More device manufacturers are recognizing the importance of considering Medicare coverage and reimbursement principles during the development of their new technologies. By adopting long- and short-term strategies that incorporate these principles, manufacturers can avoid certain foreseeable delays in bringing devices to market. Although the roadmap for demonstrating to the Food and Drug Administration (FDA) the safety and efficacy of a device has been fairly well established, the steps for obtaining third-party payors' approvals have been less apparent. This chapter highlights Medicare coverage and reimbursement principles and considerations that might be incorporated into a company's business plan during and after the product development stage.

From the time it was first created, the Medicare program, a federal health insurance program and the nation's single largest payor, has become progressively more expansive and more complex. Established in 1965 as Title XVIII of the Social Security Act,7 the program now provides benefits to more than 40 million beneficiaries ages 65 years and older, certain disabled individuals, and individuals with end-stage renal disease. Medicare's claims administrators annually process more than 900 million claims for health care services and Medicare benefit expenditures for fiscal year 2003 reached approximately $275 billion.2 Because it has been lauded as having one of the most stringent review standards for health care coverage, other insurers—government and commercial alike—look to policies and procedures developed by Medicare regulators as a guide in establishing their own. If an item or service is not covered by Medicare, there is a strong likelihood that other payors also will decide not to cover the item or service. Likewise, Medicare's reimbursement methodologies

From: Clinical Evaluation of Medical Devices: Principles and Case Studies, Second Edition Edited by: K. M. Becker and J. J. Whyte © Humana Press Inc., Totowa, NJ

are often followed by other payors. A sufficient payment amount, of course, is as important as a coverage decision, because inadequate payments can render even a seemingly favorable coverage decision meaningless.

Medicare's coverage principles may be understood by examining how the program's "reasonable and necessary" standard has been interpreted. This standard differs from the FDA's "safe and effective" standard, which is at the core of the FDA's regulatory approvals. Companies that design appropriate clinical studies with both goals in mind can avoid some of the otherwise frustrating realizations that clinical studies designed for FDA purposes do not automatically provide assurances for coverage and reimbursement purposes.

This chapter is designed as a reference tool for device manufacturers and to facilitate an understanding of some of the admittedly arcane elements of Medicare coverage and payment methodologies as they apply to medical devices. It addresses how Medicare coverage decisions are made and provides considerations and examples of limitations on such coverage. Medicare payment systems are discussed generally, particularly as a framework for predicting issues related to payments for new medical devices. Finally, because coverage and payment issues are integral to the coding system used to identify products and services, some of the fundamentals of coding are discussed briefly.

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