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Originally published September, 1998

COMMENTARY

Medicare's negotiated rule making

Medical device manufacturers often face a long, uncertain process for securing coverage of their technologies by the Medicare program. For manufacturers of in vitro diagnostic technologies, this process may soon be shaped anew by a set of special rules now being considered in a "negotiated rule making."

Required by federal law, the negotiations now under way involve the Health Care Financing Administration (HCFA), which manages Medicare, and 16 private-sector stakeholders. Together, these 17 parties are charged with reaching a consensus on how Medicare should cover and bill for clinical laboratory tests. The Health Industry Manufacturers Association (HIMA) has been selected to represent manufacturers, and, based on the feedback HIMA has received, many IVD companies are viewing the negotiations as a milestone in their long-term market planning for the Medicare program. But to understand the full significance of the negotiations to IVD firms, it is first necessary to understand how Medicare coverage has worked in the past.

Medicare Coverage

Through the process of granting coverage a technology becomes qualified to be used—or to continue to be used—in the Medicare program. Although this is a necessary step, coverage is not always sufficient for a technology's integration into Medicare. A covered technology may be placed in an inappropriate procedure code, or, even if covered and coded, may receive an inadequate reimbursement. That said, coverage is often the focus of reimbursement planners because no Medicare dollars can flow to a technology unless it is covered. To be covered, a technology must be reasonable and necessary. This is the long-established statutory test for coverage, in the same way that safe and effective and substantially equivalent are the tests for FDA marketing clearance. But while FDA's process is a well-trod and generally understood route to market, Medicare coverage decisions are made in a less certain environment that grows out of a fundamentally different paradigm. Some of the distinctive characteristics of the HCFA process for granting coverage include the following:

• Coverage is more about medical care than about medical devices. Medicare's obligation is to provide its beneficiaries with reasonable and necessary care. Devices are often an important part of that care but, in contrast to FDA, HCFA does not focus on devices alone.

• There is generally no road map for obtaining coverage. While FDA's process for premarket review is fairly defined, with milestones such as advisory panel meetings, the process for determining coverage has no such roadmap. For example, HCFA is just now considering how to charter an advisory panel consistent with federal open-meeting requirements. Moreover, the road now being mapped runs not only through HCFA's Baltimore headquarters, but also throughout the country, crisscrossing HCFA's local contractors, who decide the vast majority of coverage issues.

• Decision-making criteria are unclear and controversial. Over the years, FDA's interpretations of safe and effective and substantially equivalent have been applied in many individual decisions and have sometimes been codified in regulations and guidance documents. HCFA has no such body of published precedents or regulations with which to interpret the term reasonable and necessary. To the extent that HCFA's thinking has become known, it has often elicited concern within the device industry. HCFA often believes, for example, that its coverage criteria should be more stringent than FDA's premarket review criteria. HCFA has also indicated that cost-effectiveness is a criterion for at least some technologies.

It is against this overall backdrop that Congress last year legislated a special track to establish a Medicare coverage process for clinical laboratory tests.

1997 Balanced Budget Act

As adopted in last year's Balanced Budget Act, section 4554(b) of the Social Security Act provides in part that

Not later than January 1, 1999, the Secretary [of Health and Human Services] shall first adopt ... national coverage ... policies for clinical diagnostic laboratory tests ... using a negotiated rule-making process. ... The policies ... shall be designed to promote ... national uniformity ... with respect to clinical diagnostic laboratory tests ... in connection with ... the medical conditions for which a laboratory test is reasonable and necessary.¹

This provision, if interpreted broadly, could be read to require the establishment of individual national coverage policies for the hundreds of clinical lab tests used in Medicare. It seems clear, however, that the secretary of Health and Human Services (HHS) and HCFA administrator believe that only certain clinical lab tests should be subject to national coverage and administrative policies. They stated this view in a June notice announcing their intention to form the negotiated rule-making committee.

It is critical that a process for coverage policy concerning laboratory tests be developed. Clearly, time constraints may prevent the development of test-specific policies for all laboratory tests. HCFA, therefore, proposes that the committee negotiate a process for coverage and administration capable of uniform application throughout the country.²

It is too early to project the practical scope of the negotiations and the kinds of changes to which the negotiations may lead. But the dynamics of negotiated rule making—and the specifics of this particular negotiation—will be important factors in the outcome.

Negotiated Rule Making

The conventional method of federal rule making calls for the relevant agency to publish a proposal, solicit comments, make any changes deemed warranted by the comments, and then publish the rule in final form. By contrast, negotiated rule making attempts to reach this same end through a special process that inserts stakeholders into a rule's early, policy-formulation stages. The general approach is to array the stakeholders around a table and use neutral facilitators to achieve consensus. Importantly, consensus means the agreement of all the negotiation participants—including, in this case, HCFA. Although any resulting rule is still subject to public comment, stakeholders cannot submit comments inconsistent with the consensus positions to which they have agreed.

Negotiated rule making brings with it at least three important sets of dynamics. First, negotiating sessions are generally conducted in public, so stakeholders must approach them as they would any public appearance. Second, while a stakeholder may take any position it wishes, there is some degree of pressure to modify traditional positions in order to achieve consensus, which is, after all, the purpose of the exercise. And finally, whatever the actual outcome of the negotiations, a stakeholder will have had an opportunity to engage the regulating agency in a dialogue that is more in-depth and prolonged than is usually possible.

For the negotiated rule making on coverage of clinical laboratory tests, the HHS secretary and HCFA administrator have set out a six-month schedule of eight negotiating sessions, each lasting three days. The sessions began in mid-July and are scheduled to conclude in December.

Designated to represent HCFA in the negotiations is Grant P. Bagley, MD, JD, director of the coverage and analysis group in HCFA's Office of Clinical Standards and Quality. Concerning the private-sector participants in the negotiations, the HHS secretary and HCFA administrator have stated that "the intent ... is that all interests are represented, not necessarily all parties."³ On this basis, 16 private-sector groups have been designated as negotiators (see below).

Given the compressed schedule of its deliberations, the committee faces a challenging set of issues. One set of issues concerns the dozens of individual lab tests for which the committee will attempt to determine national coverage. For each such test, there is likely to be a host of questions, including the medical conditions for which the test should be covered; the appropriate frequency of testing for an individual Medicare beneficiary; and the coding, documentation, and billing procedures that should be required. Moreover, the committee will likely address these same kinds of issues as they apply not just to individual, named tests, but also to Medicare's policies for administering the coverage of lab tests generally.

To guide its participation in the negotiations, HIMA is conducting planning and debriefing conference calls for its members. These calls are being scheduled on a frequent basis, interspersed among the actual negotiating sessions. In addition, HIMA is in regular contact with other manufacturers' associations that have expressed interest in the coverage of clinical laboratory tests. To ensure that their input is considered during the negotiations, HIMA members may contact HIMA for the schedule of planning and debriefing conference calls. Manufacturers that are not members of HIMA may direct their input to the committee through any other manufacturers' association that represents them.

All in all, an intense level of activity is now under way. While the outcome of the negotiations cannot be predicted, the issue at stake—coverage of lab tests—commands the attention of any IVD manufacturer that sells to the Medicare market.

References

1. Social Security Act, sec. 4554(b).

2. Federal Register, 63(106):30168, June 3, 1998.

3. Federal Register, 63(106):30172, June 3, 1998.

Ted Mannen is executive vice president of the Health Industry Manufacturers Association (Washington, DC).