDICARE SPENDING BY HIGH AVERAGE PER-PERSON MEDICARE SPENDING BY HIGH EXPENDITURE DRGSEXPENDITURE DRGS

30 Day Episode 365 Day Episode

Medicare 5% SAFs, 2009; costs not yet risk-adjusted

• Non-device intensive procedures use substantially more post-acute care over time suggesting a greater opportunity for care coordination and bundled payment methodologies

• Over time device intensive procedures cost less on a per-person expenditure basis, making longer episodes of care more favorable

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MEDTRONIC IS ADAPTING TO THE CHANGING HEALTH MEDTRONIC IS ADAPTING TO THE CHANGING HEALTH CARE LANDSCAPECARE LANDSCAPE

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TRANSFORMING TO DELIVER ECONOMIC VALUETRANSFORMING TO DELIVER ECONOMIC VALUE

BROADENED CUSTOMER SET: PHYSICIANS l ADMINISTRATORS l PAYERS l PATIENTS

IMPROVEOUTCOMES

EXPANDACCESS

OPTIMIZE COST and EFFICIENCIES

Universal Healthcare Needs ECONOMIC VALUE IMPERATIVE

Specifically address one

or more of the Universal

Healthcare Needs

Deliver a quantifiable

financial benefit to the target

customer

1 2

+

Key Medtronic offerings must:

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CLAIMS DATA IS ESSENTIAL COMPONENT FOR CLAIMS DATA IS ESSENTIAL COMPONENT FOR HEALTH ECONOMICS ANALYSESHEALTH ECONOMICS ANALYSES

Health Outcomes• Mortality

• Readmissions•Constructed Outcomes (treatment/procedure migration, etc.)

Medicare Claims Data Commercial Claims Data

Entire Medicare Population (>65 yrs, disabled)

N = 46 million

Sample of Commercially Insured (working age & dependents)

N = 40 million

Individual Characteristics

PhysicianAnd Facility

Claims

PharmacyClaims

ProductivityLab

Health Risks

Individual Characteristics

PhysicianAnd Facility

Claims

Facility Characteristics

• Patient ID• Facility & Physician ID• Procedures• Diagnoses• Length of Stay• Payments• Charges • Discharge Location/Status• Dates/Qtrs

• Hospital ID• Cost to Charge Ratios• Quality Metrics• Ownership

• Patient ID• Facility & Physician ID• Procedures• Diagnoses• Length of Stay• Payments• Charges • Discharge Location/Status• Dates

• Drug Dispensed• Quantity • Strength• Days Supplied•Dollar Amounts

• Work Days Missed• Lab results (Hba1c, etc)• Smoking• Blood pressure• Weight

• Patient ID• Race• Sex• Age• Location• Mortality

• Patient ID•Sex• Age• Location• Mortality

Health Outcomes•Readmissions

•Constructed Outcomes (treatment/procedure migration, etc.)

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CLAIMS DATA USED TO GENERATE EVIDENCE & CLAIMS DATA USED TO GENERATE EVIDENCE & DEVELOP DATA-DRIVEN POLICY POSITIONSDEVELOP DATA-DRIVEN POLICY POSITIONS

1. Payment accuracy and reform• Sustain payment amounts for products and procedures• Shape payment reform policies to ensure value is recognized• Estimate affects of payment policies

2. Comparative research• Compare various treatment effects on available outcomes

3. Cost and utilization analysis• Longitudinal cost and utilization of patients with diagnoses

and procedures of interest• Incidence and prevalence• Inputs for cost-effectiveness models

4. Pricing analysis• Estimate market dynamics• Linking account characteristics to internal pricing data

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Questions/Answers

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