Reservorio

January 2008, MD 14th April

2008

The Ministerial Decrees set the first two lists of medical devices indicating the reference price for each category of device.

A third Ministerial Decree is going to be issued soon.

In addition to recent reforms that have affected the medical device sector in Italy, general features of the actual coverage, procurement and reimbursement mechanisms have been investigated. The key issues are briefly described in the following paragraphs while further details are reported in specific sections dedicated to selected medical technologies.

In terms of coverage, medical devices are not explicitly mentioned in the national benefit basket (LEAs), although there is an implicit recognition that all types of services deemed to be appropriately delivered at hospital level must be available to citizens. Consequently, the level of explicitness with which inpatient medical devices have been included in the benefit basket (and thus covered by public funding) has evolved together with the changes occurring in hospital reimbursement schemes.

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Except for the diagnostic devices in vitro and tailor made.

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The definition of “single device” (MD March the 20th 2007) is essential to determine the fee that the manufacturer must pay for the registration of the devices.

According to the traditional framework of the INHS, up until the mid ‘90s public hospitals where funded according to criteria unrelated to clear measures of activities performed (past expenditure, ex-post funding). Indeed, they were generally funded through grants and no distinction could be made between purchasers and providers. Basically, the entire system was highly integrated. Transactions were mainly regulated as internal NHS affairs. Starting from 1993 the situation has been changed significantly. The 1992/93 National legislation transferred significant powers to the regions and introduced three principles according to which providers of health services should be funded: a) patients’ freedom of choice of providers; b) parity of treatment of public and private providers under an accreditation system; c) per case (hospital care) and fee-for-service (outpatient care) funding system (Fattore 1999). Starting from January 1st 1995, all goods and services delivered by public or private accredited hospitals are funded on a “per case” basis, classified according to the Diagnosis Related Groups (DRGs) promoted by Medicare in US. The Ministry Decree approved on April 15th 1994 is the pivotal document for the introduction of tariffs for curative care services in Italy. It introduced the set of “general criteria for the definition of tariffs for specialist outpatient, rehabilitative and hospital care services”. According to these criteria, DRG tariffs are to be based on “standard production cost of services”, evaluated through full costing methodology (including: personnel costs, materials and supplies, depreciation cost of medical equipment, overheads). The decree does not openly discuss the distinction between variable and fixed costs so that it does not address the issue of the dependence of unit costs by the overall volume of services. In theory, tariffs are not expected to cover capital costs of NHS public providers because there are specific budget lines for capital spending. In practice, however, those budget lines make available very limited funds and providers are forced to fund capital investments from operating revenues.

After their introduction, national tariffs were updated only once (DM n.178 June 20th 1997). Regions were given two alternatives: either to adopt the tariffs defined at national level or to develop their own system. At present, a majority of Regions has developed its own regional fee schedules and, in general, DRG tariffs are decided by Regions through formal legislative acts (decrees approved by the regional governments). Although a common framework has been established at national level, characteristics of DRG systems vary extensively across Italian Regions. For example, a survey conducted by Ministry of Health showed that, in 2004 10 Italian Regions used the Grouper version 10th, 9 Regions the Grouper version 14th and only one Region adopted the 19th version. The situation had been constantly changing in the last

Part II Coverage, procurement and reimbursement of selected medical technologies ₃₄

years. In order to promote homogeneity in classification schemes adopted, the Ministry of Health and the Regions signed an agreement for the adoption nationwide of the new version of CMS (ex. HCFA) Grouper 19 and associated ICD-9-CM-2002 starting from January 1st 2006. The regions are free to adopt changes if they wish to differentiate fees among various types of hospitals. Almost all regions apply different tariffs to different providers, classified according to various criteria. In the majority of cases those criteria refer to organizational features (eg. presence of emergency room) and activities performed (eg. research, case-mix complexity). Few Regions differentiate between public and private providers. In addition, Regions may decide to differentiate within the same DRG tariff or to allow for “add-on” payments in case specific medical devices are used. These differences have important implications on both the coverage and diffusion of implantable medical devices across national territory. The specific examples of these phenomena will be discussed further in the following sections.

To complete this brief description of hospital reimbursement mechanism, a special feature of Italian NHS must be mentioned: interregional patient mobility. One of the fundamental healthcare rights of Italian citizens is the “freedom of choice of provider and place of care”. This right may be exercised within or outside the Region of residence. Thus, Regions have to pay for the treatment provided to their residents by providers located in other Regions (outward mobility) and, in turn, they receive payments for health care provided to patients coming from other Regions (inward mobility). Compensation for mobility takes place between Regions without any direct involvement of providers and Local Health Units (LHUs) and special agreements apply for interregional compensations. Since July 1st 2003, a so-called “uniform tariff” (TUC- tariffa unica convenzionata) applies to hospital treatments provided outside the Region of residence. This tariff is DRG specific and is defined at national level (last update in 2005). Specific adjustments of TUC apply to: i) DRGs classified as “high complexity cases” (national fees are increased by 10%), ii) DRGs defined “at high risk of inappropriateness” (national fees are decreased by 20% for medical and by 40% for surgical DRGs) and iii) transplantation.

Regional tariffs are often different from those set at national level to compensate interregional mobility. Consequently, it may be the case that tariffs for regional residents differ from those of patients residing in other regions. Nevertheless, many regions have regulated this case in order to avoid this “price discrimination”.

Finally, a few words about the general features of procurement mechanisms that are deemed appropriate. In Italy, inpatient medical technologies are purchased through open public tender procedures and, generally, negotiations with the manufacturer take place at provider level. Criteria used in tenders vary extensively and in relation to specific technologies, as described in the following sections. The recent years have shown the tendency towards the centralization procurement. Several Regions have established agencies in charge of centralised purchasing and negotiation with the industry. At central level, as already mentioned, the government introduced reference pricing for a wide category of medical devices. The measure has been extensively criticised (mainly by the industry), and it is too early to draw any conclusions on its real impact on the procurement mechanisms across national territory.

