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    Bringing Medical Devices to Market: Coverage, Coding, and Reimbursement for Medical Devices

    Elizabeth Halpern

    Dec 20, 2021

    48 min read

    FDA HIPAA Insurance & Payment Life Sciences Medical Devices Medicare & Medicaid Privacy & Security

    Summary

    • In general, Medicare may cover devices approved by the Food and Drug Administration (FDA) through the premarket approval (PMA) process, devices cleared by the FDA through the 510(k) process, FDA-approved Investigational Device Exemption (IDE) Category B devices, and hospital Institutional Review Board (IRB)-approved nonsignificant risk devices.
    • Devices are reimbursed as part of the payment for the related procedure or other services under many of the separate Medicare payment systems, such as the physician fee schedule.
    • Medicare uses a fee schedule and competitive bidding to pay for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS).
    Bringing Medical Devices to Market: Coverage, Coding, and Reimbursement for Medical Devices
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    Introduction

    What is the market for a medical device? Who will use it, who will buy it, and who will pay for its use? The answers to these questions are found in understanding the coverage and reimbursement policies that apply to the device. Coverage and reimbursement, along with the coding that facilitates claims payment, are crucial to the marketing success of medical devices.

    Coverage, coding, and reimbursement are interrelated concepts. Coverage refers to the ability and willingness of health plans to pay for a device or for a procedure using a device. To be covered, an item or service must be included in the payors’ benefits, either by contract, as in the case of commercial payors, or by statute or regulation, as in the case of Medicare and other government programs. Coding refers to the use of standard code sets, recognized under the Health Insurance Portability and Accountability Act (HIPAA) for use in claims processing. The relevant code set for a device will depend on the payment system under which it is reimbursed. Reimbursement refers to the amount and method of payment for an item or service. When the item or service is covered, the payor’s reimbursement policies will determine how payment is made for it and which codes are needed to identify the item or service on claims. If a device is covered, but reimbursement is inadequate, then providers may be discouraged from using it or from making an effort to list the code for it on a claim, which could affect future payment rates. This article discusses each of these concepts in depth.

    The U.S. healthcare system is a patchwork quilt of hundreds of payors. In 2018, 49 percent of Americans had employer-sponsored coverage, 20 percent were enrolled in Medicaid or were dually eligible for Medicaid and Medicare, 14 percent were enrolled in Medicare, six percent had nongroup coverage, one percent had military coverage, and nine percent were uninsured. This article will focus on the Medicare program, the government healthcare program for people age 65 and older, the disabled, and people with end-stage renal disease (ESRD), because it is the single largest payor for healthcare services in the United States. It also is the most transparent of all of the payors, with all of its coverage, coding, and reimbursement policies available to the public regardless of participation in the program, and its decisions often set precedents for other payors.

    Coverage: Will Medicare Pay for a Device?

    Medicare will cover an item or service if it is included in a statutory Medicare benefit category, is not statutorily excluded from coverage, and is “reasonable and necessary for the diagnosis or treatment of illness or disease or to improve the functioning of a malformed body member.” These requirements apply to traditional Medicare as well as Medicare Advantage (MA) plans, but MA plans may cover additional services and might not cover exactly the same services as traditional Medicare. An MA plan must cover services that are covered by Medicare’s national coverage determinations (NCDs) and general coverage guidelines, as well as services covered by local coverage determinations (LCDs) for the MA plan’s service areas. MA plans that serve patients across Medicare contracting jurisdictions have a choice of LCDs to follow, however. When there is no written coverage policy from the Centers for Medicare & Medicaid Services (CMS), the agency that administers the Medicare program or the relevant Medicare Administrative Contractor (MAC, an entity that processes claims for a specific region), an MA plan is permitted to establish different policies for items and services that are covered by MACs on a claim-by-claim basis.

    Benefit Categories

    Medicare’s statutory benefit categories include physicians’ services, services and supplies furnished as incident to a physician’s professional service, inpatient hospital services, outpatient hospital services, ambulatory surgical center (ASC) services, durable medical equipment (DME), and renal dialysis services. All of these benefit categories include either coverage for a device itself or for procedures using devices, or both. For example, many physician procedures involve the use of a device. Coverage of those procedures is essential to ensuring patients’ access to the device. The services and supplies furnished incident to a physician’s service also include devices and services related to devices. To be payable as “incident to a physician’s service” in a noninstitutional setting, an item or service, including a medical device, must be:

    • An integral, although incidental, part of the physician’s professional service;
    • Commonly rendered without charge or included in the physician’s bill;
    • Of a type that is commonly furnished in physician’s offices or clinics; and
    • Furnished by the physician or by auxiliary personnel employed by or under the physician’s direct supervision.

    Similarly, the hospital, ASC, and renal dialysis benefit categories include coverage for devices or use of devices in those settings of care.

    The DME benefit category provides coverage for certain devices without an associated professional service. A medical device is eligible for coverage under the DME benefit if it:

    • Can withstand repeated use;
    • Effective with respect to items classified as DME after January 1, 2012, has an expected life of at least three years;
    • Is primarily and customarily used to serve a medical purpose;
    • Generally is not useful to an individual in the absence of an illness or injury; and
    • Is appropriate for use in the home

    In general, Medicare may cover devices approved by the Food and Drug Administration (FDA) through the premarket approval (PMA) process, devices cleared by the FDA through the 510(k) process, FDA-approved Investigational Device Exemption (IDE) Category B devices, and hospital Institutional Review Board (IRB)-approved nonsignificant risk devices.

    A device may fit into multiple benefit categories and be subject to different coverage rules based on the category. For example, the use of an infusion pump could be covered as incident to a physician’s service when used in a physician’s office, as part of a hospital service on either an inpatient or outpatient basis, and as an item of DME, depending on the setting of care. In addition, as discussed below, the reimbursement and coding requirements will vary based on the benefit category.

    Statutory Exclusions

    If an item or service is statutorily excluded from coverage, Medicare will not cover it. Statutory exclusions include expenses for physical checkups, hearing aids, and eyeglasses (except for a single pair following cataract surgery with insertion of an intraocular lens), cosmetic surgery, and routine foot care.

    Reasonable and Necessary

    The Medicare statute prohibits payments for items and services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member” or are not specific types of covered preventive services. An item or service is “reasonable and necessary” if it is:

    • Safe and effective;
    • Not experimental or investigational (exception: routine costs of qualifying clinical trial services with dates of service on or after September 19, 2000, which meet the requirements of the Clinical Trials NCD are considered reasonable and necessary); and
    • Appropriate, including the duration and frequency that is considered appropriate for the item or service, in terms of whether it is:
    • Furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member;
    • Furnished in a setting appropriate to the patient’s medical needs and condition;
    • Ordered and furnished by qualified personnel;
    • One that meets, but does not exceed, the patient’s medical need; and
    • At least as beneficial as an existing and available medically appropriate alternative.

    “Reasonable and necessary” is not synonymous with the FDA’s determination that a product is safe and effective. While CMS requires an FDA-regulated product to have “received FDA approval or clearance (unless exempt from the FDA premarket review process) for at least one indication to be eligible for consideration of Medicare coverage (except in specific circumstances),” CMS notes, “FDA approval or clearance alone does not entitle that technology to Medicare coverage.” CMS generally looks at whether there is strong clinical evidence that an item or service improves health outcomes for Medicare beneficiaries.

