Catalysts for change: Meet the life sciences regulator of the future

Health Care Current | July 16, 2019

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies, and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Catalysts for change: Meet the life sciences regulator of the future

By Kevin Brault, principal, Deloitte Risk and Financial Advisory, and Federal Health Sector leader, Deloitte & Touche LLP

As technology continues to drive the health sector further ahead, regulators—particularly in life sciences—might need to become more agile so they can foster innovation while continuing to ensure product effectiveness and consumer safety. Regulatory bodies have historically issued rules and required industries to abide by them. But the future of health is being largely dictated by software. Software is used to create drugs, build medical devices, and enable virtual care. Software, in the form of machine-learning algorithms, is also showing promise in its ability to diagnose disease. Given that software is typically in a constant state of change, it can be difficult to regulate using traditional strategies.

Consider this: In the late 1800s, so-called red-flag regulations in the US and United Kingdom were developed to protect pedestrians, livestock, and horse-drawn carriages from a new innovation—the automobile. One rule for early automobiles required three operators inside the vehicle and a fourth person to walk in front of it (waving a red flag) as it sputtered along.1 Such regulations likely did little to protect the public and might have hindered advances in the development of automobiles.2 Regulators of the future should balance their historic role of protecting citizens with their ability to advance innovation in new technologies and businesses.

Are regulators becoming more enlightened?

In a paper published last year, my colleague Bill Eggers explored the principals for regulating emerging technologies. He explained that regulatory leaders are faced with a key challenge: How do you protect citizens, ensure fair markets, and enforce regulations while allowing new technologies and businesses to flourish?

Emerging technologies such as artificial intelligence (AI), machine learning, big data analytics, distributed ledger technology, and the Internet of Things (IoT) are creating new ways for health stakeholders and consumers to interact. They are also often disrupting traditional business models. Fortunately, there are regulators who understand the importance of keeping the doors of innovation open while also ensuring the effectiveness and safety of products through regulation. The regulator of the future should move from a process-based, rules-driven approach to an outcomes-based, framework-driven approach. While these regulators should continue to focus on consumer protections and patient safety, they are positioned to become catalysts for innovation…in addition to remaining stewards of regulation.

Pre-Cert program points to the future of health

Software that can perform complex medical functions, diagnose medical conditions, suggest treatments, or inform clinical management is known as software as a medical device (SaMD). This technology can help patients play a more active role in their own health, but it can’t be regulated in the same way as traditional medical devices or pharmaceuticals. A pill or a stent, for example, doesn’t change once it enters the market. This is not the case with SaMD. Software might undergo constant updates or improvements after being released. During an interview last year, Bakul Patel, director of the US Food and Drug Administration’s (FDA) digital health division, acknowledged that the agency’s existing regulatory approach won’t be effective as the health sector becomes more digital.3 Digital health products do not behave like industrialized products—they are typically designed for constant change.

In 2017, recognizing SaMD as a potential growth area, FDA launched a software precertification (Pre-Cert) pilot program with nine companies. The Pre-Cert program, which is intended to enable faster SaMD approvals, was inspired by the Transportation Security Administration’s (TSA) PreCheck initiative—a trusted-traveler program designed to expedite security screening at airports. Similarly, the Pre-Cert program is a risk-based, expedited, and predictable approval process for organizations that demonstrate a commitment to a culture of quality and organizational excellence (CQOE). This might be the best example of a regulatory body that has reimagined how regulatory science can ensure that digital products are safe and effective for consumers.

The Pre-Cert program recognizes that digital health technologies can be developed much more quickly than more traditional health products. They can change rapidly while on the market—from AI or machine-learning algorithms. This understanding can encourage innovation to take place more quickly while also ensuring effectiveness and safety. The intent of the program is to provide more streamlined and efficient regulatory oversight—helping products reach the market safely and operate effectively while not inhibiting time-to-market speed and innovation in the pre- and post-market stages.

Health regulators are often viewed as governmental traffic cops that make sure industry follows the rules. As the future of health unfolds, regulators will play an essential function by setting the standards for how business is transacted. I expect regulators will play a bigger role helping influence policy to drive innovation while promoting consumer and public safety.

For industry stakeholders, this might feel like something completely new, but I see it more as a reapplication of an old mandate for a new world.

