Nov 15, 2020 In the previous section of this guide, we went in-depth about the tactical issues surrounding 3D printing in hospitals, which include an array of contributory elements ranging from talent allocation, hardware/software selection, to material management. In this section of the guide, I will focus on the financial issues of 3D printing in hospitals. To review, financial issues answer the question of “how much”. In the healthcare arena, it includes a discussion of “reimbursements“. Doing business in healthcare is not a straightforward “profit-and-loss” spreadsheet. The reimbursement pathway of emerging technology is tortuous, and the pricing strategy of devices and services is even more opaque to most.
- Introduction: What is operational management?
- Technical Background
- Strategic Issues
- Tactical Issues
- Financial Issues
- Financial Worksheet
- Acknowledgments/References
In this portion of the guide focusing on financial issues of 3D printing in hospitals we will break it down into the following components:
A. Reimbursement for 3D Printing in Hospitals
B. Revenue strategies for 3D printing in Hospitals
C. Cost Analysis for in-house 3D printing in Hospitals
A. Reimbursement for 3D Printing in Hospitals
Healthcare is a highly regulated industry. Understanding the local healthcare market and reimbursement strategy is essential to the survival and growth of any new medical technology. In order to be viable financially, most U.S. 3D printing service providers need to answer two questions:
- How is the service paid now?
- How will the service be paid for in the future?
Please keep in mind that these discussions on financials are mainly based on the U.S. system, and it may differ significantly in different parts of the world highly dependent on the existing healthcare payment system. In our near future update, we will add U.K. and European experience to the discussion.
How is 3D Printing in Hospitals paid for now?
Primarily three methods:
1. Bundled payment
In the past, when 3D printed surgical guides or models are less widespread, services provided by established 3D printing companies can get paid indirectly through contracts with medical device companies. The device companies (for example, a knee implant company) can charge payers for the cost of the medical device which includes the cost of 3D printing services and products.
For example, craniofacial reconstruction surgeons will use the pre-surgical planning 3D printed models and/or cutting guide made by a 3D printing company that has a contract with Stryker. Stryker bundles 3D printing services under a single medical device fee, and the hospital or surgeons can bill third-party payers for it. (Figure 1)
Figure 1. An example of an existing 3D printing reimbursement process (arrows represent the direction of payment)
2. Marketplace
As the interest and supporting clinical evidence in 3D printing for medical applications grows, more providers are now willing to pay out-of-pocket directly for out-sourced 3D printing services and products (purple arrow), often bypassing the need for medical devices company (Figure 2).
More and more direct 3D printing service providers are venturing into the healthcare arena, not just anatomical modeling but also implants. Globalization, increasing sophistication and subspecialization are the definite trends in this space. We also actively collect and list such companies in 3DHEALS Company Directory.
Figure 2. An example of a burgeoning 3D printing reimbursement process (arrows represent the direction of payment)
3. Internal payment
Finally, a growing number of larger healthcare organizations and academic hospitals, such as Children Hospital Boston, Mayo Clinic, Stanford Hospitals, and the Cleveland Clinic have dedicated significant internal research and development grants to develop in-house 3D printing centers for decades to meet specific internal needs in their daily clinical practices.
Because there is not yet a well-defined reimbursement pathway, these medical centers are shouldering the cost from providing 3D printing services and products often as part of a larger research and development grant. To these organizations, long-term investments in new technologies can bring potential long-term financial benefits including improved patient outcomes, reduced hospital stay/complication, branding, and other indirect benefits.
How will the service be paid for in the future?
In the U.S., there are three important concepts: CPT codes, RVU, and DRG.
1. CPT (Current Procedural Terminology) Code:
As opposed to ordinary consumer products, the path to revenue for medical devices and procedures is more complex, because healthcare is a highly regulated and rationed commodity.
For either “in house” and “outsourced” 3D printing services to be paid consistently, future work typically need to have current procedural terminology (CPT) codes created and the associated professional and facility pricing assigned.
The reimbursement for the physician and hospital services would then need to be negotiated with payers, insurance groups, and the Centers for Medicare and Medicaid Services (CMS).
To achieve such a “code-able” status by the AMA (American Medical Association), the procedure must be officially recognized as part of patient care, which has demonstrated sufficient clinical evidence that the procedure improves patient outcomes.
What is the CPT code?
