The Struggle to Reimburse Disc Arthroplasty
BY ROBIN R. YOUNG CFA, AUGUST 23, 2004
Two weeks ago, the Centers for Medicare and Medicaid Services (CMS) published its most recent ruling concerning reimbursement for the $10,600 disc replacement implant (versus, by the way, $4,800 for a BAK cage). CMS ruled that disc arthroplasty products like the soon to be approved Charite (JNJ's DePuy Spine division) or the ProDisc (Synthes Spine) are only eligible for reimbursement under code 80.51, which is the code for excision of the intervertebral disc material. At best, that code would allow for reimbursement at less than half the expected cost of a disc replacement implant.
Some months earlier (see HealthpointCapital Weekly Journal of May 24, 2004), CMS had ruled that disc arthroplasty products would likely qualify for reimbursement under the existing non-fusion designation - again code 80.51. Since then, several commenters presented data to CMS. Nevertheless, fundamentally, CMS disagreed. Its own experts stated that a total spinal disc prosthesis, which is what the Charite and ProDisc are proposing to be, was a distinctly different treatment for back pain than spine fusions; to lump disc prosthesis in with fusions in terms of reimbursement coding would violate the principle of clinical cohesiveness of DRGs.
In fact, disc arthroplasty products do not promote fusion. Fusion's DRG codes are DRG 497, 498, 519 and 520. So where does disc arthroplasty fit in? CMS has slotted it with other non-fusion procedures, namely under DRG 499 and 500.
In other words, all the new reimbursement codes for disc arthroplasty will be reimbursed under DRG 499 and 500. This is CMS's final ruling for Fiscal Year 2005 and it takes effect at the beginning of the government's fiscal year, October 1, 2004.
This is not good news for any of the disc arthroplasty manufacturers. CMS clearly did not have the information it needed to establish a reimbursement code that covered disc arthroplasty. Simply telling CMS that the procedure costs $10,600 was not, obviously, enough to warrant a reimbursement code. So, the scramble is on. Years of patient billing information combined with outcome data, we would guess, are being collected and organized in an attempt to persuade CMS to change its coding.
The disc arthroplasty company's actions are, we think, fairly typical for today's medical technology companies. Historically, the key regulatory concern of medical technology companies is the FDA. Speed to market matters more to the vast majority of medical technology companies than assuring reimbursement. At some point, usually 6-9 months before the FDA is expected to approve a product, the top manager calls up his reimbursement expert (often an outside consultant) and asks if a code exists. If the expert says yes, then the next call comes three months before FDA approval when marketing materials are being drafted. If the expert says no, then it is a mad scramble; like right now.
Assuming CMS does not establish a unique code for disc arthroplasty for another year, we don't think it will change roll out timing or revenue impact for any of the coming disc arthroplasty products. According to a recent NASS survey, roughly 57% of all spine surgeons are planning to try disc arthroplasty products. When we asked two leading hospital administrators if they would cover a $5,000 shortfall per patient if CMS reimbursement did not rise to cover the whole cost, they said they would. They have little choice. In their own words, what their spine surgeons require to deliver top patient care, they get.
It should be noted, CMS is only relevant for patients 65 years of age or older. Disc arthroplasty, like other motion preservation products for the spine, is aimed at younger, more active patients. And, of course, the prime age for severe back pain is between 45 and 65. So, CMS reimbursement is not a factor, at least not directly.
Private payors, however, account for the vast majority of spinal surgery payments. That may be, in fact, the more difficult issue for disc arthroplasty manufacturers. According to the Charite clinical trial data, two year disc arthroplasty outcomes were shown to be functionally equivalent to a BAK cage. Or described in financial terms, the $10,600 Charite was functionally equivalent to the $4,800 BAK cage. Private insurers, we are certain, will ask the obvious question: If these new, expensive products are functionally equivalent, why should we reimburse at rates higher than a BAK cage?
The only answer DePuy, Synthes, Medtronic or, for that matter, any supplier of disc arthroplasty products can offer is that these devices reduce the risk of such future complications as adjacent level disease. That, in turn, means more data.
Of course, the two FDA approved products that offer flexible rods are fully reimbursed as adjuncts to fusion. There is no controversy. The Scient'x Isobar, for example, qualifies under DRG 497, 498, 519 and 520 since it works as an adjunct to fusion. It and the other dynamic stabilization product offered by Zimmer Spine promote fusion, while also providing motion at the adjacent levels to address the problem of adjacent level disease.
Bottom line, nothing is coming easily for disc arthroplasty. The best thing that happened so far was the Charite clinical trial. It was well designed and executed (led by Texas Back) and sets Charite up for what should ultimately be a broad surgeon uptake. Beyond that, however, it is beginning to look like a struggle every step of the way.