    In 2021, CMS finalized, then rescinded a regulation that created a new coverage pathway for devices with Breakthrough designation from the FDA. The “Medicare Coverage of Innovative Technology”(MCIT) pathway was intended to provide immediate coverage of these devices and allow time to collect clinical evidence to support long-term coverage. Under the MCIT pathway, Medicare would have covered these devices, related care and services, and any reasonable and necessary procedures, items, and services to implant or maintain the device and to treat complications arising from use of the device. Eligible devices would have been required to receive FDA authorization within the two years prior to the effective date of the regulation, be used according to their FDA-approved or cleared indication for use, be within a Medicare benefit category, not be the subject of an NCD, and not be excluded from coverage through law or regulation. The coverage period for these devices would have extended for four years from the date the manufacturer notified CMS that it was opting into the pathway. After that period expired, the device would have been subject to Medicare’s usual process for making coverage decisions.

    In May 2021, CMS delayed the effective date of this rule until December 15, 2021 to allow the agency more time to address concerns raised by stakeholders about implementation of the rule. In November 2021, CMS rescinded the rule, noting that the MCIT rule “had major flaws that must be addressed to ensure there is a balance between expedited coverage of devices and patient protections,” and as a result, the agency no longer believed the rule was in “the best interest of Medicare patients.” CMS also explained that it is working to develop an “alternative expedited coverage pathway” with adequate patient safeguards and is planning on “initiating several coverage process improvements, including potential updates to CED study criteria and options to expedite the NCD process.” Until these changes are implemented, breakthrough devices can be covered under Medicare’s usual processes for establishing coverage policies.

    Process for Making Coverage Decisions

    Medicare coverage policies can be established through NCDs, LCDs, or on a claim-by-claim basis. An NCD is a determination by CMS with respect to whether or not a particular item or service is covered nationally under the Medicare statute, while an LCD is a determination by a MAC regarding whether or not a particular item or service is covered on a contractor-wide basis in accordance with the reasonable and necessary provision of the Social Security Act. NCDs are issued by CMS, while LCDs are issued by the MACs that process claims in various regions across the county. Medicare’s coverage determinations for most items and services are made by the MACs on a claim-by-claim basis without a written NCD or LCD.

    NCDs are developed through a process that is governed by statutory deadlines and requirements for notice and comment. By statute, a proposed decision must be released within six months of the date CMS starts its review, or within nine months if CMS commissions a technology assessment or convenes a meeting of the Medicare Evidence Development and Coverage Advisory Committee (MedCAC) to discuss the technology. CMS must provide a 30-day comment period on the proposed decision, and it must issue a final decision within 60 days of the end of the comment period. LCDs are also subject to statutory and sub-regulatory requirements for notice and comment. LCDs may not conflict with an NCD and are binding on providers in a MAC’s jurisdiction.

    CMS develops NCDs, and the MACs develop LCDs, upon request by beneficiaries or other members of the public or on their own initiative. CMS has identified the following circumstances that could cause it to consider developing an NCD:

    • Practitioners, patients, or other members of the public have raised significant questions about the health outcomes attributable to the use of the items or services for the Medicare beneficiary population.
    • New evidence or reasonable reinterpretation of previously available evidence indicates that a national coverage review may be warranted.
    • Local coverage policies on a particular item or service may vary in language or implementation.
    • The health technology represents a substantial clinical advance and is likely to result in a significant improvement in patient health outcomes or a positive impact on the Medicare program.
    • When rapid diffusion of an item or service is anticipated the evidence may inadequately address questions regarding the impact on the Medicare population, target subgroup populations, practitioner or facility qualifications, or beneficiary health outcomes.

    Cost is not a factor CMS uses in deciding whether to cover an item or service, but the “impact on the Medicare population” could include changes in utilization of services and costs to beneficiaries or on the Medicare program as a whole.

    CMS evaluates only six to eight therapies per year for NCDs. As a result, statistically speaking, the likelihood of CMS creating an NCD for any new therapy is low.

    Clinical Trials

    Medicare covers devices and related services when used in clinical trials under several types of policies. Medicare devices subject to IDE studies and related services may be eligible for coverage under Medicare’s IDE policies. Items and services in certain other types of clinical trials may be eligible for coverage under Medicare’s NCD on clinical trials. CMS has also developed a special approach to coverage for items and services for which the evidence that the service is reasonable and necessary is promising, but not sufficient to support coverage under CMS’s usual standards. This is known as Coverage with Evidence Development (CED).

    Except as provided in Medicare’s IDE and clinical trial policies, Medicare does not cover “experimental and investigational” devices. Medicare also does not cover services related to use of noncovered devices, including “services furnished in preparation for the use” of the device, “services furnished contemporaneously with and necessary to the use” of a noncovered device, and “services furnished as necessary after-care that are incident to recovery from the use of the device.” However, Medicare does cover services “to treat a condition or complication that arises due to the use of a noncovered device or a noncovered device-related service.”

    Medicare Coverage of IDE Devices and Related Services

    The key pathway for Medicare coverage for a device study is through the policy on IDE devices. Medicare covers “routine care and services” related to IDE Category A (Experimental) and Category B (Nonexperimental/Investigational) devices furnished in conjunction with FDA-approved clinical services that meet the requirements specified in Medicare’s regulations. A Category A (Experimental) device is “a device for which ‘absolute risk’ of the device type has not been established (that is, initial questions of safety and effectiveness have not been resolved) and the FDA is unsure whether the device type can be safe and effective.” A Category B (Nonexperimental/Investigational) device is “a device for which the incremental risk is the primary risk in question (that is, initial questions of safety and effectiveness of that device type have been resolved), or it is known that the device type can be safe and effective because, for example, other manufacturers have obtained FDA premarket approval or clearance for that device type.”

    Coverage for devices with a Category A IDE designation is somewhat limited, as it extends only to routine care items and services furnished in the study but does not include coverage for the Category A device itself. In contrast, coverage for devices with Category B IDE designation is broader, including routine care items and services furnished in the study and the Category B device itself. “Routine care and services” is defined as “items and services that are otherwise generally available to Medicare beneficiaries (that is, a benefit category exists, it is not statutorily excluded, and there is no national noncoverage decision) that are furnished during a clinical study and that would be otherwise furnished even if the beneficiary were not enrolled in a clinical study.”

    In addition to routine care and services, Medicare may cover Category B devices and hospital IRB-approved nonsignificant risk (NSR) devices. Category B devices and IRB-approved NSR devices may be covered if “there are no regulations, national coverage policies, or manual instructions that would otherwise prohibit Medicare coverage.”

    In order for there to be coverage for items or services in a Category A or Category B IDE study, the study must be approved by CMS through a centralized review process. The study sponsor makes a request to CMS that includes certain information. First, the sponsor must show that the Category B device or the routine care associated with a Category A or Category B device to be covered in an IDE study meets the following criteria:

    1. The principal purpose of the study is to test whether the device improves health outcomes of appropriately selected patients.
    2. The rationale for the study is well supported by available scientific and medical information, or it is intended to clarify or establish the health outcomes of interventions already in common clinical use.
    3. The study results are not anticipated to unjustifiably duplicate existing knowledge.
    4. The study design is methodologically appropriate and the anticipated number of enrolled subjects is adequate to confidently answer the research question(s) being asked in the study.
    5. The study is sponsored by an organization or individual capable of successfully completing the study.
    6. The study is in compliance with all applicable federal regulations concerning the protection of human subjects found at 21 C.F.R. Parts 50, 56, and 812 and 45 C.F.R. Part 46.
    7. Where appropriate, the study is not designed to exclusively test toxicity or disease pathophysiology in healthy individuals. Studies of all medical technologies measuring therapeutic outcomes as one of the objectives may be exempt from this criterion only if the disease or condition being studied is life threatening and the patient has no other viable treatment options.
    8. The study is registered with the National Institutes of Health’s (NIH’s) National Library of Medicine’s ClinicalTrials.gov.
    9. The study protocol describes the method and timing of release of results on all prespecified outcomes, including release of negative outcomes and that the release should be hastened if the study is terminated early.
    10. The study protocol must describe how Medicare beneficiaries may be affected by the device under investigation, and how the study results are or are not expected to be generalizable to the Medicare beneficiary population. Generalizability to populations eligible for Medicare due to age, disability, or other eligibility status must be explicitly described.