Part II Coverage, procurement and reimbursement of selected medical technologies ₃₆

General landscape for inpatient implantable devices in Spain

The coverage of implantable medical devices is determined by the pivotal document defining the Spanish national health basket- Real Decreto 1030/06 (15/9/2006). The decree identifies healthcare services, technologies and procedures to be provided across the national territory under public coverage. The criteria proposed for introducing new medical devices at national level have been already described (see Part I).

At a regional level, the Autonomous Communities (ACs) are obliged to assure the availability of nationally identified services/procedures within their territories. In addition, the ACs are free to provide extra services/technologies from their own budgets.

At local level, in order to introduce a new device into hospital clinical practice, clinicians are required to provide scientific evidence of therapeutic efficiency of the device to an internal commission (usually composed of the hospital manager, the healthcare manager and vice manager, the nursing manager, and the purchasing manager). In case of approval, the technology becomes part of the hospital carta de servicios. In some ACs (mainly Catalunia), Health Technology Assessment activities have been introduced at the hospital level and start to play an important part of the decision making process regarding the coverage of new devices.

As to procurement, all devices implanted on an inpatient basis are purchased under bidding (licitacion) by public contract through tenders, following the Law on Public Contracts updated in November 2007. Negotiations take place at local level, with tenders being issued by individual hospitals. In recent years several measures aimed to control market access and the expenditure on medical devices have been adopted at the regional level. More specifically, an increasing number of ACs are regulating the access of industry to the public regional markets, adopting measures that range from the strengthening local market surveillance to a more concrete involvement of the regional level in the early stages of the contractual relationship. For example, Andalucia introduced regional repertory including the list of medical devices that can be marketed within their territory. The industry must register the device prior to applying for tenders at single provider level (no market access is allowed without the repertory code). Other ACs, such as Castilla y Leon, went a step further, introducing mechanisms of two-round negotiation for some technologies (see the section on ICDs). Finally, maximum prices for categories of devices are fixed at AC level in Valencia: the law regulating the

procurement of surgical implants establishes the conditions for the execution of the treatment and regulates prices through the Comissiò Assessora d’Implantes.

As far as reimbursement is concerned, the Spanish hospitals funding system operates principally through a mechanism of global budgets.

Before the devolution of competences to the ACs, the budget allocation to hospitals was traditionally based on a contractual relationship between the financing body at the national level – INSALUD – and health care providers. Since 2002 the responsibility of hospital budget allocation was transferred to the Regions. A majority of Regions have preserved the system of budget allocation of INSALUD, with the only exception of Catalonia, where there is a clear separation between public purchasing and those providing functions.

In the majority of ACs, the negotiations take place between hospitals and the Health Service Department on an annual basis. The objective is to define the program-contract, which contains the catalogue of services the provider is obliged to supply, the volume of activity agreed and the quality objectives. Then, the global annual budget is defined. More specifically, the most important part of the budget is calculated as:

Total amount = number of discharges * case mix weight * “provider specific tariff”. The case mix weight is calculated taking into account the types of discharges (i.e DRG weights) whereas “provider specific tariffs” are determined by structural features of the centre and distinguish between general hospitals, basic general hospitals, medium and long stay hospitals etc.

This system was initially set out to separate functions between purchasers and providers and to introduce contractual parameters in the relationship between the two actors. However, in practice, they have continued to be defined mainly on the basis of historical patterns, therefore making the system, in reality, retrospective.

The annual program contracts define also volume caps for medical devices, on the basis of the indication provided by the clinicians, who define the approximate amount of procedures to be performed in the year. Nevertheless, according to our informants, volume caps are not strictly binding. In some cases, the extra devices are purchased on a one-by-one basis from the same manufacturer to whom the tender had been adjudged, and the hospital anticipates the budget

Part II Coverage, procurement and reimbursement of selected medical technologies ₃₈

of the following year. In specific cases – when the provisions of the contract are highly unrealistic and therefore the amount of extra devices needed is relevant –hospitals might opt for an extension of the previous tender (even though this is quite rare).

The way the system is constructed seems to imply that no effective risk is transferred to the hospitals in the majority of ACs. This is evident in several features of the system. First, the volume caps defined yearly for medical devices are not binding but they rather represent estimates of the number of procedures that will be performed in the following year. This implies that no real sanctions are available in case the threshold agreed with the public regional authorities is exceeded during the year. Second, the absence of a real risk transfer is evident when analysing the responsibility of hospital management in budget administration. Even though in the past years some improvements have been achieved (e.g. abrogation of the law preventing the removal of head physicians from their offices and introduction of systems of periodical evaluation of their activities), according to our informants the current practices do not seem to promote the efficiency of the system. For the time being, hospital managers are scarcely accountable for budget deficits within their departments: even if in principle they can be removed in case they overrun the budget negotiated with the regional authorities, in practice this measure has never been applied.

A final remark should be made regarding the DRGs system. Spain was one of the first European countries to introduce Diagnosis Related Groups as a system of classification of hospital outputs. In the past few years an increasing number of ACs defined and updated the regional DRG fee schedules: whilst up until five years ago only three ACs published their tariffs (the Catalan Institute of Health for instance published tariffs for different procedures), today almost all Regions have their own. Nevertheless, DRG tariffs are not used for reimbursement of public health care providers; they are used either to pay contracting out services (i.e. in the private sector) or to collect data and perform studies at either hospital or regional level. Nevertheless, it has been reported that these studies have never had any significant impact on current clinical practices and organization of health care services in the Spanish system.