April 13, 2024
Medical Devices Reimbursement

Medical Devices Reimbursement: An Overview of How Devices are Covered by Public and Private Payers

The Reimbursement Landscape for Medical Devices

The medical devices industry plays a vital role in healthcare by developing innovative products that improve patient outcomes. However, manufacturers must navigate a complex reimbursement system to ensure providers are adequately compensated for using their products. The reimbursement process determines whether a new device will be accessible to patients or remain on the shelf.

Medicare Coverage and Payment Guidelines

Medicare is the largest payer for healthcare services in the U.S., covering over 60 million Americans aged 65 and older as well as those with disabilities. For a Medical Device to be reimbursed by Medicare, it must first receive marketing clearance from the FDA. Medicare then assesses each device’s evidence and assigns it to one of over 900 billing codes called HCPCS codes.
Medicare reimburses devices using one of several payment methods depending on where the device is used. In the hospital outpatient department and ambulatory surgical centers, devices are packaged into the Ambulatory Payment Classification system which assigns a single payment amount. In the physician office setting, non-implantable devices are paid under the Clinical Laboratory Fee Schedule while implantable devices often receive separate device payments.
Medicare also provides limited coverage for durable Medical Device equipment, prosthetics, orthotics, and supplies through round of codes and fee schedules. Coverage policies are set nationally but rates vary regionally, which manufacturers must consider when mapping out market access strategies. Prior authorization may also be required for certain devices designated as not “reasonable and necessary”.

Private Insurance Coverage Approaches

Private insurers have more flexibility than Medicare to design their own coverage policies and pricing. Most major insurers require FDA approval before covering a device, then evaluate its clinical efficacy and cost-effectiveness to assign medical policy coverage. Similar to Medicare, private payers utilize HCPCS codes and may reimburse devices separately or bundle payment.

However, coverage can vary significantly between commercial plans. Some may demand additional evidence like head-to-head clinical trials comparing the new device to standard of care. Insurers are increasingly adopting value-based payment models that reward providers for delivering high-quality, cost-efficient care. Under these models, manufacturers must prove how a device enhances outcomes and lowers total cost of care over time.

Negotiating With Group Purchasing Organizations

Group purchasing organizations (GPOs) contract with hospitals and healthcare systems to leverage their collective purchasing power to obtain the lowest prices on medical supplies and services. The three largest GPOs—Premier, Vizient, and Intalere—represent over half of all hospitals in the U.S.
To gain access to the facilities in a GPO’s network, device companies must comply with contracting terms set during multi-year negotiations. This typically involves providing tiered pricing discounts in exchange for exclusive or preferred contracting status. Detailed clinical and economic data is essential to justify list prices and secure competitive contract terms. GPO terms then flow down to impact commercial reimbursement rates.

Challenges in Securing Adequate Reimbursement

While the aim of most payers is to reasonably cover cost-effective, clinically valuable devices, the reimbursement process presents ongoing challenges:

Technology advances rapidly but national codes are only updated twice per year, risking temporary non-coverage.
Outcomes-based reimbursement requires long-term evidence but private funds are needed upfront for post-market studies.
Price transparency efforts have heightened scrutiny on list prices but discounts to purchasers impact cashflow.
Resource constraints motivate payers to delay or deny coverage of high-cost therapies absent compelling cost-offset data.
Local contractors interpreting national Medicare policies can lead to unpredictable non-uniform coverage decisions.

Navigating this dynamic system demands multi-pronged strategies involving effective clinical education, health economics modeling, and value communication customized for stakeholder sensitivities and motivations. Early and consistent engagement with coverage and payment agencies and advisors is also crucial. Only through such concerted efforts can device manufacturers facilitate patients’ timely access to their latest life-enhancing innovations.

1. Source: Coherent Market Insights, Public sources, Desk research.
2. We have leveraged AI tools to mine information and compile it.