One of the biggest factors shaping future prices is the election of Donald Trump as president, which raises major questions about the future direction of U.S. healthcare policy. The U.S. Centers for Medicare and Medicaid Services (CMS) had been trending toward incentive-based payment structures and capitated models, where quality and cost saving are rewarded rather than volume. While major elements of the Affordable Care Act are in dire jeopardy, it is likely that CMS will continue the trend toward value-based care unless it receives direction to the contrary.
Up until November 8, incentive-based payment structures were becoming more commonplace, with health networks and payors becoming more comfortable with risk sharing. Based on previous experiences in the U.S. with health maintenance organizations (HMOs), there is evidence that capitation models can curb healthcare costs to a certain degree (please see the Harvard Business Review for more information).
As we discussed in part 1, the sweeping institution of capitation models clashes with what's required in the SPECT radiopharmaceutical market: Reimbursement must increase for full cost recovery (FCR) pricing for isotopes to be implemented. Payors, however, seem to be resisting increasing reimbursement, and not just for nuclear medicine procedures.
There is a growing prevalence of radiology benefits managers that require preauthorization for medical tests. Anecdotal evidence from industry sources suggests that after the 2009-2010 molybdenum crisis, the market for cardiac SPECT procedures rebounded to only 80% of its previous level, with some physicians preferring to do stress echocardiography instead. Not surprisingly, this has negatively -- and falsely, if you think the diagnostic power of dedicated cardiac SPECT outweighs that of ultrasound -- skewed reimbursement toward lower payments for these procedures.
Compounding the issue is surging group purchasing organization (GPO) bargaining power. With increased risk sharing tied to health network revenue payout, GPOs have insulated a number of markets against rising radiopharmaceutical prices. Even with most of the radioisotopes in the U.S. being derived from highly enriched uranium (HEU), nuclear pharmacies still operate at low margins; with the requisite changes required to the industry, it's hard to see a situation where the majority of nuclear pharmacies are profitable without reimbursement reform.
The decommission of Chalk River
For decades, the world's major producer of the key medical isotope molybdenum was the National Research Universal (NRU) reactor in Chalk River, Ontario, Canada. It stopped routine production of isotopes in October 2016, although the reactor will be on standby until March 2018 should there be a global shortage of molybdenum-99 (Mo-99). This is especially important given the ongoing trial-and-error period associated with the transition to radioisotopes from low-enriched uranium (LEU) sources.
At the same time that the NRU has shut down, the market has failed to adequately adopt the practical measures in the High-Level Group on the Security of Supply of Medical Radioisotopes (HLG-MR) report outlined in part 1 of our series. In particular, while industry sources agree that global supply should be business as usual -- the NRU reactor began phasing out production over the past six years to allow the other producers to adjust to production schedules -- prior to the extension, there was no contingency plan in place to guard against a market collapse, like what happened in 2009-2010. In reality, this illustrates the severity of the failure to develop an outage reserve capacity.
To safeguard against supply challenges, manufacturers and nuclear pharmacies continue to diversify their sources of radioisotopes. In addition, the market has ramped up research efforts to produce medical radioisotopes that are commercially viable alternatives to reactor-based production. The World Nuclear Association provides a by no means exhaustive discussion on alternative means of production. Currently, however, none of these alternatives are commercially available, and it remains to be seen if by March 2018 the market will be adequately safeguarded against a potential disaster.
The U.S. is particularly invested in these initiatives: It uses 50% of the world's supply of Mo-99 and doesn't have a domestic nuclear reactor producing the isotope. While alternative production sources have been proposed, the timelines for these initiatives are often too optimistic. For example, the National Nuclear Security Administration's Global Threat Reduction Initiative (GTRI) was created to foster collaborative partnerships in isotope production, with the intended goal to produce 3,000 six-day curies of LEU-derived Mo-99 by the end of 2013. So far, none have been able to achieve this goal. It is unlikely that any of the U.S. domestic programs will be in commercial production by mid-2017.
