8

10

12

14

16

18

20

1980 1985 1990 1995 2000 2005 2010

Source: CMS, Office of the Actuary, National Health Statistics Group.

Calendar Years

Pe

rce

nt

of

GD

P

Actual Projected

Between 2001 and 2011, health spending is projected to grow 2.5 percent per year faster than GDP, so that by 2011 it will constitute 17 percent of GDP.

National Health Expenditures as a Share of Gross Domestic Product (GDP)

FIGURE 7.1

Figure 7.2

Insurance coverage in US population 2005

Private Insurance

(employment based), 59.5%

Uninsured, 15.9%

Public Insurance - Military, 3.8%

Public Insurance - Medicaid,

13.0%

Public Insurance - Medicare,

13.7%Private

Insurance (direct purchase), 9.1% FIGURE 7.2

FIGURE 7.3

Nation's Health Dollar Calendar Year 2004: Where it came from

Medicaid and SCHIP16%

Other Public13%

Medicare17%

Other Private7%

Private Insurance

34%

Out-of-pocket13%

FIGURE 7.3

PATIENT

PROVIDERS

Physician

Hospital

Pharmacy

$

EMPLOYERS

PremiumsTaxes

Services/products

PAYERSPrivate Insurance,

Government (CMS)$ $

$ Co-pay + uninsured

$

MANUFACTURERS

Ser

vice

sP

rodu

cts

$

$

Figure 7.4

Suppliers, wholesalers, specialty pharmacies etc

$

Nation's Health Dollar Calendar Year 2004: Where it went

Program administration and

net cost, 7%

Other spending , 25%

Prescription drugs, 10%Hospital care,

30%

Nursing Home care, 6%

Physican and clinical services,

21%

FIGURE 7.5

Figure 7.5

PharmaceuticalManufacturer

PBMs (+ Mail

Order Pharmacy)

Pharmacy

Consumer

Wholesaler

Co-Pay mail-order pharmacy

Dispensing FeeIngredient Cost

DiscountsRebates

Cost of drug +

wholesaler margin

Payers(Health plans)

Govt, private, MCO etc

Cost of drug

SharedDiscountsRebates

Co-Pay

Admin feesIngredient

cost

Figure 7.6

Negotiated payment

DiscountsCost

of

drug

Figure 7.7

BiotechManufacturer

Pharmacy

Consumer

Specialty DistributorCost of drug + distributor margin

Cost of drug

Co-Pay

Dispensing FeeIngredient CostPBM

(+ Mail order Rx)

DiscountsRebates

Payers(Health plans)

Govt, private, MCO etc

SharedDiscountsRebates

Admin feesIngredient

cost

Cost of drug

DiscountsRebates

Premiums

Co-Pay

Cost of drug

Cost of drug + dispensing fee

Cost of drug + dispensing fee

Cost of drug

Cost of drug

Device / DiagnosticManufacturer

Consumer

Distributors

Cost of device/Dx + distributor margin Payers

(Health plans)Govt, private, MCO etc

Cost of Device/Dx

Co-Pay or cost of device/Dx

Clinics / Hospital / Diagnostic Labs

Figure 7.8

Rebatesdiscounts

Hospital InpatientDRG

Physician fee schedule

Hospital Outpatient APC schedule Physician fee

schedule

Physician’s Office CPT -Physician Fee Schedule

Patient’ s House

Hospice, DME

Per diem for servicesDMEPOS Fee Schedule

Figure 7.9

Medicare Payment

GroupLocation of

delivery of care

Coverage

National or local

ICD-9 diagnosis codes (Dx)

- Why patient was treated- Used to verify treatments

Ambulatory Surgical Center (ASC)

Claims filed(product purchaser in

bold)

Hospital / IPPS + M.D. (work + facility P.E.)

M.D.’s office (work + non-facility P.E.)

Codes used to file claims

ICD-9 Dx, ICD-9 Px. ICD-9 Dx, CPT

Hospital / OPPS + M.D. (work + facility P.E.)

ASC + M.D. (work + facility P.E.)

Provider / Patient + M.D. (work + non-facility P.E.)

ASC schedule Physician fee schedule

ICD-9 Dx, ICD-9 Px. ICD-9 Dx, CPT

ICD-9 Dx, ICD-9 Px. ICD-9 Dx, CPT

ICD-9 Dx, CPT

ICD-9 Dx, CPTICD-9 Dx, CPT

P.E. = Practice expenseICD-9 Dx = ICD-9 Diagnosis codeICD-9 Px = ICD-9 Procedure codeOther abbrev – see text.

Figure 7.10

Collect economics data – compare with standard of care

Define patient groups; identify target payer(s)

Design clinical trial to also collect data for reimbursement considerations

FDA APPROVALCLINICAL TRIALS

PhaseI

PhaseII

PhaseIII

NDA or BLA FDAreview

Manufacturing

Production prototype

Pivotalstudy

Pilot study

Clinical grade drug

Drug

Device

Launch

LaunchFDA

reviewPMA

Key opinion leaders / Medical specialty group / Publication Strategy

COVERAGEInformal / formal meetings with payers

Educate payers

CODING

MARKETING

COVERAGE

Hospital Procedure Coding CPT Coding

PAYMENT Work with medical specialty group to get new technology/procedure value