Washington. Healthcare. Translated.

Devices: Start with Coverage, or Reimbursement?

The world of launching a new healthtech product is outrageously complicated in our era. Even large and sophisticated devicemakers can turn a blind eye to small regulatory details that destroy any chance for profitable reimbursement. That can send a promising healthcare innovation straight to the landfill.


How can such smart companies make such expensive errors? One common reason for the blind eye is the subtle distinction involving coverage, reimbursement and payment. Let me try for a quick definition of these fuzzy terms, using the Medicare context:

  1. COVERAGE: In brief, this means WHETHER Medicare will cover the product.

Medicare can only cover products deemed “reasonable and necessary” for its patients. This isn’t a cost equation but a softer combination of effectiveness, innovation, value and more. The law puts this determination in CMS’ court, although in many cases CMS can assign that process to others like its advisory committees (MedCAC), contractors (MAC) or partners (AMA). Coverage decisions are often fraught with scientific and political risk, especially for products far costlier than prior art (like gene therapy or chemotherapy).


  1. REIMBURSEMENT: This means HOW Medicare will accept a patient’s bill and pay it.

The oft-forgotten parallel to coverage is reimbursement policy. If a covered product is assigned an old (read, unprofitable) reimbursement code, the devicemaker can’t earn any more than its outdated counterpart and the “covered” product isn’t profitable. Getting a workable payment code (CPT Level I, HCPCS Level II, Local Level III) is essential, and needs to be in place by product launch. Even a “temporary” code (Q-Code) can be death to a new product, for reasons hiding in the details of paperwork. Forgetting this need for reimbursement codes until FDA issues its approvals means a delayed launch and potential market failure.


  1. PAYMENT: This means HOW MUCH the payment code is worth for each claim.

A first cousin to reimbursement, this step relates not to the code that determines how to pay the claim, but to the number of dollars written on the payment check. If the devicemaker gets a new code (e.g., HCPCS Level II), it’s a separate process to negotiate with CMS for a fair price for the device. CMS typically defers to its MACs to set the price (especially for molecular diagnostics and other high-tech items) but ultimately the power rests with CMS. The fact that different MACs can issue inconsistent Local Coverage Determinations (LCDs) with inconsistent pricing doesn’t always faze CMS, just as a “split in the Circuits” doesn’t always bother the Supreme Court. Folks ask me for the rules in setting a launch price; I answer there aren’t any fixed rules.

Some companies seem to go for their CODE first (HCPCS, from a CMS-AMA partnership), which typically works for Medicare and private payers alike. Other firms go straight to negotiating PAYMENT amounts with Medicare, because CMS will certainly apply a temporary code and eventually a permanent code to allow payment for innovative and covered products.


The calls coming to me lately are asking about (MAC) reimbursement negotiations, or about the (AMA) HCPCS codes that make everything possible, but NOT BOTH.




Firms seem to think there’s a formula to apply to price negotiations in Medicare, but I’ve never seen it here. (Formulas do exist for technology add-on payments and perhaps for bundled- or value-based- care, but that’s not today’s topic.) The scene for launch pricing is very different in Medicare than for private payers, group purchasing organizations and others. Telling a client there’s no rulebook is sometimes tough medicine, but speaking truth to power is always a good strategy.


I can’t mention the recent press on one new medical device (and its associated medical services) falling at risk in coverage, reimbursement and payment. (I suppose Google could fill in the blanks I’m not mentioning. So much for NDAs in the Google age.) Yet regardless of the specific case, the fact remains that whether a devicemaker first seeks a new permanent HCPCS code (replacing an annoying and ill-fitting temporary code) or turns first to the MACs for Local Coverage Decisions, the gap between coverage and reimbursement for new and expensive products is more important than ever to recognize, respect and address.


Looking to Medicare’s launch rules – when? Before the launch, before even the FDA blessing. Early in the pipeline. The alternative involves multiple regulatory battles with high-priced consultants, with unknown chances of success, as well as pressure on stock prices when pipeline products go from blockbuster to taking it on the chin.


Get to work, folks.