    The MACs also apply these criteria to determine whether to cover studies of NSR devices approved by a hospital IRB. In addition, the sponsor must provide the following information to CMS: a complete FDA approval letter of the Category A or Category B IDE; the IDE study protocol; the IRB approval letter; the National Clinical Trial (NCT) number; and other supporting materials, as appropriate.

    Medicare’s NCD on Routine Costs in Clinical Trials

    Medicare’s NCD on Routine Costs in Clinical Trials allows coverage of “qualifying clinical trials.” Although this policy technically applies to devices as well, the ability for a device trial to be considered a “qualifying clinical trial” is limited. The device trial must be funded by one of the listed government entities or supported by a center or cooperative group funded by one of those government entities, which is not common.

    Under the NCD policy, “routine costs” is defined to include “all items and services that are otherwise generally available to Medicare beneficiaries (i.e., there exists a benefit category, it is not statutorily excluded, and there is not a national non-coverage decision) that are provided in either the experimental or the control arms of a clinical trial,” such as:

    • Items or services that are typically provided absent a clinical trial (e.g., conventional care);
    • Items or services required solely for the provision of the investigational item or service (e.g., administration of a noncovered chemotherapeutic agent), the clinically appropriate monitoring of the effects of the item or service, or the prevention of complications; and
    • Items or services needed for reasonable and necessary care arising from the provision of an investigational item or service in particular, for the diagnosis or treatment of complications.

    “Routine costs” exclude:

    • The investigational item or service, itself unless otherwise covered outside of the clinical trial;
    • Items and services provided solely to satisfy data collection and analysis needs and that are not used in the direct clinical management of the patient (e.g., monthly CT scans for a condition usually requiring only a single scan); and
    • Items and services customarily provided by the research sponsors free of charge for any enrollee in the trial.

    Under this policy, the investigational item or service is covered only if it would otherwise be covered by Medicare outside of the clinical trial. Because devices that lack FDA approval or clearance for any indication are not covered by Medicare, as described above, these devices cannot gain coverage under this NCD.

    Any trial whose routine costs are covered under this policy must meet the following three requirements:

    • The subject or purpose of the trial must be the evaluation of an item or service that falls within a Medicare benefit category (e.g., physicians’ service, DME, diagnostic test) and is not statutorily excluded from coverage (e.g., cosmetic surgery, hearing aids).
    • The trial must not be designed exclusively to test toxicity or disease pathophysiology. It must have therapeutic intent.
    • Trials of therapeutic interventions must enroll patients with a diagnosed disease rather than healthy volunteers. Trials of diagnostic interventions may enroll healthy patients in order to have a proper control group.

    In addition to these three requirements, CMS identifies seven “desirable characteristics” for covered trials:

    1. The principal purpose of the trial is to test whether the intervention potentially improves the participants’ health outcomes;
    2. The trial is well-supported by available scientific and medical information or it is intended to clarify or establish the health outcomes of interventions already in common clinical use;
    3. The trial does not unjustifiably duplicate existing studies;
    4. The trial design is appropriate to answer the research question being asked in the trial;
    5. The trial is sponsored by a credible organization or individual capable of executing the proposed trial successfully;
    6. The trial is in compliance with federal regulations relating to the protection of human subjects; and
    7. All aspects of the trial are conducted according to the appropriate standards of scientific integrity.

    The following types of trials are presumed to meet these characteristics and are automatically deemed to be “qualifying clinical trials:”

    1. Trials funded by NIH, the Centers for Disease Control and Prevention (CDC), Agency for Healthcare Research and Quality (AHRQ), CMS, Department of Defense (DOD), and Department of Veterans Affairs (VA);
    2. Trials supported by centers or cooperative groups that are funded by the NIH, CDC, AHRQ, CMS, DOD, and VA;
    3. Trials conducted under an investigational new drug application (IND) reviewed by the FDA; and
    4. Drug trials that are exempt from having an IND under 21 C.F.R. § 312.2(b)(1) will be deemed automatically qualified until the qualifying criteria are developed and the certification process is in place. At that time the principal investigators of these trials must certify that the trials meet the qualifying criteria in order to maintain Medicare coverage of routine costs. This certification process will only affect the future status of the trial and will not be used to retroactively change the earlier deemed status.

    Other trials that meet the seven “desirable characteristics” may be covered if the “treatments are considered reasonable and necessary by the local contractor.”

    Coverage with Evidence Development

    CMS developed CED for items and services for which the evidence that the service is reasonable and necessary is promising, but not sufficient. CED allows coverage for items and services pending collection of additional data through clinical trials or registries. When making CED coverage determinations, CMS conducts a “review of the medical literature to cover an item or service only in the context of an approved clinical study or when additional clinical data are collected to assess the appropriateness of an item or service for use with a particular beneficiary.” The CED coverage process requires continued data collection, such as through a registry or a clinical trial meeting certain design specifications established by CMS, in order for the item or service to be covered. The approach has been used to establish coverage policies for several devices, including transcatheter aortic valve replacement (TAVR) devices. In some cases, the approach has been used at the request of manufacturers and other stakeholders who were prepared to collect data; in others, CMS has implemented CED on its own initiative, without prior plans by manufacturers or stakeholders to implement a registry or a clinical trial.

    Coding: How Is a Device Identified on Claims?

    Codes help payors identify items and services on claims for payment. The type of code needed depends on the setting of care and payment system. In some cases, a code may be needed to identify a specific device, and in others, a code may be needed to identify the procedure using the device. Bear in mind that if an item or service is not covered, or if there is no separate payment for the device or the associated procedure, there might not be a need for a code.

    There are three main systems of codes used to facilitate payment of medical devices: Current Procedural Terminology (CPT)® codes, Healthcare Common Procedure Coding System (HCPCS) codes, and the International Classification of Diseases, 10th Revision (ICD-10) codes. These systems are the standard, national medical code sets. The following table represents which codes are used in different settings of care:

    Setting of Care

    Applicable Code
    Hospital inpatient

    ICD-10

    Hospital outpatient

    HCPCS/CPT

    ASC

    HCPCS/CPT

    Physician’s office

    HCPCS/CPT

    Home (DME)

    HCPCS

    Dialysis clinic

    HCPCS

    Current Procedural Terminology Codes

    The American Medical Association’s (AMA) CPT Editorial Panel is responsible for maintaining the CPT code set, which are Level I HCPCS codes. CPT codes provide a systematic language to describe physician and certain non-physician practitioner services. CPT codes do not describe devices directly; they describe procedures using devices or other technologies. If a new device requires physicians to perform a procedure not currently described by a CPT code, a new or revised code might be needed to allow physicians to bill for that procedure.

