Final Rule Summary: Medicare Coverage of Innovation Technology and Definition of Reasonable and Necessary

Summary

On January 12, 2021, the Centers for Medicare and Medicaid Services (CMS) released a final rule intended to expedite and clarify Medicare coverage for certain innovative medical technologies.

  • The final regulations are available here.
  • The CMS press release is available here.
  • The CMS fact sheet is available here.

The final rule is currently scheduled to be effective March 15, 2021. It is unclear whether the Biden Administration will delay the final rule’s implementation as part of the regulatory freeze or beyond, given strong support from key stakeholders for the Medicare Coverage of Innovative Technology (MCIT) pathway.

The rule flows from President Trump’s October 3, 2019, Executive Order (EO) on Protecting and Improving Medicare for Our Nation’s Seniors. The EO directed the US Department of Health and Human Services to issue regulations “streamlining the approval, coverage, and coding process so that innovative products [including breakthrough medical devices] are brought to market faster, and . . . are appropriately reimbursed and widely available.” The EO noted that this process should minimize or eliminate the time between US Food and Drug Administration (FDA) approval and CMS coverage decisions, clarify the application of coverage standards, and identify and address challenges to the use of parallel FDA and CMS review.

In line with the EO, the final rule defines the term “reasonable and necessary” to clarify coverage standards and to introduce the MCIT pathway to accelerate coverage of breakthrough medical devices.

The rule flows from President Trump’s October 3, 2019, Executive Order (EO) on Protecting and Improving Medicare for Our Nation’s Seniors. The EO directed the US Department of Health and Human Services to issue regulations “streamlining the approval, coverage, and coding process so that innovative products [including breakthrough medical devices] are brought to market faster, and . . . are appropriately reimbursed and widely available.” The EO noted that this process should minimize or eliminate the time between US Food and Drug Administration (FDA) approval and CMS coverage decisions, clarify the application of coverage standards, and identify and address challenges to the use of parallel FDA and CMS review.

In line with the EO, the final rule defines the term “reasonable and necessary” to clarify coverage standards and to introduce the MCIT pathway to accelerate coverage of breakthrough medical devices.

CMS creates a new pathway whereby breakthrough devices can obtain national coverage for up to four years from the time of FDA marketing authorization

Currently, medical devices can obtain coverage under the Medicare program through several pathways:

  • National coverage determination (NCD)
  • Local coverage determination (LCD)
  • Claim-by-claim adjudication by the Medicare Administrative Contractors (MACs)
  • Clinical trial policy NCD
  • Parallel review program with concurrent review by FDA and CMS

As CMS noted in the final rule, only the parallel review pathway results in a coverage decision concurrent with the FDA market authorization decision, and only two devices have received coverage via this pathway to date.

In response to President Trump’s EO, and taking into consideration stakeholder feedback on the proposed rule, CMS finalized a new pathway. The MCIT is a voluntary, opt-in pathway for Medicare coverage of medical devices (including some diagnostic tests) that have been included in the FDA’s Breakthrough Device Program, received FDA authorization no more than two years before the effective date of the final rule, and are not otherwise excluded from coverage through law, regulation or existing NCD.

In response to stakeholder feedback, CMS finalized, with modification, the beginning date for national Medicare coverage. National Medicare coverage of the breakthrough device will begin on the date requested by the manufacturer, provided that the date is not earlier than the date the breakthrough device received FDA marketing authorization. Coverage is only applicable to indications for which there is FDA approval or clearance. Breakthrough devices for which there is no existing Medicare benefit category, or which are statutorily excluded, are excluded from the MCIT pathway.

For eligible devices, national coverage will continue for up to four years from the FDA marketing authorization date (regardless of the beginning date of coverage) unless one of the following events occurs:

  • The manufacturer withdraws the device from the pathway.
  • The device becomes subject to an NCD or otherwise becomes non-covered by law.
  • FDA removes authorization of the device.
  • The Secretary determines that coverage should end subsequent to an FDA medical device safety communication or warning letter.

The final rule allows for retroactive application to breakthrough devices that received FDA market authorization within the past two calendar years, but only applies to claims that occurred after the final rule’s effective date. Unless otherwise excluded from coverage, items and services covered under this policy include the breakthrough device itself, any reasonable and necessary procedures to implant and/or use the breakthrough device, reasonable and necessary costs to maintain the breakthrough device, related care and services for the breakthrough device, and reasonable and necessary services to treat complications arising from the use of the device.

