Reimbursement Strategies for New Technologies

A Whitepaper by Dr. Nancy J Stark and Dr. Vincent Jaeger

Reimbursement strategies
A reimbursement strategy is a plan for: 1) working in clinical research to design studies that show "medical benefit" and "added value" to secure coverage; 2) identifying codes for new technologies (i.e., drugs, medical devices, medical and surgical procedures and services); 3) working with the FDA to phrase the intended use and indications for use to fit coverage and coding; and 4) presenting the clinical trial data to the Centers for Medicare and Medicaid Services (CMS) for reimbursement approval. Ideally, reimbursement strategies must be part of the early-on process of development for every new technology. Unfortunately, most manufacturers wait until they launch their product or are faced with resistance from Medicare before they begin to formulate a pathway toward reimbursement.

Reimbursement is the primary driver to profitability of a new technology in that it assures the all-important revenue stream that keeps a company viable. Medicare, by far the largest third-party payer, is limited by the Social Security Act to only cover technologies that are "reasonable and necessary" for diagnosis or treatment of diseases, conditions or injuries. (1 Social Security Act) In this whitepaper, Dr. Vincent Jaeger and I will review only the Medicare reimbursement process with the understanding that, because of its size and influence, private payers will usually adopt the same or similar coverage, coding and payment policies.

The challenge of new 510(k)'d technologies
Isn't it interesting that one of FDA's missions is to foster medical device innovation, (2 FDA & Innovation) but CMS has no parallel mission to reimburse it? Approximately 5000 510(k)s are cleared by the FDA each year, and most of these represent incremental improvements to medical devices and other technologies already on the market. Medicare’s bundled payment systems, i.e., diagnosis-related groups (DRGs) for inpatient care and ambulatory payment categories (APCs) for outpatient services, allow payment for incremental improvements without additional clinical evidence. Most 'new' technologies fall into the bundled payment system and do not face a full reimbursement challenge.

 

Although it is often possible to make a substantially equivalent argument to the FDA and gain 510(k) clearance to market a new technology, the technology may not meet Medicare's bundled-payment requirements or qualify for reimbursement. Some start-up manufacturers don't realize that it can take 3-4 times as long or more to gain CMS coverage as it took to get 510(k) clearance and that approaching the necessary activities to gain reimbursement in a sequential manner will unquestionably add to the overall timeline. The most serious obstacle facing manufacturers is not gaining FDA approval, but securing a positive reimbursement decision by Medicare.

Reimbursement decision process
The term reimbursement is used to describe activities related to the mechanisms by which patients have access to medical technologies through their health insurance payer. The elements necessary for reimbursement are: [1] coverage; [2] coding; and [3] payment. (3 Innovators' Guide) It is most important that a strategic plan is begun early in product development to ensure a positive coverage and reimbursement outcome. It is imperative to develop parallel regulatory, clinical and reimbursement paths that address the needs of both the FDA and the payers who ultimately control the technology’s marketing destiny through their policy-making decisions. Hospitals and physicians may use the device, but public and private payers reimburse and they set the rules.

 

Coverage
Coverage refers to the terms and conditions under which Medicare and private payers will (or will not) provide payment for drugs, services, procedures and medical devices. Coverage is the first, and unquestionably the most important, component of the reimbursement process. The decision for or against coverage of a new technology is directly related to the presence of valid scientific evidence from well-designed comparative clinical trials published in the peer-reviewed medical literature. The evidence must support the medical device’s effectiveness in substantially improving health outcomes over existing technologies. Over the last twenty years a system for ranking the quality of evidence has been developed and is known as evidence-based medicine. (4 Jaeger) Randomized, blinded, controlled clinical trials designed to overcome the many possible sources of bias rank as the highest quality of evidence. Testimonials rank as the lowest quality of evidence. (5 Evidence)

In May 2000 Medicare published a Notice of Intent (NOI) proposing a set of criteria to be used for determining which items and services are reasonable and necessary and therefore eligible for coverage. (6 NOI) The NOI proposed that technologies must demonstrate "medical benefit" as well as "added value." But just how medical benefit and added value should be measured remains controversial.

.....Registry studies
Randomized controlled trials (RTCs) for new technologies are sometimes difficult to conduct because physicians, surgeons, interventionists and patients are often reluctant to compare the new technology to an existing standard of care. And blinding device studies is usually an impossibility.

In these circumstances, registry studies, conducted according to the Agency for Healthcare Quality and Research (AHRQ) "Registries for Evaluating Patient Outcomes: A User's Guide", lend themselves well to comparative studies for commercial medical technologies. (7 Registry User's Guide) (8 Stark) Registry studies have been successfully used by manufacturers to gain CMS coverage. (9 CMRI) A registry study is research carried out in a prospective, observational manner in which subjects with certain shared characteristics are studied, and ongoing and supporting data over time is collected on well-defined outcomes of interest for analysis and reporting. Investigators are instructed to select and use 510(k) cleared devices as they would in their normal practice. The protocol refrains from dictating treatment or follow-up care. The value is that objective, observational data comparing new technologies to other technologies already being used can be gathered. These effectiveness data address benefits, outcomes, complication rates, adverse events, and deficiencies in real practice settings.

