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Hospitals and medical device manufacturers will both benefit from the Centers for Medicare and Medicaid Services’ (CMS) finalization of the 2020 Inpatient Prospective Payment System (IPPS) Final Rule (“Final Rule”) scheduled to be published on August 16, 2019.  In an effort to increase Medicare beneficiaries’ access to innovative medical technologies, CMS has finalized certain changes to the “new technology add-on payment” “(NTAP) application and payment processes under the Final Rule. This change is likely to encourage hospital adoption of new technologies, which is intended to spur innovation and additional investment in these technologies.

Hospital utilization of new medical technologies

Imagine being admitted to a hospital for a heart attack and you knew there was a new technology that would help to reduce the chances that your bypass surgery would fail within a relatively short period of time.  Now imagine that the hospital does not offer that technology because it is too expensive relative to what they will receive in reimbursement from your insurance provider.  For many Medicare beneficiaries, this is a reality and for many hospitals they are left with little choice given the fixed payment system that Medicare has established under the IPPS. This reality is what prompted the statutory revisions to the Social Security Act that took effect in 2001 allowing CMS to provide NTAP reimbursement for hospital utilization of new medical technologies.

Without NTAP, hospitals are generally unable to adopt new medical technologies because their use with Medicare beneficiaries can mean excessive unreimbursed costs associated with those patients’ care. The NTAP policy helps to facilitate new technology use by providing additional payments for inpatient cases that involve high-cost new technologies. Currently, Medicare pays a marginal cost factor for the costs of the new technology in excess of the full DRG payment. If the actual costs of a new technology case exceed the DRG payment by more than the estimated costs of the new technology, hospitals can receive additional reimbursement up to a specified payment limit.  While NTAP does help to alleviate some of the losses, and incentivizes hospital utilization of cutting-edge medical therapies, NTAP reimbursement still lags behind the ever-increasing costs associated with new medical technologies. 

CMS simplifies approval process for NTAP

An additional hurdle to receiving NTAP for utilization of innovative medical technologies, is the relatively slow process of getting the new technology approved for NTAP reimbursement.  For hospitals to be eligible for NTAP reimbursement, stakeholders must submit an application to CMS demonstrating that the technology exceeds certain cost parameters and “substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.”  This application process takes at least two years prior to the technology’s approval for NTAP. For years, industry stakeholders have asked for improvements in the NTAP application process to help decrease the time it takes for hospitals to adopt these innovative, yet costly, medical technologies.

In the Final Rule, CMS relaxed the requirements for the approval process to get NTAP reimbursement for new technologies.  Beginning with applications for NTAP reimbursement in 2021, some applicants seeking approval for NTAP will no longer have to show evidence that the new technology “substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.” Instead, CMS will consider the device “new and not substantially similar to an existing technology” if the device is subject to the FDA’s “Breakthrough Device Program”.  This change means that breakthrough medical devices will only have to meet certain financial criteria for it to be approved for NTAP.  CMS believes that this will make the application process more efficient and reduce the overall amount of time between approval or clearance of a device, and its utilization in hospitals.

Add-on payment amounts

Also, under the Final Rule, CMS finalized its proposal to increase add-on payment amounts for these new technologies.  Currently, CMS makes an add-on payment equal to the lesser of: (1) 50 percent of the costs of the new medical service or technology; or (2) 50 percent of the amount by which the costs of the case exceed the standard DRG payment (provided that the discharge does not qualify for MS-DRG outlier payment).  Under the Final Rule, this reimbursement ceiling will be raised to 65%.  CMS believes that this increase in payment will help to alleviate the concerns that hospitals have that the previous add-on payment did not adequately cover the costs of utilizing the new technologies when treating Medicare beneficiaries. 

Medicare utilization and reimbursement of innovative medical technologies

Based, in part, on the fact that new devices lack robust evidence to support a showing that they can “substantially improve” outcomes, only about 40% of devices that have sought NTAP reimbursement have been approved by CMS under the current approval process.  With this change, CMS is acknowledging the benefits that “Breakthrough Devices” can bring to the care and treatment of Medicare beneficiaries and expediting their utilization in the marketplace. The reaction from medical device stakeholders has been positive and the President of AdvaMed, Scott Whitaker, recently stated that “By making the process more seamless for FDA-designated breakthrough technologies to qualify for NTAP, and by increasing the NTAP payment levels, CMS is both shoring up hospitals’ ability to offer these life changing innovations and sending a strong message throughout the innovation ecosystem that taking risks to develop new breakthroughs will be supported.”  It is important to note that CMS has proposed a similar rule change in the 2020 Outpatient Prospective Payment System for device pass-through payments (a rule that allows hospitals to recoup more of the costs of high-dollar devices provided to outpatients).  These changes will hopefully spur development of additional innovative devices by established and start-up manufacturers who often find that market penetration for new technologies can be slow and cost prohibitive.   

While these changes seem relatively incremental, hospitals stand to gain in several ways.  In the short-term, the increased revenues for all NTAP approved devices will immediately help to incentivize the use of new technologies.  Also, hospitals will be able to reduce the amount of time they have to wait to adopt technologies that have already shown their propensity to improve treatment outcomes during the FDA approval or clearance process. In the longer-term, adoption of the newest medical technologies can hopefully help hospitals improve their quality ratings and decrease rates of rehospitalizations following inpatient and outpatient care – improvements that can favorably impact overall incentive payments from CMS.  The 2021 application process for NTAP should commence by the end of this year. With these new policy changes, stakeholders should feel more confident that CMS will follow through with its efforts to increase Medicare utilization and reimbursement of innovative medical technologies.

About the FDA Breakthrough Device Program

The FDA’s Breakthrough Device Program was established under the 21st Century Cures Act as a method of providing patients and health care providers with timely access to new medical devices.  The Breakthrough Device Program replaces the FDA’s expedited access pathway for devices and hopes to speed up device development, assessment, and review, while preserving the statutory standards for premarket approval, 510(k) clearance, and De Novo marketing authorization.  To qualify as a Breakthrough Device, the device manufacturer must:

  1. Show that the device provides for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human diseases or conditions, and

  2. Demonstrate that the device meets one of the following requirements:

    • Represents a breakthrough technology, or;

    • There is no approved or cleared alternative that exists, or;

    • Offers significant advantages over existing approved or cleared alternatives, or;

    • Device availability is in the best interest of patients.

Manufacturers can request Breakthrough Designation through a “Q-Submission” at any time prior to sending a marketing submission (for example, premarket approval (PMA), premarket notification (510(k)), or De Novo classification request).  Breakthrough designated devices receive enhanced assistance from the FDA during the development process and prioritized review or marketing applications.

If you are a innovative medical device manufacturer and wish to learn more about how this new rule will impact you, contact us today!