Entrenched Interests

One of the biggest hurdles to overcome before change can happen is breaking down entrenched interests.

Ever wonder why our current health care system is designed the way it is, dominated by fee-for-service and insurance that is largely tied to employment and the private sector?

Entrenched interests.

Clinicians are incentivized to over prescribe services because the economics are such that they can get paid more for just performing more procedures, not necessarily based on the patient health outcome. We need to move more towards a value based approach for health care reimbursements.

Private health insurers obviously don’t want a single payer health care system because it puts them out of business. Better to pay up for lobbyists and political contributions than ceasing to exist. Call it a cost of doing business.

As part my investment research, I sometimes look at medical device manufacturers as an area of potential opportunity, particularly for companies that appear to provide cost effective, positive outcomes relative to the current status quo.

One such example is Sensus Healthcare (NASDAQ: SRTS), and their approach to treating non-melanoma skin cancers and keloids with a treatment known as “superficial radiation therapy” as opposed to Moh’s surgery (for skin cancer).

The Center For Medicare/Medicaid Services (CMS) is the entity that sets government reimbursement levels for healthcare procedures. Moreover, I understand the American Dermatology Association (ADA) is an industry group that provides comments/opinions on the dermatology market. The ADA only officially recommends Moh’s surgery or excision for skin cancers, but does offer that other types of treatments such as radiation therapy can be an effective option for certain patients.

I understand Moh’s surgery reimbursement can approach $25,000, all-in (including cosmetic surgery), relative to SRT which is reimbursed at a $2,000 for a full treatment (and also includes reimbursement for other physician check up work) which requires about 13 treatments to eradicate the skin cancer using the technology. This, of course, is the main drawback to SRT: it requires patients to visit the dermatology clinic 2-3x per week for 6 weeks to administer the full treatment, although the SRT treatment takes only a few minutes to perform. The benefit is SRT does not require any cutting and resultant cosmetic damage, leaving some patients to prefer the SRT option over Moh’s.

Moving to Sensus’ new product — an Intraoperative Modulated Radiation Therapy device called Sculptura — and we see another CMS reimbursement issue arise. IORT is administered once during a tumor removal surgery with radiation directed at the tumor bed to avoid further spread of cancerous cells. Alternatively, the current standard for radiation is for high dose rate products, delivered on a fractionated basis, which exposes patients to much higher levels of radiation. And you guessed it: external beam radiation therapy costs the CMS much more because it is based on the number of times the procedure is performed (fractionated) versus the patient outcome.

Because many governments are moving more toward a value based approach towards health care reimbursements, I’m hopeful that a product like Sculpura will gain market acceptance and that radiation oncologists/clinics/hospitals can realize a fair return on their investment. Sculptura will be offered at a $1.45 million list price, and is sold with an annual service contract but the device does not have recurring consumable sales. This aligns with value-based health care business models.

The trick will be to overcome entrenched interests that exist in the market today.

My hope and expectation — as idealistic as it sounds — is that patient outcomes and value matter. Healthcare should be like any other competitive industry — the provider of the safest, most cost effective treatments with the best patient outcomes should win in the marketplace.

If you are interested, you can check out Sensus Healthcare’s investor deck here.