As we head full steam into the fourth quarter traditionally the strongest quarter for device sales, insulin pumps in particular news coming out of the Pacific Northwest isn’t promising. We recently reviewed the new reimbursement policy put out by Regence Blue Cross and Blue Shield one of the largest payors in the area. A policy that unfortunately will make getting an insulin pump, sensor augmented pumps in particular more difficult for the patient and their physician.
We aren’t surprised that Regence is doing this as for we all know reimbursement policies have nothing to do with what’s best for the patient and everything to do about money. As we anticipated now that Tyler is coming payors will do what they can to push patients toward a Tyler rather than more expensive sensor augmented insulin pump. They will use several known studies to back up their change basically saying what we have said, Tyler will produce pump like outcomes at a fraction of the cost of a sensor augmented pump.
Yet as much as we believe in Tyler he is not and should not be the only option for an intensively managed patient. Insulin pump therapy has come a long way in a short time and thanks to CGM combined with insulin dosing algorithms is easier than ever. The 670G when it works is proof of this. The coming Control IQ will further reinforce this proof and on a level playing field should be the preferred option over the 670G.
As we have said many times, and this is one of those times sometimes the business of diabetes interferes with the management of diabetes. This after all isn’t about what’s best for the patient this is all about money. Who makes it, who saves it and who spends it. In this case it’s the payor whose saving money, Tyler companies who are making money and of course the patient who is spending money.
Unfortunately we suspect that Regence won’t be the only payor who heads in this direction. The fact is payors want to manage their diabetes patient populations as cheaply as possible. We can’t blame them and believe it’s up to the insulin pump companies to combat these policies. One way this could be done is for pump companies to move towards a lease versus buy model, a lease price which would include all the supplies a pump patient uses. Rather than have the payor fork over $5000 or more for the pump then another $2000 plus for supplies spread this cost over the term of a lease.
Insulet is the closet to this model and now that the OmniPod is a pharmacy benefit even closer. This quite honestly is the brilliance of Insulet’s strategy as they understand that cost is a major issue when it comes to insulin pump therapy. Cost which impacts not just the payor but patient too.
However Tandem and Medtronic are still following the old model which as this policy and the others that are likely to follow shows is becoming quickly outdated. Worse for both is if they capitulate to these new policies by lowering prices, their typical reaction, it only hurts margins. Medtronic did this to gain exclusivity with UnitedHealthcare.
With the Control IQ coming Tandem has the most at stake here as Medtronic has greater financial resources which gives them the ability to keep their stranglehold on prime formulary position. Medtronic as we have noted is doing everything they can to protect that goose that lays the golden. Golden eggs which come in two sizes, the continual sale of pump supplies and replacing out of warranty pumps with newer more expensive pumps. Medtronic isn’t winning when it comes to adding patients new to insulin pump therapy, they are winning because they are holding onto most of their huge installed user base.
We have long noted on a level playing field without their formulary and size advantage Medtronic would be toast. That for Tandem in particular to break through they must create a level playing field and take away Medtronic’s formulary advantage. Insulet has somewhat done this with their conversion to a pharmacy benefit. Tandem could do this by converting to a lease versus buy model. They could also take this model one step further by agreeing to take lower payments in exchange for a bonus paid when the patient hits verifiable metrics, i.e. time in range.
Medtronic is somewhat doing this but Tandem MUST start thinking out of the box. It’s no secret that the Control IQ working with the Dexcom CGM will be superior to the 670G in terms of performance. But as we have seen over and over the best technology does not always translate into greater sales. We hate to be redundant, but this is all about money.
Payors will never make it easy for a patient to get an insulin pump, fighting this battle is futile. However if Tandem was bold enough to change tactics, they just might win the war. Medtronic has no reason to change as the current system plays to their strengths. Insulet has already made changes which are obviously working. Yet Tandem isn’t competing against Insulet as much as they are Medtronic and therefore should direct their efforts directly at Medtronic.
With cost the main issue Tyler will always be the favored option for payors. They will design reimbursement policies to favor Tyler. There is nothing the insulin pump companies can do to stop this as that train has left the station. Yet this by no means they should just surrender, they have options available if they are willing to use them.