Memorandum

Medtronic announces outcomes-based deal with Aetna: if MDI users moving to pumps don't achieve certain A1c benefit, Aetna gets a rebate – June 27, 2017

Executive Highlights

  • Yesterday, Medtronic Diabetes announced a non-exclusive “outcomes-based agreement” with Aetna focused on MDI users with type 1 and type 2 diabetes. A1c outcomes will be tracked for those opting to transition to a Medtronic insulin pump (with or without CGM). Medtronic will be paid for pumps like it is now, but if pre-agreed A1c outcomes are not met, Aetna will receive a “rebate payment.” There are no details on the rebate payment size or magnitude of improvement. 
  • The agreement is non-exclusive and has no “preferred” component, meaning Aetna users can still choose to use other companies’ pumps, unlike the UHC/Medtronic deal.
  • This deal represents an initial foray into outcomes-based reimbursement for pumps, since Medtronic will be paid whether it achieves outcomes or not. Short term, we don’t imagine it will have a major impact on the commercial environment, but longer term, we expect the payer environment will increasingly be the battleground on which diabetes technology is fought.

Yesterday, Medtronic Diabetes announced a non-exclusive “outcomes-based agreement” with Aetna focused on people with type 1 and type 2 diabetes currently using multiple daily injections. For those MDI users that choose to transition to a Medtronic insulin pump (with or without CGM), Aetna and Medtronic will track A1c outcomes. Initially, Medtronic will be paid at the same historically negotiated price for pumps, meaning its revenue won’t change upfront. However, if pre-agreed upon A1c outcomes are NOT met, Medtronic will then pay Aetna “a rebate payment.” There are no details on the size of the rebate payment, the thresholds for A1c improvement, or the time horizon –  we might assume 0.5% on the A1c front within 6-12 months, and at least $500-$1000 on the rebate amount. (This is complete speculation!) The announcement does mention “total cost of care” and “patient experience” multiple times, though it’s not clear if those figure into the rebate or are simply goals of the partnership.

The agreement is non-exclusive and has no “preferred” component, meaning Aetna users can still choose to use other companies’ pumps. We’re glad to hear this, as it departs from last year’s heavily criticized Medtronic/UnitedHealthcare agreement (which made Medtronic pumps “preferred” and slowed Tandem’s 2H16 sales considerably). The agreement also doesn’t apply to current pumpers; only to current MDI users transitioning to a Medtronic pump. 

This deal represents an important initial tiptoe into outcomes-based reimbursement for pumps, since Medtronic will be paid whether it achieves outcomes or not. In a 100% outcomes-based pricing model, Medtronic would receive NO payment if outcomes are not achieved – this is obviously riskier for Medtronic, but ultimately where things might go if the field moves to more holistic monthly service models instead of large upfront payments for durable hardware.

It will be fascinating to see if this creates incentives for Aetna to drive its patients to Medtronic pumps – though this is not part of the announced agreement, if outcomes are positive, we assume Aetna will get a better deal with Medtronic relative to other durable pumps.

Short term, we don’t imagine this will have a major impact on the commercial environment in the US, but longer term, we expect the payer environment will increasingly be the battleground on which diabetes technology is fought.

  • It’s notable that A1c is the primary health outcome here, since pumps (especially with automation) might have a bigger relative impact on time-in-range and hypoglycemia. While not part of the formal agreement, Medtronic told us it will be measuring hypoglycemic events, time in range, and patient satisfaction – all will enable it to “develop more sophisticated value-based healthcare models moving forward.” Let’s hope! We believe rates of hypoglycemia <70 mg/dl and <54 mg/dl will prove critical in these models, since they are a marker for costly severe events and can be tracked short term with CGM (unlike A1c, which is a marker for longer-term outcomes and costs, and which may be another payer’s problem). On the other hand, it’s harder to improve A1c than time-in-range (a higher bar), and this may be an indication that Aetna has not bought into outcomes beyond A1c quite yet. We hope that changes!
  • We’re not surprised by this move, given how much Medtronic has talked about outcomes-based reimbursement models and payment for diabetes outcomes (not just new devices). We agree this is where the field needs to go, though it does create a sticky situation for patient and HCP choice. Medtronic management has praised the UHC agreement on recent calls, alluding to more agreements like it in the works. We wonder if JDRF’s direct criticism of that deal through its recent #Coverage2Control campaign has had any impact on these discussions.

Close Concerns Questions

Q: How much is Medtronic’s rebate payment to Aetna? What is the time horizon and magnitude of A1c improvement? Will metrics evolve to include time-in-range, hypoglycemia, quality of life, etc.

Q: Though there is no “preferred” component, could this agreement impact Aetna’s incentives? Will it see greater savings going with Medtronic over other companies’ pumps?

Q: In five years, will these agreements be far more common in diabetes technology? Will Medtronic lead this effort? How far are other diabetes technology companies on this front?

Q: How will deals like this affect the US pump market, both short- and long-term?

 

-- by Adam Brown and Kelly Close