1. National Health Expenditures as a Share of Gross Domestic Product (GDP)
FIGURE 7.1
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.
Actual
Projected
Percent of GDP
Calendar Years
Source: CMS, Office of the Actuary, National Health Statistics Group. 1

2. Figure 7.2 2

3. FIGURE 7.3 3

4. PAYERS Private Insurance, Government (CMS) $ $
Figure 7.4
EMPLOYERS $
PAYERS Private Insurance, Government (CMS) $ $
Premiums
Taxes
MANUFACTURERS $ $
Suppliers, wholesalers, specialty pharmacies etc $
Services
Products
PROVIDERS
Physician
Hospital
Pharmacy $
$ Co-pay + uninsured
PATIENT
Services/products 4

5. Figure 7.5 5

6. Pharmaceutical Manufacturer Payers Wholesaler Pharmacy Consumer
Shared Discounts
Rebates
Negotiated payment
PBMs (+ Mail Order Pharmacy)
Pharmaceutical
Manufacturer
Payers
(Health plans)
Govt, private, MCO etc
Discounts
Rebates
Admin fees
Ingredient cost
Dispensing Fee
Ingredient Cost
Cost of drug
Cost of
drug
Discounts
Cost of drug + wholesaler margin
Wholesaler
Pharmacy
Co-Pay
Co-Pay mail-order
pharmacy
Consumer
Figure 7.6 6

7. Specialty Distributor
Cost of drug + dispensing fee
Payers
(Health plans)
Govt, private, MCO etc
Consumer
Cost of drug + dispensing fee
Premiums
Co-Pay
Co-Pay
Pharmacy
Cost of drug + distributor margin
Specialty Distributor
Admin fees
Ingredient cost
Cost of
drug
Cost of
drug
Shared Discounts
Rebates
Dispensing Fee
Ingredient Cost
PBM
(+ Mail order Rx)
Cost of
drug
Discounts
Rebates
Discounts
Rebates
Biotech
Manufacturer
Cost of
drug
Cost of
drug
Figure 7.7 7

8. Clinics / Hospital / Diagnostic Labs
Device / Diagnostic
Manufacturer
Cost of device/Dx + distributor margin
Rebates
discounts
Payers
(Health plans)
Govt, private, MCO etc
Distributors
Cost of Device/Dx
Clinics / Hospital / Diagnostic Labs
Co-Pay or cost of device/Dx
Consumer
Figure 7.8 8

9. Physician fee schedule Physician fee schedule Physician fee schedule
Coverage
National or local
Figure 7.9
ICD-9
diagnosis codes (Dx)
P.E. = Practice expense
ICD-9 Dx = ICD-9 Diagnosis code
ICD-9 Px = ICD-9 Procedure code
Other abbrev – see text.
- Why patient was treated
- Used to verify treatments
Medicare
Payment
Group
Location of
delivery of care
Claims filed
(product purchaser in bold)
Codes used to file claims
Hospital / IPPS
+ M.D. (work + facility P.E.)
ICD-9 Dx, ICD-9 Px.
ICD-9 Dx, CPT
DRG
Physician fee schedule
Hospital Inpatient
Hospital / OPPS
+ M.D. (work + facility P.E.)
ICD-9 Dx, ICD-9 Px.
ICD-9 Dx, CPT
Hospital Outpatient
APC schedule
Physician fee schedule
Ambulatory Surgical
Center (ASC)
ASC
+ M.D. (work + facility P.E.)
ICD-9 Dx, ICD-9 Px.
ICD-9 Dx, CPT
ASC schedule
Physician fee schedule
M.D.’s office
(work + non-facility P.E.)
ICD-9 Dx, CPT
Physician’s Office
CPT -Physician Fee Schedule
Patient’ s House
Provider / Patient
+ M.D. (work + non-facility P.E.)
Per diem for services
DMEPOS Fee Schedule
ICD-9 Dx, CPT
ICD-9 Dx, CPT
Hospice, DME 9

10. CLINICAL TRIALS FDA APPROVAL Drug Device Figure 7.10 Phase I II III
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 APPROVAL
CLINICAL TRIALS
Phase I II
III
NDA or BLA
FDA
review
Manufacturing
Production prototype
Pivotal study
Pilot study
Clinical grade drug
Drug
Device
Launch
PMA
Key opinion leaders / Medical specialty group / Publication Strategy
COVERAGE
Informal / formal meetings with payers
Educate payers
CODING
MARKETING
Hospital Procedure Coding CPT Coding
PAYMENT
Work with medical specialty group to get new technology/procedure value
Figure 7.10 10