Medical Device Link.

Originally Published MX November/December 2001

GOVERNMENTAL & LEGAL AFFAIRS

Covering New Ground

CMS is working to make Medicare’s national coverage process more understandable, predictable, timely, and inclusive.

John Whyte

Over the past two years, the U.S. Medicare program has revised its methods for deciding whether or not to cover a medical device, procedure, or service. The Centers for Medicare and Medicaid Services (CMS, formerly the Health Care Financing Administration; Baltimore) has implemented the changes in an attempt to make the program more understandable, predictable, timely, and inclusive. This article describes some of the recent changes and discusses the effects they may have on business planning for medtech manufacturers.

The Social Security Act grants the secretary of Health and Human Services, acting through CMS, the authority to determine what medical devices, procedures, and services are covered under the Medicare program. However, the act also restricts all Medicare coverage and payments to those services that have been found “reasonable and necessary” for the treatment of illness or injury.¹ Specifically, the act states that

no payment may be made under part A or part B for any expenses incurred for items or services which, except for items and services described in a succeeding subparagraph, are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

Notably, this section of the statute is phrased in the negative. Because of this phrasing, the Medicare program cannot base its coverage decisions on the premise that a device or procedure might be of benefit to some patient, in some circumstance, at some time. Instead, the statute calls for a positive finding that the products and services to be covered are, in fact, reasonable and necessary for the stated purposes. In short, there needs to be evidence of effectiveness.

In general, the Medicare program is intended to cover therapeutic products and services. For this reason, the statute is generally interpreted to mean that Medicare does not cover preventive services. The Medicare program does cover some preventive services, such as colorectal screening, mammography, and prostate-specific antigen screening. However, all of these are relatively recent additions mandated by Congress.

The Roles of FDA and CMS

Although most medtech manufacturers are familiar with the role of FDA in approving drugs and devices for marketing, there can be confusion over how such approvals relate to the Medicare program’s coverage and payment decisions. Put simply, FDA approval or clearance is a prerequisite for coverage under the Medicare program, but it is not a guarantee of coverage.

It is FDA’s role to determine whether subject drugs and devices are safe and effective for their intended uses, and to permit market entry only for products that are shown to be so. Each year, FDA approves a small percentage of new medical device submissions by means of its rigorous premarket approval (PMA) process. A PMA invariably requires clinical data to demonstrate the safety and efficacy of a breakthrough technology. In 2000, fewer than 50 devices received PMAs.²

The vast majority of new medical device submissions reviewed by FDA are handled via the premarket notification (510(k)) route. Under this clearance process, the manufacturer need only demonstrate that its product is "substantially equivalent" to a predicate device previously approved by the agency. FDA’s review of such submissions generally focuses on the technological characteristics and performance of the subject device. Less than 10% of 510(k) submissions are required to include any clinical data. For some products now on the market, the lineage of substantial equivalence can be traced back to devices that were already on the market in 1976, when the medical device amendments to the Federal Food, Drug, and Cosmetic Act were first enacted.

The role of CMS is very different from that of FDA. Recognizing that Medicare cannot afford to pay for all of the medical products that FDA approves, some discretion in purchasing is necessary to ensure that the program’s participants get the greatest possible value for their money. It is the role of CMS to decide whether a subject product is worth purchasing.

Medtech companies should plan their regulatory and reimbursement strategies to take into account that the FDA and CMS processes are not the same, and that each is meant to answer slightly different questions. While both agencies are actively involved in efforts to eliminate redundancies and better coordinate their processes, manufacturers should not expect that a single unified process will ever satisfy the varied needs of both regulators and payers. For this reason, company executives should take advantage of opportunities to speak with both agencies early in the product development process. Such meetings can help to clarify agency requirements and make regulatory and reimbursement planning easier.

Benefit Categories

Medicare is a defined-benefit program. As a first step toward coverage, therefore, a product or service must qualify under one of the program’s 55 statutorily defined benefit categories. These categories encompass a wide range of product or service areas, and each is broadly defined. Examples of such categories include physician services, physical therapy, laboratory, diagnostic services, and durable medical equipment. The defined-benefit requirement explains why Medicare does not generally cover outpatient prescription drugs: there is no benefit category for outpatient drugs.