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1 From red flags to telematics: road safety through the ages, LexisNexis, March 2017
2 The future of regulation: Principles for regulating emerging technologies, Deloitte Insights, June 19, 2018
3 Interview with Bakul Patel, The future of regulation: Principles for regulating emerging technologies, Deloitte Insights, June 19, 2018


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In the News

Administration withdraws proposed rule eliminating drug rebates in Medicare and Medicaid

On July 11, the White House withdrew its proposed rule to eliminate drug rebates in Medicare Part D and Medicaid managed care organizations (MCOs) due to concerns that removing rebates would lead to higher premiums for Part D beneficiaries. The rule, which was released early this year, would have eliminated anti-kickback safe harbor protections for price reductions or other remuneration between drug manufacturers and plan sponsors under Part D or MCOs, and any pharmacy benefit managers (PBMs) under contract with those groups. According to the Congressional Budget Office (CBO), the proposed rule would have increased Medicare spending by $170 billion and Medicaid spending by $7 billion over the next decade (see the May 7, 2019 Health Care Current). It also would have increased the premiums that Medicare beneficiaries would pay under Part D.

Under existing rules, drug rebates are permissible because the Anti-Kickback Statute (and related regulations) includes a legal exception known as a “safe harbor” (see the April 16, 2019 My Take). Drug manufacturers that offer lower net prices through rebates can receive favorable formulary positioning from PBMs—the Deloitte Center for Health Solutions recently released a paper assessing how changes in formularies could impact market access. Part D plans use the rebate funds to lower the premiums they charge to Medicare beneficiaries.

The administration had instructed Part D plans to bid premiums for 2020 assuming current law at the time—which did not include this rebate policy change—so the decision not to move forward with the proposed rule will likely not affect those premium bids.

HHS cannot require drug manufacturers to disclose list prices on television, federal judge rules

On July 8, a federal judge sided with drug makers by halting a rule from the US Department of Health and Human Services (HHS) that would have required manufacturers to include the wholesale prices for certain prescription drugs in television advertisements. Manufacturers would have had to include list prices for drugs and biologics available in the Medicare and Medicaid programs if a one-month supply cost more than $35 (see the May 14, 2019 Health Care Current). According to Judge Amit Mehta, HHS does not have authority from Congress to force drug makers to disclose list prices.

In June, three manufacturers and the Association of National Advertisers (ANA) filed a lawsuit to block the requirement, claiming the US Centers for Medicare and Medicaid Services (CMS) lacked authority to regulate drug prices in advertisements—which the agency claimed in the proposed rule—and that forcing drug makers to disclose prices violated the companies’ First Amendment rights to free speech (see the June 25, 2019 Health Care Current). The manufacturers added that including list prices in advertisements could mislead consumers, particularly if their benefits cover most of a drug’s price.

It is unclear whether this ruling will affect the administration’s broader initiatives to require price transparency for hospitals and additional proposed rulemaking announced in a recent executive order.

CMS releases risk-adjustment summary report for 2018

On June 28, CMS released its 2018 benefit year risk-adjustment summary report. The risk-adjustment program, part of the Affordable Care Act (ACA), was developed to make sure health plan payments reflect the underlying risk of their enrollees by shifting money from health plans that enroll relatively healthy members to health plans that enroll sicker ones. According to CMS’s report, during the 2018 benefit-year:

  • 572 health plans participated in the program, and financial transfers between entities totaled $10.4 billion—$5.2 billion in payments and $5.2 billion in charges
  • Consistent with its purpose, the system is paying more to health plans that received higher medical claims during the year, and health plans that were within the highest quartile of claims costs received risk-adjustment payments of about 15 percent of their premiums—down from 21 percent in 2017
  • Health plans that had lower medical claim costs were more likely to pay into the program, and those in the lowest quartile of claims costs paid about 12 percent of total collected premiums—down from 17 percent in 2017

CMS notes that changes to the risk-adjustment formula and increased enrollment in bronze and gold plans contributed to reduced payments to—and from—plans. According to the agency, risk scores did not change significantly between 2017 and 2018. In 2018, risk scores increased by 0.4 percent in the individual, non-catastrophic group and decreased by 0.2 percent in the small-group risk pool when compared to 2017 scores.

(Source: CMS, Summary Report on Permanent Risk Adjustment Transfers for the 2018 Benefit Year, June 28, 2019)

More ACOs took on downside risk in 2018, survey finds

The number of accountable care organizations (ACOs) taking on downside risk (i.e., risk for losses because of higher spending for their beneficiaries than the benchmark) increased slightly—from 28 percent in 2012 to 33 percent in 2018—according to recent survey findings published in Health Affairs. While the number of downside-risk-bearing ACOs increased modestly, the total number of ACOs increased by five times during the same period. Taking on this type of risk is encouraged by the CMS “Pathways to Success” program (see the January 8, 2019 Health Care Current). The survey found the majority of ACOs bearing downside risk were jointly led by a hospital, a hospital and physicians, or led through another arrangement—just 43 percent of the ACOs bearing downside risk were physician-led.

