The payback mechanism for medical devices
By Decree of the Ministry of Health ("MoH") of 6 October 2022, published in the Italian Official Gazette no. 251 of 26 October 2022, the MoH has adopted the Guidelines preparatory to the issuance orders of Regions and Provinces on the recovery of the amount in excess of the spending cap for medical devices in the years 2015, 2016, 2017 and 2018.
This measure follows the Decree of the Ministry of Health dated 6 July 2022, published in the Italian Official Gazette no. 216 of 15 September 2022, which certified that the National Health Service (NHS) spending cap for medical devices had been exceeded for the years 2015, 2016, 2017 and 2018, and thus required suppliers to refund to the Regions an amount equal to Euro 416,274,918 for the year 2015, Euro 473,793,126 for the year 2016, Euro 552,550,000 for the year 2017 and Euro 643,322,535 for the year 2018.
According to this mechanism, which is called payback and has already been in place for some time now with respect to medicinal products, the amount in excess of the spending cap for the purchase of medical devices by the NHS shall be borne by the companies supplying them, for an overall percentage of 40% in 2015, 45% in 2016 and 50% in 2017 and 2018.
This mechanism had already been introduced in 2015, but had actually never been applied until the adoption of the aforementioned Decree of the Ministry of Health of 6 July 2022 and of the so-called "Aiuti bis" Decree, which requires each Region to publish a list of the companies subject to payback by 14 December. The latter shall pay the amount due within the following 30 days, or otherwise offset the Regions' debts with the amounts claimed as payback.
Italian Regions have carried out the payback procedure accordingly and, after having identified the medical device suppliers subject to payback, have given them the possibility to send written pleadings, documents and observations and subsequently have notified the amounts due as payback.
A widely contested measure
This has naturally heated the debate: what is being disputed is not only whether it was legitimate to apply the payback mechanism to companies that have no responsibility for the spending cap being exceeded, but also the short notice with which the procedure was introduced and the fact that it is retroactive. As a consequence of this procedure, indeed, companies were initially obliged to pay by mid-January of 2023 amounts that were quite substantial and which – most questionably – were quantified only thirty days in advance, or otherwise, they would have been forced to offset payback debts with their own lawful receivables.
The industry's opposition resulted in hundreds of appeals by suppliers before the Italian administrative courts, through which both the MoH Decrees and the payback provisions of the so-called 'Aiuti bis' Decree have been challenged. These appeals aim to obtain judgements declaring that the payback mechanism (at least as currently established) is contrary to the Italian Constitution as it is in breach, among others, of the right to equality, free competition and the right to health care.
Among the arguments in support of such appeals is the fact that companies supplying medical devices under a public tender are not aware whether the spending cap will be exceeded until the surplus is certified by the government years later. Such an approach has a relevant impact on suppliers' profitability. As such, there is a risk that several companies, which legitimately relied on such profitability and cannot afford the amounts demanded through payback, may go bankrupt . Moreover, this approach clashes with the well-established case-law principle that public tenders must guarantee an adequate profit margin for awarded companies.
Furthermore, companies involved in the payback mechanism have already paid the taxes due on profits earned in past years from the supply of medical devices to the NHS and, to date, no compensation mechanism has been envisaged to adjust their position.
Lastly, as the Chairman of the Italian industry – medical devices – association (Mr. Massimilano Bogetti) emphasized, this system appears to be incompatible with the constitutional accounting principles, which provide for public administration budgets to be conservative, truthful, realistic and based on the reliability of past forecasts. The Chairman has also emphasised that the possible bankruptcy of many companies as a result of the payback mechanism could lead to an interruption in the supply of devices to health care facilities. In addition, the current (low) spending caps could lead to a decrease in the quality of medical devices and a drop in investments in technological innovation within health care facilities.
In addition to the above-mentioned grounds regarding payback as such, litigation may arise in the future also in respect of its implementation. For instance, in the pharmaceutical sector, where the payback mechanism has been in operation for years, there are several complaints related to the inaccuracy of calculations, the lack of transparency in the procedures, or the breach of the right to be involved in the procedure.
