Payments for medical devices are negotiated agreements with payers subject to certain rules, (eg, Medicare national maximum payment amounts in the case of negotiation with regional Medicare Administrative Contractors 58) or providers if the device is paid as part of a prospective episode of care-based payment. After coverage and coding are established, the amount that a hospital or practice will be reimbursed for the device determines sales, and payment must be determined based on a predetermined fee schedule, and/or negotiated de novo with the payer if no reimbursement precedent exists. Payments are not regulated by any government body and are usually reflective of the fair market value. Often, device manufacturers will create a value proposition for the device that outlines the projected changes to healthcare expenditures and expected improvements in clinical practice or outcomes. 54
Reimbursement of Medical Devices and Diagnostics Based on Context of Application
To put medical device (and diagnostic) reimbursement in the context of real-world clinical practice, the specific reimbursement mechanisms that apply for a device, including how coverage, coding, and payment impact reimbursement and uptake of a device, depend heavily on the care setting in which they are used/administered, and already-existing applicable coverage policies, codes, and payment rates. Whether a medical device is administered in the outpatient setting, inpatient hospital, or is patient-administered outside of a provider care setting can impact which reimbursement mechanisms apply, the key decision maker responsible for access and/or purchase decisions, and the potential pricing that would be accepted.
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.
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.
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 ),59 and have been subject to different rules than other types of medical devices, in particular competitive bidding processes. 60 Competitive bidding processes are less applicable to devices that are unique to one manufacturer (eg, noninvasive, low-intensity ultrasound stimulator).