    There are three categories of CPT codes: Category I, Category II, and Category III, all of which are five digits and can be either numeric or alphanumeric. Category I codes are numerical, permanent codes that describe most of the healthcare procedures and services in the CPT. Category II codes are alphanumeric codes that are considered supplemental, and are not required for correct coding. Category III codes are alphanumeric, temporary codes that describe new and emerging technologies, and that allow for data collection on clinical efficacy, utilization, and outcomes of these technologies. The CPT also includes “unlisted” or “miscellaneous” codes (Category I codes that end in “99”) that can be used when no code exists that describes a specific procedure. The AMA generally requires that a requested Category I or III CPT code be, among other things:

    • Unique, well-defined, and describe a procedure or service that is clearly identified and distinguished from existing procedures and services;
    • Consistent with current editorial panel standards for code set maintenance;
    • Neither a fragmentation of an existing procedure or service nor currently reportable as a complete service by one or more existing codes (with the exclusion of unlisted codes);
    • An accurate reflection of the procedure or service as typically performed; and
    • Not proposed as a means to report extraordinary circumstances related to a procedure or service already described in the CPT code set.

    Additionally, there are specific criteria for Category I and Category III codes. Services described by Category I codes must also be:

    • Approved by the FDA as required for performance of the procedure or service;
    • Performed by many physicians or other qualified healthcare professionals across the United States;
    • Performed with frequency consistent with the intended clinical use (i.e., a service for a common condition should have high volume, whereas a service commonly performed for a rare condition may have low volume); and
    • Consistent with current medical practice.

    Category III codes may be assigned to services that do not meet all of the requirements for a Category I code. For example, a service may receive a Category III code even if it is not widely performed, has not received FDA approval or FDA approval is not imminent, or the clinical efficacy of the service has not been proven. These differences may make it easier to obtain a Category III code sooner than a Category I code. To be eligible for a Category III code, a procedure or service must be currently or recently performed in humans and must meet at least one of the following additional criteria:

    • Have an application supported by at least one relevant AMA advisor representing practitioners who would use the procedure or service; or
    • The actual or potential clinical efficacy of the specific procedure or service is supported by peer-reviewed literature available to the CPT Editorial Panel; or
    • There is
    • At least one IRB-approved study of the procedure or service being performed; or
    • A description of a current and ongoing U.S. trial outlining the efficacy of the procedure or service; or
    • Other evidence of evolving clinical utilization.

    Further, the clinical efficacy of the procedure or service must be documented in literature that meets the requirements set forth in a CPT code change application. Changes to the CPT code set, such as the addition, modification, or deletion of a code, must be submitted through the CPT code change application process, which is reviewed and decided on by the CPT Editorial Panel. Each of the Panel members reviews the literature provided, and independently evaluates whether the quality and quantity of the literature sufficiently meet the necessary criteria for a code change.

    The number of required articles and the specific level of evidence required to support a code change varies depending on the service or procedure. For example, for new technologies with typical levels of utilization, a Category I code application requires at least one peer-reviewed publication with a majority U.S. patient population and at least two publications with no overlapping patient populations, with at least one of these articles meeting evidence level IIa. For services that use existing or noncontributory technologies, the same number of studies is required, but the minimum level for at least one article is level IIIa or IIIb.

    In addition to fulfilling the minimum requirements for the application, device manufacturers need to solicit support for their application from the relevant medical specialty societies, especially those represented on the CPT Advisory Committee, while complying with the AMA’s prohibition on “lobbying.” This policy permits applicants to seek “input or assistance” from a medical society, but not to make unsolicited communications “for the purpose of attempting to improperly influence either: CPT/HCPAC Advisors’ or their societies’ evaluation of or comments on” an application or “voting by members of the Editorial Panel” on an application. Applicants may not request assistance from medical specialty societies after the application has been submitted to the AMA.

    Once the AMA receives a request for a coding change, AMA staff reviews the application to confirm that all necessary information has been submitted and that the request has not previously been addressed by the CPT Editorial Panel. If the request is deemed complete, it is then forwarded to the CPT Advisory Committee for detailed, substantive review. If the Advisory Committee approves the request, the request is then forwarded to the CPT Editorial Panel for a final decision. The CPT Editorial Panel meets three times a year, and the Panel requires applications to be submitted at least three months prior to the meeting at which the CPT Editorial Panel is requested. A new Category I code would become effective on January 1 of the following year. New Category III codes are released twice each year, on January 1 and July 1, and become effective six months later.

    There are three potential outcomes to the submission of a Category I CPT Code application:

    1. The CPT Editorial Panel creates a new Category I CPT code that would become effective January 1 of the applicable calendar year;
    2. If the CPT Editorial Panel does not grant a new Category I code, either because sufficient clinical evidence to support a Category I application was unavailable or sufficient support from the relevant specialty society was not forthcoming, the CPT Editorial Panel could simply deny the application for a Category I CPT code; or
    3. The CPT Editorial Panel could deny the application for a Category I CPT code and instead create a Category III CPT code to collect additional data.

    HCPCS

    While the AMA maintains the CPT code set, CMS is responsible for maintaining the HCPCS Level II coding system to describe and identify healthcare services and supplies that do not fall within the CPT code set jurisdiction. The HCPCS code sets are divided into two subsets, the first being Level I, which, as previously described, is the CPT coding system. Level II codes are alphanumeric codes consisting of a single alphabetical letter and four numeric digits.

    Level II codes are typically the most important type of codes for manufacturers of DME and certain devices used in hospital outpatient settings and ASCs. If no existing HCPCS code appropriately describes a new device, an application for a new HCPCS code can be submitted. Decisions regarding the addition, deletion, or revision of HCPCS codes are separate from the process for making determinations regarding coverage and payment. CMS has adopted policies for applying and implementing new HCPCS codes. There are three kinds of revisions to HCPCS coding that can be requested:

    • The addition of a new code, including splitting an existing code category;
    • That the language used to describe a code that already exists be changed; and
    • That an existing code be deleted or discontinued.

    CMS has created a HCPCS Decision Tree to evaluate external requests to add or revise codes. The application review involves a first and second tier review. The first tier review factors include:

    • Whether the application was complete and submitted in a timely fashion;
    • Whether HCPCS Level II is the appropriate code jurisdiction (i.e., not capital equipment, not used exclusively in an inpatient setting, not appropriate for a different code set);
    • If the product or item is primarily medical in nature, in that it is used by providers for diagnostic and therapeutic purposes;
    • If there is FDA approval for the product or item, if required; and
    • If there is a national program operating need for Medicare, Medicaid, and/or private payors.

    If these factors are met, then CMS engages in a second tier review that includes:

    • Whether the item performs a significantly different function from items currently categorized in HCPCS;
    • If there is not a significantly different function, then CMS evaluates whether the item operates differently, and if there is a significant therapeutic distinction compared to the existing coded treatment or product;
    • CMS then evaluates whether the item meets certain marketing criteria, which must be evidenced by three months of marketing activity for non-drug products.

    The application to revise an HCPCS Level II code requires certain information to support the requested change. If there is a significant therapeutic distinction, detail on the clinical theory behind the claim, how the product results in a significantly improved medical or clinical outcome, and copies of all results from a systematic analysis of the available literature must be provided. Articles that are unfavorable must also be provided with any appropriate rebuttal or explanation. The application must also include information regarding FDA clearance (or an explanation on why a product is exempt from FDA review). If FDA clearance was required, the application must include a copy of the cover sheet submitted to the FDA requesting clearance, as well as a copy of the final, unredacted FDA approval letter. The application also requires information on the target patient population, durability of the item, warranty, billing, prescribing, medical use, setting of care, and marketing practices.

