Reimbursement

Reimbursement is the process of obtaining payment for a medical procedure or a drug. Physicians are reimbursed for the consultations and therapeutic procedures that they perform whether in their office, a hospital or alternate medical facility. Hospitals, clinics and alternate treatment facilities are also reimbursed for the use of their facilities and services. Physicians can be resistant to adopt technology that does not have adequate reimbursement, even when improved clinical outcomes can be documented. Since new medical devices are often a component of new procedures or change the current standard of care, it is critical to understand the components of reimbursement and develop a reimbursement strategy at the product concept stage. If reimbursement strategy is delayed to later in the development process the outcome can significantly affect product adoption and successful commercialization. Information about the actual levels of reimbursement and how a technology fits into the financial context of its purchasers and users is a pivotal component of determining the value during exit.

Coverage, Coding, and Payment
In the US, medical devices are very rarely directly reimbursed by Medicare or insurance companies. Rather, each medical procedure or episode of care is reimbursed at a specified or negotiated amount that must cover the price of the device along with the other technologies, supplies, facility costs (food, building maintenance) and labor (nursing, housekeeping, etc) that are also part of the procedure or care episode. Thus, when asked if a technology is “reimbursed”, the query is really whether the therapeutic procedure using the technology is reimbursed, and whether some portion of the payment can be used to cover the cost of that technology. Further, ‘reimbursement’ includes three interdependent components: benefit coverage, coding, and payment. Coverage refers to whether the therapy in question is treating a disease or condition that is part of insurance benefit programs offered by public insurers (like Medicare) or private insurers (like Aetna or Kaiser). Coding refers to whether there is an existing procedure code that adequately describes the therapeutic procedure or whether a new code must be obtained. Payment refers to the method and amount of payment made for the procedure.

Medicare - The Largest US Insurer
Medicare is the largest insurer in the US and has established processes to decide their coverage policies for new medical procedures. However, there are also dozens of private insurers (e.g. Aetna, United Healthcare, Blue Cross) as well as other public programs (Medicaid, Veterans Administration) that use similar but separate processes to establish coverage. Procedure coding is largely controlled by the American Medical Association through the Current Procedural Terminology (CPT) program with payment systems that are quite variable. Medicare has established payment systems based on the setting of care and who is providing the service. Private insurers negotiate payment terms directly with physicians and hospitals.

Reimbursement Strategy The first step in developing a reimbursement strategy is to determine whether a new procedure or care approach (i.e., device) is already part of, or has a good chance of becoming part of, an existing reimbursement structure by meeting a specified medical need through safety, efficacy, and clinical outcomes. However, it is important to note that FDA clearance for a new device does not mean that the procedures using it will automatically meet insurance coverage criteria.

Existing Coding
The second step in assessing the reimbursement prospects for a new procedure or care approach is to determine whether relevant reimbursement codes already exist or new codes must be applied for. Every diagnosis, procedure, and service rendered to a patient is assigned a code that links services to payment methods and provides a way of tracking procedures performed for given diagnoses and clinical conditions. These codes include ICD-9 codes describing diagnoses and inpatient procedures, CPT (Current Procedural Terminology) codes that report specific physician or outpatient procedures and HCPCS (Healthcare Common Procedure Coding System) codes that typically report supplies and some technologies.

The next step in understanding the reimbursement potential for a new technology is to investigate the potential payment systems used to pay for the procedure using the technology, and to anticipate the probable amount of payment. Each site of care has a different payment system (e.g., inpatient, hospital outpatient, physician or home health care payments, etc.). In addition, public insurers like Medicare operate different systems than do private insurers like Aetna. A developer of a new technology should anticipate which site of care is likely to yield the best combination of coverage, coding and payment at not only the existing rates for reimbursement, but also the projected reimbursement at the time when the technology will be available for sale, perhaps four to five years in the future. With significant cost containment pressures throughout the globe, having a forward vision into this critical component is important.

If the new procedure is anticipated to be covered under existing codes, it is necessary to determine if the payment is considered to be adequate to cover the technology. Perceived adequacy of payment by both the physicians performing the procedure and the care setting, such as an outpatient clinic or hospital (typically the direct purchaser the technology), is a key driver of product adoption as new technologies typically account for the highest component of procedure-related costs.

Obtaining New Reimbursement Coding
If no codes are available for physician and or facility reimbursement, it may be necessary to apply for a new code. Additionally, an acceptable code may exist, but may not be well aligned and may reimburse at a low level. Thus, to improve reimbursement for new and more expensive technologies a decision may be made to apply for new procedure codes. If the procedure and/or the technology is materially different from existing approaches and technologies it may be possible to obtain a new code. Although significant planning is important early in the process, new coding can only be applied for in the US after a technology is FDA cleared for marketing and sale. Additionally, it takes approximately 18-24 months for the approval process which is successful approximately 70% of the time. The process requires significant commitment to initiate and execute. Thus it is advisable to secure experienced reimbursement consultation to increase the probability of success.

There is a common misperception that a technology that is more effective, easier or more efficient to use can obtain a higher level of reimbursement. It is important to remember, however, that the reimbursement amount of a new code, if authorized, is determined by the complexity, risk and amount of work required to perform the new procedure. Thus less invasive, less risky and/or more rapid procedures can be reimbursed less than the current standard of care.

Patients Out-of-Pocket Payment
While insurance is the most common form of payment for healthcare services, increasingly patients are being asked to pay out of pocket for selected services. Pharmaceutical, device and diagnostic companies are attempting to capture part of this revenue through innovative private pay programs. Most insurance programs, however, prohibit supplemental payments for technologies if the procedure is considered a covered benefit that is already being reimbursed. However there are instances where this process is worth investigating. Extra payments can be charged for technologies that fall outside covered benefits and for new technologies before reimbursement policies have been put in place.