Jori Frahler10.20.06
New Chief Leads CMS Into 2007
Jori Frahler, JD
With the arrival of fall, especially during an election year, Washington braces itself for the inevitable changes that tend occur. Three years ago, after the passage of the Medicare Modernization Act (MMA), the Centers for Medicare and Medicaid Services (CMS) Administrator at the time, Tom Scully, stepped down from the top post. This year, the talk in Washington is about a different retiring CMS administrator—Mark McClellan.
After successfully spearheading the implementation of the Medicare prescription drug plan, McClellan announced in September that he would be leaving the CMS, an agency he led for two-and-a-half years. McClellan, a medical doctor and economist, guided the most significant reforms to the Medicare program since the program’s inception. His legacy will not only include the practical changes he made by enabling millions of seniors to receive affordable prescription drugs, but also the more theoretical changes that include using competition and transparency in the healthcare system to drive down costs. This notion of a market-driven healthcare system also is shared by his successor, Leslie Norwalk, former deputy administrator of the agency, who took over on Oct. 15.
Acting Administrator Norwalk has served at the CMS in a variety of capacities over the past five years, most recently as the deputy administrator. Not only did she help guide the agency through the changes mandated by the MMA, she also has served as both the acting director for the Center for Beneficiary Choices and the CMS’s chief operating officer and managed operations of the State Children’s Health Insurance Program, as well as the certification of healthcare facilities. In addition, she regularly advises the Secretary of Health and Human Services, Mike Leavitt, on a wide range of issues. Prior to joining the CMS, Norwalk practiced law at the Washington, DC office of Epstein, Becker and Green and served in the White House Office of Presidential Personnel during the administration of President George H.W. Bush.
What Device Issues
Will Norwalk Confront?
While it’s true that a number of CMS resources still will be focused on continuing implementation of Medicare Part D, the prescription drug plan, many other changes are being made at the CMS on the device side—and medical technology companies should pay attention. For instance, this summer, the CMS issued the final rule for the Inpatient Prospective Payment System (IPPS), in which it made the first payment reform changes to the IPPS since 1983. According to the CMS, this is part of an effort to make needed steps toward more accurate payments by moving from charge-based weights to cost-based weights.
Unfortunately for device-dependent diagnosis related groups (DRG), the changes to the payment structure will have the most severe impact on them because of the practice known as charge compression. This compression is the common hospital practice of applying a lower-percentage markup to higher-cost services and a higher-percentage markup to lower-cost services.
Because device-dependent procedures, by nature, are more expensive to perform, they tend to get marked up less by hospitals. Fortunately for the device industry, the final payment reductions for 2007 are not as severe as originally proposed by the CMS. This is because the agency agreed to phase in its cost-based system over a three-year period, and it only implemented a few severity-adjusted DRGs.
Additionally, in an effort to encourage its hospital pricing transparency initiative, the CMS stated that it would conduct a charge compression study to help determine pricing information for medical devices. This could be problematic for the industry, as it often is difficult to identify the true cost of a medical device. Further, it is equally unlikely that hospitals will accurately report such information on their Medicare cost reports.
Another CMS initiative gaining mo-mentum and that should be closely watched is the recently released guidance document on Coverage with Evidence Development (CED). (Editor’s note: Please see “Reimbursement Strategies” on page 22 for more in-depth perspective on this topic.) Initially brought to the public’s attention in April 2005 as a draft guidance, the CMS released a “final” CED guidance document this past July. While promoted by the CMS as an alternative vehicle for procedures to receive coverage that otherwise would be denied coverage, it is still not a coverage mechanism that the device industry has fully embraced.
Rightfully wary, innovative device manufacturers are concerned about CED because it lacks clarity; and the CMS must recognize the importance of predictability in the device development and funding process. By having an unknown variable such as CED at the end of the product development stage that is unpredictable and potentially costly, the agency is prospectively creating a potential market barrier for innovative device manufacturers. The unanswered questions presented by the guidance document and the possible burden of providing increased evidence collection after going through the FDA’s rigorous clinical trials have many device executives leery of the CMS’s actions.
Moving forward, the device industry must continue to urge the CMS to collect, aggregate and disclose research data collected through CED in a manner that minimizes the burden on patients, providers and manufacturers. Further, it is important that innovative device manufacturers highlight the financially disproportionate effect associated with CED and the unintended consequences that could evolve as a result of CMS’s requirement for additional data collection.
Finally, the issue of the International Classification of Diseases 10th Edition (ICD-10) is another item that matters to the device industry and is an issue that the new administrator will have to address. For those medical device companies that are developing new technologies, ICD-10 is a coding issue that they care about. Ensuring that a device-related procedure receives an appropriate code impacts whether a technology maps to an appropriate DRG—and DRGs equate to payment.
Currently, the United States is utilizing a 30-year-old, antiquated coding system (ICD-9), which is rapidly running out of codes. However, there is hope that ICD-10 will provide a more robust and accurate coding system. A transition from ICD-9 to ICD-10 is an issue currently being debated in the halls of the US Congress. Fortunately, the device industry has been an active participant in this debate, and it has put forth an intense advocacy effort to inform policymakers of the merits of and need to move to ICD-10 as soon as possible. Even McClellan had stated at an industry event this summer that the current coding system is “bursting at the seams.”
As legislators reconvene for a lame-duck session in the final months of this year, it is imperative that Congress pass a Health Information Technology bill that keeps the provision mandating the implementation of ICD-10 by October 2010.
In conclusion, many issues are impacting the device industry that Norwalk will have to address as she takes the helm and leads the agency forward in the remaining years of the Bush Administration. The device industry wishes her well, and we look forward to working with her as she continues to labor to improve the US healthcare system.