Don't be misled, a well-controlled registry study costs about the same as a well-controlled clinical trial. It requires a protocol, case report forms, informed consent, IRB review, monitoring, data collection, data analysis and a final report. The regulatory advantage is that the study is exempt from the Code of Federal Regulations (CFR), Title 21, Part 812 - Investigational Device Exemptions.

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Codes, codes, codes
There is no lack of codes. There are current procedural terminology (CPT) codes used primarily to identify medical and surgical procedures and services performed by physicians and other health care professionals. ICD-9 (International Classification of Diseases, 9th Revision) codes, used in both the inpatient and outpatient settings, convey a patient’s diagnosis(es), and provide the medical justification for the episode of care for which the provider is filing a claim. There are ICD-9 procedure codes primarily used by hospitals to identify and define procedures performed during an inpatient stay. Codes for diagnosis related groups (DRGs) are a classification system developed by Medicare as part of the prospective payment system for inpatient care. There are T-codes for emerging technologies, as well as nondescript codes (-99 codes) to identify new medical technologies until a specific code is assigned. Healthcare Common Procedure Coding System (HCPCS) codes are intended to report supplies, medical equipment and services that are regularly billed by suppliers, not physicians. (10-Clark) ICD-10 will add a new complexity to the mix in 2013.

In other words, code sets have been created to accurately describe and convey information between the various providers of healthcare and payers about medical diagnoses, procedures, products and services rendered to patients. These codes, when placed on a claim form, operationally link coverage to payment. When seeking reimbursement, it is better for the manufacturer to have an existing CPT code that adequately describes the procedure which is recognized by payers as valid for payment levels acceptable to physicians.

  

No Codes?
If there is no existing code which adequately describes the new medical technology, application for creation of a new code must be made to the appropriate committees within CMS and the American Medical Association (AMA): ICD-9 diagnosis codes to CMS, CPT procedural codes to the AMA, and HCPCS codes to CMS. New code applications are received on strict deadlines and take a long time for approval, which certainly is a major factor in the long delay for reimbursement approval by Medicare.

....Step 1—CPT
The first step in obtaining codes is to apply to the American Medical Association (AMA) for a CPT code. The AMA first developed and published CPT in 1966. The first edition helped encourage the use of standard terms and descriptors to document procedures in the medical record, helped communicate accurate information on procedures and services to agencies concerned with insurance claims, provided the basis for a computer oriented system to evaluate operative procedures, and contributed basic information for actuarial and statistical purposes. (11 AMA & CPT codes)

 

To ensure that physician services across all specialties are well-represented, the AMA established the Relative Value Scale Update Committee (RUC). Annually, the RUC makes recommendations regarding new and revised physician services which are then accepted, rejected or modified by CMS. As such, the RUC significantly influences the relative value units (RVUs) of CPT codes and, as a result, how much physicians are paid. The impact of the RUC becomes even more important when one considers that Medicaid and private payers tie their fee schedules to Medicare's.

The first step in obtaining a new CPT code is to make application to the AMA, specifically, to the Department of CPT Editorial Research and Development. The AMA staff reviews all applications to evaluate their coding suggestions. If they determine that the request is a new issue, or significantly new information is received on an item that the CPT Editorial Panel reviewed previously, the request is referred to appropriate members of the CPT Advisory Committee. If the advisors concur that a new CPT code should be added or a change should be made to an existing CPT code, the application is approved. If two or more advisors disagree, the issue is referred back to the CPT Editorial Panel for resolution. The Panel meets three times each year, evaluates approximately 350 new technologies and deletes those procedures that are outmoded.

....Step 2—ICD-9-CM
The second step is to apply to the Coordination & Maintenance Committee at CMS for an ICD-9 code. (12 ICD-9) This Committee provides a public forum where thoughts and comments are given; however, no decisions are made. All final decisions are made by the Director of the CDC’s National Center for Health Statistics (NCHS) and the CMS Administrator. Tentative agendas for the scheduled meetings are usually posted one month in advance.

Applicants can make presentations at these meetings, describing the clinical issues of their products. The participants at the meeting are encouraged to ask questions concerning the clinical and coding issues and to offer recommendations to those applicants requesting a change. Recommendations concerning proposed code revisions can be made either at the meeting or in writing before the end of the comment period. Final decisions on code revisions are made through a clearance process within the Department of Health and Human Services.

....Step 3—HCPCS
HCPCS is a standardized coding system that is used primarily to identify services (such as ambulance services) and durable medical equipment (DME), prosthetics, orthotics, and supplies (DMEPOS). These codes are primarily used by medical suppliers, so they are typically not costs that get passed through a physician's office. HCPCS coding is intended to be used to identify DMEPOS and formulate fee schedules in a consistent manner for billing purposes. "Level III" HCPCS codes refer to Medicaid and other state and local codes.