    As of 2020, CMS accepts and considers applications for DMEPOS and other non-drug and non-biological coding cycles bi-annually. If approved, a new code takes effect nine months after the January or June application deadline. CMS announces preliminary decisions approximately four months after the application deadline, shortly before a public meeting. The bi-annual public meetings allow interested parties to make presentations and submit comments in response to the publication of preliminary decisions for new DMEPOS and other non-drug and non-biological coding applications. This gives manufacturers an opportunity to speak in support of a submitted application and respond to the initial decision made by CMS regarding the application.

    ICD-10 Codes

    The ICD-10 is the standard code set for medical diagnosis coding under HIPAA. The ICD-10 has two components, a diagnosis coding system and a procedure coding system. The ICD-10 code sets are a standard language, like the other coding sets already described, that provide unique codes for substantially different health conditions. In addition, new procedures and diagnoses can easily be incorporated into the coding set as new codes for existing and future clinical protocols.

    Device manufacturers can apply for ICD-10 codes for procedures using their devices through a bi-annual application process. The ICD-10 Coordination and Maintenance (C&M) Committee, a federal interdepartmental committee that consists of representatives from CMS and the CDC National Center for Health Statistics (NCHS), is responsible for approving coding changes, and developing errata, addenda, and other modifications to the ICD code set. The Committee meets twice a year (spring and fall) for two days at CMS headquarters in Baltimore, Maryland, to review requests for coding changes. These meetings are open to the public and registration opens approximately one month prior to the meeting. The first day of the meeting is devoted to procedure code issues and is led by CMS. The second day is devoted to diagnosis code issues and is led by CDC.

    A proposal for a new or revised ICD-10 Procedure Coding System (ICD-10-PCS) code must be submitted to CMS in advance of the published deadline for the bi-annual meetings, which is generally two months prior to the scheduled meeting. Proposals should include the following information:

    • Description of the code(s)/change(s) being requested;
    • Rationale for why the new code/change is needed (including clinical relevancy); and
    • Supporting clinical references and literature.

    Requests should include a background paper that describes the procedure and why the current ICD-10-PCS code does not sufficiently cover or address the procedure. This background paper should include information describing the procedure and the steps involved, as well as detail on outcomes, complications, and any other information that may be relevant. If the procedure is a variation on a procedure already contemplated in ICD-10-PCS, then the difference between how the procedures are performed should be clearly delineated. In addition, the background paper should include descriptive detail on the target patient population, care setting, and the diagnosis/diagnoses the procedure is indicated to address.

    CMS staff reviews requests for procedure code changes and then informs requestors whether their proposal has been approved for presentation at the C&M Committee meeting for further evaluation. For approved proposals, requestors then make a presentation at the C&M Committee meeting to describe the clinical issues and the procedure or technology. The participants at the meeting may ask questions concerning clinical and coding issues and may offer recommendations in a discussion led by CMS staff. Recommendations concerning proposed code revisions may be made both in person at the C&M Committee meeting and in writing before the end of the comment period. Final decisions on code revisions are made through a clearance process within HHS and no final decisions are made at the meeting.

    Reimbursement: How Does Medicare Pay for the Device?

    Medicare has separate payment systems for each setting of care, such as the Physician Fee Schedule (PFS), Hospital Inpatient Prospective Payment System (IPPS), Hospital Outpatient Prospective Payment System (OPPS), ASC Payment System, ESRD Prospective Payment System (PPS), and DME, Prosthetics, Orthotics, and Supplies (DMEPOS) Fee Schedule. Under many of these payment systems, devices typically are not separately reimbursed, but are reimbursed as part of the payment for the related procedure or other services. Some of these systems have mechanisms to make additional payments for new technologies.

    Physician Fee Schedule

    Medicare reimburses for physician services, including the costs of devices used to perform those services, under the Medicare PFS. The fee schedule establishes payment rates for thousands of physician services, including office visits, surgical procedures, and a broad range of other diagnostic and therapeutic services.

    The fee schedule is based on a resource-based relative value scale that compares the work and resources associated with a procedure to other procedures. Each procedure, as identified with a CPT or HCPCS code, has a set of relative value units (RVUs) assigned to it. The RVUs account for the relative resources used to provide physician services:

    1. Physician work (based on physicians’ assessments of the relative levels of time, effort, and skill associated with each service);
    2. Practice expenses (PE) (based on the expenses physicians incur when they rent office space, buy supplies, buy or rent equipment, and hire non-physician clinical and administrative staff); and
    3. Malpractice expenses (expenses for professional liability insurance based on premiums physicians pay).

    Each of these three RVUs is adjusted to reflect variations based on the local geographic market in which the services are rendered using the geographic practice cost indexes (GPCIs). Payments also may be adjusted to reflect other factors. To determine the payment rate, geographically adjusted RVUs are added together and then multiplied by a uniform conversion factor. Payments for use of medical devices would fall under the PE RVU. For many services that can be performed in the physician office setting or in a hospital or ASC, the fee schedule lists different PE RVUs for non-facility (physician office) and facility (hospital or ASC). This difference reflects who bears the overhead cost of providing a service — the physician or the hospital/ASC. As a result, Medicare PFS payment rates for services performed in the physician office are typically greater than payment rates for services performed in the hospital/ASC setting because this payment rate includes the overhead of performing the procedure, such as the costs of the equipment, supplies, and non-physician labor needed to perform the service. For services performed in the hospital or ASC setting, the facility fee to the hospital under the OPPS accounts for these costs.

    The PE RVU includes two categories of direct expenses under which devices may be classified: equipment and supplies. The equipment cost in the PE RVU is calculated on a per-minute basis using a detailed formula put forth by CMS in federal regulations. The calculation uses standardized interest rates, depreciation rates, lifetime of the equipment, maintenance, and usage rates. This method is used because the equipment is used over the course of years, and the reimbursement is intended to spread the cost of using the machine across the many uses based on how many minutes the equipment is used. Medical supplies, by contrast, are calculated on a per-unit basis because they tend to be single-use products.

    CMS updates the PFS through an annual rulemaking cycle that starts with release of a proposed rule for public comment in the summer, release of a final rule by November 1, and rates set under that rule taking effect on January 1 of the following year. Through this rulemaking process, CMS periodically updates the cost inputs that are used to calculate RVUs based on recommendations from the AMA Relative (Value Scale) Update Committee (RUC). This subcommittee reviews information gathered from surveys of special society members about the costs associated with performing particular services. CMS reviews these recommendations and can adopt or revise them, and can use other information about the time and cost associated with providing services, including invoice prices for devices, to determine the RVUs for services.

    Ultimately, the Medicare PFS does not directly pay specifically for medical devices. Rather, the costs associated with using the device are one factor of the overall amount reimbursed to the physician. The PFS accounts for the resources involved in delivering a service, and medical devices are captured in the PE portion of that calculation as either the amount of time a device is used or the number of units of disposable medical supplies. The calculation, though, is based on the typical patient, rather than the specific inputs for a given patient. That is, when performing a procedure, the physician inputs the code, and the reimbursement for that code takes into account the resources for a typical patient. It is not based on the number of minutes the device is used for the particular patient, but on the typical time the device is used for that coded procedure.