CPT (Current Procedural Terminology) codes are a set of codes published and maintained by the American Medical Association. All the codes are also copyrighted by AMA. The CPT codes offer a system to doctors across the U.S. a uniform, accurate, and efficient process to communicating about and reporting on medical services or procedures performed for more than five decades. It is widely accepted by both the public and private sectors. [Ref]
What are Category I and Category III CPT codes?
Category I codes represent services that are widely performed, have FDA approval or clearance (if needed), and are supported by a sufficient level of evidence published in the peer-reviewed literature. It is a “permanent” code in the CPT codebook published yearly. An example of Category I codes is “cataract surgery.
On the other hands, Category III codes represent services using new and emerging technologies (such as 3D-printed anatomical models for presurgical planning) and were created to allow for data collection for new procedures or services and to limit the use of established Category I code for new technologies that are now described by existing codes. Category III differs from Category I codes in that they may not be yet widely adopted by healthcare providers and do not require FDA approval, nor need to meet a certain level of supporting evidence. These codes are considered “temporary”, which means if they are not converted into Category I status (by wider adoption and well-documented clinical evidence) in five years, they will be archived.
Although many recent papers have documented significant improvements associated with multiple outcome metrics including reducing operating time and surgical accuracy, the results are not yet convincing to the payers. Several new entities including RSNA SIG have been an advocacy entity for this purpose in terms of anatomical modeling and surgical guides.
New Era of 3D Printing in Hospitals with Cat III CPT Code
On November 1st, 2018, it was announced that the American Medical Association (AMA) CPT® Editorial Panel accepted a Category III CPT code proposal led by the American College of Radiology (ACR) for 3D printed anatomic models and surgical guides.
“Codes 0559T, 0560T represents the production of 3D-printed models of individually prepared and processed components of structures of anatomy. These individual components of structures of anatomy include, but are not limited to, bones, arteries, veins, nerves, ureters, muscles, tendons and ligaments, joints, visceral organs, and the brain.
The 3D-printed anatomical models can be printed in unique colors and/or materials. Codes 0561T, 0562T represents the production of 3D-printed cutting or drilling guides (i.e. surgical guides) using individualized imaging data. 3D printed guides are cutting or drilling tools used during surgery and are 3D printed so that they precisely fit an individual patient’s anatomy to guide the surgery…”
Getting paid for work that is done that is beneficial to patients, straightforward, right? For many who have worked in the space for many years, many of the amazing 3D anatomical models were underpaid work because of the reimbursement path.
Having a Category III code is a good start, but what does this really mean?
What is the relationship between CPT codes and reimbursements?
Technically speaking, there is no published statement between CPT codes and reimbursement from payors (Medicare, insurance companies, etc.) Even having a billing code like the CPT Category I code does not guarantee that payers will provide payment for the procedure.
When a new procedure billing code is established, insurers base coverage decisions on a myriad of factors, including independent health technology assessments (which evaluate all available technical and scientific evidence supporting the intervention), peer-reviewed published clinical data, real-world evidence of clinical efficacy (outside a clinical trial environment), and practice guidelines published by relevant professional societies.
Often, Category I CPT code is tied with Medicare reimbursement. Private payers (i.e. insurance companies) reimbursements are variable but typically follow the trend of Medicare. In the past, many payors simply exclude any reimbursement to Category III procedures/services, often limiting the wider adoption of emerging technologies. However, there is a trend from the payor side to cover Category III code even before Category I code, largely depending on the willingness among physicians to embrace the new technology.
Therefore, physicians are critical players in making 3D printed products eventually Category I code status.
Who are the other major drivers in getting 3D Printing in Hospitals reimbursed?
Nonetheless, physicians are not the only important players on this path. The other major players are :
Patients/Consumers:
Patients/Consumers are often important drivers of adopting emerging technologies. Along with patient advocacy groups, they can be powerful forces that influence physicians’ treatment choices, practice guidelines, research funding, and government policies. For example, an organization OpHeart is a nonprofit organization that was founded by the mother of a patient who benefited from using 3D printing to treat her congenital heart disease. It is actively promoting the more widespread use of the procedure and also is at the heart of a large multi-center clinical trial focusing on the efficacy of the procedure.
Healthcare organizations
Healthcare organizations like hospitals and clinics must be willing to try new procedures and devices, despite potential burdens it may thrust upon their clinical and administrative staff. A great example is the 3D printing initiative at the Mayo Clinic. It not only has a large clinical staff supporting this initiative in their daily practices, it also organizes regular CME conferences to promote and educate other physicians and organizations about the technology.
