April 18, 2024
Medical devices

Medicare Reimbursement of Medical Devices and Supplies

Medical devices landscape in the United States
The US medical device industry is one of the largest in the world, generating over $156 billion in annual revenue. However, the costs of developing and bringing medical devices to market have also increased significantly in recent decades. It now routinely takes 10-15 years and over $94 million on average to develop a new medical device and obtain regulatory approval. Given these high costs, access to insurance reimbursement is critical for medical device manufacturers to recoup their investment and continue innovating new lifesaving technologies.

Medicare reimbursement and industry challenges

Medicare is the largest single payer of healthcare in the US, covering over 60 million seniors and people with disabilities. How Medicare reimbursement policies are structured has an outsized influence on the entire healthcare system. In recent years, Medical Device Reimbursement manufacturers have faced increased uncertainty and challenges regarding Medicare reimbursement.

The establishment of new codes and pathways for coverage of innovative devices through CMS has slowed, creating reimbursement uncertainty. As technologies advance rapidly, new codes and clear pathways are needed to facilitate patient access. At the same time, due to budget pressures, CMS has implemented various coding and payment reductions. For example, in 2014 CMS passed a rule cutting orthopedic implant payments by over 20%. Such across-the-board reductions fail to recognize value and clinical benefits that new technologies provide.

Strategies to support innovation through appropriate reimbursement

To ensure continued Medical Device innovation that drives better patient outcomes and lowers total healthcare costs long-term, policymakers and CMS should pursue strategies that balance the budget with support for new technologies:
Establish clear and timely processes for assigning new codes and determining coverage of innovative devices. This reduces uncertainty and facilitates patient access to modern treatments.
Rather than blunt across-the-board payment cuts, consider value-based reimbursement approaches informed by data. Payments should reflect real-world clinical impact and cost savings rather than just device acquisition costs.
Expand coverage with evidence development for promising new devices where clinical benefits are still emerging. This allows earlier patient access while collecting further data, as more permanent coverage decisions are made.
Mitigate budget impact of new high-cost technologies through risk-sharing or installment payment arrangements with manufacturers. This shares financial responsibility to support both innovation and affordability.

Leverage comparative effectiveness research and real-world evidence on treatment costs and outcomes over time. Payments and policies should incorporate long-term savings in addition to upfront device costs.

Rebalancing the scale through site-neutral payments

An additional challenge for the medical device industry is the imbalance in reimbursement between hospital outpatient departments (HOPDs) and ambulatory surgical centers (ASCs). Procedures performed in HOPDs are typically reimbursed at a substantially higher rate by both public and private payers compared to ASCs, even if the costs are similar.

This disparity has led to an ongoing shift of certain lower-risk procedures from ASCs to HOPDs to maximize reimbursement. However, evidence shows ASCs provide high-quality care at lower total costs to the healthcare system for many procedures. Recent years have seen efforts to move toward more balanced site-neutral payments based on the clinical service provided rather than the location.

If successfully implemented through CMS, site-neutrality policies could help put downward pressure on total healthcare spending while also supporting the sustainability of the ASC business model. This in turn benefits medical device manufacturers through increased procedure volumes performed in lower-cost settings. Overall, carefully considered reimbursement modernization efforts can balance the needs of all stakeholders to sustain innovation fueling better patient care.

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