    Hospital Outpatient Prospective Payment System

    Medicare pays for services provided to hospital outpatients under the OPPS. The OPPS groups services, as identified using CPT or HCPCS codes, into ambulatory payment classifications (APCs) grouped based on clinical and cost similarity. The payment rate for services in an APC is calculated using the geometric mean cost of services assigned to that APC, and these rates typically include payment for the devices used, unless the device is granted pass-through status, as discussed below.

    Payment rates for APCs are set based on the most recent claims data available and a formula that derives costs from hospital charges. If a patient receives multiple services, the hospital may receive reimbursement through multiple APCs. Medicare does not make payment for services that are “integral, ancillary, supportive, dependent, or adjunctive,” however. Payment for those procedures, including many procedures whose codes identify them as add-ons to other procedures, is included in payment for the related primary procedure. Inclusion of payment for one item or service in the payment for another item or service is called “packaging.”

    CMS updates the OPPS each year through a rulemaking process that includes release of a proposed rule in the summer and release of a final rule around November 1. Changes take effect on January 1 of the following year, and the payment system can be updated quarterly as new technologies are granted pass-through status or procedures are assigned to New Technology APCs, as discussed below. OPPS payment rates are adjusted for local variations in labor costs and for a hospital’s participation in a quality reporting program.

    In general, payment for devices under the OPPS is made through payment for the related procedure. If a new device is considered to be a tool for performing an existing procedure, rather than a new procedure by itself, then its use would be included in the reimbursement for the codes of the original procedure. If the use of a new device is viewed as a distinct procedure, then an “unlisted” code would be reported for that procedure until a new code could be created and assigned to an APC. Any new code created would be assigned initially to an APC based on the anticipated cost of the procedure. APC assignments and payment rates can change over time as CMS collects data about the cost of the procedure through claims for procedures using the device.

    The OPPS has two mechanisms to ensure that new medical technologies are appropriately reimbursed: transitional pass-through payments for categories of medical devices and New Technology APCs.

    Pass-Through Payments

    Pass-through payments help ensure beneficiaries’ access to technologies that are too new to be adequately represented in the data CMS uses to establish traditional OPPS payment rates. CMS bases payment for pass-through devices on each hospital’s costs, determined by charges adjusted to costs using a cost-to-charge ratio. The transitional pass-through rates are in effect for at least two years, but not more than three years, from the date of the first pass-through payment made under the OPPS for any medical device in the category. CMS assigns HCPCS codes to devices that are granted pass-through status to facilitate claims processing.

    To be eligible for a transitional pass-through payment, a device must (1) if required by the FDA, have received approval or clearance; (2) be an integral part of the service furnished, be used for one patient only, come in contact with human tissue, and be surgically implanted, inserted, or applied in or on a wound or skin lesion; and (3) not be equipment, instrument, apparatus, implement, or item for which depreciation and financing expenses are recovered as depreciable assets or a material or supply furnished incident to a service.

    To qualify for pass-through status, a device must be new, meet the “not insignificant cost” threshold, and be a substantial clinical improvement. To be considered new, it must not be appropriately described by an existing or previously established category for pass-through payments. A “not insignificant” average cost is determined by demonstrating (1) the estimated average reasonable cost of devices in the category exceeds 25 percent of the applicable APC payment amount for the service related to the category of devices; (2) the estimated average reasonable cost of the devices in the category exceeds the cost of the device-related portion of the APC payment amount for the related service by at least 25 percent; and (3) the difference between the estimated average reasonable cost of the devices in the category and the portion of the APC payment amount for the device exceeds 10 percent of the APC payment amount for the related service. A substantial clinical improvement requires that the device substantially improve the diagnosis or treatment of an illness or injury or improve the functioning of a malformed body part compared to the benefits of a device or devices in a previously established category or other available treatment.

    Additionally, as of 2020, CMS established an alternative pathway to the substantial clinical improvement criterion. Devices approved under the FDA’s Breakthrough Devices Program and that have received FDA marketing authorization will not be evaluated for substantial clinical improvement for the purposes of determining device pass-through payment status. Breakthrough medical devices must still meet the other requirements, but they are considered to have met the substantial clinical improvement requirement by virtue of the Breakthrough designation. Manufacturers can apply for pass-through status through a quarterly application process.

    New Technology APCs

    Procedures and services that are not eligible for transitional pass-through payments may qualify for assignment to a New Technology APC. New Technology APCs are classified by cost, not by a procedure’s clinical qualities. CMS can assign a procedure to a New Technology APC to allow the agency to gather sufficient claims data to assign the procedure to a permanent APC. In general, these assignments last from two to three years.

    To qualify for a New Technology APC, a procedure must, among other things:

    • Be truly new and significant enough to warrant having its own code under the HCPCS coding system;
    • Not be appropriately billed under an existing HCPCS code or APC;
    • Not be adequately represented in the claims data being used for the most current annual OPPS payment update;
    • Not reasonably be placed in an existing APC group that is appropriate in terms of clinical characteristics and resource costs;
    • Be a distinct procedure, with a beginning, middle, and end;
    • Not qualify for a transitional pass-through payment; and
    • Fall with the scope of Medicare benefits and be determined to be reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body part.

    In addition, any devices used in the procedure must have received FDA approval or clearance, if required by the FDA.

    CMS uses a quarterly application process to consider requests for new technology APCs.

    Ambulatory Surgical Center Payment System

    Medicare’s payment rates for services performed in ASCs are based on the rates calculated for procedures under the OPPS and an adjustment that produces payment rates about 50 percent less than under the OPPS. Not all procedures that are payable under the OPPS are payable in ASCs, however. Medicare pays for procedures in ASCs if the agency “determines [the procedures] do not pose a significant safety risk and are not expected to require an overnight stay following the surgical procedure.” Procedures identified with unlisted codes are not reimbursed in ASCs because CMS cannot evaluate those procedures’ safety risks. The packaging policies that apply under the OPPS also apply under the ASC Payment System, so that procedures that are not separately payable under the OPPS also are not separately reimbursed under the ASC Payment System. ASC payment rates are adjusted for local variations in labor costs and for an ASC’s participation in a quality reporting program.

    Devices with pass-through status under the OPPS are separately reimbursed under the ASC Payment System, as well.

    CMS also uses a modified method to calculate payment for procedures that have significant device costs. CMS divides payment for these “device intensive” procedures into a device portion (including the cost of the device itself) and a non-device portion. CMS pays the ASC the same amount it would pay under the OPPS for the device portion of the service but pays the standard ASC rate for the non-device portion of the service. The non-device portion is adjusted for geographic differences while the device portion would be the same across geographic regions.

    To be considered to be device intensive, a procedure must (1) involve implantable device(s) assigned a HCPCS code; (2) the required device(s) (including single use devices) must be surgically inserted or implanted; and (3) the device offset amount must be significant, which is defined as exceeding 30 percent of the procedure’s mean cost. Additionally, for purposes of satisfying the device-intensive criteria, a device-intensive procedure must involve a device that: (1) has received FDA marketing authorization, has received an FDA IDE and has been classified as a Category B device by FDA or meets another appropriate FDA exemption from premarket review; (2) is an integral part of the service furnished; (3) is used for one patient only; (4) comes in contact with human tissue and is surgically implanted or inserted (either permanently or temporarily); and (5) is not either of the following — (i) equipment, an instrument, apparatus, implement, or item of this type for which depreciation and financing expenses are covered as depreciable assets; or (ii) a material or supply furnished incident to a service (for example, a suture, customized surgical kit, scalpel, or clip, other than a radiological site marker).