Professional medical societies
Professional medical societies must be open to updating their guidelines to include new and innovative products once sufficient clinical evidence has been provided, as this is a huge driver in securing coverage from payers. Clearly, the American College of Radiology is behind the current Category III CPT code success. Other subspecialties are already playing a critical role include but not limited to orthopedics, cardiology, neurosurgery.
Payors
Payors (e.g. Medicare, insurance companies) need to work with companies and organizations to provide fair and equitable coverage for innovative products.
Coding agencies
Coding agencies such as CMS and AMA must be willing to work with other stakeholders to create or amend existing codes when necessary to efficiently support the adoption of new, beneficial technologies.
At the end of the day, the complex path for a new procedure like 3D printed anatomical models to be fully and fairly reimbursed is ultimately determined by whether the procedure can be widely adopted by clinicians and if payors are willing to cover.
In a simpler term, is there a “product-market fit”? Can the current proposed 3D printed solutions in healthcare be scalable and viable business models for hospitals or otherwise?
We have some time to see.
2. RVU – Relative Value Unit
Even after a CPT code is established, it does not mean the procedure will be reimbursed with an adequate amount of payment. In fact, the pricing of the various 3D printed services and products currently used in the hospital will not only be challenging to determine due to lack of data but also will be critical to the long-term survival of the procedure. For example, an overpriced procedure will prevent more widespread use, which will trickle down to limited market size, impact, commercial value, clinical evidence. An underpriced procedure will also pose the same issue stemmed from a lack of economic incentives. Pricing a medical procedure is an art and a science and should be data-driven.
3. DRG – Diagnosis Related Groups
A diagnosis-related group (DRG) is a patient classification system that standardizes prospective payment to hospitals and encourages cost containment initiatives. In general, a DRGpayment covers all charges associated with an inpatient stay from the time of admission to discharge.
In general, hospitals get paid based on DRG (diagnosis-related group) codes, meaning that they often receive a flat fee for specific procedures, regardless of the costs incurred. As a result, custom models are often not directly reimbursed and can significantly cut into the profits of these institutions. Demonstrating a clear cost-saving for models ordered for some of these procedures can translate goodwill into concrete financial benefits. (Albert Woo, M.D. Expert Corner)
B. Revenue Strategies for 3D Printing in Hospitals
Although payers currently do not directly reimburse hospitals for the cost of 3D printed models, the use of 3D printing can reduce costs and increase revenue. Increasing income with 3D printing services is not a simple selling/buying transaction. Rather, revenue could come from many sources such as increased efficiencies, increased number of patients served and increased Medicare reimbursements.
1. Patient Satisfaction
Improving patient understanding of their disease has direct benefits not only to the patient but also to the hospital’s bottom line margins. Via the Hospital Value-Based Purchasing Program, Medicare will adjust hospitals’ payments based on their performance on 4 domains that reflect hospital quality. The patient experience of care domain is weighted as 25% of the Total Performance Score (TPS). That score encompasses 8 important aspects of hospital quality.
One of these that is directly relevant is Communication with Doctors, shown as the percentage of patients who reported that their doctors “Always” communicated well. This means doctors explained things clearly, listened carefully, and treated the patient with courtesy and respect.
In addition, a second aspect that may be affected by the use of 3D printed models is the Overall Rating of the Hospital.
The use of 3D representations to significantly increase patients’ understanding of their disease and treatment options can lead to higher patient experience of care ratings, which would lead directly to increased payments to hospitals.
The high scoring and improved reputation of a hospital will also drive more patients to choose it over other competing medical centers.
2. Improved Patient Throughput
Clinical cases continue to show that training, strategizing, and practicing with 3D printed models increases the speed of operations. This can lead to improved throughput in the operating room, which would lead to additional revenue for the hospital.
There is anecdotal evidence that the improved patient understanding of their disease through the use of the 3D printed models reduces the amount of time the doctor spends answering follow-up questions. This frees up doctor time to see additional patients.
3. Specialty focus
Specialty surgeries targeted towards the rare, complex, and often deadly diseases benefit the most from 3D printing because the technology has provided new insights and opportunities to the surgeons before these high-risk and high-cost surgeries are performed. Some of the examples are well-documented cases in cardiothoracic surgeries. (30,31, 51) However, a simple literature search in Pubmed on 3D printing surgical applications can show the enormous creativeness demonstrated in every surgical sub-specialty from plastic surgery to interventional/vascular radiology. The number of published cases has compounded in the last few years.