The preliminary step in the process for recommending a modification to the HCPCS coding system for DMEPOS is to contact the Statistical Analysis Durable Medical Equipment Regional Contractor (SADMERC). (13 Level II) CMS contracts with SADMERC to provide assistance to the public in determining whether or not a HCPCS code exists which describes the new product. If none is found, an application form for a new code, a cover letter outlining the new code request and a brief summary of why the code is needed should be submitted to CMS, together with the FDA letter confirming 510(k) approval, data supporting clinical effectiveness, and product brochures and/or booklets. Samples of the device can be included with the application. Once the application is received, the product is placed on an agenda and reviewed by a panel whose membership includes representatives of Medicare, Medicaid, and private insurers. These informal, public meetings permit interested parties to make oral presentations or to comment in writing regarding the coding issues.

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Vincent Jaeger, MD, a proven expert in reimbursement strategy, has 15 years experience in evaluating new medical technologies for Aetna, Health Net, and Connecticut Health Network. Dr. Jaeger’s considerable experience on the payer side now qualifies him to offer his advanced skills and knowledge to the medical technology industry to ensure a positive coverage and reimbursement outcome. No matter where you are in the developmental cycle of your new technology, Dr. Jaeger can help you create a reimbursement strategy which will ensure commercial success of your product and generation of the all-important revenues you need to keep your company viable. Phone or email us at 773-489-5721 or [email protected].

Council on Technology and Innovation
The Council on Technology and Innovation (CTI) at the Centers for Medicare & Medicaid Services (CMS) oversees the agency's cross-cutting priority on coordinating coverage, coding and payment processes to enable CMS to more efficiently identify high value technologies and services that will improve healthcare quality and the lives of Medicare beneficiaries. (14 CTI) CTI is developing the capacity to better prepare for new kinds of medical innovations. The agency recently issued a revised guidance on Coverage with Evidence Development (CED). (15 CED)

Payment
Payment refers to the amount of monetary compensation provided to the physician and other healthcare professionals who use the new technology. It is important to realize that Medicare pays for the procedure associated with a medical device, not for the device itself. Medicare’s inpatient and outpatient prospective payment systems include provisions designed to provide an extra payment amount for certain new technologies. To merit such additional payment, the new technology generally must represent a substantial clinical improvement relative to existing technologies and meet specific cost thresholds. (16 Innovator's Guide)

Conclusion
FDA approval, clinical trial outcomes data, the presence of appropriate coding and payment levels are vital for reimbursement of new technologies. The quantity and quality of the outcomes data arrived at by randomized controlled trials (RCT) or an observational, well-controlled registry study will dictate the decision for or against reimbursement. Products with explicit reimbursement pathways to increase revenue are more likely to be used by providers than products with limited or no coverage. As improper coding is often the cause of Medicare’s delayed or denied payments to providers, manufacturers must make certain that an identifying code is clearly available for placement on the insurance claim form. The somewhat long and drawn out timeframe for coverage can be reduced if a thoughtful reimbursement strategy is implemented at the earliest stages in product development.

References
(1 Social Security Act) Title XVIII, The Social Security Act of 1965, sec. 1862(a)(1)(A).
(2 FDA & Innovation) http://www.fda.gov/downloads/MedicalDevices/NewsEvents/WorkshopsConferences/UCM192268.pdf.
(3 Innovators' Guide) https://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.
(4 Jaeger) Cost Effective Analysis and Medical Device Utilization (Nov 2009).
(5 Evidence) http://en.wikipedia.org/wiki/Evidence-based_medicine.
(6 NOI) Federal Register 65, no. 95 (16 May 2000): Proposed Rules, 31124–31129.
(7 Registry User's Guide) http://www.effectivehealthcare.ahrq.gov/repFiles/PatOutcomes.pdf.
(8 Stark) Registry Studies for Medical Devices - Workshop (Mar 2010)
(9 CMRI) https://www.cms.gov/medicare-coverage-database/details/nca-proposed-decision-memo.aspx?NCAId=228&ver=16&NcaName=Magnetic+Resonance+Imaging+(MRI)&bc=gQAAAAAAIAAA&.
(10 Clark) Device Case Studies for Reimbursement Codes (Nov 2008).
(11 AMA & CPT Codes) http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/cpt/cpt-process-faq/code-becomes-cpt.page.
(12 ICD-9) https://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp
(13 Level II) https://www.cms.gov/MedHCPCSGenInfo/Downloads/2012HCPCSApplication.pdf
(14 CTI) https://www.cms.gov/CouncilonTechInnov/01_overview.asp
(15 CED) http://www.cms.gov/coverage/download/guidanceced.pdf
(16 Innovator's Guide) https://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf

Best Regards,
Nancy J Stark, PhD
President, Clinical Device Group Inc