Getting FDA approval, a base hit. Getting reimbursement, that’s the ball game.
By Elise Wilfinger
Bringing any new medical product or service to market is quite difficult. Bringing a new or emerging healthcare technology to market is that much more complicated, with an end-to-end commercialization process that includes robust research and development, clinical trials, data collection and analysis, the regulatory pathway and reimbursement.
It is predominantly believed that navigating this circuitous and challenging road for innovative medical technologies and receiving FDA approval are the biggest drivers of commercial success. Yet, this is not the case. FDA approval does not guarantee commercial success, primarily because it does not guarantee that payers will cover the technology nor at the desired amount of reimbursement.
Government payers, like Medicare, and commercial payers, like United Healthcare or Aetna, establish their own rules for reimbursement for every given service or technology. The coverage determination has direct bearing on its reimbursement, meaning that the technology must provide both a clear medical benefit and more value (“reasonable and necessary”) vs. the current standard of care.
With both a strategic view and hands-on experience, our blog’s featured guest, Brian Carey, Co-Chair of the Life Sciences Coverage & Payment Group at law firm, Foley Hoag, provides a mini primer on reimbursement, a perspective on what innovators face, and an interesting lens from which to view policies to date.
Brian advises a wide range of life sciences companies and health care providers on federal legal, regulatory and legislative policy matters impacting the commercialization of novel technologies. He brings deep experience with biopharma and medical technology companies on Medicare coverage and payment and FDA approval challenges for innovative technologies.
Mr. Carey also regularly advocates on behalf of technology developers and medical trade associations before the U.S. Congress, U.S. Department of Health and Human Services, and federal agencies.
“All coverage decisions…
are not the same.”
– Mr. Carey
Let’s start with the general framework for healthcare reimbursement and how it varies from Medicare to private commercial payers?
Generally, “reimbursement” is used as an umbrella term to include three key elements: coding, coverage and payment. For any new, innovative technology, these are the criteria which need to be met to receive payment, whether it’s for Medicare, Medicaid or a commercial payer.
- Coding is a unique identifier assigned to identify the particular technology so that it can be billed on a claim form and paid by a payer.
- Coverage is the process to determine the clinical evidence supporting medical necessity and it establishes criteria for which patients are eligible to receive the technology.
- Payment is the methodology for determining the payment amount for a new technology.
Although the criteria are the same, decisions can be very different based on payer type: Medicare or commercial. Decisions can also differ by the setting of the care: the doctor’s office, or as an outpatient at a hospital, or as an inpatient at a hospital or if the patient is receiving home care.
“…we’re most interested in knowing whether the technology
is going to be separately payable.”
– Mr. Carey
Further, when assessing reimbursement for early stage companies or for larger companies that are acquiring novel technologies, a key question is whether the technology will be separately payable.
Drugs or biologics, medical devices, and molecular diagnostics may receive payment for the technology separate from any other procedures that the patient undergoes. Receiving separate payment helps facilitate adoption and utilization. However, if the technology is used for an inpatient hospital stay, for example, there’s only one bundled payment for the entire hospital admission. In these instances, reimbursement can substantially impact utilization and hospitals must be convinced that the technology:
- significantly improves quality of care
- lowers overall cost
- reduces complications
- enables shorter lengths of stay
“Medicare will often use external validation
as a proxy for a decision on coverage.”
– Mr. Carey
Can you provide any insights as to how Medicare decides to cover certain technologies or services but not others?
Medicare is a defined benefits program which relies on statutory basis (definition: established standards and requirements and limitations) for providing coverage for anything from a physician office visit or a hospital stay to a skilled nursing home service.
When you look beyond traditional physician services to novel technologies, some are covered by statute while others are not. For example, physician-administered drugs tend to be a category of services covered, where screening technologies may not be. A new, genetic, diagnostic test that screens for early cancer would not necessarily be covered; a statutory basis may need to be established first.
Every technology has to go through a clinical evidence assessment to see if it is a ‘medical necessity.’ In many cases, Medicare will use external validation as a proxy for whether or not something should be covered. If a technology is approved by the FDA or is included in NCCN (National Comprehensive Cancer Network) guidelines, Medicare may defer to those entities and provide coverage.
“The vast majority of Medicare policies
are set at the local level.”
– Mr. Carey
What’s the difference between National Coverage Determination (NCD) and Local Coverage Determination (LCD) from Medicare?
Medicare coverage is provided for those services deemed reasonable and necessary for the diagnosis or treatment of an illness or injury.
- National coverage determinations (NCDs) are made through an evidence-based review process and are nationwide decisions of whether Medicare will pay for an item or service. Once an NCD is published, its coverage guidelines – what it grants, limits or excludes – is applicable for all Medicare beneficiaries across the country.