4. Cost Reduction and Avoidance
The case for cost reduction to hospitals is unclear for pre-surgical anatomical models and surgical guides as it is for applications such as prosthetics and surgical implants. The cost of initial setup and maintenance can be highly variable depending on end applications as we discussed in previous sections of this guide. However, there are definitely areas where hospitals can save money.
For example, a reduction in operating time, which can cost up to $180 per minute, can increase unit economics of a surgical procedure. Clinical cases have demonstrated a reduction of operating room time and length of hospital stay, leading to a decrease in risk for hospital-acquired infections which are not only detrimental to the patient but also no longer being reimbursed by Medicare.
On the implant side, less needs for expensive and large inventory with on-demand 3D printing service could improve hospital’s financial statement and increase agility of resource allocation.
C. Cost Analysis for In-House 3D Printing in Hospitals
Capital costs are one-time, fixed set-up costs incurred on the purchase of equipment or construction after which there will be only recurring operational or running costs. Operational costs include fixed costs, which recur every year, and variable costs, which are volume-dependent. All of these costs must be examined when reviewing a proposal for creating an in-house 3D printing facility.
Accumulation of high-quality data on costs is challenging since there are multiple reimbursement pathways and no reliable, repeatable process to collect costs.
For example, sometimes, the cost is less transparent. As in Figure 1, the true cost of 3D printing bundled in medical devices can be significantly higher than the true cost.
However, more often, researchers, providers, surgical centers, and some industrial partners have to absorb the costs of creating the 3D print. This again results in a lack of transparency in costs as these data are frequently not shared.
Methods to collect and document costs for every case should be standardized and organized, as each case can be considered a potential data point in a future larger scale (and possibly multicenter) clinical trial.
1. Capital Costs
The cost of providing 3D printing service can range from a few hundred dollars to millions, depending on the goal of the medical/surgical center in providing such a service. Modest setups for simple models for patient education could have a capital expenditure under $10,000.
On the high end of the spectrum, the authors have seen proposals of more than $1 million for a fully equipped in-house 3D printing service with high-capacity (polymer and metal) printers and software. This kind of high-end facility would be performing in-house implant production.
Although it may be simple for a hobbyist to set up a printing machine at home, in a medical facility there are many factors to consider. The utilization of this technology is relatively new. Thus, there are many potential environmental, regulatory, and legal issues yet to be properly addressed.
For example, certain steps of the 3D printing process may potentially involve or create hazardous materials or work environments. Thus, upgrading facilities to handle power requirements, ventilation, and chemical and material handling for post-processing operations may add a significant amount in capital funds required.
Capital costs include the hardware, software, and built out facilities. For a frame of reference, some sample costs to be included in a proposal for capital funding are provided:
- 3D printer
- Imaging software
- Segmentation software
- CAD/CAM software
- Standard computer for administrative functions
- High powered computational computers
- High resolution monitors
- Fume hood/Ventilation setup
Some academic centers can allocate a portion of existing research grants to create a 3D printing service without expecting any near-term return.
2. Fixed Costs
Fixed costs remain constant within a range of activities but vary per unit. For example, a technician’s salary is fixed for the year. If there were two technicians, the salary fixed cost would double. However, the salary is not changed if the facility makes 100 or 1000 3D models.
Ongoing fixed costs to maintain a 3D printing facility include personnel salaries, equipment maintenance contracts, facility costs, training costs, cost of material, and the labor involved in creating a final clinical acceptable print.
The following are sample fixed costs:
- Technician and Engineer salaries
- Equipment maintenance and vendor service agreements
- Training
- High bandwidth network for file transfer
3. Variable Costs
Variable costs change in direct proportion to volume.
For 3D printing, the materials are variable costs. The choice of material is huge, and the costs vary widely also. (Table III) The amount of material used will also vary with each application.
If specific clinician time is charged to a project, that expense can be considered to be variable. If hourly labor was used to make the print vs. a salaried technician, it would be considered a variable cost.
In the final part of this guide, we will provide you with a few examples and a spreadsheet that you can use for your own internal financial analysis.
About the Author:
Jenny Chen, MD, is currently the Founder and CEO of 3DHEALS, a company focusing on education and industrial research in the space of bioprinting, regenerative medicine, healthcare applications using 3D printing. With a focus on emerging healthcare technology, Jenny invests in and mentors relevant startups, especially companies pitching through Pitch3D. She believes a more decentralized and personalized healthcare delivery system will better our future.
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