To qualify under one of Medicare’s categories, a product or service must also not be among those subject to the program’s statutory exclusions. The Medicare statute specifically excludes a number of such items. For example, the program is specifically prohibited from covering hearing aids and eyeglasses.³

Once it has been determined that the subject product or service falls within one of Medicare’s benefit categories, CMS must then determine whether the product satisfies the criteria of being reasonable and necessary. Although no rule has ever been formally adopted to define these terms, over the past decade there have been several attempts to do so. One of the most recent attempts occurred in May 2000, when the agency issued a notice of intent that described some of its general thinking at that time.⁴ Although that notice of intent expresses some general ideas about how to interpret the terms reasonable and necessary, it does not reflect the agency’s current guidelines for making coverage decisions. The explicit meaning and application of these criteria remain to be determined.

Local Coverage, National Coverage

Medicare coverage decisions can be made using either of two routes. The first of these routes starts and ends at the local level, and results in a coverage decision that is effective only for the region in which it was made. The second route considers the subject product at the national level, and results in a coverage decision that is effective throughout the country. National coverage decisions supersede all local coverage decisions.

Local Decisions. Coverage decisions at the regional level are made at the discretion of Medicare contractors. There are approximately 43 different contractors, with several contractors covering more than one state. Some states are covered by more than one contractor. Approximately 90% of all new items and services are covered by this local process.

To carry out the process, Medicare contractors consult with local practicing physicians who serve on a carrier advisory committee (CAC). This group assists the carrier in developing its coverage policies, which are known as local medical review policies (LMRPs). The carrier then publishes the LMRPs in its local bulletin.⁵ This terminology will soon be changing, as within the next few months the term local medical review policies will be phased out in favor of the term local coverage determinations (LCDs).⁶

National Decisions. Until recently, national Medicare coverage decisions were based primarily on recommendations by a technical advisory committee whose meetings were closed to the public. The committee rarely provided any insight into its reasoning or offered any explanation of its decisions.

In April 1999, however, CMS announced a number of changes to the process for making national coverage decisions. The announcement was made in a Federal Register notice that outlined the administrative process and explained how a product or procedure enters the national coverage process and how it is handled through to a coverage decision (see Figure 1).⁷ Within the past two years, more than 35 national coverage decisions have been made under this new process.⁸

Figure 1. Flow chart of the CMS process for making Medicare national coverage decisions. (Click to enlarge)

Company executives who expect to apply for Medicare coverage for their products should familiarize themselves with the procedures outlined in the 1999 notice, which reflects the coverage process currently in place at CMS. In general, this new process focuses on an evidence-based review, with continued emphasis on authoritative evidence and demonstrated medical effectiveness. CMS expects that applications for national coverage decisions will include evidence to demonstrate the following.

• Compliance of the device or procedure with all regulatory requirements.
• Benefits of the product’s use outweigh risks that might be reasonably anticipated.
• Improved health (or functional) outcomes.

Both the local and national routes to coverage decisions rely upon evidence of medical effectiveness. As a result, application sponsors sometimes find it confusing when there are disparities among the coverage decisions issued at the local and national levels. For instance, transurethral needle ablation of the prostate may be a covered procedure in one state, but not in another.

Such disparities arise because the Medicare program acknowledges that physician practice may vary in different parts of the country. Local carriers are therefore provided discretion to make coverage decisions that meet the needs of their region. For medtech manufacturers such carrier discretion has some advantages; if all coverage decisions were determined at the national level, the adoption and diffusion of new technologies would likely be slower than under the current system. Moreover, local coverage decisions can be overturned for individual patients by administrative law judges, whereas national coverage decisions are subject only to a lim- ited review by federal courts. For all of these reasons, local carrier discretion is likely to remain an important element of the Medicare coverage process.

Getting to Yes/No

As outlined in the 1999 notice, the process for requesting that CMS provide a national coverage decision is relatively simple and can be initiated by any member of the public. To begin the process, CMS requires the following information.

• A written request specifically identified as a "formal request for a national coverage decision."
• Supporting documentation as specified by CMS.
• A full description of the product or procedure in question, including the benefit category to which it applies.
• A compilation of the currently available medical and scientific information about the product or procedure.
• A description of any clinical trials or studies currently under way.
• A statement of the status of FDA proceedings related to the product, including the product labeling as submitted to FDA.

CMS will respond to such a request within 90 days. The agency’s possible actions include the following.

Issue an Actual Decision. In cases where CMS finds that the request for a national coverage decision includes all the necessary documentation, it is often able to issue such a decision. The agency has four options, the most positive of which are approval of national coverage without limitations, and approval of national coverage with limitations. In the latter case, CMS specifies the limitations of coverage. Less desir-able from the manufacturer’s point of view, CMS may decide not to cover a product on the national level, but to permit local carriers to exercise their discretion for local coverage. Finally, CMS may issue a decision against coverage on a national basis.