(Source: Health Affairs, ACO contracts with downside financial risk growing, but still in the minority, July 2019)

Executive order seeks to improve kidney care, prevention

On July 10, the White House released an executive order launching an initiative to improve diagnosis, treatment, and prevention of kidney disease. Provisions include increasing affordable alternative treatment options and encouraging the development of artificial kidneys. According to a prepared statement from the White House, the Medicare program will test the idea of adjusting payment incentives that can encourage preventive kidney care and the adoption of at-home dialysis (see the March 12, 2019 Health Care Current).

The executive order also directs the administration to develop a process for providing artificial kidneys to patients. According to the order, HHS will begin to consider requests for premarket approval of implantable or wearable artificial kidneys. The order also directs HHS to produce strategies for innovation through a partnership with the American Society of Nephrology (ASN) called the Kidney Innovation Accelerator (KidneyX).

(Source: Executive Order on Advancing American Kidney Health, July 10, 2019)

RELATED: Following the July 10 executive order, CMS and HHS announced five new Center for Medicare and Medicaid Innovation (CMMI) payment models seeking to improve care for patients with chronic kidney disease. HHS outlined three goals for improving kidney health in a prepared statement issued the same day:

  • Reducing the number of patients developing end-stage renal disease (ESRD) by 25 percent by 2030
  • Doubling the number of kidneys available for patient transplant by 2030
  • Increasing the amount of ESRD patients receiving transplants or undergoing at-home dialysis by 80 percent by 2025

CMMI’s four optional payment models give physicians incentives to improve prevention and treatment of kidney disease. A fifth payment model, called ESRD Treatment Choices, is mandatory for select dialysis providers. According to the statement, HHS anticipates enrolling more than 200,000 Medicare patients in these arrangements.

(Sources: CMS, HHS To Transform Care Delivery for Patients with Chronic Kidney Disease, July 10, 2019; HHS, HHS Launches President Trump’s ‘Advancing American Kidney Health’ Initiative, July 10, 2019)

Appeals court hears arguments on the ACA

On July 9, the Fifth Circuit Court of Appeals heard oral arguments to affirm or reverse US District Court Judge Reed O’Connor’s 2018 decision declaring the entire ACA is invalid (see the January 29, 2019 My Take). According to O’Connor, Congress’ 2017 nullification of the individual-mandate penalty essentially repeals the penalty and renders the provision unconstitutional. The Fifth Circuit panel, comprised of three judges, is expected to rule in the coming months.

Breaking Boundaries

More hospitals are using mobile health to keep patients and family members connected

Surgery can be extremely stressful for patients and their families. A few hospitals are trying to ease some of that stress by using mobile apps to connect and update family members. These apps can send out alerts so family members don’t have to sit in crowded waiting rooms to hear from clinical care teams. The apps can provide information about the patient’s progress and let family members know when they can call for more details.

HSHS St. Elizabeth’s Hospital in Illinois has been using mobile health messaging in its intensive care unit and surgical units since last fall. App developer EASE Applications (Electronic Access to Surgical Events) created one of several apps the hospital is using. The EASE app allows family members to receive secure texts, photos, and videos of the patient’s progress during surgery and share these with other family members. To ensure the information is protected, the information is encrypted, and all content is automatically deleted from the mobile device after one minute.

In 2016, a large, nonprofit New York City hospital created its own app, which allows staff to send scheduling updates to patients and selected family members prior to surgery. It also tells family members when a surgical procedure begins, shares progress updates throughout the surgery, alerts the family when the procedure ends, and points to where the patient is sent for recovery.

Mobile health apps are part of a larger movement toward a more virtual health system which seeks to improve connection to consumers. Some hospitals are looking into technology that will allow family members to have virtual visits with their loved ones who are staying in the hospital. This technology could also be used to connect family members with the patient’s physicians and care team. Some health system executives have reported that these kinds of offerings can improve patient satisfaction, which is becoming increasingly important to hospitals.

RELATED: Deloitte’s surveys of US physicians and health care consumers found support for the concept of virtual visits, but doctors aren’t meeting demand. The 2018 survey of US health care consumers found that 57 percent of consumers who have never had a virtual visit are willing to try it. However, only 14 percent of surveyed physicians have implemented a virtual option, and 18 percent of physicians that don’t currently have virtual-visit capabilities intend to roll out offerings by 2020. Overall, the consumers and physicians we surveyed agree that virtual visits can improve access and offer greater convenience. As more technology companies offer health care products and solutions, physician practices and health systems might consider using them to keep up with consumer demand and expectations for a more virtual and communicative health care system.

(Source: Eric Wicklund, Hospitals use mHealth to keep family in the loop on patient care, mHealth Intelligence, July 1, 2019)

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