- If the service is not covered at the national level, it may be covered by Medicare contractors at the local level through local coverage determinations (LCDs).
“Together, NCDs and LCDs increase coverage
opportunities for new technologies.”
– Mr. Carey
It’s wonderful that so many new healthcare technologies are being developed. Why are only a handful picked for National Coverage Determination review each year?
Medicare historically processed routine medical claims, for services like doctors’ visits and hospital stays, before many technologies were developed.
Although Medicare is now a trillion dollar program, with far more complex systems for determining payment rates and coverage policies, it does not have the resources to review all new technologies. Accordingly, the vast majority of decisions are made at the local contractor level. These Medicare administrative contractors (MACs or private Medicare insurers, primarily Blue Cross Blue Shield plans) administer the Medicare program on a regional basis, enabling more coverage opportunities.
There are 1000+ Local Coverage Determinations (LCDs) in place. These cover everything from crutches to cataract surgery and from diagnostic colonoscopies to electrocardiograms. Are there standards for what’s covered or is it each region/state on its own?
MACs issue Local Coverage Determinations (LCDs) that establish coverage for a particular item or service in their jurisdictions. This can lead to variation by state.
Back in 2003, Section 731 of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), called for improved standards for evaluating LCDs and greater consistency across regions. More recently in the 21st Century Cures Act, CMS established a new process for LCDs to provide more transparency and public input.
Does coverage change if it’s in one of the new alternative payment models?
Traditional Medicare (and its rules and regulations) was designed for a different time and place: limited technology, only traditional fee-for-service payment models, etc.
A big challenge is for CMS to address today’s changing healthcare needs, working within a somewhat dated framework.
One way that CMS brings new thinking is through CMMI (CMS Innovation Center), where it develops and tests alternative healthcare payment and service delivery models – like Value Based Care – which rewards providers for delivering high-quality and cost-efficient care. Programs can apply to a particular disease condition (e.g., chronic kidney disease), a one-off episode (e.g., hip-replacement) or even a provider type (e.g., PCP).
Deeper dive: the intersection of outcomes-based care and reimbursement
Payers, in particular, have a growing interest in linking reimbursement to outcomes-based care (OBC), especially in the novel technology space. A 2021 Avalere Survey indicated that 56% of payers have executed an outcomes-based contract to date, leaning toward high-touch, therapeutic areas like cardiovascular and endocrinology.
As we’ve explored in our last two blogs, Is their real value in value-based care? and Making Sense of Population Health, Precision Medicine & Value-Based Care with Mount Sinai’s Dr. Arshad Rahim, Value Based Care (a form of OBC) has its merits and challenges. Fundamentally, it’s hard to argue with the notion of paying to maintain health (using the latest technologies) vs paying for episodic services and procedures when a patient is ill.
I’d like to now explore the relationship between the FDA and payer reimbursement. Let’s start with the FDA’s Breakthrough Device Designation (BDD) program and whether it has changed the face of reimbursement.
In 2016, the FDA launched the BDD program to speed the development and review of potentially life-saving medical devices to make them available to patients faster. The intent was to identify those devices that could provide more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions vs. the current standard of care. It also allowed innovators of such technologies to interact with the FDA much more readily, co-design clinical studies, classify their products as ‘novel’ and presumably, ease the pathway forward for both FDA approval and reimbursement.
“The FDA is clearly assigning more resources
to the review of innovative medical technologies.”
– Mr. Carey
Has the BDD program been a success?
BDD is an important recognition for companies and their innovative accomplishments in their category of services. And while the FDA’s Center for Devices and Radiological Health (CDRH) only granted BDD status to 617 since its inception in 2015, 33% of those occurred in 2021. The FDA is clearly assigning more focus to this area of innovative medical technologies.
Deeper dive: CDRH also reviewed and authorized over 300 devices with artificial intelligence/machine learning across many different fields. More than 50 were authorized in 2021.
Some Breakthrough Device critics continue to raise questions about whether these technologies will be ‘proven’ to be ‘actual breakthroughs’ once more data is collected and analyzed.
As we’ve discussed, there’s been bipartisan support for expediting coverage of novel healthcare innovations. In your opinion, when might we finally have a robust law in place?
Expediting the review of new technologies that address life threatening and/or irreversibly debilitating diseases is very important work. And many, on both sides of the aisle, have tried to push through legislation to support such an endeavor.
First, in 2015, the FDA established the Expedited Access Pathway (EAP) program, intended to help ‘assure predictable, efficient, transparent and timely device assessment and review.’