Latest developments on payback
The implementation of the payback mechanism has also triggered a political debate: several amendments to the mechanism were proposed during the parliamentary discussion regarding the Italian Budget Law for 2023. While some proposals aimed at abolishing payback, others envisaged a suspension or postponement of the deadline for the payment by suppliers or, at least, the introduction of a different treatment between small/medium enterprises and large ones. These proposals, however, were not accepted and the payback was confirmed while – notably – the Sardinia Region decided, on its own initiative, to suspend the payback mechanism and the collection of the amounts due, until the Regional Administrative Court rules on the challenged measures.
In any event, also considering the industry's opposition and the hundreds of appeals lodged before the Italian administrative courts, on January 2023 the government postponed the deadline for the payment due by supplying companies to Regions to 30 April 2023. Meanwhile, Lazio’s Regional Administrative Tribunal - which was supposed to rule on the companies' request for a suspension of the payback mechanism on January - decided to postpone its decision until June.
The Italian Government is currently meeting representatives of the Industry and it is likely that a further postponement of the deadline for the payment due by supplying companies will be approved. Moreover, the Italian Government might use this timeframe to reach a compromise with the Industry and consider a wider review of the mechanism (e.g., an amendment of the spending caps, a review of the criteria used for assessing the amounts due).
In conclusion, these regulatory provisions – should they be confirmed as they are – cannot but be seen as yet another burden for an industry that is strategic for our country, which has already been severely impacted by the global crisis and which, based on the new governance introduced by the European regulations and by Legislative Decrees no. 137 and no. 138 of 2022, will have to bear ever-increasing costs to invest in innovation.
The Health Technology Assessment Programme and a potential new governance for medical devices
In such respect, the adoption of a National Health Technology Assessment (HTA) Programme, aimed at supporting health care systems in investing in cost-effective products with high added clinical value, appears to be quite remarkable. This Programme should coordinate, guide and streamline the NHS procurement process, identifying innovative devices with a high clinical-economic impact at an early stage and providing useful information to reduce waste, optimize investment returns, and seek value for money, also by introducing specific classifications and conditions for purchases by the NHS.
Among other things, the Document on the Governance of Medical Devices - presented by the MoH in 2019 - called for an enhancement in the governance of the industry and of expenditures, the development of a competitive market and the consequent recovery of resources that could be invested in innovation and innovative products. In this regard, Legislative Decrees no. 137 and no. 138 provide for two additional interesting elements of the new governance system: the creation of the Fund for the Governance of Medical Devices (though financed by the companies that manufacture or market medical devices) and the activation of the National Monitoring Unit on the Prices of Medical Devices, with the task of supporting contracting entities and verifying the consistency between purchase prices and the reference prices defined by the National Anticorruption Authority (ANAC) for similar categories of devices.
While waiting for an actual and effective HTA strategy at a domestic level, some Italian Regions have tried to be ahead of time, granting concrete benefits on the basis of the innovativeness assessment and providing an example – at least partial - of the possible impact of an effective governance at a national level. For example, by Resolution no. 737 of 27 June 2022, Tuscany introduced a fast track for the purchase of medical devices that can be qualified as innovative on the basis of a prior HTA assessment. These devices can be made available to clinicians and patients within a few weeks, much faster than with traditional tendering procedures.
In conclusion, the governance of medical devices is certainly evolving and we may reasonably expect further measures, which will add new elements to the overall system. Hopefully, the new measures will not only consist of new charges to companies in the industry - payback is still a measure conceived for exceptional circumstances and certainly not as an ordinary tool - but will contribute to creating a system capable of encouraging investments and identifying and rewarding innovative technologies on the one hand, and of adequately supporting the NHS agencies on the other, so as to ensure high-quality standards throughout the country.
Authored by Giuseppe Aminzade.