Medical Devices and In Vitro Diagnostics

Regulatory Pathway and Market Approval Process

Class I – Most Exempt From Premarket Submission

Class I devices and diagnostics pose the least amount of risk to consumers. These low-risk devices, such as oxygen masks or surgical tools, are subject to “general controls.” General controls ensure the safety and effectiveness of devices and diagnostics once they are manufactured. Around 47% of medical devices fall under this category.⁵³ In rare cases, Class I products will have to go through the 510(k) process outlined below.^51-52

General controls include: good manufacturing practices, standards and reporting adverse events to FDA, registration, and general recordkeeping requirements.

Class II – Premarket Notification [510(k)]

Class II devices and diagnostics pose more risk to consumers than Class I devices. These devices are subject to special controls in addition to general controls.^51-52 About 43% of medical devices fall under this category.53 Special controls include labeling requirements, product-specific mandatory performance standards, and product-specific testing requirements.

Class II devices and diagnostics are registered through the 510(k) pathway with the FDA. This is a requirement of proof that the product is substantially equivalent (SE) to a legally marketed product that is not subject to a Premarket Approval (PMA). Applicants must compare their device to one or more similar legally marketed, so-called “predicate,” devices or diagnostics to support claims of SE. If the product is found to be SE, it is placed in the same class; if not, it is placed into Class III. Examples of 510(k) products include x-ray machines, dialysis machines, fetal monitors, lithotripsy machines, and muscle stimulators. Any device or diagnostic found to be not SE to a marketed Class I or II product must resubmit as a Class III product with a PMA. For Class II products that do not have an approved equivalent product, they may file a “de novo” 510(k) application (also called a “de novo request”), where review of safety and efficacy evidence is required. Class II devices that do not meet the requirements for a de novo 510(k) request may be required to proceed through a PMA pathway.^50-53

Class III – Premarket Approval [PMA]

Class III devices and diagnostics support or sustain life, are implanted in the body, or have the potential for unreasonable risk of illness or injury. Examples include pacemakers; breast implants; HIV diagnostic tests; companion diagnostics, which are tests providing information essential to the safe and effective use of their corresponding therapeutic products45; and complementary diagnostics, which are tests that identify a biomarker-defined subset of patients that respond particularly well to a drug and aid risk/benefit assessments for individual patients, but that are not prerequisites for receiving the therapy.⁵⁴ Only around 10% of medical devices fall under this category.⁵⁰ These products, due to risk, require premarket approval. The manufacturer must prove to the FDA that the device or diagnostic is safe and effective.^50-51

Class III devices known to be SE to a predicate with an already-established PMA can sometimes also proceed through a 510(k) pathway.⁵⁵ Any Class III product without a predicate requires a PMA in order to be marketed in the United States. A PMA is similar to an NDA discussed in the Pharmaceuticals section. This application must contain data from a registered clinical trial to ensure that the device or diagnostic is safe and effective. PMAs must be independent, meaning that data about a reference or companion product cannot be used to support another. During the approval process, the FDA will inspect manufacturing laboratories and facilities where the device or diagnostic will be made to monitor for good manufacturing practices.^50-51

Humanitarian Device Exemption (HDE)

Humanitarian-use devices are classified as benefiting patients by treating or diagnosing a disease or condition that affects fewer than 8000 people in the United States per year. The HDE must demonstrate that there are no similar, legally approved devices on the market and that there is no other way to bring a humanitarian-use device to market.⁵⁸ Additional criteria for an HDE include incentives for development of medical devices for pediatric populations.

Breakthrough Devices Program

As part of the 21st Century Cures Act, a new device approval pathway was established, the Breakthrough Devices Program Pathway. This is a volunteer program for certain devices or device-led combination products that provide a more effective treatment or diagnosis of life-threatening or irreversibly debilitating diseases or conditions.⁵⁹ Prior to marketing submission to the FDA, a request for Breakthrough Devices Designation may be submitted. This pathway offers the opportunity to receive prioritized review of the submission and interaction with FDA experts to address topics and issues as they arise through the premarket review phase. Any product seeking Breakthrough Device Program classification must meet the following criteria⁵⁹:

1. The device must provide a more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or condition

The device must meet at least one of the following:

1. Represents a breakthrough technology
2. No approved or cleared alternatives exist
3. Offers significant advantages over existing approved or cleared alternatives
4. Device availability is in the best interest of patients

Reimbursement and Pricing Approval Process

The need to reduce healthcare expenditures while improving health outcomes means that fulfilling a medical need is no longer sufficient for new medical devices to ensure reimbursement. Reimbursement planning for medical devices must consider the specific context in which they will be applied, and focuses on 3 pillars of reimbursement: coverage, coding, and payment, all of which are described below.⁶⁰

Coverage

CMS, private payers, and hospital facilities across the country rely on medical billing coding for device use. Coding facilitates payment so without a code, procedures and devices are not reimbursed at the hospital or healthcare provider level. Codes are different based on the type and location of service (inpatient versus outpatient). Determining how a device fits into the current landscape and the appropriate codes to use may be difficult and can impact levels of reimbursement (see Reimbursement of Medical Device Based on Context of Application, below). Options include creating a new code, obtaining an add-on-code for additional payments on an existing procedure, or grouping within an existing procedural code.⁶¹

Add-on codes with separate payment potential include those offered through the following CMS programs^62-63:

• New Technology Add-on Payment (NTAP) for medical devices provided in the inpatient setting
• Pass-Through

It is important to note that these add-on codes/payments are typically temporary—lasting about 3 years when granted— and unless the medical device is used in most inpatient stays or outpatient procedures for which the add-on applies, the payment rate that will apply at the end of this period is generally insufficient to cover the cost of the new device in the context of the applicable inpatient stay or outpatient procedure payment.

It is the responsibility of the device manufacturer to determine billing codes, which means that medical billing expertise is often necessary for substantial reimbursement. A few of the billing code types and their practice settings are described below in Table 2, all of which are maintained by CMS and the American Medical Association (AMA).

Medical Devices Administered in the Outpatient Setting

For medical devices administered in the outpatient setting (eg, internal and external fixation devices for stabilizing bone fractures), reimbursement may occur as a separate payment outside of the administration procedure from the payer to the administering provider. Separate payments for medical devices under Medicare would be determined typically by the applicable Healthcare Common Procedural Coding System (HCPCS) codes. Alternatively, the device could be covered as part of a prospective bundled payment to the providers for the overall episode of care, which could include the surgical implantation and most products and care normally associated with the treatment episode. Under Medicare, the bundled payment amount may be set by either the applicable Outpatient Prospective Payment System (OPPS) and associated  APC or CPT code.

Medical Devices Administered in the Inpatient Care Setting

For medical devices administered in the inpatient care setting (eg, a heart-valve replacement), where the patient is hospitalized during and/or after the procedure, reimbursement for the device is typically covered under a prospective DRG or episode of care-based payment for all care associated with the inpatient stay. Inpatient reimbursement under Medicare is typically governed by Medicare Severity DRG (MS-DRG) codes, and under Medicaid by the All Patients Refined DRG (APR-DRG). Given the entirety of care is reimbursed by the payer directly to the hospital by a prospectively set payment amount, the cost of the medical device to the provider must be in line with the cost of the inpatient episode of care to the hospital, or provide some level of cost savings or patient-outcome improvement that incentivizes the hospital to use the medical device within the context of the particular DRG. If the cost of the medical device is more than would be compensated under the applicable DRG, it will be difficult for hospitals to use the device because it could lead to a financial loss for those DRGs in which it is used.

Medical Devices Administered at Home

For medical devices that are administered at home, particularly by the patient, separate HCPCS codes and payments typically apply. For example, for patients with diabetes who must monitor their blood glucose, disposable glucose- monitoring strips and lancets and glucose monitors are reimbursed based on HCPCS codes and associated payment rates. However, under Medicare, these devices are considered Durable Medical Equipment, Prosthetics, Orthotics, & Supplies (DMEPOS),⁶⁵ and have been subject to different rules than other types of medical devices, in particular competitive bidding processes.⁶⁶ Competitive bidding processes are less applicable to devices that are unique to one manufacturer (eg, noninvasive, low-intensity ultrasound stimulator).