    For new HCPCS codes describing procedures requiring the implantation of medical devices that do not yet have associated claims data, CMS applies device-intensive status with a default device offset set at 31 percent until claims data are available to establish the HCPCS code-level device offset for the procedures. The purpose of applying the 31 percent default device offset to new codes that describe procedures that implant or insert medical devices is to ensure ASC access for new procedures until claims data become available. In certain rare cases (e.g., in the case of a very costly implantable device), CMS will temporarily assign a higher offset percentage to the new procedure if warranted by additional information, such as pricing data from a device manufacturer.

    Inpatient Prospective Payment System

    Under the IPPS, Medicare makes a single payment for all items and services provided to a patient during a hospital inpatient admission. Each admission is assigned to a payment group, called a Medicare Severity-Diagnosis Related Group (MS-DRG) based on the patient’s ICD-10 diagnosis and procedure codes. Payment rates are adjusted for geographic variations in cost, disproportionate share hospital status, teaching hospital status, and participation in quality reporting programs, among other factors.

    Admissions that use medical devices may qualify for new technology add-on payments (NTAP). To be eligible, manufacturers of new technologies must submit an application to CMS demonstrating that the technology meets stringent criteria.

    The NTAP policy provides additional payments for two to three years for cases with high costs involving eligible new technologies. For technologies that meet the eligibility criteria and are granted NTAP by CMS, the determination of the NTAP amount is based on the cost to hospitals for the new technology. In practice, the NTAP amount is calculated distinctly for each eligible discharge that includes the technology, and NTAP only may be made when the estimated cost of the case exceeds the payment that otherwise would be made to the hospital. The payment mechanism is based on the cost to hospitals for the new technology and is the lesser of 65 percent of the amount by which the total covered costs of the case exceed the MS-DRG payment, or 65 percent of the costs of the new technology.

    CMS releases its NTAP application annually. NTAP applications are due to CMS approximately one year in advance of the potential effective date of the NTAP. For example, the deadline to submit an application for fiscal year 2021 NTAP, which would take effect on October 1, 2020, was October 11, 2019.

    The NTAP application requires that the applicant demonstrate to CMS that the candidate technology meets the following three established criteria:

    1. The technology must be “new”;
    2. The technology must be an advance in medical technology that represents a substantial clinical improvement relative to technologies previously available; and
    3. The technology would be inadequately paid under the MS-DRG system.

    “New” means within two or three years after the point at which data begin to become available reflecting the ICD–10 code assigned to the new service or technology (depending on when a new code is assigned and data on the new service or technology become available for MS-DRG recalibration). CMS also has identified three criteria for assessing whether the technology meets the newness criteria: (1) whether the product uses the same or similar mechanism of action to achieve a therapeutic outcome, (2) whether the product is assigned to the same or different MS-DRG, and (3) whether the new use of the technology involved the treatment of the same or similar type of disease and the same or similar patient population. If a technology meets all three of these criteria, then it would be considered substantially similar to an existing technology and would not be considered “new” for purposes of NTAP.

    A “substantial clinical improvement” means that the new technology significantly improves clinical outcomes for a patient population compared to those treatments currently available. For example, CMS may consider factors such as decreased rate of subsequent diagnostic or therapeutic interventions, decreased future hospitalizations or physician visits, and reduced recovery time. Evidence that may be sufficient to establish the conclusion of substantial clinical improvement includes “[c]linical trials, peer reviewed journal articles; study results; meta-analyses; consensus statements; white papers; patient surveys; case studies; reports; systematic literature reviews; letters from major healthcare associations; editorials and letters to the editor; and public comments. Other appropriate information sources may be considered.”

    CMS uses a complicated algorithm to assess whether a technology would be inadequately paid under the IPPS. Specifically, the average charges for cases using the technology must exceed the MS-DRG specific cost threshold established by CMS. To qualify, the average costs must exceed a threshold set at the lesser of 75 percent of the standardized amount increased to reflect the difference between costs and charges (based on the national case weighted cost-to-charge ratio) or 75 percent of one standard deviation (based on the logarithmic values of the charges and transformed back to charges) beyond the geometric mean standardized charge for all cases in the DRGs to which the new technology is assigned (or the case weighted average of all relevant MS-DRGs, if the new technology is used in cases assigned to many different MS-DRGs).

    CMS has established an alternative pathway for NTAP eligibility for “transformative new devices” that are part of the FDA’s Breakthrough Devices Program and have received FDA marketing authorization. Devices approved through the alternative pathway do not need to meet the newness or substantial improvement criterion under the existing NTAP pathway but must continue to meet the cost criterion. Under the Breakthrough Devices Program, eligible devices must meet one of the following criteria: (1) they must “represent breakthrough technologies”; (2) there must be “no approved or clear alternatives”; (3) they must “offer significant advantages over existing approved or cleared alternatives”; or (4) their availability must be “in the best interest of patients.”

    After receipt of NTAP applications, CMS organizes a town hall meeting at which “organizations representing hospitals, physicians, manufacturers and any other interested party may present comments, recommendations, and data to the clinical staff of CMS concerning whether the service or technology represents a substantial clinical improvement.” The purpose of this meeting is to allow for a discussion of the substantial clinical improvement criteria for each of the NTAP applicants. Individuals may submit written comments after the Town Hall. NTAP applicants may make a formal presentation at the meeting and/or submit written comments to CMS after the Town Hall Meeting.

    CMS publishes a discussion of each new NTAP applicant in the IPPS proposed rule for the forthcoming fiscal year that usually is published each April. CMS accepts comments from the manufacturer and the public on whether an applicant satisfies the criteria for NTAP and whether NTAP should be granted for an applicant. During this time, it is recommended that manufacturers work with trade associations, patient groups, and others to gather support for NTAP for the drug. CMS publishes its final decisions with respect to NTAP in the IPPS final rule that usually is published each August.

    End-Stage Renal Disease Prospective Payment System

    Medicare pays for outpatient dialysis services for beneficiaries with ESRD under the ESRD PPS. This payment system provides a single payment to dialysis facilities for each session of dialysis, subject to adjustments for differences in labor costs and certain patient characteristics.

    Beginning with 2021, the ESRD PPS includes the Transitional Add-on Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES) to support ESRD facilities in the uptake of new and innovative equipment and supplies under the ESRD PPS. CMS accepts applications annually, and qualifying technologies receive TPNIES for two calendar years.

    To be eligible for TPNIES, renal dialysis equipment and supplies must (1) have been designated by CMS as a renal dialysis service; (2) be “new,” meaning granted marketing authorization by FDA on or after January 1, 2020; (3) be commercially available by January 1 of the particular calendar year, meaning the year in which the payment adjustment would take effect; (4) have a HCPCS application submitted in accordance with the official Level II HCPCS coding procedures by September 1 of the particular calendar year; (5) be “innovative,” meaning they meet the IPPS substantial clinical improvement criteria and related guidance; and (6) except for home dialysis machines used by a single patient, not be capital-related assets.

    The TPNIES amount is based on 65 percent of the price established by the MACs, using invoice information and other relevant sources of information.

    Durable Medical Equipment Reimbursement

    Medicare uses two methods to pay for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS): a fee schedule and competitive bidding.

