Thinking about "Luxury" Healthcare
A series of “thinking cap questions” about luxury healthcare, software subscription models, and promoting versus preventing progress
What is a “Luxury” CPAP?
My partner was recently diagnosed with sleep apnea and prescribed a CPAP. The cost of the device was reimbursed through health insurance. It seems to work pretty well (his deep sleep jumped from seven minutes per night to roughly 90 minutes). But it isn’t perfect. The fit is not great, sometimes the hoses get gummed up, and it is heavy. My partner wanted to try a different machine and also get one that can be used during travel but was denied by his insurance. So, he asked if he could pay out of pocket. Initially, his clinician resisted. When he insisted, he was asked to sign a form attesting to his receiving a “luxury” unit and thereby released his insurer of all responsibility for payment for that device.
This experience led me to a few questions:
1. Can we get insurance reimbursement for software updates? Should we?
As a medtechnophile, I got excited when I found out the large CPAP device had a cellular connection built-in. It directly communicates with the cloud, his clinician can access his usage patterns, and his settings can be updated by the clinician remotely. How cool! These are unexpectedly nice features for a medical device.
I presume that software updates will also be available over the air via the cellular connection. Will the device receive software updates over the air, delivering patches and new features? Will the manufacturer continue to invest in the software even though the device only received a one-time-payment? Are those feature updates going to require additional regulatory approvals? Is there a CMS payment model that could support subscription-based fees? Inquiring minds want to know.
Is having a well-functioning large unit at home and having a small, travel-ready but less effective unit a luxury? Maybe. Should it be covered by health insurance? I think it is debatable. Should companies keep delivering new clinical features to patients even if there’s no reimbursement? That’s a business decision, but it seems hard to imagine.
2. If payers don’t reimburse, should a manufacturer charge a patient directly for software updates (“luxury subscriptions”)?
I love to harp on diabetes because it’s such a great use case for algorithm improvements. Imagine a company has figured out how to ship software that keeps people with diabetes in glucose range longer than a patient’s current software. Can they get reimbursed? How can the company continue to get revenue for future updates?
3. Could a subscription model work? Is it analogous to disposables?
What about charging for luxury subscriptions, early access to updates, beta programs, and other methods similar to the tech industry? Or drastically increase the initial (covered) price to cover more of the lifetime marginal R&D costs?
Many medtech companies make their money on OEM disposable parts that must be used with their large capital equipment. The large devices are costly, but the disposables are the ongoing moneymakers.
4. Will companies hesitate to deliver luxury due to brand risk?
If a subscription model is best for business and insurance won’t pay for it, will the manufacturer get blamed for delivering better quality care to those with means, leaving people of less means even more disadvantaged? Or will CMS and other payers recognize the value and be willing to change a payment model? Direct-to-consumer apps enjoy whatever pricing model they want, but they don’t have the stamp of regulatory approval (at least in the US; wellness apps are not regulated). Does it seem wrong that unproven apps are more likely to be accessible directly to patient consumers than proven apps that serve a specific diagnostic or treatment purpose?
5. Can I get a lab in my home? I’ll pay luxury prices (maybe)!
I’ve said elsewhere: I’d love to have a diagnostic lab in my home, where I can definitively check for strep/RSV/COVID/Flu and other common illnesses at home. This would save me a lot of time, and my time is worth a lot of my money. My kids are getting older so time may be running out, but can someone please develop this and ship it to me? I’ll sign the luxury attestation. I’ll sign up for the subscription. Please!
~Shannon, the Optimistic Optimizer
Are answers to these questions critical to your success? Feel free to drop me a line. I’m interested in solving them. I expect to explore each of these topics in more depth in follow-on articles and posts. I’d love to open a conversation.