Deeper dive: key qualifications for acceptance into the EAP program included:
- The device must be able to treat or diagnose a life-threatening or irreversibly debilitating disease
- The device should meet an unmet medical need, particularly by comparing the device to other treatment options available on the US market
- The manufacturer must have a data development plan to be included in future submissions to the FDA
In late 2016, President Obama signed into law the 21st Century Cures Act (Cures) which Congress also passed with strong bipartisan support. Among other things, Cures increased mechanisms for the FDA to expedite approval of novel drugs and devices and provided new incentives for developing such products.
Side note: The Cures Act authorized $500 million over 9 years to help FDA cover the cost of implementing the law. Many believed that it was a ‘drop in the bucket.’
In 2020, the Trump administration proposed a new Medicare coverage pathway, the Medicare Coverage of Innovative Technology (MCIT), for FDA-designated breakthrough medical devices. The MCIT proposal was intended to provide national Medicare coverage on the same day as the FDA marketing authorization for breakthrough devices and coverage would last for four years. The coverage would provide beneficiaries nationwide, predictable access to new, breakthrough devices to help improve health outcomes.
At the end of 2021, the Biden Administration repealed the MCIT rule before it was implemented citing concerns that these novel technologies may not have had the adequate evidence for the Medicare population in particular, a population that suffers with many conditions and co-morbidities.
In 2022, following the backlash associated with the MCIT repeal, the Biden Administration announced plans for a new policy called TCET (Transitional Coverage for Emerging Technologies). Although its details have not been released, speculation is that it will not be based solely on the FDA’s Breakthrough Device Designation. Rather, it will be a voluntary program (if you want to be considered for TCET, a manufacturer will need to apply and agree to participate in the process as it’s outlined), and it will include data collection requirements.
TCET is slowly working its way through the regulatory process. I’m still hopeful that a new proposal will be released in 2022 and could be implemented in early 2023.
In your opinion, should MCIT have been repealed?
No. I personally worked with a number of companies that strongly supported an MCIT-like model over the past decade. Many stakeholders believed that the Center of Medicare & Medicaid Services (CMS) had sufficient authority and the process in place to work with select innovators on a voluntary basis to collect the real-world evidence required.
So, was the repeal politically motivated?
Some people speculate that the incoming Biden Administration didn’t want to finalize a Trump administration policy, so they walked away from MCIT. This was an interesting decision because, at its core, the ‘MCIT’ concept dated back to the Obama administration.
“The rule of thumb is to establish
Medicare Advantage coverage first.”
– Mr. Carey
We’ve spoken a lot about Medicare and government plans. Do new technologies run into the same reimbursement challenges with private payers?
Yes, understand that private payers have many more lines of business than the government. Commercial payers have:
- Their commercial business
- Their commercial Medicare Advantage business
- Their commerical Medicaid business
- Their self-insured plans where they become the third-party administrators for large employers
Policies often vary between the lines of business because they can be quite siloed with different rules. There are times that we partner with a new technology company and they may be getting paid by United Health Care, for example, through its Medicare Advantage line but not through its commercial line or Medicaid program. The rule of thumb is to establish Medicare Advantage coverage first and then try to extend into commercial and Medicaid, since commercial insurers typically follow the framework established by CMS, even using the same billing codes and similar payment methodologies.
In addition to potential differences in coverage, these insurers also approach pricing negotiation differently. With commercial plans, contract negotiation exists. With Medicare, there is almost no negotiation, as everything is set by formula. Medicare is very concerned about perceptions that one provider may be getting paid differently than another.
“Yes, that’s often referred to as the ‘Valley of Death’….”
– Mr. Carey
Is it possible that an innovator can make it through the FDA and then not get reimbursed?
Yes, and unfortunately it happens to many technologies. What’s more typical is that the company makes it through the FDA, has invested a lot of money to develop and commercialize its technology and then experiences a significant delay in getting coverage/substantive payment.
That gap in time, from approval to payment, could last several years for some services (diagnostics, for example). Hence, it’s often referred to as the ‘Valley of Death.’
“The hope: Congress will pass legislation to expedite novel technologies to market. Payers will be ready to pay for them.”
– Mr. Carey
The lag between FDA Breakthrough Device Designation, FDA marketing authorization or approval, and the coverage of such devices by payers, including Medicare and private insurers, is not a new concern. It is largely driven by the amount of evidence required by a payer to justify a device’s use in a particular population, going beyond what is even required by the FDA in showing “safety and efficacy.”
Coverage delays and inadequate payment are disproportionately felt by new and emerging medical technologies that do not fit within any existing payment schema. Further, in many cases, CMS and private insurers make different decisions regarding coverage, making it difficult for innovators to see a path forward for the commercialization of new technologies.
Although it has been quite a long journey, the 21st century will be an era of tremendous medical innovation and advancing new cures, treatments and technologies. The hope is that the government will advance policies to keep pace with innovation and to expedite novel medical technologies to market, and insurers will make these “breakthroughs” accessible to more patients in need, driving better outcomes.
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