    DMEPOS Fee Schedule

    If an item meets the definition of DME then it will be categorized into one of the following payment classes: (1) inexpensive or other routinely purchased DME; (2) items requiring frequent and substantial servicing; (3) certain customized items; (4) other prosthetic and orthotic devices; (5) other DME (capped rental items); (6) oxygen and oxygen equipment; or (7) transcutaneous electrical nerve stimulators (TENS). To determine how a device will be reimbursed under the DME fee schedule, one must determine first if the device is described by a HCPCS code that is reimbursed under the fee schedule. Devices that are described by existing codes are reimbursed at the rates established for those codes, which are based on historic charge data and list prices. If the device is not described by such a code, the manufacturer can apply for a new code and a new payment rate will be established for it.

    In 2019, CMS revised its policy for establishing payments for new codes under the DME fee schedule. Under this policy, CMS establishes fee schedule pricing for new codes based on the following sources of pricing information, in order of preference: (1) fee schedule pricing history for codes that have previously been used to pay for the item described the new code (“continuity of pricing”); (2) gap-filling with fee schedule pricing history for “comparable items”; and (3) gap-filling with supplier or commercial prices. If the historic pricing data is established via gap-filling, the gap-filled prices are deflated to the historic base period and updated based on statutory factors to determine the fee schedule amount for the new code. The first priority is to determine whether the item described by the new code “has a fee schedule pricing history,” i.e., whether the item was classified and paid for previously under a different code. If the item is determined to have a pricing history, the previous fee schedule amounts for the old code(s) are mapped to the new code(s) in a specified manner depending on the type of coding change, in order to ensure continuity of pricing. Under the “continuity of pricing” mechanism, how the payment for the new code is determined is based on the particular coding change (e.g., dividing or combining of codes).

    If the DME item does not have a fee schedule pricing history (i.e., not classified and paid for previously under a different code), CMS will seek to establish the fee schedule amount for the new code by using “comparable” items with existing fee schedule amounts. Comparability determinations are based on, but not limited to, CMS’s evaluation of five component categories and related attributes:

    • Physical: Aesthetics, Design, Customized vs. Standard, Material, Portable, Size, Temperature Range/Tolerance, Weight
    • Mechanical: Automated vs. Manual, Brittleness, Ductility, Durability, Elasticity, Fatigue, Flexibility, Hardness, Load Capacity, Flow-Control, Permeability, Strength
    • Electrical: Capacitance, Conductivity, Dielectric Constant, Frequency, Generator, Impedance, Piezo-Electric, Power, Power Source, Resistance
    • Function and Intended Use: Function, Intended Use
    • Additional Attributes and Features: “Smart”, Alarms, Constraints, Device Limitations, Disposable, Parts, Features, Invasive vs. Non-Invasive

    The comparability analysis gives the agency flexibility regarding the basis for determining if an item is “comparable” to another item. For instance, the comparison can be based on the items as a whole, subcomponents, or a combination of items. Further, a new product need not be comparable within each category, and there is no prioritization of the categories. As these categories and attributes were only identified in the recently completed rulemaking, there is no clear history on how CMS performs the “comparability” assessment with respect to specific items.

    Only if there is no fee schedule pricing history and CMS is unable to identify comparable items with existing DME fee schedule amounts, will CMS establish the fee schedule amount for the new code using supplier price lists, including catalogs and other retail price lists (such as internet retail prices) that provide commercial pricing information. Appropriate sources of commercial pricing information may include payments made by MA plans and verifiable information from supplier invoices and non-Medicare payor data. In addition, CMS makes clear that it will no longer use manufacturer suggested retail prices (MSRPs). Based on recent changes, it is increasingly possible that CMS would use prices to any customer, including to self-pay patients, when establishing a fee schedule amount determined using supplier or commercial price lists (instead of using the above discussed continuity of pricing or comparability mechanisms). Further, if CMS sets the rate using supplier or commercial pricing information, if the price for a new item decreases within five years, CMS may reassess and adjust the payment rate. This one-time adjustment applies only if (1) the supplier or commercial price used to establish the fee schedule amount decreases by any amount below 15 percent within five years; and (2) if the new fee schedule amount would be no more than 15 percent lower as a result of the adjustment.

    Competitive Bidding

    CMS is authorized to conduct competitive bidding to establish reimbursement rates for DME. Under the DMEPOS Competitive Bidding Program (CBP) Medicare pays for selected DMEPOS items in certain areas of the country using a single payment amount (SPA), rather than paying the current Medicare DMEPOS fee schedule payment amounts. The SPA is based on bids submitted by DMEPOS suppliers competing to become Medicare contract suppliers to furnish certain items within a product category in competitive bidding areas (CBAs). DMEPOS items that are subject to payment under the CBP are specified by statute and include off-the-shelf orthotics, enteral nutrients, equipment and supplies, and certain DME and medical supplies which are covered items.

    The DMEPOS CBP was first implemented on January 1, 2011, and has undergone two rounds of contracts through competitive bidding — the Round 1 2017 contracts (effective January 1, 2017) and the Round 2 Recompete and National Mail-Order Recompete contracts (effective July 1, 2016). These contracts applied to enteral nutrients, equipment, and supplies; general home equipment and related supplies and accessories (including hospital beds, pressure reducing support surfaces, commode chairs, patient lifts, and seat lifts); nebulizers and related supplies; negative pressure wound therapy pumps and related supplies and accessories; respiratory equipment and related supplies and accessories (including oxygen and oxygen equipment, continuous positive pressure airway devices, and respiratory assist devices); standard mobility equipment and related accessories (including walkers, standard manual wheelchairs, and standard power wheelchairs); and transcutaneous electrical nerve stimulation (TENS) devices and supplies. After these DMEPOS CBP contracts expired on December 31, 2018, a temporary gap in the entire DMEPOS CBP was in effect from January 1, 2019 until December 31, 2020. During this time, Medicare beneficiaries were permitted to receive DMEPOS items from any Medicare enrolled DMEPOS supplier.

    A new round of competitive bidding, Round 2021, became effective January 1, 2021, and will extend through December 31, 2023. In this round, CMS will implement the lead item pricing methodology for all items included in the product categories established in the final rule published on November 14, 2018. Rather than submitting individual bids for each item within a product category, bidders will only submit one bid for the lead item in the product category. The supplier’s bid for the lead item represents the supplier’s bid for furnishing the lead item and all other items (the non-lead items) in the product category. Bids for the lead item in the product category will be used to calculate the SPAs for all of the items within that product category. The SPA for the lead item will be the maximum bid submitted for that item by bidders whose bids for the item are in the winning range in that CBA and product category combination. The SPAs for the non-lead items within the product category are determined by multiplying the lead item SPA by a relative ratio. The ratios are based on the historic differences in the fee schedule amounts for the lead item and non-lead items.

    CBP rates also affect payment rates outside CBAs. Fee schedule amounts in rural and non-contiguous areas where competitive bidding has yet to be implemented are set using a 50/50 blend of competitive bidding pricing and historic (“unadjusted”) fee schedule amounts. The fee schedule amounts for other areas where competitive bidding has yet to be implemented are adjusted using competitive bidding pricing only. Fee schedule amounts also are adjusted for former competitive bidding areas using competitive bidding pricing when there is a gap in the DMEPOS CBP.

    Conclusion

    Coverage, coding, and reimbursement pathways for medical devices vary significantly based on the type of device and the setting in which it is used. Manufacturers need to analyze the unique characteristics of their devices, and how and where they are used, to determine how they will be covered and reimbursed and whether new codes are needed for them. In addition, manufacturers may use Medicare’s policies as a benchmark, but should recognize that coverage, coding, and payment may vary across payors.

      Author