In reality, the market has two years to sort itself out. The associated cost of LEU conversion has already been discussed, and LEU-derived radioisotopes will likely make up the bulk of the supply going forward.
The radiopharmaceutical market is plagued by low investment, largely because of low return on investment (ROI), so if the cost to develop a new source of Mo-99 were to be higher than current uranium-based radioisotope production, it's difficult to imagine a situation with favorable venture capital investment. Does that mean the U.S. government will have to intervene with subsidization? How will this be reflected in the payouts for outage reserve capacity? While the economic impact of the NRU shutdown is not as great as the other arguments discussed, it has prompted the market to do an introspective evaluation of itself.
Is PET a solution?
Could procedures once performed by SPECT be transferred to PET? While the use of PET and PET infrastructure continues to grow steadily in mature markets, it is complicated by a number of factors, namely lack of adequate reimbursement (if any), low installed base, large overhead costs, and lack of product development. As a result, the number of PET radiotracers is significantly fewer than the number of SPECT radiotracers. These factors are tenfold in emerging markets.
In the U.S., SPECT infrastructure outnumbers PET infrastructure by a 2-to-1 margin; in Western Europe, it is closer to a 3-to-1 margin. Unlike contrast-enhanced MRI or CT, radiotracers in nuclear medicine procedures are able to map physiological functions and metabolic activity, providing practitioners with detailed information about organ function. Their diagnostic power in oncological procedures is unmatched; their potential for neurology imaging is still prospective, but hugely optimistic.
SPECT procedure volumes are declining as PET becomes more established; however, SPECT will continue to be an integral part of the continuum of care in the U.S. The infrastructure is there, doctors understand the technology and are comfortable using it, and the overhead costs are lower.
However, as discussed in this series, a number of factors are set to dramatically reshape the market going forward. The biggest and most glaring need is a systematic reform in pricing of SPECT radioisotopes. That, of course, has been met with some hesitance over its effect on revenues.
Recently, Mallinckrodt decided to sell off its nuclear medicine business to IBA Molecular, ending more than 50 years in the business. To directly attribute that to the failing SPECT market is presumptuous, as Mallinckrodt also sold off its contrast agent business to Guerbet in 2015. Nonetheless, as one industry source put it, when big companies start to exit the market, it is never a good sign.
A few things need to happen to minimize the impact of SPECT isotope constraints on all competitors in the market:
- Governments and the HLG-MR need to more strongly enforce policy measures to secure full cost recovery pricing and develop outage reserve capacity.
- The U.S. government needs to be stricter in enforcing the terms of the American Medical Isotopes Production Act (AMIPA) throughout the supply chain to ensure gradual adoption of LEU-derived radioisotopes.
- CMS and private insurers need to adjust reimbursement accordingly to incentivize adoption of FCR pricing.
- GPOs need to soften their corrosive effect on isotope prices to allow the market to adapt and stabilize to new industry standards.
Through these efforts, the inevitable increase in isotope pricing can be spread over a number of years rather than all at once. This will mitigate any dramatic rises in fixed costs along the supply chain and allow the market to acclimatize itself in cadence with changes in the healthcare industry. Overall, there will undoubtedly be some growing pains, and SPECT procedure volumes will suffer to an extent. However, this should help create a sustainable market for years to come.
Giananthony Rizzo is an analyst on the Medical Device Insights team at Decision Resources Group. His main areas of focus are global capital equipment markets and contrast agent and radiopharmaceutical markets. Giananthony holds a Master of Science degree with a specific focus on molecular biology and targeted therapy for head and neck cancer, and a Bachelor of Science degree in medical sciences from the University of Western Ontario. For follow-up questions or inquiries, please contact him at [email protected].
The comments and observations expressed are those of the author and do not necessarily reflect the opinions of AuntMinnie.com.