Whenever possible, CMS attempts to render its national coverage decisions within 90 days of receiving the submitter’s formal request. The agency may issue its decisions in a variety of forms, including program memoranda, manual instructions, CMS rulings, or Federal Register notices. When finally issued in one of these forms, a national coverage decision is binding on all Medicare carriers and fiscal intermediaries.

Order Technology Assessment. In some cases, CMS may determine that it is unable to complete its review of a national coverage request without additional information about the safety, efficacy, or effectiveness of the subject technology. The agency may then order performance of a tech- nology assessment to provide the necessary information. To ensure the impartiality of such assessments, CMS has arranged to have the Agency for Healthcare Research and Quality (Rockville, MD) and its 12 evidence-based practice centers perform its technology assessments. In general, CMS expects such assessments to be completed within 3 to 6 months.

Referral to the Medicare Coverage Advisory Committee (MCAC). In cases that CMS considers especially difficult, the agency may refer the request for a coverage decision to the MCAC. It is the role of the MCAC to make recommendations concerning the adequacy of evidence presented as part of the submitter’s request for coverage. The agency is most likely to make such a referral when a request for coverage involves products or procedures that are the subject of significant scientific controversy, items with the potential to have a major impact on the Medicare program, or items subject to broad public controversy. The majority of national coverage determinations are not referred to the MCAC.

The MCAC presently includes 75 members representing a broad range of disciplines, including clinical medicine, public health, data and information management, economics, and ethics. The committee encompasses six panels (medical/surgical, drugs/ biologics/therapeutics, laboratory, diagnostic imaging, medical devices, and durable medical equipment), and an executive committee. A nonvoting industry and consumer representative sits on each panel.

Conclusion

It is CMS’s intent to implement necessary program changes and make payment effective within 180 days of issuing a national coverage decision. However, there is often a time lag between the announcement of a national coverage decision and the date that a product or procedure is actually covered through Medicare’s payment systems. During this time, CMS determines what codes will be used for processing claims, and issues instructions to carriers and claims-payment contractors. The extra time is also required for the agency to determine the appropriate Medicare payment level—an important part of the process that is quite distinct from the issues related to coverage.

As developed and announced by CMS in 1999, the new process for obtaining Medicare national coverage decisions is meant to be open and inclusive. The agency is continuing to maintain a list of items that it is considering for national coverage decisions, but requests for such decisions are often more successful when they come from those who know the products and procedures best and can provide evidence about their use.

To prepare for making such a request, submitters should ensure that they have familiarized themselves with the process and with issues that have arisen in the course of recent coverage decisions. A wealth of such information is available via the CMS Web site.⁹

1. Social Security Act, PL 74-271 (August 14, 1935) as amended, sec. 1862(a)(1)(A). Available via Internet: http://www.ssa.gov.

2. "Office of Device Evaluation Annual Report, Fiscal Year 2000," in CDRH Home Page [on-line] (Rockville, MD: Office of Device Evaluation, Center for Devices and Radiological Health, FDA, 2001 [cited 22 October 2001]); available from Internet: http://www.fda.gov/cdrh/annual/fy2000/ode/ode-ar2000.html.

3. Social Security Act, PL 74-271 (August 14, 1935) as amended, sec. 1862(a)(7). Available via Internet: http://www.ssa.gov.

4. "Medicare Program; Criteria for Making Coverage Decisions," Federal Register, 65 FR 95:31124–31131 (May 16, 2000).

5. Local Medical Review Policies [on-line] (Baltimore: Centers for Medicare and Medicaid Services, 2001 [cited 25 October 2001]); available from Internet: http://www.lmrp.net.

6. Local Coverage Decisions [registered domain on-line] (Baltimore: Centers for Medicare and Medicaid Services, 2001 [cited 25 October 2001]); available from Internet: http://www.medicarelcd.net.

7. "Medicare Program; Procedures for Making National Coverage Decisions," Federal Register, 64 FR 80:22619–22625 (April 27, 1999).

8. Medicare Coverage Policy Home Page [on-line] (Baltimore: Centers for Medicare and Medicaid Services, 2001 [cited 25 October 2001]); available from Internet: http://www.hcfa.gov/coverage.

9. Centers for Medicare and Medicaid Services Home Page [on-line] (Baltimore: Centers for Medicare and Medicaid Services, 2001 [cited 25 October 2001]); available from Internet: http://www.hcfa.gov.

John Whyte, MD, MPH, is a medical officer and senior advisor in the Coverage and Analysis Group at the Centers for Medicare and Medicaid Services (CMS; Baltimore).

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