June 22, 2020 – The last five years have seen tremendous growth in the number of wearable sensors and, more recently, external therapeutic medical devices. The viability of companies developing these devices often depends on their ability to secure coverage from Medicare and private insurers. This paper outlines the process to secure coding, coverage and reimbursement for new external medical devices.
“Reimbursement” is often used as a blanket term to describe payment for medical devices or physician services. In practice, payment depends on securing three things:
- Coding – The ability to communicate to payors what service was performed or what device was used.
- Coverage – Policies by payors to pay for specific services or devices.
- Reimbursement – The level of payment for a specific service or device.
A code is necessary to receive separate payment for a product, but not sufficient. A code merely communicates what was done or consumed; it is no guarantee of payment. Medicare and private insurers will review published studies to make coverage decisions on new medical technologies. Favorable coverage policies will always define the situations (i.e. patient diagnosis and/or concomitant procedure) that make a new device reasonable and necessary for a given patient. Medicare and large private insurers will publish new coverage policies in periodic bulletins.
Coding does not always precede coverage decisions. With one or more strong publications, a company can sometimes secure favorable coverage policies before a code is created. Such coverage policies can speed the process of code creation.
New medical devices intended for inpatient use will almost always fall under the Diagnosis Related Group (DRG) prospective payment system for inpatient stays. These prospective payment systems pay fixed fees that are intended to cover all expenses in providing specific services. New devices that fit within these economics avoid the need for separate codes and coverage policies. But companies must demonstrate the value of the new device to providers who will not receive extra payment for the device.
External devices intended to be used by patients at home do not fall under prospective payment systems. Companies will often rely on self-payment by patients as the companies pursue coding, coverage and reimbursement. Medicare and private insurers categorize these devices as Durable Medical Equipment (DME). These are coded under the Healthcare Common Procedure Coding System (HCPCS), sometimes also called Level II CPT codes. HCPCS codes cover products, supplies and services not included in traditional Level I CPT codes.
A company developing an external device should first determine whether it falls under an existing HCPCS code and, if so, whether reimbursement under that code is sufficient for the company’s business model. Companies should realize that Medicare reimbursement rates are public information, but that private insurance reimbursement rates, which can be 2X higher or more, are not public.
New HCPCS codes are created by the Centers for Medicare and Medicaid Services (CMS) which oversees Medicare and Medicaid. The CMS HCPCS Workgroup accepts applications twice a year for the creation of new codes, in January and June (four times yearly for biologics). The application is generally limited to 40 pages, and specific questioned must be answered. And while the creation of a new code is not a coverage decision, the Workgroup wants to see strong published evidence that a product is effective before creating a code. Three months after submitting an application, the Workgroup will make a preliminary determination on whether to create a new code and the payment for that code. The company has a right to comment, and six months after submission the new code becomes effective. New products that fail to be awarded new codes can reapply, but the applying company must address whatever reason (e.g. lack of strong published studies) caused the first application to be denied.
Very importantly, this process is much faster than the creation of a new CPT code, which will require a recommendation from a specialty society (such as the American Academy of Orthopedic Surgeons) to the American Medical Association coding committee. The creation of a CPT code can take several years. Like a CPT code, a new HCPCS code requires strong published studies demonstrating the clinical value of a new device in a defined patient population. To the extent possible, these studies should be randomized controlled trials, not merely case series. But if the clinical data support the creation of a code, it is much faster to get a HCPCS code than a traditional CPT code.
The reimbursement levels for many of the devices within existing HCPCS codes reflect pricing in crowded markets. There are many suppliers of wheelchairs, CPAP systems and the like, and the HCPCS reimbursement levels reflect the current pricing in these competitive markets. But as it does in the drug field, CMS has shown a willingness to pay premium prices for novel technologies with well documented efficacy and health economics. The Optune System by Novocure offers a recent example.
The Optune system creates a magnetic field in the brain which slows the progression of glioblastomas, a form of brain cancer with a high mortality rate. In well controlled studies, the device has been shown to improve two year and five year survival rates. Patients shave their head and wear the device for 18 hours a day. For private insurers, the system costs $21,000 per month. Medicare set the monthly payment between $11,251.73 and $13,237.33 for the device when they created DME code E0766. They did this because the data supporting the use of the device, both clinical and economic, are compelling. (Optune.com)
The Technology Commercialization Group (TCG) can help medical device companies navigate the reimbursement process. TCG Partner Nat Bowditch has gotten new codes created and secured favorable coverage policies from national insurers. Engagements often begin as a small project in which the pathway to coding, coverage and reimbursement is created. This can be critical as companies raise money or make decisions on product features. TCG can then manage the process at every step of the way. Email Nat at email@example.com.
Advising Life Science Companies for Growth
Founded in 1998, TCG is an international business consulting firm serving medical device, imaging, diagnostic, digital health and health IT companies from its offices in the USA (Research Triangle Park, North Carolina, San Francisco and San Diego, California) and Europe (Heidelberg, Germany). TCG assists its clients to accelerate their journey to success by providing strategic advisory services across many critical needs: market entry, key opinion leader engagement, product launch, business development, reimbursement and regulatory pathway assessment, distribution channel development, and improving organizational effectiveness. We expand our clients’ reach and company resources by finding new partners and financing sources. We help build new organizations and teams to execute on new opportunities. Our goal is to power our clients’ growth and long-term success.