Reimbursement Roadmap

Reimbursement, Coverage and Coding: A Practical Overview for Successful Device Strategies

 

Steven K. Stranne, M.D., J.D.
Polsinelli Shughart PC

This article is the first in a series examining strategic considerations for developing strategies to secure fair and adequate reimbursement, coverage and coding policies for medical devices and products. These three fundamental elements are intimately intertwined—in many instances a successful commercial outcome for a device or product depends on achieving success on all three fronts. The keys to success often involve careful preparation and effective advocacy with key decision makers.

As this series of columns evolves, different topics will be explored in depth. To kick things off, however, a primer is offered to establish some background and basics.

The term “reimbursement” refers to the payment levels that health insurance programs pay to healthcare providers for a device, item or service. In some instances, the payment for a medical device or item is paid separately from other items or services. However, in many other instances, the payment for a medical device is bundled with the payment for a medical procedure or some other medical services. For obvious reasons, the adequacy of the applicable reimbursement level is critical to commercial success. Reimbursement rates may differ based on whether the provider is participating in a network created by the insurer, the setting of care (e.g., physician office, hospital, etc.) and the geographic location.

The reimbursement levels adopted by health insurers may be related to the pricing established by manufacturers for their products. We use the term “pricing” to distinguish the payment levels charged by manufacturers to distributors and healthcare providers from the reimbursement levels paid by health insurers. In an environment that increasingly focuses on healthcare costs and cost-effectiveness, a company’s pricing strategy must consider potential impacts on reimbursement and coverage. For example, higher pricing may attract closer and sometimes unwanted scrutiny by health insurers with respect to reimbursement, coverage and coding used for a particular medical product.

The term “coverage” refers to the policies adopted by health insurance programs defining whether and under what circumstances that a health insurance plan deems a medical intervention to be coverable. In many instances, coverage policies are tied to a determination about whether a medical intervention is medically necessary based on the existing clinical literature or prevailing standard of clinical practice.

The term “coding” refers to the categories used to define items and services. Common sets of codes include the diagnosis-related group (most commonly called “DRGs”) system used in the hospital inpatient setting, the current procedural terminology (CPT) established by the American Medical Association for the physician office setting and the alpha-numeric Healthcare Common Procedure Coding System, or HCPCS, codes used for durable medical equipment, orthotics, prosthetics, surgical dressings and some services.

The presence or absence of an appropriate code, as well as the scope of such codes, can have a significant impact on the market for a specific product. For example, a code that includes a wide range of products that vary dramatically in cost could create financial pressures that favor less-expensive products.

The Roles of Medicare, CMS and Congress

Historically, the policies adopted by the Medicare program have been viewed as playing a critical role in determining the commercial success for medical devices and products. This is in part due to the fact that Medicare is a very large program covering more than 40 million beneficiaries in the U.S. marketplace. However, the influence of Medicare’s policies extends well beyond its patient population.
Both public and private health insurers often rely on the coverage policies, reimbursement levels and coding used by Medicare as the starting point for establishing their own policies. Of course, there are important exceptions. For products that target pediatric populations, for example, there are instances in which Medicare policies are either irrelevant or less important in influencing the policies adopted throughout the healthcare system.

As a result of the important roles played by Medicare policies, decision makers associated with the Medicare program become important targets for educational and advocacy efforts of medical device and product manufacturers. For example, this includes physicians who work on these issues at the Centers for Medicare & Medicaid Services (CMS) and the companies that work for CMS as Medicare contractors. This also includes members of Congress. There is a significant track record in which Congress has micromanaged a number of issues related to such Medicare policies.

An Initial Checklist of Trends in Reimbursement Strategies

The challenges associated with developing strategies for new and existing medical technologies in this arena are complicated by the ongoing changes in a number of important areas. These ongoing trends, which will be addressed in greater detail in this column during the the upcoming months, include the following:

National coverage determinations and local coverage determinations. The Medicare program relies on a system for developing coverage policies that relies on both national determinations arising from the CMS central office and local determinations arising from individual Medicare contractors. At the national level, the issue may be reviewed by an advisory panel called the MedCAC as part of a public meeting. MedCAC evaluations typically involve a “technology assessment” performed on behalf of the Agency for Healthcare Research and Quality.

Coverage with evidence development. Under the Medicare program, CMS has started using a form of temporary coverage called “coverage with evidence development.” Under this model, CMS agrees to cover a new technology subject to the collection of clinical data in a registry. This enables CMS to review the data in the future and to revise its coverage policies based on the results of the data collected by the clinical registry, as well as any other clinical data that becomes available in the interim period.

Comparative effectiveness research. Comparative effectiveness research refers tostudies that examine head-to-head comparisons between two or more clinical interventions. There is nothing new about such studies. However, significant changes are occurring because the federal government is pouring funding into these studies and the health information technology infrastructure necessary to conduct these analyses. Although the Medicare program may be limited in its ability to use comparative effectiveness research in decision making, there is no doubt that the focus on comparative effectiveness research has helped spur an ongoing change in the way health insurers evaluate clinical literature.

Designing medical studies for multiple audiences. Manufactures are faced with a changing environment with respect to the studies that may be necessary to secure clearance from the U.S. Food and Drug Administration (FDA). At the same time, manufacturers are faced with an evolving environment with respect to the studies required to secure favorable decisions from CMS on issues of coverage. Nonetheless, one constant is that the FDA and CMS are looking for different elements in their respective reviews of the clinical literature for a new technology. This highlights the need for careful planning when establishing a research strategy that efficiently addresses FDA, CMS and marketing considerations.

Performance measures. The Medicare program and private payers are increasing their efforts to use performance measures to evaluate the quality of care provided by hospitals, physicians and other providers. Given the ongoing development of clinical performance measures and the adoption of health information technologies that may facilitate reporting, this trend will continue. This may create opportunities for medical device companies that can demonstrate the ability to assist providers in scoring well on such measures.

Competitive bidding, least-costly alternative and inherent reasonableness. With limited success to date, the Medicare program has attempted to use a number of different authorities to reduce the payment rates for items that are separately paid under the Medicare program, including durable medical equipment. These efforts include the delayed competitive bidding program, Medicare’s least-costly alternative authority (which currently is tied up in the courts) and Medicare’s inherent reasonableness authority.

Special interim reimbursement policies for new technologies. In both inpatient and outpatient hospital settings, the Medicare program has special policies that provide reimbursement protection opportunities for new technologies. One example is the pass-through status that may be granted to new drugs or devices under Medicare’s hospital outpatient prospective payment system. In practice, qualifying for these programs requires careful upfront planning. In the inpatient setting, CMS has been particularly restrictive in approving new technologies for such status.

Fraud, abuse and waste. The federal government wields the laws governing fraud, abuse and waste as a significant tool to help control healthcare costs. The rules governing this area often are counter-intuitive and continually changing. These rules govern such areas as the discounts that manufacturers may provide to customers and the relationships that manufacturers establish with physicians who help design, market or use their products. As such, compliance activities must remain an ongoing focus for all manufacturers of medical devices and products.

The months, years and decades to come will be both challenging and exciting as the healthcare system continues to evolve. This series of articles will address the issues described above in the context of this ongoing evolution, providing a practical framework for business planning and strategic decision making.

Steven Stranne, M.D., J.D., is a partner at the law firm of Polsinelli Shughart PC. He has provided guidance and advocacy on reimbursement, coverage and coding strategies over the past 15 years for the medical device, durable medical equipment and orthotics industries. Stranne holds a BSE in mechanical engineering and a medical degree from Duke University, as well as a law degree from Harvard Law School. He can be reached at [email protected] or (202) 626-8313.