From “Approved” To “Covered

What Medical Device Companies Need to Know

The path to medical device commercialization in the U.S. is long and complex with many hurdles. The two most significant challenges are obtaining FDA approval and positive coverage decisions from payers. The most important players in these coverage decisions are Medicare and large commercial insurers, such as Aetna, Anthem, Cigna, Humana, and United Healthcare. Although FDA approval usually precedes reimbursement decisions, companies are advised to formulate strategies for both in tandem, and then synchronize them with clinical studies, and marketing plans to maximize the potential for commercial success.

To develop a successful reimbursement strategy, it is vital that medical device companies:

1. are fluent in the language of medical billing (i.e., the various medical coding systems;
2. understand payers’ considerations when issuing a new coverage policy or modifying an existing one;
3. are aware of the relevant stakeholders, as well as their needs and expectations

Physicians bill for the procedures they perform and are paid differently depending on whether they performed the procedure in a facility setting (e.g., hospital) or a non-facility setting (e.g., office or clinic). Facility rates for physicians generally are lower than non-facility, since the facility provides support and infrastructure for the service bills, and separately for the procedure, while physician offices or clinics cover all costs associated with the procedure. Hospitals receive a single bundled payment (DRG payment based on diagnosis) that covers all costs (except physician services) associated with an individual’s inpatient care, regardless of how many procedures were performed. Outpatient facilities receive different payment depending on whether they are considered outpatient hospital centers (APC) or stand-alone ambulatory surgical centers (ASCs).

The existence of a billing code, such as a Level I CPT code, does not guarantee that payers will provide payment for the procedure, nor does it ensure that they will cover every FDA-approved device for that indication. When a new procedure billing code is established, insurers base coverage decisions on a myriad of factors, including independent health technology assessments and scientific evidence supporting the intervention, peer-reviewed published clinical data, real-world evidence of clinical efficacy (outside a clinical trial environment), and practice guidelines published by relevant professional specialty societies.

Most companies initially attempt to obtain coverage from CMS, in part because it covers all adults age 65 and over in the U.S., but also because commercial insurers frequently follow CMS’s lead when it comes to coverage decisions. Rather than try to obtain coverage from the hundreds of U.S. commercial insurers, companies are advised to initially target a small number of payers with the highest membership, based on their receptiveness to new medical technologies, and the stringency of their review policies. You then can gradually expand to other payers as adoption increases.

Non-covered devices or procedures often are deemed “investigational,” which typically means that the payer has determined it lacks enough evidence to justify the product’s use. The scope of clinical evidence required by payers often exceeds FDA requirements, which focus on the device’s safety and efficacy. Companies should formulate regulatory and reimbursement strategies in tandem, to ensure that clinical studies are designed with both end goals in mind.
In many situations, a new technology is billable under existing codes, but the associated payment will not adequately cover costs associated with the technology’s use; consequently, hospitals and providers may be unwilling to adopt it. To overcome this, companies may seek to establish a new billing HCPCS or CPT code that provides higher reimbursement and work with providers to request additional coverage under existing codes.

Companies also can apply for a category III (temporary) code while they await issuance of a category I CPT code for their new medical technology or procedure. This provision allows companies to build a history of widespread usage with the AMA that will support establishment of a CPT I code. However, no set payment fee will be established, and it can take years to transition to a category I code. Furthermore, companies run the risk that their device or procedure will be labelled experimental, potentially disqualifying it from coverage by some payers. Alternatively, companies can use a miscellaneous CPT code while they wait for a category I code. Miscellaneous codes provide a mechanism for providers to submit claims for a service or item as soon as it is FDA-approved. Miscellaneous codes exist for most organs or body systems (e.g. CPT 38999 – Unlisted procedure, hemic or lymphatic system). When a miscellaneous code is used, the healthcare provider must provide additional documentation justifying use of the device as part of their attempt to obtain coverage. This typically involves writing a lengthy procedure note describing the patient’s medical condition, the procedure itself, a list of all supplies used, rationale for using the new procedure or technology, and supporting clinical data. Payers then decide whether to provide any coverage for the procedure.