Understanding Reimbursement for Medical Devices: Coding, Coverage, Payment and Payors
Larry Yost | July 1, 2023 | Blog Post
I am often approached by clients who are looking for answers as to whether their new medical technology will be reimbursed, or as is often the case, how their device can obtain greater reimbursement than older technologies they will be competing with in the marketplace. Many of these individuals also find the whole topic of reimbursement somewhat confusing and have limited familiarity with the terminology and many of the “ins” and “outs” associated with approaching reimbursement for medical devices.
With the above in mind I will be devoting my next two blogs to this subject area. As a disclaimer, these blogs will primarily focus on products intended for the U.S. market. Since each country has its own separate system for covering medical devices, much of the terminology and most of the information outlined in these blogs will not be applicable outside the U.S.
Before I begin discussing my first topic, I would like to emphasize the importance of developing a reimbursment strategy in parallel with the development of the regulatory and clinical strategy for new medical devices. Many companies often wait too long before thinking about the development of a reimbursement strategy for their new medical technology and make critical errors when implementing a regulatory and/or clinical strategy that can negatively impact reimbursement. Many companies also think that just because their technology is new it will automatically be reimbursed (or receive a higher level of reimbursement supporting their intended selling price) only to find out that they have a technology which will receive less than desirable reimbursement or worse yet, not be covered by insurance companies or Medicare. Also, a well planned and executed reimbursement strategy is often measured in years (not months) requiring a series of independent activities to coalesce before achieving a successful conclusion. In other words, start early and insure your management team (or Board of Directors) understands that the process will require both due diligence and patience.
Goals for a Medical Device Reimbursement Strategy
The following are what I consider as the goals for any medical device-related reimbursement strategy:
- Universal coverage from all insurers in all patient care settings
- Unambiguous coding
- Adequate institutional & physician reimbursement
While the above would be ideal for a new medical technology, achieving these goals is not always possible or may take years to accomplish. In order to assess the likelihood of achieving the above, the first step is to understand the important differences between the three pillars of any reimbursement strategy, namely…coverage, coding and payment. In other words….will the use of my new technology be covered by insurance companies, can the use of my product be described by existing codes or will a new code be needed, and will payment (if any) for my product be adequate for providers (e.g. hospitals and physicians) in each setting the product will be used in?
Coding is the link between coverage and payment. Codes are based on a standard alphanumeric language that describes services provided to patients. This “language of insurers” permits automated claims processing and review. Coding provides a standard mechanism for payers and providers to identify diagnoses, medical services, procedures, drugs, devices, laboratory tests, and supplies. The codes are used on claim forms submitted to insurers to enable payers to process and pay claims efficiently. My next blog will go into detail about the alphanumeric language of coding and how it applies to providers in different patient care settings.
Coeverage refers to a payors decision to provide program benefits for a specific product or service. This coverage is usually condition on FDA clearance, the product not deemed experimental or investigational, the use of the product is medical necessary, and the use of the product is appropriate for the patient in the treatment setting. Medicare and private payers institute coverage criteria to ensure appropriate utilization of products and services and to control costs. Limited coverage for a technology or procedure often leads to minimal market uptake while broader coverage allows for optimal market update.
Payment is the transfer of money from payer to provider for the provision of health care services. Payment amounts for procedures or medical devices does not often depend on a manufacturer’s price for a product reflect its perceived clinical value. Importantly, payment mechanisms will vary by setting (e.g. hospital, ambulatory surgery setting, physician office) and may be paid separately or packaged (bundled). The payment amounts can be fixed or based on costs. Also, several providers may be paid separately for the same service. For example, for a procedure performed in a hospital, the hospital, the surgeon, and an anesthesiologist could all received separate payments. This could also be the case if radiology or imaging is involved or if more than one surgeon is required to perform a procedure.
The Importance of Knowing Who the Payor Is
Patient demographics and clinical indication for the device can affect which payors may have a great influence on a technologies reimbursement strategy (e.g. devices with use primarily for elderly patients would be influenced to a greater degree by Medicare policy decisions). Understanding which payors represent what percentage of the patient groups your product whould be used for is essential when developing a reimbursement strategy.
Examples of payors include:
- The Center for Medicare & Medicaid Services (CMS) – Federal program coordinated by “fiscal intermediaries” know as “Medicare Adminstrative Contractors” or “MACs” at a regional level. A Medicare Administrative Contractor (MAC) is a private health care insurer that has been awarded a geographic jurisdiction to process Medicare claims.
- Medicaid – State run assistance program partially funded by the Federal government
- Commericial and Private Payors (e.g. Blue Cross/Blue Shield (BCBS), Aetna, Cigna, United Healthcare, Kaiser). Commercial insurers can also offer Medicare Advantage Programs to eligible Medicare beneficiareis and process claims for individuals who opt for this coverage.
- Veterans Admistration – Federal program for Veterans of the Armed Services
- TRICARE – Federal uniformed services health care program for active duty service members, active duty family members, the National Guard and uniformed services retirees.
Understanding how each of the above payors make coverage decisions and use existing coding systems to pay providers is essential towards determining how to approach a reimbursement strategy for a new medical technology. These are topics which will be explored in this continuing series of blog posts.