At the end of the coverage period, coverage for the device falls into one of the following outcomes:

  • NCD (affirmative coverage, which may include facility or patient criteria)
  • NCD (non-coverage)
  • MAC discretion (claim-by-claim adjudication or LCD).

For manufacturers seeking an NCD, CMS recommends submitting an NCD request in the third year of coverage to give the agency ample time for NCD development (once formally opened, such process typically takes nine to 12 months).

Key Considerations

The policy is notable in that it creates an expedited pathway to coverage for certain breakthrough devices (and certain related items and services). However, while dozens of devices receive “breakthrough” designation each year, only a handful of companies have actually received the full FDA approval or clearance required to trigger the coverage mandate. In addition, despite significant support from stakeholders, this rule does not change the underlying “benefit category” requirement, which excludes many innovative device types from eligibility, such as screening services not explicitly referenced in the Social Security Act and digital health tools. As a result, while industry rightfully views these changes as a step in the right direction, the policy’s impact may be fairly targeted.

While the MCIT pathway may offer certain coverage in a timelier manner than existing pathways, coverage under MCIT may have implications for a product for which the manufacturer is seeking an NCD or an LCD. CMS and/or the MACs may feel that a coverage policy (whether an NCD or LCD) has no practical role for a device with established coverage via the MCIT pathway. Demonstration of definitive coverage under MCIT therefore may look different from definitive coverage previously, and it may take time for stakeholders to become accustomed to evidence of coverage under this new pathway.

CMS codifies “reasonable and necessary,” gives some deference to commercial insurance plans for coverage

Criteria for coverage of a service under Medicare depends in large part on whether the service is “reasonable and necessary” in accordance with section 1862(a)(1)(A) of the Social Security Act. Prior to this rule, CMS had never codified in regulations what this particular phrase means. The MACs generally determine whether a service is reasonable and necessary on a claim-by-claim or case-by-case basis. The MACs can also make a determination through an LCD as per section 1869(f) of the Social Security Act. CMS provided guidance on whether it would consider a specific item or service “reasonable and necessary” in a current guidance document for the LCD process (Chapter 13 of the Program Integrity Manual).

In the final rule, CMS codified this language from the Program Integrity Manual into the regulations with a slight modification. An item or service meets the definition of reasonable and necessary if it meets all of the following criteria:

  • Safe and effective
  • Not experimental or investigational
  • Appropriate for Medicare patients, including the duration and frequency that is considered appropriate for the item or service.

Medicare finalized two options by which an item or service may meet the third criterion:

Option A. The item or service adheres to all of the following sub-criteria:

  • Is furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member
  • Is furnished in a setting appropriate to the patient’s medical needs and condition
  • Is ordered and furnished by qualified personnel
  • Meets, but does not exceed, the patient’s medical need
  • Is at least as beneficial as an existing and available medically appropriate alternative.

Option B. The item or service is covered by a majority of commercial insurers where there is insufficient evidence to meet the criteria noted above.

If the item or service meets either option A or B, it is considered to meet the third criterion in the definition of “reasonable and necessary.”

In the proposed rule, CMS posed several questions for stakeholders, particularly with respect to the impact of commercial payer policies. CMS finalized the concept of examining commercial insurers when the appropriateness criteria is not otherwise met. However, the specifics of what policies CMS will use, how these policies will be considered and other key factors remain unclear. CMS committed to issuing sub-regulatory guidance on its intended approach within one year of the rule’s effective date.

Key Considerations

The decision to link eligibility for Medicare coverage (in part) to private payer coverage policies may give MACs increased flexibility to cover novel items and services. Substantial details regarding this approach remain undefined, however, including what policies MACs should consider, whether the most restrictive or least restrictive (or neither) policy should be considered controlling, and how much discretion MACs should retain. These details will have a substantial impact on how the regulation is implemented in practice. Interested stakeholders should consider commenting on the upcoming sub-regulatory guidance to address these and other key issues that may have a meaningful impact on the utility of this approach.

 


For more information, contact Deborah Godes, Paul Gerrard or Mike Ryan (McDermott, Will & Emery – Partner).